GOLDMAN SACHS TRUST, 497, 1997-05-08

GOLDMAN SACHS TRUST
497, 1997-05-08

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<PAGE>

GOLDMAN SACHS EQUITY FUNDS
GOLDMAN SACHS FIXED INCOME FUNDS

CLASS A AND B SHARES

SUPPLEMENT DATED MAY 1, 1997 TO THE PROSPECTUS OF
GOLDMAN SACHS EQUITY FUNDS AND TO THE PROSPECTUS OF
GOLDMAN SACHS FIXED INCOME FUNDS EACH DATED MAY 1, 1997

THE FOLLOWING SUPPLEMENTS THE INFORMATION APPEARING UNDER THE SECTION
"OFFERING PRICE--CLASS A SHARES":

An additional commission equal to 0.50% of the amount invested in Class A
shares of a Fund (except the Adjustable Rate Government Fund) will be paid to
Authorized Dealers through May 31, 1997, if such purchase is at net asset
value without the payment of any sales charge because it is attributable to
redemption proceeds from a registered open-end management investment company
not distributed or managed by Goldman Sachs or its affiliates in conformity
with the requirements set forth in the applicable prospectus described above.

EQSTKPROAB
<PAGE>

- --------------------------------------------------------------------------------
PROSPECTUS
May 1, 1997 GOLDMAN SACHS FIXED INCOME FUNDS
CLASS A AND B SHARES

GOLDMAN SACHS ADJUSTABLE RATE GOLDMAN SACHS MUNICIPAL INCOME FUND
GOVERNMENT FUND
Seeks a high level of current income
Seeks a high level of current that is exempt from regular federal in-
income, consistent with low come tax, consistent with preservation
volatility of principal. The of capital. The Fund invests primarily
Fund invests primarily in in municipal securities.
adjustable rate mortgage
pass-through securities and
other mortgage securities
with periodic interest rate
resets, which are issued or
guaranteed by the U.S.
Government, its agencies,
instrumentalities or
sponsored enterprises.

GOLDMAN SACHS CORE FIXED INCOME FUND
Seeks a total return consisting of cap-
ital appreciation and income that ex-
ceeds the total return of the Lehman
Brothers Aggregate Bond Index. The Fund
invests primarily in fixed-income secu-
rities, including securities issued or
guaranteed by the U.S. government, its
agencies, instrumentalities or spon-
sored enterprises, corporate securi-
ties, mortgage-backed securities and
asset-backed securities.

GOLDMAN SACHS SHORT DURATION
GOVERNMENT FUND
Seeks a high level of current
income and secondarily, in
seeking current income, may
also consider the potential
for capital appreciation. The
Fund invests primarily in
securities issued or
guaranteed by the U.S.
government, its agencies,
instrumentalities or
sponsored enterprises.

GOLDMAN SACHS GLOBAL INCOME FUND

GOLDMAN SACHS SHORT DURATION
TAX-FREE FUND Seeks a high total return, emphasizing
current income and, to a lesser extent,
Seeks a high level of current providing opportunities for capital ap-
income, consistent with preciation. The Fund invests primarily
relatively low volatility of in a portfolio of high quality fixed-
principal, that is exempt income securities of U.S. and foreign
from regular federal income issuers and foreign currencies.
tax. The Fund invests
primarily in municipal
securities.

GOLDMAN SACHS HIGH YIELD FUND

GOLDMAN SACHS GOVERNMENT
INCOME FUND
Seeks a high level of current income
Seeks a high level of current and secondarily, capital appreciation.
income, consistent with The Fund invests primarily in fixed in-
safety of principal. The Fund come securities rated below investment
invests primarily in grade.
securities, including
mortgage-backed securities,
issued or guaranteed by the
U.S. Government, its
agencies, instrumentalities
or sponsored enterprises.

Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Adjustable Rate Government and Short Duration Government Funds.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income and
High Yield Funds. Goldman Sachs Asset Management International ("GSAMI"),
London, England, an affiliate of Goldman Sachs, serves as investment adviser to
the Global Income Fund. GSAM, GSFM and GSAMI are each referred to in this
Prospectus as the "Investment Adviser." Goldman Sachs serves as each Fund's
distributor and transfer agent.

SHARES OF THE FUNDS 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 A 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.
(continued on next page)
<PAGE>

(cover continued)

THE ADJUSTABLE RATE GOVERNMENT, SHORT DURATION GOVERNMENT AND GOVERNMENT
INCOME FUNDS' NET ASSET VALUES AND YIELDS ARE NOT GUARANTEED BY THE U.S.
GOVERNMENT OR BY ITS AGENCIES, INSTRUMENTALITIES OR SPONSORED ENTERPRISES.

THE CORE FIXED INCOME, GLOBAL INCOME AND HIGH YIELD FUNDS MAY INVEST IN
SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS
NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN U.S. DOLLAR-DENOMINATED FIXED-
INCOME SECURITIES. IN PARTICULAR, THE SECURITIES MARKETS OF EMERGING MARKET
COUNTRIES ARE LESS LIQUID, ARE SUBJECT TO GREATER PRICE VOLATILITY, HAVE
SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT
SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES.

THE HIGH YIELD FUND INVESTS PRIMARILY IN HIGH YIELD, FIXED INCOME SECURITIES
RATED BELOW INVESTMENT GRADE THAT ARE CONSIDERED SPECULATIVE AND GENERALLY
INVOLVE GREATER PRICE VOLATILITY AND GREATER RISK OF LOSS OF PRINCIPAL AND
INTEREST THAN INVESTMENTS IN HIGHER RATED FIXED INCOME SECURITIES.

INVESTORS SHOULD CONSIDER THE RISKS ASSOCIATED WITH INVESTMENT IN A FUND
INVESTING IN FOREIGN AND/OR HIGH YIELD SECURITIES. THE FUNDS MAY NOT BE
SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK
FACTORS."

This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains
the Additional Statement and other information regarding the Trust.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 1
Fees and Expenses.................. 7
Financial Highlights............... 11
Investment Objectives and Policies. 14
Description of Securities.......... 21
Risk Factors....................... 28
Investment Techniques.............. 31
Investment Restrictions............ 35
Portfolio Turnover................. 35
Management......................... 36
Reports to Shareholders............ 40
How to Invest...................... 40
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services Available to Shareholders. 46
Distribution and Authorized Dealer
Service Plans..................... 49
How to Sell Shares of the Funds.... 50
Dividends.......................... 52
Net Asset Value.................... 53
Performance Information............ 53
Shares of the Trust................ 54
Taxation........................... 55
Additional Information............. 56
Appendix........................... 57
Account Application
</TABLE>
<PAGE>

FUND HIGHLIGHTS

The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.

WHAT IS THE GOLDMAN SACHS TRUST?

The Goldman Sachs Trust is an open-end management investment company that
offers its shares in several investment funds (mutual funds). Each Fund pools
the monies of investors by selling its shares to the public and investing
these monies in a portfolio of securities designed to achieve that Fund's
stated investment objectives.

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

Each Fund has distinct investment objectives and policies. There can be no
assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."

1
<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE
INVESTMENT INTEREST RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY
<S> <C> <C> <C> <C> <C>
ADJUSTABLE A high level of Target = 6-month 9-month note At least 65% of U.S. Government
RATE current income, to 1-year total assets in Securities
GOVERNMENT consistent with U.S. Treasury securities issued or
FUND low volatility Security guaranteed by the
of principal. Maximum = 2 years U.S. government,
its agencies,
instrumentalities
or sponsored
enterprises
("U.S. Government
Securities'')
that are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
SHORT DURATION A high level of Target = 2-year 2-year bond At least 65% of U.S. Government
GOVERNMENT current income, U.S. Treasury total assets in Securities
FUND and secondarily, Security plus U.S. Government
in seeking current or minus .5 years Securities
income, may Maximum = 3 years and repurchase
also consider the agreements
potential for collateralized
capital appreciation. by such securities.
SHORT DURATION A high level of Target = Lehman 3-year bond At least 80% of Minimum = BBB/Baa
TAX-FREE current income, Brothers net assets in
FUND consistent with 3-year Municipal municipal securities.
low volatility Bond Index
of principal, plus or minus
that is exempt .5 years
from regular Maximum = 4 years
federal
income tax.
GOVERNMENT A high level of Target = Lehman 5-year bond At least 65% of U.S. Government
INCOME current income, Brothers Mutual assets in U.S. Securities and
consistent with Fund Government/ Government non-U.S.
safety of Mortgage Index Securities, including Government
principal. plus or minus mortgage-backed Securities rated
1 year U.S. Government AAA/Aaa
Maximum = 6 years Securities.

<CAPTION>
OTHER
INVESTMENTS BENCHMARK
<S> <C> <C>
ADJUSTABLE Fixed-rate 6-month and
RATE mortgage 1-Year U.S.
GOVERNMENT pass-through Treasury Security
FUND securities and
repurchase
agreements
collateralized by
U.S. Government
Securities.
SHORT DURATION Mortgage pass- 2-Year U.S.
GOVERNMENT through Treasury Security
FUND securities and
other securities
representing an
interest in or
collateralized
by mortgage loans.
SHORT DURATION U.S. Government Lehman Brothers
TAX-FREE Securities 3-Year Municipal
FUND and repurchase Bond Index
agreements
collateralized
by such securities.
GOVERNMENT Non-government Lehman Brothers
INCOME mortgage pass- Mutual Fund
FUND through securities, Government/
asset-backed Mortgage Index
securities,
corporate
fixed income
securities and
repurchase
agreements
collateralized by
U.S. Government
Securities.
</TABLE>

2
<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY OTHER INVESTMENTS
<S> <C> <C> <C> <C> <C> <C>
MUNICIPAL A high level of Target = Lehman 15-year bond At least 80% of Minimum = U.S. Government
INCOME current income Brothers 15-year net assets in BBB/Baa Securities and
FUND that is exempt Municipal Bond municipal securities. Average = AA/Aa repurchase
from regular Index plus agreements
federal income or minus 1 year collateralized by
tax, consistent Maximum = such securities.
with preservation 12 years
of capital.
CORE FIXED Total return Target = Lehman 5-year bond At least 65% of Minimum = BBB/Baa Foreign fixed-
INCOME FUND consisting of Brothers assets in fixed- Minimum for income,
capital Aggregate Bond income securities, non-dollar municipal and
appreciation and Index plus or including securities = AA/Aa convertible
income that minus 1 year U.S. Government securities,
exceeds the total Maximum = 6 years Securities, foreign currencies
return of the corporate, and repurchase
Lehman Brothers mortgage-backed agreements
Aggregate Bond and asset-backed collateralized
Index. securities. by U.S.
Government
Securities.
GLOBAL A high total return, Target = J.P. 6-year bond Securities of U.S. Minimum = Mortgage and asset
INCOME emphasizing Morgan Global and foreign AA/Aa or A if backed securities,
FUND current Government governments and sovereign issuer foreign currencies
income, and, to Bond Index corporations. At least 50% = and repurchase
a lesser extent, (hedged) plus AAA/Aaa agreements
providing or minus 2.5 years collateralized by
opportunities Maximum = U.S. Government
for capital 7.5 years Securities or
appreciation. certain foreign
government
securities.
HIGH YIELD A high level of Target = Lehman 6-year bond At least 65% of At least 65% = Mortgage-backed
FUND current income Brothers High assets in fixed- BB/Ba or below and asset-backed
and, secondarily, Yield Bond Index income securities securities, U.S.
capital appreciation. plus or minus rated below Government
2.5 years investment grade, Securities,
Maximum = including U.S. investment grade
7.5 years and non-U.S. dollar corporate fixed-
corporate debt, income securities,
foreign government structured
securities, securities,
convertible foreign currencies
securities and repurchase
and preferred stock. agreements
collateralized
U.S. Government
Securities.
<CAPTION>
FUND NAME BENCHMARK
<S> <C>
MUNICIPAL Lehman Brothers
INCOME 15- year
FUND Municipal
Bond Index
CORE FIXED Lehman Brothers
INCOME FUND Aggregate Bond
Index
GLOBAL J.P. Morgan
INCOME Global
FUND Government Bond
Index (hedged)
HIGH YIELD Lehman Brothers
FUND High Yield
Bond Index
</TABLE>

3
<PAGE>

WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?

Each Fund's share price will fluctuate with market, economic and, with
respect to the Core Fixed Income, Global Income and High Yield Funds,
foreign exchange conditions, so that an investment in any of the Funds may
be worth more or less when redeemed than when purchased. None of the Funds
should be relied upon as a complete investment program. There can be no
assurance that a Fund's investment objectives will be achieved. See "Risk
Factors."

Interest Rate Risk. When interest rates decline, the market value of
fixed-income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed-income securities tends to decline.
Volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.

Default Risk/Credit Risk. Investments in fixed-income securities are
subject to the risk that the issuer could default on its obligations and a
Fund could sustain losses on such investments. A default could impact both
interest and principal payments.

Call Risk and Extension Risk. Fixed-income securities may be subject to
both call risk and extension risk. Call risk (i.e., where the issuer
exercises its right to pay principal on an obligation earlier than
scheduled) causes cash flow to be returned earlier than expected. This
typically results when interest rates have declined and a Fund will suffer
from having to reinvest in lower yielding securities. Extension risk (i.e.,
where the issuer exercises its right to pay principal on an obligation later
than scheduled) causes cash flows to be returned later than expected. This
typically results when interest rates have increased and a Fund will suffer
from the inability to invest in higher yielding securities. The investment
characteristics of Mortgage-Backed Securities (including adjustable rate
mortgage securities) and Asset-Backed Securities differ from those of
traditional fixed-income securities because they generally have both call
risk (also known as prepayment risk) and extension risk.

Tax Risk of Municipal Securities. Due to Municipal Securities' tax-exempt
status, their yields and market values may be more adversely impacted by
changes in tax rates and policies than taxable fixed-income securities.

Risks of investing in non-investment grade fixed-income securities. Non-
investment grade fixed-income securities (commonly referred to as "junk
bonds") are subject to greater volatility and risk of loss and are less
liquid than securities which are perceived to be of higher credit quality.
Such securities, also referred to as high yield securities, are considered
to be speculative by traditional investment standards. High yield securities
are subject to increased risk of an issuer's inability to meet principal and
interest payments. The High Yield Fund may invest in securities which are in
default at the time of investment. The market for non-investment grade
securities tends to be concentrated in a limited number of market makers,
which may affect liquidity. In addition, the market price of such securities
tends to reflect individual corporate developments to a greater extent than
that of higher rated securities which react primarily to the general level
of interest rates.

4
<PAGE>

imposition of exchange controls, confiscation and other governmental
restrictions. In addition, the securities markets of foreign countries are
generally less liquid and subject to greater price volatility. To the extent
that the Core Fixed Income, Global Income and High Yield Funds invest in
emerging markets and countries, these risks may be heightened.

Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures and swap transactions, will
subject the Fund to greater risk than funds that do not employ such
techniques.

Non-Diversification. Global Income Fund is a "non-diversified" fund as
defined under the Investment Company Act of 1940, as amended (the "Act"),
and is, therefore, subject only to certain federal tax diversification
requirements (to which the other Funds are also subject), in addition to the
policies adopted by the Investment Adviser. To the extent that the Fund is
not diversified under the Act, it will be more susceptible to adverse
developments affecting any single issuer of portfolio securities. See
"Investment Restrictions."

WHO MANAGES THE FUNDS?

Goldman Sachs Funds Management, L.P. serves as Investment Adviser to the
Adjustable Rate Government and Short Duration Government Funds. Goldman
Sachs Asset Management serves as Investment Adviser to the Short Duration
Tax-Free, Core Fixed Income, Government Income, Municipal Income and High
Yield Funds. Goldman Sachs Asset Management International serves as
Investment Adviser to the Global Income Fund. As of March 24, 1997, the
Investment Advisers, together with their affiliates, acted as investment
adviser, administrator or distributor for assets in excess of $104.9
billion.

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's shares.

WHAT IS THE MINIMUM INVESTMENT?

<TABLE>
<CAPTION>
MINIMUM
----------------------------
INITIAL PURCHASE ADDITIONAL
TYPE OF PURCHASE AMOUNT INVESTMENTS
---------------- ---------------- -----------
<S> <C> <C>
Regular Purchases............................. $1,000 $50
Tax-Sheltered Retirement Plans and UGMA/UTMA
purchases.................................... $ 250 $50
Automatic Investment Plan..................... $ 50 $50
</TABLE>

For further information, see "How to Invest--How to Buy Shares of the Funds"
on page 41.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Funds through Goldman Sachs and certain
investment dealers, including members of the National Association of
Securities Dealers, Inc. (the "NASD") and certain other financial service
firms that have sales agreements with Goldman Sachs ("Authorized Dealers").
See "How to Invest" on page 40.

5
<PAGE>

WHAT ARE MY PURCHASE ALTERNATIVES?

The Funds (other than the Adjustable Rate Government Fund which does not
offer Class B shares) offer two classes of shares through this Prospectus
which may be purchased at the next determined net asset value ("NAV") plus a
sales charge which, depending on the class of shares you choose for
investment, may be imposed either at the time of purchase (Class A shares)
or on a contingent deferred basis at the time of redemption (Class B
shares). Except with respect to the Adjustable Rate Government Fund, direct
purchases of $1 million or more of Class A shares will be sold without an
initial sales charge and will be subject to a contingent deferred sales
charge at the time of certain redemptions.

<TABLE>
<CAPTION>
ADJUSTABLE RATE MAXIMUM FRONT MAXIMUM CONTINGENT
GOVERNMENT FUND END SALES CHARGE DEFERRED SALES CHARGE
--------------- ---------------- ---------------------
<S> <C> <C>
Class A................... 1.5% N/A
<CAPTION>
SHORT DURATION
GOVERNMENT FUND
SHORT DURATION
TAX-FREE FUND
-----------------
<S> <C> <C>
Class A................... 3.0% (See above)
Class B................... N/A 4% declining to 0% after six years
<CAPTION>
GOVERNMENT INCOME FUND
MUNICIPAL INCOME FUND
CORE FIXED INCOME FUND
GLOBAL INCOME FUND
HIGH YIELD FUND
----------------------
<S> <C> <C>
Class A................... 4.5% (See above)
Class B................... N/A 5% declining to 0% after six years
</TABLE>

Over time, the deferred sales charge and distribution fees attributable to
Class B shares will exceed the initial sales charge and distribution fees
attributable to Class A shares. See "How to Invest--Alternative Purchase
Arrangements" on page 40.

HOW DO I SELL MY SHARES?

You may redeem shares upon request on any Business Day, as defined under
"Additional Information," at the net asset value next determined after
receipt of such request in proper form, subject to any applicable contingent
deferred sales charge. See "How to Sell Shares of the Funds."

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME
DIVIDENDS
------------------ CAPITAL GAINS
FUND DECLARED PAID DISTRIBUTIONS
---- ------------------ -------------
<S> <C> <C> <C>
Adjustable Rate Government................... Daily Monthly Annually
Short Duration Government.................... Daily Monthly Annually
Short Duration Tax-Free...................... Daily Monthly Annually
Government Income............................ Daily Monthly Annually
Municipal Income............................. Daily Monthly Annually
Core Fixed Income............................ Daily Monthly Annually
Global Income................................ Monthly Monthly Annually
High Yield................................... Daily Monthly Annually
</TABLE>

You may receive dividends in additional shares of the same class of the
Fund in which you have invested or you may elect to receive cash, shares of
the same class of other mutual funds sponsored by Goldman Sachs (the
"Goldman Sachs Funds") or ILA Service Units of the Prime Obligations
Portfolio or the Tax-Exempt Diversified Portfolio, if you hold Class A
shares of a Fund, or ILA Class B Units of the Prime Obligations Portfolio,
if you hold Class B shares of a Fund (the "ILA Portfolios"). For further
information concerning dividends, see "Dividends."

6
<PAGE>

FEES AND EXPENSES

<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION SHORT DURATION GOVERNMENT MUNICIPAL CORE FIXED
GOVERNMENT GOVERNMENT TAX-FREE INCOME INCOME INCOME
FUND/3/ FUND/3/ FUND/3/ FUND FUND FUND/3/
--------------- ----------------- ----------------- ----------------- ----------------- -----------------
CLASS A CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
--------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases..... 1.5%/1/ 3.0%/1/ none 3.0%/1/ none 4.5%/1/ none 4.5%/1/ none 4.5%/1/ none
Maximum Sales
Charge Imposed
on Reinvested
Dividends........ none none none none none none none none none none none
Maximum Deferred
Sales Charge..... none/1/ none/1/ 4.0% none/1/ 4.0% none/1/ 5.0% none/1/ 5.0% none/1/ 5.0%
Redemption
Fees/2/.......... none none none none none none none none none none none
Exchange Fees/2/.. none none none none none none none none none none none
ANNUAL FUND
OPERATING
EXPENSES:
(as a percentage
of average daily
net assets)
Management Fees
(after
applicable
limitations)/4/.. 0.40% 0.40% 0.40% 0.40% 0.40% 0.25% 0.25% 0.55% 0.55% 0.40% 0.40%
Distribution
(Rule 12b-1)
Fees
(after
applicable
limitations)/5/.. 0.00% 0.00% 0.60% 0.00% 0.60% 0.00% 0.75% 0.00% 0.75% 0.00% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/6/. 0.11% 0.05% 0.05% 0.05% 0.05% 0.00% 0.00% 0.05% 0.05% 0.05% 0.05%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/7/.. 0.76% 0.70% 1.30% 0.70% 1.30% 0.50% 1.25% 0.85% 1.60% 0.70% 1.45%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
GLOBAL HIGH
INCOME YIELD
FUND FUND/3/
----------------- -----------------
CLASS A CLASS B CLASS A CLASS B
--------- ------- --------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases..... 4.5%/1/ none 4.5%/1/ none
Maximum Sales
Charge Imposed
on Reinvested
Dividends........ none none none none
Maximum Deferred
Sales Charge..... none/1/ 5.0% none/1/ 5.0%
Redemption
Fees/2/.......... none none none none
Exchange Fees/2/.. none none none none
ANNUAL FUND
OPERATING
EXPENSES:
(as a percentage
of average daily
net assets)
Management Fees
(after
applicable
limitations)/4/.. 0.59% 0.59% 0.65% 0.65%
Distribution
(Rule 12b-1)
Fees
(after
applicable
limitations)/5/.. 0.21% 0.75% 0.00% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees........... 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/6/. 0.11% 0.11% 0.20% 0.20%
--------- ------- --------- -------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/7/.. 1.16% 1.70% 1.10% 1.85%
========= ======= ========= =======
</TABLE>

7
<PAGE>

EXAMPLE

You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government Fund
Class A Shares.............................. $23 $39 $57 $108
Short Duration Government Fund
Class A Shares............................... 37 52 68 114
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 53 61 81 136
--Assuming no redemption.................... 13 41 71 136
Short Duration Tax-Free Fund
Class A Shares............................... 37 52 68 114
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 53 61 81 136
--Assuming no redemption.................... 13 41 71 136
Government Income Fund
Class A Shares............................... 50 60 72 105
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 63 70 89 126
--Assuming no redemption.................... 13 40 69 126
Municipal Income Fund
Class A Shares............................... 53 71 90 145
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 66 80 107 165
--Assuming no redemption.................... 16 50 87 165
Core Fixed Income Fund
Class A Shares............................... 52 66 82 128
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 65 76 99 149
--Assuming no redemption.................... 15 46 79 149
Global Income Fund
Class A Shares............................... 56 80 106 180
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 67 84 112 179
--Assuming no redemption.................... 17 54 92 179
High Yield Fund
Class A Shares............................... 56 78 N/A N/A
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 69 88 N/A N/A
--Assuming no redemption.................... 19 58 N/A N/A
</TABLE>

The hypothetical example assumes that a contingent deferred sales charge will
not apply to redemptions of Class A shares within the first 18 months. Class B
shares convert to Class A shares eight years after purchase; therefore, Class A
expenses are used in the hypothetical example after year eight.
- --------
/1/ As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. Except with
respect to direct purchases of the Adjustable Rate Government Fund, a
contingent deferred sales charge of 1.00% is imposed on certain redemptions
of Class A shares sold without an initial sales charge as part of an
investment of $1 million or more. See "How to Invest--Offering Price."

8
<PAGE>

/2/ A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or units of the ILA Portfolios and free
automatic exchanges pursuant to the Automatic Exchange Program, six free
exchanges are permitted in each twelve month period. A fee of $12.50 may be
charged for each subsequent exchange during such period. See "How to
Invest--Exchange Privilege."

/3/ Based on estimated amounts for the current fiscal year for the Adjustable
Rate Government, Short Duration Government, Short Duration Tax-Free, Core
Fixed Income and High Yield Funds.

/4/ The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the Short Duration Government,
Government Income, Global Income and High Yield Funds equal to .10%, .40%,
.31% and .05%, respectively. Without such limitations, management fees would
be .50%, .65%, .90% and .70% of each Fund's average daily net assets
respectively.

/5/ Goldman Sachs voluntarily has agreed not to impose the entire distribution
fee attributable to Class A shares of each Fund, except Global Income Fund
where Goldman Sachs voluntarily has agreed not to impose .04% of the
distribution fee. Goldman Sachs has also voluntarily agreed not to impose
.15% of the distribution fee attributable to Class B shares of the Short
Duration Government and Short Duration Tax-Free Funds. Distribution fees
for Class A and Class B shares would otherwise be payable at the rate of
.25% and .75%, respectively, of average daily net assets.

/6/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees
in the case of the Global Income and High Yield Funds)) to the extent such
expenses exceed .05%, .05%, .00%, .05%, .05%, .06% and .01% of the average
daily net assets of the Short Duration Government, Short Duration Tax-Free,
Government Income, Municipal Income, Core Fixed Income, Global Income and
High Yield Funds, respectively.

/7/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Government Income, Municipal Income and Global
Income Funds for the fiscal year ended October 31, 1996 would have been as
follows:

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Government Income
Class A.................................................... .74% 1.89%
Class B.................................................... .74% 2.39%
Municipal Income
Class A.................................................... .50% 1.55%
Class B.................................................... .50% 2.05%
Global Income
Class A.................................................... .24% 1.64%
Class B.................................................... .24% 2.14%
</TABLE>

In addition, for the Adjustable Rate Government, Short Duration Government,
Short Duration Tax-Free, Core Fixed Income and High Yield Funds, without the
limitations described above, "Other Expenses" and "Total Operating Expenses"
for the current fiscal year are estimated to be as follows:

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Adjustable Rate Government
Class A................................................... .11% 1.01%
Short Duration Government
Class A................................................... .21% 1.21%
Class B................................................... .21% 1.71%
Short Duration Tax-Free
Class A................................................... .61% 1.51%
Class B................................................... .61% 2.01%
Core Fixed Income
Class A................................................... .43% 1.33%
Class B................................................... .43% 1.83%
High Yield
Class A................................................... .75% 1.95%
Class B................................................... .75% 2.45%
</TABLE>

9
<PAGE>

The Investment Advisers and Goldman Sachs have no current intention of
modifying or discontinuing any of the limitations set forth above but may do
so in the future at their discretion. The information with respect to the
Adjustable Rate Government Fund set forth in the foregoing table and
hypothetical example relates only to its Class A shares (the Fund does not
offer Class B shares). The Adjustable Rate Government, Short Duration
Government, Short Duration Tax-Free, Core Fixed Income, Global Income and High
Yield Funds, but not the other Funds, also offer Institutional Shares and
Service Shares and the Adjustable Rate Government, Short Duration Government,
Short Duration Tax-Free and Core Fixed Income Funds, but not the other Funds,
also offer Administration Shares. Institutional, Administration and Service
Shares are subject to different fees and expenses (which affect performance),
have different minimum investment requirements and are entitled to different
services than Class A shares and Class B shares. Information regarding
Institutional, Administration and Service Shares may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back
cover of this Prospectus. Because of the Distribution Plans, long-term
shareholders may pay more than the economic equivalent of the maximum front-
end sales charges permitted by the NASD's rules regarding investment
companies.

In addition to the compensation itemized above, certain institutions that
sell Fund shares and/or their salespersons may receive certain compensation
for the sale and distribution of Class A and Class B shares of the Funds or
for services to the Funds. For additional information regarding such
compensation, see "Management" and "Services Available to Shareholders" in the
Prospectus and "Other Information Regarding Purchases, Redemptions, Exchanges
and Dividends" in the Additional Statement.

The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
the hypothetical example above are based on each Fund's fees and expenses
(actual or estimated) and 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, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."

10
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period(s) indicated has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Funds for the year ended October 31, 1996 (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 calling the telephone
number or writing to one of the addresses on the back cover of this Prospectus.
During the periods shown, the Trust did not offer Class A and B shares of the
Short Duration Government, Short Duration Tax-Free, Core Fixed Income and High
Yield Funds. Accordingly, there are no financial highlights for these classes.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
------------------------------------------------
NET
REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED
ON GAIN (LOSS) TOTAL
NET INVESTMENT, ON FOREIGN INCOME
ASSET NET OPTION CURRENCY (LOSS)
VALUE AT INVEST- AND RELATED FROM
BEGINNING MENT FUTURES TRANS- INVESTMENT
OF PERIOD INCOME TRANSACTIONS ACTIONS OPERATIONS
- -----------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ----------------------------
1996-Institu-
tional Shares... $9.77 $0.5759(a) $0.0772(a) -- $0.6531
1996-Administra-
tion Shares..... 9.77 0.5489(a) 0.0797(a) -- 0.6286
1996-Class A
Shares.......... 9.77 0.5481(a) 0.0806(a) -- 0.6287
1995-Institu-
tional Shares... 9.74 0.5630(a) 0.0717(a) -- 0.6347
1995-Administra-
tion Shares..... 9.74 0.5366(a) 0.0737(a) -- 0.6103
1995-Class A
Shares(c)....... 9.79 0.2721(a) (0.0090)(a) -- 0.2631
1994-Institu-
tional Shares... 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administra-
tion Shares..... 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institu-
tional Shares... 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administra-
tion Shares(e).. 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institu-
tional Shares... 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER
31,
- --------------------------------
1991-Institu-
tional Shares... 10.00 0.1531 0.0322(d) -- 0.1853
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON IN GAIN ON
FROM INVESTMENT, EXCESS INVESTMENT,
NET OPTION OF NET OPTION FROM TOTAL
INVEST- AND INVEST- AND PAID DISTRIBUTIONS
MENT FUTURES MENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
- -------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ----------------------------
1996-Institu-
tional Shares... $(0.5725) -- $(0.0206) -- -- $(0.5931)
1996-Administra-
tion Shares..... (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A
Shares.......... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institu-
tional Shares... (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administra-
tion Shares..... (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A
Shares(c)....... (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institu-
tional Shares... (0.4486) -- -- -- -- (0.4486)
1994-Administra-
tion Shares..... (0.4239) -- -- -- -- (0.4239)
1993-Institu-
tional Shares... (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administra-
tion Shares(e).. (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institu-
tional Shares... (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- --------------------------------------------------
1991-Institu-
tional Shares... (0.1553) -- -- -- -- (0.1553)

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY
WAIVER OF FEES OR
EXPENSE
LIMITATIONS
---------------------
RATIO OF
NET RATIO OF
INVEST- NET
NET MENT NET INVEST-
INCREASE NET RATIO OF INCOME ASSETS MENT
(DECREASE) ASSET NET (LOSS) TO AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES AVERAGE PORTFOLIO OF EXPENSES (LOSS) TO
ASSET END OF TOTAL TO AVERAGE NET TURNOVER PERIOD TO AVERAGE AVERAGE
VALUE PERIOD RETURN(K) NET ASSETS ASSETS RATE(D) (IN 000S) NET ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ----------------------------
1996-Institu-
tional Shares... $0.0600 $9.83 6.86% 0.45% 5.85% 52.36% $613,149 0.51% 5.79%
1996-Administra-
tion Shares..... 0.0600 9.83 6.60 0.70 5.59 52.36 3,792 0.76 5.53
1996-Class A
Shares.......... 0.0600 9.83 6.60 0.70 5.59 52.36 10,728 1.01 5.28
1995-Institu-
tional Shares... 0.0301 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-Administra-
tion Shares..... 0.0300 9.77 6.48 0.71 5.50 24.12 3,572 0.78 5.43
1995-Class A
Shares(c)....... (0.0200) 9.77 2.74(f) 0.69(b) 5.87(b) 24.12 15,203 1.01(b) 5.55(b)
1994-Institu-
tional Shares... (0.2600) 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-Administra-
tion Shares..... (0.2600) 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-Institu-
tional Shares... (0.0400) 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-Administra-
tion Shares(e).. (0.0200) 10.00 2.01(f) 0.70(b) 3.81(b) 103.74 5,326 0.73(b) 3.78(b)
1992-Institu-
tional Shares... 0.0100 10.04 6.12 0.42 5.61 286.40 2,145,064 0.55 5.48
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- --------------------------------------------------
1991-Institu-
tional Shares... 0.0300 10.03 2.14(f) 0.20(b) 7.31(b) 145.67(b) 239,642 1.02(b) 6.49(b)
</TABLE>

11
<PAGE>

INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED
AND NET REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
SHORT DURATION GOVERNMENT FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional
Shares ................ $ 9.82 $0.6290(a) $0.0136 (a) -- $0.6426
1996-Administration
Shares(h).............. 9.86 0.3837(a) 0.0003 (a) -- 0.3840
1996-Service Shares(i).. 9.72 0.3134(a) 0.1018 (a) -- 0.4152
1995-Institutional
Shares................. 9.64 0.6652(a) 0.1666 (a) -- 0.8318
1995-Administration
Shares................. 9.64 0.2384(a) (0.0433)(a) -- 0.1951
1994-Institutional
Shares................. 10.14 0.5628(a) (0.4592)(a) -- 0.1036
1994-Administration
Shares................. 10.14 0.5329(a) (0.4539)(a) -- 0.0790
1993-Institutional
Shares................. 10.16 0.5627 (0.0135)(d) -- 0.5492
1993-Administration
Shares(e).............. 10.23 0.2725 (0.0900)(d) -- 0.1825
1992-Institutional
Shares................. 10.22 0.6703 (0.0600)(d) -- 0.6103
1991-Institutional
Shares................. 10.00 0.8020 0.2200 (d) -- 1.0220
1990-Institutional
Shares................. 10.07 0.8300 (0.0700)(d) -- 0.7600
1989-Institutional
Shares................. 10.10 0.8800 -- -- 0.8800
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1988-Institutional
Shares................. 10.00 0.1800 0.1000 (d) -- 0.2800
SHORT DURATION TAX-FREE FUND
- -----------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
- -------------------------------------------
1996-Institutional
Shares................. $ 9.94 $0.4192(a) $0.0200 (a) -- $0.4392
1996-Administration
Shares................. 9.94 0.3944(a) 0.0200 (a) -- 0.4144
1996-Service Shares..... 9.95 0.3697(a) 0.0200 (a) -- 0.3897
1995-Institutional
Shares................. 9.79 0.4235(a) 0.1500 (a) -- 0.5735
1995-Administration
Shares................. 9.79 0.3989(a) 0.1500 (a) -- 0.5489
1995-Service Shares..... 9.79 0.3744(a) 0.1600 (a) -- 0.5344
1994-Institutional
Shares................. 10.23 0.3787(a) (0.3575)(a) -- 0.0212
1994-Administration
Shares................. 10.23 0.3537(a) (0.3575)(a) -- (0.0038)
1994-Service Shares(j).. 9.86 0.0475(a) (0.0700)(a) (0.0225)
1993-Institutional
Shares................. 9.93 0.3834 0.3000(d) -- 0.6834
1993-Administration
Shares(j).............. 10.16 0.1555 0.0720(d) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-Institutional
Shares................. 10.00 0.0341 (0.0700)(d) -- (0.0359)

<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------------------
FROM NET IN EXCESS OF
REALIZED NET REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ -------- -------------
SHORT DURATION GOVERNMENT FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional
Shares ................ $(0.6326) -- -- -- -- $(0.6326)
1996-Administration
Shares(h).............. (0.3940) -- -- -- -- (0.3940)
1996-Service Shares(i).. (0.3152) -- -- -- -- (0.3152)
1995-Institutional
Shares................. (0.6518) -- -- -- -- (0.6518)
1995-Administration
Shares................. (0.2051) -- -- -- -- (0.2051)
1994-Institutional
Shares................. (0.5598) (0.0438) -- -- -- (0.6036)
1994-Administration
Shares................. (0.5352) (0.0438) -- -- -- (0.5790)
1993-Institutional
Shares................. (0.5627) -- (0.0065) -- -- (0.5692)
1993-Administration
Shares(e).............. (0.2725) -- -- -- -- (0.2725)
1992-Institutional
Shares................. (0.6703) -- -- -- -- (0.6703)
1991-Institutional
Shares................. (0.8020) -- -- -- -- (0.8020)
1990-Institutional
Shares................. (0.8300) -- -- -- -- (0.8300)
1989-Institutional
Shares................. (0.8800) -- -- -- (0.0300) (0.9100)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1988-Institutional
Shares................. (0.1800) -- -- -- -- (0.1800)
SHORT DURATION TAX-FREE FUND
- ----------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
- ---------------------------------------------
1996-Institutional
Shares................. $(0.4192) -- -- -- -- $(0.4192)
1996-Administration
Shares................. (0.3944) -- -- -- -- (0.3944)
1996-Service Shares..... (0.3697) -- -- -- -- (0.3697)
1995-Institutional
Shares................. (0.4235) -- -- -- -- (0.4235)
1995-Administration
Shares................. (0.3989) -- -- -- -- (0.3989)
1995-Service Shares..... (0.3744) -- -- -- -- (0.3744)
1994-Institutional
Shares................. (0.3787) (0.0825) -- -- -- (0.4612)
1994-Administration
Shares................. (0.3537) (0.0825) -- -- -- (0.4362)
1994-Service Shares(j).. (0.0475) -- (0.0475)
1993-Institutional
Shares................. (0.3834) -- -- -- -- (0.3834)
1993-Administration
Shares(j).............. (0.1555) -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-Institutional
Shares................. (0.0341) -- -- -- -- (0.0341)

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
---------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN(K) NET ASSETS NET ASSETS RATE(D) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
SHORT DURATION GOVERNMENT FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional
Shares ........ $0.0100 $9.83 6.75% 0.45% 6.44% 115.45% $ 99,944 0.71% 6.18%
1996-Administra-
tion
Shares(h)...... (0.0100) 9.85 4.00(f) 0.70(b) 5.97(b) 115.45 252 0.96(b) 5.71(b)
1996-Service
Shares(i)...... 0.1000 9.82 4.35(f) 0.95(b) 6.05(b) 115.45 1,822 1.21(b) 5.79(b)
1995-Institu-
tional Shares.. 0.1800 9.82 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administra-
tion Shares.... (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institu-
tional Shares.. (0.5000) 9.64 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administra-
tion Shares.... (0.5000) 9.64 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institu-
tional Shares.. (0.0200) 10.14 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administra-
tion
Shares(e)...... (0.0900) 10.14 1.74 0.70(b) 4.84(b) 411.66 16,490 0.80(b) 4.74(b)
1992-Institu-
tional Shares.. (0.0600) 10.16 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institu-
tional Shares.. 0.2200 10.22 10.93 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institu-
tional Shares.. (0.0700) 10.00 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institu-
tional Shares.. (0.0300) 10.07 9.08 0.46 8.71 137.37 31,015 1.39 7.78
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1988-Institu-
tional Shares.. 0.1000 10.10 3.30(f) 0.55(b) 8.55(b) 167.00(b) 39,052 1.42(b) 7.68(b)
SHORT DURATION TAX-FREE FUND
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------------
1996-Institu-
tional Shares.. $0.0300 $9.96 4.50% 0.45% 4.21% 231.65% $34,814 1.01% 3.65%
1996-Administra-
tion Shares.... 0.0300 9.96 4.24 0.70 3.96 231.65 48 1.26 3.40
1996-Service
Shares......... 0.0200 9.97 3.98 0.95 3.74 231.65 695 1.51 3.18
1995-Institu-
tional Shares.. 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-Administra-
tion Shares.... 0.1500 9.94 5.76 0.70 4.14 259.52 46 1.02 3.82
1995-Service
Shares......... 0.1600 9.95 5.59 0.95 3.87 259.52 454 1.27 3.55
1994-Institu-
tional Shares.. (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-Administra-
tion Shares.... (0.4400) 9.79 (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
1994-Service
Shares(j)...... (0.0700) 9.79 (0.32)(f) 0.95(b) 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-Institu-
tional Shares.. 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-Administra-
tion
Shares(j)...... 0.0720 10.23 2.28(f) 0.70(b) 3.32(b) 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-Institu-
tional Shares.. (0.0700) 9.93 (0.34)(f) 0.05(b) 4.58(b) 31.19(f) 14,601 2.68(b) 1.95(b)
</TABLE>

<PAGE>

INCOME (LOSS) FROM INVESTMENT OPERATIONS(M)
-----------------------------------------------
NET REALIZED
AND NET REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $14.47 $ 0.92 $ (0.11) -- $ 0.81
1996-Class B
shares(n)....... 14.11 0.41 0.26 -- 0.67
1995-Class A
shares.......... 13.47 0.94 1.00 -- 1.94
1994-Class A
shares.......... 14.90 0.85 (1.28) -- (0.43)
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A
shares.......... 14.32 0.56 0.58 -- 1.14
<CAPTION>
CORE FIXED INCOME FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares... $10.00 $0.6448 $(0.0704) -- $0.5744
1996-Administra-
tion Shares(1).. 9.91 0.4083 (0.0703) -- 0.3380
1996-Service
Shares(1)....... 9.77 0.3756 0.0898 -- 0.4654
1995-Institu-
tional Shares... 9.24 0.6423 0.7610 -- 1.4033
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER
31,
- -------------------------------------------------
1994-Institu-
tional Shares... 10.00 0.4648 (0.7617) -- (0.2969)
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $14.45 $0.71 $0.62 $0.18 $1.51
1996-Class B
shares(n)....... 14.03 0.34 0.41 0.11 0.86
1996-
Institutional
shares.......... 14.45 1.15 0.32 0.10 1.57
1995-Class A
shares.......... 13.43 0.89 0.92 0.15 1.96
1995-
Institutional
shares(o)....... 14.09 0.22 0.34 0.06 0.62
1994-Class A
shares.......... 15.07 0.84 (1.37) (0.12) (0.65)
1993-Class A
shares.......... 14.69 0.85 1.07 (0.42) 1.50
1992-Class A
shares.......... 14.60 1.14 0.45 (0.36) 1.23
FOR THE PERIOD AUGUST 2, 1991(G)THROUGH OCTOBER 31,
- ---------------------------------------------------
1991-Class A
shares.......... 14.55 0.25 0.23 (0.19) 0.29
MUNICIPAL INCOME FUND
- ----------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $14.17 $ 0.65 $0.20 -- $ 0.85
1996-Class B
shares(n)....... 14.03 0.27 0.34 -- 0.61
1995-Class A
shares.......... 13.08 0.67 1.09 -- 1.76
1994-Class A
shares.......... 14.64 0.73 (1.51) -- (0.78)
FOR THE PERIOD JULY 20, 1993(G)THROUGH OCTOBER 31,
- --------------------------------------------------
1993-Class A
shares.......... 14.32 0.22 0.32 -- 0.54

<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------------------
FROM NET IN EXCESS OF
REALIZED NET REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $(0.92) -- -- -- -- $ (0.92)
1996-Class B
shares(n)....... (0.41) -- -- -- -- (0.41)
1995-Class A
shares.......... (0.94) -- -- -- -- (0.94)
1994-Class A
shares.......... (0.85) (0.12) (0.02) (0.01) -- (1.00)
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A
shares.......... (0.56) -- -- -- -- (0.56)
<CAPTION>
CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares... $(0.6438) $(0.0806) -- -- -- $(0.7244)
1996-Administra-
tion Shares(1).. (0.4080) -- -- -- -- (0.4080)
1996-Service
Shares(1)....... (0.3754) -- -- -- -- (0.3754)
1995-Institu-
tional Shares... (0.6433) -- -- -- -- (0.6433)
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER
31,
- -------------------------------------------------
1994-Institu-
tional Shares... (0.4648) -- -- -- -- (0.4648)
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $(1.43) -- -- -- -- $ (1.43)
1996-Class B
shares(n)....... (0.36) -- -- -- -- (0.36)
1996-
Institutional
shares.......... (1.50) -- -- -- -- (1.50)
1995-Class A
shares.......... (0.94) -- -- -- -- (0.94)
1995-
Institutional
shares(o)....... (0.26) -- -- -- -- (0.26)
1994-Class A
shares.......... (0.22) (0.16) -- -- (0.61) (0.99)
1993-Class A
shares.......... (0.85) (0.27) -- -- -- (1.12)
1992-Class A
shares.......... (1.14) -- -- -- -- (1.14)
FOR THE PERIOD AUGUST 2, 1991(G)THROUGH OCTOBER 31,
- ---------------------------------------------------
1991-Class A
shares.......... (0.24) -- -- -- -- (0.24)
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $ (0.65) -- -- -- -- $ (0.65)
1996-Class B
shares(n)....... (0.27) -- -- -- -- (0.27)
1995-Class A
shares.......... (0.67) -- -- -- -- (0.67)
1994-Class A
shares.......... (0.73) (0.05) -- -- -- (0.78)
FOR THE PERIOD JULY 20, 1993(G)THROUGH OCTOBER 31,
- --------------------------------------------------
1993-Class A
shares.......... (0.22) -- -- -- -- (0.22)
- --------------------------------------------------------------------------------

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
---------------------

RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN(K) NET ASSETS NET ASSETS RATE(D) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $ (0.11) $14.36 5.80% 0.50% 6.42% 485.09% $ 30,603 1.89% 5.03%
1996-Class B
shares(n)....... 0.26 14.37 4.85(f) 1.25(b) 5.65(b) 485.09 234 2.39(b) 4.51(b)
1995-Class A
shares.......... 1.00 14.47 14.90 0.47 6.67 449.53 29,503 2.34 4.80
1994-Class A
shares.......... (1.43) 13.47 (2.98) 0.11 6.06 654.90 14,452 2.86 3.31
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A
shares.......... 0.58 14.90 8.03(f) 0.00(b) 4.87(b) 725.41(f) 12,860 4.00(b) 0.87(b)
<CAPTION>
CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares... $(0.1500) $9.85 5.98% 0.45% 6.51% 414.20% $72,061 0.83% 6.13%
1996-Administra-
tion Shares(1).. (0.0700) 9.84 3.56(f) 0.70(b) 6.41(b) 414.20 702 1.08(b) 6.03(b)
1996-Service
Shares(1)....... 0.0900 9.86 4.90(f) 0.95(b) 6.37(b) 414.20 381 1.33(b) 5.99(b)
1995-Institu-
tional Shares... 0.7600 10.00 15.72 0.45 6.56 383.26 55,502 0.96 6.05
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTO-
BER 31,
- -----------------------------------------------
1994-Institu-
tional Shares... (0.7617) 9.24 (3.00) 0.45(b) 6.48(b) 288.25 24,508 1.46(b) 5.47(b)
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $ 0.08 $14.53 11.05% 1.16% 5.81 232.15 $198,665 1.64 5.33
1996-Class B
shares(n)....... 0.50 14.53 6.24(f) 1.70(b) 5.16(b) 232.15 256 2.14(b) 4.72(b)
1996-
Institutional
shares.......... 0.07 14.52 11.55 0.65 6.35 232.15 54,254 1.11 5.89
1995-Class A
shares.......... 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995-
Institutional
shares(o)....... 0.36 14.45 4.42(f) 0.65(b) 6.01(b) 265.86 31,619 1.08(b) 5.58(b)
1994-Class A
shares.......... (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993-Class A
shares.......... 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992-Class A
shares.......... 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62 7.60
FOR THE PERIOD AUGUST 2, 1991(G)THROUGH OCTOBER 31,
- ---------------------------------------------------
1991-Class A
shares.......... 0.05 14.60 2.00 0.38(f) 1.72(f) 34.22(f) 388,744 0.44(f) 1.66(f)
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $ 0.20 $14.37 6.13% 0.85% 4.58% 344.13% $52,267 1.55% 3.88%
1996-Class B
shares(n)....... 0.34 14.37 4.40(f) 1.60(b) 3.55(b) 344.13 255 2.05(b) 3.10(b)
1995-Class A
shares.......... 1.09 14.17 13.79 0.76 4.93 335.55 53,797 1.49 4.20
1994-Class A
shares.......... (1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373 1.55 4.18
FOR THE PERIOD JULY 20, 1993(G)THROUGH OCTOBER 31,
- --------------------------------------------------
1993-Class A
shares.......... 0.32 14.64 3.73(f) 0.00(b) 5.15(b) 99.99(f) 30,166 2.42(b) 2.73(b)
- --------------------------------------------------------------------------------
</TABLE>
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized.
(c) Class A share activity commenced on May 15, 1995.
(d) Includes the effect of mortgage dollar roll transactions except for the
Global Income and Municipal Income Funds.
(e) Administration share activity commenced on April 15, 1993.
(f) Not annualized.
(g) Commencement of operations.
(h) GS Short Duration Government Fund Administration shares were redeemed in
full on February 23, 1995 and re-commenced on February 28, 1996 at $9.86.
(i) Service share activity commenced on April 10, 1996.
(j) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994 respectively.
(k) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. For Class A shares only, total return would be reduced if a sales
charge were taken into account.
(l) Administration and Service share activity commenced on February 28, 1996
and March 13, 1996 respectively.
(m) Includes balancing effect of calculating per share amounts, except the Core
Fixed Income Fund.
(n) Class B shares commenced operations on May 1, 1996.
(o) Institutional shares commenced operations on June 1, 1995.

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.

A Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, a Fund will estimate the duration of obligations that are
subject to prepayment or redemption by the issuer taking into account the
influence of interest rates on prepayments and coupon flows. This method of
computing duration is known as "option-adjusted" duration. A Fund will not be
limited as to its maximum weighted average portfolio maturity or the maximum
stated maturity with respect to individual securities unless otherwise noted.

A Fund will deem a security to have met its minimum credit rating
requirement if the security receives the minimum required long-term rating (or
the equivalent short-term credit rating) at the time of purchase from at least
one rating organization (including, but not limited to, Standard & Poor's
Ratings Group ("S&P") and Moody's Investors Service, Inc. ("Moody's")) even
though it has been rated below the minimum rating by one or more other rating
organizations, or, if unrated by a rating organization, is determined by the
Investment Adviser to be of comparable quality. If a security satisfies a
Fund's minimum rating criteria at the time of purchase and is subsequently
downgraded below such rating, the Fund will not be required to dispose of such
security. If a downgrade occurs, the Investment Adviser will consider what
action, including the sale of such security, is in the best interest of a Fund
and its shareholders.

The Investment Adviser will have access to the research of, and proprietary
technical models developed by Goldman Sachs and will apply quantitative and
qualitative analysis in determining the appropriate allocations among the
categories of issuers and types of securities.

ADJUSTABLE RATE GOVERNMENT FUND

OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with low volatility of principal.

DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be in a range approximately equal to that of a six-month to one-
year U.S. Treasury security. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed two years. The
approximate interest rate sensitivity of the Fund is comparable to a nine-
month note.

INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities that are adjustable rate
mortgage pass-through securities and other U.S. Government Securities. The
remainder of the Fund's assets (up to 35%) may be invested in other U.S.
Government Securities, including mortgage pass-through securities, other
securities representing an interest in or collateralized by adjustable rate
and fixed rate mortgage loans ("Mortgage-Backed Securities") and repurchase
agreements collateralized by U.S. Government Securities. Substantially all of
the Fund's assets will be invested in U.S. Government Securities. 100% of the
Fund's portfolio will be invested in U.S. dollar-denominated securities.

14
<PAGE>

CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."

SHORT DURATION GOVERNMENT FUND

OBJECTIVE. The Fund's investment objective is to provide a high level of
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.

DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the 2-year U.S. Treasury
security, plus or minus .5 years. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed three years. The
approximate interest rate sensitivity of the Fund is comparable to a two-year
bond.

INVESTMENT SECTOR. The Fund invests, under normal market conditions, at
least 65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. Substantially all of the Fund's
assets will be invested in U.S. Government Securities. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.

CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.

SHORT DURATION TAX-FREE FUND

OBJECTIVE. 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.

DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
three-year Municipal Bond Index, plus or minus .5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
four years. The approximate interest rate sensitivity of the Fund is
comparable to a three-year bond.

15
<PAGE>

District of Columbia) and the political subdivisions, agencies and
instrumentalities thereof ("Municipal Securities"), the interest on which is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes) and is not a tax preference item under the
federal alternative minimum tax. Under normal circumstances, the Fund's
investments in private activity bonds and taxable investments will not exceed,
in the aggregate, 20% of the Fund's net assets. The interest from certain
private activity bonds (including the Fund's distributions of such interest)
may be a preference item for purposes of the federal alternative minimum tax.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.

CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Municipal Securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal. 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.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."

While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."

GOVERNMENT INCOME FUND

OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with safety of principal.

DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Mutual Fund Government/Mortgage Index, plus or minus one year. In addition,
under normal interest rate conditions, the Fund's maximum duration will not
exceed six years. The approximate interest rate sensitivity of the Fund is
comparable to a five-year bond.

INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. The remainder of the Fund's
assets may be invested in non-government securities such as privately issued
Mortgage-Backed Securities, Asset-Backed Securities and corporate securities.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.

CREDIT QUALITY. The Fund's non-U.S. Government Securities will be rated, at
the time of investment, AAA by S&P or Aaa by Moody's.

16
<PAGE>

financial futures contracts, option contracts (including options on futures),
mortgage and interest rate swaps and interest rate floors, caps and collars.
The Fund may also employ other investment techniques to seek to enhance
returns, such as lending portfolio securities and entering into mortgage
dollar rolls, repurchase agreements and other investment practices described
under "Investment Techniques."

MUNICIPAL INCOME FUND

OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income that is exempt from regular federal income tax,
consistent with preservation of capital.

DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
fifteen-year Municipal Bond Index, plus or minus one year. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
twelve years. The approximate interest rate sensitivity of the Fund is
comparable to a fifteen-year bond.

INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
80% of its net assets in Municipal Securities, the interest on which is exempt
from regular federal income tax (i.e., excluded from gross income for federal
income tax purposes). The Fund may invest up to 100% of its net assets in
private activity bonds, the interest from certain of which (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.

CREDIT QUALITY. Under normal market conditions, the weighted average credit
quality of the Fund's portfolio will be equivalent to that of securities rated
AA by S&P or Aa by Moody's. All securities purchased by the Fund will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Fixed-income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capability to pay interest
and repay principal. 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.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, interest rate floors, caps and collars. The Fund may also employ other
investment techniques to seek to enhance returns, such as lending portfolio
securities and entering into repurchase agreements and other investment
practices described under "Investment Techniques."

17
<PAGE>

CORE FIXED INCOME FUND

OBJECTIVE. The Fund's investment objective is to provide investors with a
total return consisting of capital appreciation and income that exceeds the
total return of the Lehman Brothers Aggregate Bond Index (the "Index").

DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index, plus or minus one year. In addition, under normal
interest rate conditions, the Fund's maximum duration will not exceed six
years. The approximate interest rate sensitivity of the Fund is comparable to
a five-year bond.

INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in fixed-income securities, including U.S. Government
Securities, corporate debt securities, Mortgage-Backed Securities, and Asset-
Backed Securities. The Fund may invest up to 25% of its total assets in
obligations of domestic and foreign issuers which are denominated in
currencies other than the U.S. dollar, 10% of which may be invested in issuers
in countries with emerging markets and economies. A number of investment
strategies will be used to achieve the Fund's investment objective, including
market sector selection, determination of yield curve exposure, and issuer
selection. In addition, the Investment Adviser will attempt to take advantage
of pricing inefficiencies in the fixed-income markets.

The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed-income securities rated at
least BBB or Baa or in their equivalent ratings category by S&P or Moody's.
The securities currently included in the Index have at least one year
remaining to maturity; have an outstanding principal amount of at least $100
million; and are issued by the following types of issuers, with each category
receiving a different weighting in the Index: U.S. Treasury; agencies,
authorities or instrumentalities of the U.S. government; issuers of Mortgage-
Backed Securities; utilities; industrial issuers; financial institutions;
foreign issuers; and issuers of Asset-Backed Securities. The Index is a
trademark of Lehman Brothers. Inclusion of a security in the Index does not
imply an opinion by Lehman Brothers as to its attractiveness or
appropriateness for investment. Although Lehman Brothers obtains factual
information used in connection with the Index from sources which it considers
reliable, Lehman Brothers claims no responsibility for the accuracy,
completeness or timeliness of such information and has no liability to any
person for any loss arising from results obtained from the use of the Index
data.

CREDIT QUALITY. All U.S. dollar-denominated fixed-income securities
purchased by the Fund will be rated, at the time of investment, at least BBB
by S&P or Baa by Moody's. The non-U.S. dollar-denominated fixed-income
securities in which the Fund may invest will be rated, at the time of
investment, at least AA by S&P or Aa by Moody's. Fixed-income securities rated
BBB or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers' capability to pay interest and repay principal.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign securities and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to

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hedge against currency exchange rate fluctuations or to seek to increase total
return. The Fund may invest in custodial receipts, Municipal Securities and
convertible securities. The Fund may also employ other investment techniques
to seek to enhance returns, such as lending portfolio securities and entering
into mortgage dollar rolls, repurchase agreements and other investment
practices, described under "Investment Techniques."

GLOBAL INCOME FUND

OBJECTIVE. The Fund's investment objective is to provide investors with a
high total return, emphasizing current income and, to a lesser extent,
providing opportunities for capital appreciation.

DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the J.P. Morgan Global
Government Bond Index (hedged), plus or minus 2.5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
7.5 years. The approximate interest rate sensitivity of the Fund is comparable
to a six-year bond.

INVESTMENT SECTOR. The Fund invests primarily in a portfolio of high quality
fixed-income securities of U.S. and foreign issuers and enters into
transactions in foreign currencies. Under normal market conditions, the Fund
will (i) have at least 30% of its total assets, after considering the effect
of currency positions, denominated in U.S. dollars and (ii) invest in
securities of issuers in at least three countries. The Fund may also invest up
to 10% of its total assets in issuers in countries with emerging markets and
economies. The Fund seeks to meet its investment objective by pursuing
investment opportunities in foreign and domestic fixed-income securities
markets and by engaging in currency transactions to seek to enhance returns
and to seek to hedge its portfolio against currency exchange rate
fluctuations.

The fixed-income securities in which the Fund may invest include: (i) U.S.
Government Securities and custodial receipts therefor; (ii) securities issued
or guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, instrumentalities or by supranational entities (i.e.,
international organizations designated or supported by governmental entities
to promote economic reconstruction or development, such as the World Bank);
(iii) corporate debt securities; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, U.S. and
foreign banks (and their branches wherever located) having total assets of
more than $1 billion; (v) commercial paper and (vi) Mortgage- and Asset-Backed
Securities.

CREDIT QUALITY. All securities purchased by the Fund will be rated, at the
time of investment, at least AA by S&P or Aa by Moody's. However, the Fund may
also invest in obligations of a sovereign issuer, denominated in the issuer's
own currency, rated at least A by S&P or Moody's. The Fund will invest at
least 50% of its total assets in securities rated, at the time of investment,
AAA by S&P or Aaa by Moody's.

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of the Fund's total assets. To the extent that the Fund is fully invested in
foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. The Fund may also employ
other investment techniques to seek to enhance returns, such as lending
portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices described under "Investment
Techniques."

The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan,
and the United Kingdom as well as in the securities of U.S. issuers.
Concentration of the Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in those countries. With respect to other countries,
not more than 25% of the Fund's total assets will be invested in the
securities of issuers in any other foreign country.

HIGH YIELD FUND

OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income. Secondarily, the Fund may, in seeking current
income, also consider the potential for capital appreciation.

DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers High
Yield Bond Index, plus or minus 2.5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed 7.5 years. The
approximate interest rate sensitivity of the Fund is comparable to a 6-year
bond.

INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in high yield, fixed income securities rated, at the
time of investment, below investment grade. Non-investment grade securities
are securities rated BB or below by S&P, Ba or below by Moody's, an equivalent
rating by another rating organization, or if unrated by a rating organization,
determined by the Investment Adviser to be of comparable quality. The Fund may
invest in all types of fixed income securities, including senior and
subordinated corporate debt obligations (such as bonds, debentures, notes and
commercial paper), convertible and non-convertible corporate debt obligations,
and preferred stock. The Fund may invest up to 25% of its total assets in
obligations of domestic and foreign issuers (including securities of issuers
located in countries with emerging markets and economies) which are
denominated in currencies other than the U.S. dollar. Under normal market
conditions, the Fund may invest up to 35% of its total assets in investment
grade fixed income securities, including U.S. Government Securities, Asset-
Backed and Mortgage-Backed Securities and corporate securities. The Fund may
also invest in common stocks, warrants, rights and other equity securities,
but will generally hold such equity investments only when debt or preferred
stock of the issuer of such equity securities is held by the Fund. A number of
investment strategies are used to seek to achieve the Fund's investment
objective, including market sector selection, determination of yield curve
exposure, and issuer selection. In addition, the Investment Adviser will
attempt to take advantage of pricing inefficiencies in the fixed-income
markets.

CREDIT QUALITY. The Fund invests primarily in high yield, fixed income
securities rated below investment grade. Non-investment grade securities
(commonly known as "junk bonds") tend to offer higher yields than higher rated
securities with similar maturities. Non-investment grade securities are,
however, considered speculative and generally involve greater price volatility
and greater risk of loss of principal and interest than higher rated
securities. See "Description of Securities." A description of the corporate
bond and preferred stock ratings is contained in Appendix B to the Additional
Statement.

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<PAGE>

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign securities and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps, and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. The Fund may also employ other investment techniques to
seek to enhance returns, such as lending portfolio securities, and entering
into repurchase agreements and other investment practices described under
"Investment Techniques."

DESCRIPTION OF SECURITIES

U.S. GOVERNMENT SECURITIES

Each Fund may invest in U.S. Government Securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises which are supported by (a) the full faith and credit of the U.S.
Treasury (such as the Government National Mortgage Association ("Ginnie
Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the
issuer. No assurance can be given that the U.S. government will provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises in the future.

U.S. Government Securities also include Treasury receipts, zero coupon bonds
and other stripped U.S. Government Securities, where the interest and
principal components of stripped U.S. Government Securities are traded
independently. The most widely recognized program is the Separate Trading of
Registered Interest and Principal of Securities Program.

MORTGAGE-BACKED SECURITIES

CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities
represent direct or indirect participations in, or are collateralized by and
payable from, mortgage loans secured by real property. Mortgagors can
generally prepay interest or principal on their mortgage whenever they choose.
Therefore, Mortgage-Backed Securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of
principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. During periods of declining interest
rates, prepayments can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Conversely,
in a rising interest rate environment, a declining prepayment rate will extend
the average life of many Mortgage-Backed Securities and prevent a Fund from
taking advantage of such higher yields.

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<PAGE>

FIXED RATE MORTGAGE LOANS. Generally, fixed-rate mortgage loans pay interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed rate mortgage loans typically provide for monthly payments of
principal and interest in substantially equal installments for the term of the
mortgage note in sufficient amounts to fully amortize principal by maturity,
although certain fixed-rate mortgage loans provide for a large final "balloon"
payment upon maturity.

ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Short Duration Government, Government Income, Core
Fixed Income, Global Income and High Yield Funds may, invest in ARMs, which
are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed coupon rates. ARMs generally provide for a fixed
initial mortgage interest rate for a set period. Thereafter, the interest
rates are subject to periodic adjustments based on changes to a designated
benchmark index.

ARMs allow a Fund to participate in increases in interest rates through
periodic increases in the securities' coupon rates. During periods of
declining interest rates, coupon rates may readjust downward resulting in
lower yields to a Fund. Therefore, the value of an ARM is unlikely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. Interest rate declines may result in accelerated prepayment of
mortgages with the result that proceeds from prepayments will be reinvested at
lower interest rates. During periods of rising interest rates, changes in the
coupon rate will lag behind changes in the market rate. ARMs are also
typically subject to maximum increases and decreases in the interest rate
adjustment which can be made on any one adjustment date, in any one year, or
during the life of the security. In the event of dramatic increases or
decreases in prevailing market interest rates, the value of a Fund's
investments in ARMs may fluctuate more substantially since these limits may
prevent the security from fully adjusting its interest rate to the prevailing
market rates.

U.S. GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. Certain Mortgage-
Backed Securities are issued or guaranteed by the U.S. government, its
agencies, instrumentalities or sponsored enterprises. Such issuers include,
but are not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. See "U.S.
Government Securities."

PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Government Income, Core
Fixed Income, Global Income and High Yield Funds may invest in Mortgage-Backed
Securities issued or sponsored by non-governmental entities. Privately issued
Mortgage-Backed Securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. Since such
Mortgage-Backed Securities normally are not guaranteed by an entity having the
credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to receive
a high quality rating from the rating organizations (i.e., S&P or Moody's),
they normally are structured with one or more types of "credit enhancement."

MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Adjustable Rate Government, Short Duration Government,
Government Income, Core Fixed Income, Global Income and High Yield Funds may
also invest in multiple class securities, including collateralized mortgage
obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC")
pass-through or participation certificates. CMOs provide an investor with a
specified interest in the cash flow from a pool of underlying mortgages or of
other Mortgage-Backed Securities. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final scheduled
distribution date. In most cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having
an earlier stated maturity date are paid in full. A REMIC is a CMO that
qualifies for special tax treatment under the Internal Revenue Code of 1986,
as amended (the "Code"), and invests in certain mortgages principally secured
by interests in real property and other permitted investments. The Funds do
not intend to purchase residual interests in REMICs.

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<PAGE>

STRIPPED MORTGAGE-BACKED SECURITIES. The Adjustable Rate Government, Short
Duration Government, Government Income, Core Fixed Income, Global Income and
High Yield Funds may invest in Stripped Mortgage-Backed Securities ("SMBS"),
which are derivative multiple class Mortgage-Backed Securities. SMBS are
usually structured with two different classes; one that receives 100% of the
interest payments and the other that receives 100% of the principal payments
from a pool of mortgage loans. If the underlying mortgage loans experience
different than anticipated prepayments of principal, a Fund may fail to fully
recoup its initial investment in these securities. The market value of the
class consisting entirely of principal payments generally is unusually
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest from mortgage loans are
generally higher than prevailing market yields on other Mortgage-Backed
Securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.

ASSET-BACKED SECURITIES

The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in Asset-Backed Securities. The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.

MUNICIPAL SECURITIES

GENERAL. Municipal Securities in which the Short Duration Tax-Free and
Municipal Income Funds and, to a limited extent, the Core Fixed Income and
High Yield Funds, invest consist of bonds, notes, commercial paper and other
instruments (including participation interests in such 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 or instrumentalities, the interest on which, 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 federal
alternative minimum tax or from state or local taxes). Such securities may pay
fixed, variable or floating rates of interest. 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.

PRIVATE ACTIVITY BONDS. Municipal Securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Short Duration Tax-Free and Municipal
Income Funds' distributions attributable to the interest income from private
activity bonds may subject certain investors to the federal alternative
minimum tax.

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<PAGE>

other instruments. The primary risk associated with municipal lease
obligations and certificates of participation is that the governmental lessee
will fail to appropriate funds to enable it to meet its payment obligations
under the lease. Although the obligations may be secured by the leased
equipment or facilities, the disposition of the property in the event of non-
appropriation or foreclosure might prove difficult, time consuming and costly,
and result in a delay in recovering or the failure to fully recover a Fund's
original investment. To the extent that a Fund invests in unrated municipal
leases or participates in such leases, the Trustees will monitor on an ongoing
basis the credit quality rating and risk of cancellation of such unrated
leases. Certain municipal lease obligations and certificates of participation
may be deemed illiquid for the purpose of a Fund's limitation on investments
in illiquid securities.

PRE-REFUNDED MUNICIPAL SECURITIES. The interest and principal payments on
pre-refunded Municipal Securities are typically paid from the cash flow
generated from an escrow fund consisting of U.S. Government Securities. These
payments have been "pre-refunded" using the escrow fund.

INSURED SECURITIES. "Insured" Municipal Securities are those for which
scheduled payments of interest and principal are guaranteed by a private (non-
governmental) insurance company. The insurance entitles a Fund to receive only
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 net asset
value of a Fund's shares.

AUCTION RATE SECURITIES. Auction rate Municipal Securities permit the holder
to sell the securities in an auction at par value at specified intervals. The
dividend or interest is typically 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. A Fund will take the time remaining until the next
scheduled auction date into account for purposes of determining the
securities' duration.

CORPORATE DEBT OBLIGATIONS

The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in corporate debt obligations. In addition to obligations of
corporations, corporate debt obligations include securities issued by banks
and other financial institutions. Corporate debt obligations are subject to
the risk of an issuer's inability to meet principal and interest payments on
the obligations.

CONVERTIBLE SECURITIES

The Core Fixed Income and High Yield Funds may invest in convertible
securities, including debt obligations, and for High Yield Fund preferred
stock, of an issuer convertible at a stated exchange rate into common stock of
the issuer. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates
decline. However, when the market price of the common stock underlying a
convertible security exceeds the conversion price, the price of the
convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common stock.
Convertible securities in which a Fund invests are subject to the same rating
criteria as its other investments in fixed-income securities.

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<PAGE>

PREFERRED STOCK, WARRANTS AND RIGHTS

The High Yield Fund may invest in preferred stock, warrants and rights.
Preferred stocks are securities that represent an ownership interest providing
the holder with claims on the issuer's earnings and assets before common stock
owners but after bond owners. Unlike debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment obligations,
may not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default (such as a covenant default or filing of a
bankruptcy petition) or other non-compliance by the issuer with the terms of
the preferred stock. Often, however, on the occurrence of any such event of
default or non-compliance by the issuer, preferred stockholders will be
entitled to gain representation on the issuer's board of directors or increase
their existing board representation. In addition, preferred stockholders may
be granted voting rights with respect to certain issues on the occurrence of
any event of default.

Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant.
The holders of warrants and rights have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.

FOREIGN INVESTMENTS

FOREIGN SECURITIES. The Global Income Fund will, and the Core Fixed Income
and High Yield Funds may, invest in fixed-income securities of foreign issuers
denominated in any currency. However, the Core Fixed Income and High Yield
Funds will limit their investments in non-U.S. dollar-denominated fixed-income
securities to 25% of their total assets. This may offer potential benefits
that are not available from investing exclusively in U.S. dollar-denominated
domestic issues. Foreign countries may have economic policies or business
cycles different from those of the U.S. and markets for foreign fixed-income
securities do not necessarily move in a manner parallel to U.S. markets.

Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in fixed-income securities of domestic
issuers quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. In addition, clearance and
settlement procedures may be different in foreign countries and, in certain
markets, such procedures have on occasion been unable to keep pace with the
volume of securities transactions, making it more difficult to conduct such
transactions.

The Core Fixed Income, Global Income and High Yield Funds may invest in an
issuer domiciled in one country yet issuing the security in the currency of
another country. The Funds may also invest in debt securities denominated in
the European Currency Unit ("ECU"), which is a "basket" consisting of
specified amounts in the currencies of certain of the twelve member states of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community from
time to time to reflect changes in relative values of the underlying
currencies. In addition, the Funds may invest in securities denominated in
other currency "baskets."

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<PAGE>

issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers may be
less liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
a Fund, political or social instability or diplomatic developments which could
affect investments in those countries.

FOREIGN GOVERNMENT SECURITIES. The Core Fixed Income, Global Income and High
Yield Funds may invest in debt obligations of foreign governments and
governmental agencies, including those of emerging countries. Investment in
sovereign debt obligations involves special risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling
to repay principal or interest when due in accordance with the terms of such
debt, and a Fund may have limited recourse in the event of a default. Periods
of economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn a Fund's net asset value, to a greater extent than
the volatility inherent in debt obligations of U.S. issuers. A sovereign
debtor's willingness or ability to repay principal and pay interest in a
timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's
policy toward international lenders and the political constraints to which a
sovereign debtor may be subject.

EMERGING MARKETS. The Core Fixed Income and Global Income Funds may invest
up to 10% and the High Yield Fund may invest up to 25% of their total assets
in securities of issuers located in countries with emerging economies or
securities markets ("emerging markets"). Political and economic structures in
many emerging markets may be undergoing significant evolution and rapid
development, and emerging markets may lack the social, political and economic
stability characteristics of more developed countries. As a result, the risks
relating to investments in foreign securities described above, including the
possibility of nationalization, expropriation and confiscatory taxation, may
be heightened. In addition, unanticipated political and social developments
may affect the value of the Fund's investments in emerging markets and the
availability to the Fund of additional investments in such countries. The
small size and inexperience of the securities markets in certain emerging
markets and the limited volume of trading in securities in those countries may
make the Fund's investments in such countries less liquid and more volatile
than investments in countries with more developed securities markets (such as
the U.S., Japan and most Western European countries). See the Additional
Statement for further information regarding a Fund's investments in emerging
markets.

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<PAGE>

security is denominated or quoted if the Investment Advisers determine that
there is a pattern of correlation between the two currencies. If a Fund enters
into a forward foreign currency exchange contract to buy foreign currency for
any purpose or sell foreign currency to seek to increase total return, the
Fund will be required to place cash or liquid assets in a segregated account
with the Fund's custodian in an amount equal to the value of the Fund's total
assets committed to the consummation of the forward contract. A Fund will
incur costs in connection with conversions between various currencies. A Fund
may hold foreign currency received in connection with investments in foreign
securities when, in the judgment of the Investment Adviser, it would be
beneficial to convert such currency into U.S. dollars at a later date, based
on anticipated changes in the relevant exchange rate.

Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.

The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on a contract would deprive a Fund of unrealized profits, transaction
costs or the benefits of a currency hedge or force a Fund to cover its
purchase or sale commitments, if any, at the current market price. A Fund will
not enter into forward foreign currency exchange contracts, currency swaps or
other privately negotiated currency instruments unless the credit quality of
the unsecured senior debt or the claims-paying ability of the counterparty is
considered to be investment grade by the Investment Adviser.

The Core Fixed Income, Global Income and High Yield Fund's use of foreign
currency management techniques in emerging markets may be limited. Due to the
limited market for these instruments in emerging markets, the Investment
Adviser does not currently anticipate that a significant portion of the Fund's
currency exposure in emerging markets, if any, will be covered by such
instruments. For a discussion of such instruments and the risks associated
with their use, see "Investment Objective and Policies" in the Additional
Statement.

STRUCTURED SECURITIES

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addition, changes in the interest rates or the value of the security at
maturity may be a multiple of changes in the value of the Reference.
Consequently, structured securities may entail a greater degree of market risk
than other types of fixed-income securities. Structured securities may also be
more volatile, less liquid and more difficult to accurately price than less
complex securities.

ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS

Each Fund may invest in zero coupon, deferred interest and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. Each Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. 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, pay-in-kind
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. A Fund's investments in zero coupon,
deferred interest, pay-in-kind 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.

RISK FACTORS

INTEREST RATE RISK. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed-income securities tends to decline. Volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.

DEFAULT RISK/CREDIT RISK. Investments in fixed-income securities are subject
to the risk that the issuer could default on its obligations and a Fund could
sustain losses on such investments. A default could impact both interest and
principal payments.

CALL RISK AND EXTENSION RISK. Fixed-income securities may be subject to both
call risk and extension risk. Call risk (i.e., where the issuer exercises its
right to pay principal on an obligation earlier than scheduled) causes cash
flow to be returned earlier than expected. This typically results when
interest rates have declined and a Fund will suffer from having to reinvest in
lower yielding securities. Extension risk (i.e., where the issuer exercises
its right to pay principal on an obligation later than scheduled) causes cash
flows to be returned later than expected. This typically results when interest
rates have increased and a Fund will suffer from the inability to invest in
higher yielding securities. Certain types of U.S. Government, Asset-Backed,
corporate, foreign, Mortgage-Backed and Municipal Securities have call and/or
extension risk.

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exposed to the fluctuating principal and interest payments associated with
such securities. In general, if interest rates on new mortgage loans fall
sufficiently below the interest rates on existing outstanding mortgage loans,
the rate of prepayment would be expected to increase. Conversely, if mortgage
loan interest rates rise above the interest rates on existing outstanding
mortgage loans, the rate of prepayment would be expected to decrease.

ARMs also have the risk of prepayments, which will have a greater impact on
the Adjustable Rate Government Fund. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates (than if
prevailing interest rates remain constant or increase) because the
availability of low fixed rate mortgages may encourage mortgagors to refinance
their ARMs to "lock-in" a fixed-rate mortgage. Conversely, if prevailing
interest rates rise significantly, ARMs may prepay slower. As with fixed-rate
mortgages, ARM prepayment rates vary in both stable and changing interest rate
environments. There are certain ARMs where the homeowner's payments do not
fully cover interest, so the principal balance increases over time. These
"negative amortizing" ARMs may be subject to greater default risk.

DERIVATIVE MORTGAGE-BACKED SECURITIES. Because derivative Mortgage-Backed
Securities (such as principal-only (POs), interest-only (IOs) or inverse
floating-rate securities) are more exposed to mortgage prepayments, they
generally involve a greater amount of risk. Small changes in prepayments can
significantly impact the cash flow and the market value of these securities.
The risk of faster than anticipated prepayments generally adversely affects
IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of
slower than anticipated prepayments generally adversely affects POs, floating-
rate securities subject to interest rate caps, support tranches and discount
priced Mortgage-Backed Securities. In addition, particular derivative
securities may be leveraged such that their exposure (i.e., price sensitivity)
to interest rate and/or prepayment risk is magnified.

TAX RISK OF MUNICIPAL SECURITIES. Due to Municipal Securities' tax-exempt
status, their yields and market values may be more adversely impacted by
changes in tax rates and policies than taxable fixed-income securities.
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 is affected by 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 the demand for and
supply, liquidity and marketability of Municipal Securities, which could in
turn affect a Fund's ability to acquire and dispose of Municipal Securities at
desirable yield and price levels.

RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-
investment grade fixed- income securities are considered predominantly
speculative by traditional investment standards. In some cases, these
obligations may be highly speculative and have poor prospects for reaching
investment grade standing. Non-investment grade fixed-income securities and
unrated securities of comparable credit quality (commonly known as "junk
bonds") are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities, also referred to as high
yield securities, may be subject to greater price volatility due to such
factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less secondary
market liquidity.

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<PAGE>

more established or less leveraged entities to make scheduled payments of
principal and interest in the event of adverse developments or business
conditions.

The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's judgment concerning the creditworthiness of issuers than funds which
invest in higher-rated securities. Issuers of non-investment grade fixed-
income securities may not be able to make use of more traditional methods of
financing and their ability to service debt obligations may be more adversely
affected than issuers of higher-rated securities by economic downturns,
specific corporate developments or the issuer's inability to meet specific
projected business forecasts. Negative publicity about the junk bond market
and investor perceptions regarding lower rated securities, whether or not
based on fundamental analysis, may depress the prices for such securities.

A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of other
debt securities because such non-investment grade securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by a Fund in defaulted securities poses
additional risk of loss should nonpayment of principal and interest continue
in respect of such securities. Even if such securities are held to maturity,
recovery by a Fund of its initial investment and any anticipated income or
appreciation is uncertain.

The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institutional
investors, including mutual funds, insurance companies and other financial
institutions. Accordingly, the secondary market for such securities is not as
liquid as, and is more volatile than, the secondary market for higher-rated
securities. In addition, market trading volume for high yield fixed-income
securities is generally lower and the secondary market for such securities
could contract under adverse market or economic conditions, independent of any
specific adverse changes in the condition of a particular issuer. These
factors may have an adverse effect on the market price and a Fund's ability to
dispose of particular portfolio investments. A less liquid secondary market
also may make it more difficult for a Fund to obtain precise valuations of the
high yield securities in its portfolio.

Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings are
used only as a preliminary indicator of investment quality. Investments in
non-investment grade and comparable unrated obligations will be more dependent
on the Investment Adviser's credit analysis than would be the case with
investments in investment-grade debt obligations. The Investment Adviser
employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. The Investment Adviser continually
monitors the investments in a Fund's portfolio and evaluates whether to
dispose of or to retain non-investment grade and comparable unrated securities
whose credit ratings or credit quality may have changed.

OTHER RISKS. Floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced below market rates if a designated

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<PAGE>

interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to lower prices in the event of an
unfavorable change in the spread between two designated interest rates.

Asset-Backed Securities present certain credit risks that are not presented
by Mortgage-Backed Securities because Asset-Backed Securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.

FOREIGN RISKS. See "Foreign Securities" for a description of the risks of
investing in foreign securities and currencies.

INVESTMENT TECHNIQUES

MORTGAGE DOLLAR ROLLS. The Adjustable Rate Government, Short Duration
Government, Government Income, Core Fixed Income and Global Income Funds may
enter into mortgage "dollar rolls" in which a Fund sells securities for
delivery in the current month and simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During the
roll period, the Fund loses the right to receive principal and interest paid
on the securities sold. However, the Fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase or fee income plus the interest earned
on the cash proceeds of the securities sold until the settlement date for the
forward purchase. Unless such benefits exceed the income, capital appreciation
and gain or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the mortgage dollar roll, the use of this
technique will diminish the investment performance of the Fund . Successful
use of mortgage dollar rolls depends upon the Investment Adviser's ability to
predict correctly interest rates and mortgage prepayments. There is no
assurance that mortgage dollar rolls can be successfully employed. The Fund
will hold and maintain in a segregated account until the settlement date cash
or liquid assets in an amount equal to the forward purchase price. For
financial reporting and tax purposes, each Fund treats mortgage dollar rolls
as two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale. The Funds do not currently intend to
enter into mortgage dollar rolls that are accounted for as a financing.

OPTIONS ON SECURITIES AND SECURITIES INDICES. Each Fund may write (sell)
covered call and put options and purchase put and call options on any
securities in which it may invest or 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 seek 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
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could increase a Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.

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<PAGE>

OPTIONS ON FOREIGN CURRENCIES. The Core Fixed Income, Global Income and High
Yield Funds may, to the extent they invest in foreign securities, purchase and
sell (write) put and call options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. In addition, the Core Fixed Income, Global Income and High
Yield Funds may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of option transactions, however, the
writing of an option on foreign currency will constitute only a partial hedge,
up to the amount of the premium received. If an option that a Fund has written
is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put
and call options for hedging purposes, a Fund may purchase call or put options
on currency to seek to increase total return when the Investment Adviser
anticipates that the currency will appreciate or depreciate in value, but the
securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in the Fund's portfolio. When
purchased or sold to seek to increase total return, options on currencies are
considered speculative. Options on foreign currencies to be written or
purchased by the Funds will be traded on U.S. and foreign exchanges or over-
the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return or to hedge against changes in interest rates or securities
prices, or in the case of the Core Fixed Income, Global Income and High Yield
Funds, currency exchange rates, a Fund may purchase and sell various kinds of
futures contracts, and purchase and write call and put options on any of such
futures contracts. Each Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
Securities), foreign currencies, in the case of the Core Fixed Income, Global
Income and High Yield Funds, securities indices and other financial
instruments and indices. A Fund will engage in futures and related options
transactions only for bona fide hedging purposes as defined in regulations of
the Commodity Futures Trading Commission or to seek to increase total return
to the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek 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 a 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 a Fund's net assets. These transactions involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate and maintain cash or liquid assets 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 Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while a Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position that is intended to be protected is impossible to
achieve, the desired protection may not be obtained and a Fund may be exposed
to risk of loss. The loss incurred by a Fund in entering into futures
contracts and in writing call options on futures is potentially unlimited and
may exceed the amount of the premium received. Futures markets are highly
volatile and the use of futures may increase the volatility of a Fund's net
asset value. The profitability of a Fund's trading in futures to seek to

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<PAGE>

increase total return depends upon the ability of the Investment Adviser to
correctly analyze the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.

CURRENCY SWAPS. The Core Fixed Income, Global Income and High Yield Funds
may enter into currency swaps for hedging purposes or to seek to increase
total return. Currency swaps involve the exchange by a Fund with another party
of their respective rights to make or receive payments in specified
currencies. Currency swaps usually involve the delivery of a gross payment
stream in one designated currency in exchange for the gross payment stream in
another designated currency. Therefore, the entire payment stream under a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. A Fund will not enter into
swap transactions unless the unsecured commercial paper, senior debt or
claims-paying ability of the other party thereto is rated either AA or A-1 or
better by S&P 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 currency swaps 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 currency exchange rates, the investment
performance of a Fund would be less favorable than it would have been if this
investment technique were not used. The staff of the SEC currently take the
position that swaps are illiquid and thus subject to a Fund's limitation on
investments in illiquid securities.

RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swap transactions, interest rate caps, floors and
collars, structured securities, inverse floating-rate securities and currency
forward contracts involve certain risks, including a possible lack of
correlation between changes in the value of hedging instruments and the
portfolio assets being hedged, the potential illiquidity of the markets for
derivative instruments, the risks arising from the margin requirements and
related leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. A Fund's use of certain derivative transactions may
be limited by the requirements of the Code for qualification as a regulated
investment company.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase when-
issued securities. When-issued transactions arise when securities are
purchased by a 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. Each Fund may also
purchase securities on a forward commitment basis; that is, make contracts to
purchase securities for a fixed price at a future date beyond the customary
three-day settlement. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to settlement date,
cash or liquid assets in an amount sufficient to meet the purchase price.
Alternatively, each 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 a
Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
a Fund may dispose of when-issued securities or forward commitments prior to
settlement if the Investment Adviser deems it appropriate to do so.

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<PAGE>

in more than seven days, time deposits with a notice or demand period of more
than seven days and certain restricted securities, unless it is determined,
based upon the continuing review of the trading markets for a specific
restricted security, that such restricted security is eligible for resale
under Rule 144A under the Securities Act of 1933 and, therefore, is liquid.
The Trustees have adopted guidelines and delegated to the Investment Adviser
the daily function of determining and monitoring the liquidity of portfolio
securities. The Trustees, however, retain oversight focusing on factors such
as valuation, liquidity and availability of information and are ultimately
responsible for each determination. Investing in restricted securities
eligible for resale pursuant to Rule 144A may decrease the liquidity in a Fund
to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price and
subsequent valuation of restricted and illiquid securities normally reflect a
discount, which may be significant, from the market price of comparable
securities for which a liquid market exists.

REPURCHASE AGREEMENTS. Each 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. The Core Fixed Income, Global Income
and High Yield Funds may also enter into repurchase agreements involving
certain foreign government securities. If the other party or "seller"
defaults, a 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. In addition, in the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, a Fund could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with the
Investment Adviser, 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.

TEMPORARY INVESTMENTS. Each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in (a) U. S. Government Securities or
(b) repurchase agreements collateralized by U.S. Government Securities. The
Short Duration Tax-Free and Municipal Income Funds may for temporary defensive
purposes depart from their stated investment objectives and invest more than
20% of their respective net assets in taxable investments. The High Yield Fund
may for temporary defensive purposes invest in investment grade securities.

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) portfolio securities lending, (ii)
mortgage swaps (other than Short Duration Tax-Free and Municipal Income Funds)
and interest rate swaps, caps, floors and collars, (iii) inverse floating rate
securities, (iv) yield curve options, (v) other investment companies, (vi)
custodial receipts and (vii) with respect to the Short Duration Tax-Free and
Municipal Income Funds, tender option bonds and standby commitments. For more
information see the Additional Statement.

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INVESTMENT RESTRICTIONS

Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund still remains an appropriate investment in
light of their then current financial positions and needs.

The Short Duration Tax-Free and Municipal Income Funds' policies to invest,
under normal market conditions, at least 80% of their respective net assets in
Municipal Securities, the interest on which is exempt from regular federal
income tax, is fundamental and may not be changed without shareholder
approval. For more information on a Fund's investment restrictions, an
investor should obtain the Additional Statement.

NON-DIVERSIFICATION STATUS. Since the Global Income Fund is "non-
diversified" under the Act, it is subject only to certain federal tax
diversification requirements. Under federal tax laws, the Global Income Fund
may, with respect to 50% of its total assets, invest up to 25% of its total
assets in the securities of any issuer (except that this limitation does not
apply to U.S. Government Securities). With respect to the remaining 50% of the
Fund's total assets, (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer (other than the U.S. Government),
and (2) the Fund may not acquire more than 10% of the outstanding voting
securities of any one issuer. These tests apply at the end of each quarter of
its taxable year and are subject to certain conditions and limitations under
the Code. Since the Global Income Fund is not diversified under the Act, it
will be more susceptible to adverse developments affecting any single issuer.
The Adjustable Rate Government, Short Duration Government, Short Duration Tax-
Free, Government Income, Municipal Income, Core Fixed Income and High Yield
Funds are, in addition to these tax diversification requirements, also subject
to the diversification requirements arising out of their diversified status
under the Act.

PORTFOLIO TURNOVER

Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed-income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of each Fund will vary from year to year. It is
anticipated that the annual portfolio turnover rate for the High Yield Fund
will generally not exceed 150%. The portfolio turnover rate is computed by
dividing the lesser of the dollar amount of securities purchased or securities
sold (excluding all securities whose maturities at acquisition are one year or
less) by the average monthly value of such securities owned during the year. A
100% turnover rate would occur for example, if all of the securities held by a
Fund were sold and replaced within one year. The Investment Adviser will not
consider the portfolio turnover rate a limiting factor in making investment
decisions for a Fund consistent with the Fund's investment objectives and
portfolio management policies. A high rate of portfolio turnover results in
increased transaction costs to a Fund. The portfolio turnover rate includes
the effect of entering into mortgage dollar rolls. See "Financial Highlights"
for a statement of each Fund's historical portfolio turnover rates.

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MANAGEMENT

TRUSTEES AND OFFICERS

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

INVESTMENT ADVISERS

INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P., One New York
Plaza, New York, New York 10004, a Delaware limited partnership which is an
affiliate of Goldman Sachs, serves as the investment adviser to the Adjustable
Rate Government and Short Duration Government Funds. Goldman Sachs Funds
Management, L.P. registered as an investment adviser in 1990. Goldman Sachs
Asset Management, One New York Plaza, New York, New York 10004, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income and
High Yield Funds. Goldman Sachs registered as an investment adviser in 1981.
Goldman Sachs Asset Management International, 133 Peterborough Court, London
EC4A 2BB, England, an affiliate of Goldman Sachs, serves as investment adviser
to the Global Income Fund. Goldman Sachs Asset Management International became
a member of the Investment Management Regulatory Organization Limited in 1990
and registered as an investment adviser in 1991. As of March 24, 1997, GSAM,
GSFM and GSAMI, together with their affiliates, acted as investment adviser,
administrator or distributor for assets in excess of $104.9 billion.

Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Trust to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.

In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its affiliate offices for
portfolio decisions and management with respect to certain portfolio
securities. In addition, the Investment Advisers will have access to the
research of, and proprietary technical models developed by, Goldman Sachs and
may apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.

Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides office space and all necessary office equipment and services.

ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS. The Fund's
portfolio manager is Jonathan A. Beinner. Mr. Beinner is a Vice President of
Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income Department. Mr. Beinner
joined the Investment Adviser in 1990 after working in the trading and
arbitrage group of Franklin Savings Association.

36
<PAGE>

GOVERNMENT INCOME AND CORE FIXED INCOME FUNDS. The Fund's portfolio managers
are Jonathan A. Beinner and Richard C. Lucy. See above for information about
Mr. Beinner. Messrs. Beinner and Lucy each specialize in investing in a
particular type of security the Fund may hold. Mr. Lucy is a Vice President of
Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income Department. Mr. Lucy
joined the Investment Adviser in 1992 after spending nine years managing fixed
income assets at Brown Brothers Harriman & Co.

SHORT DURATION TAX-FREE AND MUNICIPAL INCOME FUNDS. The Fund's portfolio
managers are Benjamin S. Thompson and Elisabeth Schupf Lonsdale. Mr. Thompson
and Ms. Lonsdale each specialize in municipal securities. Mr. Thompson's
responsibilities include developing investment strategy and structuring
portfolios. Ms. Lonsdale is also responsible for GSAM's municipal credit
research. Mr. Thompson worked in the institutional sales and marketing group at
GSAM until he joined the fixed-income team in 1993. Prior to joining GSAM in
early 1992, Mr. Thompson worked in the Structured Finance Group of the Chase
Manhattan Bank. Before rejoining Goldman Sachs in 1995, Ms. Lonsdale was a
Director of Fitch Investors Service evaluating the credit ratings of tax-backed
issues. Prior to that, she worked for ten years in the Goldman Sachs Municipal
Finance Department.

GLOBAL INCOME FUND. The Fund's portfolio managers are Stephen Fitzgerald and
Andrew Wilson. Mr. Fitzgerald joined GSAMI in 1992 and is an Executive
Director and Chief Investment Officer for international fixed income. Prior to
1992, he spent two years managing multi-currency fixed income and balanced
portfolios at Invesco MIM Limited, where he was a senior member of the
derivative products group. Mr. Wilson joined GSAMI in 1995 and is Executive
Director and Portfolio Manager for international fixed income. Prior to
joining GSAMI, he spent three years as an Assistant Director at Rothschild
Asset Management where he was responsible for managing global and
international bond portfolios, with specific focus on the U.S., Canadian,
Australian and Japanese economies. Prior to his employment at Rothschild, Mr.
Wilson spent seven years at the Reserve Bank of New Zealand, his most recent
position as Trading Manager of foreign reserves management. Mr. Wilson's
employment at the Reserve Bank at New Zealand also included a two year
assignment to the foreign investment unit at the Bank of England in London.

It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
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. In
effecting purchases and sales of portfolio securities for the Funds, the
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman Sachs Fund. See the Additional Statement for a further
description of the Investment Advisers' brokerage allocation practices.

37
<PAGE>

<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* OCTOBER 31, 1996*
----------- -----------------
GSAM
- ----
<S> <C> <C>
Government Income................................. 0.65% 0.25%
Municipal Income.................................. 0.55% 0.55%
Short Duration Tax-Free........................... 0.40% 0.40%
Core Fixed Income................................. 0.40% 0.40%
High Yield........................................ 0.70% N/A
<CAPTION>
GSFM
- ----
<S> <C> <C>
Adjustable Rate Government........................ 0.40% 0.40%
Short Duration Government......................... 0.50% 0.40%
<CAPTION>
GSAMI
- -----
<S> <C> <C>
Global Income..................................... 0.90% 0.59%
</TABLE>
- --------
* With respect to the Government Income, Municipal Income and Global Income
Funds, a Management Agreement combining both advisory and administrative
services was adopted effective April 30, 1997. The Management Agreements for
the other funds previously combined such services. The contractual rate set
forth in the table is the rate payable under the Management Agreements and
is identical to the aggregate advisory and administration fees payable by
each Fund under the previously separate investment advisory (including
subadvisory in the case of the Global Income Fund) and administration
agreements. For the fiscal year ended October 31, 1996, the annual rate
expressed is the combined advisory and administration fees paid (after
voluntary fee limitations). The difference, if any, between the stated fees
and the actual fees paid by the Funds reflects that the applicable
Investment Adviser did not charge the full amount of the fees to which it
would have been entitled. The Investment Advisers may discontinue or modify
such limitations in the future at their discretion, although they have no
current intention to do so.

The Investment Advisers to the Short Duration Government, Short Duration
Tax-Free, Core Fixed Income, Government Income, Municipal Income, Global
Income and High Yield Funds have voluntarily agreed to reduce or limit certain
"Other Expenses" of such Funds (excluding management, distribution and
authorized dealer service fees, taxes, interest and brokerage fees and
litigation, indemnification and other extraordinary expenses and transfer
agency fees in the case of the Global Income and High Yield Funds) to the
extent such expenses exceed 0.05%, 0.05%, 0.05%, 0.00%, 0.05%, 0.06% and 0.01%
per annum of such Funds' average daily net assets, respectively. Such
reductions or limits, if any, are calculated monthly on a cumulative basis and
may be discontinued or modified by the applicable Investment Adviser in its
discretion at any time.

38
<PAGE>

that may be required to conduct a mutual fund sales program; acting as liaison
between depository institutions and national regulatory organizations;
assisting with the preparation of sales material; and providing general
assistance and advice in establishing and maintaining mutual fund sales
programs on the premises of depository institutions.

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, 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 a Fund or limit a Fund's 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 Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a 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, a 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
"Management--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 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Shares may
also be sold by Authorized Dealers. Authorized Dealers include investment
dealers that are members of the NASD and certain other financial service
firms. To become an Authorized Dealer, a dealer or financial service firm must
enter into a sales agreement with Goldman Sachs. The minimum investment
requirements, services, programs and purchase and redemption options for
shares purchased through a particular Authorized Dealer may be different from
those available to investors purchasing through other Authorized Dealers.

Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606 also serves as each
Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
the Government Income, Municipal Income, Global Income and High Yield Funds by
Goldman Sachs (as Transfer Agent) and the assumption by Goldman Sachs of the
expenses related thereto, Goldman Sachs is entitled to receive a fee from each
such Fund, with respect to Class A shares and Class B shares of $12,000 per
year plus $7.50 per account, together with out-of-pocket and transaction-
related expenses (including those out-of-pocket expenses payable to servicing
and/or sub-transfer agents). Goldman Sachs is entitled to receive a fee from
the Adjustable Rate Government Fund, Short Duration Government, Short Duration
Tax-Free and Core Fixed Income Funds with respect to Class A and Class B
shares, where applicable, equal to its proportionate share of the total
transfer agency fees borne by the Fund. Such fees are equal to the fixed
charges set forth above applicable to Class A and B shares plus 0.04% of the
average daily net assets of the other classes of the Fund. Shareholders with
inquiries regarding any Fund should contact Goldman Sachs (as Transfer Agent)
at the address or the telephone number set forth on the back cover page of
this Prospectus.

39
<PAGE>

REPORTS TO SHAREHOLDERS

Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. Each shareholder will also be provided
with a printed confirmation for each transaction in the shareholder's account
and an individual quarterly account statement. A year-to-date statement for
any account will be provided upon request made to Goldman Sachs. The Funds do
not generally provide sub-accounting services.

HOW TO INVEST

ALTERNATIVE PURCHASE ARRANGEMENTS

Each Fund continuously offers through this Prospectus Class A and Class B
shares (except that the Adjustable Rate Government Fund does not currently
offer Class B shares), as described more fully in "How to Buy Shares of the
Funds." If you do not specify in your instructions to the Funds which class of
shares you wish to purchase, the Funds will assume that your instructions
apply to Class A shares.

CLASS A SHARES. If you invest less than $1 million in Class A shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you initially invest $1 million or more in Class A
shares of a Fund, no sales charge will be imposed at the time of purchase, but
you will incur a deferred sales charge equal to 1.00% if you redeem your
shares within 18 months of purchase. Direct purchases (as opposed to
exchanges) of $1 million or more of Class A shares of the Adjustable Rate
Government Fund will not be subject to a deferred sales charge when redeemed.
Class A shares are subject to distribution fees of 0.25% (which currently are
being waived in the case of Adjustable Rate Government, Short Duration
Government, Short Duration Tax-Free, Core Fixed Income, Municipal Income,
Government Income and High Yield Funds and are limited to 0.21% for the Global
Income Fund) and authorized dealer service fees of 0.25%, respectively, of
each Fund's average daily net assets attributable to Class A shares.

CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are subject to a contingent deferred sales charge ("CDSC") of up to 4% in the
case of the Short Duration Government and Short Duration Tax-Free Funds and up
to 5% in the case of the Government Income, Municipal Income, Core Fixed
Income, Global Income and High Yield Funds if redeemed within six years of
purchase. Class B shares are subject to distribution and authorized dealer
service fees of 0.75% (which are currently being limited to 0.60%) and 0.25%,
respectively, of each of Short Duration Government and Short Duration Tax-Free
Fund's average daily net assets attributable to Class B shares and of 0.75%
and 0.25%, respectively, of each of Government Income, Municipal Income, Core
Fixed Income, Global Fixed Income and High Yield Fund's average daily net
assets attributable to Class B shares. See "Distribution and Authorized Dealer
Service Plans." Class B shares will automatically convert to Class A shares,
based on their relative net asset values, eight years after the initial
purchase. Your entire investment in Class B shares is available to work for
you from the time you make your initial investment, but the distribution fee
paid by Class B shares will cause your Class B shares (until conversion to
Class A shares) to have a higher expense ratio and to pay lower dividends, to
the extent dividends are paid, than Class A shares.

FACTORS TO CONSIDER IN CHOOSING CLASS A OR CLASS B SHARES. The decision as
to which class to purchase depends on the amount you invest, the intended
length of the investment and your personal situation. For example, if you are
making an investment of $100,000 or more that qualifies for a reduced sales
charge, you should consider purchasing Class A shares. A brief description of
when the initial sales charge may be reduced or eliminated is set forth below
under "Right of Accumulation" and "Statement of Intention." If you prefer not

40
<PAGE>

to pay an initial sales charge on an investment, you might consider purchasing
Class B shares. There is a maximum purchase limitation of $250,000 in the
aggregate on purchase of Class B shares.

HOW TO BUY SHARES OF THE FUNDS -- CLASS A AND CLASS B SHARES

You may purchase shares of the Funds through any Authorized Dealer
(including Goldman Sachs) or directly from a Fund, c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on any
Business Day (as defined under "Additional Information") at the net asset
value next determined after receipt of an order, plus, in the case of Class A
shares, any applicable sales charge. If, by the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m. New York time), a purchase
order is received by a Fund, Goldman Sachs or an Authorized Dealer, the price
per share will be based on the net asset value computed on the day the
purchase order is received. If a purchase order for shares of the Adjustable
Rate Government, Short Duration Government, Short Duration Tax-Free, Core
Fixed Income or High Yield Funds is received by an Authorized Dealer by
4:00 p.m., New York time and payment is made by (a) wire transfer or ACH
transfer, shares will be issued and dividends declared with respect to such
shares will begin to accrue on the later of (i) the Business Day after receipt
by the Authorized Dealer of the purchase order or (ii) the date of receipt of
payment for the shares or (b) check, Federal Reserve draft or bank wire,
shares will be issued and dividends declared with respect to such shares will
begin to accrue on the Business Day after the date payment is received.
Dividends with respect to the Government Income and Municipal Income Funds
declared with respect to such shares will begin to accrue on the Business Day
after receipt of payment. Shares of the Global Income Fund will begin to be
eligible for dividends paid on or after the day the shares are purchased.

The minimum initial investment in each Fund is $1,000. An initial investment
minimum of $250 applies to purchases in connection with Individual Retirement
Account Plans or accounts established under the Uniform Gift to Minors Act
("UGMA"). For purchases through the Automatic Investment Plan, the minimum
investment is $50. The minimum subsequent investment is $50. These
requirements may be waived at the discretion of the Trust's officers.

You may pay for purchases of shares by check (except that the Trust will not
accept a check drawn on a foreign bank or a third party check), Federal
Reserve draft, federal funds wire, ACH transfer or bank wire. Purchases of
shares by check or Federal Reserve draft should be made payable as follows:
(i) to an investor's Authorized Dealer, if purchased through such Authorized
Dealer, or (ii) to Goldman Sachs Fixed Income Funds -- (Name of Fund and Class
of shares) and sent to NFDS, P.O. Box 419711, Kansas City, MO 64141-6711.
Federal funds wires, ACH transfers and bank wires should be sent to State
Street Bank and Trust Company ("State Street"). Payment must be received
within three Business Days after receipt of the purchase order. An investor's
Authorized Dealer is responsible for forwarding payment promptly to the Fund.

In order to make an initial investment in a Fund, an investor must establish
an account with the Fund by furnishing to the Fund, Goldman Sachs or the
investor's Authorized Dealer the information in the Account Application
attached to this Prospectus. The Funds may refuse to open an account for any
investor who fails to (1) provide a social security number or other taxpayer
identification number, or (2) certify that such number is correct (if required
to do so under applicable law).

The Funds reserve the right to redeem shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market
conditions. A Fund will give sixty (60) days' prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient

41
<PAGE>

additional shares of the Fund to avoid such redemption. In addition, the Funds
and Goldman Sachs reserve the right to modify the minimum investment, the
manner in which shares are offered and the sales charge rates applicable to
future purchases of shares.

OFFERING PRICE -- CLASS A SHARES

The offering price of Class A shares of the Government Income, Municipal
Income, Core Fixed Income, Global Income and High Yield Funds is the next
determined net asset value per share plus a sales charge, if any, paid to
Goldman Sachs at the time of purchase of shares as shown in the following
table:

<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less Than $100,000............. 4.50% 4.71% 4.00%
$100,000 up to (but less than)
$250,000...................... 3.00 3.09 2.50
$250,000 up to (but less than)
$500,000...................... 2.50 2.56 2.00
$500,000 up to (but less than)
$1 million.................... 2.00 2.04 1.75
$1 million or more............. 0.00* 0.00* **

The offering price of Class A shares of the Short Duration Government and
Short Duration Tax-Free Funds is the next determined net asset value per share
plus a sales charge, if any, paid to Goldman Sachs at the time of purchase of
shares as shown in the following table:

<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $250,000............. 3.00% 3.09% 2.50%
$250,000 up to (but less than)
$500,000...................... 2.50 2.56 2.00
$500,000 up to (but less than)
$1 million.................... 2.00 2.04 1.75
$1 million or more............. 0.00* 0.00* **
</TABLE>

The offering price of Class A shares of the Adjustable Rate Government Fund
is the next determined net asset value per share plus a sales charge, if any,
paid to Goldman Sachs at the time of purchase of shares as shown in the
following table:

<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less Than $500,000............. 1.50% 1.52% 1.25%
$500,000 up to (but less than)
$1 million.................... 1.00 1.01 0.75
$1 million or more............. 0.00 0.00 0.00
</TABLE>
- --------
* No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 18 months of purchase.

42
<PAGE>

initiate or are responsible for purchases of $1 million or more by plans or
"wrap" accounts satisfying the criteria set forth in (h) or (j) below.
Purchases by such plans will be made at net asset value with no initial sales
charge, but if all of the shares held are redeemed within 18 months after the
end of the calendar month in which such purchase was made, a contingent
deferred sales charge (CDSC), as described below, of 1.00% will be imposed
upon the plan sponsor or the third party administrator. In addition,
Authorized Dealers shall remit to Goldman Sachs such payments received in
connection with "wrap" accounts in the event that shares are redeemed within
18 months after the end of the calendar month in which the purchase was made.

*** During special promotions, the entire sales charge may be reallowed to
Authorized Dealers. Authorized Dealers to whom substantially the entire
sales charge is reallowed may be deemed to be "underwriters" under the
Securities Act of 1933.

Purchases of $1 million or more of Class A shares of each Fund (other than
Adjustable Rate Government Fund, will be made at net asset value with no
initial sales charge, but if the shares are redeemed within 18 months after
the end of the calendar month in which the purchase was made, excluding any
period of time in which the shares were exchanged into and remained invested
in an ILA Portfolio (the contingent deferred sales charge period), a CDSC of
1.00% will be imposed. Any applicable CDSC will be assessed on an amount equal
to the lesser of the current market value or the original purchase cost of the
redeemed Class A shares. Accordingly, no CDSC will be imposed on increases in
account value above the initial purchase price, including any dividends which
have been reinvested in additional Class A shares. In determining whether a
CDSC applies to a redemption, the calculation will be determined in a manner
that results in the lowest possible rate being charged. Therefore, it will be
assumed that the redemption is first made from any Class A shares in your
account that are not subject to the CDSC. The CDSC is waived on redemptions in
certain circumstances. See "Waiver or Reduction of Contingent Deferred Sales
Charges" below.

Class A shares of the Funds may be sold at net asset value without payment
of any sales charge to (a) Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any Trustee or officer of the Trust and designated family members of any of
the above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor; (d) any employee or registered representative of
any Authorized Dealer or their respective spouses and children; (e) banks,
trust companies or other types of depository institutions investing for their
own account or investing for accounts for which they have investment
discretion; (f) banks, trust companies or other types of depository
institutions investing for accounts for which they do not have investment
discretion; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
shares of a Fund; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buy shares costing $500,000 or
more, or (2) have at the time of purchase, 100 or more eligible participants,
or (3) certify that they project to have annual plan purchases of $200,000 or
more, or (4) are provided administrative services by a third-party
administrator that in the aggregate satisfies (1) or (3) above;
(i) shareholders whose purchase is attributable to redemption proceeds
(subject to appropriate documentation) from a registered open-end management
investment company not distributed or managed by Goldman Sachs or its
affiliates, if such redemption has occurred no more than 60 days prior to the
purchase of shares of the Funds and the shareholder either (a) paid an initial
sales charge or (b) was at some time subject to a deferred sales charge with
respect to the redemption proceeds; (j) "wrap" accounts for the benefit of
clients of broker-dealers, financial institutions or financial planners,
provided that they have entered into an agreement with GSAM specifying
aggregate minimums and certain operating policies and standards;
(k) registered investment advisers

43
<PAGE>

investing for accounts for which they receive asset-based fees; (l) accounts
over which GSAM or its advisory affiliates have investment discretion; and (m)
shareholders receiving distributions from a qualified retirement plan invested
in the Goldman Sachs Funds and reinvesting such proceeds in a Goldman Sachs
IRA. Purchasers must certify eligibility for an exemption on the Account
Application and notify Goldman Sachs if the shareholder is no longer eligible
for an exemption. Exemptions will be granted subject to confirmation of a
purchaser's entitlement. Investors purchasing shares of the Funds at net asset
value without payment of any initial sales charge may be charged a fee if they
effect transactions in shares through a broker or agent. In addition, under
certain circumstances, dividends and distributions from any of the Goldman
Sachs Funds may be reinvested in shares of each Fund at net asset value, as
described under "Cross-Reinvestment of Dividends and Distributions and
Automatic Exchange Program."

REINVESTMENT OF REDEMPTION PROCEEDS -- CLASS A SHARES

A shareholder who redeems Class A shares of a Fund may reinvest at net asset
value any portion or all of his redemption proceeds (plus that amount
necessary to acquire a fractional share to round off his purchase to the
nearest full share) in Class A shares of a Fund or of any other Goldman Sachs
Fund. Shareholders should obtain and read the applicable prospectuses of such
other funds and consider their objectives, policies and applicable fees before
investing in any of such funds. This reinvestment privilege is subject to the
condition that the shares redeemed have been held for at least thirty (30)
days before the redemption and that the reinvestment is effected within ninety
(90) days after such redemption. If you paid a CDSC upon a redemption and
reinvest in Class A shares subject to the conditions set forth above, your
account will be credited with the amount of the CDSC previously charged, and
the reinvested shares will continue to be subject to a CDSC. The holding
period of the Class A shares acquired through reinvestment for purposes of
computing the CDSC payable upon a subsequent redemption, will include the
holding period of the redeemed shares. Shares are sold to a reinvesting
shareholder at the net asset value next determined following timely receipt by
Goldman Sachs or an Authorized Dealer of a written purchase order indicating
that the shares are eligible for reinvestment at net asset value.

A reinvesting shareholder may be subject to tax as a result of such
redemption. If the redemption occurs within ninety (90) days after the
original purchase of the Class A shares, any sales charge paid on the original
purchase cannot be taken into account by a reinvesting shareholder to the
extent an otherwise applicable sales charge is not imposed pursuant to the
reinvestment privilege for purposes of determining gain or loss, if any,
realized on the redemption, but instead will be added to the tax basis of the
Class A shares received in the reinvestment. To the extent that any loss is
realized and shares of the same Fund are purchased within thirty (30) days
before or after the redemption, some or all of the loss may not be allowed as
a deduction depending upon the number of shares purchased. Shareholders should
consult their own tax advisers concerning the tax consequences of a redemption
and reinvestment. Upon receipt of a written request, the reinvestment
privilege may be exercised once annually by a shareholder, except that there
is no such time limit as to the availability of this privilege in connection
with transactions the sole purpose of which is to reinvest the proceeds at net
asset value in a tax-sheltered retirement plan.

RIGHT OF ACCUMULATION -- CLASS A SHARES

Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (shares at current offering price), plus new
purchases, reaches $100,000 or more in the case of Government Income,
Municipal Income, Core Fixed Income, Global Income and High Yield Funds,
$250,000 or more in the case of Short Duration Government and Short Duration
Tax-Free Funds and $500,000 or more in the case of Adjustable Rate Government
Fund. Class A shares of the Goldman Sachs Funds may be combined under the
Right of Accumulation. See Additional Statement for more information about the
Right of Accumulation.

44
<PAGE>

STATEMENT OF INTENTION -- CLASS A SHARES

Purchases of $100,000 or more in the case of Government Income, Municipal
Income, Core Fixed Income, Global Income and High Yield Funds, $250,000 or
more in the case of Short Duration Government and Short Duration Tax-Free
Funds and $500,000 in the case of the Adjustable Rate Government Fund made
over a 13-month period are eligible for reduced sales charges. Class A shares
of the Goldman Sachs Funds may be combined under the Statement of Intention.
See the Additional Statement for more information about the Statement of
Intention.

OFFERING PRICE -- CLASS B SHARES

Investors may purchase Class B shares of each Fund (other than Adjustable
Rate Government Fund) at the next determined net asset value without the
imposition of an initial sales charge. However, Class B shares redeemed within
six years of purchase will be subject to a CDSC at the applicable rates shown
in the tables that follow. At redemption, the charge will be assessed on the
amount equal to the lesser of the current market value or the original
purchase cost of the shares being redeemed. No CDSC will be imposed on
increases in account value above the initial purchase price, including shares
derived from the reinvestment of dividends or capital gains distributions.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of Class B shares. For
the purpose of determining the number of years from the time of any purchase,
all payments during a month will be aggregated and deemed to have been made on
the first day of that month. In processing redemptions of Class B shares, the
Funds will first redeem shares not subject to any CDSC, and then shares held
longest during the eight-year period. As a result, a redeeming shareholder
will pay the lowest possible CDSC.

<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF
DOLLAR AMOUNTS SUBJECT TO CDSC
-----------------------------------------
GOVERNMENT INCOME,
MUNICIPAL INCOME, SHORT DURATION
GLOBAL INCOME, GOVERNMENT AND SHORT
YEAR SINCE CORE FIXED INCOME DURATION TAX-
PURCHASE AND HIGH YIELD FUNDS FREE FUNDS
---------- -------------------- --------------------
<S> <C> <C>
First.......................... 5.0% 4.0%
Second......................... 4.0% 3.0%
Third.......................... 3.0% 2.0%
Fourth......................... 3.0% 2.0%
Fifth.......................... 2.0% 1.0%
Sixth.......................... 1.0% 0.0%
Seventh and thereafter......... none none
</TABLE>

Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class B shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.0% in the case of Government Income, Municipal Income,
Core Fixed Income, Global Income and High Yield Funds and 3.0% in the case of
Short Duration Government and Short Duration Tax-Free Funds of the amount
invested is paid to Authorized Dealers.

45
<PAGE>

acquired by exchange from Class B shares of another Fund will convert into
Class A shares of such Fund based on the date of the initial purchase. Class B
shares acquired through reinvestment of distributions will convert into Class
A shares based on the date of the initial purchase of the shares on which the
distribution was paid. The conversion of Class B shares to Class A shares will
not occur at any time the Funds are advised that such conversions may
constitute taxable events for federal tax purposes, which the Funds believe is
unlikely. If conversions do not occur as a result of possible taxability,
Class B shares would continue to be subject to higher expenses than Class A
shares for an indeterminate period.

WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE. The CDSC on Class B
shares and Class A shares that are subject to a CDSC may be waived or reduced
if the redemption relates to (a) retirement distributions or loans to
participants or beneficiaries from pension and profit sharing plans, pension
funds and other company sponsored benefit plans (each a "Plan"); (b) the death
or disability (as defined in section 72 of the Code) of a participant or
beneficiary in a Plan; (c) hardship withdrawals by a participant or
beneficiary in a Plan; (d) satisfying the minimum distribution requirements of
the Code; (e) the establishment of "substantially equal periodic payments" as
described in Section 72(t) of the Code; (f) the separation from service by a
participant or beneficiary in a Plan; (g) the death or disability (as defined
in section 72 of the Code) of a shareholder if the redemption is made within
one year of such event; (h) excess contributions being returned to a Plan; (i)
distributions from a qualified retirement plan invested in the Goldman Sachs
Funds which are being reinvested into a Goldman Sachs IRA; and (j) redemption
proceeds which are to be reinvested in accounts or non-registered products
over which GSAM or its advisory affiliates have investment discretion. In
addition, Class A and Class B shares subject to a Systematic Withdrawal Plan
may be redeemed without a CDSC. However, Goldman Sachs reserves the right to
limit such redemptions, on an annual basis, to 12% of the value of your
Class B shares and 10% of the value of your Class A shares.

SERVICES AVAILABLE TO SHAREHOLDERS

AUTOMATIC INVESTMENT PLAN

Systematic cash investments may be made through a shareholder's bank via the
Automated Clearing House Network or a shareholder's checking account via bank
draft each month. Required forms are available from Goldman Sachs or any
Authorized Dealer.

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM

46
<PAGE>

Cross-reinvestments and automatic exchanges are subject to the following
conditions: (i) the value of the shareholder's account(s) in the fund which is
paying the dividend or from which the automatic exchange is being made must
equal or exceed $5,000 and (ii) the value of the account in the acquired fund
must equal or exceed the acquired fund's minimum initial investment
requirement or the shareholder must elect to continue cross- reinvestment or
automatic exchanges until the value of acquired fund shares in the
shareholder's account equals or exceeds the acquired fund's minimum initial
investment requirement. A Fund shareholder may elect cross-reinvestment into
an identical account or an account registered in a different name or with a
different address, social security or other taxpayer identification number,
provided that the account in the acquired fund has been established,
appropriate signatures have been obtained and the minimum initial investment
requirement has been satisfied. A Fund shareholder should obtain and read the
prospectus of the fund into which dividends are invested or automatic
exchanges are made.

TAX-SHELTERED RETIREMENT PLANS

The Funds (other than the Short Duration Tax-Free and Municipal Income
Funds) offer their shares for purchase by retirement plans, including IRA
plans for individuals and their non-employed spouses, IRA plans for employees
in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA plans, and
defined contribution plans such as 401(k) Salary Reduction Plans. Detailed
information concerning these plans may be obtained from the Transfer Agent.
This information should be read carefully, and consultation with an attorney
or tax adviser may be advisable. The information sets forth the service fee
charged for retirement plans and describes the federal income tax consequences
of establishing a plan.

EXCHANGE PRIVILEGE

Shares of a Fund may be exchanged at net asset value without the imposition
of an initial sales charge or CDSC at the time of exchange for shares of the
same class or an equivalent class of any other Fund, Goldman Sachs Fund or ILA
Portfolio. A shareholder needs to obtain and read the prospectus of the fund
into which the exchange is made. The shares of these other funds acquired by
an exchange may later be exchanged for shares of the same (or an equivalent
class) of the original Fund at the next determined net asset value without the
imposition of an initial or contingent deferred sales charge if the dollar
amount in the Fund resulting from such exchanges is below the shareholder's
all-time highest dollar amount on which it has previously paid the applicable
sales charge. Shares of these other funds purchased through dividends and/or
capital gains reinvestment may be exchanged for shares of the Funds without a
sales charge. In addition to free automatic exchanges pursuant to the
Automatic Exchange Program, six free exchanges are permitted in each twelve-
month period. A fee of $12.50 may be charged for each subsequent exchange
during such period. The exchange privilege may be modified or withdrawn at any
time upon sixty (60) days' notice to shareholders and is subject to certain
limitations.

An exchange of shares subject to a CDSC will not be subject to the
applicable CDSC at the time of exchange. Shares subject to a CDSC acquired in
an exchange will be subject to the CDSC of the shares originally held. For
purposes of determining the amount of any applicable CDSC, the length of time
a shareholder had owned shares will be measured from the date the shareholder
acquired the original shares subject to a CDSC and will not be affected by any
subsequent exchange.

An exchange may be made by identifying the applicable Fund and class of
shares and either writing to Goldman Sachs, Attention: Goldman Sachs Fixed
Income Funds, Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas City, MO
64141-6711 or, unless the investor has specifically declined telephone
exchange

47
<PAGE>

privileges on the Account Application or elected in writing not to utilize
telephone exchanges, by a telephone request to the Transfer Agent at 800-526-
7384 (8:00 a.m. to 4:00 p.m. Chicago time). Certain procedures are employed to
prevent unauthorized or fraudulent exchange requests as set forth under "How
to Sell Shares of the Funds." Under the telephone exchange privilege, shares
may be exchanged among accounts with different names, addresses and social
security or other taxpayer identification numbers only if the exchange
instructions are in writing and received in accordance with the procedures set
forth under "How to Sell Shares of the Funds." In times of drastic economic or
market changes the telephone exchange privilege may be difficult to implement.

For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a redemption of the shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of shares received in the exchange. If such redemption occurs within ninety
(90) days after the purchase of such shares, to the extent an initial sales
charge that would otherwise apply to the shares received in the exchange is
not imposed, the sales charge paid on such purchase of Class A shares cannot
be taken into account by the exchanging shareholder for purposes of
determining gain or loss, if any, realized on such redemption for federal
income tax purposes, but instead will be added to the tax basis of the shares
received in the exchange. Shareholders should consult their own tax advisers
concerning the tax consequences of an exchange.

All exchanges which represent an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the shares are
being exchanged. Exchanges are available only in states where exchanges may
legally be made.

OTHER PURCHASE INFORMATION

Authorized Dealers and other financial intermediaries provide varying
arrangements for their clients to purchase and redeem Fund shares. Some may
establish higher minimum investment requirements and others may limit the
availability of certain privileges with respect to the purchase and redemption
of shares or the reinvestment of dividends. Firms may arrange with their
clients for other investment or administrative services and may independently
establish and charge additional fees not described in this Prospectus to their
clients for such services. If shares of a Fund are held in a "street name"
account or were purchased through an Authorized Dealer, shareholders should
contact the Authorized Dealer to purchase, redeem or exchange shares, to make
changes in or give instructions concerning the account or to obtain
information about the account.

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

In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.

48
<PAGE>

remained in a Fund), and will from time to time, subject to applicable NASD
regulations, contribute to various non-cash and cash incentive arrangements to
promote the sale of shares, as well as sponsor various educational programs,
sales contests and/or promotions in which participants may receive
reimbursement of expenses, entertainment and prizes such as travel awards,
merchandise, cash, investment research and educational information and related
support materials. This additional compensation may vary among Authorized
Dealers depending upon such factors as the amounts their clients have invested
(or may invest) in the Funds, the particular program involved, or the amount
of reimbursable expenses. Additional compensation based on sales may, but is
currently not expected to, exceed .50% (annualized) of the amount invested.
For Further information, see "Other Information Regarding Purchases,
Redemptions, Exchanges and Dividends" in the Additional Statement.

DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS

DISTRIBUTION PLAN -- CLASS A SHARES

The Trust, on behalf of each Fund's Class A shares, has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Act (the "Class A
Distribution Plan"). Under the Class A Distribution Plan, Goldman Sachs is
entitled to a quarterly fee from each Fund for distribution services equal, on
an annual basis, to 0.25% of a Fund's average daily net assets attributable to
Class A shares of such Fund. Currently, Goldman Sachs has voluntarily agreed
to waive the entire amount of such fee for the Adjustable Rate Government,
Short Duration Government, Short Duration Tax-Free, Core Fixed Income,
Government Income, Municipal Income and High Yield Funds and to limit the
amount of such fee to 0.21% of average daily net assets attributable to Class
A shares of the Global Income Fund. Goldman Sachs has no current intention of
modifying or discontinuing such waiver, but may do so in the future at its
discretion. For the period ended October 31, 1996, the Global Income Fund paid
Goldman Sachs a fee at the rate of 0.21% of the Fund's average daily net
assets attributable to Class A shares of such Fund.

Goldman Sachs may use the distribution fee for its expenses of distributing
Class A shares of the Funds. The types of expenses for which Goldman Sachs may
be compensated for distribution services under the Class A Distribution Plan
include compensation paid to and expenses incurred by Authorized Dealers,
Goldman Sachs and their respective officers, employees and sales
representatives, allocable overhead, telephone and travel expenses, the
printing of prospectuses for prospective shareholders, preparation and
distribution of sales literature, advertising of any type and all other
expenses incurred in connection with activities primarily intended to result
in the sale of Class A shares. If the fee received by Goldman Sachs pursuant
to the Class A Distribution Plan exceeds its expenses, Goldman Sachs may
realize a profit from these arrangements. The Class A Distribution Plan will
be reviewed and is subject to approval annually by the Trustees. The aggregate
compensation that may be received under the Class A Distribution Plan for
distribution services may not exceed the limitations imposed by the NASD's
Conduct Rules.

DISTRIBUTION PLAN -- CLASS B SHARES

The Trust, on behalf of each Fund's Class B shares (other than the
Adjustable Rate Government Fund which does not offer Class B shares), has
adopted a Distribution Plan pursuant to Rule 12b-1 under the Act (the "Class B
Distribution Plan"). Under the Class B Distribution Plan, Goldman Sachs is
entitled to a quarterly fee from each Fund for distribution services equal, on
an annual basis, to 0.75% of a Fund's average daily net assets attributable to
Class B shares. Goldman Sachs has voluntarily agreed to limit such fee to
0.60% of the average

49
<PAGE>

daily net assets of the Short Duration Government and Short Duration Tax-Free
Funds, attributable to Class B shares of such Funds. For the fiscal year ended
October 31, 1996 the Funds then offering Class B shares paid distribution fees
with respect to their Class B shares at the foregoing rate.

Goldman Sachs may use the distribution fee for its expenses of distributing
Class B shares of the Funds. The types of expenses for which Goldman Sachs may
be compensated for distribution services under the Class B Distribution Plan
include compensation paid to and expenses incurred by Authorized Dealers,
Goldman Sachs and their respective officers, employees and sales
representatives, commissions paid to Authorized Dealers, allocable overhead,
telephone and travel expenses, the printing of prospectuses for prospective
shareholders, preparation and distribution of sales literature, advertising of
any type and all other expenses incurred in connection with activities
primarily intended to result in the sale of Class B shares. If the fee
received by Goldman Sachs pursuant to the Class B Distribution Plan exceeds
its expenses, Goldman Sachs may realize a profit from these arrangements. The
Class B Distribution Plan will be reviewed and is subject to approval annually
by the Trustees. The aggregate compensation that may be received under the
Class B Distribution Plan for distribution services may not exceed the
limitations imposed by the NASD's Conduct Rules.

AUTHORIZED DEALER SERVICE PLANS

The Trust on behalf of each Fund's Class A and Class B shares has adopted
non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service Plan")
pursuant to which Goldman Sachs, Authorized Dealers or other persons are
compensated for providing personal and account maintenance services. Each Fund
pays a fee under its Class A or Class B Service Plan equal on an annual basis
to 0.25% of its average daily net assets attributable to Class A or Class B
shares. The fee for personal and account maintenance services paid pursuant to
a Service Plan may be used to make payments to Goldman Sachs, Authorized
Dealers and their officers, sales representatives and employees for responding
to inquiries of, and furnishing assistance to, shareholders regarding
ownership of their shares or their accounts or similar services not otherwise
provided on behalf of the Funds. The Service Plans will be reviewed and are
subject to approval annually by the Trustees. For the fiscal year ended
October 31, 1996, each Fund (other than the Short Duration Government, Short
Duration Tax-Free, Core Fixed Income and High Yield Funds which did not offer
Class A or Class B shares) paid Authorized Dealer service fees at the
foregoing rate for each Fund's Class A and Class B shares.

HOW TO SELL SHARES OF THE FUNDS

Each Fund will redeem its shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form, subject to any applicable CDSC. See "Net Asset Value."
Redemption proceeds will be mailed by check to a shareholder within three (3)
Business Days of receipt of a properly executed request. If shares to be
redeemed were recently purchased by check, a Fund may delay transmittal of
redemption proceeds until such time as it has assured itself that good funds
have been collected for the purchase of such shares. This may take up to
fifteen (15) days. Redemption requests may be made by writing to or calling
the Transfer Agent at the address or telephone number set forth on the back
cover page of this Prospectus or an Authorized Dealer.

50
<PAGE>

are sent to a Goldman Sachs brokerage account are not subject to the $50,000
limit). It may be difficult to implement redemptions by telephone in times of
drastic economic or market changes. By completing an Account Application, an
investor agrees that the Trust, the Distributor and the Transfer Agent shall
not be liable for any loss incurred by the investor by reason of the Trust
accepting unauthorized telephone redemption requests for his account if the
Trust reasonably believes the instructions to be genuine. Thus, shareholders
risk possible losses in the event of a telephone redemption not authorized by
them. The Trust may accept telephone redemption instructions from any person
identifying himself as the owner of an account or the owner's broker where the
owner has not declined in writing to utilize this service.

In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable
procedures specified by the Trust to confirm that such instructions are
genuine. Consequently, proceeds of telephone redemption requests will be sent
only to the shareholder's address of record or authorized bank account
designated in the Account Application and exchanges of shares will be made
only to an identical account. Telephone requests will also be recorded. The
Trust may implement other procedures from time to time. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. Proceeds of telephone redemptions
will be mailed to the shareholder's address of record or wired to the
authorized bank account indicated on the Account Application, unless the
shareholder provides written instructions (accompanied by a signature
guarantee) indicating another address. Telephone redemptions will not be
accepted during the 30-day period following any change in a shareholder's
address of record. This redemption option does not apply to shares held in a
"street name" account. Shareholders whose accounts are held in "street name"
should contact their broker of record who may effect telephone redemptions on
their behalf. The Trust reserves the right to terminate or modify the
telephone redemption service at any time. Shares of each Fund (other than
Global Income Fund) earn dividends accrued through the day on which such
shares are redeemed.

Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies the standards established by the Transfer Agent.

The Funds will also arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the bank account designated in the
shareholder's Account Application. Redemption proceeds will normally be wired
on the next Business Day in federal funds (for a total one Business Day delay)
following receipt of a properly executed wire transfer redemption request.
Wiring of redemption proceeds may be delayed one additional Business Day if
the Federal Reserve Bank is closed on the day redemption proceeds would
ordinarily be wired. A transaction fee of $7.50 may be charged for payments of
redemption proceeds by wire. In order to change the bank designated on the
Account Application to receive redemption proceeds, a written request must be
received by the Transfer Agent. This request must be signature guaranteed as
set forth above. Further documentation may be required for executors, trustees
or corporations. Once wire transfer instructions have been given by Goldman
Sachs or an Authorized Dealer, neither a Fund, the Trust, Goldman Sachs nor
any Authorized Dealer assumes any further responsibility for the performance
of intermediaries or the shareholder's bank in the transfer process. If a
problem with such performance arises, the shareholder should deal directly
with such intermediaries or bank.

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

51
<PAGE>

SYSTEMATIC WITHDRAWAL PLAN

A shareholder may draw on shareholdings systematically via check or ACH in
any amount specified by the shareholder over $50. Checks are only available on
or about the 25th of each month. Each systematic withdrawal is a redemption
and therefore a taxable transaction. A minimum balance of $5,000 in shares of
a Fund is required. The maintenance of a withdrawal plan concurrently with
purchases of additional Class A or Class B shares would be disadvantageous
because of the sales charge imposed on your purchases of Class A shares or the
imposition of a CDSC on your redemptions of Class A and Class B shares. The
CDSC applicable to Class A and Class B shares redeemed under a systematic
withdrawal plan may be waived. See "How to Invest--Waiver or Reduction of
Contingent Deferred Sales Charge." See Additional Statement for more
information about the Systematic Withdrawal Plan.

DIVIDENDS

Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding shares will, at the election of
each shareholder, be paid (i) in cash, (ii) in additional shares of the same
class of the Fund or (iii) in shares of the same or an equivalent class of any
other Goldman Sachs Fund or units of the ILA Portfolios (the Prime Obligations
Portfolio only for Class B) as described under "Cross-Reinvestment of
Dividends and Distributions and Automatic Exchange Program." This election
should initially be made on a shareholder's Account Application and may be
changed upon written notice to Goldman Sachs at any time prior to the record
date for a particular dividend or distribution. If no election is made, all
dividends from net investment income and capital gains distributions will be
reinvested in the Fund. Capital gains distributions will be reinvested or paid
in cash, in accordance with the shareholder's prior election, on the payment
date.

The election to reinvest dividends and distributions paid by the Fund in
additional shares or units of the Fund or any other Goldman Sachs Fund or ILA
Portfolio will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares or units of the Fund, another Goldman Sachs Fund or an
ILA Portfolio.

Each Fund intends that all or substantially all of its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. In the case
of the Core Fixed Income, Global Income and High Yield Funds, net loss, if
any, from certain foreign currency transactions or instruments that is
otherwise taken into account in calculating net investment income or net
realized capital gains for accounting purposes may not be taken into account
in determining the amount of dividends to be declared and paid, with the
result that a portion of the Fund's dividends may be treated as a return of
capital, nontaxable to the extent of a shareholder's tax basis in his shares.
Each Fund (other than the Global Income Fund) will declare dividends daily and
pay dividends monthly. The Global Income Fund will declare and pay dividends
monthly. All of the Funds will pay dividends from net realized long-term and
short-term capital gains, reduced by available capital losses, at least
annually. From time to time a portion of any Fund's dividends may constitute a
return of capital.

At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income (in the
case of the Global Income Fund) or realized or unrealized appreciation of any
Fund's portfolio securities. Therefore, subsequent distributions on such
shares from such

52
<PAGE>

income or realized appreciation may be taxable to the investor even if the net
asset value of the investor's shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions
thereof) represent a return of a portion of the purchase price.

NET ASSET VALUE

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

Each Fund's portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities and
other portfolio securities are valued at fair value, based on yield
equivalents, a pricing matrix or other sources, under valuation procedures
established by the Trustees. Debt obligations with a remaining maturity of 60
days or less are valued at amortized cost. The Board of Trustees has
determined that the amortized cost of such securities approximates fair market
value.

PERFORMANCE INFORMATION

From time to time each Fund may publish yield, distribution rate and average
annual total return and the Short Duration Tax-Free and Municipal Income Funds
may publish their tax equivalent yields in advertisements and communications
to shareholders or prospective investors. 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 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. Total return calculations for Class A shares reflect the effect of
paying the maximum initial sales charge. Investment at a lower sales charge
would result in higher performance figures. Total return calculations for
Class B shares reflect deduction of the applicable CDSC imposed upon
redemption of Class B shares held for the applicable period. Each 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, each Fund may furnish total return
calculations based on investments at various sales charge levels or at net
asset value. Any performance data which is based on a Fund's net asset value
per share would be reduced if a sales charge were taken into account. In
addition to the above, each Fund may from time to time advertise its
performance relative to certain averages, performance rankings, indices, other
information prepared by recognized mutual fund statistical services and
investments for which reliable performance data is available.

53
<PAGE>

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 tax-free yield of the Short Duration Tax-Free or the
Municipal Income Funds. Tax equivalent yield is calculated by dividing the
applicable Fund's tax-exempt yield by one minus a stated federal tax rate.

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 net asset value per share or
maximum public offering price on the last day of the period for which the
distribution rates are being calculated.

Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. The investment performance of the Class A and Class B shares will
be affected by the payment of a sales charge and distribution fees and other
class specific expenses. See "Shares of the Trust."

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

SHARES OF THE TRUST

Each Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Trust, a Massachusetts business trust, and were
reorganized into the Trust as of April 30, 1997. The Trustees have authority
under the Trust's Declaration of Trust to create and classify shares of
beneficial interest in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify or reclassify any series or portfolio of shares
into one or more classes.

When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.

The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and,
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting for the
purpose of electing Trustees if, at any time, less than a majority of Trustees
holding office at the time were elected by shareholders.

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<PAGE>

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

As of April 1, 1997, the shareholders listed below owned beneficially and of
record 25% or more of the outstanding shares of such Fund: Short Duration
Government Fund--State Street Bank and Trust Company, P.O. Box 1992, Boston,
MA 02105-1992 (34.05%).

TAXATION

FEDERAL TAXES

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

The Short Duration Tax-Free and Municipal Income Funds intend to satisfy
certain requirements of the Code so that they may distribute the tax-exempt
interest they receive as "exempt-interest dividends," as defined in the Code.
If such requirements are satisfied, distributions of the Short Duration Tax-
Free and Municipal Income Funds that are attributable to interest on tax-
exempt obligations and that the Funds properly designate as exempt-interest
dividends will be exempt from regular federal income tax, although all or a
portion of such a distribution may be subject to the federal alternative
minimum tax and the entire distribution may be includable in the tax base for
determining taxability of social security or railroad retirement benefits.
Persons who are "substantial users" (or related persons to such substantial
users) of facilities financed by industrial development or certain private
activity bonds should consult their own tax advisers before purchasing shares
of the Short Duration Tax-Free and Municipal Income Funds. Interest on
indebtedness incurred or continued to purchase or carry shares of the Short
Duration Tax-Free and Municipal Income Funds is not deductible to the extent
attributable to the Funds' distributions that are exempt-interest dividends.

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

55
<PAGE>

Redemptions and exchanges of shares are taxable events.

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

The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. If more than 50% of the value of the total assets of
either Fund is comprised of stock or securities of foreign corporations at the
end of its taxable year and the applicable Fund so elects, that Fund's
shareholders will include in their gross incomes (in addition to dividends and
distributions they receive) their pro rata shares of qualified foreign taxes
paid by that Fund and may be entitled under the Code to claim foreign tax
credits or deductions with respect to such taxes. It is not expected that the
Core Fixed Income Fund will qualify to make this election with respect to such
taxes. If either Fund cannot or does not so elect, it may deduct these taxes
in computing its taxable income, if any.

OTHER TAXES

In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds, including exempt-
interest dividends. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent (if
any) a Fund's distributions are derived from interest on (or, in the case of
intangible property 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. For a further
discussion of certain tax consequences of investing in shares of the Funds,
see "Taxation" in the Additional Statement. Shareholders are urged to consult
their own tax advisers regarding specific questions as to federal, state and
local taxes as well as to any foreign taxes.

ADDITIONAL INFORMATION

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

As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Presidents' Day (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

56
<PAGE>

APPENDIX

STATEMENT OF INTENTION
(APPLICABLE ONLY TO CLASS A SHARES PURCHASED SUBJECT TO A SALES CHARGE)

If a shareholder anticipates purchasing $100,000 ($500,000 in the case of
the Adjustable Rate Government Fund and $250,000 in the case of Short Duration
Government and Short Duration Tax-Free Funds) or more of Class A shares of a
Fund alone or in combination with Class A shares of another Fund or another
Goldman Sachs Fund within a 13-month period, the shareholder may obtain Class
A shares of the Fund at the same reduced sales charge as though the total
quantity were invested in one lump sum by filing this Statement of Intention
incorporated by reference in the Account Application. Income dividends and
capital gain distributions taken in additional shares will not apply toward
the completion of this Statement of Intention.

To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that this Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward completion
do not total the sum specified, he will pay the increased amount of the sales
charge prescribed in the Escrow Agreement.

ESCROW AGREEMENT

Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Application shall be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will
be paid to the investor or to his order. When the minimum investment so
specified is completed (either prior to or by the end of the thirteenth
month), the shareholder will be notified and the escrowed shares will be
released. In signing the Account Application, the investor irrevocably
constitutes and appoints the Transfer Agent his attorney to surrender for
redemption any or all escrowed shares with full power of substitution in the
premises.

If the intended investment is not completed, the investor will be asked to
remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the
sales charge, the Transfer Agent will redeem an appropriate number of the
escrowed shares in order to realize such difference. Shares remaining after
any such redemption will be released by the Transfer Agent.

57
<PAGE>

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

GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB

GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004

GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110

TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384

FIPROAB
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS

FIXED INCOME FUNDS

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

PROSPECTUS CLASS A AND CLASS B SHARES

GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
PROSPECTUS
May 1, 1997 GOLDMAN SACHS FIXED INCOME FUNDS
INSTITUTIONAL SHARES

GOLDMAN SACHS ADJUSTABLE RATE GOLDMAN SACHS CORE FIXED INCOME FUND
GOVERNMENT FUND
Seeks a total return consisting of
Seeks a high level of current capital appreciation and income that
income, consistent with low exceeds the total return of the Lehman
volatility of principal. The Brothers Aggregate Bond Index. The Fund
Fund invests primarily in ad- invests primarily in fixed-income
justable rate mortgage pass- securities, including securities issued
through securities and other or guaranteed by the U.S. government,
mortgage securities with peri- its agencies, instrumentalities or
odic interest rate resets, sponsored enterprises, corporate
which are issued or guaranteed securities, mortgage-backed securities
by the U.S. government, its and asset-backed securities.
agencies, instrumentalities or
sponsored enterprises.

GOLDMAN SACHS GLOBAL INCOME FUND
GOLDMAN SACHS SHORT DURATION
GOVERNMENT FUND
Seeks a high level of current
income and secondarily, in Seeks a high total return, emphasizing
seeking current income, may current income and, to a lesser extent,
also consider the potential for providing opportunities for capital
capital appreciation. The Fund appreciation. The Fund invests
invests primarily in securities primarily in a portfolio of high
issued or guaranteed by the quality fixed-income securities of U.S.
U.S. government, its agencies, and foreign issuers and foreign
instrumentalities or sponsored currencies.
enterprises.

GOLDMAN SACHS HIGH YIELD FUND
GOLDMAN SACHS SHORT
DURATIONTAX-FREE FUND
Seeks a high level of current
income, consistent with rela- Seeks a high level of current income
tively low volatility of prin- and, secondarily, capital appreciation.
cipal, that is exempt from reg- The Fund invests primarily in fixed-
ular federal income tax. The income securities rated below
Fund invests primarily in mu- investment grade.
nicipal securities.

Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Adjustable Rate Government and Short Duration Government Funds.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Core Fixed Income and High Yield Funds. Goldman Sachs Asset
Management International ("GSAMI"), London, England, an affiliate of Goldman
Sachs, serves as investment adviser to the Global Income Fund. GSAM, GSFM and
GSAMI are each referred to in this Prospectus as the "Investment Adviser."
Goldman Sachs serves as each Fund's distributor and transfer agent.

INSTITUTIONAL SHARES OF THE FUNDS 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 A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

(cover continued)

THE ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS' NET
ASSET VALUES AND YIELDS ARE NOT GUARANTEED BY THE U.S. GOVERNMENT OR BY ITS
AGENCIES, INSTRUMENTALITIES OR SPONSORED ENTERPRISES.

THE HIGH YIELD FUND INVESTS PRIMARILY IN HIGH YIELD, FIXED-INCOME SECURITIES
RATED BELOW INVESTMENT GRADE THAT ARE CONSIDERED SPECULATIVE AND GENERALLY
INVOLVE GREATER PRICE VOLATILITY AND GREATER RISK OF LOSS OF PRINCIPAL AND
INTEREST THAN INVESTMENTS IN HIGHER RATED FIXED-INCOME SECURITIES.

INVESTORS SHOULD CONSIDER THE RISKS ASSOCIATED WITH INVESTMENT IN A FUND
INVESTING IN FOREIGN AND OR HIGH YIELD SECURITIES. THE FUNDS MAY NOT BE
SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK
FACTORS."

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights..................... 1
Fees and Expenses................... 7
Financial Highlights................ 9
Investment Objectives and Policies.. 13
Description of Securities........... 18
Risk Factors........................ 25
Investment Techniques............... 28
Investment Restrictions............. 32
Portfolio Turnover.................. 32
Management.......................... 33
Dividends........................... 36
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value................... 37
Performance Information........... 38
Shares of the Trust............... 39
Taxation.......................... 39
Additional Information............ 41
Reports to Shareholders........... 42
Purchase of Institutional Shares.. 42
Exchange Privilege................ 44
Redemption of Institutional
Shares........................... 45
Appendix.......................... A-1
Account Application
</TABLE>
<PAGE>

FUND HIGHLIGHTS

The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.

WHAT IS THE GOLDMAN SACHS TRUST?

The Goldman Sachs Trust is an open-end management investment company that
offers its shares in several investment funds (mutual funds). Each Fund
pools the monies of investors by selling its shares to the public and
investing these monies in a portfolio of securities designed to achieve that
Fund's stated investment objectives.

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

1
<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY
- -------------- ------------------- ------------------- ------------ ---------------------- -------------------
<S> <C> <C> <C> <C> <C>
ADJUSTABLE A high level of Target = 6-month 9-month note At least 65% of U.S. Government
RATE current income, to 1-year total assets in Securities
GOVERNMENT consistent with U.S. Treasury securities issued or
FUND low volatility Security guaranteed by the
of principal. Maximum = 2 years U.S. government,
its agencies,
instrumentalities
or sponsored
enterprises
("U.S. Government
Securities'')
that are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = 2-year 2-year bond At least 65% of U.S. Government
GOVERNMENT current income, U.S. Treasury total assets in Securities
FUND and secondarily, Security plus U.S. Government
in seeking current or minus .5 years Securities
income, may also Maximum = 3 years and repurchase
consider the poten- agreements
tial for capital collateralized
appreciation. by such securities.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = Lehman 3-year bond At least 80% of Minimum = BBB/Baa
TAX-FREE current income, Brothers net assets in
FUND consistent with 3-year Municipal municipal securities.
low volatility Bond Index
of principal, plus or minus
that is exempt .5 years
from regular Maximum = 4 years
federal
income tax.
--------------------------------------------------------------------------------------------
CORE FIXED Total return Target = Lehman 5-year bond At least 65% of Minimum = BBB/Baa
INCOME FUND consisting Brothers assets in fixed-income Minimum for non-
of capital Aggregate Bond securities, including dollar securities =
appreciation Index plus or U.S. Government AA/Aa
and income that minus 1 year Securities, corporate,
exceeds the total Maximum = 6 years mortgage-backed
return of the and asset-backed
Lehman Brothers securities.
Aggregate Bond
Index.
<CAPTION>
FUND NAME OTHER INVESTMENTS BENCHMARK
- --------------- ------------------- -----------------
<S> <C> <C>
ADJUSTABLE Fixed-rate 6-month and
RATE mortgage 1-Year U.S.
GOVERNMENT pass-through Treasury Security
FUND securities and
repurchase
agreements
collateralized by
U.S. Government
Securities.
--------------------------------------------------------------------------------------------
SHORT DURATION Mortgage pass- 2-Year U.S.
GOVERNMENT through Treasury Security
FUND securities and
other securities
representing an
interest in or
collateralized
by mortgage loans.
--------------------------------------------------------------------------------------------
SHORT DURATION U.S. Government Lehman Brothers
TAX-FREE Securities 3-Year Municipal
FUND and repurchase Bond Index
agreements
collateralized
by such securities.
--------------------------------------------------------------------------------------------
CORE FIXED Foreign fixed- Lehman Brothers
INCOME FUND income, Aggregate Bond
municipal and Index
convertible
securities,
foreign currencies
and repurchase
agreements
collateralized
by U.S.
Government
Securities.
</TABLE>

2
<PAGE>

3
<PAGE>

WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?

4
<PAGE>

markets of foreign countries are generally less liquid and subject to
greater price volatility. To the extent that the Core Fixed Income, Global
Income and High Yield Funds invest in emerging markets and countries, these
risks may be heightened.

WHO MANAGES THE FUNDS?

Goldman Sachs Funds Management, L.P. serves as the Investment Adviser to
the Adjustable Rate Government and Short Duration Government Funds. Goldman
Sachs Asset Management serves as Investment Adviser to the Short Duration
Tax-Free, Core Fixed Income and High Yield Funds. Goldman Sachs Asset
Management International serves as Investment Adviser to the Global Income
Fund. As of March 24, 1997, the Investment Advisers, together with their
affiliates, acted as investment adviser, administrator or distributor for
assets in excess of $104.9 billion.

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's shares.

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $50,000 ($1,000,000 for the Global
Income and High Yield Funds) in Institutional Shares of the Fund alone or in
combination with Institutional Shares (or the corresponding class) of any
other mutual fund sponsored by Goldman Sachs and designated as an eligible
fund for this purpose.

HOW DO I PURCHASE INSTITUTIONAL SHARES?

You may purchase Institutional Shares of the Funds through Goldman Sachs.
Institutional Shares are purchased at the current net asset value without
any sales load. See "Purchase of Institutional Shares."

HOW DO I SELL MY INSTITUTIONAL SHARES?

You may redeem Institutional Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Institutional Shares."

5
<PAGE>

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME
DIVIDENDS
------------------ CAPITAL GAINS
FUND DECLARED PAID DISTRIBUTIONS
---- ------------------ -------------
<S> <C> <C> <C>
Adjustable Rate Government.................. Daily Monthly Annually
Short Duration Government................... Daily Monthly Annually
Short Duration Tax-Free..................... Daily Monthly Annually
Core Fixed Income........................... Daily Monthly Annually
Global Income............................... Monthly Monthly Annually
High Yield.................................. Daily Monthly Annually
</TABLE>

Recordholders of Institutional Shares may receive dividends in additional
Institutional Shares of the Fund in which you have invested or you may elect
to receive cash. For further information concerning dividends, see
"Dividends."

6
<PAGE>

FEES AND EXPENSES (INSTITUTIONAL SHARES)

<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION CORE FIXED GLOBAL HIGH
GOVERNMENT GOVERNMENT SHORT DURATION INCOME INCOME YIELD
FUND/1/ FUND TAX-FREE FUND FUND FUND FUND/1/
--------------- -------------- -------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on
Purchases............ none none none none none none
Maximum Sales Charge
Imposed on
Reinvested Divi-
dends................ none none none none none none
Redemption Fees....... none none none none none none
Exchange Fees......... none none none none none none
ANNUAL FUND OPERATING EXPENSES: (as a
percentage of average daily net
assets)
Management Fees (after
applicable limita-
tions)/2/............ 0.40% 0.40% 0.40% 0.40% 0.59% 0.65%
Distribution (Rule
12b-1) Fees.......... none none none none none none
Other Expenses (after
applicable
limitations)/3/...... 0.11% 0.05% 0.05% 0.05% 0.06% 0.05%
---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (after fee
and expense
limitations)/4/..... 0.51% 0.45% 0.45% 0.45% 0.65% 0.70%
==== ==== ==== ==== ==== ====
</TABLE>

EXAMPLE

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

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government...................... $ 5 $16 $29 $64
Short Duration Government....................... $ 5 $14 $25 $57
Short Duration Tax-Free......................... $ 5 $14 $25 $57
Core Fixed Income............................... $ 5 $14 $25 $57
Global Income................................... $ 7 $21 $36 $81
High Yield...................................... $7 $22 N/A N/A
</TABLE>
- --------
/1/Based on estimated amounts for the current fiscal year for the Adjustable
Rate Government and High Yield Funds.
/2/The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the Short Duration Government, Global
Income and High Yield Funds equal to .10%, .31% and .05%, respectively.
Without such limitations, management fees would be .50%, .90% and .70% of
each Fund's average daily net assets, respectively.
/3/The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses (and
transfer agency fees in the case of the Global Income and High Yield Funds))
to the extent such expenses exceed .05%, .05%, .05%, .06% and .01% of the
average daily net assets of the Short Duration Government, Short Duration
Tax-Free, Core Fixed Income, Global Income and High Yield Funds,
respectively.

7
<PAGE>

/4/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of each Fund (other than the Adjustable Rate Government
and High Yield Funds) for the fiscal year ended October 31, 1996 would have
been as follows:

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Short Duration Government................................. .21% .71%
Short Duration Tax-Free................................... .61% 1.01%
Core Fixed Income......................................... .43% .83%
Global Income............................................. .21% 1.11%
</TABLE>

In addition, for the High Yield Fund, without the limitations described
above, "Other Expenses" and "Total Operating Expenses" for the current fiscal
year are estimated to be .60% and 1.30%, respectively.

The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Institutional Shares of the Funds.
Short Duration Government, Short Duration Tax-Free and Core Fixed Income Funds
also offer Administration Shares, Service Shares, Class A Shares and Class B
Shares; Adjustable Rate Government Fund also offers Administration Shares,
Service Shares and Class A Shares; Global Income and High Yield Funds also
offer Service Shares, Class A Shares and Class B Shares. The other classes of
the Funds are subject to different fees and expenses (which affect
performance), have different minimum investment requirements and are entitled
to different services. Information regarding any other class of the Funds may
be obtained from your sales representative or from Goldman Sachs by calling
the number on the back cover page of this Prospectus.

8
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period(s) indicated has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Funds for the year ended October 31, 1996 (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 calling the telephone
number or writing to one of the addresses on the back cover of this Prospectus.
During the periods shown, the Trust did not offer Institutional or Service
shares of the High Yield Fund. Accordingly, there are no financial highlights
for these classes.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $ 9.77 $0.5759(a) $0.0772 (a) -- $0.6531
1996-Administra-
tion Shares.... 9.77 0.5489(a) 0.0797 (a) -- 0.6286
1996-Class A
Shares......... 9.77 0.5481(a) 0.0806 (a) -- 0.6287
1995-Institu-
tional Shares.. 9.74 0.5630(a) 0.0717 (a) -- 0.6347
1995-Administra-
tion Shares.... 9.74 0.5366(a) 0.0737 (a) -- 0.6103
1995-Class A
Shares(c)...... 9.79 0.2721(a) (0.0090)(a) -- 0.2631
1994-Institu-
tional Shares.. 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administra-
tion Shares.... 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institu-
tional Shares.. 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administra-
tion
Shares(e)...... 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institu-
tional Shares.. 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institu-
tional Shares.. 10.00 0.1531 0.0322 (d) -- 0.1853
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ ------- -------------
ADJUSTABLE RATE GOVERNMENT FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $(0.5725) -- $(0.0206) -- -- $(0.5931)
1996-Administra-
tion Shares.... (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A
Shares......... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institu-
tional Shares.. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administra-
tion Shares.... (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A
Shares(c)...... (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institu-
tional Shares.. (0.4486) -- -- -- -- (0.4486)
1994-Administra-
tion Shares.... (0.4239) -- -- -- -- (0.4239)
1993-Institu-
tional Shares.. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administra-
tion
Shares(e)...... (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institu-
tional Shares.. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institu-
tional Shares.. (0.1553) -- -- -- -- (0.1553)

<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
----------------------
RATIO OF RATIO OF RATIO OF
NET NET NET NET RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME PORT NET ASSETS TO INCOME
IN NET AT END AVERAGE (LOSS) TO FOLIO AT END OF AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER PERIOD NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) (IN 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- -------- ---------- -------- ----------
ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $0.0600 $9.83 6.86% 0.45% 5.85% 52.36% $613,149 0.51% 5.79%
1996-Administra-
tion Shares.... 0.0600 9.83 6.60 0.70 5.59 52.36 3,792 0.76 5.53
1996-Class A
Shares......... 0.0600 9.83 6.60 0.70 5.59 52.36 10,728 1.01 5.28
1995-Institu-
tional Shares.. 0.0301 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-Administra-
tion Shares.... 0.0300 9.77 6.48 0.71 5.50 24.12 3,572 0.78 5.43
1995-Class A
Shares(c)...... (0.0200) 9.77 2.74(f) 0.69(b) 5.87(b) 24.12 15,203 1.01(b) 5.55(b)
1994-Institu-
tional Shares.. (0.2600) 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-Administra-
tion Shares.... (0.2600) 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-Institu-
tional Shares.. (0.0400) 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-Administra-
tion
Shares(e)...... (0.0200) 10.00 2.01(f) 0.70(b) 3.81(b) 103.74 5,326 0.73(b) 3.78(b)
1992-Institu-
tional Shares.. 0.0100 10.04 6.12 0.42 5.61 286.40 2,145,064 0.55 5.48
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institu-
tional Shares.. 0.0300 10.03 2.14(f) 0.20(b) 7.31(b) 145.67(b) 239,642 1.02(b) 6.49(b)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
SHORT DURATION GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares
............... $9.82 $0.6290(a) $0.0136 (a) -- $0.6426
1996-Administra-
tion
Shares(h)...... 9.86 0.3837(a) 0.0003 (a) -- 0.3840
1996-Service
Shares(i)...... 9.72 0.3134(a) 0.1018 (a) -- 0.4152
1995-Institu-
tional Shares.. 9.64 0.6652(a) 0.1666 (a) -- 0.8318
1995-Administra-
tion Shares.... 9.64 0.2384(a) (0.0433)(a) -- 0.1951
1994-Institu-
tional Shares.. 10.14 0.5628(a) (0.4592)(a) -- 0.1036
1994-Administra-
tion Shares.... 10.14 0.5329(a) (0.4539)(a) -- 0.0790
1993-Institu-
tional Shares.. 10.16 0.5627 (0.0135)(d) -- 0.5492
1993-Administra-
tion
Shares(e)...... 10.23 0.2725 (0.0900)(d) -- 0.1825
1992-Institu-
tional Shares.. 10.22 0.6703 (0.0600)(d) -- 0.6103
1991-Institu-
tional Shares.. 10.00 0.8020 0.2200 (d) -- 1.0220
1990-Institu-
tional Shares.. 10.07 0.8300 (0.0700)(d) -- 0.7600
1989-Institu-
tional Shares.. 10.10 0.8800 -- -- 0.8800
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
1988-Institu-
tional Shares.. 10.00 0.1800 0.1000 (d) -- 0.2800

<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ -------- -------------
SHORT DURATION GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares
............... $(0.6326) -- -- -- -- $(0.6326)
1996-Administra-
tion
Shares(h)...... (0.3940) -- -- -- -- (0.3940)
1996-Service
Shares(i)...... (0.3152) -- -- -- -- (0.3152)
1995-Institu-
tional Shares.. (0.6518) -- -- -- -- (0.6518)
1995-Administra-
tion Shares.... (0.2051) -- -- -- -- (0.2051)
1994-Institu-
tional Shares.. (0.5598) (0.0438) -- -- -- (0.6036)
1994-Administra-
tion Shares.... (0.5352) (0.0438) -- -- -- (0.5790)
1993-Institu-
tional Shares.. (0.5627) -- (0.0065) -- -- (0.5692)
1993-Administra-
tion
Shares(e)...... (0.2725) -- -- -- -- (0.2725)
1992-Institu-
tional Shares.. (0.6703) -- -- -- -- (0.6703)
1991-Institu-
tional Shares.. (0.8020) -- -- -- -- (0.8020)
1990-Institu-
tional Shares.. (0.8300) -- -- -- -- (0.8300)
1989-Institu-
tional Shares.. (0.8800) -- -- -- (0.0300) (0.9100)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
1988-Institu-
tional Shares.. (0.1800) -- -- -- -- (0.1800)

<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
SHORT DURATION GOVERNMENT FUND
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares
............... $0.0100 $9.83 6.75% 0.45% 6.44% 115.45% $99,944 0.71% 6.18%
1996-Administra-
tion
Shares(h)...... (0.0100) 9.85 4.00(f) 0.70(b) 5.97(b) 115.45 252 0.96(b) 5.71(b)
1996-Service
Shares(i)...... 0.1000 9.82 4.35(f) 0.95(b) 6.05(b) 115.45 1,822 1.21(b) 5.79(b)
1995-Institu-
tional Shares.. 0.1800 9.82 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administra-
tion Shares.... (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institu-
tional Shares.. (0.5000) 9.64 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administra-
tion Shares.... (0.5000) 9.64 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institu-
tional Shares.. (0.0200) 10.14 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administra-
tion
Shares(e)...... (0.0900) 10.14 1.74 0.70(b) 4.84(b) 411.66 16,490 0.80(b) 4.74(b)
1992-Institu-
tional Shares.. (0.0600) 10.16 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institu-
tional Shares.. 0.2200 10.22 10.93 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institu-
tional Shares.. (0.0700) 10.00 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institu-
tional Shares.. (0.0300) 10.07 9.08 0.46 8.71 137.37 31,015 1.39 7.78
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
1988-Institu-
tional Shares.. 0.1000 10.10 3.30(f) 0.55(b) 8.55(b) 167.00(b) 39,052 1.42(b) 7.68(b)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
SHORT DURATION TAX-FREE FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $ 9.94 $0.4192(a) $ 0.0200 (a) -- $0.4392
1996-Administra-
tion Shares.... 9.94 0.3944(a) 0.0200 (a) -- 0.4144
1996-Service
Shares......... 9.95 0.3697(a) 0.0200 (a) -- 0.3897
1995-Institu-
tional Shares.. 9.79 0.4235(a) 0.1500 (a) -- 0.5735
1995-Administra-
tion Shares.... 9.79 0.3989(a) 0.1500 (a) -- 0.5489
1995-Service
Shares......... 9.79 0.3744(a) 0.1600 (a) -- 0.5344
1994-Institu-
tional Shares.. 10.23 0.3787(a) (0.3575)(a) -- 0.0212
1994-Administra-
tion Shares.... 10.23 0.3537(a) (0.3575)(a) -- (0.0038)
1994-Service
Shares(j)...... 9.86 0.0475(a) (0.0700)(a) (0.0225)
1993-Institu-
tional Shares.. 9.93 0.3834 0.3000(d) -- 0.6834
1993-Administra-
tion
Shares(j)...... 10.16 0.1555 0.0720(d) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institu-
tional Shares.. 10.00 0.0341 (0.0700)(d) -- (0.0359)
<CAPTION>
CORE FIXED INCOME FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares... $10.00 $0.6448 $(0.0704) -- $0.5744
1996-Administra-
tion Shares(1).. 9.91 0.4083 (0.0703) -- 0.3380
1996-Service
Shares(1)....... 9.77 0.3756 0.0898 -- 0.4654
1995-Institu-
tional Shares... 9.24 0.6423 0.7610 -- 1.4033
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
1994-Institu-
tional Shares... 10.00 0.4648 (0.7617) -- (0.2969)

<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ -------- -------------
SHORT DURATION TAX-FREE FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $(0.4192) -- -- -- -- $(0.4192)
1996-Administra-
tion Shares.... (0.3944) -- -- -- -- (0.3944)
1996-Service
Shares......... (0.3697) -- -- -- -- (0.3697)
1995-Institu-
tional Shares.. (0.4235) -- -- -- -- (0.4235)
1995-Administra-
tion Shares.... (0.3989) -- -- -- -- (0.3989)
1995-Service
Shares......... (0.3744) -- -- -- -- (0.3744)
1994-Institu-
tional Shares.. (0.3787) (0.0825) -- -- -- (0.4612)
1994-Administra-
tion Shares.... (0.3537) (0.0825) -- -- -- (0.4362)
1994-Service
Shares(j)...... (0.0475) -- (0.0475)
1993-Institu-
tional Shares.. (0.3834) -- -- -- -- (0.3834)
1993-Administra-
tion
Shares(j)...... (0.1555) -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institu-
tional Shares.. (0.0341) -- -- -- -- (0.0341)
<CAPTION>
CORE FIXED INCOME FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares... $(0.6438) $(0.0806) -- -- -- $(0.7244)
1996-Administra-
tion Shares(1).. (0.4080) -- -- -- -- (0.4080)
1996-Service
Shares(1)....... (0.3754) -- -- -- -- (0.3754)
1995-Institu-
tional Shares... (0.6433) -- -- -- -- (0.6433)
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
1994-Institu-
tional Shares... (0.4648) -- -- -- -- (0.4648)

<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF O-OTOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $0.0300 $9.96 4.50% 0.45% 4.21% 231.65% $34,814 1.01% 3.65%
1996-Administra-
tion Shares.... 0.0300 9.96 4.24 0.70 3.96 231.65 48 1.26 3.40
1996-Service
Shares......... 0.0200 9.97 3.98 0.95 3.74 231.65 695 1.51 3.18
1995-Institu-
tional Shares.. 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-Administra-
tion Shares.... 0.1500 9.94 5.76 0.70 4.14 259.52 46 1.02 3.82
1995-Service
Shares......... 0.1600 9.95 5.59 0.95 3.87 259.52 454 1.27 3.55
1994-Institu-
tional Shares.. (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-Administra-
tion Shares.... (0.4400) 9.79 (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
1994-Service
Shares(j)...... (0.0700) 9.79 (0.32)(f) 0.95(b) 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-Institu-
tional Shares.. 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-Administra-
tion
Shares(j)...... 0.0720 10.23 2.28(f) 0.70(b) 3.32(b) 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institu-
tional Shares.. (0.0700) 9.93 (0.34)(f) 0.05(b) 4.58(b) 31.19(f) 14,601 2.68(b) 1.95(b)
<CAPTION>
CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares... $(0.1500) $9.85 5.98% 0.45% 6.51% 414.20% $72,061 0.83% 6.13%
1996-Administra-
tion Shares(1).. (0.0700) 9.84 3.56(f) 0.70(b) 6.41(b) 414.20 702 1.08(b) 6.03(b)
1996-Service
Shares(1)....... 0.0900 9.86 4.90(f) 0.95(b) 6.37(b) 414.20 381 1.33(b) 5.99(b)
1995-Institu-
tional Shares... 0.7600 10.00 15.72 0.45 6.56 383.26 55,502 0.96 6.05
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
1994-Institu-
tional Shares... (0.7617) 9.24 (3.00) 0.45(b) 6.48(b) 288.25 24,508 1.46(b) 5.47(b)
</TABLE>
11

<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
-----------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
GLOBAL INCOME FUND
- ---------------- ---------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1996-Class A
shares.......... $14.45 $0.71 $0.62 $0.18 $1.51
1996-Class B
shares(m)....... 14.03 0.34 0.41 0.11 0.86
1996-
Institutional
shares.......... 14.45 1.15 0.32 0.10 1.57
1995-Class A
shares.......... 13.43 0.89 0.92 0.15 1.96
1995-
Institutional
shares(m)....... 14.09 0.22 0.34 0.06 0.62
1994-Class A
shares.......... 15.07 0.84 (1.37) (0.12) (0.65)
1993-Class A
shares.......... 14.69 0.85 1.07 (0.42) 1.50
1992-Class A
shares.......... 14.60 1.14 0.45 (0.36) 1.23
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
1991-Class A
shares.......... 14.55 0.25 0.23 (0.19) 0.29

<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL INCOME FUND
- ---------------- ---------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1996-Class A
shares.......... $(1.43) -- -- -- -- $(1.43)
1996-Class B
shares(m)....... (0.36) -- -- -- -- (0.36)
1996-
Institutional
shares.......... (1.50) -- -- -- -- (1.50)
1995-Class A
shares.......... (0.94) -- -- -- -- (0.94)
1995-
Institutional
shares(m)....... (0.26) -- -- -- -- (0.26)
1994-Class A
shares.......... (0.22) (0.16) -- -- (0.61) (0.99)
1993-Class A
shares.......... (0.85) (0.27) -- -- -- (1.12)
1992-Class A
shares.......... (1.14) -- -- -- -- (1.14)
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
1991-Class A
shares.......... (0.24) -- -- -- -- (0.24)

<CAPTION>
RATIOS
ASSUMING NO
VOLUNTARY
WAIVER OF FEES
OR EXPENSE
LIMITATIONS
-------------------
RATIO OF NET RATIO OF
NET NET NET RATIO OF ASSETS RATIO OF NET
INCREASE ASSET EXPENSES NET AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INVESTMENT OF TO INCOME
IN NET AT END AVERAGE INCOME TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL INCOME FUND
- ---------------- --------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1996-Class A
shares.......... $0.08 $14.53 11.05% 1.16% 5.81% 232.15% $198,665 1.64% 5.33%
1996-Class B
shares(m)....... 0.50 14.53 6.24(f) 1.70(b) 5.16(b) 232.15 256 2.14(b) 4.72(b)
1996-
Institutional
shares.......... 0.07 14.52 11.55 0.65 6.35 232.15 54,254 1.11 5.89
1995-Class A
shares.......... 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995-
Institutional
shares(m)....... 0.36 14.45 4.42(f) 0.65(b) 6.01(b) 265.86 31,619 1.08(b) 5.58(b)
1994-Class A
shares.......... (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993-Class A
shares.......... 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992-Class A
shares.......... 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62 7.60
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
1991-Class A
shares.......... 0.05 14.60 2.00 0.38(f) 1.72(f) 34.22(f) 388,744 0.44(f) 1.66(f)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized.
(c) Class A share activity commenced on May 15, 1995.
(d) Includes the effect of mortgage dollar roll transactions.
(e) Administration share activity commenced on April 15, 1993.
(f) Not annualized.
(g) Commencement of operations.
(h) GS Short Duration Government Fund Administration shares were redeemed in
full on February 23, 1995 and re-commenced on February 28, 1996 at $9.86.
(i) Service share activity commenced on April 10, 1996.
(j) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994 respectively.
(k) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and not
sales charges. For Class A shares only, total return would be reduced if a
sales charge were taken into account.
(l) Administration and Service share activity commenced operations on February
28, 1996 and March 13, 1996 respectively.
(m) Institutional and Class B shares commenced operations on June 1, 1995 and
May 1, 1996, respectively.
(n) Includes the balancing effect of calculating per share amounts.

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Investment Adviser will have access to the research of, and proprietary
technical models developed by, Goldman Sachs and will apply quantitative and
qualitative analysis in determining the appropriate allocations among the
categories of issuers and types of securities.

ADJUSTABLE RATE GOVERNMENT FUND

OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with low volatility of principal.

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CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.

SHORT DURATION GOVERNMENT FUND

OBJECTIVE. The Fund's investment objective is to provide a high level of
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.

DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the two-year U.S.
Treasury security, plus or minus .5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed three years. The
approximate interest rate sensitivity of the Fund is comparable to a two-year
bond.

CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.

SHORT DURATION TAX-FREE FUND

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Securities"), the interest on which is exempt from regular federal income tax
(i.e., excluded from gross income for federal income tax purposes), and is not
a tax preference item under the federal alternative minimum tax. Under normal
circumstances, the Fund's investments in private activity bonds and taxable
investments will not exceed, in the aggregate, 20% of the Fund's net assets.
The interest from certain private activity bonds (including the Fund's
distributions of such interest) may be a preference item for purposes of the
federal alternative minimum tax. 100% of the Fund's portfolio will be invested
in U.S. dollar-denominated securities.

CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Municipal Securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal. 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.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."

CORE FIXED INCOME FUND

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OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign currencies and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. The Fund may invest in custodial receipts, Municipal
Securities and convertible securities. The Fund may also employ other
investment techniques to seek to enhance returns, such as lending portfolio
securities and entering into mortgage dollar rolls, repurchase agreements and
other investment practices, described under "Investment Techniques."

GLOBAL INCOME FUND

OBJECTIVE. The Fund's investment objective is to provide investors with a
high total return, emphasizing current income, and, to a lesser extent,
providing opportunities for capital appreciation.

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10% of its total assets in issuers in countries with emerging markets and
economies. The Fund seeks to meet its investment objective by pursuing
investment opportunities in foreign and domestic fixed-income securities
markets and by engaging in currency transactions to seek to enhance returns
and to seek to hedge its portfolio against currency exchange rate
fluctuations.

The fixed-income securities in which the Fund may invest include: (i) U.S.
Government Securities and custodial receipts therefor; (ii) securities issued
or guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, instrumentalities or by supranational entities (i.e.,
international organizations designated or supported by governmental entities
to promote economic reconstruction or development, such as the World Bank);
(iii) corporate debt securities; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, U.S. or
foreign banks (and their branches wherever located) having total assets of
more than $1 billion; (v) commercial paper and (vi) Mortgage-Backed and Asset-
Backed Securities.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign currencies and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. While the Fund will have both long and short currency
positions, its net long and short foreign currency exposure will not exceed
the value of the Fund's total assets. To the extent that the Fund is fully
invested in foreign securities while also maintaining currency positions, it
may be exposed to greater combined risk. The Fund's net currency positions may
expose it to risks independent of its securities positions. The Fund may also
employ other investment techniques to seek to enhance returns, such as lending
portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices described under "Investment
Techniques."

The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan,
and the United Kingdom as well as in the securities of U.S. issuers.
Concentration of the Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in those countries. With respect to other countries,
not more than 25% of the Fund's total assets will be invested in securities of
issuers in any other foreign country.

HIGH YIELD FUND

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normal interest rate conditions, the Fund's maximum duration will not exceed
7.5 years. The approximate interest rate sensitivity of the Fund is comparable
to a 6-year bond.

INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in high yield, fixed-income securities rated, at the
time of investment, below investment grade. Non-investment grade securities
are securities rated BB or below by S&P, Ba or below by Moody's, an equivalent
rating by another rating organization, or if unrated by a rating organization,
determined by the Investment Adviser to be of comparable quality. The Fund may
invest in all types of fixed-income securities, including senior and
subordinated corporate debt obligations (such as bonds, debentures, notes and
commercial paper), convertible and non-convertible corporate debt obligations,
and preferred stock. The Fund may invest up to 25% of its total assets in
obligations of domestic and foreign issuers (including securities of issuers
located in countries with emerging markets and economies) which are
denominated in currencies other than the U.S. dollar. Under normal market
conditions, the Fund may invest up to 35% of its total assets in investment
grade fixed-income securities, including U.S. Government Securities, Asset-
Backed and Mortgage-Backed Securities and corporate securities. The Fund may
also invest in common stocks, warrants, rights and other equity securities,
but will generally hold such equity investments only when debt or preferred
stock of the issuer of such equity securities is held by the Fund. A number of
investment strategies are used to seek to achieve the Fund's investment
objective, including market sector selection, determination of yield curve
exposure, and issuer selection. In addition, the Investment Adviser will
attempt to take advantage of pricing inefficiencies in the fixed-income
markets.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign securities and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps, and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use currency techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. The Fund may also employ other investment techniques to seek to
enhance returns, such as lending portfolio securities and entering into
repurchase agreements and other investment practices described under
"Investment Techniques."

DESCRIPTION OF SECURITIES

U.S. GOVERNMENT SECURITIES

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Mortgage Association ("Ginnie Mae")), (b) the right of the issuer to borrow
from the U.S. Treasury (such as securities of the Student Loan Marketing
Association), (c) the discretionary authority of the U.S. government to
purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer. No assurance can be
given that the U.S. government will provide financial support to U.S.
government agencies, instrumentalities or sponsored enterprises in the future.

MORTGAGE-BACKED SECURITIES

FIXED RATE MORTGAGE LOANS. Generally, fixed-rate mortgage loans pay interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed-rate mortgage loans typically provide for monthly payments of
principal and interest in substantially equal installments for the term of the
mortgage note in sufficient amounts to fully amortize principal by maturity,
although certain fixed-rate mortgage loans provide for a large final "balloon"
payment upon maturity.

ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Short Duration Government, Core Fixed Income, Global
Income and High Yield Funds may, invest in ARMs, which are pass-through
mortgage securities collateralized by mortgages with adjustable rather than
fixed coupon rates. ARMs generally provide for a fixed initial mortgage
interest rate for a set period. Thereafter, the interest rates are subject to
periodic adjustments based on changes to a designated benchmark index.

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issuers include, but are not limited to, Ginnie Mae, Fannie Mae and Freddie
Mac. See "U.S. Government Securities."

PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Core Fixed Income, Global
Income and High Yield Funds may invest in Mortgage-Backed Securities issued or
sponsored by non-governmental entities. Privately issued Mortgage-Backed
Securities are generally backed by pools of conventional (i.e., non-government
guaranteed or insured) mortgage loans. Since such Mortgage-Backed Securities
normally are not guaranteed by an entity having the credit standing of Ginnie
Mae, Fannie Mae or Freddie Mac, in order to receive a high quality rating from
the rating organizations (i.e., S&P or Moody's), they normally are structured
with one or more types of "credit enhancement."

MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Adjustable Rate Government, Short Duration Government, Core
Fixed Income, Global Income and High Yield Funds may also invest in multiple
class securities, including collateralized mortgage obligations ("CMOs") and
Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates. CMOs provide an investor with a specified interest
in the cash flow from a pool of underlying mortgages or of other Mortgage-
Backed Securities. CMOs are issued in multiple classes, each with a specified
fixed or floating interest rate and a final scheduled distribution date. In
most cases, payments of principal are applied to the CMO classes in the order
of their respective stated maturities, so that no principal payments will be
made on a CMO class until all other classes having an earlier stated maturity
date are paid in full. A REMIC is a CMO that qualifies for special tax
treatment under the Internal Revenue Code of 1986, as amended (the "Code"),
and invests in certain mortgages principally secured by interests in real
property and other permitted investments. The Funds do not intend to purchase
residual interests in REMICs.

STRIPPED MORTGAGE-BACKED SECURITIES. The Adjustable Rate Government, Short
Duration Government, Core Fixed Income, Global Income and High Yield Funds may
invest in Stripped Mortgage-Backed Securities ("SMBS"), which are derivative
multiple class Mortgage-Backed Securities. SMBS are usually structured with
two different classes; one that receives 100% of the interest payments and the
other that receives 100% of the principal payments from a pool of mortgage
loans. If the underlying mortgage loans experience different than anticipated
prepayments of principal, a Fund may fail to fully recoup its initial
investment in these securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from mortgage loans are generally higher than prevailing
market yields on other Mortgage-Backed Securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.

ASSET-BACKED SECURITIES

The Core Fixed Income, Global Income and High Yield Funds may invest in
Asset-Backed Securities. The principal and interest payments on Asset-Backed
Securities are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property. Such
asset pools are securitized through the use of special purpose trusts or
corporations. Principal and interest payments may be credit enhanced by a
letter of credit, a pool insurance policy or a senior/subordinated structure.

MUNICIPAL SECURITIES

GENERAL. Municipal Securities in which the Short Duration Tax-Free Fund and,
to a limited extent, the Core Fixed Income and High Yield Funds, invest
consist of bonds, notes, commercial paper and other instruments (including
participation interests in such 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 or

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instrumentalities, the interest on which, 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 federal alternative
minimum tax or from state or local taxes). Such securities may pay fixed,
variable or floating rates of interest. 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.

PRIVATE ACTIVITY BONDS. Municipal Securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Short Duration Tax-Free Fund's
distributions attributable to the interest income from private activity bonds
may subject certain investors to the federal alternative minimum tax.

MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. 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 facilities. Certificates of
participation represent undivided interests in municipal leases, installment
purchase agreements or other instruments. The primary risk associated with
municipal lease obligations and certificates of participation is that the
governmental lessee will fail to appropriate funds to enable it to meet its
payment obligations under the lease. Although the obligations may be secured
by the leased equipment or facilities, the disposition of the property in the
event of non-appropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovering or the failure to
fully recover the Fund's original investment. To the extent that a Fund
invests in unrated municipal leases or participates in such leases, the
Trustees will monitor on an ongoing basis the credit quality rating and risk
of cancellation of such unrated leases. Certain municipal lease obligations
and certificates of participation may be deemed illiquid for the purpose of a
Fund's limitation on investments in illiquid securities.

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CORPORATE DEBT OBLIGATIONS

The Core Fixed Income, Global Income and High Yield Funds may invest in
corporate debt obligations. In addition to obligations of corporations,
corporate debt obligations include securities issued by banks and other
financial institutions. Corporate debt obligations are subject to the risk of
an issuer's inability to meet principal and interest payments on the
obligations.

CONVERTIBLE SECURITIES

PREFERRED STOCK, WARRANTS AND RIGHTS

FOREIGN INVESTMENTS

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in currency rates, changes in foreign or U.S. laws or restrictions applicable
to such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. In addition, clearance and
settlement procedures may be different in foreign countries and, in certain
markets, such procedures have on occasion been unable to keep pace with the
volume of securities transactions, making it more difficult to conduct such
transactions.

Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers may be
less liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some cases
capital gains), limitations on the removal of funds or other assets of a Fund,
political or social instability or diplomatic developments which could affect
investments in those countries.

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markets may be undergoing significant evolution and rapid development, and
emerging markets may lack the social, political and economic stability
characteristic of more developed countries. As a result, the risks relating to
investments in foreign securities described above, including the possibility
of nationalization, expropriation and confiscatory taxation, may be
heightened. In addition, unanticipated political and social developments may
affect the value of the Fund's investments in emerging markets and the
availability to the Fund of additional investments in such countries. The
small size and inexperience of the securities markets in certain emerging
markets and the limited volume of trading in securities in those countries may
make the Fund's investments in such countries less liquid and more volatile
than investments in countries with more developed securities markets (such as
the U.S., Japan and most Western European countries). See the Additional
Statement for further information regarding a Fund's investments in emerging
markets.

FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income, Global Income and High Yield Funds will usually involve
currencies of foreign countries, and because the Funds may have currency
exposure independent of their securities positions, the value of the assets of
a Fund as measured in U.S. dollars will be affected by changes in foreign
currency exchange rates. A Fund may, to the extent it invests in foreign
securities, purchase or sell forward foreign currency exchange contracts for
hedging purposes and to seek to protect against anticipated changes in future
foreign currency exchange rates. A Fund also may enter into such contracts to
seek to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to increase total return, forward foreign currency exchange contracts are
considered speculative. The Funds may also engage in cross-hedging by using
forward contracts in a currency different from that in which the hedged
security is denominated or quoted if the Investment Adviser determines that
there is a pattern of correlation between the two currencies. If a Fund enters
into a forward foreign currency exchange contract to buy foreign currency for
any purpose or to sell foreign currency to seek to increase total return, the
Fund will be required to place cash or liquid assets in a segregated account
with the Fund's custodian in an amount equal to the value of the Fund's total
assets committed to the consummation of the forward contract. A Fund will
incur costs in connection with conversions between various currencies. A Fund
may hold foreign currency received in connection with investments in foreign
securities when, in the judgment of the Investment Adviser, it would be
beneficial to convert such currency into U.S. dollars at a later date, based
on anticipated changes in the relevant exchange rate.

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exchange or clearinghouse, a default on a contract would deprive a Fund of
unrealized profits, transaction costs or the benefits of a currency hedge or
force the Fund to cover its purchase or sale commitments, if any, at the
current market price. A Fund will not enter into forward foreign currency
exchange contracts, currency swaps or other privately negotiated currency
instruments unless the credit quality of the unsecured senior debt or the
claims-paying ability of the counterparty is considered to be investment grade
by the Investment Adviser.

STRUCTURED SECURITIES

The Core Fixed Income, Global Income and High Yield Funds may invest in
structured securities. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption may
be increased or decreased depending upon changes in the applicable Reference.
The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, result in the
loss of a Fund's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at
maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.

ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS

Each Fund may invest in zero coupon, deferred interest, and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. Each Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. 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, pay-in-kind
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. A Fund's investments in zero coupon,
deferred interest, pay-in-kind 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.

RISK FACTORS

INTEREST RATE RISK. When interest rates decline, the market value of fixed-
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed-income securities tends to decline. Volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.

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The investment characteristics of Mortgage-Backed Securities and Asset-
Backed Securities differ from those of traditional fixed-income securities
because they generally have both call risk (also known as prepayment risk) and
extension risk. Homeowners have the option to prepay their mortgage.
Therefore, the duration of a security backed by home mortgages can either
shorten (call risk) or lengthen (extension risk). Investors are exposed to the
fluctuating principal and interest payments associated with such securities.
In general, if interest rates on new mortgage loans fall sufficiently below
the interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to increase. Conversely, if mortgage loan
interest rates rise above the interest rates on existing outstanding mortgage
loans, the rate of prepayment would be expected to decrease.

ARMs also have the risk of prepayments, which will have a greater impact on
the Adjustable Rate Government Fund. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed-rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates (than if
prevailing interest rates remain constant or increase) because the
availability of low fixed-rate mortgages may encourage mortgagors to refinance
their ARMs to "lock-in" a fixed-rate mortgage. Conversely, if prevailing
interest rates rise significantly, ARMs may prepay slower. As with fixed-rate
mortgages, ARM prepayment rates vary in both stable and changing interest rate
environments. There are certain ARMs where the homeowner's payments do not
fully cover interest, so the principal balance increases over time. These
"negative amortizing" ARMs may be subject to greater default risk.

DERIVATIVE MORTGAGE-BACKED SECURITIES. Because derivative Mortgage-Backed
Securities (such as principal-only (POs), interest-only (IOs) or inverse
floating rate securities) are more exposed to mortgage prepayments, they
generally involve a greater amount of risk. Small changes in prepayments can
significantly impact the cash flow and the market value of these securities.
The risk of faster than anticipated prepayments generally adversely affects
IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of
slower than anticipated prepayments generally adversely affects POs, floating-
rate securities subject to interest rate caps, support tranches and discount
priced Mortgage-Backed Securities. In addition, particular derivative
securities may be leveraged such that their exposure (i.e., price sensitivity)
to interest rate and/or prepayment risk is magnified.

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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 the demand for and
supply, liquidity and marketability of Municipal Securities, which could in
turn affect a Fund's ability to acquire and dispose of Municipal Securities at
desirable yield and price levels.

RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-
investment grade fixed-income securities are considered predominantly
speculative by traditional investment standards. In some cases, these
obligations may be highly speculative and have poor prospects for reaching
investment grade standing. Non-investment grade fixed-income securities and
unrated securities of comparable credit quality (commonly known as "junk
bonds") are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities, also referred to as high
yield securities, may be subject to greater price volatility due to such
factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less secondary
market liquidity.

Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less
established companies seeking to expand. Such issuers are often highly
leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest in the event of
adverse developments or business conditions.

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

FOREIGN RISKS. See "Foreign Securities" for a description of the risks of
investing in foreign securities and currencies.

INVESTMENT TECHNIQUES

MORTGAGE DOLLAR ROLLS. The Adjustable Rate Government, Short Duration
Government, Core Fixed Income and Global Income Funds may enter into mortgage
"dollar rolls" in which a Fund sells securities for delivery in the current
month and simultaneously contracts with the same counterparty to repurchase
substantially similar (same type, coupon and maturity) but not identical
securities on a specified future date. During the roll period, the Fund loses
the right to receive principal and interest paid on the securities sold.
However, the Fund would benefit to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase or fee income plus the interest earned on the cash proceeds of
the securities sold until the settlement date for the forward purchase. Unless
such benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund. Successful use of mortgage dollar rolls
depends upon the Investment Adviser's ability to predict correctly interest
rates and mortgage prepayments. There is no assurance that mortgage dollar
rolls can be successfully employed. The Fund will hold and maintain in a
segregated account until the settlement date cash or liquid assets in an
amount equal to the forward purchase price. For financial reporting and tax
purposes, each Fund treats mortgage dollar rolls as two separate transactions;
one involving the purchase of a security and a separate transaction involving
a sale. The Funds do not currently intend to enter into mortgage dollar rolls
that are accounted for as a financing.

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<PAGE>

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return, to hedge against changes in interest rates or securities prices,
or in the case of the Core Fixed Income, Global Income and High Yield Funds,
currency exchange rates, a Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on any of such futures
contracts. Each Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
Securities), foreign currencies, in the case of the Core Fixed Income, Global
Income and High Yield Funds, securities indices and other financial
instruments and indices. A Fund will engage in futures and related options
transactions 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. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek 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 a 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

29
<PAGE>

value of a Fund's net assets. These transactions involve brokerage costs,
require margin deposits and, in the case of contracts and options obligating a
Fund to purchase securities or currencies, require the Fund to segregate and
maintain cash or liquid assets 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 Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while a Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position which is intended to be protected is impossible to
achieve, the desired protection may not be obtained and a Fund may be exposed
to risk of loss. The loss incurred by a Fund in entering into futures
contracts and in writing call options on futures is potentially unlimited and
may exceed the amount of the premium received. Futures markets are highly
volatile and the use of futures may increase the volatility of a Fund's net
asset value. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
correctly analyze the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.

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<PAGE>

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. Each
Fund may also purchase securities on a forward commitment basis; that is, make
contracts to purchase securities for a fixed price at a future date beyond the
customary three-day settlement. A Fund is required to hold and maintain in a
segregated account with the Fund's custodian until three days prior to
settlement date, cash or liquid assets in an amount sufficient to meet the
purchase price. Alternatively, each 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 a Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, a Fund may dispose of when-issued securities or
forward commitments prior to settlement if the Investment Adviser deems it
appropriate to do so.

ILLIQUID AND RESTRICTED SECURITIES. A Fund may not invest more than 15% of
its net assets in illiquid investments, which includes securities (both
foreign and domestic) that are not readily marketable, swap transactions,
certain SMBS, certain municipal leases and participation interests, repurchase
agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days and certain restricted securities,
unless it is determined, based upon the continuing review of the trading
markets for a specific restricted security, that such restricted security is
eligible for resale under Rule 144A under the Securities Act of 1933 and,
therefore, is liquid. The Trustees have adopted guidelines and delegated to
the Investment Adviser the daily function of determining and monitoring the
liquidity of portfolio securities. The Trustees, however, retain oversight
focusing on factors such as valuation, liquidity and availability of
information and are ultimately responsible for each determination. Investing
in restricted securities eligible for resale pursuant to Rule 144A may
decrease the liquidity in a Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.

TEMPORARY INVESTMENTS. Each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in (a) U. S. Government Securities or
(b) repurchase agreements collateralized by U.S. Government Securities. The
Short Duration Tax-Free Fund may for temporary defensive purposes depart from
its stated investment objectives and invest more than 20% of its net assets in
taxable investments. The High Yield Fund may for temporary defensive purposes
invest in investment grade securities.

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<PAGE>

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) portfolio securities lending, (ii)
mortgage swaps (other than Short Duration Tax-Free Fund) and interest rate
swaps, caps, floors and collars, (iii) inverse floating-rate securities, (iv)
yield curve options, (v) other investment companies, (vi) custodial receipts
and (vii) with respect to the Short Duration Tax-Free Fund, tender option
bonds and standby commitments. For more information, see the Additional
Statement.

INVESTMENT RESTRICTIONS

The Short Duration Tax-Free Fund's policy to invest, under normal market
conditions, at least 80% of its net assets in Municipal Securities, the
interest on which is exempt from regular federal income tax, is fundamental
and may not be changed without shareholder approval. For more information on a
Fund's investment restrictions, an investor should obtain the Additional
Statement.

NON-DIVERSIFICATION STATUS. Since the Global Income Fund is "non-
diversified" under the Act, it is subject only to certain federal tax
diversification requirements. Under federal tax laws, the Global Income Fund
may, with respect to 50% of its total assets, invest up to 25% of its total
assets in the securities of any issuer (except that this limitation does not
apply to U.S. Government Securities). With respect to the remaining 50% of the
Fund's total assets, (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer (other than the U.S. government),
and (2) the Fund may not acquire more than 10% of the outstanding voting
securities of any one issuer. These tests apply at the end of each quarter of
its taxable year and are subject to certain conditions and limitations under
the Code. Since the Global Income Fund is not diversified under the Act, it
will be more susceptible to adverse developments affecting any single issuer.
The Adjustable Rate Government, Short Duration Government, Short Duration Tax-
Free, Core Fixed Income and High Yield Funds are, in addition to these tax
diversification requirements, also subject to the diversification requirements
arising out of their diversified status under the Act.

PORTFOLIO TURNOVER

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<PAGE>

year. A 100% turnover rate would occur, for example, if all of the securities
held by a Fund were sold and replaced within one year. The Investment Adviser
will not consider the portfolio turnover rate a limiting factor in making
investment decisions for a Fund consistent with the Fund's investment
objectives and portfolio management policies. A high rate of portfolio
turnover results in increased transaction costs to a Fund. The portfolio
turnover rate includes the effect of entering into mortgage dollar rolls. See
"Financial Highlights" for a statement of each Fund's historical portfolio
turnover rates.

MANAGEMENT

TRUSTEES AND OFFICERS

INVESTMENT ADVISERS

INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P., One New York
Plaza, New York, New York 10004, a Delaware limited partnership, which is an
affiliate of Goldman Sachs, serves as investment adviser to the Short Duration
Government and Adjustable Rate Government Funds. Goldman Sachs Funds
Management, L.P. registered as an investment adviser in 1990. Goldman Sachs
Asset Management, One New York Plaza, New York, New York 10004, a separate
operating division of Goldman Sachs, serves as the investment adviser to the
Short Duration Tax-Free, Core Fixed Income and High Yield Funds. Goldman Sachs
registered as an investment adviser in 1981. Goldman Sachs Asset Management
International, 133 Peterborough Court, London EC4A 2BB, England, an affiliate
of Goldman Sachs, serves as investment adviser to the Global Income Fund.
Goldman Sachs Asset Management International became a member of the Investment
Management Regulatory Organization Limited in 1990 and registered as an
investment adviser in 1991. As of March 24, 1997, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser, administrator or
distributor for assets in excess of $104.9 billion.

33
<PAGE>

Fund's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing shareholders, (c) the
periodic updating of prospectuses and statements of additional information and
(d) the preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides the Fund
with office space and all necessary office equipment and services.

ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS. The Funds'
portfolio manager is Jonathan A. Beinner. Mr. Beinner is a Vice President of
Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income Department. Mr. Beinner
joined the Investment Adviser in 1990 after working in the trading and
arbitrage group of Franklin Savings Association.

CORE FIXED INCOME FUND. The Fund's portfolio managers are Jonathan A.
Beinner and Richard C. Lucy. See above for information about Mr. Beinner.
Messrs. Beinner and Lucy each specialize in investing in a particular type of
security the Fund may hold. Mr. Lucy is a Vice President of Goldman Sachs and
Co-Head of GSAM's U.S. Fixed Income Department. Mr. Lucy joined the Investment
Adviser in 1992 after spending nine years managing fixed income assets at
Brown Brothers Harriman & Co.

SHORT DURATION TAX-FREE FUND. The Fund's portfolio managers are Benjamin S.
Thompson and Elisabeth Schupf Lonsdale. Mr. Thompson and Ms. Lonsdale each
specialize in municipal securities. Mr. Thompson's responsibilities include
developing investment strategy and structuring portfolios. Ms. Lonsdale is
also responsible for GSAM's municipal credit research. Mr. Thompson worked in
the institutional sales and marketing group at GSAM until he joined the fixed-
income team in 1993. Prior to joining GSAM in early 1992, Mr. Thompson worked
in the Structured Finance Group of the Chase Manhattan Bank. Before rejoining
Goldman Sachs in 1995, Ms. Lonsdale was a Director of Fitch Investors Service
evaluating the credit ratings of tax-backed issues. Prior to that, she worked
for ten years in the Goldman Sachs Municipal Finance Department.

GLOBAL INCOME FUND. The Fund's portfolio managers are Stephen Fitzgerald and
Andrew Wilson. Mr. Fitzgerald joined GSAMI in 1992 and is an Executive
Director and Chief Investment Officer for international fixed income. Prior to
1992, he spent two years managing multi-currency fixed-income and balanced
portfolios at Invesco MIM Limited, where he was a senior member of the
derivative products group. Mr. Wilson joined GSAMI in 1995 and is Executive
Director and Portfolio Manager for international fixed income. Prior to
joining GSAMI, he spent three years as an Assistant Director at Rothschild
Asset Management where he was responsible for managing global and
international bond portfolios, with specific focus on the U.S., Canadian,
Australian and Japanese economies. Prior to his employment at Rothschild, Mr.
Wilson spent seven years at the Reserve Bank of New Zealand, his most recent
position as Trading Manager of foreign reserves management. Mr. Wilson's
employment at the Reserve Bank at New Zealand also included a two year
assignment to the foreign investment unit at the Bank of England in London.

It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for a Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
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. In
effecting purchases and sales of portfolio securities for the Funds, the
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman Sachs Fund. See the Additional Statement for a further
description of the Investment Advisers' brokerage allocation practices.

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<PAGE>

As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* OCTOBER 31, 1996*
----------- ------------------
<S> <C> <C>
GSAM
- ----
Short Duration Tax-Free 0.40% 0.40%
Core Fixed Income 0.40% 0.40%
High Yield 0.70% N/A
GSFM
- ----
Short Duration Government 0.50% 0.40%
Adjustable Rate Government 0.40% 0.40%
GSAMI
- -----
Global Income 0.90% 0.59%
</TABLE>
- --------
* With respect to Global Income Fund, a Management Agreement combining
advisory, subadvisory and administration services was adopted effective
April 30, 1997. The Management Agreements for the other funds previously
combined such services. The contractual rate set forth in the table is the
rate payable under the Management Agreements (and, in the case of Global
Income Fund, is identical to the aggregate advisory, subadvisory and
administration fee rate payable by the Fund under the previously separate
investment advisory, subadvisory and administration agreements). For the
fiscal year ended October 31, 1996, the annual rate expressed is the
combined advisory and administration fees paid (after voluntary fee
limitations). The difference, if any, between the stated fees and the
actual fees paid by the Funds reflects that the applicable Investment
Adviser did not charge the full amount of the fees to which it would have
been entitled. The Investment Advisers may discontinue or modify such
limitations in the future at their discretion, although they have no
current intention to do so.

The Investment Advisers to the Short Duration Government, Short Duration
Tax-Free, Core Fixed Income, Global Income and High Yield Funds have
voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds
(excluding management fees, fees under service and administration plans,
taxes, interest and brokerage fees and litigation, indemnification and other
extraordinary expenses (and transfer agency fees in the case of the Global
Income and High Yield Funds) to the extent such expenses exceed 0.05%, 0.05%,
0.05%, 0.06% and 0.01% per annum of such Funds' average daily net assets,
respectively. Such reductions or limits, if any, are calculated monthly on a
cumulative basis and may be discontinued or modified by the applicable
Investment Adviser in its discretion at any time.

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<PAGE>

to proprietary information for the purpose of managing a Fund. The results of
a Fund's investment activities, therefore, may differ from those of Goldman
Sachs and its affiliates and it is possible that a 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, a 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
"Management -- 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 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606 also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding any Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a fee from the Global Income Fund for transfer agency
services. Goldman Sachs is entitled to receive a fee from the Adjustable Rate
Government, Short Duration Government, Short Duration Tax-Free and Core Fixed
Income Funds equal to each class' proportionate share of the total transfer
agency fees borne by the Fund. Such fees are equal to the fixed per account
charge of $12,000 per year plus $7.50 per account, together with out-of-pocket
and transaction related expenses (including those out-of-pocket expenses
payable to servicing and/or sub-transfer agents) applicable to Class A and B
shares where applicable plus 0.04% of the average daily net assets of the
other classes of the Funds. Goldman Sachs is entitled to receive a fee from
the High Yield Fund equal to .04% of the average daily net assets of
Institutional and Service shares.

DIVIDENDS

Each Fund (other than the Global Income Fund) will declare a daily dividend.
Such dividend will accrue to shareholders of record as of 3:00 p.m. Chicago
time, and will be paid monthly. The Global Income Fund will declare and pay
dividends monthly. Shares of Global Income Fund will be eligible for dividends
which accrue on or after the date such shares are purchased and will be paid
monthly. Over the course of the fiscal year, dividends accrued and paid will
constitute all or substantially all of the Funds' net investment income. From
time to time a portion of such dividends may constitute a return of capital.
In the case of Core Fixed Income, Global Income and High Yield Funds, net
loss, if any, from certain foreign currency transactions or instruments that
is otherwise taken into account in calculating net investment income or net
realized capital gains for accounting purposes may not be taken into account
in determining the amount of dividends to be declared and paid, with the
result that a portion of the Fund's dividends may be treated as a return of
capital, nontaxable to the extent of a shareholder's tax basis in his shares.
The Funds also intend that all net realized long-term and short-term capital
gains will be declared as a dividend at least annually. In determining amounts
of capital gains to be distributed, capital losses, including any available
capital loss carryovers from prior years will be offset against capital gains.

A Fund's net investment income is determined on a daily basis (monthly in
the case of the Global Income Fund). On days on which net asset value is
calculated, such determination is made immediately prior to the

36
<PAGE>

calculation of a Fund's net asset value as of 3:00 p.m. Chicago time. On days
on which net asset value is not calculated, such determination is made as of
3:00 p.m. Chicago time.

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

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

NET ASSET VALUE

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<PAGE>

PERFORMANCE INFORMATION

From time to time each Fund may publish yield, distribution rate and average
annual total return and the Short Duration Tax-Free Fund may publish its tax
equivalent yield in advertisements and communications to shareholders or
prospective investors. 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 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. Each
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, each Fund
may from time to time advertise its performance relative to certain averages,
performance rankings, indices, other information prepared by recognized mutual
fund statistical services and investments for which reliable performance data
is available.

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

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

38
<PAGE>

SHARES OF THE TRUST

Each Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the state of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Trust, a Massachusetts business trust, and were
reorganized into the Trust as of April 30, 1997. The Trustees have authority
under the Trust's Declaration of Trust to create and classify shares of
beneficial interest in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify or reclassify any series or portfolio of shares
into one or more classes.

The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees, if, at any time, less than
a majority of Trustees holding office at the time were elected by
shareholders.

TAXATION

FEDERAL TAXES

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<PAGE>

tax-exempt obligations and that the Fund properly designates as exempt-
interest dividends will be exempt from regular federal income tax, although
all or a portion of such a distribution may be subject to the federal
alternative minimum tax and the entire distribution may be includable in the
tax base for determining taxability of social security or railroad retirement
benefits. Persons who are "substantial users" (or related persons to such
substantial users) of facilities financed by industrial development or certain
private activity bonds should consult their own tax advisers before purchasing
shares of the Short Duration Tax-Free Fund. Interest on indebtedness incurred
or continued to purchase or carry shares of the Short Duration Tax-Free Fund
is not deductible to the extent attributable to the Short Duration Tax-Free
Fund's distributions that are exempt-interest dividends.

Redemptions and exchanges of shares are taxable events.

Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-
interest dividends), redemptions and exchanges if they fail to furnish their
correct taxpayer identification number and certain certifications required by
the Internal Revenue Services or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not
U.S. persons under the Code are subject to different tax rules and may be
subject to non-resident 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 Funds.

The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. If more than 50% of the value of the total assets of
either Fund is comprised of stock or securities of foreign corporations at the
end of its taxable year and the applicable Fund so elects, that Fund's
shareholders will include in their gross incomes (in addition to dividends and
distributions they receive) their pro rata shares of qualified foreign taxes
paid by that Fund and may be entitled under the Code to claim foreign tax
credits or deductions with respect to such taxes. It is not expected that the
Core Fixed Income Fund will qualify to make this election. If either Fund
cannot or does not so elect, it may deduct these taxes in computing its
taxable income, if any.

OTHER TAXES

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<PAGE>

intangible property) tax exemption is generally available to the extent (if
any) a Fund's distributions are derived from interest on (or, in the case of
intangible property 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. For a further
discussion of certain tax consequences of investing in shares of the Funds,
see "Taxation" in the Additional Statement. Shareholders are urged to consult
their own tax advisers regarding specific questions as to federal, state and
local taxes as well as to any foreign taxes.

ADDITIONAL INFORMATION

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<PAGE>

REPORTS TO SHAREHOLDERS

Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. Each
recordholder of Institutional Shares will also be provided with a printed
confirmation for each transaction in its account and an individual monthly
statement (quarterly in the case of Global Income Fund). A year-to-date
statement for any account will be provided upon request made to Goldman Sachs.

SUB-ACCOUNTING SERVICE

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

PURCHASE OF INSTITUTIONAL SHARES

Institutional Shares may be purchased on any Business Day through Goldman
Sachs at the net asset value per share next determined after receipt of an
order. No sales load will be charged. If, by the close of regular trading on
the New York Stock Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New
York time), an order is received by Goldman Sachs, the price per share will be
the net asset value per share computed on the day the purchase order is
received. See "Net Asset Value." Purchases of Institutional Shares of the
Funds must be settled within three (3) Business Days of receipt of a complete
purchase order. Payment of the proceeds of redemption of shares purchased by
check may be delayed for a period of time as described under "Redemption of
Institutional Shares."

Prior to making an initial investment in a Fund, an investor must open an
account with a Fund by furnishing necessary information to such Fund or
Goldman Sachs. An Account Information Form, a copy of which is attached to
this Prospectus, should be used to open such an account. Subsequent purchases
may be made in the manner set forth below.

PURCHASE PROCEDURES APPLICABLE TO EACH FUND OTHER THAN THE GLOBAL INCOME FUND

Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring federal funds to The Northern
Trust Company ("Northern") as subcustodian for State Street Bank and Trust
Company ("State Street") on the next Business Day or initiating an ACH
transfer to ensure

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<PAGE>

receipt by Northern on the next Business Day. Purchases may also be made by
check (except that the Trust will not accept a check drawn on a foreign bank
or a third-party check) or Federal Reserve draft payable to Goldman Sachs
Fixed Income Funds--Name of Fund and Class of shares and should be directed to
Goldman Sachs Fixed Income Funds--Name of Fund and Class of shares, c/o GSAM
Shareholder Services, 4900 Sears Tower, Chicago, Illinois 60606.

PURCHASE PROCEDURES APPLICABLE TO THE GLOBAL INCOME FUND

Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring federal funds to State Street
or initiating an ACH transfer. Purchases may also be made by check (except
that the Trust will not accept a check drawn on a foreign bank or a third-
party check) or Federal Reserve draft made payable to Goldman Sachs Fixed
Income Funds-- Name of Fund and Class of shares and should be directed to
Goldman Sachs Fixed Income Funds--Name of Fund and Class of shares c/o
National Financial Data Services, Inc., P.O. Box 419711, Kansas City, MO
64141-6711.

MINIMUM INITIAL INVESTMENTS

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

In the case of the Global Income and High Yield Funds, the minimum initial
investment is $1,000,000 in Institutional Shares of a Fund alone or in
combination with other assets under the management of GSAM and its affiliates.
Institutional Shares of the Global Income and High Yield Funds are offered to
(a) banks, trust companies or other types of depository institutions investing
for their own account or on behalf of their clients; (b) pension and profit
sharing plans, pension funds and other company-sponsored benefit plans; (c)
qualified non-profit organizations, charitable trusts, foundations and
endowments; (d) any state, county, city or any instrumentality, department,
authority or agency thereof; (e) corporations and other for-profit business
organizations with assets of at least $100 million or publicly traded
securities outstanding; (f) "wrap" accounts for the benefit of clients of
broker-dealers, financial institutions or financial planners, provided that
they have entered into an agreement with GSAM specifying aggregate minimums
and certain operating policies and standards; (g) registered investment
advisers who have entered into an agreement with GSAM specifying aggregate
minimums and certain operating policies and standards; and (h) accounts over
which GSAM or its advisory affiliates have investment discretion. The minimum
investment requirement may be waived at the discretion of the Trust's
officers. No minimum amount is required for subsequent investments.

OTHER PURCHASE INFORMATION

Institutional Shares of the Global Income Fund will be issued and dividends
will begin to be paid with respect to dividends which accrue on or after the
purchase of Institutional Shares. For the other Funds, the following applies:

PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received by Goldman Sachs by 3:00 p.m. Chicago time and payment is made by
wire transfer or ACH transfer, shares will be

43
<PAGE>

issued and dividends will begin to accrue on the purchased shares on the
later of (i) the Business Day after receipt by Goldman Sachs of a purchase
order or (ii) the day of receipt of a federal funds wire or an ACH transfer
by State Street.

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

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

The Funds reserve the right to redeem the Institutional Shares of any
Institutional Shareholder whose account balance is less than $50 as a result
of earlier redemptions. Such redemptions will not be implemented if the value
of an Institutional Shareholder's account falls below the minimum account
balance solely as a result of market conditions. A Fund will give sixty (60)
days' prior written notice to Institutional Shareholders whose Institutional
Shares are being redeemed to allow them to purchase sufficient additional
Institutional Shares of a Fund to avoid such redemption.

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

EXCHANGE PRIVILEGE

Institutional Shares of a Fund may be exchanged for (i) Institutional Shares
of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the net asset value next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs Fixed Income Funds--Name of
Fund and Class of shares, c/o GSAM Shareholders Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares and consider its investment objective, policies and
applicable fees before making an exchange. Under the telephone exchange
privilege, Institutional Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification numbers
only if the exchange instructions are in writing and received in accordance
with the procedures set forth under "Redemption of Institutional Shares."

44
<PAGE>

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

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

REDEMPTION OF INSTITUTIONAL SHARES

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

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

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

45
<PAGE>

such institution satisfies the standards established by the Transfer Agent. If
Goldman Sachs receives a redemption request by 3:00 p.m. Chicago time, the
Institutional Shares of each Fund (other than Global Income Fund) to be
redeemed earn dividends declared on the day the request is received.

The Fund will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the
Institutional Shareholder's Account Information Form or, if the shareholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) Business Days after receipt of a
properly executed redemption request. Wiring of redemption proceeds may be
delayed one additional Business Day if the Federal Reserve Bank is closed on
the day redemption proceeds would ordinarily be wired. Redemption proceeds
paid by check will normally be mailed to the address of record within three
(3) Business Days of receipt of a properly executed redemption request. In
order to change the bank designated on the Account Information Form to receive
redemption proceeds, a written request must be received by the Transfer Agent.
This request must be signature guaranteed as set forth above. Further
documentation may be required for executors, trustees or corporations. Once
wire transfer instructions have been given by Goldman Sachs, neither the
Funds, the Trust nor Goldman Sachs assumes any further responsibility for the
performance of intermediaries or the Institutional Shareholder's bank in the
transfer process. If a problem with such performance arises, the Institutional
Shareholder should deal directly with such intermediaries or bank.

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

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

46
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM

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

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

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

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

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

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

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

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

A-1
<PAGE>

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

GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB

GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004

GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171

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

FIPROINST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS
FIXED INCOME FUNDS

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

PROSPECTUS
INSTITUTIONAL SHARES

GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
PROSPECTUS
May 1, 1997 GOLDMAN SACHS FIXED INCOME FUNDS SERVICE SHARES

GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Seeks a high level of current income, consistent with low volatility of
principal. The Fund invests primarily in adjustable rate mortgage pass-
through securities and other mortgage securities with periodic interest rate
resets, which are issued or guaranteed by the U.S. government, its agencies,
instrumentalities or sponsored enterprises.

GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low vola-
tility of principal, that is exempt from regular federal income tax. The
Fund invests primarily in municipal securities.
GOLDMAN SACHS CORE FIXED INCOME FUND
Seeks a total return consisting of capital appreciation and income that ex-
ceeds the total return of the Lehman Brothers Aggregate Bond Index. The Fund
invests primarily in fixed-income securities, including securities issued or
guaranteed by the U.S. government, its agencies, instrumentalities or spon-
sored enterprises, corporate securities, mortgage-backed securities and as-
set-backed securities.

GOLDMAN SACHS GLOBAL INCOME FUND
Seeks a high total return, emphasizing current income and, to a lesser ex-
tent, providing opportunities for capital appreciation. The Fund invests
primarily in a portfolio of high quality fixed-income securities of U.S. and
foreign issuers and foreign currencies.

GOLDMAN SACHS HIGH YIELD FUND
Seeks a high level of current income and, secondarily, capital appreciation.
The Fund invests primarily in fixed-income securities rated below investment
grade.

Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Adjustable Rate Government and Short Duration Government Funds.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Core Fixed Income and High Yield Funds. Goldman Sachs Asset
Management International ("GSAMI"), London, England, an affiliate of Goldman
Sachs, serves as investment adviser to the Global Income Fund. GSAM, GSFM and
GSAMI are each referred to in this Prospectus as the "Investment Adviser."
Goldman Sachs serves as each Fund's distributor and transfer agent.

SERVICE SHARES OF THE FUNDS 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 A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

(cover continued)

INVESTORS SHOULD CONSIDER THE RISKS ASSOCIATED WITH INVESTMENT IN A FUND
INVESTING IN FOREIGN AND HIGH YIELD SECURITIES. THE FUNDS MAY NOT BE SUITABLE
FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."

This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Service Organizations (as defined herein)
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus. The SEC maintains a
Web site (http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights..................... 1
Fees and Expenses................... 7
Financial Highlights................ 9
Investment Objectives and Policies.. 13
Description of Securities........... 18
Risk Factors........................ 25
Investment Techniques............... 28
Investment Restrictions............. 32
Portfolio Turnover.................. 32
Management.......................... 33
Dividends........................... 36
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value....................................................... 37
Performance Information............................................... 38
Shares of the Trust................................................... 39
Taxation.............................................................. 39
Additional Information................................................ 41
Additional Services................................................... 42
Reports to Shareholders............................................... 42
Purchase of Service Shares............................................ 43
Exchange Privilege.................................................... 44
Redemption of Service Shares.......................................... 45
Appendix.............................................................. A-1
</TABLE>
<PAGE>

FUND HIGHLIGHTS

The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.

WHAT IS THE GOLDMAN SACHS TRUST?

The Goldman Sachs Trust is an open-end management investment company that
offers its shares in several investment funds (mutual funds). Each Fund
pools the monies of investors by selling its shares to the public and
investing these monies in a portfolio of securities designed to achieve that
Fund's stated investment objectives.

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

1
<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY
- -------------- ------------------ ------------------- ------------ ---------------------- ---------------------
<S> <C> <C> <C> <C> <C>
ADJUSTABLE A high level of Target = 6-month 9-month note At least 65% of U.S. Government
RATE current income, to 1-year total assets in Securities
GOVERNMENT consistent with U.S. Treasury securities issued or
FUND low volatility Security guaranteed by the
of principal. Maximum = 2 years U.S. government,
its agencies,
instrumentalities
or sponsored
enterprises
("U.S. Government
Securities'')
that are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = 2-year 2-year bond At least 65% of U.S. Government
GOVERNMENT current income, U.S. Treasury total assets in Securities
FUND and secondarily, Security plus U.S. Government
in seeking current or minus .5 years Securities
income, may Maximum = 3 years and repurchase
also consider agreements
thepotential collateralized
for capital by such securities.
appreciation.
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = Lehman 3-year bond At least 80% of Minimum = BBB/Baa
TAX-FREE current income, Brothers net assets in
FUND consistent with 3-year Municipal municipal securities.
low volatility Bond Index
of principal, plus or minus
that is exempt .5 years
from regular Maximum = 4 years
federal
income tax.
- -----------------------------------------------------------------------------------------------------------------------------------
CORE FIXED Total return Target = Lehman 5-year bond At least 65% of Minimum = BBB/Baa
INCOME FUND consisting Brothers assets in fixed-income Minimum for
of capital Aggregate Bond securities, including non-dollar securities
appreciation Index plus or U.S. Government = AA/Aa
and income that minus 1 year Securities, corporate,
exceeds the total Maximum = 6 years mortgage-backed
return of the and asset-backed
Lehman Brothers securities.
Aggregate Bond
Index.
<CAPTION>
FUND NAME OTHER INVESTMENTS BENCHMARK
- --------------- ------------------- -----------------
<S> <C> <C>
ADJUSTABLE Fixed-rate 6-month and
RATE mortgage 1-Year U.S.
GOVERNMENT pass-through Treasury Security
FUND securities and
repurchase
agreements
collateralized by
U.S. Government
Securities.
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT DURATION Mortgage pass- 2-Year U.S.
GOVERNMENT through Treasury Security
FUND securities and
other securities
representing an
interest in or
collateralized
by mortgage loans.
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT DURATION U.S. Government Lehman Brothers
TAX-FREE Securities 3-Year Municipal
FUND and repurchase Bond Index
agreements
collateralized
by such securities.

CORE FIXED Foreign fixed- Lehman Brothers
INCOME FUND income, Aggregate Bond
municipal and Index
convertible
securities,
foreign currencies
and repurchase
agreements
collateralized
by U.S.
Government
Securities.
</TABLE>

2
<PAGE>

FUND NAME BENCHMARK
- ------------ ---------------
<S> <C>
GLOBAL J.P. Morgan
INCOME Global
FUND Government
Bond Index
(hedged)
FUND High Yield
Bond Index
</TABLE>

3
<PAGE>

WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?

4
<PAGE>

WHO MANAGES THE FUNDS?

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's shares.

WHAT IS THE MINIMUM INVESTMENT?

HOW DO I PURCHASE SERVICE SHARES?

Customers of Service Organizations may invest in Service Shares only
through their Service Organizations. Service Shares of a Fund are purchased
by Service Organizations through Goldman Sachs at the current net asset
value without any sales load. See "Purchase of Service Shares."

ADDITIONAL SERVICES. The Trust, on behalf of the Funds, has adopted a
Service Plan with respect to the Service Shares which authorizes a Fund to
compensate Service Organizations for providing account administration and
shareholder liaison services to their customers who are the beneficial
owners of such Shares. The Trust, on behalf of the Funds, 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 Services Shares of
the Funds attributable to or held in the name of the Service Organization
for its customers. See "Additional Services."

5
<PAGE>

HOW DO I SELL MY SERVICE SHARES?

You may redeem Service Shares upon request on any Business Day, as defined
under "Additional Information," at the net asset value next determined after
receipt of such request in proper form. See "Redemption of Service Shares."

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME
FUND DIVIDENDS
---- ------------------ CAPITAL GAINS
DECLARED PAID DISTRIBUTION
------------------ -------------
<S> <C> <C> <C>
Adjustable Rate Government.................. Daily Monthly Annually
Short Duration Government .................. Daily Monthly Annually
Short Duration Tax-Free..................... Daily Monthly Annually
Core Fixed Income........................... Daily Monthly Annually
Global Income .............................. Monthly Monthly Annually
High Yield.................................. Daily Monthly Annually
</TABLE>

Recordholders of Service Shares may receive dividends in additional
Service Shares of the Fund in which you have invested or you may elect to
receive cash. For further information concerning dividends, see "Dividends."

6
<PAGE>

FEES AND EXPENSES (SERVICE SHARES)

<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION CORE FIXED GLOBAL HIGH
GOVERNMENT GOVERNMENT SHORT DURATION INCOME INCOME YIELD
FUND/1/ FUND TAX-FREE FUND FUND FUND FUND/1/
--------------- -------------- -------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge Imposed
on Purchases................. none none none none none none
Maximum Sales Charge Imposed
on Reinvested Dividends...... none none none none none none
Redemption Fees............... none none none none none none
Exchange Fees................. none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily
net assets)
Management Fees (after appli-
cable limitations)/2/........ 0.40% 0.40% 0.40% 0.40% 0.59% 0.65%
Service Fees*................. 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after applica-
ble limitations)/3/.......... 0.11% 0.05% 0.05% 0.05% 0.06% 0.05%
---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE LIMITATIONS)/4/..... 1.01% 0.95% 0.95% 0.95% 1.15% 1.20%
==== ==== ==== ==== ==== ====
</TABLE>

EXAMPLE

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

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government...................... $10 $32 $56 $124
Short Duration Government....................... $10 $30 $53 $117
Short Duration Tax-Free......................... $10 $30 $53 $117
Core Fixed Income............................... $10 $30 $53 $117
Global Income................................... $12 $37 $63 $140
High Yield...................................... $12 $38 N/A N/A
</TABLE>
- --------
/1/ Based on estimated amounts for the current fiscal year for the Adjustable
Rate Government and High Yield Funds.
/2/ The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the Short Duration Government,
Global Income and High Yield Funds equal to .10%, .31% and
.05%, respectively. Without such limitations, management fees would be
.50%, .90% and .70% of each Fund's average daily net assets,
respectively.
/3/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, service fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of the Global Income and
High Yield Funds)) to the extent such expenses exceed .05%, .05%, .05%,
.06% and .01% of the average daily net assets of the Short Duration
Government, Short Duration Tax-Fee, Core Fixed Income, Global Income and
High Yield Funds, respectively.
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of each Fund (other than Adjustable Rate Government and
High Yield Funds) for the fiscal year ended October 31, 1996
would have been as follows:

7
<PAGE>

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Short Duration Government.................................... .21% 1.21%
Short Duration Tax-Free...................................... .61% 1.51%
Core Fixed Income............................................ .43% 1.33%
Global Income................................................ .21% 1.61%
</TABLE>
In addition, for the High Yield Fund, without the limitations described
above, "Other Expenses" and "Total Operating Expenses" for the current fiscal
year are estimated to be .60% and 1.80%, respectively.
* Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts. Due to the service fees, a long-term shareholder may pay more than
the economic equivalent of the maximum front- end sales charge permitted
under the NASD's rules regarding investment companies. See "Additional
Services."

The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Service Shares of the Funds. Short
Duration Government Fund, Short Duration Tax-Free Fund and Core Fixed Income
Fund also offer Institutional Shares, Administration Shares, Class A Shares
and Class B Shares; Adjustable Rate Government Fund also offers Institutional
Shares, Administration Shares and Class A Shares; and Global Income Fund and
High Yield Fund also offer Institutional Shares, Class A Shares and Class B
Shares. The other classes of the Funds are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services. Information regarding any
other class of the Funds may be obtained from your sales representative or
from Goldman Sachs by calling the number on the back cover page of this
Prospectus.

8
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period(s) indicated has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Funds for the year ended October 31, 1996 (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 calling the telephone
number or writing to one of the addresses on the back cover of this Prospectus.
During the periods shown, the Trust did not offer Institutional or Service
shares of the High Yield Fund. Accordingly, there are no financial highlights
for these classes.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $ 9.77 $0.5759(a) $0.0772 (a) -- $0.6531
1996-Administra-
tion Shares.... 9.77 0.5489(a) 0.0797 (a) -- 0.6286
1996-Class A
Shares......... 9.77 0.5481(a) 0.0806 (a) -- 0.6287
1995-Institu-
tional Shares.. 9.74 0.5630(a) 0.0717 (a) -- 0.6347
1995-Administra-
tion Shares.... 9.74 0.5366(a) 0.0737 (a) -- 0.6103
1995-Class A
Shares(c)...... 9.79 0.2721(a) (0.0090)(a) -- 0.2631
1994-Institu-
tional Shares.. 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administra-
tion Shares.... 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institu-
tional Shares.. 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administra-
tion
Shares(e)...... 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institu-
tional Shares.. 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institu-
tional Shares.. 10.00 0.1531 0.0322 (d) -- 0.1853
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ ------- -------------
ADJUSTABLE RATE GOVERNMENT FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $(0.5725) -- $(0.0206) -- -- $(0.5931)
1996-Administra-
tion Shares.... (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A
Shares......... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institu-
tional Shares.. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administra-
tion Shares.... (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A
Shares(c)...... (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institu-
tional Shares.. (0.4486) -- -- -- -- (0.4486)
1994-Administra-
tion Shares.... (0.4239) -- -- -- -- (0.4239)
1993-Institu-
tional Shares.. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administra-
tion
Shares(e)...... (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institu-
tional Shares.. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institu-
tional Shares.. (0.1553) -- -- -- -- (0.1553)

<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
SHORT DURATION TAX-FREE FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $ 9.94 $0.4192(a) $ 0.0200 (a) -- $0.4392
1996-Administra-
tion Shares.... 9.94 0.3944(a) 0.0200 (a) -- 0.4144
1996-Service
Shares......... 9.95 0.3697(a) 0.0200 (a) -- 0.3897
1995-Institu-
tional Shares.. 9.79 0.4235(a) 0.1500 (a) -- 0.5735
1995-Administra-
tion Shares.... 9.79 0.3989(a) 0.1500 (a) -- 0.5489
1995-Service
Shares......... 9.79 0.3744(a) 0.1600 (a) -- 0.5344
1994-Institu-
tional Shares.. 10.23 0.3787(a) (0.3575)(a) -- 0.0212
1994-Administra-
tion Shares.... 10.23 0.3537(a) (0.3575)(a) -- (0.0038)
1994-Service
Shares(j)...... 9.86 0.0475(a) (0.0700)(a) (0.0225)
1993-Institu-
tional Shares.. 9.93 0.3834 0.3000(d) -- 0.6834
1993-Administra-
tion
Shares(j)...... 10.16 0.1555 0.0720(d) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institu-
tional Shares.. 10.00 0.0341 (0.0700)(d) -- (0.0359)
<CAPTION>
CORE FIXED INCOME FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares... $10.00 $0.6448 $(0.0704) -- $0.5744
1996-Administra-
tion Shares(1).. 9.91 0.4083 (0.0703) -- 0.3380
1996-Service
Shares(1)....... 9.77 0.3756 0.0898 -- 0.4654
1995-Institu-
tional Shares... 9.24 0.6423 0.7610 -- 1.4033
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
1994-Institu-
tional Shares... 10.00 0.4648 (0.7617) -- (0.2969)

<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF O-OTOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $0.0300 $9.96 4.50% 0.45% 4.21% 231.65% $34,814 1.01% 3.65%
1996-Administra-
tion Shares.... 0.0300 9.96 4.24 0.70 3.96 231.65 48 1.26 3.40
1996-Service
Shares......... 0.0200 9.97 3.98 0.95 3.74 231.65 695 1.51 3.18
1995-Institu-
tional Shares.. 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-Administra-
tion Shares.... 0.1500 9.94 5.76 0.70 4.14 259.52 46 1.02 3.82
1995-Service
Shares......... 0.1600 9.95 5.59 0.95 3.87 259.52 454 1.27 3.55
1994-Institu-
tional Shares.. (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-Administra-
tion Shares.... (0.4400) 9.79 (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
1994-Service
Shares(j)...... (0.0700) 9.79 (0.32)(f) 0.95(b) 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-Institu-
tional Shares.. 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-Administra-
tion
Shares(j)...... 0.0720 10.23 2.28(f) 0.70(b) 3.32(b) 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institu-
tional Shares.. (0.0700) 9.93 (0.34)(f) 0.05(b) 4.58(b) 31.19(f) 14,601 2.68(b) 1.95(b)
<CAPTION>
CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares... $(0.1500) $9.85 5.98% 0.45% 6.51% 414.20% $72,061 0.83% 6.13%
1996-Administra-
tion Shares(1).. (0.0700) 9.84 3.56(f) 0.70(b) 6.41(b) 414.20 702 1.08(b) 6.03(b)
1996-Service
Shares(1)....... 0.0900 9.86 4.90(f) 0.95(b) 6.37(b) 414.20 381 1.33(b) 5.99(b)
1995-Institu-
tional Shares... 0.7600 10.00 15.72 0.45 6.56 383.26 55,502 0.96 6.05
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
1994-Institu-
tional Shares... (0.7617) 9.24 (3.00) 0.45(b) 6.48(b) 288.25 24,508 1.46(b) 5.47(b)
</TABLE>
11

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

ADJUSTABLE RATE GOVERNMENT FUND

OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with low volatility of principal.

13
<PAGE>

CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.

SHORT DURATION GOVERNMENT FUND

OBJECTIVE. The Fund's investment objective is to provide a high level of
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.

CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.

SHORT DURATION TAX-FREE FUND

14
<PAGE>

CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Municipal Securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal. 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.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."

CORE FIXED INCOME FUND

15
<PAGE>

GLOBAL INCOME FUND

OBJECTIVE. The Fund's investment objective is to provide investors with a
high total return, emphasizing current income, and, to a lesser extent,
providing opportunities for capital appreciation.

16
<PAGE>

The fixed-income securities in which the Fund may invest include: (i) U.S.
Government Securities and custodial receipts therefor; (ii) securities issued
or guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, instrumentalities or by supranational entities (i.e.,
international organizations designated or supported by governmental entities
to promote economic reconstruction or development, such as the World Bank);
(iii) corporate debt securities; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, U.S. or
foreign banks (and their branches wherever located) having total assets of
more than $1 billion; (v) commercial paper and (vi) Mortgage-Backed and Asset-
Backed Securities.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign currencies and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. While the Fund will have both long and short currency
positions, its net long and short foreign currency exposure will not exceed
the value of the Fund's total assets. To the extent that the Fund is fully
invested in foreign securities while also maintaining currency positions, it
may be exposed to greater combined risk. The Fund's net currency positions may
expose it to risks independent of its securities positions. The Fund may also
employ other investment techniques to seek to enhance returns, such as lending
portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices described under "Investment
Techniques."

The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan,
and the United Kingdom as well as in the securities of U.S. issuers.
Concentration of the Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in those countries. With respect to other countries,
not more than 25% of the Fund's total assets will be invested in securities of
issuers in any other foreign country.

HIGH YIELD FUND

17
<PAGE>

normal interest rate conditions, the Fund's maximum duration will not exceed
7.5 years. The approximate interest rate sensitivity of the Fund is comparable
to a 6-year bond.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign securities and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps, and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use currency techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. The Fund may also employ other investment techniques to seek to
enhance returns, such as lending portfolio securities and entering into
repurchase agreements and other investment practices described under
"Investment Techniques."

DESCRIPTION OF SECURITIES

U.S. GOVERNMENT SECURITIES

18
<PAGE>

MORTGAGE-BACKED SECURITIES

19
<PAGE>

issuers include, but are not limited to, Ginnie Mae, Fannie Mae and Freddie
Mac. See "U.S. Government Securities."

ASSET-BACKED SECURITIES

MUNICIPAL SECURITIES

20
<PAGE>

PRIVATE ACTIVITY BONDS. Municipal Securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Short Duration Tax-Free Fund's
distributions attributable to the interest income from private activity bonds
may subject certain investors to the federal alternative minimum tax.

21
<PAGE>

CORPORATE DEBT OBLIGATIONS

CONVERTIBLE SECURITIES

PREFERRED STOCK, WARRANTS AND RIGHTS

FOREIGN INVESTMENTS

22
<PAGE>

23
<PAGE>

24
<PAGE>

STRUCTURED SECURITIES

ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS

RISK FACTORS

25
<PAGE>

ARMs also have the risk of prepayments, which will have a greater impact on
the Adjustable Rate Government Fund. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed-rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates (than if
prevailing interest rates remain constant or increase) because the
availability of low fixed-rate mortgages may encourage mortgagors to refinance
their ARMs to "lock-in" a fixed-rate mortgage. Conversely, if prevailing
interest rates rise significantly, ARMs may prepay slower. As with fixed-rate
mortgages, ARM prepayment rates vary in both stable and changing interest rate
environments. There are certain ARMs where the homeowner's payments do not
fully cover interest, so the principal balance increases over time. These
"negative amortizing" ARMs may be subject to greater default risk.

26
<PAGE>

RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-
investment grade fixed-income securities are considered predominantly
speculative by traditional investment standards. In some cases, these
obligations may be highly speculative and have poor prospects for reaching
investment grade standing. Non-investment grade fixed-income securities and
unrated securities of comparable credit quality (commonly known as "junk
bonds") are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities, also referred to as high
yield securities, may be subject to greater price volatility due to such
factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less secondary
market liquidity.

27
<PAGE>

FOREIGN RISKS. See "Foreign Securities" for a description of the risks of
investing in foreign securities and currencies.

INVESTMENT TECHNIQUES

28
<PAGE>

29
<PAGE>

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while a Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position which is intended to be protected is impossible to
achieve, the desired protection may not be obtained and a Fund may be exposed
to risk of loss. The loss incurred by a Fund in entering into futures
contracts and in writing call options on futures is potentially unlimited and
may exceed the amount of the premium received. Futures markets are highly
volatile and the use of futures may increase the volatility of a Fund's net
asset value. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
correctly analyze the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.

30
<PAGE>

TEMPORARY INVESTMENTS. Each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in (a) U. S. Government Securities or
(b) repurchase agreements collateralized by U.S. Government Securities. The
Short Duration Tax-Free Fund may for temporary defensive purposes depart from
its stated investment objectives and invest more than 20% of its net assets in
taxable investments. The High Yield Fund may for temporary defensive purposes
invest in investment grade securities.

31
<PAGE>

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) portfolio securities lending, (ii)
mortgage swaps (other than Short Duration Tax-Free Fund) and interest rate
swaps, caps, floors and collars, (iii) inverse floating-rate securities, (iv)
yield curve options, (v) other investment companies, (vi) custodial receipts
and (vii) with respect to the Short Duration Tax-Free Fund, tender option
bonds and standby commitments. For more information, see the Additional
Statement.

INVESTMENT RESTRICTIONS

NON-DIVERSIFICATION STATUS. Since the Global Income Fund is "non-
diversified" under the Act, it is subject only to certain federal tax
diversification requirements. Under federal tax laws, the Global Income Fund
may, with respect to 50% of its total assets, invest up to 25% of its total
assets in the securities of any issuer (except that this limitation does not
apply to U.S. Government Securities). With respect to the remaining 50% of the
Fund's total assets, (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer (other than the U.S. government),
and (2) the Fund may not acquire more than 10% of the outstanding voting
securities of any one issuer. These tests apply at the end of each quarter of
its taxable year and are subject to certain conditions and limitations under
the Code. Since the Global Income Fund is not diversified under the Act, it
will be more susceptible to adverse developments affecting any single issuer.
The Adjustable Rate Government, Short Duration Government, Short Duration Tax-
Free, Core Fixed Income and High Yield Funds are, in addition to these tax
diversification requirements, also subject to the diversification requirements
arising out of their diversified status under the Act.

PORTFOLIO TURNOVER

32
<PAGE>

MANAGEMENT

TRUSTEES AND OFFICERS

INVESTMENT ADVISERS

33
<PAGE>

GLOBAL INCOME FUND. The Fund's portfolio managers are Stephen Fitzgerald and
Andrew Wilson. Mr. Fitzgerald joined GSAMI in 1992 and is an Executive
Director and Chief Investment Officer for international fixed income. Prior to
1992, he spent two years managing multi-currency fixed-income and balanced
portfolios at Invesco MIM Limited, where he was a senior member of the
derivative products group. Mr. Wilson joined GSAMI in 1995 and is Executive
Director and Portfolio Manager for international fixed income. Prior to
joining GSAMI, he spent three years as an Assistant Director at Rothschild
Asset Management where he was responsible for managing global and
international bond portfolios, with specific focus on the U.S., Canadian,
Australian and Japanese economies. Prior to his employment at Rothschild, Mr.
Wilson spent seven years at the Reserve Bank of New Zealand, his most recent
position as Trading Manager of foreign reserves management. Mr. Wilson's
employment at the Reserve Bank at New Zealand also included a two year
assignment to the foreign investment unit at the Bank of England in London.

34
<PAGE>

35
<PAGE>

DISTRIBUTOR AND TRANSFER AGENT

DIVIDENDS

36
<PAGE>

calculation of a Fund's net asset value as of 3:00 p.m. Chicago time. On days
on which net asset value is not calculated, such determination is made as of
3:00 p.m. Chicago time.

NET ASSET VALUE

37
<PAGE>

PERFORMANCE INFORMATION

38
<PAGE>

SHARES OF THE TRUST

The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees, if, at any time, less than
a majority of Trustees holding office at the time were elected by
shareholders.

TAXATION

FEDERAL TAXES

39
<PAGE>

Redemptions and exchanges of shares are taxable events.

Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-
interest dividends), redemptions and exchanges if they fail to furnish their
correct taxpayer identification number and certain certifications required by
the Internal Revenue Services or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not
U.S. persons under the Code are subject to different tax rules and may be
subject to non-resident 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 Funds.

The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. If more than 50% of the value of the total assets of
either Fund is comprised of stock or securities of foreign corporations at the
end of its taxable year and the applicable Fund so elects, that Fund's
shareholders will include in their gross incomes (in addition to dividends and
distributions they receive) their pro rata shares of qualified foreign taxes
paid by that Fund and may be entitled under the Code to claim foreign tax
credits or deductions with respect to such taxes. It is not expected that the
Core Fixed Income Fund will qualify to make this election. If either Fund
cannot or does not so elect, it may deduct these taxes in computing its
taxable income, if any.

OTHER TAXES

40
<PAGE>

ADDITIONAL INFORMATION

41
<PAGE>

ADDITIONAL SERVICES

The Trust, on behalf of the Funds, has adopted a Service Plan with respect
to the Service Shares which authorizes a Fund to compensate certain
institutions ("Service Organizations") for providing account administration
and personal and account maintenance services to their customers who are
beneficial owners of such Shares. The Trust, on behalf of the Funds, enters
into agreements with Service Organizations which purchase Service Shares on
behalf of their customers ("Service Agreements"). The Service Agreements
provide for compensation to the Service Organizations in an amount up to 0.50%
(on an annualized basis) of the average daily net assets of the Service Shares
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 0.25% of such average daily net
assets. The services provided by the Service Organizations may include acting,
directly or through an agent, as the sole shareholder of record, maintaining
account records for customers, processing orders to purchase, redeem or
exchange Service Shares for customers, responding to inquiries from
prospective and existing shareholders and assisting customers with investment
procedures.

For the fiscal year ended October 31, 1996, the Trust, on behalf of the
Short Duration Government, Short Duration Tax-Free and Core Fixed Income
Funds, paid the Service Organizations fees at the annual rate of 0.50% of each
Fund's average daily net assets attributable to Service Shares. No Service
Shares of the other Funds were outstanding during the period.

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

Service Organizations may charge other fees to their customers who are the
beneficial owners of Service Shares 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 Funds,
accrues payments made pursuant to a Service Agreement daily. All inquiries of
beneficial owners of Service Shares should be directed to such owners' Service
Organization.

REPORTS TO SHAREHOLDERS

Recordholders of Service Shares of the Funds will receive an annual report
containing audited financial statements and a semi-annual report. Each
recordholder of Service Shares will also be provided with a printed
confirmation for each transaction in its account and a monthly account
statement (quarterly in the case of Global Income Fund). A year-to-date
statement for any account will be provided to a Service Organization upon
request made to Goldman Sachs.

Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with monthly statements with respect
to such customer's account in lieu of an immediate confirmation of each
transaction.

42
<PAGE>

PURCHASE OF SERVICE SHARES

Customers of Service Organizations may invest in Service Shares only through
their Service Organizations. Service Shares may be purchased on any Business
Day by a Service Organization through Goldman Sachs at the net asset value per
share next determined after receipt of an order. No sales load will be
charged. If, by the close of regular trading on the New York Stock Exchange
(normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), an order is
received from a Service Organization by Goldman Sachs, the price per share
will be the net asset value per share computed on the day the purchase order
is received. See "Net Asset Value." Purchases of Service Shares of the Funds
must be settled within three (3) Business Days of the receipt of a complete
purchase order. Payment of the proceeds of redemption of shares purchased by
check may be delayed for a period of time as described under "Redemption of
Service Shares."

The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to Northern or State Street. In
order to facilitate timely transmittal, the Service Organizations have
established times by which purchase orders and payments must be received by
them.

PURCHASE PROCEDURES APPLICABLE TO EACH FUND OTHER THAN THE GLOBAL INCOME FUND

Purchases of Service Shares by a Service Organization may be made by placing
an order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
the Northern Trust Company ("Northern") as subcustodian for State Street Bank
and Trust Company ("State Street") on the next Business Day or initiating an
ACH transfer to ensure receipt by Northern on the next Business Day. Purchases
may also be made by a Service Organization by check (except that the Trust
will not accept a check drawn on a foreign bank or a third-party check) or
Federal Reserve draft made payable to Goldman Sachs Fixed Income Funds--Name
of Fund and Class of shares and should be directed to Goldman Sachs Fixed
Income Funds--Name of Fund and Class of shares c/o GSAM Shareholder Services,
4900 Sears Tower, Chicago, Illinois 60606.

PURCHASE PROCEDURES APPLICABLE TO THE GLOBAL INCOME FUND

Purchases of Service Shares may be made by a Service Organization placing an
order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
State Street or initiating an ACH transfer. Purchases may also be made by a
Service Organization by check (except that the Trust will not accept a check
drawn on a foreign bank or a third-party check) or Federal Reserve draft made
payable to Goldman Sachs Fixed Income Funds--Name of Fund and Class of shares
and should be directed to Goldman Sachs Fixed Income Funds--Name of Fund and
Class of shares c/o National Financial Data Services, Inc., P.O. Box 419711,
Kansas City, MO 64141-6711.

OTHER PURCHASE INFORMATION

43
<PAGE>

effect redemptions of noncomplying accounts, and may impose a charge for any
special services rendered to its customers. Customers should contact their
Service Organization for further information concerning such requirements and
charges.

Service Shares of the Global Income Fund will be issued and dividends will
begin to be paid with respect to dividends which accrue on or after the
purchase of Service Shares. For the other Funds, the following applies:

PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received from a Service Organization by Goldman Sachs by 3:00 p.m. Chicago
time and payment is made by wire transfer or ACH transfer, shares will be
issued and dividends will begin to accrue on the purchased shares on the
later of (i) the Business Day after receipt by Goldman Sachs of a purchase
order or (ii) the day of receipt of a federal funds wire or an ACH transfer
by State Street.

The Funds reserve the right to redeem Service Shares of any Service
Organization whose account balance is less than $50 as a result of earlier
redemptions. Such redemptions will not be implemented if the value of such
shareholder's account falls below the minimum account balance solely as a
result of market conditions. A Fund will give sixty (60) days' prior written
notice to Service Organizations whose Service Shares are being redeemed to
allow them to purchase sufficient additional Service Shares to avoid such
redemption.

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

EXCHANGE PRIVILEGE

Service Shares of the Funds may be exchanged by a Service Organization for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and
designated as an eligible fund for this purpose and (ii) the corresponding
class of any Goldman Sachs Money Market Fund at the net asset value next
determined either by

44
<PAGE>

writing to Goldman Sachs, Attention: Goldman Sachs Fixed Income Funds--Name of
Fund and Class of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares and consider its investment objective, policies and
applicable fees before making an exchange. Service Shares acquired by
telephone exchange must be registered in the same name(s) and have the same
address as Service Shares of the Fund for which the exchange is being made.

In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Service Shares" to confirm that such instructions are genuine. In times of
drastic economic or market changes, the telephone exchange privilege may be
difficult to implement. For federal income tax purposes, an exchange is
treated as a redemption of the Service Shares surrendered in the exchange, on
which an investor may be subject to tax, followed by a purchase of Service
Shares, or the corresponding class of any Goldman Sachs Money Market Fund
received in the exchange. Shareholders should consult their own tax advisers
concerning the tax consequences of an exchange. Exchanges are available only
in states where exchanges may legally be made. The exchange privilege may be
modified or withdrawn at any time on sixty (60) days' written notice to
recordholders of Service Shares and is subject to certain limitations. See
"Purchase of Service Shares."

REDEMPTION OF SERVICE SHARES

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

45
<PAGE>

The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Service Shares or, if the recordholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) days after receipt of a properly
executed redemption request. Wiring of redemption proceeds may be delayed one
additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would ordinarily be wired. Redemption proceeds paid by
check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. Once wire
transfer instructions have been given by Goldman Sachs, neither the Funds, the
Trust nor Goldman Sachs assumes any further responsibility for the performance
of intermediaries or the customer's Service Organization in the transfer
process. If a problem with such performance arises, the customer should deal
directly with such intermediaries or Service Organizations.

Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate timely transmittal of redemption requests, Service Organizations
have established times by which redemption requests must be received by them.
Additional documentation may be required when deemed appropriate by a Service
Organization.

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

46
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM

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

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

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

A-1
<PAGE>

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

GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB

GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004

GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171

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

FIPROSVC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS
FIXED INCOME FUNDS

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

PROSPECTUS
SERVICE SHARES

GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
PROSPECTUS
May 1, 1997 GOLDMAN SACHS FIXED INCOME FUNDS
ADMINISTRATION SHARES

GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Seeks a high level of current income and secondarily, in seeking current in-
come, may also consider the potential for capital appreciation. The Fund in-
vests primarily in securities issued or guaranteed by the U.S. government,
its agencies, instrumentalities or sponsored enterprises.
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low vola-
tility of principal, that is exempt from regular federal income tax. The
Fund invests primarily in municipal securities.

GOLDMAN SACHS CORE FIXED INCOME FUND
Seeks a total return consisting of capital appreciation and income that ex-
ceeds the total return of the Lehman Brothers Aggregate Bond Index. The Fund
invests primarily in fixed-income securities, including securities issued or
guaranteed by the U.S. government, its agencies, instrumentalities or spon-
sored enterprises, corporate securities, mortgage-backed securities and as-
set-backed securities.

Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Adjustable Rate Government and Short Duration Government Funds.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free and Core Fixed Income Funds. GSAM and GSFM are each referred
to in this Prospectus as the "Investment Adviser." Goldman Sachs serves as each
Fund's distributor and transfer agent.

ADMINISTRATION SHARES OF THE FUNDS 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 A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

(continued on next page)
<PAGE>

(cover continued)

THE CORE FIXED INCOME FUND MAY INVEST IN SECURITIES OF FOREIGN ISSUERS AND
FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH
INVESTING IN U.S. DOLLAR-DENOMINATED FIXED-INCOME SECURITIES. IN PARTICULAR,
THE SECURITIES MARKETS OF EMERGING MARKET COUNTRIES ARE LESS LIQUID, ARE
SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET CAPITALIZATIONS, HAVE
LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO AS EXTENSIVE AND FREQUENT
ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS AS THE SECURITIES
MARKETS OF MORE DEVELOPED COUNTRIES. INVESTORS SHOULD CONSIDER THE RISKS
ASSOCIATED WITH INVESTMENT IN A FUND INVESTING IN FOREIGN SECURITIES. THE FUND
MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND
"RISK FACTORS."

This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Service Organizations (as defined herein)
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus. The SEC maintains a
Web site (http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights..................... 1
Fees and Expenses................... 5
Financial Highlights................ 7
Investment Objectives and Policies.. 11
Description of Securities........... 14
Risk Factors........................ 21
Investment Techniques............... 23
Investment Restrictions............. 26
Portfolio Turnover.................. 27
Management.......................... 27
Dividends........................... 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value....................................................... 31
Performance Information............................................... 31
Shares of the Trust................................................... 32
Taxation.............................................................. 33
Additional Information................................................ 34
Administration Plan................................................... 34
Reports to Shareholders............................................... 35
Purchase of Administration Shares..................................... 35
Exchange Privilege.................................................... 36
Redemption of Administration Shares................................... 37
Appendix.............................................................. A-1
</TABLE>
<PAGE>

FUND HIGHLIGHTS

The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.

WHAT IS THE GOLDMAN SACHS TRUST?

The Goldman Sachs Trust is an open-end management investment company that
offers its shares in several investment funds (mutual funds). Each Fund
pools the monies of investors by selling its shares to the public and
investing these monies in a portfolio of securities designed to achieve that
Fund's stated investment objectives.

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

1
<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY OTHER INVESTMENTS
- -------------- ------------------ ------------------- ------------ ---------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTABLE A high level of Target = 6-month 9-month note At least 65% of U.S. Government Fixed-rate
RATE current income, to 1-year total assets in Securities mortgage
GOVERNMENT consistent with U.S. Treasury securities issued or pass-through
FUND low volatility Security guaranteed by the securities and
of principal. Maximum = 2 years U.S. government, repurchase
its agencies, agreements
instrumentalities collateralized by
or sponsored U.S. Government
enterprises Securities.
("U.S. Government
Securities'')
that are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = 2-year 2-year bond At least 65% of U.S. Government Mortgage pass-
GOVERNMENT current income, U.S. Treasury total assets in Securities through
FUND and secondarily, Security plus U.S. Government securities and
in seeking current or minus .5 years Securities other securities
income, may Maximum = 3 years and repurchase representing an
also consider the agreements interest in or
potential for collateralized collateralized
capital by such securities. by mortgage loans.
appreciation.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = Lehman 3-year bond At least 80% of Minimum = BBB/Baa U.S. Government
TAX-FREE current income, Brothers net assets in Securities
FUND consistent with 3-year Municipal municipal securities. and repurchase
low volatility Bond Index agreements
of principal, plus or minus collateralized
that is exempt .5 years by such securities.
from regular Maximum = 4 years
federal
income tax.
--------------------------------------------------------------------------------------------
CORE FIXED Total return Target = Lehman 5-year bond At least 65% of Minimum = BBB/Baa Foreign fixed-
INCOME FUND consisting Brothers assets in fixed-income Minimum for income,
of capital Aggregate Bond securities, including non-dollar municipal and
appreciation Index plus or U.S. Government securities = AA/Aa convertible
and income that minus 1 year Securities, corporate, securities,
exceeds the total Maximum = 6 years mortgage-backed foreign currencies
return of the and asset-backed and repurchase
Lehman Brothers securities. agreements
Aggregate Bond collateralized
Index. by U.S.
Government
Securities.
<CAPTION>
FUND NAME BENCHMARK
- --------------- -----------------
<S> <C>
ADJUSTABLE 6-month and
RATE 1-Year U.S.
GOVERNMENT Treasury Security
FUND
--------------------------------------------------------------------------------------------
SHORT DURATION 2-Year U.S.
GOVERNMENT Treasury Security
FUND
--------------------------------------------------------------------------------------------
SHORT DURATION Lehman Brothers
TAX-FREE 3-Year Municipal
FUND Bond Index
--------------------------------------------------------------------------------------------
CORE FIXED Lehman Brothers
INCOME FUND Aggregate Bond
Index
</TABLE>

2
<PAGE>

WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?

Each Fund's share price will fluctuate with market, economic and, with
respect to the Core Fixed Income Fund, foreign exchange conditions, so that
an investment in any of the Funds may be worth more or less when redeemed
than when purchased. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund's investment
objectives will be achieved. See "Risk Factors."

WHO MANAGES THE FUNDS?

Goldman Sachs Funds Management, L.P., serves as the Investment Adviser to
the Adjustable Rate Government and Short Duration Government Funds. Goldman
Sachs Asset Management serves as Investment

3
<PAGE>

Adviser to the Short Duration Tax-Free and Core Fixed Income Funds. As of
March 24, 1997, the Investment Advisers, together with their affiliates,
acted as Investment Adviser, administrator or distributor for assets in
excess of $104.9 billion.

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's Shares.

WHAT IS THE MINIMUM INVESTMENT?

HOW DO I PURCHASE ADMINISTRATION SHARES?

Customers of Service Organizations may invest in Administration Shares
only through their Service Organizations. Administration Shares of a Fund
are purchased by Service Organizations through Goldman Sachs at the current
net asset value without any sales load. See "Purchase of Administration
Shares."

ADMINISTRATION PLAN. The Trust, on behalf of the Funds, has adopted an
Administration Plan with respect to the Administration Shares which
authorizes a Fund to compensate Service Organizations for providing account
administration services to their customers who are the beneficial owners of
such Shares. The Trust, on behalf of the Funds, will enter into agreements
with each Service Organization which will provide for compensation to the
Service Organization in an amount up to 0.25% (on an annualized basis) of
the average daily net assets of the Administration Shares of the Funds
attributable to or held in the name of the Service Organization for its
customers. See "Administration Plan."

HOW DO I SELL MY ADMINISTRATION SHARES?

You may redeem Administration Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Administration Shares."

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT
INCOME
DIVIDENDS
---------------- CAPITAL GAINS
FUND DECLARED PAID DISTRIBUTIONS
---- -------- ------- -------------
<S> <C> <C> <C>
Adjustable Rate Government .................... Daily Monthly Annually
Short Duration Government ..................... Daily Monthly Annually
Short Duration Tax-Free ....................... Daily Monthly Annually
Core Fixed Income ............................. Daily Monthly Annually
</TABLE>

Recordholders of Administration Shares may receive dividends in additional
Administration Shares of the Fund in which you have invested or you may
elect to receive cash. For further information concerning dividends, see
"Dividends."

4
<PAGE>

FEES AND EXPENSES
(ADMINISTRATION SHARES)

<TABLE>
<CAPTION>
ADJUSTABLE SHORT SHORT
RATE DURATION DURATION
GOVERNMENT GOVERNMENT TAX- CORE FIXED
FUND/1/ FUND FREE FUND INCOME FUND
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases........................ none none none none
Maximum Sales Charge Imposed on
Reinvested Dividends............. none none none none
Redemption Fees................... none none none none
Exchange Fees..................... none none none none
ANNUAL FUND OPERATING EXPENSES: (as
a percentage of average daily
net assets)
Management Fees (after applicable
limitations)/2/ ................. 0.40% 0.40% 0.40% 0.40%
Administration Fees*.............. 0.25% 0.25% 0.25% 0.25%
Other Expenses (after applicable
limitations)/3/ ................. 0.11% 0.05% 0.05% 0.05%
---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES
(after fee and expense limita-
tions)/4/........................ 0.76% 0.70% 0.70% 0.70%
==== ==== ==== ====
</TABLE>

EXAMPLE

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

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government..................... $8 $24 $42 $94
Short Duration Government...................... $7 $22 $39 $87
Short Duration Tax-Free........................ $7 $22 $39 $87
Core Fixed Income.............................. $7 $22 $39 $87
</TABLE>
- --------
/1/Based.on estimated amounts for the current fiscal year for the Adjustable
Rate Government Fund.
/2/The.Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the Short Duration Government Fund
equal to .10%. Without such limitation, management fees would be .50% of
its average daily net assets.
/3/The.Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, administration fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed .05% of a Fund's
average daily net assets (other than the Adjustable Rate Government Fund).
/4/Without.the limitations described above, "Other Expenses" and "Total
Operating Expenses" of each Fund (other than the Adjustable Rate Government
Fund) for the fiscal year ended October 31, 1996 would have been as
follows:

<TABLE>
<CAPTION>
OTHER TOTAL OPERATING
EXPENSES EXPENSES
-------- ---------------
<S> <C> <C>
Short Duration Government............................ .21% .96%
Short Duration Tax-Free.............................. .61% 1.26%
Core Fixed Income.................................... .43% 1.08%
</TABLE>

5
<PAGE>

* Service Organizations may charge other fees to their customers who are
beneficial owners of Administration Shares in connection with their customer
accounts. See "Administration Plan."

The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Administration Shares of the Funds.
Short Duration Government Fund, Short Duration Tax-Free Fund and Core Fixed
Income Fund also offer Institutional Shares, Service Shares, Class A Shares
and Class B Shares; Adjustable Rate Government Fund also offers Institutional
Shares, Service Shares and Class A Shares. The other classes of the Funds are
subject to different fees and expenses (which affect performance), have
different minimum investment requirements and are entitled to different
services. Information regarding any other class of the Funds may be obtained
from your sales representative or from Goldman Sachs by calling the number on
the back cover page of this Prospectus.

6
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ ------- -------------
ADJUSTABLE RATE GOVERNMENT FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $(0.5725) -- $(0.0206) -- -- $(0.5931)
1996-Administra-
tion Shares.... (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A
Shares......... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institu-
tional Shares.. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administra-
tion Shares.... (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A
Shares(c)...... (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institu-
tional Shares.. (0.4486) -- -- -- -- (0.4486)
1994-Administra-
tion Shares.... (0.4239) -- -- -- -- (0.4239)
1993-Institu-
tional Shares.. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administra-
tion
Shares(e)...... (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institu-
tional Shares.. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institu-
tional Shares.. (0.1553) -- -- -- -- (0.1553)

RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
----------------------
RATIO OF RATIO OF RATIO OF
NET NET NET NET RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME NET ASSETS TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO AT END OF AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER PERIOD NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) (IN 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ---------- -------- ----------
ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $0.0600 $9.83 6.86% 0.45% 5.85% 52.36% $613,149 0.51% 5.79%
1996-Administra-
tion Shares.... 0.0600 9.83 6.60 0.70 5.59 52.36 3,792 0.76 5.53
1996-Class A
Shares......... 0.0600 9.83 6.60 0.70 5.59 52.36 10,728 1.01 5.28
1995-Institu-
tional Shares.. 0.0301 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-Administra-
tion Shares.... 0.0300 9.77 6.48 0.71 5.50 24.12 3,572 0.78 5.43
1995-Class A
Shares(c)...... (0.0200) 9.77 2.74(f) 0.69(b) 5.87(b) 24.12 15,203 1.01(b) 5.55(b)
1994-Institu-
tional Shares.. (0.2600) 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-Administra-
tion Shares.... (0.2600) 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-Institu-
tional Shares.. (0.0400) 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-Administra-
tion
Shares(e)...... (0.0200) 10.00 2.01(f) 0.70(b) 3.81(b) 103.74 5,326 0.73(b) 3.78(b)
1992-Institu-
tional Shares.. 0.0100 10.04 6.12 0.42 5.61 286.40 2,145,064 0.55 5.48
FOR THE PERIOD JULY 17, 1991(G) THROUGH OC-
TOBER 31,
1991-Institu-
tional Shares.. 0.0300 10.03 2.14(f) 0.20(b) 7.31(b) 145.67(b) 239,642 1.02(b) 6.49(b)

</TABLE>

7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
SHORT DURATION GOVERNMENT FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares
............... $ 9.82 $0.6290(a) $0.0136 (a) -- $0.6426
1996-Administra-
tion
Shares(h)...... 9.86 0.3837(a) 0.0003 (a) -- 0.3840
1996-Service
Shares(i)...... 9.72 0.3134(a) 0.1018 (a) -- 0.4152
1995-Institu-
tional Shares.. 9.64 0.6652(a) 0.1666 (a) -- 0.8318
1995-Administra-
tion Shares.... 9.64 0.2384(a) (0.0433)(a) -- 0.1951
1994-Institu-
tional Shares.. 10.14 0.5628(a) (0.4592)(a) -- 0.1036
1994-Administra-
tion Shares.... 10.14 0.5329(a) (0.4539)(a) -- 0.0790
1993-Institu-
tional Shares.. 10.16 0.5627 (0.0135)(d) -- 0.5492
1993-Administra-
tion
Shares(e)...... 10.23 0.2725 (0.0900)(d) -- 0.1825
1992-Institu-
tional Shares.. 10.22 0.6703 (0.0600)(d) -- 0.6103
1991-Institu-
tional Shares.. 10.00 0.8020 0.2200 (d) -- 1.0220
1990-Institu-
tional Shares.. 10.07 0.8300 (0.0700)(d) -- 0.7600
1989-Institu-
tional Shares.. 10.10 0.8800 -- -- 0.8800
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER
31,
1988-Institu-
tional Shares.. 10.00 0.1800 0.1000 (d) -- 0.2800

<CAPTION>
- --------------------------------------------------------------------------------

DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ -------- -------------
SHORT DURATION GOVERNMENT FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares
............... $(0.6326) -- -- -- -- $(0.6326)
1996-Administra-
tion
Shares(h)...... (0.3940) -- -- -- -- (0.3940)
1996-Service
Shares(i)...... (0.3152) -- -- -- -- (0.3152)
1995-Institu-
tional Shares.. (0.6518) -- -- -- -- (0.6518)
1995-Administra-
tion Shares.... (0.2051) -- -- -- -- (0.2051)
1994-Institu-
tional Shares.. (0.5598) (0.0438) -- -- -- (0.6036)
1994-Administra-
tion Shares.... (0.5352) (0.0438) -- -- -- (0.5790)
1993-Institu-
tional Shares.. (0.5627) -- (0.0065) -- -- (0.5692)
1993-Administra-
tion
Shares(e)...... (0.2725) -- -- -- -- (0.2725)
1992-Institu-
tional Shares.. (0.6703) -- -- -- -- (0.6703)
1991-Institu-
tional Shares.. (0.8020) -- -- -- -- (0.8020)
1990-Institu-
tional Shares.. (0.8300) -- -- -- -- (0.8300)
1989-Institu-
tional Shares.. (0.8800) -- -- -- (0.0300) (0.9100)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER
31,
1988-Institu-
tional Shares.. (0.1800) -- -- -- -- (0.1800)

<CAPTION>
- --------------------------------------------------------------------------------
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
SHORT DURATION GOVERNMENT FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares
............... $0.0100 $9.83 6.75% 0.45% 6.44% 115.45% $99,944 0.71% 6.18%
1996-Administra-
tion
Shares(h)...... (0.0100) 9.85 4.00(f) 0.70(b) 5.97(b) 115.45 252 0.96(b) 5.71(b)
1996-Service
Shares(i)...... 0.1000 9.82 4.35(f) 0.95(b) 6.05(b) 115.45 1,822 1.21(b) 5.79(b)
1995-Institu-
tional Shares.. 0.1800 9.82 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administra-
tion Shares.... (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institu-
tional Shares.. (0.5000) 9.64 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administra-
tion Shares.... (0.5000) 9.64 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institu-
tional Shares.. (0.0200) 10.14 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administra-
tion
Shares(e)...... (0.0900) 10.14 1.74 0.70(b) 4.84(b) 411.66 16,490 0.80(b) 4.74(b)
1992-Institu-
tional Shares.. (0.0600) 10.16 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institu-
tional Shares.. 0.2200 10.22 10.93 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institu-
tional Shares.. (0.0700) 10.00 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institu-
tional Shares.. (0.0300) 10.07 9.08 0.46 8.71 137.37 31,015 1.39 7.78
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH
OCTOBER 31,
1988-Institu-
tional Shares.. 0.1000 10.10 3.30(f) 0.55(b) 8.55(b) 167.00(b) 39,052 1.42(b) 7.68(b)
</TABLE>

8
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
------------------------------------------------------
NET REALIZED NET REALIZED
AND UNREALIZED AND UNREALIZED TOTAL
GAIN (LOSS) GAIN (LOSS) INCOME
NET ASSET ON INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- -------------- -------------- ----------
SHORT DURATION TAX-FREE FUND
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares... $ 9.94 $0.4192(a) $0.0200 (a) -- $0.4392
1996-Administra-
tion Shares..... 9.94 0.3944(a) 0.0200 (a) -- 0.4144
1996-Service
Shares.......... 9.95 0.3697(a) 0.0200 (a) -- 0.3897
1995-Institu-
tional Shares... 9.79 0.4235(a) 0.1500 (a) -- 0.5735
1995-Administra-
tion Shares..... 9.79 0.3989(a) 0.1500 (a) -- 0.5489
1995-Service
Shares.......... 9.79 0.3744(a) 0.1600 (a) -- 0.5344
1994-Institu-
tional Shares... 10.23 0.3787(a) (0.3575)(a) -- 0.0212
1994-Administra-
tion Shares..... 10.23 0.3537(a) (0.3575)(a) -- (0.0038)
1994-Service
Shares(j)....... 9.86 0.0475(a) (0.0700)(a) (0.0225)
1993-Institu-
tional Shares... 9.93 0.3834 0.3000(d) -- 0.6834
1993-Administra-
tion Shares(j).. 10.16 0.1555 0.0720(d) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institu-
tional Shares... 10.00 0.0341 (0.0700)(d) -- (0.0359)

<CAPTION>
- --------------------------------------------------------------------------------

DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ ------- -------------
SHORT DURATION TAX-FREE FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares... $(0.4192) -- -- -- -- $(0.4192)
1996-Administra-
tion Shares..... (0.3944) -- -- -- -- (0.3944)
1996-Service
Shares.......... (0.3697) -- -- -- -- (0.3697)
1995-Institu-
tional Shares... (0.4235) -- -- -- -- (0.4235)
1995-Administra-
tion Shares..... (0.3989) -- -- -- -- (0.3989)
1995-Service
Shares.......... (0.3744) -- -- -- -- (0.3744)
1994-Institu-
tional Shares... (0.3787) (0.0825) -- -- -- (0.4612)
1994-Administra-
tion Shares..... (0.3537) (0.0825) -- -- -- (0.4362)
1994-Service
Shares(j)....... (0.0475) -- (0.0475)
1993-Institu-
tional Shares... (0.3834) -- -- -- -- (0.3834)
1993-Administra-
tion Shares(j).. (0.1555) -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institu-
tional Shares... (0.0341) -- -- -- -- (0.0341)

<CAPTION>
- --------------------------------------------------------------------------------

RATIOS ASSUMING
NO VOLUNTARY
WAIVER OF FEES
OR EXPENSE
LIMITATIONS
----------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares... $0.0300 $9.96 4.50% 0.45% 4.21% 231.65% $34,814 1.01% 3.65%
1996-Administra-
tion Shares..... 0.0300 9.96 4.24 0.70 3.96 231.65 48 1.26 3.40
1996-Service
Shares.......... 0.0200 9.97 3.98 0.95 3.74 231.65 695 1.51 3.18
1995-Institu-
tional Shares... 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-Administra-
tion Shares..... 0.1500 9.94 5.76 0.70 4.14 259.52 46 1.02 3.82
1995-Service
Shares.......... 0.1600 9.95 5.59 0.95 3.87 259.52 454 1.27 3.55
1994-Institu-
tional Shares... (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-Administra-
tion Shares..... (0.4400) 9.79 (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
1994-Service
Shares(j)....... (0.0700) 9.79 (0.32)(f) 0.95(b) 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-Institu-
tional Shares... 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-Administra-
tion Shares(j).. 0.0720 10.23 2.28(f) 0.70(b) 3.32(b) 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institu-
tional Shares... (0.0700) 9.93 (0.34)(f) 0.05(b) 4.58(b) 31.19(f) 14,601 2.68(b) 1.95(b)
</TABLE>

<PAGE>

<CAPTION>
- --------------------------------------------------------------------------------

RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
CORE FIXED INCOME FUND
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares... $(0.1500) $9.85 5.98% 0.45% 6.51% 414.20% $72,061 0.83% 6.13%
1996-Administra-
tion Shares(1).. (0.0700) 9.84 3.56(f) 0.70(b) 6.41(b) 414.20 702 1.08(b) 6.03(b)
1996-Service
Shares(1)....... 0.0900 9.86 4.90(f) 0.95(b) 6.37(b) 414.20 381 1.33(b) 5.99(b)
1995-Institu-
tional Shares... 0.7600 10.00 15.72 0.45 6.56 383.26 55,502 0.96 6.05
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
1994-Institu-
tional Shares... (0.7617) 9.24 (3.00) 0.45(b) 6.48(b) 288.25 24,508 1.46(b) 5.47(b)
- -----
</TABLE>
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized.
(c) Class A share activity commenced on May 15, 1995.
(d) Includes the effect of mortgage dollar roll transactions.
(e) Administration share activity commenced on April 15, 1993.
(f) Not annualized.
(g) Commencement of operations.
(h) GS Short Duration Government Fund Administration shares were redeemed in
full on February 23, 1995 and re-commenced on February 28, 1996 at $9.86.
(i) Service share activity commenced on April 10, 1996.
(j) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994 respectively.
(k) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and not
sales charges. For Class A shares only, total return would be reduced if a
sales charge were taken into account.
(l) Administration and Service share activity commenced operations on February
28, 1996 and March 13, 1996 respectively.

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

ADJUSTABLE RATE GOVERNMENT FUND

OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with low volatility of principal.

11
<PAGE>

CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.

SHORT DURATION GOVERNMENT FUND

OBJECTIVE. The Fund's investment objective is to provide a high level of
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.

CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.

SHORT DURATION TAX-FREE FUND

12
<PAGE>

INVESTMENT SECTOR. The Fund invests, under normal conditions, at least 80%
of its net assets in fixed- income securities issued by or on behalf of
states, territories and possessions of the United States (including the
District of Columbia) and the political subdivisions, agencies and
instrumentalities thereof ("Municipal Securities"), the interest on which is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes), and is not a tax preference item under the
federal alternative minimum tax. Under normal circumstances, the Fund's
investments in private activity bonds and taxable investments will not exceed,
in the aggregate, 20% of the Fund's net assets. The interest from certain
private activity bonds (including the Fund's distributions of such interest)
may be a preference item for purposes of the federal alternative minimum tax.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.

CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Municipal Securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal. 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.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."

CORE FIXED INCOME FUND

13
<PAGE>

foreign issuers which are denominated in currencies other than the U.S.
dollar, 10% of which may be invested in issuers in countries with emerging
markets and economies. A number of investment strategies will be used to
achieve the Fund's investment objective, including market sector selection,
determination of yield curve exposure, and issuer selection. In addition, the
Investment Adviser will attempt to take advantage of pricing inefficiencies in
the fixed income markets.

CREDIT QUALITY. All U.S. dollar-denominated fixed-income securities
purchased by the Fund will be rated, at the time of investment, at least BBB
by S&P or Baa by Moody's. The non-U.S. dollar-denominated fixed- income
securities in which the Fund may invest will be rated, at the time of
investment, at least AA by S&P or Aa by Moody's. Fixed-income securities rated
BBB or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers' capability to pay interest and repay principal.

DESCRIPTION OF SECURITIES

U.S. GOVERNMENT SECURITIES

14
<PAGE>

securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the
issuer. No assurance can be given that the U.S. government will provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises in the future.

MORTGAGE-BACKED SECURITIES

FIXED RATE MORTGAGE LOANS. Generally, fixed rate mortgage loans pay interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed-rate mortgage loans typically provide for monthly payments of
principal and interest in substantially equal installments for the term of the
mortgage note in sufficient amounts to fully amortize principal by maturity,
although certain fixed-rate mortgage loans provide for a large final "balloon"
payment upon maturity.

ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Short Duration Government and Core Fixed Income Funds
may, invest in ARMs, which are pass-through mortgage securities collateralized
by mortgages with adjustable rather than fixed coupon rates. ARMs generally
provide for a fixed initial mortgage interest rate for a set period.
Thereafter, the interest rates are subject to periodic adjustments based on
changes to a designated benchmark index.

15
<PAGE>

PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Core Fixed Income Fund may
invest in Mortgage-Backed Securities issued or sponsored by non-governmental
entities. Privately issued Mortgage-Backed Securities are generally backed by
pools of conventional (i.e., non-government guaranteed or insured) mortgage
loans. Since such Mortgage-Backed Securities normally are not guaranteed by an
entity having the credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in
order to receive a high quality rating from the rating organizations (i.e.,
S&P or Moody's), they normally are structured with one or more types of
"credit enhancement."

MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Adjustable Rate Government, Short Duration Government and
Core Fixed Income Funds may also invest in multiple class securities,
including collateralized mortgage obligations ("CMOs") and Real Estate
Mortgage Investment Conduit ("REMIC") pass-through or participation
certificates. CMOs provide an investor with a specified interest in the cash
flow from a pool of underlying mortgages or of other Mortgage-Backed
Securities. CMOs are issued in multiple classes, each with a specified fixed
or floating interest rate and a final scheduled distribution date. In most
cases, payments of principal are applied to the CMO classes in the order of
their respective stated maturities, so that no principal payments will be made
on a CMO class until all other classes having an earlier stated maturity date
are paid in full. A REMIC is a CMO that qualifies for special tax treatment
under the Internal Revenue Code of 1986, as amended (the "Code"), and invests
in certain mortgages principally secured by interests in real property and
other permitted investments. The Funds do not intend to purchase residual
interests in REMICs.

STRIPPED MORTGAGE-BACKED SECURITIES. The Adjustable Rate Government, Short
Duration Government and Core Fixed Income Funds may invest in Stripped
Mortgage-Backed Securities ("SMBS"), which are derivative multiple class
Mortgage-Backed Securities. SMBS are usually structured with two different
classes; one that receives 100% of the interest payments and the other that
receives 100% of the principal payments from a pool of mortgage loans. If the
underlying mortgage loans experience different than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from mortgage loans are generally higher than prevailing market yields on
other Mortgage-Backed Securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped.

ASSET-BACKED SECURITIES

The Core Fixed Income Fund may invest in Asset-Backed Securities. The
principal and interest payments on Asset-Backed Securities are collateralized
by pools of assets such as auto loans, credit card receivables, leases,
installment contracts and personal property. Such asset pools are securitized
through the use of special purpose trusts or corporations. Principal and
interest payments may be credit enhanced by a letter of credit, a pool
insurance policy or a senior/subordinated structure.

MUNICIPAL SECURITIES

GENERAL. Municipal Securities in which the Short Duration Tax-Free Fund and,
to a limited extent, the Core Fixed Income Fund, invest consist of bonds,
notes, commercial paper and other instruments (including participation
interests in such 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 or instrumentalities, the interest on
which, 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

16
<PAGE>

not necessarily exempt from federal alternative minimum tax or from state or
local taxes). Such securities may pay fixed, variable or floating rates of
interest. 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.

PRIVATE ACTIVITY BONDS. Municipal Securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Short Duration Tax-Free Fund's
distributions attributable to the interest income from private activity bonds
may subject certain investors to the federal alternative minimum tax.

CORPORATE DEBT OBLIGATIONS

The Core Fixed Income Fund may invest in corporate debt obligations. In
addition to obligations of corporations, corporate debt obligations include
securities issued by banks and other financial institutions.

17
<PAGE>

Corporate debt obligations are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations.

CONVERTIBLE SECURITIES

The Core Fixed Income Fund may invest in convertible debt obligations of an
issuer convertible at a stated exchange rate into common stock of the issuer.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. As with all debt securities,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. However, when
the market price of the common stock underlying a convertible security exceeds
the conversion price, the price of the convertible security tends to reflect
the market price of the underlying common stock. As the market price of the
underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis, and thus may not depreciate to the same extent
as the underlying common stock. Convertible securities in which the Core Fixed
Income Fund invests are subject to the same rating criteria as its other
investments in fixed- income securities.

FOREIGN INVESTMENTS

FOREIGN SECURITIES. The Core Fixed Income Fund may invest in fixed-income
securities of foreign issuers denominated in any currency but will limit its
investments in non-U.S. dollar-denominated fixed-income securities to 25% of
its total assets. This may offer potential benefits that are not available
from investing exclusively in U.S. dollar-denominated domestic issues. Foreign
countries may have economic policies or business cycles different from those
of the U.S. and markets for foreign fixed-income securities do not necessarily
move in a manner parallel to U.S. markets.

Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in fixed-income securities of domestic
issuers quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which the Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. In addition, clearance and
settlement procedures may be different in foreign countries and, in certain
markets, such procedures have on occasion been unable to keep pace with the
volume of securities transactions, making it more difficult to conduct such
transactions.

The Core Fixed Income Fund may invest in an issuer domiciled in one country
yet issuing the security in the currency of another country. The Fund may also
invest in debt securities denominated in the European Currency Unit ("ECU"),
which is a "basket" consisting of specified amounts in the currencies of
certain of the twelve member states of the European Community. The specific
amounts of currencies comprising the ECU may be adjusted by the Council of
Ministers of the European Community from time to time to reflect changes in
relative values of the underlying currencies. In addition, the Fund may invest
in securities denominated in other currency "baskets."

18
<PAGE>

issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers may be
less liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
the Fund, political or social instability or diplomatic developments which
could affect investments in those countries.

FOREIGN GOVERNMENT SECURITIES. The Core Fixed Income Fund may invest in debt
obligations of foreign governments and governmental agencies, including those
of emerging countries. Investment in sovereign debt obligations involves
special risks not present in debt obligations of corporate issuers. The issuer
of the debt or the governmental authorities that control the repayment of the
debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, and the Fund may have limited recourse
in the event of a default. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt, and in turn the Fund's net
asset value, to a greater extent than the volatility inherent in debt
obligations of U.S. issuers. A sovereign debtor's willingness or ability to
repay principal and pay interest in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign currency
reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as
a whole, the sovereign debtor's policy toward international lenders and the
political constraints to which a sovereign debtor may be subject.

EMERGING MARKETS. The Core Fixed Income Fund may invest up to 10% of its
total assets in securities of issuers located in countries with emerging
economies or securities markets ("emerging markets"). Political and economic
structures in many emerging markets may be undergoing significant evolution
and rapid development, and emerging markets may lack the social, political and
economic stability characteristic of more developed countries. As a result,
the risks relating to investments in foreign securities described above,
including the possibility of nationalization, expropriation and confiscatory
taxation, may be heightened. In addition, unanticipated political and social
developments may affect the value of the Fund's investments in emerging
markets and the availability to the Fund of additional investments in such
countries. The small size and inexperience of the securities markets in
certain emerging markets and the limited volume of trading in securities in
those countries may make the Fund's investments in such countries less liquid
and more volatile than investments in countries with more developed securities
markets (such as the U.S., Japan and most Western European countries). See the
Additional Statement for further information regarding the Fund's investments
in emerging markets.

FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income Fund will usually involve currencies of foreign countries,
and because the Fund may have currency exposure independent of its securities
position, the value of a Fund's assets as measured in U.S. dollars will be
affected by changes in foreign currency exchange rates. The Fund may, to the
extent it invests in foreign securities, purchase or sell forward foreign
currency exchange contracts for hedging purposes and to seek to protect
against anticipated changes in future foreign currency exchange rates. The
Fund also may enter into such contracts to seek to increase total return when
the Investment Adviser anticipates that the foreign currency will appreciate
or depreciate in value, but securities denominated or quoted in that currency
do not present attractive investment opportunities and are not held in the
Fund's portfolio. When entered into to seek to increase total return, forward
foreign currency exchange contracts are considered speculative. The Fund may
also engage in cross-hedging by using forward contracts in a currency
different from that in which the hedged security is denominated or quoted

19
<PAGE>

if the Investment Adviser determines that there is a pattern of correlation
between the two currencies. If the Fund enters into a forward foreign currency
exchange contract to buy foreign currency for any purpose or to sell foreign
currency to seek to increase total returns, the Fund will be required to place
cash or liquid assets in a segregated account with the Fund's custodian in an
amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract. The Fund will incur costs in connection
with conversions between various currencies. The Fund may hold foreign
currency received in connection with investments in foreign securities when,
in the judgment of the Investment Adviser, it would be beneficial to convert
such currency in U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rate.

Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, the Fund's net asset value to
fluctuate. Currency exchange rates generally are determined by the forces of
supply and demand in the foreign exchange markets and the relative merits of
investments in different countries, actual or anticipated changes in interest
rates and other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected unpredictably by the intervention
of U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the U.S. or abroad. To
the extent that a substantial portion of the Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.

The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on a contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price.
The Fund will not enter into forward foreign currency exchange contracts,
currency swaps or other privately negotiated instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.

The Core Fixed Income Fund's use of foreign currency management techniques
in emerging markets may be limited. Due to the limited market for these
instruments in emerging markets, the Investment Adviser does not currently
anticipate that a significant portion of the Fund's currency exposure in
emerging markets, if any, will be covered by such instruments. For a
discussion of such instruments and the risks associated with their use, see
"Investment Objectives and Policies" in the Additional Statement.

STRUCTURED SECURITIES

The Core Fixed Income Fund may invest in structured securities. The value of
the principal of and/or interest on such securities is determined by reference
to changes in the value of specific currencies, interest rates, commodities,
indices or other financial indicators (the "Reference") or the relative change
in two or more References. The interest rate or the principal amount payable
upon maturity or redemption may be increased or decreased depending upon
changes in the applicable Reference. The terms of the structured securities
may provide that in certain circumstances no principal is due at maturity and,
therefore, result in the loss of the Fund's investment. Structured securities
may be positively or negatively indexed, so that appreciation of the Reference
may produce an increase or decrease in the interest rate or value of the
security at maturity. In addition, changes in the interest rates or the value
of the security at maturity may be a multiple of changes in the value of the

20
<PAGE>

Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.

ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS

RISK FACTORS

INTEREST RATE RISK. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed income securities tends to decline. Volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.

21
<PAGE>

rates on new mortgage loans fall sufficiently below the interest rates on
existing outstanding mortgage loans, the rate of prepayment would be expected
to increase. Conversely, if mortgage loan interest rates rise above the
interest rates on existing outstanding mortgage loans, the rate of prepayment
would be expected to decrease.

ARMs also have the risk of prepayments, which will have a greater impact on
the Adjustable Rate Government Fund. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed-rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates (than if
prevailing interest rates remain constant or increase) because the
availability of low fixed-rate mortgages may encourage mortgagors to refinance
their ARMs to "lock-in" a fixed-rate mortgage. Conversely, if prevailing
interest rates rise significantly, ARMs may prepay slower. As with fixed-rate
mortgages, ARM prepayment rates vary in both stable and changing interest rate
environments. There are certain ARMs where the homeowner's payments do not
fully cover interest, so the principal balance increases over time. These
"negative amortizing" ARMs may be subject to greater default risk.

TAX RISK OF MUNICIPAL SECURITIES. Due to Municipal Securities' tax-exempt
status, their yields and market values may be more adversely impacted by
changes in tax rates and policies than taxable fixed-income securities.
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 is affected by 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 the demand for and
supply, liquidity and marketability of Municipal Securities, which could in
turn affect the Fund's ability to acquire and dispose of Municipal Securities
at desirable yield and price levels.

FOREIGN RISKS. See "Foreign Securities" for a description of the risks of
investing in foreign securities and currencies.

22
<PAGE>

INVESTMENT TECHNIQUES

MORTGAGE DOLLAR ROLLS. The Adjustable Rate Government, Short Duration
Government and Core Fixed Income Funds may enter into mortgage "dollar rolls"
in which a Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase
substantially similar (same type, coupon and maturity) but not identical
securities on a specified future date. During the roll period, the Fund loses
the right to receive principal and interest paid on the securities sold.
However, the Fund would benefit to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase or fee income plus the interest earned on the cash proceeds of
the securities sold until the settlement date for the forward purchase. Unless
such benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund. Successful use of mortgage dollar rolls
depends upon the Investment Adviser's ability to predict correctly interest
rates and mortgage prepayments. There is no assurance that mortgage dollar
rolls can be successfully employed. The Fund will hold and maintain in a
segregated account until the settlement date cash or liquid assets in an
amount equal to the forward purchase price. For financial reporting and tax
purposes, each Fund treats mortgage dollar rolls as two separate transactions;
one involving the purchase of a security and a separate transaction involving
a sale. The Funds do not currently intend to enter into mortgage dollar rolls
that are accounted for as a financing.

OPTIONS ON FOREIGN CURRENCIES. The Core Fixed Income Fund may, to the extent
it invests in foreign securities, purchase and sell (write) put and call
options on foreign currencies for the purpose of protecting against declines
in the U.S. dollar value of foreign portfolio securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Core Fixed Income Fund may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies. As with other kinds of option
transactions, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received. If
an option that the Fund has written is exercised, the Fund could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may
constitute an effective hedge against exchange rate fluctuations; however, in
the event of exchange rate movements adverse to the Fund's position,

23
<PAGE>

the Fund may forfeit the entire amount of the premium plus related transaction
costs. In addition to purchasing put and call options for hedging purposes,
the Fund may purchase call or put options on currency to seek to increase
total return when the Investment Adviser anticipates that the currency will
appreciate or depreciate in value, but the securities quoted or denominated in
that currency do not present attractive investment opportunities and are not
held in the Fund's portfolio. When purchased or sold to seek to increase total
return, options on currencies are considered speculative. Options on foreign
currencies to be written or purchased by the Fund will be traded on U.S. and
foreign exchanges or over-the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return or to hedge against changes in interest rates or securities
prices or, in the case of the Core Fixed Income Fund, currency exchange rates,
a Fund may purchase and sell various kinds of futures contracts, and purchase
and write call and put options on any of such futures contracts. Each Fund may
also enter into closing purchase and sale transactions with respect to any
such contracts and options. The futures contracts may be based on various
securities (such as U.S. Government Securities), foreign currencies, in the
case of the Core Fixed Income Fund, securities indices and other financial
instruments and indices. A Fund will engage in futures and related options
transactions 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. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek 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 a 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 a Fund's net assets. These transactions involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
segregate and maintain cash or liquid assets 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 Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while a Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position which is intended to be protected is impossible to
achieve, the desired protection may not be obtained and a Fund may be exposed
to risk of loss. The loss incurred by a Fund in entering into futures
contracts and in writing call options on futures is potentially unlimited and
may exceed the amount of the premium received. Futures markets are highly
volatile and the use of futures may increase the volatility of a Fund's net
asset value. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
correctly analyze the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.

CURRENCY SWAPS. The Core Fixed Income Fund may enter into currency swaps for
hedging purposes or to seek to increase total return. Currency swaps involve
the exchange by a Fund with another party of their respective rights to make
or receive payments in specified currencies. Currency swaps usually involve
the delivery of a gross payment stream in one designated currency in exchange
for the gross payment stream in another designated currency. Therefore, the
entire payment stream under a currency swap is subject to the risk

24
<PAGE>

that the other party to the swap will default on its contractual delivery
obligations. The Fund will not enter into swap transactions unless the
unsecured commercial paper, senior debt or claims-paying ability of the other
party thereto is rated either AA or A-1 or better by S&P 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 currency swaps
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
currency exchange rates, the investment performance of the Fund would be less
favorable than it would have been if this investment technique were not used.
The staff of the SEC currently take the position that swaps are illiquid and
thus subject to the Fund's limitation on investments in illiquid securities.

ILLIQUID AND RESTRICTED SECURITIES. A Fund may not invest more than 15% of
its net assets in illiquid investments, which includes securities (both
foreign and domestic) that are not readily marketable, swap transactions,
certain SMBS, certain municipal leases and participation interests, repurchase
agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days and certain restricted securities,
unless it is determined, based upon the continuing review of the trading
markets for a specific restricted security, that such restricted security is
eligible for resale under Rule 144A under the Securities Act of 1933 and,
therefore, is liquid. The Trustees have adopted guidelines and delegated to
the Investment Adviser the daily function of determining and monitoring the
liquidity of restricted portfolio securities. The Trustees, however, retain
oversight focusing on factors such as valuation, liquidity and availability of
information and are ultimately responsible for each determination. Investing
in restricted securities eligible for resale pursuant to Rule 144A may
decrease the liquidity in a Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.

25
<PAGE>

REPURCHASE AGREEMENTS. Each 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. Core Fixed Income Fund may also enter
into repurchase agreements involving certain foreign government securities. If
the other party or "seller" defaults, a 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. In addition, in the event of
bankruptcy of the seller or failure of the seller to repurchase the securities
as agreed, a Fund could suffer losses, including loss of interest on or
principal of the security and costs associated with delay and enforcement of
the repurchase agreement. The Trustees have reviewed and approved certain
counterparties whom they believe to be creditworthy and have authorized the
Funds to enter into repurchase agreements with such counterparties. In
addition, each Fund, together with other registered investment companies
having management agreements with the Investment Adviser, 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.

TEMPORARY INVESTMENTS. Each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in (a) U. S. Government Securities or
(b) repurchase agreements collateralized by U.S. Government Securities. The
Short Duration Tax-Free Fund may for temporary defensive purposes depart from
its stated investment objectives and invest more than 20% of its net assets in
taxable investments.

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) portfolio securities lending, (ii)
mortgage swaps (other than Short Duration Tax-Free Fund) and interest rate
swaps, caps, floors and collars, (iii) inverse floating rate securities, (iv)
yield curve options, (v) investments in other investment companies, (vi)
custodial receipts and (vii) with respect to the Short Duration Tax-Free Fund,
tender option bonds and standby commitments. For more information see the
Additional Statement.

INVESTMENT RESTRICTIONS

26
<PAGE>

PORTFOLIO TURNOVER

Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed-income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of each Fund will vary from year to year. The
portfolio turnover rate is computed by dividing the lesser of the dollar
amount of securities purchased or securities sold (excluding all securities
whose maturities at acquisition are one year or less) by the average monthly
value of such securities owned during the year. A 100% turnover rate would
occur, for example, if all of the securities held by a Fund were sold and
replaced within one year. The Investment Adviser will not consider the
portfolio turnover rate a limiting factor in making investment decisions for a
Fund consistent with the Fund's investment objectives and portfolio management
policies. A high rate of portfolio turnover results in increased transaction
costs to a Fund. The portfolio turnover rate includes the effect of entering
into mortgage dollar rolls. See "Financial Highlights" for a statement of each
Fund's historical portfolio turnover rates.

MANAGEMENT

TRUSTEES AND OFFICERS

INVESTMENT ADVISERS

27
<PAGE>

28
<PAGE>

As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM and GSFM are entitled to the
following fees, computed daily and payable monthly at the annual rates listed
below:

<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* OCTOBER 31, 1996*
----------- -----------------
<S> <C> <C>
GSAM
- ----
Short Duration Tax-Free......................... 0.40% 0.40%
Core Fixed Income............................... 0.40% 0.40%
GSFM
- ----
Short Duration Government....................... 0.50% 0.40%
Adjustable Rate Government...................... 0.40% 0.40%
</TABLE>
- --------
* The contractual rate set forth in the table is the rate payable under the
Management Agreement. For the fiscal year ended October 31, 1996, the annual
rate expressed is the amount paid after voluntary fee limitations. The
difference, if any, between the stated fees and the actual fees paid by the
Funds reflects that the applicable Investment Adviser did not charge the
full amount of the fees to which it would have been entitled. The Investment
Advisers may discontinue or modify such limitations in the future at their
discretion, although they have no current intention to do so.

The Investment Advisers have voluntarily agreed to reduce or limit certain
"Other Expenses" of each Fund, other than the Adjustable Rate Government Fund
(excluding management fees, fees under administration plans, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses), to the extent such expenses exceed 0.05% per annum of a Fund's
average daily net assets, respectively. Such reductions or limits, if any, are
calculated monthly on a cumulative basis and may be discontinued or modified
by the applicable Investment Adviser in its discretion at any time.

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, 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 a Fund or limit a Fund's 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 Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a 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, a 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
"Management -- 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

29
<PAGE>

each Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. Shareholders with inquiries regarding any
Fund should contact Goldman Sachs (as Transfer Agent) at the address or the
telephone number set forth on the back cover page of this Prospectus. Goldman
Sachs is entitled to receive a fee from the Adjustable Rate Government, Short
Duration Government, Short Duration Tax-Free and Core Fixed Income Funds equal
to each class' proportionate share of the total transfer agency fees borne by
the Fund. Such fees are equal to the fixed per account charge of $12,000 per
year plus $7.50 per account, together with out-of-pocket and transaction
related expenses (including those out-of-pocket expenses payable to servicing
and/or sub-transfer agents) applicable to Class A and Class B shares where
applicable plus 0.04% of the average daily net assets of the other classes of
the Funds.

DIVIDENDS

Each Fund will declare a daily dividend. Such dividend will accrue to
shareholders of record as of 3:00 p.m. Chicago time, and will be paid monthly.
Over the course of the fiscal year, dividends accrued and paid will constitute
all or substantially all of the Funds' net investment income. From time to
time a portion of such dividends may constitute a return of capital. In the
case of Core Fixed Income Fund, net loss, if any, from certain foreign
currency transactions or instruments that is otherwise taken into account in
calculating net investment income or net realized capital gains for accounting
purposes may not be taken into account in determining the amount of dividends
to be declared and paid, with the result that a portion of the Fund's
dividends may be treated as a return of capital, nontaxable to the extent of a
shareholder's tax basis in his shares. The Funds also intend that all net
realized long-term and short-term capital gains will be declared as a dividend
at least annually. In determining amounts of capital gains to be distributed,
capital losses, including any available capital loss carryovers from prior
years, will be offset against capital gains.

A 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 a Fund's net asset value as of 3:00 p.m. Chicago
time. On days on which net asset value is not calculated, such determination
is made as of 3:00 p.m. Chicago time.

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

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

30
<PAGE>

NET ASSET VALUE

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

PERFORMANCE INFORMATION

31
<PAGE>

SHARES OF THE TRUST

The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees, if, at any time, less than
a majority of Trustees holding office at the time were elected by
shareholders.

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

32
<PAGE>

TAXATION

FEDERAL TAXES

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

The Short Duration Tax-Free Fund intends to satisfy certain requirements of
the Code so that it may distribute the tax-exempt interest it receives as
"exempt-interest dividends," as defined in the Code. If such requirements are
satisfied, distributions of the Short Duration Tax-Free Fund that are
attributable to interest on tax-exempt obligations and that the Fund properly
designates as exempt-interest dividends will be exempt from regular federal
income tax, although all or a portion of such a distribution may be subject to
the federal alternative minimum tax and the entire distribution may be
includable in the tax base for determining taxability of social security or
railroad retirement benefits. Persons who are "substantial users" (or related
persons to such substantial users) of facilities financed by industrial
development or certain private activity bonds should consult their own tax
advisers before purchasing shares of the Short Duration Tax-Free Fund.
Interest on indebtedness incurred or continued to purchase or carry shares of
the Short Duration Tax-Free Fund is not deductible to the extent attributable
to the Short Duration Tax-Free Fund's distributions that are exempt-interest
dividends.

Redemptions and exchanges of shares are taxable events.

Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-
interest dividends), redemptions and exchanges if they fail to furnish their
correct taxpayer identification number and certain certifications required by
the Internal Revenue Service or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not
U.S. persons under the Code are subject to different tax rules and may be
subject to non-resident 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 Funds.

33
<PAGE>

The Core Fixed Income Fund may be subject to foreign withholding or other
foreign taxes on income or gain from certain foreign securities. If more than
50% of the value of its total assets is comprised of stock or securities of
foreign corporations at the end of its taxable year and the Fund so elects,
shareholders will include in their gross incomes (in addition to dividends and
distributions they receive) their pro rata shares of qualified foreign taxes
paid by the Fund and may be entitled under the Code to claim foreign tax
credits or deductions with respect to such taxes. It is not expected that the
Core Fixed Income Fund will qualify to make this election. If the Fund cannot
or does not so elect, it may deduct these taxes in computing its taxable
income, if any.

OTHER TAXES

ADDITIONAL INFORMATION

ADMINISTRATION PLAN

The Trust, on behalf of the Funds, has adopted an Administration Plan with
respect to the Administration Shares which authorizes a Fund to compensate
certain institutions ("Service Organizations") for providing account
administration services to their customers who are beneficial owners of such
Shares. The Trust, on behalf of the Funds, enters into agreements with Service
Organizations which purchase Administration Shares on behalf of their
customers ("Service Agreements"). The Service Agreements provide for
compensation to the Service Organizations in an amount up to 0.25% (on an
annualized basis) of the average daily net assets of the Administration Shares
of the Fund attributable to or held in the name of the Service Organization
for its customers. The services provided by the Service Organizations may
include acting, directly or through an agent, as the sole shareholder of
record, maintaining account records for customers and processing orders to
purchase, redeem or exchange Administration Shares for customers.

For the fiscal year ended October 31, 1996, the Trust, on behalf of the
Adjustable Rate Government, Short Duration Government, Short Duration Tax-Free
and Core Fixed Income Funds, paid the Service Organizations fees at the annual
rate of 0.25% of each Fund's average daily net assets attributable to the
Administration Shares.

34
<PAGE>

Holders of Administration Shares of a Fund bear all expenses and fees paid
to Service Organizations with respect to such Shares as well as any other
expenses which are directly attributable to such Shares.

Service Organizations may charge other fees to their customers who are the
beneficial owners of Administration Shares 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 Funds,
accrues payments made pursuant to a Service Agreement daily. All inquiries of
beneficial owners of Administration Shares should be directed to such owners'
Service Organization.

REPORTS TO SHAREHOLDERS

Recordholders of Administration Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. Each
recordholder of Administration Shares will also be provided with a printed
confirmation for each transaction in its account and a monthly account
statement. A year-to-date statement for any account will be provided to a
Service Organization upon request made to Goldman Sachs.

PURCHASE OF ADMINISTRATION SHARES

Customers of Service Organizations may invest in Administration Shares only
through their Service Organizations. Administration Shares may be purchased on
any Business Day by a Service Organization through Goldman Sachs at the net
asset value per share next determined after receipt of an order. No sales load
will be charged. If, by the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time 4:00 p.m. New York time), an order
is received from a Service Organization by Goldman Sachs, the price per share
will be the net asset value per share computed on the day the purchase order
is received. See "Net Asset Value." Purchases of Administration Shares of the
Funds must be settled within three (3) Business Days of the receipt of a
complete purchase order. Payment of the proceeds of redemption of shares
purchased by check may be delayed for a period of time as described under
"Redemption of Administration Shares."

The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to Northern or Goldman Sachs. In
order to facilitate timely transmittal, the Service Organizations have
established times by which purchase orders and payments must be received by
them.

PURCHASE PROCEDURES

Purchase of Administration Shares by a Service Organization may be made by
placing an order with Goldman Sachs at 800-621-2550 and either wiring federal
funds to the Northern Trust Company ("Northern") as subcustodian for State
Street Bank and Trust Company ("State Street") on the next Business Day or
initiating an ACH transfer to ensure receipt by Northern on the next Business
Day. Purchases may also be made by a Service Organization by check (except
that the Trust will not accept a check drawn on a foreign bank or a third-
party check) or Federal Reserve draft made payable to Goldman Sachs Fixed
Income Funds -- Name of Fund and Class of shares and should be directed to
Goldman Sachs Fixed Income Funds -- Name of Fund and Class of shares, c/o GSAM
Shareholder Services, 4900 Sears Tower, Chicago, Illinois 60606.

35
<PAGE>

OTHER PURCHASE INFORMATION

The Funds do not have any minimum purchase or account requirements with
respect to Administration Shares. A Service Organization may, however, impose
a minimum amount for initial and subsequent investments in Administration
Shares, and may establish other requirements such as a minimum required
account balance. A Service Organization may effect redemptions of noncomplying
accounts, and may impose a charge for any special services rendered to its
customers. Customers should contact their Service Organization for further
information concerning such requirements and charges.

PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received from a Service Organization by Goldman Sachs by 3:00 p.m. Chicago
time and payment is made by wire transfer or ACH transfer, shares will be
issued and dividends will begin to accrue on the purchased shares on the later
of (i) the Business Day after receipt by Goldman Sachs of a purchase order or
(ii) the day of receipt of a federal funds wire or an ACH transfer by State
Street.

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

The Funds reserve the right to redeem Administration Shares of any Service
Organization whose account balance is less than $50 as a result of earlier
redemptions. Such redemptions will not be implemented if the value of such
shareholder's account falls below the minimum account balance solely as a
result of market conditions. A Fund will give sixty (60) days' prior written
notice to Service Organizations whose Administration Shares are being redeemed
to allow them to purchase sufficient additional Administration Shares to avoid
such redemption.

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

EXCHANGE PRIVILEGE

Administration Shares of the Funds may be exchanged by a Service
Organization for (i) Administration Shares of any other mutual fund sponsored
by Goldman Sachs and designated as an eligible fund for this purpose and (ii)
the corresponding class of any Goldman Sachs Money Market Fund at the net
asset value next determined either by writing to Goldman Sachs, Attention:
Goldman Sachs Fixed Income Funds -- Name of Fund and Class of shares, c/o GSAM
Shareholder Services, 4900 Sears Tower, Chicago, Illinois 60606 or, if
previously elected in the Fund's Account Information Form, by telephone at
800-621-2550 (7:00 a.m. to

36
<PAGE>

5:30 p.m. Chicago time). A shareholder should obtain and read the prospectus
relating to any other fund and its shares and consider its investment
objective, policies and applicable fees before making an exchange.
Administration Shares acquired by telephone exchange must be registered in the
same name(s) and have the same address as Administration Shares of the Fund
for which the exchange is being made.

In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Administration Shares" to confirm that such instructions are genuine. In times
of drastic economic or market changes, the telephone exchange privilege may be
difficult to implement. For federal income tax purposes, an exchange is
treated as a redemption of the Administration Shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of Administration Shares, or the corresponding class of any Goldman Sachs
Money Market Fund received in the exchange. Shareholders should consult their
own tax advisers concerning the tax consequences of an exchange. Exchanges are
available only in states where exchanges may legally be made. The exchange
privilege may be modified or withdrawn at any time on sixty (60) days' written
notice to the recordholders of Administration Shares and is subject to certain
limitations. See "Purchase of Administration Shares."

REDEMPTION OF ADMINISTRATION SHARES

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

In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. Among other
things, any redemption request that requires money to go to an account or
address other than that designated on the Account Information Form must be in
writing and signed by an authorized person designated on the Account
Information Form. Any such written request is also confirmed by telephone with
both the requesting party and the designated bank account to verify
instructions. Exchanges, among accounts with different names, addresses and
social security or taxpayer identification numbers must be in writing and
signed by an authorized person designated on the Account Information Form.
Other procedures may be implemented from time to time. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the
Funds, the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone. If Goldman Sachs
receives a redemption request by 3:00 p.m. Chicago time, the Administration
Shares to be redeemed earn dividends declared on the day the request is
received.

The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Administration Shares or, if the
recordholder elects in writing, by check. Redemption proceeds

37
<PAGE>

paid by wire transfer will normally be wired on the next Business Day in
federal funds (for a total one-day delay), but may be paid up to three (3)
days after receipt of a properly executed redemption request. Wiring of
redemption proceeds may be delayed one additional Business Day if the Federal
Reserve Bank is closed on the day redemption proceeds would ordinarily be
wired. Redemption proceeds paid by check will normally be mailed to the
address of record within three (3) Business Days of receipt of a properly
executed redemption request. Once wire transfer instructions have been given
by Goldman Sachs, neither the Funds, the Trust nor Goldman Sachs assumes any
further responsibility for the performance of intermediaries or the customer's
Service Organization. In the transfer process, if a problem with such
performance arises, the customer should deal directly with such intermediaries
or Service Organizations.

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

38
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM

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

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

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

A-1
<PAGE>

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

GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004

GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS, 02171

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

FIPROADMIN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS
FIXED INCOME FUNDS

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

PROSPECTUS
ADMINISTRATION SHARES

LOGO

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

OAKMARK UNITS

GOLDMAN SACHS SHORT DURATION TAX-FREE FUND

A CASH MANAGEMENT VEHICLE FOR
EXISTING AND PROSPECTIVE UNITHOLDERS OF

LOGO

PROSPECTUS

-----------

THE OAKMARK FAMILY OF FUNDS
TWO NORTH LASALLE STREET
CHICAGO, ILLINOIS 60602-3790

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights............................................................ 2
Fees and Expenses.......................................................... 5
Financial Highlights....................................................... 7
Investment Objective and Policies.......................................... 9
Description of Securities.................................................. 11
Risk Factors............................................................... 13
Investment Techniques...................................................... 14
Investment Restrictions.................................................... 18
Portfolio Turnover......................................................... 18
Management................................................................. 18
Dividends.................................................................. 21
Net Asset Value............................................................ 22
Performance Information.................................................... 22
Units of the Trust......................................................... 24
Taxation................................................................... 24
Additional Information..................................................... 26
Additional Services........................................................ 26
Unitholder Services........................................................ 27
Purchase of Oakmark Units.................................................. 28
Redemption of Oakmark Units................................................ 30
</TABLE>

QUESTIONS ABOUT YOUR ACCOUNT:

If you have questions about your account, please call Oakmark at: 1-800-
OAKMARK (1-800-625-6275).

<PAGE>

PROSPECTUS
May 1, 1997
OAKMARK UNITS

GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low
volatility of principal, that is exempt from regular federal income tax. The
Fund invests primarily in municipal securities.

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.

Goldman Sachs Asset Management (the "Investment Adviser"), New York, New York,
a separate operating division of Goldman, Sachs & Co. ("Goldman Sachs"),
serves as investment adviser to the Fund. Goldman Sachs serves as the Fund's
distributor and transfer agent. Harris Associates or its designee will act as
nominee and recordholder of 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.

This Prospectus provides information about the Fund that a prospective
investor should understand before investing. This Prospectus should be
retained for future reference. A Statement of Additional Information (the
"Additional Statement"), dated May 1, 1997, containing further information
about the Fund which may be of interest to investors, has been filed with the
Securities and Exchange Commission ("SEC"), is incorporated herein by
reference in its entirety, and may be obtained without charge by calling The
Oakmark Family of Funds at 1-800-OAKMARK (1-800-625-6275) or by writing the
Funds at Two North LaSalle Street, Chicago, Illinois 60602. The SEC maintains
a Web site (http://www.sec.gov) that contains the Additional Statement and
other information regarding the Trust.

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

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 THE FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

1
<PAGE>

FUND HIGHLIGHTS

The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information appearing herein.

WHAT IS GOLDMAN SACHS SHORT DURATION TAX-FREE FUND?

Goldman Sachs Short Duration Tax-Free Fund (the "Fund") is an investment
fund (mutual fund) of Goldman Sachs Trust (the "Trust"), an open-end
management investment company. The Fund pools the monies of investors by
selling its units to the public and investing these monies in a portfolio of
securities designed to achieve the Fund's stated investment objective.

WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES OF THE FUND?

<TABLE>
-----------------------------------------------------------
<S> <C>
INVESTMENT OBJECTIVE A high level of current income,
consistent with low volatility of
principal, that is exempt from
regular federal income tax.
-----------------------------------------------------------
DURATION Target = Lehman Brothers 3-Year
Municipal Bond Index plus or minus
.5 years
Maximum = 4 years
-----------------------------------------------------------
APPROXIMATE INTEREST 3-year bond
RATE SENSITIVITY
-----------------------------------------------------------
INVESTMENT SECTOR At least 80% of net assets in
municipal securities.
-----------------------------------------------------------
CREDIT QUALITY Minimum = BBB/Baa
-----------------------------------------------------------
OTHER INVESTMENTS U.S. Government Securities and
repurchase agreements collateralized
by such securities.
-----------------------------------------------------------
BENCHMARK Lehman Brothers 3-Year Municipal
Bond Index
-----------------------------------------------------------
</TABLE>

There can be no assurance that the Fund's objective will be achieved. For
a complete description of the Fund's investment objective and policies, see
"Investment Objective and Policies," "Description of Securities" and
"Investment Techniques."

WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?

The Fund's unit price will fluctuate with market and economic conditions,
so that an investment in the Fund may be worth more or less when redeemed
than when purchased. The Fund should not be relied upon as a complete
investment program. There can be no assurance that the Fund's investment
objective will be achieved. See "Risk Factors."

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

2
<PAGE>

Default Risk/Credit Risk. Investments in fixed-income securities are
subject to the risk that the issuer could default on its obligations and the
Fund could sustain losses on such investments. A default could impact both
interest and principal payments.

Call Risk and Extension Risk. Fixed-income securities may be subject to
both call risk and extension risk. Call risk (i.e., where the issuer
exercises its right to pay principal on an obligation earlier than
scheduled) causes cash flow to be returned earlier than expected. This
typically results when interest rates have declined and the Fund will suffer
from having to reinvest in lower yielding securities. Extension risk (i.e.,
where the issuer exercises its right to pay principal on an obligation later
than scheduled) causes cash flows to be returned later than expected. This
typically results when interest rates have increased and the Fund will
suffer from the inability to invest in higher yielding securities.

Other. The Fund's use of certain investment techniques, including
derivatives, options, futures and swap transactions, will subject the Fund
to greater risk than funds that do not employ such techniques.

WHO MANAGES THE FUND?

Goldman Sachs Asset Management serves as the Investment Adviser to the
Fund. As of March 24, 1997, the Investment Adviser, together with its
affiliates, acted as investment adviser, administrator or distributor for
assets in excess of $104.9 billion.

WHO DISTRIBUTES THE FUND'S UNITS?

Goldman Sachs acts as distributor of the Fund's units.

WHO IS HARRIS ASSOCIATES L.P.?

This Prospectus relates to the offering of Oakmark Units through Harris
Associates in its capacity as a Service Organization for the Fund. 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.

3
<PAGE>

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment in Oakmark Units is $1,000. Minimum
subsequent investments are $100.

HOW DO I PURCHASE OAKMARK UNITS?

You 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.

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, like 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
Services Units of the Fund attributable to or held in the name of the
Service Organization for its customers. See "Additional Services."

HOW DO I SELL MY OAKMARK UNITS?

You may redeem Oakmark Units upon request on any Business Day, as defined
under "Additional Information," at the net asset value next determined after
receipt of such request in proper form. See "Redemption of Oakmark Units."

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

Dividends accrue to unitholders daily and will be paid to Harris
Associates monthly for distribution to unitholders of Oakmark Units.
Unitholders of Oakmark Units may receive dividends in additional Oakmark
Units of the Fund or you may elect to receive cash. For further information
concerning dividends, see "Dividends."

4
<PAGE>

FEES AND EXPENSES
OAKMARK UNITS

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases............................. none
Maximum Sales Charge Imposed on Reinvested Dividends.................. none
Redemption Fees....................................................... none
Exchange Fees......................................................... none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net assets)
Management Fees (after applicable limitations)/1/..................... 0.40%
Service Fees/2/....................................................... 0.50%
Other Expenses (after applicable limitations)/1/...................... 0.05%
----
TOTAL FUND OPERATING EXPENSES (AFTER FEE AND EXPENSE LIMITATIONS)/3/.. 0.95%
====
</TABLE>

EXAMPLE

You would pay the following expenses on a hypothetical $1,000 investment
assuming (i) a 5% annual return and (ii) 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>

/1The/Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, service fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.05% of the Fund's average
daily net assets.
/2Service/Organizations may charge other fees to their customers who are
beneficial owners of Service Units in connection with their customer
accounts. See "Additional Service." Investors should be aware that, due to
the service fees, a long-term shareholder 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.
/3Without/the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Fund for the fiscal year ended October 31, 1996
would have been .61% and 1.51%, respectively.

The Investment Adviser has no current intention of modifying or
discontinuing any of the limitations set forth above, but may do so in the
future at its discretion. The information set forth in the foregoing table and
hypothetical example relates only to Oakmark Units of the Fund. Oakmark Units

5
<PAGE>

are Service Units sold through Harris Associates. The Fund also offers
Institutional Shares, Administration Shares, Class A Shares and Class B
Shares. The other classes of the Fund are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services. Information regarding any
other class of the Fund may be obtained from Harris Associates or Goldman
Sachs.

The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of the Fund that an investor will bear directly
or indirectly. The information on the fees and expenses included in the table
and the hypothetical example above are based on the Fund's actual fees and
expenses and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, the Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management -- Investment Adviser" and "Additional
Services."

6
<PAGE>

FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD

The following data with respect to a unit (of the Class specified) of the
Fund outstanding during the period(s) indicated has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Fund for the year ended October 31, 1996 (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 calling the telephone
number or writing to one of the addresses on the back cover of this Prospectus.

<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------------------------- ------------------------------------------------
NET REALIZED NET
AND REALIZED IN EXCESS
UNREALIZED AND FROM NET OF NET
GAIN (LOSS) UNREALIZED TOTAL REALIZED REALIZED
ON GAIN (LOSS) INCOME GAIN ON GAIN ON
NET ASSET INVESTMENT, ON FOREIGN (LOSS) INVESTMENT, IN EXCESS INVESTMENT,
VALUE AT NET OPTION AND CURRENCY FROM FROM NET OPTION AND OF NET OPTION AND
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT FUTURES INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME TRANSACTIONS INCOME TRANSACTIONS
--------- ---------- ------------ ------------ ---------- ---------- ------------ ---------- -------------
SHORT DURATION TAX-FREE FUND
- ---------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $ 9.94 $0.4192(a) $0.0200 (a) -- $0.4392 $(0.4192) -- -- --
1996-Administra-
tion Shares.... 9.94 0.3944(a) 0.0200 (a) -- 0.4144 (0.3944) -- -- --
1996-Service
Shares......... 9.95 0.3697(a) 0.0200 (a) -- 0.3897 (0.3697) -- -- --
1995-Institu-
tional Shares.. 9.79 0.4235(a) 0.1500 (a) -- 0.5735 (0.4235) -- -- --
1995-Administra-
tion Shares.... 9.79 0.3989(a) 0.1500 (a) -- 0.5489 (0.3989) -- -- --
1995-Service
Shares......... 9.79 0.3744(a) 0.1600 (a) -- 0.5344 (0.3744) -- -- --
1994-Institu-
tional Shares.. 10.23 0.3787(a) (0.3575)(a) -- 0.0212 (0.3787) (0.0825) -- --
1994-Administra-
tion Shares.... 10.23 0.3537(a) (0.3575)(a) -- (0.0038) (0.3537) (0.0825) -- --
1994-Service
Shares(f)...... 9.86 0.0475(a) (0.0700)(a) (0.0225) (0.0475) --
1993-Institu-
tional Shares.. 9.93 0.3834 0.3000(c) -- 0.6834 (0.3834) -- -- --
1993-Administra-
tion Shares(f).. 10.16 0.1555 0.0720(c) -- 0.2275 (0.1555) -- -- --
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO RATIO OF RATIO OF
SHAREHOLDERS NET NET NET NET
---------------------- INCREASE ASSET EXPENSES INVESTMENT
FROM TOTAL (DECREASE) VALUE TO INCOME
PAID DISTRIBUTIONS IN NET AT END AVERAGE (LOSS) TO PORTFOLIO
IN TO ASSET OF TOTAL NET AVERAGE TURNOVER
CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(G) ASSETS NET ASSETS RATE(C)
------- ------------ ----- ------ --------- ------ ---------- -------
SHORT DURATION TAX-FREE FUND
- ------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996-Institu-
tional Shares.. -- $(0.4192) $0.0300 $ 9.96 4.50% 0.45% 4.21% 231.65%
1996-Administra-
tion Shares.... -- (0.3944) 0.0300 9.96 4.24 0.70 3.96 231.65
1996-Service
Shares......... -- (0.3697) 0.0200 9.97 3.98 0.95 3.74 231.65
1995-Institu-
tional Shares.. -- (0.4235) 0.1500 9.94 5.98 0.45 4.31 259.52
1995-Administra-
tion Shares.... -- (0.3989) 0.1500 9.94 5.76 0.70 4.14 259.52
1995-Service
Shares......... -- (0.3744) 0.1600 9.95 5.59 0.95 3.87 259.52
1994-Institu-
tional Shares.. -- (0.4612) (0.4400) 9.79 0.17 0.45 3.74 354.00
1994-Administra-
tion Shares.... -- (0.4362) (0.4400) 9.79 (0.11) 0.70 3.51 354.00
1994-Service
Shares(f)...... -- (0.0475) (0.0700) 9.79 (0.32)(d) 0.95(b) 4.30(b) 354.00
1993-Institu-
tional Shares.. -- (0.3834) 0.3000 10.23 7.03 0.41 3.70 404.60
1993-Administra-
tion Shares(f).. -- (0.1555) 0.0720 10.23 2.28(d) 0.70(b) 3.32(b) 404.60
</TABLE>
<TABLE>
<CAPTION>
RATIO ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
-----------------------
RATIO OF
RATIO OF NET
EXPENSES INVESTMENT
NET ASSETS TO INCOME
AT END OF AVERAGE (LOSS) TO
PERIOD NET AVERAGE
(IN 000S) ASSETS NET ASSETS
--------- ------ ----------
SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------
<S> <C> <C> <C>
1996-Institu-
tional Shares.. $34,814 1.01% 3.65%
1996-Administra-
tion Shares.... 48 1.26 3.40
1996-Service
Shares......... 695 1.51 3.18
1995-Institu-
tional Shares.. 58,389 0.77 3.99
1995-Administra-
tion Shares.... 46 1.02 3.82
1995-Service
Shares......... 454 1.27 3.55
1994-Institu-
tional Shares.. 83,704 0.61 3.58
1994-Administra-
tion Shares.... 3,866 0.86 3.35
1994-Service
Shares(f)...... 440 1.11(b) 4.14(b)
1993-Institu-
tional Shares.. 115,803 1.06 3.05
1993-Administra-
tion Shares(f).. 911 1.07(b) 2.95
===================================================================
</TABLE>
7
<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

INCOME (LOSS) FROM INVESTMENT OPERATIONS DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------- -------------------------------------------------------
NET REALIZED NET
AND REALIZED IN EXCESS
UNREALIZED AND FROM NET OF NET
GAIN (LOSS) UNREALIZED TOTAL REALIZED REALIZED
ON GAIN (LOSS) INCOME GAIN ON GAIN ON
NET ASSET INVESTMENT, ON FOREIGN (LOSS) INVESTMENT, IN EXCESS INVESTMENT, FROM
VALUE AT NET OPTION AND CURRENCY FROM FROM NET OPTION AND OF NET OPTION AND PAID
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT FUTURES INVESTMENT FUTURES IN
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL
--------- ---------- ------------ ------------ ---------- ---------- ------------ ---------- ------------ -------
SHORT DURATION TAX-FREE FUND (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD OCTOBER 1, 1992(E) THROUGH OCTOBER 31,
1992-Institu-
tional Shares.. 10.00 0.0341 (0.0700)(c) -- (0.0359) (0.0341) -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF RATIO OF RATIO OF
NET NET NET NET RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT NET EXPENSES INVESTMENT
TOTAL (DECREASE) VALUE TO INCOME ASSETS AT TO INCOME
DISTRIBUTIONS IN NET AT END AVERAGE (LOSS) TO PORTFOLIO END OF AVERAGE (LOSS) TO
TO ASSET OF TOTAL NET AVERAGE TURNOVER PERIOD NET AVERAGE
SHAREHOLDERS VALUE PERIOD RETURNS/(g)/ ASSETS NET ASSETS RATE/(c)/ (IN 000s) ASSETS NET ASSETS
------------- -------- ------- ------------ ------- ---------- --------- --------- -------- ----------
SHORT DURATION TAX-FREE FUND (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD OCTOBER 1, 1992(E) THROUGH OCTOBER 31,
1992-Institu-
tional Shares.. (0.0341) (0.0700) 9.93 (0.34)(d) 0.05(b) 4.58(b) 31.19(d) 14,601 2.68(b) 1.95(b)
</TABLE>

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

(a)Calculated based on the average shares outstanding methodology.

(b)Annualized.

(c)Includes the effect of Mortgage dollar roll transactions.

(d)Not Annualized.

(e)Commencement of operations.

(f)Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.

(g) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and not
sales charge. For Class A shares only, total return would be reduced if a
sales charge were taken into account.

8
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective and principal investment policies of the Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that the
Fund's investment objective will be achieved.

The Fund's duration approximates its price sensitivity to changes in
interest rates. Maturity measures the time until final payment is due; it
takes no account of the pattern of a security's cash flows over time. In
computing portfolio duration, the Fund will estimate the duration of
obligations that are subject to prepayment or redemption by the issuer taking
into account the influence of interest rates on prepayments and coupon flows.
This method of computing duration is known as "option-adjusted" duration. The
Fund will not be limited as to its maximum weighted average portfolio maturity
or the maximum stated maturity with respect to individual securities unless
otherwise noted.

The Fund will deem a security to have met its minimum credit rating
requirement if the security receives the minimum required long-term rating (or
the equivalent short-term credit rating) at the time of purchase from at least
one rating organization (including, but not limited to, Standard & Poor's
Ratings Group ("S&P") and Moody's Investors Service, Inc. ("Moody's")) even
though it has been rated below the minimum rating by one or more other rating
organizations, or, if unrated by a rating organization, determined by the
Investment Adviser to be of comparable quality. If a security satisfies the
Fund's minimum rating criteria at the time of purchase and is subsequently
downgraded below such rating, the Fund will not be required to dispose of such
security. If a downgrade occurs, the Investment Adviser will consider what
action, including the sale of such security, is in the best interest of the
Fund and its unitholders.

SHORT DURATION TAX-FREE FUND

9
<PAGE>

four years. The approximate interest rate sensitivity of the Fund is
comparable to a three-year bond.

INVESTMENT SECTOR. The Fund invests, under normal conditions, at least 80%
of its net assets in fixed-income securities issued by or on behalf of states,
territories and possessions of the United States (including the District of
Columbia) and the political subdivisions, agencies and instrumentalities
thereof ("Municipal Securities"), the interest on which is exempt from regular
federal income tax (i.e., excluded from gross income for federal income tax
purposes) and is not a tax preference item under the federal alternative
minimum tax. Under normal circumstances, the Fund's investments in private
activity bonds and taxable investments will not exceed, in the aggregate, 20%
of the Fund's net assets. The interest from certain private activity bonds
(including the Fund's distributions of such interest) may be a preference item
for purposes of the Federal alternative minimum tax and may increase liability
for the corporate environmental tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.

CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Municipal Securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal. 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.

OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."

While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
unitholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."

10
<PAGE>

DESCRIPTION OF SECURITIES

U.S. GOVERNMENT SECURITIES

The Fund may invest in U.S. government securities ("U.S. Government
Securities"). Generally, these securities include U.S. Treasury obligations
and obligations issued or guaranteed by U.S. government agencies,
instrumentalities or sponsored enterprises which are supported by (a) the full
faith and credit of the U.S. Treasury (such as the Government National
Mortgage Association ("Ginnie Mae")), (b) the right of the issuer to borrow
from the U.S. Treasury (such as securities of the Student Loan Marketing
Association), (c) the discretionary authority of the U.S. government to
purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer. No assurance can be
given that the U.S. government will provide financial support to U.S.
government agencies, instrumentalities or sponsored enterprises in the future.

MUNICIPAL SECURITIES

GENERAL. Municipal Securities in which the Fund invests consist of bonds,
notes, commercial paper and other instruments (including participation
interests in such 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 or instrumentalities, the interest on
which, 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 federal alternative minimum tax or from state or local taxes).
Such securities may pay fixed, variable or floating rates of interest.
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.

PRIVATE ACTIVITY BONDS. Municipal Securities also include "private activity
bonds" or industrial development bonds, which are issued by or on

11
<PAGE>

behalf of public authorities to obtain funds for such projects as privately-
operated housing facilities, airport, mass transit or port facilities and
sewage disposal. In addition, proceeds of certain industrial development bonds
are used for constructing, equipping, repairing or improving privately
operated industrial or commercial facilities. The Fund's distributions
attributable to the interest income from private activity bonds may subject
certain investors to the federal alternative minimum tax.

MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. 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 facilities. Certificates of
participation represent undivided interests in municipal leases, installment
purchase agreements or other instruments. The primary risk associated with
municipal lease obligations and certificates of participation is that the
governmental lessee will fail to appropriate funds to enable it to meet its
payment obligations under the lease. Although the obligations may be secured
by the leased equipment or facilities, the disposition of the property in the
event of non-appropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovering or the failure to
fully recover the Fund's original investment. To the extent that the Fund
invests in unrated municipal leases or participates in such leases, the
Trustees will monitor on an ongoing basis the credit quality rating and risk
of cancellation of such unrated leases. Certain municipal lease obligations
and certificates of participation may be deemed illiquid for the purpose of
the Fund's limitation on investments in illiquid securities.

INSURED SECURITIES. "Insured" Municipal Securities are those for which
scheduled payments of interest and principal are guaranteed by a private (non-
governmental) insurance company. The insurance entitles the Fund to receive
only 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 net
asset value of the Fund's units.

12
<PAGE>

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 time remaining until the next scheduled
auction date into account for purposes of determining the securities'
duration.

ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS

The Fund may invest in zero coupon, deferred interest and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. The Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. 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, pay-in-kind
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, pay-in-kind 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.

RISK FACTORS

DEFAULT RISK/CREDIT RISK. Investments in fixed-income securities are subject
to the risk that the issuer could default on its obligations and the Fund
could sustain losses on such investments. A default could impact both interest
and principal payments.

13
<PAGE>

principal on an obligation later than scheduled) causes cash flows to be
returned later than expected. This typically results when interest rates have
increased and the Fund will suffer from the inability to invest in higher
yielding securities. Certain types of U.S. Government Securities and Municipal
Securities have this call and/or extension risk.

TAX RISK OF MUNICIPAL SECURITIES. Due to Municipal Securities' tax-exempt
status, their yields and market values may be more adversely impacted by
changes in tax rates and policies than taxable fixed-income securities.
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 is affected by 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 the demand for and
supply, liquidity and marketability of Municipal Securities, which could in
turn affect the Fund's ability to acquire and dispose of Municipal Securities
at desirable yield and price levels.

INVESTMENT TECHNIQUES

OPTIONS ON SECURITIES AND SECURITIES INDICES. The Fund may write (sell)
covered call and put options and purchase put and call options on any
securities in which it may invest or 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 seek 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
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
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 options transactions. The writing of

14
<PAGE>

options could increase the Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return, to hedge against changes in interest rates or securities prices,
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 such contracts and 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
and related options transactions only for bona fide hedging purposes as
defined in regulations of the Commodity Futures Trading Commission or to seek
to increase total return to the extent permitted by such regulations. The Fund
may not purchase or sell futures contracts or purchase or sell related options
to seek 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. These transactions involve brokerage costs, require margin deposits
and, in the case of contracts and options obligating the Fund to purchase
securities or currencies, require the Fund to segregate and maintain cash or
liquid assets 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 Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while the Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position which is intended to be protected is impossible to
achieve, the desired protection may not be obtained and the Fund may be
exposed to risk of loss. The loss incurred by the Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and 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
seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to the
Fund. Further, futures contracts

15
<PAGE>

and options on futures may be illiquid, and exchanges may limit fluctuations
in futures contract prices during a single day.

RISKS OF DERIVATIVE TRANSACTIONS. The Fund's transactions, if any, in
options, futures, options on futures, swap transactions, interest rate caps,
floors and collars and inverse floating-rate securities involve certain risks,
including a possible lack of correlation between changes in the value of
hedging instruments and the portfolio assets being hedged, the potential
illiquidity of the markets for derivative instruments, the risks arising from
the margin requirements and related leverage factors associated with such
transactions. The use of these management techniques to seek to increase total
return may be regarded as a speculative practice and involves the risk of loss
if the Investment Adviser is incorrect in its expectation of fluctuations in
securities prices or interest rates. The Fund's use of certain derivative
transactions may be limited by the requirements of the Code for qualification
as a regulated investment company.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Fund may purchase when-
issued securities. 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; that is, make contracts to
purchase securities for a fixed price at a future date beyond the customary
three-day settlement. The Fund is required to hold and maintain in a
segregated account with the Fund's custodian until three days prior to
settlement date, cash or liquid, assets in an amount sufficient to meet the
purchase price. Alternatively, the Fund may enter into offsetting contracts
for the forward sale of other securities that it owns. The purchase of
securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Although the Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, the Fund may dispose of when-issued securities
or forward commitments prior to settlement if the Investment Adviser deems it
appropriate to do so.

LLIQUID AND RESTRICTED SECURITIES. The Fund may not invest more than 15% of
its net assets in illiquid investments, which includes securities that are not
readily marketable, swap transactions, certain municipal leases and
participation interests, repurchase agreements maturing in more than seven
days, time deposits with a notice or demand period of more than seven days and
certain restricted securities, unless it is determined, based upon the
continuing review of the trading markets for a specific restricted security,
that such restricted security is eligible for resale under Rule 144A under the
Securities Act of 1933 and, therefore, is liquid. The Trustees have adopted
guidelines and

16
<PAGE>

delegated to the Investment Adviser the daily function of determining and
monitoring the liquidity of portfolio securities. The Trustees, however,
retain oversight focusing on factors such as valuation, liquidity and
availability of information and are ultimately responsible for each
determination. Investing in restricted securities eligible for resale pursuant
to Rule 144A may decrease the liquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. The purchase price and subsequent valuation of
restricted and illiquid securities normally reflect a discount, which may be
significant, from the market price of comparable securities for which a liquid
market exists.

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. If the other party or "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. In addition, in the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, the Fund could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Fund to enter into repurchase
agreements with such counterparties. In addition, the Fund, together with
other registered investment companies having management agreements with the
Investment Adviser, 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.

TEMPORARY INVESTMENTS. The Fund may, for temporary defensive purposes invest
up to 100% of its total assets in (a) U. S. Government Securities or (b)
repurchase agreements collateralized by U.S. Government Securities. The Fund
may for temporary defensive purposes depart from its stated investment
objectives and invest more than 20% of its net assets in taxable investments.

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, the Fund may,
with respect to no more than 5% of its net assets, engage in the following
techniques and investments: (i) portfolio securities lending, (ii) interest
rate swaps, caps, floors and collars, (iii) inverse floating-rate securities,
(iv) yield curve options, (v) other investment companies, (vi) custodial
receipts and (vii) tender option bonds and standby commitments. For more
information see the Additional Statement.

17
<PAGE>

INVESTMENT RESTRICTIONS

The Fund is subject to certain investment restrictions that are described in
detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of the Fund cannot be changed without
approval of a majority of the outstanding units of the Fund. The Fund's
investment objective and all policies not specifically designated as
fundamental are non-fundamental and may be changed without unitholder
approval. If there is a change in the Fund's investment objective, unitholders
should consider whether the Fund still remains an appropriate investment in
light of their then current financial positions and needs.

The Fund's policy to invest, under normal market conditions, at least 80% of
its net assets in Municipal Securities, the interest on which is exempt from
regular federal income tax, is fundamental and may not be changed without
unitholder approval. For more information on the Fund's investment
restrictions, an investor should obtain the Additional Statement.

PORTFOLIO TURNOVER

The Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed- income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of the Fund will vary from year to year. The portfolio
turnover rate is computed by dividing the lesser of the dollar amount of
securities purchased or securities sold (excluding all securities whose
maturities at acquisition are one year or less) by the average monthly value
of such securities owned during the year. A 100% turnover rate would occur,
for example, if all of the securities held by the Fund were sold and replaced
within one year. The Investment Adviser will not consider the portfolio
turnover rate a limiting factor in making investment decisions for the Fund
consistent with the Fund's investment objective and portfolio management
policies. A high rate of portfolio turnover results in increased transaction
costs to the Fund. See "Financial Highlights" for a statement of the Fund's
historical portfolio turnover rates.

MANAGEMENT

TRUSTEES AND OFFICERS

The Trustees are 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.

18
<PAGE>

INVESTMENT ADVISER

INVESTMENT ADVISER. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the Fund; Goldman Sachs registered as an
investment adviser in 1981. As of March 24, 1997, the Investment Adviser,
together with its affiliates, acted as investment adviser, administrator or
distributor for assets in excess of $104.9 billion.

Under a Management Agreement with the Fund, the Investment Adviser, subject
to the general supervision of the Trustees, provides day-to-day advice as to
the Fund's portfolio transactions. Goldman Sachs has agreed to permit the
Trust to use the name "Goldman Sachs" or a derivative thereof as part of the
Fund's name for as long as the Fund's Management Agreement is in effect.

In performing its investment advisory services, the Investment Adviser,
while remaining ultimately responsible for the management of the Fund, is able
to draw upon the research and expertise of its affiliate offices for portfolio
decisions and management with respect to certain portfolio securities. In
addition, the Investment Adviser will have access to the research of, and
proprietary technical models developed by, Goldman Sachs and may apply
quantitative and qualitative analyses in determining the appropriate
allocations among the categories of issuers and types of securities.

Under the Management Agreement, the Investment Adviser also: (i) supervises
all non-advisory operations of the Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of the Fund; (iii) arranges for
at the Fund's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing unitholders, (c) the
periodic updating of the prospectus and statement of additional information
and (d) the preparation of reports to be filed with the SEC and other
regulatory authorities; (iv) maintains the Fund's records; and (v) provides
the Fund with office space and all necessary office equipment and services.

The Fund's portfolio managers are Benjamin S. Thompson and Elisabeth Schupf
Lonsdale. Mr. Thompson and Ms. Lonsdale each specialize in municipal
securities. Mr. Thompson's responsibilities include developing investment
strategy and structuring portfolios. Ms. Lonsdale is also responsible for
GSAM's municipal credit research. Mr. Thompson worked in the institutional
sales and marketing group at GSAM until he joined the fixed-income team in
1993. Prior to joining GSAM in early 1992, Mr. Thompson worked in the
Structured Finance Group of the Chase Manhattan Bank. Before rejoining Goldman
Sachs in 1995, Ms. Lonsdale was a Director of Fitch Investors Service
evaluating the credit ratings of tax-backed issues. Prior to that, she worked
for ten years in the Goldman Sachs Municipal Finance Department.

19
<PAGE>

It is the responsibility of the Investment Adviser to make investment
decisions for the Fund and to place the 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. In effecting purchases and sales of portfolio
securities for the Fund, the Investment Adviser will seek the best price and
execution of the Fund's orders. In doing so, where two or more brokers or
dealers offer comparable prices and execution for a particular trade,
consideration may be given to whether the broker or dealer provides investment
research or brokerage services or sells shares of any Goldman Sachs Fund. See
the Additional Statement for a further description of the Investment Adviser's
brokerage allocation practices.

As compensation for its services rendered and assumption of certain expenses
pursuant to the Management Agreement, GSAM is entitled to the following fee,
computed daily and payable monthly, at the annual rate listed below:

<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE OCTOBER 31, 1996
----------- ----------------
<S> <C>
0.40% 0.40%
</TABLE>

The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Fund (excluding management fees, fees under service
plans, taxes, interest and brokerage fees and litigation, indemnification and
other extraordinary expenses) to the extent such expenses exceed 0.05% per
annum of the Fund's average daily 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 in its discretion at any time.

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to the Fund or limit the Fund's 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,
currencies and instruments as the Fund. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Fund
and in general 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

20
<PAGE>

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
"Management -- 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 10004, serves as the
exclusive distributor (the "Distributor") of the Fund's units. Goldman Sachs,
4900 Sears Tower, Chicago, Illinois 60606 also serves as the Fund's transfer
agent (the "Transfer Agent") and as such performs various unitholder servicing
functions. Goldman Sachs is entitled to receive a fee from the Fund equal to
each class' proportionate share of the total transfer agency fees borne by the
Fund. Such fees are equal to the fixed per account charge of $12,000 per year
plus $7.50 per account, together with out-of-pocket and transaction related
expenses (including those out-of-pocket expenses payable to servicing and/or
sub-transfer agents) applicable to Class A and B shares plus 0.04% of the
average daily net assets of the other classes of the Fund.

DIVIDENDS

The Fund will declare a daily dividend. Such dividend will accrue to
unitholders of record as of 3:00 p.m. Chicago 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 a return of capital. The Fund also
intends that all net realized long-term and short-term capital gains will be
declared as a dividend at least annually. In determining amounts of capital
gains to be distributed, capital losses including any available capital loss
carryovers from prior years will be offset against capital gains.

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

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

21
<PAGE>

asset value on such day, unless cash distributions are elected, in which case,
cash 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 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.

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 or
realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such units from such income or realized
appreciation 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 cost 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 of each class of the Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time) on each
Business Day (as such term is defined under "Additional Information")
immediately after the determination, if any, of the income to be declared as a
dividend. 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.

The Fund's portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities and
other portfolio securities are valued at fair value, based on yield
equivalents, a pricing matrix or other sources, under valuation procedures
established by the Trustees. Debt obligations with a remaining maturity of 60
days or less are valued at amortized cost. The Board of Trustees has
determined that the amortized cost of such securities approximates fair market
value.

PERFORMANCE INFORMATION

From time to time the Fund may publish yield, distribution rate and average
annual total return and may publish its tax equivalent yield in advertisements

22
<PAGE>

and communications to unitholders or prospective investors. 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 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 averages, performance rankings, indices, other information prepared
by recognized mutual fund statistical services and investments for which
reliable performance data is available.

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
maximum offering price per unit on the last day of the relevant period. The
results are compounded on a bond equivalent (semiannual) 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 tax rate.

The Fund's 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 for the same period will
differ. See "Units of the Trust."

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.

23
<PAGE>

UNITS OF THE TRUST

The Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the state of Delaware on January 28, 1997. The Fund was formerly a
series of Goldman Sachs Trust, a Massachusetts business trust, and was
reorganized into the Trust as of April 30, 1997. The Trustees have authority
under the Trust's Declaration of Trust to create and classify units of
beneficial interest in separate series, without further action by unitholders.
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.

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 are freely
transferable and have no preemptive, subscription or conversion rights.
Unitholders are entitled to one vote per share, provided that at the option of
the Trustees, unitholders will be entitled to a number of votes based upon the
net asset values represented by their units.

The Trust does not intend to hold annual meetings of unitholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
units outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of unitholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other unitholders in connection with requiring a special
meeting of unitholders. The Trustees, will call a special meeting of
unitholders 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.

In the interest of economy and convenience, the Trust does not issue
certificates representing the Fund's units. Instead, Harris Associates
maintains a record of each unitholder's ownership. Each unitholder receives
confirmation of purchase and redemption orders. Fund units and any dividends
and distributions paid by the Fund are reflected in account statements.

TAXATION

FEDERAL TAXES

The Fund is treated as a separate entity for tax purposes, has elected to be
treated as a regulated investment company and intends to qualify for such
treatment for each taxable year under Subchapter M of the Code. To qualify as
such, the Fund must satisfy certain requirements relating to the sources of
its

24
<PAGE>

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 satisfy certain requirements of the Code so that it may
distribute the tax-exempt interest it receives as "exempt-interest dividends,"
as defined in the Code. If such requirements are satisfied, distributions of
the Fund that are attributable to interest on tax-exempt obligations and that
the Fund properly designates as exempt-interest dividends will be exempt from
regular federal income tax, although all or a portion of such a distribution
may be subject to the federal alternative minimum tax and the entire
distribution may be includable in the tax base for determining taxability of
social security or railroad retirement benefits. Persons who are "substantial
users" (or related persons to such substantial users) of facilities financed
by industrial development or certain private activity bonds should consult
their own tax advisers before purchasing units of the Fund. Interest on
indebtedness incurred or continued to purchase or carry units of the Fund is
not deductible to the extent attributable to the Fund's distributions that are
exempt-interest dividends.

Dividends paid by the Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to unitholders as ordinary income except for any exempt-
interest dividends paid by the Fund, as described above. 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.

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 other than a daily dividend will pay a per unit
price that includes the value of the anticipated distribution and will be
taxed on any taxable distribution even though the distribution represents a
return of a portion of the purchase price.

Redemptions and exchanges of units are taxable events.

Individuals and certain other classes of unitholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-

25
<PAGE>

interest dividends), redemptions and exchanges if they fail to furnish their
correct taxpayer identification number and certain certifications required by
the Internal Revenue Service 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 non-resident 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, including exempt-interest
dividends. A state income (and possibly local income and/or intangible
property) tax exemption is generally available to the extent (if any) the
Fund's distributions are derived from interest on (or, in the case of
intangible property 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. For a further
discussion of certain tax consequences of investing in units of the Fund, see
"Taxation" in the Additional Statement. Unitholders are urged to consult their
own tax advisers regarding specific questions as to federal, state and local
taxes as well as to any foreign taxes.

ADDITIONAL INFORMATION

The term "a vote of the majority of the outstanding units" of the Fund means
the vote of the lesser of (i) 67% or more of the units present at a 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.

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 certain

26
<PAGE>

institutions ("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, enters into agreements with Service Organizations which
purchase Service Units on behalf of their customers ("Service Agreements").
The Service Agreement provide for compensation to the Service Organizations 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; provided, however, that the fee paid
for personal and account maintenance services shall not exceed 0.25% of such
average daily net assets. The services provided by the Service Organizations
may 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, 1996, the Trust, on behalf of the
Fund, paid the Service Organizations fees at the 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 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 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, accrues payments
made pursuant to a Service Agreement daily. All inquiries of beneficial owners
of Oakmark Units should be directed to Harris Associates.

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 reports, and annual reports containing audited financial
statements, and will provide you annually with tax information.

27
<PAGE>

SPECIAL WAYS TO INVEST OR REDEEM

In addition to the ways to purchase or redeem Oakmark Units described below,
the New Account Purchase Application offers you the following additional
investment and redemption options. The services are provided by Harris
Associates on behalf of its customers.

AUTOMATIC INVESTMENTS--purchase Oakmark Units each month with payment by
electronic transfer from your bank account.

TELEPHONE INVESTMENTS--purchase Oakmark Units by placing a telephone order
and paying for them by electronic transfer from your bank account.

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.

PURCHASE OF OAKMARK 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 $1,000. Minimum
subsequent investments are $100, except for reinvestments of dividends and
capital gains distributions. Oakmark Units may be purchased on any Business
Day through Harris Associates at the net asset value per unit next determined
after receipt of an order by Oakmark. If by 3:00 p.m. Chicago time (4:00 p.m.
New York time), an order, a check or Federal Reserve draft is received by
Oakmark, the price per unit will be the net asset value computed on the day
the purchase order is received. See "Net Asset Value."

BY CHECK

To make an initial purchase of units, complete and sign the New Account
Purchase Application and mail it to The Oakmark Family of Funds, 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.

28
<PAGE>

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-OAKMARK (1-800-625-6275) 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 with an established electronic
transfer privilege 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-OAKMARK (1-800-625-6275) or at
pre-scheduled intervals. (See "Unitholder Services.") Electronic 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 units from
The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund,The
Oakmark International Fund, The Oakmark Balanced Fund and The Oakmark
International Small Cap Fund ("The Oakmark Funds") 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. Please review the
information under "Redemption of Oakmark Units."

PURCHASE PRICE AND EFFECTIVE DATE

Oakmark Units will be issued and dividends will begin as described below:

PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received by Oakmark by 3:00 p.m. Chicago time and payment is made by wire
transfer or ACH transfer, units will be issued and dividends will begin to
accrue on the purchased units on the later of (i) the Business Day after
receipt by Oakmark of a purchase order or (ii) the day of receipt of a federal
funds wire or an ACH transfer by Oakmark.

PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a check or Federal Reserve
draft is received by Oakmark by 3:00 p.m. Chicago time, units will be issued
and dividends will begin to accrue on the purchased units on the Business Day
after the date payment is received.

29
<PAGE>

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.

REDEMPTION OF OAKMARK 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 Family of Funds, 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

(4) for redemptions payable to an address 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).

30
<PAGE>

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 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 GAINS OR LOSSES. 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-OAKMARK (1-800-6275). The general
redemption policies apply to redemptions by Telephone Exchange. (See "General
Redemption Policies.")

31
<PAGE>

THEREFORE, OAKMARK GENERALLY WILL NOT HONOR REQUESTS FOR TELEPHONE EXCHANGES
BY UNITHOLDERS IDENTIFIED BY OAKMARK AS "MARKET-TIMERS." Except for automatic
exchanges from Oakmark units, you may not make more than six exchanges from
any fund in any calender year. 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 from your
account by calling 1-800-OAKMARK (1-800-625-6275). 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. The
Telephone Redemption Privilege is not available for 30 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-OAKMARK
(1-800-625-6275) 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.

32
<PAGE>

Oakmark will generally mail payment for Oakmark Units redeemed within three
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 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 Code provisions on backup withholding relating to
your account).

33
<PAGE>

ADDRESS OF HARRIS ASSOCIATES L. P.
Two North LaSalle Street
Chicago, Illinois 60602-3790

THE OAKMARK FUNDS 24-HOUR NAV HOTLINE
1-800-GROWOAK
(1-800-476-9625)

OAKMARK SHAREHOLDER SERVICE
State Street Bank and Trust Company
Attention: Oakmark Funds Family
P.O. Box 8510
Boston, Massachusetts 02266-8510
1-800-OAKMARK
(1-800-625-6275)
<PAGE>

GOLDMAN SACHS EQUITY FUNDS
GOLDMAN SACHS FIXED INCOME FUNDS

CLASS A AND B SHARES

SUPPLEMENT DATED MAY 1, 1997 TO THE PROSPECTUS OF
GOLDMAN SACHS EQUITY FUNDS AND TO THE PROSPECTUS OF
GOLDMAN SACHS FIXED INCOME FUNDS EACH DATED MAY 1, 1997

THE FOLLOWING SUPPLEMENTS THE INFORMATION APPEARING UNDER THE SECTION
"OFFERING PRICE--CLASS A SHARES":

EQSTKPROAB
<PAGE>

- ----------------------------------------------------------------------------
PROSPECTUS GOLDMAN SACHS EQUITY FUNDS CLASS A AND B SHARES
May 1, 1997
GOLDMAN SACHS BALANCED FUND
Seeks long-term capital growth and current income through investments in eq-
uity and fixed income securities.

GOLDMAN SACHS GROWTH AND INCOME FUND
Seeks long-term growth of capital and growth of income through investments
in equity securities that are considered to have favorable prospects for
capital appreciation and/or dividend paying ability.

GOLDMAN SACHS CORE U.S. EQUITY FUND
Seeks long-term growth of capital and dividend income through a broadly di-
versified portfolio of large cap and blue chip equity securities represent-
ing all major sectors of the U.S. economy.

GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap U.S. issuers that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary consideration.
GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term growth of capital through diversified investments in equity
securities of companies that are considered to have long-term capital appre-
ciation potential.

GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies that are organized outside the U.S. or whose securities
are principally traded outside the U.S.

GOLDMAN SACHS SMALL CAP EQUITY FUND
Seeks long-term capital growth through investments in equity securities of
companies with public stock market capitalizations of $1 billion or less at
the time of investment.

GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of emerging country issuers.

GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies related (in the manner described herein) to Asian coun-
tries.

Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, CORE Large Cap Growth, Growth and Income
and Small Cap Equity Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), New
York, New York, an affiliate of Goldman Sachs, serves as investment adviser to
the CORE U.S. Equity (formerly the "Select Equity Fund") and Capital Growth
Funds. Goldman Sachs Asset Management International ("GSAMI"), London, England,
an affiliate of Goldman Sachs, serves as investment adviser to the
International Equity, Emerging Markets Equity and Asia Growth Funds. GSAM, GSFM
and GSAMI are each referred to in this Prospectus as the "Investment Adviser."
Goldman Sachs serves as each Fund's distributor and transfer agent.

(continued on next page)
<PAGE>

(cover continued)

A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES
OF U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS
OF ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING
COUNTRIES IN WHICH THE INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY AND ASIA
GROWTH FUNDS MAY INVEST WITHOUT LIMIT ARE LESS LIQUID, SUBJECT TO GREATER
PRICE VOLATILITY, HAVE SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT
REGULATION AND ARE NOT SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING,
FINANCIAL AND OTHER REPORTING REQUIREMENTS AS THE SECURITIES MARKETS OF MORE
DEVELOPED COUNTRIES. FURTHER, INVESTMENT IN EQUITY SECURITIES OF ISSUERS
LOCATED IN RUSSIA AND CERTAIN OTHER EMERGING COUNTRIES INVOLVES RISK OF LOSS
RESULTING FROM PROBLEMS IN SHARE REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT
NORMALLY ASSOCIATED WITH INVESTMENT IN MORE DEVELOPED COUNTRIES. THE FUNDS
THAT INVEST IN FOREIGN SECURITIES AND EMERGING MARKETS ARE INTENDED FOR
INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH THEIR INVESTMENTS AND MAY
NOT BE SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK
FACTORS."

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights..................... 3
Fees and Expenses................... 8
Financial Highlights................ 12
Investment Objectives and Policies.. 19
Description of Securities........... 25
Investment Techniques............... 31
Risk Factors........................ 34
Investment Restrictions............. 36
Portfolio Turnover.................. 37
Management.......................... 37
Reports to Shareholders............. 42
How to Invest....................... 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services Available to Shareholders.................................... 48
Distribution and Authorized Dealer Service Plans...................... 50
How to Sell Shares of the Funds....................................... 52
Dividends............................................................. 53
Net Asset Value....................................................... 54
Performance Information............................................... 54
Shares of the Trust................................................... 55
Taxation.............................................................. 56
Additional Information................................................ 57
Appendix ............................................................. A-1
Account Application
</TABLE>
<PAGE>

FUND HIGHLIGHTS

The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.

WHAT IS THE GOLDMAN SACHS TRUST?

The Goldman Sachs Trust is an open-end management investment company
that offers its shares in several investment funds (mutual funds). Each
Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to
achieve that Fund's stated investment objectives.

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."

- --------------------------------------------------------------------------------
<TABLE>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARKS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCED FUND Long-term capital growth Between 45% and 65% of Lehman Aggregate Bond
and current income. total assets in equity Index and the Standard &
securities and at least Poor's Index of 500
25% in fixed income Common Stocks (the "S&P
senior securities. 500 Index")
- --------------------------------------------------------------------------------------------
GROWTH AND Long-term growth of At least 65% of total S&P 500 Index
INCOME FUND capital and growth of assets in equity
income. securities that the
Investment Adviser
considers to have
favorable prospects for
capital appreciation
and/or dividend paying
ability.
- --------------------------------------------------------------------------------------------
CORE U.S. Long-term growth of At least 90% of total S&P 500 Index
EQUITY FUND capital and dividend assets in equity
income. securities of U.S.
issuers.
The Fund seeks to
achieve its objective
through a broadly
diversified portfolio of
large cap
and blue chip equity
securities representing
all major sectors of
the U.S. economy. The
Fund's investments are
selected using both a
variety of quantitative
techniques and
fundamental research in
seeking to maximize the
Fund's reward to risk
ratio. The Fund's
portfolio is designed to
have risk, style,
capitalization and
industry characteristics
similar to the S&P 500
Index.
</TABLE>

(continued)

3
<PAGE>

<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORE LARGE CAP Long-term growth of At least 90% of total Russell 1000 Growth
GROWTH FUND capital. assets in equity Index
Dividend income is a securities of U.S.
secondary consideration. issuers.
The Fund seeks to
achieve its objective
through a broadly
diversified portfolio of
equity securities of
large cap U.S. issuers
that are expected to
have better prospects
for earnings growth than
the growth rate of the
general domestic
economy. The Fund's
investments are
selected using both a
variety of quantitative
techniques and
fundamental research in
seeking to maximize the
Fund's reward to risk
ratio. The Fund's
portfolio is designed to
have risk, style,
capitalization and
industry characteristics
similar to the
Russell 1000 Growth
Index.
- -------------------------------------------------------------------------------------------
CAPITAL GROWTH Long-term capital At least 90% of total S&P 500 Index
FUND growth. assets in a diversified
portfolio of equity
securities. The
Investment
Adviser considers long-
term
capital appreciation
potential in
selecting investments.
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and FT/S&P Actuaries Europe
EQUITY FUND appreciation. at least 65%, of total & Pacific Index
assets in equity (unhedged)
securities of companies
organized outside
the United States or
whose securities are
principally traded
outside the United
States. The Fund may
invest in securities of
issuers located in
countries with emerging
economies or securities
markets and employ
certain currency
management techniques.
- -------------------------------------------------------------------------------------------
SMALL CAP Long-term capital At least 65% of total Russell 2000
EQUITY FUND growth. assets in
equity securities of
companies with public
stock market
capitalizations of $1
billion or less at the
time of investment.
The Fund currently
emphasizes investments
in companies with
public stock market
capitalizations
of $500 million or
less at the time
of investment.
</TABLE>

4
<PAGE>

<TABLE>
<S> <C> <C> <C>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
------------- ------------------
------------------
-------------------
EMERGING Long-term capital Substantially all, and Morgan Stanley Capital
MARKETS EQUITY appreciation at least 65%, of total International Emerging
FUND assets in equity Markets Free Index
securities
of emerging country
issuers. The Fund may
employ certain currency
management techniques.
- ------------------------------------------------------------------------------------------
ASIA GROWTH Long-term capital Substantially all, and Morgan Stanley Capital
FUND appreciation. at least 65%, of total International All
assets in equity Country Asia Free ex
securities of companies Japan Index
in China, Hong
Kong, India, Indonesia,
Malaysia, Pakistan, the
Philippines,
Singapore, South Korea,
Sri Lanka, Taiwan and
Thailand. The Fund may
employ certain currency
management techniques.
- ------------------------------------------------------------------------------------------
</TABLE>

WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?

Each Fund's share price will fluctuate with market, economic and, to
the extent applicable, foreign exchange conditions, so that an investment
in any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund's investment
objectives will be achieved. See "Risk Factors."

Risk of Investments in Small Capitalization Companies. To the extent
that a Fund invests in the securities of small market capitalization
companies, the Fund may be exposed to a higher degree of risk and price
volatility, Securities of such issuers may lack sufficient market
liquidity to enable a Fund to effect sales at an advantageous time or
without a substantial drop in price.

Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers
and issuers. A Fund's investments in emerging markets and countries
("Emerging Countries") involves greater risks than investments in the
developed countries of Western Europe, the U.S., Canada, Australia, New
Zealand and Japan. In addition, because the International Equity,
Emerging Markets Equity and Asia Growth Funds invest primarily outside
the U.S., these Funds may involve greater risks, since the securities
markets of foreign countries are generally less liquid and subject to
greater price volatility. The securities markets of emerging countries,
including those in Asia, Latin America, Eastern Europe and Africa are
marked by a high concentration of market capitalization and trading
volume in a small number of issuers representing a limited number of
industries, as well as a high concentration of ownership of such
securities by a limited number of investors.

Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the
Fund to greater risk than funds that do not employ such techniques.

5
<PAGE>

WHO MANAGES THE FUNDS?

Goldman Sachs Asset Management serves as Investment Adviser to the
Balanced, Growth and Income, CORE Large Cap Growth and Small Cap Equity
Funds. Goldman Sachs Funds Management, L.P. serves as Investment Adviser to
the CORE U.S. Equity and Capital Growth Funds. Goldman Sachs Asset
Management International serves as Investment Adviser to the International
Equity, Emerging Markets Equity and Asia Growth Funds. As of March 24, 1997,
the Investment Advisers, together with their affiliates, acted as investment
adviser, administrator or distributor for assets in excess of $104.9
billion.

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's shares.

WHAT IS THE MINIMUM INVESTMENT?

<TABLE>
<CAPTION>
MINIMUM
--------------------
INITIAL
PURCHASE ADDITIONAL
TYPE OF PURCHASE AMOUNT INVESTMENTS
---------------- -------- -----------
<S> <C> <C>
Regular Purchases........................................ $1,000 $50
Tax-Sheltered Retirement Plans and UGMA/UTMA purchases... $ 250 $50
Automatic Investment Plan................................ $ 50 $50
</TABLE>

For further information, see "How to Invest--How to Buy Shares of the
Funds" on page 43.

HOW DO I PURCHASE SHARES?

WHAT ARE MY PURCHASE ALTERNATIVES?

The Funds offer two classes of shares through this Prospectus which may be
purchased at the next determined net asset value ("NAV") plus a sales
charge, which, depending on the class of shares you choose for investment,
may be imposed either at the time of purchase (Class A shares) or on a
contingent deferred basis at the time of redemption (Class B shares). Direct
purchases of $1 million or more of Class A shares will be sold without an
initial sales charge and will be subject to a contingent deferred sales
charge at the time of certain redemptions.

<TABLE>
<CAPTION>
MAXIMUM FRONT MAXIMUM CONTINGENT
ALL FUNDS END SALES CHARGE DEFERRED SALES CHARGE
--------- ---------------- ---------------------
<S> <C> <C>
Class A.................. 5.5% (See above)
Class B.................. N/A 5% declining to 0% after six years
</TABLE>

6
<PAGE>

Over time, the deferred sales charge and distribution fees attributable to
Class B shares will exceed the initial sales charge and the distribution
fees attributable to Class A shares. See "How to Invest--Alternative
Purchase Arrangements" on page 42.

HOW DO I SELL MY SHARES?

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
---- --------------------------- -------------
<S> <C> <C>
Balanced............................ Quarterly Annually
Growth and Income................... Quarterly Annually
CORE U.S. Equity.................... Annually Annually
CORE Large Cap Growth............... Annually Annually
Capital Growth...................... Annually Annually
International Equity................ Annually Annually
Small Cap Equity.................... Annually Annually
Emerging Markets Equity............. Annually Annually
Asia Growth......................... Annually Annually
</TABLE>

7
<PAGE>

FEES AND EXPENSES

<TABLE>
<CAPTION>
GROWTH
AND CORE U.S. CORE CAPITAL
BALANCED INCOME EQUITY LARGE CAP GROWTH
FUND FUND FUND GROWTH FUND/3/ FUND
------------------ ------------------ ------------------ ------------------ ------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge
Imposed on Purchases.. 5.5%/1/ none 5.5%/1/ none 5.5%/1/ none 5.5%/1/ none 5.5%/1/ none
Maximum Sales Charge
Imposed on Reinvested
Dividends............. none none none none none none none none none none
Maximum Deferred Sales
Charge................ none/1/ 5.0% none/1/ 5.0% none/1/ 5.0% none/1/ 5.0% none/1/ 5.0%
Redemption Fees/2/..... none none none none none none none none none none
Exchange Fees/2/....... none none none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees (after
applicable
limitations)/4/....... 0.65% 0.65% 0.70% 0.70% 0.59% 0.59% 0.60% 0.60% 1.00% 1.00%
Distribution (Rule
12b-1) Fees (after
applicable
limitations)/5/....... 0.00% 0.75% 0.04% 0.75% 0.21% 0.75% 0.00% 0.75% 0.00% 0.75%
Other Expenses:
Authorized Dealer
Service Fees.......... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable
limitations)/6/....... 0.10% 0.10% 0.23% 0.23% 0.24% 0.24% 0.05% 0.05% 0.15% 0.15%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE
LIMITATIONS)/7/........ 1.00% 1.75% 1.22% 1.93% 1.29% 1.83% 0.90% 1.65% 1.40% 2.15%
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

<TABLE>
<CAPTION>
SMALL EMERGING
INT'L CAP MARKETS ASIA
EQUITY EQUITY EQUITY GROWTH
FUND FUND FUND/3/ FUND
------------------ ------------------ ------------------ ------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge
Imposed on Purchases.. 5.5%/1/ none 5.5%/1/ none 5.5%/1/ none 5.5%/1/ none
Maximum Sales Charge
Imposed on Reinvested
Dividends............. none none none none none none none none
Maximum Deferred Sales
Charge................ none/1/ 5.0% none/1/ 5.0% none/1/ 5.0% none/1/ 5.0%
Redemption Fees/2/..... none none none none none none none none
Exchange Fees/2/....... none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees (after
applicable
limitations)/4/....... 0.89% 0.89% 1.00% 1.00% 1.10% 1.10% 0.86% 0.86%
Distribution (Rule
12b-1) Fees (after
applicable
limitations)/5/....... 0.21% 0.75% 0.00% 0.75% 0.25% 0.75% 0.21% 0.75%
Other Expenses:
Authorized Dealer
Service Fees.......... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable
limitations)/6/....... 0.34% 0.34% 0.35% 0.35% 0.30% 0.30% 0.35% 0.35%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE
LIMITATIONS)/7/........ 1.69% 2.23% 1.60% 2.35% 1.90% 2.40% 1.67% 2.21%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

8
<PAGE>

EXAMPLE

You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund
Class A Shares................................ $65 $85 $107 $171
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 68 85 115 181
--Assuming no redemption...................... 18 55 95 181
Growth and Income Fund
Class A Shares................................ 67 92 118 195
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 70 91 124 200
--Assuming no redemption...................... 20 61 104 200
CORE U.S. Equity Fund
Class A Shares................................ 67 94 122 202
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 69 88 119 193
--Assuming no redemption...................... 19 58 99 193
CORE Large Cap Growth Fund
Class A Shares................................ 64 82 n/a n/a
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 67 82 n/a n/a
--Assuming no redemption...................... 17 52 n/a n/a
Capital Growth Fund
Class A Shares................................ 68 97 127 214
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 72 97 135 222
--Assuming no redemption...................... 22 67 115 222
International Equity Fund
Class A Shares................................ 71 105 142 244
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 73 100 139 234
--Assuming no redemption...................... 23 70 119 234
Small Cap Equity Fund
Class A Shares................................ 70 103 137 235
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 74 103 146 242
--Assuming no redemption...................... 24 73 126 242
Emerging Markets Equity Fund
Class A Shares................................ 73 111 n/a n/a
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 74 105 n/a n/a
--Assuming no redemption...................... 24 75 n/a n/a
Asia Growth Fund
Class A Shares................................ 71 105 141 242
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 72 99 138 233
--Assuming no redemption...................... 22 69 118 233
</TABLE>

9
<PAGE>

- --------
/1/As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. A contingent
deferred sales charge of 1.00% is imposed on certain redemptions of Class A
shares sold without an initial sales charge as part of an investment of $1
million or more. See "How to Invest--Offering Price."
/2/A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or units of the ILA Portfolios and free
automatic exchanges pursuant to the Automatic Exchange Program, six free
exchanges are permitted in each twelve month period. A fee of $12.50 may be
charged for each subsequent exchange during such period. See "How to
Invest--Exchange Privilege."
/3/Based on estimated amounts for the current fiscal year for the CORE Large
Cap Growth and Emerging Markets Equity Funds.
/4/The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE U.S. Equity, CORE Large Cap
Growth, International Equity, Emerging Markets Equity and Asia Growth Funds
equal to .16%, .15%, .11%, .10% and .14%, respectively. Without such
limitations, management fees would be .75%, .75%, 1.00%, 1.20% and 1.00% of
each Fund's average daily net assets, respectively.
/5/Goldman Sachs is imposing the entire distribution fee attributable to Class
A shares of the Emerging Markets Equity Fund. Goldman Sachs voluntarily has
agreed not to impose the entire distribution fee attributable to Class A
shares of each other Fund, except Growth and Income, CORE U.S. Equity,
International Equity and Asia Growth Funds where Goldman Sachs voluntarily
has agreed not to impose a portion of the distribution fee equal to .21%,
.04%, .04% and .04%, respectively, of the distribution fee. Distribution
fees for Class A shares would otherwise be payable at the rate of .25% of
average daily net assets.
/6/The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees
in the case of Growth and Income, CORE U.S. Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds) for the following funds to
the extent such expenses exceed the following percentage of average daily
net assets:

<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced......................................................... 0.10%
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
International Equity............................................. 0.20%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>

/7/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Balanced, Growth and Income, CORE U.S. Equity,
Capital Growth, International Equity, Small Cap Equity and Asia Growth Funds
for the fiscal year ended January 31, 1997, would have been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced
Class A.............................................. 0.62% 1.77%
Class B.............................................. 0.62% 2.27%
Growth and Income
Class A.............................................. 0.23% 1.43%
Class B.............................................. 0.23% 1.93%
CORE U.S. Equity
Class A.............................................. 0.28% 1.53%
Class B.............................................. 0.28% 2.03%
Capital Growth
Class A.............................................. 0.15% 1.65%
Class B.............................................. 0.15% 2.15%
International Equity
Class A.............................................. 0.38% 1.88%
Class B.............................................. 0.38% 2.38%
Small Cap Equity
Class A.............................................. 0.35% 1.85%
Class B.............................................. 0.35% 2.35%
Asia Growth
Class A.............................................. 0.37% 1.87%
Class B.............................................. 0.37% 2.37%
</TABLE>

10
<PAGE>

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
CORE Large Cap Growth
Class A.............................................. 0.65% 1.90%
Class B.............................................. 0.65% 2.40%
Emerging Markets Equity
Class A.............................................. 0.92% 2.62%
Class B.............................................. 0.92% 3.12%
</TABLE>

The Investment Advisers and Goldman Sachs have no current intention of
modifying or discontinuing any of the limitations set forth above but may do
so in the future at their discretion. The information set forth in the
foregoing table and hypothetical example relates only to Class A and B shares.
Each Fund, other than Balanced, Capital Growth and Small Cap Equity Funds,
also offers Institutional and Service Shares, which are subject to different
fees and expenses (which affect performance), have different minimum
investment requirements and are entitled to different services than Class A
shares and Class B shares. Information regarding Institutional and Service
Shares may be obtained from your sales representative or from Goldman Sachs by
calling the number on the back cover page of this Prospectus. Because of the
Distribution Plans, long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the NASD's
rules regarding investment companies.

The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and 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, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."

11
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(H) SHAREHOLDERS
------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET INCREASE VALUE,
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT AND FUTURE INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME OPTIONS AND FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- ------------------- ---------- ------------- ---------- ----------- --------- ---------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $17.31 $0.66 $2.47 $(0.66) $(1.00) -- $1.47 $18.78 18.59%
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (1.00) (0.07) 1.27 18.73 16.22(c)
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) (0.35) -- 3.09 17.31 28.10
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(d)....... 14.18 0.10 0.02 (0.08) -- -- 0.04 14.22 0.87(c)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE(G) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- ---------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 208.11(f) $.0587 $81,410 1.00% 3.76% 1.77% 2.99%
1997--Class B
Shares(b)....... 208.11(f) .0587 2,110 1.75(e) 2.59(e) 2.27(e) 2.07(e)
1996--Class A
Shares.......... 197.10(f) -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(d)....... 14.71(c) -- 7,510 1.00(e) 3.39(e) 8.29(e) (3.90)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) Not annualized.
(d) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(e) Annualized.
(f) Includes the effect of mortgage dollar roll transactions.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.

12
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(H) SHAREHOLDERS
-------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET ADDITIONAL INCREASE VALUE,
BEGINNING INVESTMENT INVESTMENTS INVESTMENT AND OPTION INVESTMENT PAID-IN IN NET END OF
OF PERIOD INCOME AND OPTIONS INCOME TRANSACTIONS INCOME CAPITAL ASSET VALUE PERIOD
--------- ---------- -------------- ---------- ------------- ---------- ---------- ----------- ---------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $19.98 $0.35 $5.18 $(0.35) $(1.97) $(0.01) $-- $3.20 $23.18
1997--Class B
Shares(f)....... 20.82 0.17 4.31 (0.17) (1.97) (0.06) -- 2.28 23.10
1997--Institu-
tional
Shares(f)....... 21.25 0.29 3.96 (0.30) (1.97) (0.04) -- 1.94 23.19
1997--Service
Shares(f)....... 20.71 0.28 4.50 (0.28) (1.97) (0.07) -- 2.46 23.17
1996--Class A
Shares.......... 15.80 0.33 4.75 (0.30) (0.60) -- -- 4.18 19.98
1995--Class A
Shares.......... 15.79 0.20(b) 0.30(b) (0.20) (0.33) (0.07) 0.11(b) 0.01 15.80
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)....... 14.18 0.15 1.68 (0.15) (0.06) (0.01) -- 1.61 15.79

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE RATE(G) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
---------- ----------- ---------- ---------- ----------- ----------- ---------- -------------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 28.42% 53.03% $.0586 $615,103 1.22% 1.60% 1.43% 1.39%
1997--Class B
Shares(f)....... 22.23(d) 53.03 .0586 17,346 1.93(e) 0.15(e) 1.93(e) 0.15(e)
1997--Institu-
tional
Shares(f)....... 20.77(d) 53.03 .0586 193 0.82(e) 1.36(e) 0.82(e) 1.36(e)
1997--Service
Shares(f)....... 23.87(d) 53.03 .0586 3,174 1.32(e) 0.94(e) 1.32(e) 0.94(e)
1996--Class A
Shares.......... 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
1995--Class A
Shares.......... 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)....... 13.08(d) 102.23(d) -- 41,528 1.25(e) 1.23(e) 3.24(e) (0.76)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Calculated based on the average shares outstanding methodology.
(c) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
(d) Not annualized.
(e) Annualized.
(f) For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.

13
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(H) SHAREHOLDERS
------------------------------ -----------------------------------
NET REALIZED FROM NET NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS INCREASE NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET (DECREASE) VALUE,
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT AND FUTURES INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME OPTIONS AND FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- ------------------- ---------- ------------- ---------- ----------- --------- ---------
CORE U.S. EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $19.66 $0.16 $4.46 $(0.16) $(0.80) -- $3.66 $23.32 23.75%
1997--Class B
Shares(f)....... 20.44 0.04 3.70 (0.04) (0.80) (0.16) 2.74 23.18 18.59(b)
1997--Institu-
tional Shares... 19.71 0.30 4.51 (0.28) (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(f)....... 21.02 0.13 3.15 (0.13) (0.80) (0.10) 2.25 23.27 15.92(b)
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) (0.41) -- 5.05 19.66 38.63
1996--Institu-
tional
Shares(d)....... 16.97 0.16 3.23 (0.24) (0.41) -- 2.74 19.71 20.14(b)
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) (0.94) -- (1.32) 14.61 (1.10)
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) (1.61) -- 0.47 15.93 15.12
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- 0.41 15.46 4.30
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)....... 14.17 0.11 0.88 (0.11) -- -- 0.88 15.05 7.01(b)

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
RATIO OF
RATIO OF NET
NET RATIO OF NET INVESTMENT
ASSETS AT NET INVESTMENT RATIO OF INCOME
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE(G) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- ---------- ----------- ----------- ---------- ------------
CORE U.S. EQUITY FUND
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 37.28% $.0417 $225,968 1.29% 0.91% 1.53% 0.67%
1997--Class B
Shares(f)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(f)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(d)....... 39.35(b) -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)....... 135.02(c) -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.

14
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
------------------------------ ------------------------------------
NET REALIZED FROM NET NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS INCREASE NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENTS OF NET (DECREASE) VALUE,
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT OPTIONS INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME OPTIONS AND FUTURES INCOME AND FUTURES INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- ------------------- ---------- -------------- ---------- ----------- --------- ---------
CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $14.91 $0.10 $3.56 $(0.10) $(1.72) $(0.02) $1.82 $16.73 25.97%
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (1.72) (0.09) 1.00 16.67 19.39(d)
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) (2.69) -- 1.24 14.91 30.45
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) (1.62) -- (2.29) 13.67 (4.38)
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (1.07) (0.02) 1.32 15.96 16.89
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) (1.28) -- 0.99 14.64 18.01
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) (0.32) -- 2.55 13.65 29.31
FOR THE PERIOD
ENDED JANUARY
31,
1991--Class A
Shares(c)....... 11.34 0.34 (0.27) (0.31) -- -- (0.24) 11.10 0.84(d)

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES
RATIO OF ------------------------
NET RATIO OF
NET RATIO OF INVESTMENT NET
ASSETS AT NET INCOME RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO (LOSS) TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE(F) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
---------- ---------- ---------- ----------- ------------ ---------- -------------
CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 52.92% $.0563 $920,646 1.40% 0.62% 1.65% 0.37%
1997--Class B
Shares(b)....... 52.92 .0563 3,221 2.15(e) (0.39)(e) 2.15(e) (0.39)(e)
1996--Class A
Shares.......... 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares.......... 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares.......... 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares.......... 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares.......... 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD
ENDED JANUARY
31,
1991--Class A
Shares(c)....... 35.63(d) -- 437,533 1.27(d) 3.24(d) 1.47(d) 3.04(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.

15
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
---------------------------------------- -----------------------
NET NET REALIZED FROM NET
REALIZED AND UNREALIZED REALIZED
AND UNREALIZED GAIN (LOSS) GAIN ON NET
NET ASSET NET GAIN (LOSS) ON ON FOREIGN FROM INVESTMENT, INCREASE NET ASSET
VALUE, INVESTMENT INVESTMENTS, CURRENCY NET OPTION AND (DECREASE) VALUE,
BEGINNING INCOME OPTIONS RELATED INVESTMENT FUTURES IN NET END OF TOTAL
OF PERIOD (LOSS) AND FUTURES TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- -------------- ---------- ------------ ----------- --------- ---------
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $17.20 $0.10 $3.51 $(1.28) $ -- $(0.21) $2.12 $19.32 13.48%
1997--Class B
Shares(e)....... 18.91 (0.06) 0.94 (0.34) -- (0.21) 0.33 19.24 2.83(c)
1997--Institu-
tional
Shares(e)....... 17.45 0.04 3.39 (1.24) (0.03) (0.21) 1.95 19.40 12.53(c)
1997--Service
Shares(e)....... 17.70 (0.02) 2.95 (1.08) -- (0.21) 1.64 19.34 10.42(c)
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42 (0.58) (0.87) 2.68 17.20 28.68
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01) -- (0.59) (3.58) 14.52 (16.65)
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38) -- -- 3.75 18.10 26.13
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11) -- -- 0.17 14.35 1.23(c)

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(F) (IN 000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
--------- ---------- ---------- ----------- ------------- ---------- -------------
INTERNATIONAL EQUITY FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 38.01% $.0318 $536,283 1.69% (0.07)% 1.88% (0.26)%
1997--Class B
Shares(e)....... 38.01 .0318 19,198 2.23(d) (0.97)(d) 2.38(d) (1.12)(d)
1997--Institu-
tional
Shares(e)....... 38.01 .0318 68,374 1.10(d) 0.43(d) 1.25(d) 0.28(d)
1997--Service
Shares(e)....... 38.01 .0318 674 1.60(d) (0.40)(d) 1.75(d) (0.55)(d)
1996--Class A
Shares.......... 68.48 -- 330,860 1.52 0.26 1.77 0.01
1995--Class A
Shares.......... 84.54 -- 275,086 1.73 0.40 1.98 0.15
1994--Class A
Shares.......... 60.04 -- 269,091 1.76 0.51 2.01 0.26
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)....... 0.00 -- 66,063 1.80(d) (0.42)(d) 2.58(d) (1.20)(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.

16
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
------------------------------ --------------------------------------
IN EXCESS OF
FROM NET REALIZED
NET REALIZED REALIZED GAIN GAINS ON NET
NET ASSET NET AND UNREALIZED FROM ON INVESTMENT, INVESTMENT, INCREASE NET ASSET
VALUE, INVESTMENT GAIN (LOSS) ON NET OPTION AND OPTION AND (DECREASE) VALUE,
BEGINNING INCOME INVESTMENTS, INVESTMENT FUTURES FUTURES IN NET END OF TOTAL
OF PERIOD (LOSS) OPTIONS AND FUTURES INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD RETURN(A)
--------- ---------- ------------------- ---------- -------------- ------------ ----------- --------- ---------
SMALL CAP EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $17.29 $(0.21) $ 4.92 $ -- $(1.09) $ -- $ 3.62 $20.91 $ 27.28%
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) -- 0.01 20.80 5.39(d)
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) -- 1.15 17.29 7.20
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24) (4.53) 16.14 (17.53)
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) -- 3.99 20.67 30.13
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(c)....... 14.18 0.03 2.50 (0.03) -- -- 2.50 16.68 17.86(d)

<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
-----------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES LOSS
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(F) (IN 000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
---------- ---------- ---------- ----------- ------------- ---------- ------------
SMALL CAP EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 99.46% $.0461 $212,061 1.60% (0.72)% 1.85% (0.97)%
1997--Class B
Shares(b)....... 99.46 .0461 3,674 2.35(e) (1.63)(e) 2.35(e) (1.63)(e)
1996--Class A
Shares.......... 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
1995--Class A
Shares.......... 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
1994--Class A
Shares.......... 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(c)....... 7.12(e) -- 59,339 1.65(e) 0.62(e) 2.70(e) (0.43)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.

17
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
---------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN (LOSS) ON NET
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS INCREASE NET ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET (DECREASE) VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT IN NET END OF TOTAL
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- -------------- ---------- ---------- ----------- --------- ---------
ASIA GROWTH FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ -- $(0.18) $16.31 (1.01)%
1997--Class B
Shares(e)....... 17.31 (0.05) (0.48) (0.51) -- (0.03) (1.07) 16.24 (6.02)(c)
1997--Institu-
tional
Shares(e)....... 16.61 0.04 (0.11) (0.11) (0.04) (0.06) (0.28) 16.33 (1.09)(c)
1996--Class A
Shares.......... 13.31 0.17 3.44 (0.12) (0.17) (0.14) 3.18 16.49 26.49
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) 0.01 (0.10) -- (0.87) 13.31 (5.46)(c)

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(F) (000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
---------- ---------- --------- ----------- ------------- ---------- -------------
ASIA GROWTH FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 48.40% $.0151 $263,014 1.67% 0.20% 1.87% 0.00%
1997--Class B
Shares(e)....... 48.40 .0151 3,354 2.21(d) (0.56)(d) 2.37(d) (0.72)(d)
1997--Institu-
tional
Shares(e)....... 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares.......... 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)....... 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional and Class B shares,
respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.

18
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures and similar enterprises, warrants and stock
purchase rights ("equity securities"). In choosing a Fund's securities, the
Investment Advisers utilize first-hand fundamental research, including
visiting company facilities to assess operations and to meet decision-makers.
The Investment Advisers may also use macro analysis of numerous economic and
valuation variables to anticipate changes in company earnings and the overall
investment climate. The Investment Advisers are able to draw on the research
and market expertise of the Goldman Sachs Global Investment Research
Department and other affiliates of the Investment Advisers, as well as
information provided by other securities dealers. Equity securities in a
Fund's portfolio will generally be sold when the Investment Adviser believes
that the market price fully reflects or exceeds the securities' fundamental
valuation or when other more attractive investments are identified.

Value Style Funds. The Growth and Income, Small Cap Equity and the equity
portion of the Balanced Funds are managed using a value oriented approach. The
Investment Adviser evaluates securities using fundamental analysis and intends
to purchase equity securities that are, in its view, underpriced relative to a
combination of such companies' long-term earnings prospects, growth rate, free
cash flow and/or dividend-paying ability. Consideration will be given to the
business quality of the issuer. Factors positively affecting the Investment
Adviser's view of that quality include the competitiveness and degree of
regulation in the markets in which the company operates, the existence of a
management team with a record of success, the position of the company in the
markets in which it operates, the level of the company's financial leverage
and the sustainable return on capital invested in the business. The Funds may
also purchase securities of companies that have experienced difficulties and
that, in the opinion of the Investment Adviser, are available at attractive
prices.

Growth Style Funds. The Capital Growth, International Equity, Emerging
Markets Equity and Asia Growth Funds are managed using a growth oriented
approach. Equity securities for these Funds are selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. These Funds will generally invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.

19
<PAGE>

Quantitative Style Funds. The CORE U.S. Equity and CORE Large Cap Growth
Funds are managed using both quantitative and fundamental techniques. CORE is
an acronym for "Computer-Optimized, Research-Enhanced," which reflects the
Funds' investment process. Equity securities are evaluated using both a
proprietary quantitative multifactor model and the investment opinions of
Goldman Sachs' research analysts. The Investment Adviser then uses
computerized optimization techniques to construct diversified portfolios
consisting of stocks that are highly rated both by the Investment Adviser's
proprietary multifactor model and by Goldman Sachs' research analysts. The
optimizer seeks to balance expected returns against portfolio risk in an
effort to find the portfolio with the optimal reward to risk trade-off
relative to the Fund's investment objectives.

BALANCED FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital growth and current income. The Fund seeks capital
appreciation primarily through the equity component of its portfolio while
investing in fixed income securities primarily to provide income for regular
quarterly dividends.

Primary Investment Focus. The Fund invests, under normal circumstances,
between 45% and 65% of its total assets in equity securities. The Fund also
invests at least 25% of its total assets in fixed income senior securities and
the remainder of its assets in other fixed income securities and cash. The
percentage of the portfolio invested in equity and fixed income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This allocation is subject to the Fund's intention to pay regular
quarterly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.

Other. Although the Fund's equity investments consist primarily of publicly
traded U.S. securities, the Fund may invest up to 10% of its total assets in
the equity securities of foreign issuers, including issuers in Emerging
Countries and equity securities quoted in foreign currencies. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income may
include interests in real estate investment trusts, convertible securities,
preferred stocks, utility stocks and interests in limited partnerships.

The Fund's fixed income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities and custodial receipts. The Fund may also invest in debt
obligations (U.S. dollar and non-U.S. dollar denominated) issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities and foreign corporations or other entities. Such
securities are collectively referred to herein as "fixed income securities."
The Fund's investments in fixed income securities that are issued by foreign
issuers, including issuers in Emerging Countries may not exceed 10% of the
Fund's total assets. The Fund may employ certain currency techniques to seek
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. See "Description of Securities," "Investment
Techniques" and "Risk Factors."

GROWTH AND INCOME FUND

Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.

20
<PAGE>

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.

Other. The Fund may invest up to 35% of its total assets in fixed income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in Emerging Countries and securities quoted in foreign currencies.

CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")

Objective: The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund may invest in
equity securities of foreign issuers that are traded in the United States and
that comply with U.S. accounting standards. The Fund's investments are
selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's reward to risk ratio. The Fund's
portfolio is designed to have risk, style, capitalization and industry
characteristics similar to the S&P 500 Index. The Fund seeks a broad
representation in most major sectors of the U.S. economy and a portfolio
comprised of companies with above average capitalizations and average earnings
growth expectations and dividend yields. The Fund may invest only in fixed
income securities that are considered cash equivalents.

Investment Process. The Investment Adviser begins with a universe consisting
primarily of blue chip and other large capitalization equity securities. The
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating, and, if the security is
followed by the Goldman Sachs Global Investment Research Department (the
"Research Department"), a second rating is assigned based upon the Research
Department's evaluation. In building a diversified portfolio for the Fund, the
Investment Adviser utilizes optimization techniques to seek to maximize the
Fund's expected reward to risk ratio. This portfolio is primarily comprised of
securities rated highest by the Investment Adviser's Multifactor Model and
research analysts and has risk characteristics and industry weightings similar
to the S&P 500 Index. Under normal conditions, the securities of any one
issuer may not exceed 5% of the Fund's total assets.

Multifactor Model. The Multifactor Model is a rigorous computerized rating
system for valuing equity securities according to fundamental investment
characteristics. The factors used by the Multifactor Model incorporate many
variables studied by traditional fundamental analysts, and cover measures of
value, growth, momentum and risk (e.g., price/earnings ratio, book/price
ratio, growth forecasts, earnings estimate revisions, price momentum, price
volatility and earnings stability). All of the factors used in the Multifactor
Model have been shown to significantly impact the performance of equity
securities. The weightings assigned to the factors are derived using a
statistical formulation that considers each factor's historical performance in
different market environments. As such, the Multifactor Model is designed to
evaluate each security using only the factors that are statistically related
to returns in the anticipated market environment. Because it includes many
disparate factors, the Investment Adviser believes that the Multifactor Model
is broader in scope and provides a more thorough evaluation than most
conventional, value-oriented quantitative models. As a result, the securities
ranked highest by the Multifactor Model do not have one dominant investment
characteristic (such as a low price/earnings ratio); rather, they possess an
attractive combination of investment characteristics.

21
<PAGE>

Research Department. In assigning ratings, the Research Department uses a
four category rating system ranging from "recommended for purchase" to "likely
to underperform." The ratings reflect the analyst's judgment as to the
investment results of a specific security and incorporate economic outlook,
valuation, risk and a variety of other factors. By employing both a
quantitative (i.e., the Multifactor Model) and a qualitative (i.e., the
analyst's ratings) method of selecting securities, the Fund seeks to
capitalize on the strengths of each discipline.

CORE LARGE CAP GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy. Dividend income is a secondary
consideration.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Investment Adviser
emphasizes a company's growth prospects in analyzing equity securities to be
purchased by the Fund. The Fund may invest in equity securities of foreign
issuers that are traded in the United States and that comply with
U.S. accounting standards. The Fund's investments are selected using both a
variety of quantitative techniques and fundamental research in seeking to
maximize the Fund's reward to risk ratio. The Fund's portfolio is designed to
have risk, style, capitalization and industry characteristics similar to the
Russell 1000 Growth Index. The Fund seeks a portfolio comprised of companies
with above average capitalizations and earnings growth expectations and below
average dividend yields. The Fund may invest only in fixed income securities
that are considered cash equivalents.

For a description of the investment process of the Fund, see "Investment
Process," "Multifactor Model" and "Research Department" under "CORE U.S.
EQUITY FUND."

CAPITAL GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by the Investment Adviser to have long-term
capital appreciation potential.

Other. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.

INTERNATIONAL EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

22
<PAGE>

determined by the Investment Adviser from time to time provided that the
Fund's assets are invested in at least three foreign countries. The Fund
expects to invest a substantial portion of its assets in the securities of
issuers located in the developed countries of Western Europe and in Japan.
However, the Fund may also invest in the securities of issuers located in
Australia, Canada, New Zealand and the Emerging Countries in which the
Emerging Markets Equity Fund may invest. Many of the countries in which the
Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries.

Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors." Up to 35% of the
Fund's total assets may be invested in fixed income securities.

SMALL CAP EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital growth.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of investment.
However, the Fund currently emphasizes investments in companies with public
stock market capitalizations of $500 million or less at the time of
investment. Under normal circumstances, the Fund's investment horizon for
ownership of stocks will be two to three years. Dividend income, if any, is an
incidental consideration.

Small Capitalization Companies. The Fund invests in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of
their life and that the Investment Adviser believes have significant growth
potential. The Investment Adviser believes that the companies in which the
Fund may invest offer greater opportunity for growth of capital than larger,
more mature, better known companies. However, investments in such small market
capitalization companies involve special risks. See "Description of
Securities" and "Risk Factors."

Other. The Fund may invest in the aggregate up to 35% of its total assets in
the equity securities of companies with public stock market capitalizations in
excess of $1 billion and in fixed income securities. In addition, although the
Fund will invest primarily in publicly traded U.S. securities, it may invest
up to 25% of its total assets in foreign securities, including securities of
issuers in Emerging Countries and securities quoted in foreign currencies.

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EMERGING MARKETS EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider, but is not bound by,
classifications by the World Bank, the International Finance Corporation or
the United Nations and its agencies in determining whether a country is
emerging or developed. Currently, Emerging Countries include among others,
most Latin American, African, Asian and Eastern European nations. The
Investment Adviser currently intends that the Fund's investment focus will be
in the following Emerging Countries: Argentina, Botswana, Brazil, Chile,
China, Colombia, the Czech Republic, Egypt, Greece, Hong Kong, Hungary, India,
Indonesia, Israel, Jordan, Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru,
the Philippines, Poland, Portugal, Russia, Singapore, South Africa, South
Korea, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela and Zimbabwe. At the
Investment Adviser's discretion, the Fund may invest in other Emerging
Countries.

An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries,
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country, (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.

Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.

Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."

Under normal circumstances, the Fund maintains investments in at least six
Emerging Countries and will not invest more than 35% of its total assets in
securities of issuers in any one Emerging Country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the Emerging
Country markets and particular issuers. In addition, macro-economic factors
and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Investments" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and

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governmental Emerging Country issuers, (ii) equity and fixed income securities
of issuers in developed countries and (iii) temporary investments.

ASIA GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries, (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries, (iii) they maintain 50% or more of their assets
in one or more of the Asian countries, or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase equity securities of issuers that have not paid
dividends on a timely basis, securities of companies that have experienced
difficulties, and securities of companies without performance records.

The Fund may allocate its assets among the Asian countries as determined
from time to time by the Investment Adviser. For purposes of the Fund's
investment policies, Asian countries are China, Hong Kong, India, Indonesia,
Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan
and Thailand as well as any other country in the Asian region (other than
Japan) to the extent that foreign investors are permitted by applicable law to
make such investments. Allocation of the Fund's investments will depend upon
the relative attractiveness of the Asian markets and particular issuers.
Concentration of the Fund's assets in one or a few of the Asian countries and
Asian currencies will subject the Fund to greater risks than if the Fund's
assets were not geographically concentrated. See "Description of Securities--
Foreign Investments." The Fund may invest in the aggregate up to 35% of its
total assets in equity securities of issuers in other countries, including
Japan, and in fixed income securities.

DESCRIPTION OF SECURITIES

CONVERTIBLE SECURITIES

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<PAGE>

interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's"), or if unrated by such
rating organizations, determined to be of comparable quality by the Investment
Adviser. The convertible securities in which the CORE U.S. Equity and CORE
Large Cap Growth Funds invest are not subject to any minimum rating criteria.
The convertible debt securities in which the other Funds may invest are
subject to the same rating criteria as a Fund's investments in non-convertible
debt securities. Convertible debt securities are equity investments for
purposes of each Fund's investment policies.

FOREIGN INVESTMENTS

FOREIGN SECURITIES. Each Fund may invest in the securities of foreign
issuers (provided that the CORE U.S. Equity and CORE Large Cap Growth Funds
may only invest in equity securities of foreign issuers that are traded in the
U.S. and comply with U.S. accounting standards). Investments in foreign
securities may offer potential benefits that are not available from
investments exclusively in equity securities of domestic issuers quoted in
U.S. dollars. Foreign countries may have economic policies or business cycles
different from those of the U.S. and markets for foreign securities do not
necessarily move in a manner parallel to U.S. markets.

Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in equity securities of domestic issuers
quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. Commissions on transactions in
foreign securities may be higher than those for similar transactions on
domestic stock markets. In addition, clearance and settlement procedures may
be different in foreign countries and, in certain markets, such procedures
have on occasion been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.

Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other

26
<PAGE>

assets of the Funds, political or social instability or diplomatic
developments which could affect investments in those countries.

INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs"), and each
Fund, other than the CORE U.S. Equity and CORE Large Cap Growth Funds, may
also invest in European Depository Receipts ("EDRs") or other similar
instruments representing securities of foreign issuers (together, "Depository
Receipts"). ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. Prices of ADRs are
quoted in U.S. dollars, and ADRs are traded in the United States on exchanges
or over-the-counter and are sponsored and issued by domestic banks. EDRs and
GDRs are receipts evidencing an arrangement with a non-U.S. bank. EDRs and
GDRs are not necessarily quoted in the same currency as the underlying
security. To the extent a Fund acquires Depository Receipts through banks
which do not have a contractual relationship with the foreign issuer of the
security underlying the Depository Receipts to issue and service such
Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions, such as stock splits or rights offerings
involving the foreign issuer, in a timely manner. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
Investment in Depository Receipts does not eliminate all the risks inherent in
investing in securities of non-U.S. issuers. The market value of Depository
Receipts is dependent upon the market value of the underlying securities and
fluctuations in the relative value of the currencies in which the Depository
Receipt and the underlying securities are quoted. However, by investing in
Depository Receipts, such as ADRs, that are quoted in U.S. dollars, a Fund
will avoid currency risks during the settlement period for purchases and
sales.

FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced,
International Equity, Emerging Markets Equity and Asia Growth Funds may have
currency exposure independent of their securities positions, the value of the
assets of a Fund as measured in U.S. dollars will be affected by changes in
foreign currency exchange rates. A Fund may, to the extent it invests in
foreign securities, purchase or sell forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, the Balanced,
International Equity, Emerging Markets Equity and Asia Growth Funds may enter
into such contracts to seek to increase total return when the Investment
Adviser anticipates that the foreign currency will appreciate or depreciate in
value, but securities denominated or quoted in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When entered into to seek to enhance return, forward foreign currency exchange
contracts are considered speculative. The Balanced, International Equity,
Emerging Markets Equity and Asia Growth Funds may also engage in cross-hedging
by using forward contracts in a currency different from that in which the
hedged security is denominated or quoted if the Investment Adviser determines
that there is a pattern of correlation between the two currencies. If a Fund
enters into a forward foreign currency exchange contract to buy foreign
currency for any purpose or the Balanced, International Equity, Emerging
Markets Equity and Asia Growth Funds enter into forward foreign currency
exchange contracts to sell foreign currency to seek to increase total return,
the Fund will be required to place cash or liquid assets in a segregated
account with the Fund's custodian in an amount equal to the value of the
Fund's total assets committed to the consummation of the forward contract. The
Fund will incur costs in connection with conversions between various
currencies. A Fund may hold foreign currency received in connection with
investments in foreign securities when, in the judgment of the Investment
Adviser, it would be beneficial to convert such currency into U.S. dollars at
a later date, based on anticipated changes in the relevant exchange rate.

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<PAGE>

The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.

The Balanced, International Equity, Emerging Markets Equity and Asia Growth
Funds may also engage in a variety of foreign currency management techniques.
However, due to the limited market for these instruments with respect to the
currencies of many Emerging Countries, including certain Asian countries, the
Investment Advisers do not currently anticipate that a significant portion of
Emerging Markets Equity or Asia Growth Fund's currency exposure will be
covered by such instruments. For a discussion of such instruments and the
risks associated with their use, see "Investment Objective and Policies" in
the Additional Statement.

FIXED INCOME SECURITIES

U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. A Fund may also invest in zero coupon U.S. Treasury
securities and in zero coupon securities issued by financial institutions,
which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and its value consists of the difference between its face value at
maturity and its cost. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically. See "Taxation" in the Additional Statement.

FOREIGN GOVERNMENT SECURITIES. The Balanced, International Equity, Emerging
Markets Equity and Asia Growth Funds may invest in debt obligations of foreign
governments and governmental agencies, including those of Emerging Countries.
Investment in sovereign debt obligations involves special risks not present in
debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable
or unwilling to repay principal or interest when due in accordance with the
terms of such debt, and a Fund may have limited recourse in the event of a
default. Periods of economic uncertainty may

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<PAGE>

result in the volatility of market prices of sovereign debt, and in turn a
Fund's net asset value, to a greater extent than the volatility inherent in
debt obligations of U.S. issuers. A sovereign debtor's willingness or ability
to repay principal and pay interest in a timely manner may be affected by,
among other factors, its cash flow situation, the extent of its foreign
currency reserves, the availability of sufficient foreign exchange on the date
a payment is due, the relative size of the debt service burden to the economy
as a whole, the sovereign debtor's policy toward international lenders and the
political constraints to which a sovereign debtor may be subject.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the CORE
U.S. Equity and CORE Large Cap Growth Funds) may invest in mortgage-backed
securities ("Mortgage-Backed Securities"), which represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property. Each Fund (other than the CORE U.S. Equity and CORE
Large Cap Growth Funds) may also invest in asset-backed securities ("Asset-
Backed Securities"). The principal and interest payments on Asset-Backed
Securities are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property. Such
asset pools are securitized through the use of special purpose trusts or
corporations. Principal and interest payments may be credit enhanced by a
letter of credit, a pool insurance policy or a senior/subordinated structure.

The Balanced Fund may also invest in stripped Mortgage-Backed Securities
("SMBS") (including interest only and principal only securities), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives 100% of the interest
payments and the other that receives 100% of the principal payments from a
pool of mortgage loans. If the underlying mortgage loans experience different
than anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage loans are generally higher
than prevailing market yields on other Mortgage-Backed Securities because
their cash flow patterns are more volatile and there is a greater risk that
the initial investment will not be fully recouped.

CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.

BANK OBLIGATIONS. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitation time
deposits, bankers' acceptances and certificates of deposit, may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation. Banks are
subject to extensive but different governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. In addition, the profitability of the banking industry is
largely dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operation of
this industry.

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<PAGE>

provide that in certain circumstances no principal is due at maturity and,
therefore, result in the loss of a Fund's investment. Structured securities
may be positively or negatively indexed, so that appreciation of the Reference
may produce an increase or decrease in the interest rate or value of the
security at maturity. In addition, changes in the interest rates or the value
of the security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.

RATING CRITERIA. Except as noted below, each Fund (other than the CORE U.S.
Equity and CORE Large Cap Growth Funds, which only invest in debt instruments
that are cash equivalents) may invest in debt securities rated at least
investment grade at the time of investment. Investment grade debt securities
are securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's. A security will be deemed to have met a rating requirement if it
receives the minimum required rating from at least one such rating
organization even though it has been rated below the minimum rating by one or
more other rating organizations, or if unrated by such rating organizations,
determined by the Investment Adviser to be of comparable credit quality. The
Balanced Fund may invest up to 10% of its total assets in debt securities that
are rated BB or B by Standard & Poor's or Ba or B by Moody's. The Growth and
Income, Capital Growth, Small Cap Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds may invest up to 10%, 10%, 35%, 35%, 35%,
and 35%, respectively, of their total assets in debt securities which are
unrated or rated in the lowest rating categories by Standard & Poor's or
Moody's (i.e., BB or lower by Standard & Poor's or Ba or lower by Moody's),
including securities rated D by Moody's or Standard & Poor's. Fixed income
securities rated BBB or Baa are considered medium-grade obligations with
speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capacity to pay interest and repay
principal. Fixed income securities rated BB or Ba or below (or comparable
unrated securities) are commonly referred to as "junk bonds" and are
considered predominantly speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in a Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.

REAL ESTATE INVESTMENT TRUSTS ("REITS")

Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.

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INVESTMENT TECHNIQUES

OPTIONS ON SECURITIES AND SECURITIES INDICES

Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may write (sell) covered call and put options and purchase call and put
options on any securities in which it may invest or 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 seek 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
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.

OPTIONS ON FOREIGN CURRENCIES. A Fund may, to the extent it invests in
foreign securities, purchase and sell (write) call and put options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of foreign portfolio securities and anticipated dividends on such
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. In addition, the Balanced, International Equity, Emerging
Markets Equity and Asia Growth Funds may use options on currency to cross-
hedge, which involves writing or purchasing options on one currency to hedge
against changes in exchange rates for a different currency, if there is a
pattern of correlation between the two currencies. As with other kinds of
option transactions, however, the writing of an option on foreign currency
will constitute only a partial hedge, up to the amount of the premium
received. If an option that a Fund has written is exercised, the Fund could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on foreign currency
may constitute an effective hedge against exchange rate fluctuations; however,
in the event of exchange rate movements adverse to a Fund's position, the Fund
may forfeit the entire amount of the premium plus related transaction costs.
In addition to purchasing put and call options for hedging purposes, the
Balanced, International Equity, Emerging Markets Equity and Asia Growth Funds
may purchase call or put options on currency to seek to increase total return
when the Investment Adviser anticipates that the currency will appreciate or
depreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not held in the
Fund's portfolio. When purchased or sold to seek to increase total return,
options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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<PAGE>

transactions only with respect to the S&P 500 Index in the case of the CORE
U.S. Equity Fund and a representative index in the case of the CORE Large Cap
Growth Fund. A Fund will engage in futures and related options transactions
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. A Fund may not purchase or sell futures
contracts or purchase or sell related options to seek 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. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require the
Fund to segregate and maintain cash or liquid assets with a value equal to the
amount of the Fund's obligations.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Futures
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's net asset value. The profitability of a Fund's trading in futures to
seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to a
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a 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. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary three-day settlement period. A Fund is
required to hold and maintain in a segregated account with the Fund's
custodian until three days prior to the settlement date, cash or liquid assets
in an amount sufficient to meet the purchase price. Alternatively, each 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 a Fund would
generally purchase securities on a when-issued or forward commitment basis
with the intention of acquiring securities for its portfolio, a Fund may
dispose of when-issued securities or forward commitments prior to settlement
if its Investment Adviser deems it appropriate to do so.

ILLIQUID AND RESTRICTED SECURITIES

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agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days, certain over-the-counter options, and
certain restricted securities, unless it is determined, based upon the
continuing review of the trading markets for a specific restricted security,
that such restricted security is eligible for resale under Rule 144A under the
Securities Act of 1933 and, therefore, is liquid. The Trustees have adopted
guidelines and delegated to the Investment Advisers the daily function of
determining and monitoring the liquidity of portfolio securities. The
Trustees, however, retain oversight focusing on factors such as valuation,
liquidity and availability of information and are ultimately responsible for
each determination. Investing in restricted securities eligible for resale
pursuant to Rule 144A may decrease the liquidity of a Fund's portfolio to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities. The purchase price and subsequent
valuation of restricted and illiquid securities normally reflect a discount,
which may be significant, from the market price of comparable securities for
which a liquid market exists.

REPURCHASE AGREEMENTS

Each 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. The Balanced, International Equity, Emerging
Markets Equity and Asia Growth Funds may also enter into repurchase agreements
involving certain foreign government securities. If the other party or
"seller" defaults, a 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. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser, 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.

LENDING OF PORTFOLIO SECURITIES

Each Fund may 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 an
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 a
Fund. A 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.

MORTGAGE DOLLAR ROLLS

The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase substantially similar (same
type, coupon and maturity) but not identical securities on a specified future
date. During the roll period, the Fund loses the right to receive principal
and interest paid on the securities sold. However, the Fund would

33
<PAGE>

benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date for the forward purchase. Unless such benefits
exceed the income, capital appreciation and gain or loss due to mortgage
prepayments that would have been realized on the securities sold as part of
the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund. The Fund will hold and maintain in a
segregated account until the settlement date cash or liquid assets in an
amount equal to the forward purchase price. Successful use of mortgage dollar
rolls depends upon the Investment Adviser's ability to predict correctly
interest rates and mortgage prepayments. There is no assurance that mortgage
dollar rolls can be successfully employed. For financial reporting and tax
purposes, the Fund treats mortgage dollar rolls as two separate transactions;
one involving the purchase of a security and a separate transaction involving
a sale. The Fund does not currently intend to enter into mortgage dollar rolls
that are accounted for as a financing.

SHORT SALES AGAINST-THE-BOX

Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may make short sales of securities or maintain a short position, provided that
at all times when a short position is open the Fund owns an equal amount of
such securities or securities convertible into or exchangeable, without
payment of any further consideration, for an equal amount of the securities of
the same issuer as the securities sold short (a short sale against-the-box).
Not more than 25% of a Fund's net assets (determined at the time of the short
sale) may be subject to such short sales. Short sales will be made primarily
to defer realization of gain or loss for federal tax purposes; a gain or loss
in a Fund's long position will be offset by a gain or loss in its short
position.

TEMPORARY INVESTMENTS

Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE U.S. Equity, CORE Large Cap Growth and Emerging
Market Equity Funds may only hold up to 35% of their respective total assets)
in U.S. Government securities, repurchase agreements collateralized by U.S.
Government securities, commercial paper rated at least A-2 by Standard &
Poor's or P-2 by Moody's, certificates of deposit, bankers' acceptances,
repurchase agreements, non-convertible preferred stocks, non-convertible
corporate bonds with a remaining maturity of less than one year or, subject to
certain tax restrictions, foreign currencies. When a Fund's assets are
invested in such instruments, the Fund may not be achieving its investment
objective.

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments (i) warrants and stock purchase rights,
(ii) currency swaps (Balanced, International Equity, Emerging Markets Equity
and Asia Growth Funds only), (iii) mortgage swaps, index swaps and interest
rate swaps, caps, floors and collars (Balanced Fund only), (iv) yield curve
options and inverse floating rate securities (Balanced Fund only), (v) other
investment companies, (vi) unseasoned companies and (vii) municipal securities
(Balanced Fund only). For more information see the Additional Statement.

RISK FACTORS

34
<PAGE>

capitalization stocks and stocks of recently organized companies have been
more volatile in price than the larger market capitalization stocks included
in the S&P 500 Index. Among the reasons for the greater price volatility of
these small company and unseasoned stocks are the less certain growth
prospects of smaller firms and the lower degree of liquidity in the markets
for such stocks.

SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--Foreign
Investments." The International Equity, Emerging Markets Equity and Asia
Growth Funds may each invest without limit in the securities of issuers in
Emerging Countries. The Balanced, Growth and Income and Small Cap Equity Funds
may each invest up to 15% and the Capital Growth Fund may invest up to 10% of
their total assets in securities of issuers in Emerging Countries. Emerging
Countries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain Emerging Countries may be constrained by limitations as
to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement volume
limitations have been reached.

Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.

Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, governments
of some Emerging Countries are authoritarian in nature or have been installed
or removed as a result of military coups, while governments in other Emerging
Countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian and other Emerging Countries.
Unanticipated political or social developments may affect the values of a
Fund's investments. Investing in Emerging Countries involves the risk of loss
due to expropriation, nationalization, confiscation of assets and property or
the imposition of restrictions on foreign investments and on repatriation of
capital invested. Economies in individual Emerging Countries may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rates of inflation, currency valuation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Many Emerging Countries have experienced currency devaluations and substantial
and, in some cases, extremely high rates of inflation, which have a negative
effect

35
<PAGE>

on the economies and securities markets of such Emerging Countries. Economies
in Emerging Countries generally are dependent heavily upon commodity prices
and international trade and, accordingly, have been and may continue to be
affected adversely by the economies of their trading partners, trade barriers,
exchange controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade.

Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the U.S. A Fund's investment in Emerging Countries may also be subject
to withholding or other taxes, which may be significant and may reduce the
return from an investment in such country to the Fund. Settlement procedures
in Emerging Countries are frequently less developed and reliable than those in
the United States and may involve a Fund's delivery of securities before
receipt of payment for their sale. In addition, significant delays are common
in certain markets in registering the transfer of securities. Settlement or
registration problems may make it more difficult for a Fund to value its
portfolio securities and could cause the Fund to miss attractive investment
opportunities, to have a portion of its assets uninvested or to incur losses
due to the failure of a counterparty to pay for securities the Fund has
delivered or the Fund's inability to complete its contractual obligations.

Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.

RISK OF INVESTING IN FIXED INCOME SECURITIES. When interest rates decline,
the market value of fixed income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.

RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swap transactions, structured securities and
currency forward contracts involve certain risks, including a possible lack of
correlation between changes in the value of hedging instruments and the
portfolio assets being hedged, the potential illiquidity of the markets for
derivative instruments, the risks arising from the margin requirements and
related leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. A Fund's use of certain derivative transactions may
be limited by the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.

INVESTMENT RESTRICTIONS

36
<PAGE>

policies not specifically designated as fundamental are non-fundamental and
may be changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund remains
an appropriate investment in light of their then current financial positions
and needs.

PORTFOLIO TURNOVER

A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders and may
under certain circumstances make it more difficult for a Fund to qualify as a
regulated investment company under the Code. See "Financial Highlights" for a
statement of each Fund's (other than the CORE Large Cap Growth and Emerging
Markets Equity Funds) historical portfolio turnover ratio. It is anticipated
that the annual portfolio turnover rates of the CORE Large Cap Growth and
Emerging Markets Equity Funds will generally not exceed 70% and 100%,
respectively. 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 a Fund's portfolio securities, excluding securities
having a maturity at the date of purchase of one year or less. Notwithstanding
the foregoing, the Investment Adviser may, from time to time, make short-term
investments when it believes such investments are in the best interest of a
Fund.

MANAGEMENT

TRUSTEES AND OFFICERS

INVESTMENT ADVISERS

INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza,
New York, New York 10004, a separate operating division of Goldman Sachs,
serves as the investment adviser to the Balanced, CORE Large Cap Growth,
Growth and Income and Small Cap Equity Funds. Goldman Sachs registered as an
investment adviser in 1981. Goldman Sachs Funds Management, L.P., One New York
Plaza, New York, New York 10004, a Delaware limited partnership which is an
affiliate of Goldman Sachs, serves as the investment adviser to the CORE U.S.
Equity and Capital Growth Funds. Goldman Sachs Funds Management, L.P.
registered as an investment adviser in 1990. Goldman Sachs Asset Management
International, 133 Peterborough Court, London EC4A 2BB, England, an affiliate
of Goldman Sachs, serves as the investment adviser to the International
Equity, Emerging Markets Equity and Asia Growth Funds. Goldman Sachs Asset
Management International became a member of the Investment Management
Regulatory Organisation Limited in 1990 and registered as an investment
adviser in 1991. As of March 24, 1997, GSAM, GSFM and GSAMI, together with
their affiliates, acted as investment adviser, administrator or distributor
for assets in excess of $104.9 billion.

37
<PAGE>

In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Singapore and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices. In addition, the Investment Advisers will have access to
the research of, and proprietary technical models developed by, Goldman Sachs
and may apply quantitative and qualitative analysis in determining the
appropriate allocations among the categories of issuers and types of
securities.

FUND MANAGERS

38
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was the Chief Investment
Officer of Liberty.
- --------------------------------------------------------------------------------------------
Gregory H. Ekizian Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- --------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Small Cap Equity 1992 Investment Adviser in
1991.
- --------------------------------------------------------------------------------------------
Ronald E. Gutfleish Senior Portfolio Manager-- Since Mr. Gutfleish joined the
Vice President Balanced (Equity) 1994 Investment Adviser in
Growth and Income 1993 1993. Prior to 1993, he
was a principal of
Sanford C. Bernstein &
Co. in its Investment
Management Research
Department.
- --------------------------------------------------------------------------------------------
Roderick D. Jack Portfolio Manager-- Since Mr. Jack joined the
Managing Director International Equity 1992 Investment Adviser in
1992. Prior to 1992, he
worked in the advisory
and financing group for
S.G. Warburg in London.
- --------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S.Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989. From 1987 to 1989,
Mr. Jones was a senior
quantitative analyst in
the Research Department.
- --------------------------------------------------------------------------------------------
Marcel Jongen Portfolio Manager-- Since Mr. Jongen joined the
Executive Director International Equity 1992 Investment Adviser in
1992. Prior to 1992, he
was head of equities at
Philips Pension Fund in
Eindhoven.
- --------------------------------------------------------------------------------------------
Richard C. Lucy Portfolio Manager-- Since Mr. Lucy joined the
Vice President Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. Prior to 1992, he
Fixed Income managed fixed income
Department assets at Brown Brothers
Harriman & Co.
- --------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser in
1990.
- --------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Vice President International Equity 1994 Investment Adviser in
1994. Prior to 1994, he
worked at Nomura
Investment Management
Incorporated and for a
period at Manufacturers
Hanover Bank in New
York.
- --------------------------------------------------------------------------------------------
Matthew B. McLennan Assistant Portfolio Manager-- Since Mr. McLennan joined the
Associate Small Cap Equity 1996 Investment Adviser in
1995. Prior to 1995, he
worked in the Investment
Banking Division of
Goldman, Sachs & Co. in
Australia. Prior to
that, Mr. McLennan
worked at Queensland
Investment Corporation
in Australia.
- --------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director Asia Growth 1994 Investment Adviser in
Portfolio Manager-- 1994. Prior to 1994, he
International Equity 1994 was a vice president of
Emerging Markets Equity 1997 Bankers Trust Australia
Ltd.
- --------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990.
- --------------------------------------------------------------------------------------------
Ramakrishna Shanker Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth 1997 Investment Adviser in
1997. Prior to 1997, he
worked for the
Investment Banking
Division of Goldman,
Sachs & Co. in
Singapore.
- --------------------------------------------------------------------------------------------
David G. Shell Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
</TABLE>

39
<PAGE>

<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1997*
----------- -----------------
<S> <C> <C>
GSAM
Balanced..................................... 0.65% 0.65%
Growth and Income............................ 0.70% 0.70%
CORE Large Cap Growth........................ 0.75% N/A
Small Cap Equity............................. 1.00% 1.00%
GSFM
CORE U.S. Equity............................. 0.75% 0.59%
Capital Growth............................... 1.00% 1.00%
GSAMI
International Equity......................... 1.00% 0.89%
Emerging Markets Equity...................... 1.20% N/A
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- --------
*With respect to the Balanced, Growth and Income, CORE U.S. Equity, Capital
Growth, International Equity, Small Cap Equity and Asia Growth Funds, a
Management Agreement combining both advisory and administrative services was
adopted effective April 30, 1997. The contractual rate set forth in the table
is the rate payable under the Management Agreements and is identical to the
aggregate advisory and administration fees payable by each Fund under the
previous separate investment advisory (including subadvisory in the case of
the International Equity Fund) and administration agreements. For the fiscal
year ended January 31, 1997, the

40
<PAGE>

annual rate expressed is the combined advisory and administration fees paid
(after voluntary fee limitations). The difference, if any, between the stated
fees and the actual fees paid by the Funds reflects that the applicable
Investment Adviser did not charge the full amount of the fees to which it would
have been entitled. The Investment Advisers may discontinue or modify such
voluntary limitations in the future at their discretion, although they have no
current intention to do so.

The Investment Advisers to the Balanced, Growth and Income, CORE U.S. Equity,
CORE Large Cap Growth, International Equity, Emerging Markets Equity and Asia
Growth Funds have voluntarily agreed to reduce or limit certain "Other
Expenses" of such Funds (excluding management, distribution and authorized
dealer service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses and, in the case of each Fund
other than Balanced and CORE Large Cap Growth Funds, transfer agency fees) to
the extent such expenses exceed 0.10%, 0.11%, 0.06%, 0.05%, 0.20%, 0.16% and
0.24% per annum of such Funds' average daily net assets, respectively. Such
reductions or limits, if any, are calculated monthly on a cumulative basis and
may be discontinued or modified by the applicable Investment Adviser in its
discretion at any time.

Goldman Sachs may from time to time, at its own expense, provide compensation
to certain Authorized Dealers and other persons for performing administrative
services to their customers. These services include maintaining account
records, processing orders to purchase, redeem and exchange Fund shares and
responding to certain customer inquiries. In addition, these services may also
include responding to certain inquiries from and providing written materials to
depository institutions about a Fund; furnishing advice about and assisting
depository institutions in obtaining from state regulatory agencies any
rulings, exemptions or other authorizations that may be required to conduct a
mutual fund sales program; acting as liaison between depository institutions
and national regulatory organizations; assisting with the preparation of sales
material; and providing general assistance and advice in establishing and
maintaining mutual fund sales programs on the premises of depository
institutions.

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, 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 a Fund or limit a Fund's 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 Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a 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, a 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
"Management--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 (the "Distributor") of each Fund's shares. Shares may also be sold
by Authorized Dealers. Authorized Dealers

41
<PAGE>

include investment dealers that are members of the NASD and certain other
financial service firms. To become an Authorized Dealer, a dealer or financial
service firm must enter into a sales agreement with Goldman Sachs. The minimum
investment requirements, services, programs and purchase and redemption
options for shares purchased through a particular Authorized Dealer may be
different from those available to investors purchasing through other
Authorized Dealers.

Goldman Sachs, 4900 Sears Tower, Chicago, Illinois, also serves as each
Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
each Fund by Goldman Sachs (as Transfer Agent) and the assumption by Goldman
Sachs of the expenses related thereto, Goldman Sachs is entitled to receive a
fee from each Fund (other than the CORE Large Cap Growth Fund), with respect
to Class A shares and Class B shares of $12,000 per year plus $7.50 per
account, together with out-of-pocket and transaction-related expenses
(including those out-of-pocket expenses payable to servicing and/or sub-
transfer agents). Goldman Sachs is entitled to receive a fee from the CORE
Large Cap Growth Fund, with respect to Class A and Class B shares, equal to
its proportionate share of the total transfer agency fees borne by the Fund.
Such fees are equal to the fixed charges set forth above applicable to Class A
and B shares plus 0.04% of the average daily net assets of the Institutional
and Service classes of the Fund. Shareholders with inquiries regarding any
Fund should contact Goldman Sachs (as Transfer Agent) at the address or the
telephone number set forth on the back cover page of this Prospectus.

REPORTS TO SHAREHOLDERS

HOW TO INVEST

ALTERNATIVE PURCHASE ARRANGEMENTS

Each Fund continuously offers through this Prospectus Class A and Class B
shares, as described more fully in "How to Buy Shares of the Funds." If you do
not specify in your instructions to the Funds which class of shares you wish
to purchase, the Funds will assume that your instructions apply to Class A
shares.

CLASS A SHARES. If you invest less than $1 million in Class A shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A shares of a
Fund, no sales charge will be imposed at the time of purchase, but you will
incur a deferred sales charge equal to 1.00% if you redeem your shares within
18 months of purchase. Class A shares are subject to distribution fees of
0.25% (which currently are being waived in the case of Balanced, CORE Large
Cap Growth, Growth and Income, Capital Growth and Small Cap Equity Funds,
limited to 0.21% for the CORE U.S. Equity, International Equity and Asia
Growth Funds and limited to 0.04% for the Growth and Income Fund) and
authorized dealer service fees of 0.25%, respectively, of each Fund's average
daily net assets attributable to Class A shares.

CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are subject to a contingent deferred sales charge ("CDSC") of up to 5% if
redeemed within six years of purchase. Class B shares are subject to
distribution and authorized dealer service fees of 0.75% and 0.25%,
respectively, of each Fund's average daily net assets attributable to Class B
shares. See "Distribution and Authorized Dealer Service Plans." Class B shares

42
<PAGE>

will automatically convert to Class A shares, based on their relative net
asset values, eight years after the initial purchase. Your entire investment
in Class B shares is available to work for you from the time you make your
initial investment, but the distribution fee paid by Class B shares will cause
your Class B shares (until conversion to Class A shares) to have a higher
expense ratio and to pay lower dividends, to the extent dividends are paid,
than Class A shares.

FACTORS TO CONSIDER IN CHOOSING CLASS A OR CLASS B SHARES. The decision as
to which class to purchase depends on the amount you invest, the intended
length of the investment and your personal situation. For example, if you are
making an investment of $50,000 or more that qualifies for a reduced sales
charge, you should consider purchasing Class A shares. A brief description of
when the initial sales charge may be reduced or eliminated is set forth below
under "Right of Accumulation" and "Statement of Intention." If you prefer not
to pay an initial sales charge on an investment, you might consider purchasing
Class B shares. There is a maximum purchase limitation of $250,000 in the
aggregate on purchases of Class B shares.

HOW TO BUY SHARES OF THE FUNDS--CLASS A AND CLASS B SHARES

The minimum initial investment in each Fund is $1,000. An initial investment
minimum of $250 applies to purchases in connection with Individual Retirement
Account Plans or accounts established under the Uniform Gift to Minors Act
("UGMA"). For purchases through the Automatic Investment Plan, the minimum
initial investment is $50. The minimum subsequent investment is $50. These
requirements may be waived at the discretion of the Trust's officers.

You may pay for purchases of shares by check (except that the Trust will not
accept a check drawn on a foreign bank or a third party check), Federal
Reserve draft, federal funds wire, ACH transfer or bank wire. Purchases of
shares by check or Federal Reserve draft should be made payable as follows:
(i) to an investor's Authorized Dealer, if purchased through such Authorized
Dealer, or (ii) to Goldman Sachs Equity Funds--(Name of Fund and Class of
shares) and sent to NFDS, P.O. Box 419711, Kansas City, MO 64141-6711. Federal
funds wires, ACH transfers and bank wires should be sent to State Street Bank
and Trust Company ("State Street"). Payment must be received within three
Business Days after receipt of the purchase order. An investor's Authorized
Dealer is responsible for forwarding payment promptly to the Fund.

43
<PAGE>

falls below the minimum account balance solely as a result of market
conditions. A Fund will give sixty (60) days' prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient additional shares of the Fund to avoid such redemption. In
addition, the Funds and Goldman Sachs reserve the right to modify the minimum
investment, the manner in which shares are offered and the sales charge rates
applicable to future purchases of shares.

OFFERING PRICE--CLASS A SHARES

The offering price of Class A shares of each Fund is the next determined net
asset value per share plus a sales charge, if any, paid to Goldman Sachs at
the time of purchase of shares as shown in the following table:

<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
INCLUDING SALES CHARGE, IF ANY)( OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $50,000.............................. 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000......... 4.75 4.99 4.00
$100,000 up to (but less than) $250,000........ 3.75 3.90 3.00
$250,000 up to (but less than) $500,000........ 2.75 2.83 2.25
$500,000 up to (but less than) $1 million...... 2.00 2.04 1.75
$1 million or more............................. 0.00* 0.00* **
</TABLE>
- --------
* No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 18 months of purchase.

** Goldman Sachs pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of shares
of the Funds equal to 1.00% of the amount under $3 million, 0.50% of the
next $2 million, and 0.25% thereafter. Goldman Sachs may also pay, with
respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate
or are responsible for purchases of $1 million or more by plans or "wrap"
accounts satisfying the criteria set forth in (h) or (j) below. Purchases
by such plans will be made at net asset value with no initial sales
charge, but if all of the shares held are redeemed within 18 months after
the end of the calendar month in which such purchase was made, a
contingent deferred sales charge (CDSC), as described below, of 1.00% will
be imposed upon the plan sponsor or the third party administrator. In
addition, Authorized Dealers shall remit to Goldman Sachs such payments
received in connection with "wrap" accounts in the event that shares are
redeemed within 18 months after the end of the calendar month in which the
purchase was made.

Purchases of $1 million or more of Class A shares will be made at net asset
value with no initial sales charge, but if the shares are redeemed within 18
months after the end of the calendar month in which the purchase was made,
excluding any period of time in which the shares were exchanged into and
remained invested in an ILA Portfolio (the contingent deferred sales charge
period), a CDSC of 1.00% will be imposed. Any applicable CDSC will be assessed
on an amount equal to the lesser of the current market value or the original
purchase cost of the redeemed Class A shares. Accordingly, no CDSC will be
imposed on increases in account value above the initial purchase price,
including any dividends which have been reinvested in additional Class A
shares. In determining whether a CDSC applies to a redemption, the calculation
will be determined in a manner

44
<PAGE>

that results in the lowest possible rate being charged. Therefore, it will be
assumed that the redemption is first made from any Class A shares in your
account that are not subject to the CDSC. The CDSC is waived on redemptions in
certain circumstances. See "Waiver or Reduction of Contingent Deferred Sales
Charges" below.

Class A shares of the Funds may be sold at net asset value without payment
of any sales charge to (a) Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any Trustee or officer of the Trust and designated family members of any of
the above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor; (d) any employee or registered representative of
any Authorized Dealer or their respective spouses and children; (e) banks,
trust companies or other types of depository institutions investing for their
own account or investing for accounts for which they have investment
discretion; (f) banks, trust companies or other types of depository
institutions investing for accounts for which they do not have investment
discretion; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
shares of a Fund; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buy shares costing $500,000 or
more, or (2) have at the time of purchase, 100 or more eligible participants,
or (3) certify that they project to have annual plan purchases of $200,000 or
more, or (4) are provided administrative services by a third party
administrator that in the aggregate satisfies (1) or (3) above;
(i) shareholders whose purchase is attributable to redemption proceeds
(subject to appropriate documentation) from a registered open-end management
investment company not distributed or managed by Goldman Sachs or its
affiliates, if such redemption has occurred no more than 60 days prior to the
purchase of shares of the Funds and the shareholder either (1) paid an initial
sales charge or (2) was at some time subject to a deferred sales charge with
respect to the redemption proceeds; (j) "wrap" accounts for the benefit of
clients of broker-dealers, financial institutions or financial planners,
provided that they have entered into an agreement with GSAM specifying
aggregate minimums and certain operating policies and standards; (k)
registered investment advisers investing for accounts for which they receive
asset-based fees; (l) accounts over which GSAM or its advisory affiliates have
investment discretion; and (m) shareholders receiving distributions from a
qualified retirement plan invested in the Goldman Sachs Funds and reinvesting
such proceeds in a Goldman Sachs IRA. Purchasers must certify eligibility for
an exemption on the Account Application and notify Goldman Sachs if the
shareholder is no longer eligible for an exemption. Exemptions will be granted
subject to confirmation of a purchaser's entitlement. Investors purchasing
shares of the Funds at net asset value without payment of any initial sales
charge may be charged a fee if they effect transactions in shares through a
broker or agent. In addition, under certain circumstances, dividends and
distributions from any of the Goldman Sachs Funds may be reinvested in shares
of each Fund at net asset value, as described under "Cross-Reinvestment of
Dividends and Distributions and Automatic Exchange Program."

REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A SHARES

45
<PAGE>

Class A shares subject to the conditions set forth above, your account will be
credited with the amount of the CDSC previously charged, and the reinvested
shares will continue to be subject to a CDSC. The holding period of the Class
A shares acquired through reinvestment for purposes of computing the CDSC
payable upon a subsequent redemption will include the holding period of the
redeemed shares. Shares are sold to a reinvesting shareholder at the net asset
value next determined following timely receipt by Goldman Sachs or an
Authorized Dealer of a written purchase order indicating that the shares are
eligible for reinvestment at net asset value.

RIGHT OF ACCUMULATION--CLASS A SHARES

Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Class A shares of the Goldman Sachs Funds
may be combined under the Right of Accumulation. See Additional Statement for
more information about the Right of Accumulation.

STATEMENT OF INTENTION--CLASS A SHARES

Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Class A shares of the Goldman Sachs Funds may be
combined under the Statement of Intention. See the Additional Statement for
more information about the Statement of Intention.

OFFERING PRICE--CLASS B SHARES

Investors may purchase Class B shares of the Funds at the next determined
net asset value without the imposition of an initial sales charge. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates shown in the table that follows. At redemption, the charge will
be assessed on the amount equal to the lesser of the current market value or
the original purchase cost of the shares being redeemed. No CDSC will be
imposed on increases in account value above the initial purchase price,
including shares derived from the reinvestment of dividends or capital gains
distributions.

46
<PAGE>

subject to any CDSC, and then shares held longest during the eight-year
period. As a result, a redeeming shareholder will pay the lowest possible
CDSC.

<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
YEAR SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CDSC
---------- ---------------
<S> <C>
First........................................................ 5.0%
Second....................................................... 4.0%
Third........................................................ 3.0%
Fourth....................................................... 3.0%
Fifth........................................................ 2.0%
Sixth........................................................ 1.0%
Seventh and thereafter....................................... none
</TABLE>

Class B shares of a Fund will automatically convert into Class A shares of
the same Fund at the end of the calendar quarter that is eight years after the
purchase date, except as noted below. Class B shares of a Fund acquired by
exchange from Class B shares of another Fund will convert into Class A shares
of such Fund based on the date of the initial purchase. Class B shares
acquired through reinvestment of distributions will convert into Class A
shares based on the date of the initial purchase of the shares on which the
distribution was paid. The conversion of Class B shares to Class A shares will
not occur at any time the Funds are advised that such conversions may
constitute taxable events for federal tax purposes, which the Funds believe is
unlikely. If conversions do not occur as a result of possible taxability,
Class B shares would continue to be subject to higher expenses than Class A
shares for an indeterminate period.

WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE. The CDSC on Class B
shares and Class A shares that are subject to a CDSC may be waived or reduced
if the redemption relates to (a) retirement distributions or loans to
participants or beneficiaries from pension and profit sharing plans, pension
funds and other company sponsored benefit plans (each a "Plan"); (b) the death
or disability (as defined in section 72 of the Code) of a participant or
beneficiary in a Plan; (c) hardship withdrawals by a participant or
beneficiary in a Plan; (d) satisfying the minimum distribution requirements of
the Code; (e) the establishment of "substantially equal periodic payments" as
described in Section 72(t) of the Code; (f) the separation from service by a
participant or beneficiary in a Plan; (g) the death or disability (as defined
in section 72 of the Code) of a shareholder if the redemption is made within
one year of such event; (h) excess contributions being returned to a Plan; (i)
distributions from a qualified retirement plan invested in the Goldman Sachs
Funds which are being reinvested into a Goldman Sachs IRA; and (j) redemption
proceeds which are to be reinvested in accounts or non-registered products
over which GSAM or its advisory affiliates have investment discretion. In
addition, Class A and Class B shares subject to a Systematic Withdrawal Plan
may be redeemed without a CDSC. However, Goldman Sachs reserves the right to
limit such redemptions, on an annual basis, to 12% of the value of your Class
B shares and 10% of the value of your Class A shares.

47
<PAGE>

SERVICES AVAILABLE TO SHAREHOLDERS

AUTOMATIC INVESTMENT PLAN

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM

A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund in shares of the same class or an equivalent
class of any other Goldman Sachs Fund or ILA Portfolio. See "Fund Highlights."
Shareholders may also elect to exchange automatically a specified dollar
amount of shares of a Fund for shares of the same class or an equivalent class
of any other Goldman Sachs Fund or ILA Portfolio. Shares acquired through
cross-reinvestment of dividends or the automatic exchange program will be
purchased at net asset value and will not be subject to any initial or
contingent deferred sales charge as a result of the cross-reinvestment or
exchange, but shares subject to a CDSC acquired under the automatic exchange
program may be subject to a CDSC at the time of redemption from the fund into
which the exchange is made determined on the basis of the date and value of
the investor's initial purchase of the fund from which the exchange (or any
prior exchange) is made. Automatic exchanges are made monthly on the fifteenth
day of each month or the first Business Day thereafter. The minimum dollar
amount for automatic exchanges must be at least $50 per month. Cross-
reinvestments and automatic exchanges are subject to the following conditions:
(i) the value of the shareholder's account(s) in the fund which is paying the
dividend or from which the automatic exchange is being made must equal or
exceed $5,000 and (ii) the value of the account in the acquired fund must
equal or exceed the acquired fund's minimum initial investment requirement or
the shareholder must elect to continue cross-reinvestment or automatic
exchanges until the value of acquired fund shares in the shareholder's account
equals or exceeds the acquired fund's minimum initial investment requirement.
A Fund shareholder may elect cross-reinvestment into an identical account or
an account registered in a different name or with a different address, social
security or other taxpayer identification number, provided that the account in
the acquired fund has been established, appropriate signatures have been
obtained and the minimum initial investment requirement has been satisfied. A
Fund shareholder should obtain and read the prospectus of the fund into which
dividends are invested or automatic exchanges are made.

TAX-SHELTERED RETIREMENT PLANS

The Funds offer their shares for purchase by retirement plans, including IRA
plans for individuals and their non-employed spouses, IRA plans for employees
in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA plans, and
defined contribution plans such as 401(k) Salary Reduction Plans. Detailed
information concerning these plans may be obtained from the Transfer Agent.
This information should be read carefully, and consultation with an attorney
or tax adviser may be advisable. The information sets forth the service fee
charged for retirement plans and describes the federal income tax consequences
of establishing a plan.

EXCHANGE PRIVILEGE

48
<PAGE>

Sachs Fund or ILA Portfolio. A shareholder needs to obtain and read the
prospectus of the fund into which the exchange is made. The shares of these
other funds acquired by an exchange may later be exchanged for shares of the
same (or an equivalent class) of the original Fund at the next determined net
asset value without the imposition of an initial or contingent deferred sales
charge if the dollar amount in the Fund resulting from such exchanges is below
the shareholder's all-time highest dollar amount on which it has previously
paid the applicable sales charge. Shares of these other funds purchased
through dividends and/or capital gains reinvestment may be exchanged for
shares of the Funds without a sales charge. In addition to free automatic
exchanges pursuant to the Automatic Exchange Program, six free exchanges are
permitted in each twelve-month period. A fee of $12.50 may be charged for each
subsequent exchange during such period. The exchange privilege may be modified
or withdrawn at any time upon sixty (60) days' notice to shareholders and is
subject to certain limitations.

An exchange may be made by identifying the applicable Fund and class of
shares and either writing to Goldman Sachs, Attention: Goldman Sachs Equity
Funds, Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas City, MO 64141-
6711 or, unless the investor has specifically declined telephone exchange
privileges on the Account Application or elected in writing not to utilize
telephone exchanges, by a telephone request to the Transfer Agent at 800-526-
7384 (8:00 a.m. to 4:00 p.m. Chicago time). Certain procedures are employed to
prevent unauthorized or fraudulent exchange requests as set forth under "How
to Sell Shares of the Funds." Under the telephone exchange privilege, shares
may be exchanged among accounts with different names, addresses and social
security or other taxpayer identification numbers only if the exchange
instructions are in writing and received in accordance with the procedures set
forth under "How to Sell Shares of the Funds." In times of drastic economic or
market changes the telephone exchange privilege may be difficult to implement.

For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a redemption of the shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of shares received in the exchange. If such redemption occurs within ninety
(90) days after the purchase of such shares, to the extent a sales charge that
would otherwise apply to the shares received in the exchange is not imposed,
the sales charge paid on such purchase of Class A shares cannot be taken into
account by the exchanging shareholder for purposes of determining gain or
loss, if any, realized on such redemption for federal income tax purposes, but
instead will be added to the tax basis of the shares received in the exchange.
Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange.

OTHER PURCHASE INFORMATION

49
<PAGE>

reinvestment of dividends. Firms may arrange with their clients for other
investment or administrative services and may independently establish and
charge additional fees not described in this Prospectus to their clients for
such services. If shares of a Fund are held in a "street name" account or were
purchased through an Authorized Dealer, shareholders should contact the
Authorized Dealer to purchase, redeem or exchange shares, to make changes in
or give instructions concerning the account or to obtain information about the
account.

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

The Investment Advisers, Distributor, and/or their affiliates may also pay
additional compensation, out of their assets and not as an additional charge
to the Funds, to selected Authorized Dealers and other persons in connection
with the sale, distribution and/or servicing of Class A or Class B shares
(such as additional payments based on new sales, amounts exceeding pre-
established thresholds, or the length of time clients' assets have remained in
a Fund), and will from time to time, subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of shares, as well as sponsor various educational programs, sales
contests and/or promotions in which participants may receive reimbursement of
expenses, entertainment and prizes such as travel awards, merchandise, cash,
investment research and educational information and related support materials.
This additional compensation may vary among Authorized Dealers depending upon
such factors as the amounts their clients have invested (or may invest) in the
Funds, the particular program involved, or the amount of reimbursable
expenses. Additional compensation based on sales may, but is currently not
expected to, exceed .50% (annualized) of the amount invested. For further
information, see "Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends" in the Additional Statement.

DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS

DISTRIBUTION PLAN--CLASS A SHARES

The Trust, on behalf of each Fund's Class A shares, has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "Act") (the "Class A Distribution Plan"). Under the
Class A Distribution Plan, Goldman Sachs is entitled to a quarterly fee from
each Fund for distribution services equal, on an annual basis, to 0.25% of a
Fund's average daily net assets attributable to Class A shares of such Fund.
Currently, Goldman Sachs has voluntarily agreed to waive the entire amount of
such fee for the Balanced, Growth and Income, CORE Large Cap Growth, Capital
Growth and Small Cap Equity Funds; to limit the amount of such fee to 0.21% of
average daily net assets attributable to Class A shares of CORE U.S. Equity,
International Equity and Asia Growth Funds; and to limit the amount of such
fee to 0.04% of average daily net assets attributable to Class A shares of the
Growth and Income Fund. Goldman Sachs has no current intention of modifying or
discontinuing such waiver, but may do so in the future at its discretion. The
average rate for the fiscal year ended January 31, 1997 paid by the Balanced,
Growth and Income, CORE U.S. Equity, Capital

50
<PAGE>

Growth, Small Cap Equity, International Equity and Asia Growth Funds to
Goldman Sachs was 0.00%, 0.04%, 0.21%, 0.00%, 0.00%, 0.21% and 0.21%,
respectively, with respect to each Fund's Class A shares.

Goldman Sachs may use the distribution fee for its expenses of distributing
of Class A shares of the Funds. The types of expenses for which Goldman Sachs
may be compensated for distribution services under the Class A Distribution
Plan include compensation paid to and expenses incurred by Authorized Dealers,
Goldman Sachs and their respective officers, employees and sales
representatives, allocable overhead, telephone and travel expenses, the
printing of prospectuses for prospective shareholders, preparation and
distribution of sales literature, advertising of any type and all other
expenses incurred in connection with activities primarily intended to result
in the sale of Class A shares. If the fee received by Goldman Sachs pursuant
to the Class A Distribution Plan exceeds its expenses, Goldman Sachs may
realize a profit from these arrangements. The Class A Distribution Plan will
be reviewed and is subject to approval annually by the Trustees. The aggregate
compensation that may be received under the Class A Distribution Plan for
distribution services may not exceed the limitations imposed by the NASD's
Conduct Rules.

DISTRIBUTION PLAN--CLASS B SHARES

The Trust, on behalf of each Fund's Class B shares, has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Act (the "Class B
Distribution Plan"). Under the Class B Distribution Plan, Goldman Sachs is
entitled to a quarterly fee from each Fund for distribution services equal, on
an annual basis, to 0.75% of a Fund's average daily net assets attributable to
Class B shares of such Fund. For the fiscal year ended January 31, 1997, the
Funds then offering Class B shares paid distribution fees with respect to
their Class B shares at the foregoing rate.

AUTHORIZED DEALER SERVICE PLANS

51
<PAGE>

ended January 31, 1997, each Fund then offering Class A or Class B shares paid
Authorized Dealer service fees at the foregoing rate for each Fund's Class A
and Class B shares.

HOW TO SELL SHARES OF THE FUNDS

The Trust accepts telephone requests for redemption of shares for amounts up
to $50,000 within any seven (7) calendar day period, except for investors who
have specifically declined telephone redemption privileges on the Account
Application or elected in writing not to utilize telephone redemptions;
(proceeds which are sent to a Goldman Sachs brokerage account are not subject
to the $50,000 limit). It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes. By completing an
Account Application, an investor agrees that the Trust, the Distributor and
the Transfer Agent shall not be liable for any loss incurred by the investor
by reason of the Trust accepting unauthorized telephone redemption requests
for his account if the Trust reasonably believes the instructions to be
genuine. Thus, shareholders risk possible losses in the event of a telephone
redemption not authorized by them. The Trust may accept telephone redemption
instructions from any person identifying himself as the owner of an account or
the owner's broker where the owner has not declined in writing to utilize this
service.

52
<PAGE>

SYSTEMATIC WITHDRAWAL PLAN

DIVIDENDS

Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding shares will, at the election of
each shareholder, be paid in (i) cash, (ii) additional shares of the same
class of the Fund or (iii) shares of the same or an equivalent class of any
other Goldman Sachs Fund or units of the ILA Portfolios (the Prime Obligations
Portfolio only for Class B), as described under "Cross-Reinvestment of
Dividends and Distributions and Automatic Exchange Program." This election
should initially be made on a shareholder's Account Application and may be
changed upon written notice to Goldman Sachs at any time prior to the record
date for a particular dividend or distribution. If no election is made, all
dividends from net investment income and capital gain distributions will be
reinvested in the Fund.

The election to reinvest dividends and distributions paid by a Fund in
additional shares or units of the Fund or any other Goldman Sachs Fund or ILA
Portfolio will not affect the tax treatment of such dividends and

53
<PAGE>

distributions, which will be treated as received by the shareholder and then
used to purchase shares or units of the Fund, another Goldman Sachs Fund or an
ILA Portfolio.

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

NET ASSET VALUE

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

PERFORMANCE INFORMATION

From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. 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 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. Total return calculations for
Class A shares reflect the effect of paying the maximum initial sales charge.
Investment at a lower sales charge would result in higher performance figures.
Total return calculations for Class B shares reflect deduction of the
applicable CDSC imposed upon redemption of Class B shares held for the
applicable period. Each 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, each
Fund may furnish total return calculations based on investments at various
sales charge levels or at net

54
<PAGE>

asset value. Any performance data which is based on a Fund's net asset value
per share would be reduced if any applicable sales charge were taken into
account. In addition to the above, each Fund may from time to time advertise
its performance relative to certain averages, performance rankings, indices,
other information prepared by recognized mutual fund statistical services and
investments for which reliable performance data is available.

The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of shares outstanding and entitled to receive
dividends during the period and the maximum offering price per share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes. The Balanced and Growth and Income Funds' quotations of
distribution rate 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 net asset value per share on the last day of the
period for which the distribution rates are being calculated.

Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. The investment performance of the Class A and Class B shares will
be affected by the payment of a sales charge, distribution fees and other
class specific expenses. See "Shares of the Trust."

SHARES OF THE TRUST

Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify shares
of beneficial interest in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify and reclassify any series or portfolio of shares
into one or more classes.

55
<PAGE>

certain circumstances, as permitted by the Act, communicate with other
shareholders in connection with requiring a special meeting of shareholders.
The Trustees will call a special meeting of shareholders for the purpose of
electing Trustees if, at any time, less than a majority of Trustees holding
office at the time were elected by shareholders.

TAXATION

FEDERAL TAXES

Each Fund is treated as a separate entity for tax purposes. The CORE Large
Cap Growth and Emerging Markets Equity Funds intend to elect and each other
Fund has elected to be treated as a regulated investment company and each Fund
intends to continue to qualify for such treatment for each taxable year under
Subchapter M of the Code. To qualify as such, a Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated
investment company, a Fund will not be subject to federal income or excise tax
on any net investment income and net realized capital gains that are
distributed to its shareholders in accordance with certain timing requirements
of the Code.

Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Dividends paid by a Fund
from the excess of net long-term capital gain over net short-term capital loss
will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
International Equity, Emerging Markets Equity and Asia Growth Funds are not
generally expected to qualify, in the hands of corporate shareholders, for the
corporate dividends-received deduction, but a portion of each other Fund's
dividends may generally so qualify. Certain distributions paid by a Fund in
January of a given year may be taxable to shareholders as if received the
prior December 31. Shareholders will be informed annually about the amount and
character of distributions received from the Funds for federal income tax
purposes.

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

Redemptions and exchanges of shares are taxable events.

56
<PAGE>

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

Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds do not anticipate
that they will elect to pass such foreign taxes through to their shareholders,
who therefore will generally not take such taxes into account on their own tax
returns. The Funds will generally deduct such taxes in determining the amounts
available for distribution to shareholders.

OTHER TAXES

In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.

ADDITIONAL INFORMATION

57
<PAGE>

APPENDIX

STATEMENT OF INTENTION
(APPLICABLE ONLY TO CLASS A SHARES PURCHASED SUBJECT TO A SALES CHARGE)

If a shareholder anticipates purchasing $50,000 or more of Class A shares of
a Fund alone or in combination with Class A shares of another Fund or another
Goldman Sachs Fund within a 13-month period, the shareholder may obtain shares
of the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by filing this Statement of Intention incorporated by
reference in the Account Application. Income dividends and capital gain
distributions taken in additional shares will not apply toward the completion
of this Statement of Intention.

ESCROW AGREEMENT

A-1
<PAGE>

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

GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB

GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004

GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110

TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384

EQ PROAB
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS

EQUITY FUNDS

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

PROSPECTUS

CLASS A AND B SHARES

GOLDMAN
SACHS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
PROSPECTUS
May 1, 1997

GOLDMAN SACHS EQUITY FUNDS INSTITUTIONAL SHARES

GOLDMAN SACHS GROWTH AND INCOME GOLDMAN SACHS MID CAP EQUITY FUND
FUND Seeks long-term capital appreciation
Seeks long-term growth of cap- primarily through investments in equity
ital and growth of income securities of companies with public
through investments in equity stock market capitalizations of between
securities that are considered $500 million and $7 billion at the time
to have favorable prospects of investment.
for capital appreciation
and/or dividend paying abili-
ty.

GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation
through investments in equity securities
of companies that are organized outside
the U.S. or whose securities are princi-
pally traded outside the U.S.

GOLDMAN SACHS CORE U.S. EQUITY
FUND
Seeks long-term growth of cap-
ital and dividend income
through a broadly diversified
portfolio of large cap and
blue chip equity securities
representing all major sectors
of the U.S. economy.

GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Seeks long-term capital appreciation
through investments in equity securities
of emerging country issuers.

GOLDMAN SACHS ASIA GROWTH FUND
GOLDMAN SACHS CORE LARGE CAP Seeks long-term capital appreciation
GROWTH FUND through investments in equity securities
Seeks long-term growth of cap- of companies related (in the manner de-
ital through a broadly diver- scribed herein) to Asian countries.
sified portfolio of equity se-
curities of large cap U.S. is-
suers that are expected to
have better prospects for
earnings growth than the
growth rate of the general do-
mestic economy. Dividend in-
come is a secondary considera-
tion.

Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the CORE Large Cap Growth, Growth and Income and Mid Cap
Equity Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New
York, an affiliate of Goldman Sachs, serves as investment adviser to the CORE
U.S. Equity Fund (formerly the "Select Equity Fund"). Goldman Sachs Asset
Management International ("GSAMI"), London, England, an affiliate of Goldman
Sachs, serves as investment adviser to the International Equity, Emerging
Markets Equity and Asia Growth Funds. GSAM, GSFM and GSAMI are each referred to
in this Prospectus as the "Investment Adviser." Goldman Sachs serves as each
Fund's distributor and transfer agent.

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

INSTITUTIONAL SHARES OF THE FUNDS 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 A FUND INVOLVES
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

(continued on next page)
<PAGE>

(cover continued)

A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS OF
ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING COUNTRIES
IN WHICH THE INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY AND ASIA GROWTH
FUNDS MAY INVEST WITHOUT LIMIT ARE LESS LIQUID, SUBJECT TO GREATER PRICE
VOLATILITY, HAVE SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT
REGULATION AND ARE NOT SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING,
FINANCIAL AND OTHER REPORTING REQUIREMENTS AS THE SECURITIES MARKETS OF MORE
DEVELOPED COUNTRIES. FURTHER, INVESTMENT IN EQUITY SECURITIES OF ISSUERS
LOCATED IN RUSSIA AND CERTAIN OTHER EMERGING COUNTRIES INVOLVES RISK OF LOSS
RESULTING FROM PROBLEMS IN SHARE REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT
NORMALLY ASSOCIATED WITH INVESTMENT IN MORE DEVELOPED COUNTRIES. THE FUNDS THAT
INVEST IN FOREIGN SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS
WHO CAN ACCEPT THE RISKS ASSOCIATED WITH THEIR INVESTMENTS AND MAY NOT BE
SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."

This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Additional Statement and other information regarding the Trust.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 7
Financial Highlights............... 9
Investment Objectives and Policies. 14
Description of Securities.......... 19
Investment Techniques.............. 24
Risk Factors....................... 27
Investment Restrictions............ 29
Portfolio Turnover................. 29
Management......................... 30
Net Asset Value.................... 33
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information............. 34
Shares of the Trust................. 35
Taxation............................ 35
Additional Information.............. 37
Reports to Shareholders............. 38
Dividends........................... 38
Purchase of Institutional Shares.... 38
Exchange Privilege.................. 40
Redemption of Institutional Shares.. 41
Appendix ........................... A-1
Account Information Form
</TABLE>

2
<PAGE>

FUND HIGHLIGHTS

The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.

WHAT IS THE GOLDMAN SACHS TRUST?

The Goldman Sachs Trust is an open-end management investment company
that offers its shares in several investment funds (mutual funds). Each
Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to
achieve that Fund's stated investment objectives.

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."

- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ---------------- ------------------------ ----------------------- ---------------------
GROWTH AND Long-term growth of At least 65% of total The Standard & Poor's
INCOME FUND capital and growth of assets in equity Index
income. securities that the of 500 Common Stocks
Investment Adviser ("the S&P 500 Index")
considers to have
favorable prospects for
capital appreciation
and/or dividend paying
ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth of At least 90% of total S&P 500 Index
EQUITY FUND capital and dividend assets in equity
income. securities of U.S.
issuers. The Fund seeks
to achieve its
objective through a
broadly diversified
portfolio of large cap
and blue chip equity
securities representing
all major sectors of
the U.S. economy. The
Fund's investments are
selected using both a
variety of quantitative
techniques and
fundamental research in
seeking to maximize the
Fund's reward to risk
ratio. The Fund's
portfolio is designed
to have risk, style,
capitalization and
industry
characteristics similar
to the S&P 500 Index.
</TABLE>

(continued)

3
<PAGE>

<TABLE>
<S> <C> <C> <C>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
------------ ------------------
------------------
------------------
CORE LARGE CAP Long-term growth of At least 90% of total Russell 1000 Growth
GROWTH FUND capital. Dividend income assets in equity Index
is a secondary securities of U.S.
consideration. issuers. The Fund seeks
to achieve its
objective through a
broadly diversified
portfolio of equity
securities of large cap
U.S. issuers that are
expected to have better
prospects for earnings
growth than the growth
rates of the general
domestic economy. The
Fund's investments are
selected using both a
variety of quantitative
techniques and
fundamental research in
seeking to maximize the
Fund's reward to risk
ratio. The Fund's
portfolio is designed
to have risk, style,
capitalization and
industry
characteristics similar
to the Russell 1000
Growth Index.
- ---------------------------------------------------------------------------------------------
MID CAP EQUITY Long-term capital At least 65% of total Russell Midcap Index
FUND appreciation. assets in
equity securities of
companies ("Mid-Cap
Companies") with public
stock market
capitalizations of
under $5 billion at the
time of investment.
- ---------------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and FT/Actuaries Europe and
EQUITY FUND appreciation. at least 65%, of total Pacific Index (unhedged)
assets in equity
securities of companies
organized outside
the United States or
whose securities are
principally traded
outside the United
States. The Fund may
invest in securities of
issuers located in
countries with emerging
economies or securities
markets and employ
certain currency
management techniques.
- ---------------------------------------------------------------------------------------------
EMERGING Long-term capital Substantially all, and Morgan Stanley Capital
MARKETS EQUITY appreciation. at least 65%, of total International Emerging
FUND assets in equity Markets Free Index
securities of emerging
country issuers.
The Fund may employ
certain currency
management techniques.
- ---------------------------------------------------------------------------------------------
ASIA GROWTH Long-term capital Substantially all, and Morgan Stanley Capital
FUND appreciation. at least 65%, of total International All
assets in equity Country Asia Free ex
securities of companies Japan Index
in China, Hong
Kong, India, Indonesia,
Malaysia, Pakistan, the
Philippines,
Singapore, South Korea,
Sri Lanka, Taiwan and
Thailand. The Fund may
employ certain currency
management techniques.
</TABLE>

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

4
<PAGE>

WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?

Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."

Risk of Investments in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.

Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers and
issuers. A Fund's investments in emerging markets and countries ("Emerging
Countries") involves greater risks than investments in the developed
countries of Western Europe, the U.S., Canada, Australia, New Zealand and
Japan. In addition, because the International Equity, Emerging Markets
Equity and Asia Growth Funds invest primarily outside the U.S., these Funds
may involve greater risks, since the securities markets of foreign
countries are generally less liquid and subject to greater price
volatility. The securities markets of emerging countries, including those
in Asia, Latin America, Eastern Europe and Africa are marked by a high
concentration of market capitalization and trading volume in a small number
of issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of
investors.

Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.

WHO MANAGES THE FUNDS?

Goldman Sachs Asset Management serves as Investment Adviser to the CORE
Large Cap Growth, Growth and Income and Mid Cap Equity Funds. Goldman Sachs
Funds Management, L.P. serves as Investment Adviser to the CORE U.S. Equity
Fund. Goldman Sachs Asset Management International serves as Investment
Adviser to the International Equity, Emerging Markets Equity and Asia
Growth Funds. As of March 24, 1997, the Investment Advisers, together with
their affiliates, acted as investment adviser, administrator or distributor
for assets in excess of $104.9 billion.

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's shares.

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000,000 in Institutional Shares of
the Fund alone or in combination with Institutional Shares (or the
corresponding class) of any other mutual fund sponsored by Goldman Sachs
and designated as an eligible fund for this purpose.

5
<PAGE>

HOW DO I PURCHASE INSTITUTIONAL SHARES?

HOW DO I SELL MY INSTITUTIONAL SHARES?

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS
--------------------------- CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
Mid Cap Equity........................ Annually Annually
International Equity.................. Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
Recordholders of Institutional Shares may receive dividends in additional
Institutional Shares of the Fund in which you have invested or you may
elect to receive cash. For further information concerning dividends, see
"Dividends."

6
<PAGE>

FEES AND EXPENSES
(INSTITUTIONAL SHARES)

<TABLE>
<CAPTION>
CORE
GROWTH LARGE MID EMERGING
AND CORE U.S. CAP CAP INT'L MARKETS ASIA
INCOME EQUITY GROWTH EQUITY EQUITY EQUITY GROWTH
FUND FUND FUND/1/ FUND FUND FUND/1/ FUND
------ --------- ------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends............. None None None None None None None
Redemption Fees........ None None None None None None None
Exchange Fees.......... None None None None None None None
ANNUAL FUND OPERATING
EXPENSES: (as a
percentage of average
daily net assets)
Management Fees (after
applicable
limitations)/2/....... 0.70% 0.59% 0.60% 0.75% 0.89% 1.10% 0.86%
Distribution (Rule 12b-
1) Fees............... None None None None None None None
Other Expenses (after
applicable
limitations)/3/....... 0.12% 0.06% 0.05% 0.10% 0.21% 0.20% 0.24%
---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE
AND EXPENSE
LIMITATIONS)/4/....... 0.82% 0.65% 0.65% 0.85% 1.10% 1.30% 1.10%
==== ==== ==== ==== ==== ==== ====
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
Growth and Income Fund........................ $ 8 $26 $ 46 $101
CORE U.S. Equity Fund......................... $ 7 $21 $ 36 $ 81
CORE Large Cap Growth......................... $ 7 $21 n/a n/a
Mid Cap Equity Fund........................... $ 9 $27 $ 47 $105
International Equity Fund..................... $11 $35 $ 61 $134
Emerging Markets Equity Fund.................. $13 $41 n/a n/a
Asia Growth Fund.............................. $11 $35 $ 61 $134
</TABLE>
- ---------------------
/1/Based on estimated amounts for the current fiscal year for the CORE Large
Cap Growth and Emerging Markets Equity Funds.
/2/The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the Core U.S. Equity, CORE Large Cap
Growth, International Equity, Emerging Markets Equity and Asia Growth Funds
equal to 0.16%, 0.15%, 0.11%, 0.10% and 0.14%, respectively. Without such
limitations, management fees would be 0.75%, 0.75%, 1.00%, 1.20% and 1.00%
of each Fund's average daily net assets, respectively.

7
<PAGE>

/3/The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses and
transfer agency fees in the case of each Fund other than CORE Large Cap
Growth Fund) to the extent such expenses exceed the following percentage of
average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
Mid Cap Equity................................................... 0.06%
International Equity............................................. 0.20%
Emerging Market Equity........................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>

/4/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the CORE U.S. Equity, Growth and Income, Mid Cap
Equity, International Equity and Asia Growth Funds for the fiscal year ended
January 31, 1997, would have been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Growth and Income...................................... 0.12% 0.82%
CORE U.S. Equity....................................... 0.10% 0.85%
Mid Cap Equity......................................... 0.16% 0.91%
International Equity................................... 0.25% 1.25%
Asia Growth............................................ 0.26% 1.26%
</TABLE>

In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the CORE Large Cap Growth and Emerging Markets
Equity Funds for the current fiscal year are estimated to be as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
CORE Large Cap Growth.................................. 0.65% 1.40%
Emerging Markets Equity................................ 0.82% 2.02%
</TABLE>

The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Institutional Shares of the Funds.
Each Fund also offers Service Shares and, except for Mid Cap Equity Fund,
Class A and Class B Shares, which are subject to different fees and expenses
(which affect performance), have different minimum investment requirements and
are entitled to different services. Information regarding Service, Class A and
Class B Shares may be obtained from an investor's sales representative or from
Goldman Sachs by calling the number on the back cover of this Prospectus.

The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and 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, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."

8
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(H) DISTRIBUTIONS TO SHAREHOLDERS
-------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET ADDITIONAL INCREASE VALUE,
BEGINNING INVESTMENT INVESTMENTS INVESTMENT AND OPTION INVESTMENT PAID-IN IN NET END OF
OF PERIOD INCOME AND OPTIONS INCOME TRANSACTIONS INCOME CAPITAL ASSET VALUE PERIOD
--------- ---------- -------------- ---------- ------------- ---------- ---------- ----------- ---------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $19.98 $0.35 $5.18 $(0.35) $(1.97) $(0.01) $-- $3.20 $23.18
1997--Class B
Shares(f)....... 20.82 0.17 4.31 (0.17) (1.97) (0.06) -- 2.28 23.10
1997--Institu-
tional
Shares(f)....... 21.25 0.29 3.96 (0.30) (1.97) (0.04) -- 1.94 23.19
1997--Service
Shares(f)....... 20.71 0.28 4.50 (0.28) (1.97) (0.07) -- 2.46 23.17
1996--Class A
Shares.......... 15.80 0.33 4.75 (0.30) (0.60) -- -- 4.18 19.98
1995--Class A
Shares.......... 15.79 0.20(b) 0.30(b) (0.20) (0.33) (0.07) 0.11(b) 0.01 15.80
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)....... 14.18 0.15 1.68 (0.15) (0.06) (0.01) -- 1.61 15.79

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE RATE(G) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
---------- ----------- ---------- ---------- ----------- ----------- ---------- -------------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 28.42% 53.03% $.0586 $615,103 1.22% 1.60% 1.43% 1.39%
1997--Class B
Shares(f)....... 22.23(d) 53.03 .0586 17,346 1.93(e) 0.15(e) 1.93(e) 0.15(e)
1997--Institu-
tional
Shares(f)....... 20.77(d) 53.03 .0586 193 0.82(e) 1.36(e) 0.82(e) 1.36(e)
1997--Service
Shares(f)....... 23.87(d) 53.03 .0586 3,174 1.32(e) 0.94(e) 1.32(e) 0.94(e)
1996--Class A
Shares.......... 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
1995--Class A
Shares.......... 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)....... 13.08(d) 102.23(d) -- 41,528 1.25(e) 1.23(e) 3.24(e) (0.76)(e)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Calculated based on the average shares outstanding methodology.
(c) For the period from Febraury 5, 1993 (commencement of operations) to
January 31, 1994.
(d) Not annualized.
(e) Annualized.
(f) For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.

9
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(H) SHAREHOLDERS
------------------------- -----------------------------------
NET REALIZED
AND UNREALIZED FROM NET NET
NET ASSET GAIN (LOSS) ON FROM REALIZED GAIN IN EXCESS (DECREASE) NET ASSET
VALUE, NET INVESTMENTS, NET ON INVESTMENT OF NET INCREASE VALUE,
BEGINNING INVESTMENT OPTIONS INVESTMENT AND FUTURES INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME AND FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- ---------- ------------- ---------- ----------- --------- ---------
CORE U.S. EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $19.66 $0.16 $4.46 $(0.16) $(0.80) -- $3.66 $23.32 23.75%
1997--Class B
Shares(f)....... 20.44 0.04 3.70 (0.04) (0.80) (0.16) 2.74 23.18 18.59(b)
1997--Institu-
tional Shares... 19.71 0.30 4.51 (0.28) (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(f)....... 21.02 0.13 3.15 (0.13) (0.80) (0.10) 2.25 23.27 15.92(b)
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) (0.41) -- 5.05 19.66 38.63
1996--Institu-
tional
Shares(d)....... 16.97 0.16 3.23 (0.24) (0.41) -- 2.74 19.71 20.14(b)
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) (0.94) -- (1.32) 14.61 (1.10)
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) (1.61) -- 0.47 15.93 15.12
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- 0.41 15.46 4.30
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)....... 14.17 0.11 0.88 (0.11) -- -- 0.88 15.05 7.01(b)

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
RATIO OF
RATIO OF NET
NET RATIO OF NET INVESTMENT
ASSETS AT NET INVESTMENT RATIO OF INCOME
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES TO
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE AVERAGE
RATE RATE(G) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- ---------- ----------- ----------- ---------- ------------
CORE U.S. EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 37.28% $.0417 $225,968 1.29% 0.91% 1.53% 0.67%
1997--Class B
Shares(f)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(f)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(d)....... 39.35(b) -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)....... 135.02(c) -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.

<PAGE>

<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS
---------------------------------
NET
REALIZED TOTAL
AND INCOME
NET ASSET UNREALIZED (LOSS)
VALUE, NET GAIN ON FROM
BEGINNING INVESTMENT INVESTMENTS INVESTMENT
OF PERIOD INCOME AND OPTIONS OPERATIONS
--------- ---------- ----------- ----------
MID CAP EQUITY FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year Ended January 31,
1997--Institutional Shares......... $15.91 $0.24 $3.77 $4.01
For the Period Ended January 31,
1996--Institutional Shares(a)...... 15.00 0.13 0.90 1.03

<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------
FROM NET
REALIZED
IN EXCESS GAIN ON TOTAL
FROM NET OF NET INVESTMENTS DISTRIBUTIONS
INVESTMENT INVESTMENT AND OPTION TO
INCOME INCOME TRANSACTIONS SHAREHOLDERS
---------- ---------- ------------ -------------
MID CAP EQUITY FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year Ended January 31,
1997--Institutional Shares... $(0.24) $(0.02) $(0.93) $(1.19)
For the Period Ended January
31,
1996--Institutional
Shares(a).................... (0.12) -- -- (0.12)

<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
--------------------
NET RATIO OF RATIO OF
ASSETS NET RATIO OF NET
NET NET AT END INVESTMENT EXPENSES INVESTMENT
INCREASE ASSET OF RATIO OF NET INCOME TO TO INCOME TO
IN NET VALUE, PORTFOLIO AVERAGE PERIOD EXPENSES TO AVERAGE AVERAGE AVERAGE
ASSET END OF TOTAL TURNOVER COMMISSION (IN AVERAGE NET NET NET NET
VALUE PERIOD RETURN(B) RATE RATE(E) 000'S) ASSETS(C) ASSETS(C) ASSETS(C) ASSETS(C)
-------- ------ --------- --------- ---------- -------- ------------ ---------- --------- ----------
MID CAP EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended January
31,
1997--Institu-
tional Shares... $2.82 $18.73 25.63% 74.03% $.0547 $145,253 0.85% 1.35% 0.91% 1.29%
For the Period
Ended January
31,
1996--Institu-
tional
Shares(a)....... 0.91 15.91 6.89(d) 58.77%(d) -- 135,670 0.85 1.67 0.98 1.54
</TABLE>
- -----------------
(a) For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.
(d) Not annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------------------- -----------------------
FROM NET
NET REALIZED REALIZED
NET REALIZED AND UNREALIZED GAIN ON NET
NET ASSET AND UNREALIZED GAIN (LOSS) ON FROM INVESTMENT, INCREASE NET ASSET
VALUE, NET GAIN (LOSS) ON FOREIGN NET OPTION AND (DECREASE) VALUE,
BEGINNING INVESTMENT INVESTMENTS, CURRENCY RELATED INVESTMENT FUTURES IN NET END OF
OF PERIOD INCOME (LOSS) OPTIONS AND FUTURES TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD
--------- ------------- ------------------- ---------------- ---------- ------------ ----------- ---------
INTERNATIONAL EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $17.20 $0.10 $3.51 $(1.28) $ -- $(0.21) $2.12 $19.32
1997--Class B
Shares(e)....... 18.91 (0.06) 0.94 (0.34) -- (0.21) 0.33 19.24
1997--Institu-
tional
Shares(e)....... 17.45 0.04 3.39 (1.24) (0.03) (0.21) 1.95 19.40
1997--Service
Shares(e)....... 17.70 (0.02) 2.95 (1.08) -- (0.21) 1.64 19.34
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42 (0.58) (0.87) 2.68 17.20
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01) -- (0.59) (3.58) 14.52
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38) -- -- 3.75 18.10
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11) -- -- 0.17 14.35

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- ---------- --------- ----------- ---------------- ---------- -------------
INTERNATIONAL EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 13.48% 38.01% $.0318 $536,283 1.69% (0.07)% 1.88% (0.26)%
1997--Class B
Shares(e)....... 2.83(c) 38.01 .0318 19,198 2.23(d) (0.97)(d) 2.38(d) (1.12)(d)
1997--Institu-
tional
Shares(e)....... 12.53(c) 38.01 .0318 68,374 1.10(d) 0.43(d) 1.25(d) 0.28(d)
1997--Service
Shares(e)....... 10.42(c) 38.01 .0318 674 1.60(d) (0.40)(d) 1.75(d) (0.55)(d)
1996--Class A
Shares.......... 28.68 68.48 -- 330,860 1.52 0.26 1.77 0.01
1995--Class A
Shares.......... (16.65) 84.54 -- 275,086 1.73 0.40 1.98 0.15
1994--Class A
Shares.......... 26.13 60.04 -- 269,091 1.76 0.51 2.01 0.26
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)....... 1.23(c) 0.00 -- 66,063 1.80(d) (0.42)(d) 2.58(d) (1.20)(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.

12
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN ON NET
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS INCREASE NET ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET (DECREASE) VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT IN NET END OF TOTAL
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- ------------ ---------- ---------- ----------- --------- ---------
ASIA GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ -- $(0.18) $16.31 (1.01)%
1997--Class B
Shares(e)....... 17.31 (0.05) (0.48) (0.51) -- (0.03) (1.07) 16.24 (6.02)(c)
1997--Institu-
tional
Shares(e)....... 16.61 0.04 (0.11) (0.11) (0.04) (0.06) (0.28) 16.33 (1.09)(c)
1996--Class A
Shares.......... 13.31 0.17 3.44 (0.12) (0.17) (0.14) 3.18 16.49 26.49
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) 0.01 (0.10) -- (0.87) 13.31 (5.46)(c)

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(F) (000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
---------- ---------- --------- ----------- ------------- ---------- -------------
ASIA GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 48.40% $.0151 $263,014 1.67% 0.20% 1.87% 0.00%
1997--Class B
Shares(e)....... 48.40 .0151 3,354 2.21(d) (0.56)(d) 2.37(d) (0.72)(d)
1997--Institu-
tional
Shares(e)....... 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares.......... 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)....... 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional and Class B shares,
respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.

13
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

Value Style Funds. The Growth and Income and Mid Cap Equity Funds are
managed using a value oriented approach. The Investment Adviser evaluates
securities using fundamental analysis and intends to purchase equity
securities that are, in its view, underpriced relative to a combination of
such companies' long-term earnings prospects, growth rate, free cash flow
and/or dividend-paying ability. Consideration will be given to the business
quality of the issuer. Factors positively affecting the Investment Adviser's
view of that quality include the competitiveness and degree of regulation in
the markets in which the company operates, the existence of a management team
with a record of success, the position of the company in the markets in which
it operates, the level of the company's financial leverage and the sustainable
return on capital invested in the business. The Funds may also purchase
securities of companies that have experienced difficulties and that, in the
opinion of the Investment Adviser, are available at attractive prices.

Growth Style Funds. The International Equity, Emerging Markets Equity and
Asia Growth Funds are managed using a growth oriented approach. Equity
securities for these Funds are selected based on their prospects for above
average growth. The Investment Adviser will select securities of growth
companies trading, in the Investment Adviser's opinion, at a reasonable price
relative to other industries, competitors and historical price/earnings
multiples. These Funds will generally invest in companies whose earnings are
believed to be in a relatively strong growth trend, or, to a lesser extent, in
companies in which significant further growth is not anticipated but whose
market value per share is thought to be undervalued. In order to determine
whether a security has favorable growth prospects, the Investment Adviser
ordinarily looks for one or more of the following characteristics in relation
to the security's prevailing price: prospects for above average sales and
earnings growth per share; high return on invested capital; free cash flow
generation; sound balance sheet, financial and accounting policies, and
overall financial strength; strong competitive advantages; effective research,
product development, and marketing; pricing flexibility; strength of
management; and general operating characteristics that will enable the company
to compete successfully in its marketplace.

14
<PAGE>

Quantitative Style Funds. The CORE U.S. Equity and CORE Large Cap Growth
Funds are managed using both quantitative and fundamental techniques. CORE is
an acronym for "Computer-Optimized, Research-Enhanced," which reflects the
Funds' investment process. Equity securities are evaluated using both a
proprietary quantitative multifactor model and the investment opinions of
Goldman Sachs' research analysts. The Investment Adviser then uses
computerized optimization techniques to construct diversified portfolios
consisting of stock that are highly rated both by the Investment Adviser's
proprietary multifactor model and by Goldman Sachs' research analysts. The
optimizer seeks to balance expected returns against portfolio risk in an
effort to find the portfolio with the optimal reward to risk trade-off
relative to the Fund's investment objectives.

GROWTH AND INCOME FUND

Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.

CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.

Investment Process. The Investment Adviser begins with a universe consisting
primarily of blue chip and other large capitalization equity securities. The
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating, and, if the security is
followed by the Goldman Sachs Global Investment Research Department (the
"Research Department"), a second rating is assigned based upon the Research
Department's evaluation. In building a diversified portfolio for the Fund, the
Investment Adviser utilizes optimization techniques to seek to maximize the
Funds expected reward to risk ratio. This portfolio is primarily comprised of
securities rated highest by the Investment Adviser's Multifactor Model and
research analysts and has risk characteristics and industry weightings similar
to the S&P 500 Index. Under normal conditions, the securities of any one
issuer may not exceed 5% of the Fund's total assets.

15
<PAGE>

Research Department. In assigning ratings, the Research Department uses a
four category rating system ranging from "recommended for purchase" to "likely
to underperform." The ratings reflect the analyst's judgement as to the
investment results of a specific security and incorporate economic outlook,
valuation, risk and a variety of other factors. By employing both a
quantitative (i.e., the Multifactor Model) and a qualitative (i.e., the
analyst's ratings) method of selecting securities, the Fund seeks to
capitalize on the strengths of each discipline.

CORE LARGE CAP GROWTH FUND

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Investment Adviser
emphasizes a company's growth prospects in analyzing equity securities to be
purchased by the Fund. The Fund may invest in equity securities of foreign
issuers that are traded in the United States and that comply with U.S.
accounting standards. The Fund's investments are selected using both a variety
of quantitative techniques and fundamental research in seeking to maximize the
Fund's reward to risk ratio. The Fund's portfolio is designed to have risk,
style, capitalization and industry characteristics similar to the Russell 1000
Growth Index. The Fund seeks a portfolio comprised of companies with above
average capitalizations and earnings growth expectations and below average
dividend yields. The Fund may invest only in fixed income securities that are
considered cash equivalents.

For a description of the investment process of the Fund, see "Investment
Process," "Multifactor Model" and "Research Department" under "CORE U.S.
EQUITY FUND."

MID CAP EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid Cap Companies with public stock

16
<PAGE>

market capitalizations (based upon shares available for trading on an
unrestricted basis) of between $500 million and $7 billion at the time of
investment. However, the Fund currently intends to emphasize investments in
Mid Cap Companies with public stock market capitalizations of below $5 billion
at the time of investment. Dividend income, if any, is an incidental
consideration.

Other. The Fund may invest up to 35% of its total assets in mortgage-backed,
asset-backed and fixed income securities. In addition, although the Fund will
invest primarily in publicly traded U.S. securities, it may invest up to 25%
of its total assets in foreign securities, including securities of issuers in
Emerging Countries and securities quoted in foreign currencies.

INTERNATIONAL EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries.

EMERGING MARKETS EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

17
<PAGE>

Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Greece, Hong Kong,
Hungary, India, Indonesia, Israel, Jordan, Kenya, Malaysia, Mexico, Morocco,
Pakistan, Peru, the Philippines, Poland, Portugal, Russia, Singapore, South
Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela and
Zimbabwe. At the Investment Adviser's discretion, the Fund may invest in other
Emerging Countries.

Under normal circumstances, the Fund maintains investments in at least six
Emerging Countries and will not invest more than 35% of its total assets in
securities of issuers in any one Emerging Country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the Emerging
Country markets and particular issuers. In addition, macro-economic factors
and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and governmental Emerging Country
issuers, (ii) equity and fixed income securities of issuers in developed
countries and (iii) temporary investments.

ASIA GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

18
<PAGE>

investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase equity securities of issuers that have not paid
dividends on a timely basis, securities of companies that have experienced
difficulties, and securities of companies without performance records.

DESCRIPTION OF SECURITIES

CONVERTIBLE SECURITIES

Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which the CORE U.S. Equity and CORE Large Cap Growth Funds
invest are not subject to any minimum rating criteria. The convertible debt
securities in which the other Funds may invest are subject to the same rating
criteria as a Fund's investments in non-convertible debt securities.
Convertible debt securities are equity investments for purposes of each Fund's
investment policies.

19
<PAGE>

FOREIGN INVESTMENTS

Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
the Funds, political or social instability or diplomatic developments which
could affect investments in those countries.

INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs") and each
Fund, other than CORE U.S. Equity and CORE Large Cap Growth Funds, may also
invest in European Depository Receipts ("EDRs") or other similar instruments
representing securities of foreign issuers (together, "Depository Receipts").
ADRs represent the right to receive securities of foreign issuers deposited in
a domestic bank or a correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or over-the-
counter and are sponsored and issued by domestic banks. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security. To the
extent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate
actions, such as stock splits or rights offerings involving the foreign
issuer, in a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. Investment in

20
<PAGE>

Depository Receipts does not eliminate all the risks inherent in investing in
securities of non-U.S. issuers. The market value of Depository Receipts is
dependent upon the market value of the underlying securities and fluctuations
in the relative value of the currencies in which the Depository Receipt and
the underlying securities are quoted. However, by investing in Depository
Receipts, such as ADRs, that are quoted in U.S. dollars, a Fund will avoid
currency risks during the settlement period for purchases and sales.

FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the International
Equity, Emerging Markets Equity and Asia Growth Funds may have currency
exposure independent of their securities positions, the value of the assets of
a Fund as measured in U.S. dollars will be affected by changes in foreign
currency exchange rates. A Fund may, to the extent it invests in foreign
securities, purchase or sell forward foreign currency exchange contracts for
hedging purposes and to seek to protect against anticipated changes in future
foreign currency exchange rates. In addition, the International Equity,
Emerging Markets Equity and Asia Growth Funds may enter into such contracts to
seek to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to enhance return, forward foreign currency exchange contracts are
considered speculative. The International Equity, Emerging Markets Equity and
Asia Growth Funds may also engage in cross-hedging by using forward contracts
in a currency different from that in which the hedged security is denominated
or quoted if the Investment Adviser determines that there is a pattern of
correlation between the two currencies. If a Fund enters into a forward
foreign currency exchange contract to buy foreign currency for any purpose or
the International Equity, Emerging Markets Equity and Asia Growth Funds enter
into forward foreign currency exchange contracts to sell foreign currency to
seek to increase total return, the Fund will be required to place cash or
liquid assets in a segregated account with the Fund's custodian in an amount
equal to the value of the Fund's total assets committed to the consummation of
the forward contract. The Fund will incur costs in connection with conversions
between various currencies. A Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
Investment Adviser, it would be beneficial to convert such currency into U.S.
dollars at a later date, based on anticipated changes in the relevant exchange
rate.

Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks or the failure to intervene or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.

21
<PAGE>

the current market price. A Fund will not enter into forward foreign currency
exchange contracts, currency swaps or other privately negotiated currency
instruments unless the credit quality of the unsecured senior debt or the
claims-paying ability of the counterparty is considered to be investment grade
by the Investment Adviser.

The International Equity, Emerging Markets Equity and Asia Growth Funds may
also engage in a variety of foreign currency management techniques. However,
due to the limited market for these instruments with respect to the currencies
of many Emerging Countries, including certain Asian countries, the Investment
Advisers do not currently anticipate that a significant portion of Emerging
Markets Equity and Asia Growth Fund's currency exposure will be covered by
such instruments. For a discussion of such instruments and the risks
associated with their use, see "Investment Objective and Policies" in the
Additional Statement.

FIXED INCOME SECURITIES

FOREIGN GOVERNMENT SECURITIES. The International Equity, Emerging Markets
Equity and Asia Growth Funds may invest in debt obligations of foreign
governments and governmental agencies, including those of Emerging Countries.
Investment in sovereign debt obligations involves special risks not present in
debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable
or unwilling to repay principal or interest when due in accordance with the
terms of such debt, and a Fund may have limited recourse in the event of a
default. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt, and in turn a Fund's net asset value, to a
greater extent than the volatility inherent in debt obligations of U.S.
issuers. A sovereign debtor's willingness or ability to repay principal and
pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.

22
<PAGE>

STRUCTURED SECURITIES. Each Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of a Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.

RATING CRITERIA. Except as noted below, each Fund (other than the CORE U.S.
Equity and CORE Large Cap Growth Funds, which only invest in debt instruments
that are cash equivalents) may invest in debt securities rated at least
investment grade at the time of investment. Investment grade debt securities
are securities rated BBB or higher by Standard & Poor's Ratings Group
("Standard & Poor's") or Baa or higher by Moody's Investors Service, Inc.
("Moody's"). A security will be deemed to have met a rating requirement if it
receives the minimum required rating from at least one such rating
organization even though it has been rated below the minimum rating by one or
more other rating organizations, or if unrated by such rating organizations,
determined by the Investment Adviser to be of comparable credit quality. The
Growth and Income, International Equity, Emerging Markets Equity and Asia
Growth Funds may invest up to 10%, 35%, 35% and 35%, respectively, of their
total assets in debt securities which are unrated or rated in the lowest
rating categories by Standard & Poor's or Moody's (i.e., BB or lower by
Standard & Poor's or Ba or lower by Moody's), including securities rated D by
Moody's or Standard & Poor's. Mid Cap Equity Fund may invest up to 10% of its
total assets in below investment grade debt securities rated B or higher by
Standard & Poor's or B or higher by Moody's. Fixed income securities rated BBB
or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers' capacity to pay interest and repay principal. Fixed
income securities rated BB or Ba or below (or comparable unrated securities)
are commonly referred to as "junk bonds," are considered predominately
speculative and may be questionable as to principal and interest payments. In
some cases, such bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, investment
in such bonds will entail greater

23
<PAGE>

speculative risks than those associated with investment in investment grade
bonds. Also, to the extent that the rating assigned to a security in a Fund's
portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by Standard & Poor's and Moody's.

REAL ESTATE INVESTMENT TRUSTS ("REITS")

Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependant upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.

INVESTMENT TECHNIQUES

OPTIONS ON SECURITIES AND SECURITIES INDICES

24
<PAGE>

Emerging Markets Equity and Asia Growth Funds may purchase call or put options
on currency to seek to increase total return when the Investment Adviser
anticipates that the currency will appreciate or depreciate in value, but the
securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in the Fund's portfolio. When
purchased or sold to seek to increase total return, options on currencies are
considered speculative. Options on foreign currencies written or purchased by
the Funds are traded on U.S. and foreign exchanges or over-the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities (such as
U.S. Government securities), foreign currencies, securities indices and other
financial instruments and indices. The CORE U.S. Equity and CORE Large Cap
Growth Funds may enter into such transactions only with respect to the S&P 500
Index in the case of the CORE U.S. Equity Fund and a representative index in
the case of the CORE Large Cap Growth Fund. A Fund will engage in futures and
related options transactions 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. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
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. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities or currencies, require
the Fund to segregate and maintain cash or liquid assets with a value equal to
the amount of the Fund's obligations.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's net asset value. The profitability of a Fund's trading in futures to
seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to a
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

25
<PAGE>

also purchase securities on a forward commitment basis; that is, make
contracts to purchase securities for a fixed price at a future date beyond the
customary three-day settlement period. A Fund is required to hold and maintain
in a segregated account with the Fund's custodian until three days prior to
the settlement date, cash or liquid assets in an amount sufficient to meet the
purchase price. Alternatively, each 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 a Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, a Fund may dispose of when-issued securities or
forward commitments prior to settlement if its Investment Adviser deems it
appropriate to do so.

ILLIQUID AND RESTRICTED SECURITIES

A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, repurchase agreements maturing in more
than seven days, time deposits with a notice or demand period of more than
seven days, and certain restricted securities, unless it is determined, based
upon the continuing review of the trading markets for a specific restricted
security, that such restricted security is eligible for resale under Rule 144A
under the Securities Act of 1933 and, therefore, is liquid. The Trustees have
adopted guidelines and delegated to the Investment Advisers the daily function
of determining and monitoring the liquidity of portfolio securities. The
Trustees, however, retain oversight focusing on factors such as valuation,
liquidity and availability of information and are ultimately responsible for
each determination. Investing in restricted securities eligible for resale
pursuant to Rule 144A may decrease the liquidity of a Fund's portfolio to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities. The purchase price and subsequent
valuation of restricted and illiquid securities normally reflect a discount,
which may be significant, from the market price of comparable securities for
which a liquid market exists.

REPURCHASE AGREEMENTS

Each 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. The International Equity, Emerging Markets Equity
and Asia Growth Funds may also enter into repurchase agreements involving
certain foreign government securities. If the other party or "seller"
defaults, a 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. In addition, in the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, a Fund could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser, 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.

LENDING OF PORTFOLIO SECURITIES

Each 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

26
<PAGE>

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 an 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 a Fund. A 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.

SHORT SALES AGAINST-THE-BOX

TEMPORARY INVESTMENTS

Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE U.S. Equity, CORE Large Cap Growth and Emerging
Markets Equity Funds may only hold up to 35% of their respective total assets)
in U.S. Government securities, repurchase agreements collateralized by U.S.
Government securities, commercial paper rated at least A-2 by Standard &
Poor's or P-2 by Moody's, certificates of deposit, bankers' acceptances,
repurchase agreements, non-convertible preferred stocks, non-convertible
corporate bonds with a remaining maturity of less than one year or, subject to
certain tax restrictions, foreign currencies. When a Fund's assets are
invested in such instruments, the Fund may not be achieving its investment
objective.

MISCELLANEOUS TECHNIQUES

RISK FACTORS

RISK OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger market capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.

27
<PAGE>

Foreign Investments." The International Equity, Emerging Markets Equity and
Asia Growth Funds may each invest without limit in the securities of issuers
in Emerging Countries. The Growth and Income and Mid Cap Equity Funds may each
invest up to 15% of their total assets in securities of issuers in Emerging
Countries. Emerging Countries are generally located in the Asia-Pacific
region, Eastern Europe, Latin and South America and Africa. A Fund's purchase
and sale of portfolio securities in certain Emerging Countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed
based on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been exceeded.

28
<PAGE>

such country to the Fund. Settlement procedures in Emerging Countries are
frequently less developed and reliable than those in the United States and may
involve a Fund's delivery of securities before receipt of payment for their
sale. In addition, significant delays are common in certain markets in
registering the transfer of securities. Settlement or registration problems
may make it more difficult for a Fund to value its portfolio securities and
could cause the Fund to miss attractive investment opportunities, to have a
portion of its assets uninvested or to incur losses due to the failure of a
counterparty to pay for securities the Fund has delivered or the Fund's
inability to complete its contractual obligations.

INVESTMENT RESTRICTIONS

Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund can not be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund remains an appropriate investment in light
of their then current financial positions and needs.

PORTFOLIO TURNOVER

29
<PAGE>

qualify as a regulated investment company under the Code. See "Financial
Highlights" for a statement of each Fund's (other than the CORE Large Cap
Growth and Emerging Markets Equity Funds) historical portfolio turnover ratio.
It is anticipated that the annual portfolio turnover rates of the CORE Large
Cap Growth and Emerging Markets Equity Funds will generally not exceed 70% and
100%, respectively. 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 a Fund's portfolio securities, excluding
securities having a maturity at the date of purchase of one year or less.
Notwithstanding the foregoing, the Investment Adviser may, from time to time,
make short-term investments when it believes such investments are in the best
interest of a Fund.

MANAGEMENT

TRUSTEES AND OFFICERS

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

INVESTMENT ADVISERS

INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the CORE Large Cap Growth, Growth and Income and
Mid Cap Equity Funds. Goldman Sachs registered as an investment adviser in
1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New
York 10004, a Delaware limited partnership which is an affiliate of Goldman
Sachs, serves as the investment adviser to the CORE U.S. Equity Fund. Goldman
Sachs Funds Management, L.P. registered as an investment adviser in 1990.
Goldman Sachs Asset Management International, 133 Peterborough Court, London
EC4A 2BB, England, an affiliate of Goldman Sachs, serves as the investment
adviser to the International Equity, Emerging Markets Equity and Asia Growth
Funds. Goldman Sachs Asset Management International became a member of the
Investment Management Regulatory Organisation Limited in 1990 and registered
as an investment adviser in 1991. As of March 24, 1997, Goldman Sachs Asset
Management, Goldman Sachs Funds Management, L.P. and Goldman Sachs Asset
Management International, together with their affiliates, acted as investment
adviser, administrator or distributor for assets in excess of $104.9 billion.

30
<PAGE>

FUND MANAGERS

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
G. Lee Portfolio Manager-- Since Mr. Anderson joined the Investment
Anderson Growth and Income 1996 Adviser in 1992. Prior to 1992, he
Vice Mid Cap Equity 1997 was a research analyst in the
President Investment Research Department of
Goldman, Sachs & Co.
- ------------------------------------------------------------------------------------------------
Eileen A. Portfolio Manager-- Since Ms. Aptman jointed the Investment
Aptman Mid Cap Equity 1996 Adviser in 1993. Prior to 1993, she
Vice Growth and Income 1996 was an equity analyst at Delphi
President Management.
- ------------------------------------------------------------------------------------------------
Robert Portfolio Manager Since Mr. Beckwitt joined the Investment
Beckwitt Emerging Markets Equity 1997 Adviser in 1996. Prior to 1996, he
Vice was Chief Investment Strategist--
President Portfolio Advisory at Fidelity
Investments.
- ------------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the Investment
Vice CORE U.S. Equity 1996 Adviser in 1992. Prior to 1992, he
President CORE Large-Cap Growth 1997 was studying for a Ph.D. in finance
at the University of Chicago.
- ------------------------------------------------------------------------------------------------
Ronald E. Senior Portfolio Manager-- Since Mr. Gutfleish joined the Investment
Gutfleish Growth and Income 1993 Adviser in 1993. Prior to 1993, he
Vice Mid Cap Equity 1995 was a principal of Sanford C.
President Bernstein & Co. in its Investment
Management Research Department.
- ------------------------------------------------------------------------------------------------
Roderick D. Portfolio Manager-- Since Mr. Jack joined the Investment
Jack International Equity 1992 Adviser in 1992. Prior to 1992, he
Managing worked in the advisory and financing
Director group for
S.G. Warburg in London.
- ------------------------------------------------------------------------------------------------
Robert C. Senior Portfolio Manager-- Since Mr. Jones joined the Investment
Jones CORE U.S. Equity 1991 Adviser in 1989. From 1987 to 1989,
Managing CORE Large Cap Growth 1997 Mr. Jones was a senior quantitative
Director analyst in the Research Department.
- ------------------------------------------------------------------------------------------------
Marcel Jongen Portfolio Manager-- Since Mr. Jongen joined the Investment
Executive International Equity 1992 Adviser in 1992. Prior to 1992, he
Director was head of equities at Philips
Pension Fund in Eindhoven.
- ------------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the Investment
Vice Asia Growth 1994 Adviser in 1990.
President
- ------------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the Investment
Vice International Equity 1994 Adviser in 1994. Prior to 1994, he
President worked at Nomura Investment
Management Incorporated and for a
period at Manufacturers Hanover Bank
in New York.
- ------------------------------------------------------------------------------------------------
Warwick M. Senior Portfolio Manager-- Since Mr. Negus joined the Investment
Negus Asia Growth 1994 Adviser in 1994. Prior to 1994, he
Managing Portfolio Manager-- was a vice president of Bankers
Director International Equity 1994 Trust Australia Ltd.
Emerging Markets Equity 1997
- ------------------------------------------------------------------------------------------------
Victor H. Portfolio Manager-- Since Mr. Pinter joined the Investment
Pinter CORE U.S. Equity 1996 Adviser in 1990.
Vice CORE Large Cap Growth 1997
President
</TABLE>

31
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Ramakrishna Portfolio Since Mr. Shanker joined the Investment
Shanker Manager-- 1997 Adviser in 1997. Prior to 1997, he
Vice Asia Growth worked for the Investment Banking
President Division of Goldman, Sachs & Co. in
Singapore.
- ------------------------------------------------------------------------------------
Karma Wilson Portfolio Since Ms. Wilson joined the Investment
Vice Manager-- 1995 Adviser in 1994. Prior to 1994, she
President Asia Growth was an investment analyst with
Bankers Trust Australia Ltd. Before
1992 she was employed by Arthur
Andersen LLP.
</TABLE>

As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1997*
----------- -----------------
<S> <C> <C>
GSAM
Growth and Income............................ 0.70% 0.70%
CORE Large Cap Growth........................ 0.75% n/a
Mid Cap Equity............................... 0.75% 0.75%
GSFM
CORE U.S. Equity............................. 0.75% 0.59%
GSAMI
International Equity......................... 1.00% 0.89%
Emerging Markets Equity...................... 1.20% n/a
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- ---------------------
*With respect to the Growth and Income, CORE U.S. Equity, Mid Cap Equity,
International Equity and Asia Growth Funds, a Management Agreement combining
both advisory and administrative services was adopted effective April 30,
1997. The contractual rate set forth in the table is the rate payable under
the Management Agreements and is identical to the aggregate advisory and
administration fees payable by each Fund under the previous separate
investment advisory (including subadvisory in the case of International Equity
Fund) and administration agreements. For the fiscal year ended January 31,
1997, the annual rate expressed is the combined advisory and administration
fees paid (after voluntary fee limitations). The difference, if any, between
the stated fees and the actual fees paid by the Funds reflects that the
applicable Investment Adviser did not charge the full amount of the fees to
which it would have been entitled. The Investment Advisers may discontinue or
modify such voluntary limitations in the future at their discretion, although
they have no current intention to do so.

The Investment Advisers to the Growth and Income, CORE U.S. Equity, CORE
Large Cap Growth, International Equity, Emerging Markets Equity and Asia
Growth Funds have voluntarily agreed to reduce or limit

32
<PAGE>

certain "Other Expenses" of such Funds (excluding management fees, service
fees, taxes, interest and brokerage fees and litigation, indemnification and
other extraordinary expenses and, in the case of each Fund other than CORE
Large Cap Growth Fund, transfer agency fees) to the extent such expenses
exceed 0.11%, 0.06%, 0.05%, 0.20%, 0.16% and 0.24% per annum of such Funds'
average daily net assets, respectively. Such reductions or limits, if any, are
calculated monthly on a cumulative basis and may be discontinued or modified
by the applicable Investment Adviser in its discretion at any time.

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, 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 a Fund or limit a Fund's 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 Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a 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, a 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
"Management--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 (the "Distributor") of each Fund's shares. Goldman Sachs, 4900
Sears Tower, Chicago, Illinois, also serves as each Fund's transfer agent (the
"Transfer Agent") and as such performs various shareholder servicing
functions. Shareholders with inquiries regarding a Fund should contact Goldman
Sachs (as Transfer Agent) at the address or the telephone number set forth on
the back cover page of this Prospectus. Goldman Sachs is not entitled to
receive a transfer agency fee from the CORE U.S. Equity, International Equity
and Asia Growth Funds with respect to Institutional or Service Shares. Goldman
Sachs is entitled to receive a transfer agency fee from the Growth and Income,
Mid Cap Equity and Emerging Markets Equity Funds equal to 0.04% of the average
daily net assets of the Institutional and Service Shares of such Funds.
Goldman Sachs is entitled to receive a fee from the CORE Large Cap Growth
Fund, with respect to Institutional and Service shares, equal to the fixed per
account charge of $12,000 per year plus $7.50 per account, together with out-
of-pocket and transaction related expenses (including those out-of-pocket
expenses payable to servicing and/or sub-transfer agents) applicable to Class
A and B shares plus 0.04% of the average daily net assets of the Institutional
and Service classes of the CORE Large Cap Growth Fund.

NET ASSET VALUE

33
<PAGE>

each class is calculated by determining the net assets attributable to each
class and dividing by the number of outstanding shares 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 Trustees.

PERFORMANCE INFORMATION

From time to time each Fund may publish average annual total return and the
Growth and Income Fund may publish its yield and distribution rates in
advertisements and communications to shareholders or prospective investors.
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 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. Each 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, each Fund may furnish total return calculations based
on investments at various sales charge levels or at net asset value. Any
performance data which are based on the net asset value per share would be
reduced if any applicable sales charge were taken into account. In addition to
the above, each Fund may from time to time advertise its performance relative
to certain averages, performance rankings, indices, other information prepared
by recognized mutual fund statistical services and investments for which
reliable performance data is available.

The Growth and Income Fund computes its yield by dividing net investment
income earned during a recent thirty-day period by the product of the average
daily number of shares outstanding and entitled to receive dividends during
the period and the maximum offering price per share on the last day of the
relevant period. The results are compounded on a bond equivalent (semi-annual)
basis and then annualized. Net investment income per share is equal to the
dividends and interest earned during the period, reduced by accrued expenses
for the period. The calculation of net investment income for these purposes
may differ from the net investment income determined for accounting purposes.
The Growth and Income Fund's quotations of distribution rate 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
net asset value per share on the last day of the period for which the
distribution rates are being calculated.

Each Fund's total return, yield and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the total return, yield and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."

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

34
<PAGE>

SHARES OF THE TRUST

Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation, and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify shares
of beneficial interests in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify and reclassify any series or portfolio of shares
into one or more classes.

When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares, are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that, at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.

As of April 1, 1997, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was recordholder of 97.88% of Mid Cap Equity
Fund's outstanding shares.

The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.

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

TAXATION

FEDERAL TAXES

Each Fund is treated as a separate entity for tax purposes. The CORE Large
Cap Growth and Emerging Markets Equity Funds intend to elect and each other
Fund has elected to be treated as a regulated investment company and each Fund
intends to qualify for such treatment for each taxable year under Subchapter M
of the Code. To qualify as such, a Fund must satisfy certain requirements
relating to the sources of its income, diversification of its assets and
distribution of its income to shareholders. As a regulated investment company,
a Fund will not be subject to federal income or excise tax on any net
investment income and net realized capital gains that are distributed to its
shareholders in accordance with certain timing requirements of the Code.

35
<PAGE>

Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
International Equity, Emerging Markets Equity and Asia Growth Funds are not
generally expected to qualify, in the hands of corporate shareholders, for the
corporate dividends-received deduction, but a portion of each other Fund's
dividends may generally so qualify. Certain distributions paid by a Fund in
January of a given year may be taxable to shareholders as if received the
prior December 31. Shareholders will be informed annually about the amount and
character of distributions received from the Funds for federal income tax
purposes.

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

Redemptions and exchanges of shares are taxable events.

OTHER TAXES

36
<PAGE>

ADDITIONAL INFORMATION

37
<PAGE>

REPORTS TO SHAREHOLDERS

Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. Each
recordholder of Institutional Shares will also be provided with a printed
confirmation for each transaction in its account and a quarterly account
statement. A year-to-date statement for any account will be provided upon
request made to Goldman Sachs. The Funds do not generally provide subaccounting
services.

DIVIDENDS

Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Institutional Shares will, at the
election of each shareholder, be paid (i) in cash or (ii) in additional
Institutional Shares of such Fund. This election should initially be made on a
shareholder's Account Information Form and may be changed upon written notice
to Goldman Sachs at any time prior to the record date for a particular dividend
or distribution. If no election is made, all dividends from net investment
income and capital gain distributions will be reinvested in Institutional
Shares of the applicable Fund.

The election to reinvest dividends and distributions paid by a Fund in
additional Institutional Shares of the Fund will not affect the tax treatment
of such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Institutional Shares of a Fund.

Each Fund intends that all or substantially all its net investment income and
net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. The Growth
and Income Fund will pay dividends from net investment income quarterly. Each
other Fund will pay dividends from net investment income at least annually. All
of the Funds will pay dividends from net realized long-term and short-term
capital gains, reduced by available capital losses, at least annually. From
time to time, a portion of a Fund's dividends may constitute a return of
capital.

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

PURCHASE OF INSTITUTIONAL SHARES

38
<PAGE>

day the purchase order is received. See "Net Asset Value." Purchases of
Institutional Shares of the Funds must be settled within three (3) Business
Days of the receipt of a complete purchase order. Payment of the proceeds of
redemption of shares purchased by check may be delayed for a period of time as
described under "Redemption of Institutional Shares."

Prior to making an initial investment in a Fund, an investor must open an
account with a Fund by furnishing necessary information to the Fund or Goldman
Sachs. An Account Information Form, a copy of which is attached to this
Prospectus, should be used to open such an account. Subsequent purchases may be
made in the manner set forth below.

PURCHASE PROCEDURES

Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring federal funds to State Street
Bank and Trust Company ("State Street") or initiating an ACH transfer.
Purchases may also be made by check (except that the Trust will not accept a
check drawn on a foreign bank or a third party check) or Federal Reserve draft
made payable to "Goldman Sachs Equity Funds--Name of Fund and Class of shares"
and should be directed to "Goldman Sachs Equity Funds--Name of Fund and Class
of shares," c/o National Financial Data Services, Inc. ("NFDS"), P.O. Box
419711, Kansas City, MO 64141-6711.

The minimum initial investment is $1,000,000 in Institutional Shares of a
Fund alone or in combination with other assets under the management of GSAM and
its affiliates. Institutional Shares of the Fund are offered to (a) banks,
trust companies or other types of depository institutions investing for their
own account or on behalf of their clients; (b) pension and profit sharing
plans, pension funds and other company-sponsored benefit plans; (c) qualified
non-profit organizations, charitable trusts, foundations and endowments; (d)
any state, county, city or any instrumentality, department, authority or agency
thereof; (e) corporations and other for-profit business organizations with
assets of at least $100 million or publicly traded securities outstanding; (f)
"wrap" accounts for the benefit of clients of broker-dealers, financial
institutions or financial planners, provided that they have entered into an
agreement with GSAM specifying aggregate minimums and certain operating
policies and standards; (g) registered investment advisers investing for
accounts for which they receive asset-based fees; and (h) accounts over which
GSAM or its advisory affiliates have investment discretion. The minimum
investment requirement may be waived at the discretion of the Trust's officers.
No minimum amount is required for subsequent investments.

OTHER PURCHASE INFORMATION

The Funds reserve the right to redeem the Institutional Shares of any
Institutional Shareholder whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of
an Institutional Shareholder's account falls below the minimum account balance
solely as a result of market conditions. The Trust will give sixty (60) days'
prior written notice to Institutional Shareholders whose Institutional Shares
are being redeemed to allow them to purchase sufficient additional
Institutional Shares of a Fund to avoid such redemption.

39
<PAGE>

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

In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.

EXCHANGE PRIVILEGE

Institutional Shares of the Fund may be exchanged for (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the net asset value next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs Equity Funds--Name of Fund
and Class of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago,
Illinois 60606 or, if previously elected in the Fund's Account Information
Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago time). A
shareholder should obtain and read the prospectus relating to any other fund
and its shares and consider its investment objective, policies and applicable
fees before making an exchange. Under the telephone exchange privilege,
Institutional Shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only if
the exchange request is in writing and is received in accordance with the
procedures set forth under "Redemptions of Institutional Shares."

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

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

40
<PAGE>

REDEMPTION OF INSTITUTIONAL SHARES

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

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

The Funds will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the
Institutional Shareholder's Account Information Form or, if the shareholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) Business Days after receipt of a
properly executed redemption request. Wiring of redemption proceeds may be
delayed one additional Business Day if the Federal Reserve Bank is closed on
the day redemption proceeds would originally be wired. Redemption proceeds paid
by check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. In order to
change the bank designated on the Account Information Form to receive
redemption proceeds, a written request must be received by the Transfer Agent.
This request must be signature guaranteed as set forth above. Further
documentation may be required for executors, trustees or corporations. Once
wire transfer instructions have been given by Goldman Sachs, neither the Funds,
the Trust nor Goldman Sachs assumes any further responsibility for the
performance of intermediaries

41
<PAGE>

or the Institutional Shareholder's bank in the transfer process. If a problem
with such performance arises, the Institutional Shareholder should deal
directly with such intermediaries or bank.

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

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

42
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM

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

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

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

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

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

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

A-1
<PAGE>

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

GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB

GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004

GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110

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

EQPROINST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS

EQUITY FUNDS

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

PROSPECTUS

INSTITUTIONAL SHARES

GOLDMAN
SACHS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------
PROSPECTUS
May 1, 1997
GOLDMAN SACHS EQUITY FUNDS
SERVICE SHARES

GOLDMAN SACHS GROWTH AND IN- GOLDMAN SACHS MID CAP EQUITY FUND
COME FUND Seeks long-term capital appreciation pri-
Seeks long-term growth of marily through investments in equity secu-
capital and growth of income rities of companies with public stock mar-
through investments in eq- ket capitalizations of between $500 million
uity securities that are and $7 billion at the time of investment.
considered to have favorable
prospects for capital appre-
ciation and/or dividend pay-
ing ability.

GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation
through investments in equity securities of
companies that are organized outside the
U.S. or whose securities are principally
traded outside the U.S.

GOLDMAN SACHS CORE U.S. EQ-
UITY FUND
Seeks long-term growth of
capital and dividend income
through a broadly diversi-
fied portfolio of predomi-
nantly large cap and blue
chip equity securities rep-
resenting all major sectors
of the U.S. economy.

GOLDMAN SACHS EMERGING MARKETS
EQUITY FUND
Seeks long-term capital appreciation
through investments in equity securities of
emerging country issuers.

GOLDMAN SACHS ASIA GROWTH FUND

Seeks long-term capital appreciation
GOLDMAN SACHS CORE LARGE CAP through investments in equity securities of
GROWTH FUND companies related (in the manner described
Seeks long-term growth of herein) to Asian countries.
capital through a broadly
diversified portfolio of eq-
uity securities of large cap
U.S. issuers that are ex-
pected to have better pros-
pects for earnings growth
than the growth rate of the
general domestic economy.
Dividend income is a second-
ary consideration.

SERVICE SHARES OF THE FUNDS 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 A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

(cover continued)

A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS OF
ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING COUNTRIES
IN WHICH THE INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY AND ASIA GROWTH
FUNDS MAY INVEST WITHOUT LIMIT ARE LESS LIQUID, SUBJECT TO GREATER PRICE
VOLATILITY, HAVE SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT
REGULATION AND ARE NOT SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING,
FINANCIAL AND OTHER REPORTING REQUIREMENTS AS THE SECURITIES MARKETS OF MORE
DEVELOPED COUNTRIES. FURTHER, INVESTMENT IN EQUITY SECURITIES OF ISSUERS
LOCATED IN RUSSIA AND CERTAIN OTHER EMERGING COUNTRIES INVOLVES RISK OF LOSS
RESULTING FROM PROBLEMS IN SHARE REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT
NORMALLY ASSOCIATED WITH INVESTMENT IN MORE DEVELOPED COUNTRIES. THE FUNDS THAT
INVEST IN FOREIGN SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS
WHO CAN ACCEPT THE RISKS ASSOCIATED WITH THEIR INVESTMENTS AND MAY NOT BE
SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."

This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Service Organizations (as defined herein),
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus. The SEC maintains a Web
site (http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 7
Financial Highlights............... 9
Investment Objectives and Policies. 14
Description of Securities.......... 19
Investment Techniques.............. 24
Risk Factors....................... 27
Investment Restrictions............ 29
Portfolio Turnover................. 29
Management......................... 30
Net Asset Value.................... 33
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information....... 34
Shares of the Trust........... 35
Taxation...................... 35
Additional Information........ 37
Additional Services........... 38
Reports to Shareholders....... 38
Dividends..................... 39
Purchase of Service Shares.... 39
Exchange Privilege............ 40
Redemption of Service Shares.. 41
Appendix...................... A-1
</TABLE>

2
<PAGE>

FUND HIGHLIGHTS

The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.

WHAT IS THE GOLDMAN SACHS TRUST?

Goldman Sachs Trust is an open-end management investment company that
offers its shares in several investment funds (mutual funds). Each Fund
pools the monies of investors by selling its shares to the public and
investing these monies in a portfolio of securities designed to achieve
that Fund's stated investment objectives.

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."

- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
----------- ------------------- ------------------ ------------------
GROWTH AND Long-term growth of At least 65% of total The Standard & Poor's
INCOME FUND capital and growth of assets in equity Index of 500 Common
income. securities that the Stocks (the "S&P 500
Investment Adviser Index")
considers to have
favorable prospects for
capital appreciation
and/or dividend paying
ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth of At least 90% of total S&P 500 Index
EQUITY FUND capital and dividend assets in equity
income. securities of U.S.
issuers. The Fund seeks
to achieve its
objectives through a
broadly diversified
portfolio of large cap
and blue chip equity
securities representing
all major sectors of
the U.S. economy. The
Fund's investments are
selected using both a
variety of quantitative
techniques and
fundamental research to
maximize the
Fund's reward to risk
ratio. The Fund's
portfolio is designed
to have risk, style,
capitalization and
industry
characteristics similar
to the S&P 500 Index.
</TABLE>

(continued)

3
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
------------ ------------------ ------------------ ---------------
CORE LARGE CAP Long-term growth of At least 90% of total Russell 1000 Growth
GROWTH FUND capital. Dividend assets in equity Index
income is a secondary securities of U.S.
consideration. issuers. The Fund seeks
to achieve its
objective through a
broadly diversified
portfolio of equity
securities of large cap
U.S. issuers that are
expected to have better
prospects for earnings
growth than the growth
rate of the general
domestic economy. The
Fund's investments are
selected using both a
variety of quantitative
techniques and
fundamental research in
seeking to maximize the
Fund's reward to risk
ratio. The Fund's
portfolio is designed
to have risk, style,
capitalization and
industry
characteristics similar
to the Russell 1000
Growth Index.
- ----------------------------------------------------------------------------------------
MID CAP EQUITY Long-term capital At least 65% of total Russell Midcap Index
FUND appreciation. assets in
equity securities of
companies ("Mid-Cap
Companies") with public
stock market
capitalizations of
under $5 billion at the
time of investment.
- ----------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and FT/Actuaries Europe
EQUITY FUND appreciation. at least 65%, of total and Pacific Index
assets in equity (unhedged)
securities of companies
organized outside
the United States or
whose securities are
principally traded
outside the United
States. The Fund may
invest in securities of
issuers located in
countries with emerging
economies or securities
markets and employ
certain currency
management techniques.
- ----------------------------------------------------------------------------------------
EMERGING Long-term capital Substantially all, and Morgan Stanley Capital
MARKETS EQUITY appreciation. at least 65%, of its International Emerging
FUND total assets in equity Markets Free Index
securities of emerging
country issuers. The
Fund may employ certain
currency management
techniques.
- ----------------------------------------------------------------------------------------
ASIA GROWTH Long-term capital Substantially all, and Morgan Stanley Capital
FUND appreciation. at least 65%, of total International All
assets in equity Country Asia
securities of companies Free ex Japan Index
in China, Hong
Kong, India, Indonesia,
Malaysia, Pakistan, the
Philippines, Singapore,
South Korea, Sri Lanka,
Taiwan and Thailand.
The Fund may employ
certain currency
management techniques.
</TABLE>

4
<PAGE>

WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?

Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."

Risk of Investments in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.

Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers and
issuers. A Fund's investments in emerging markets and countries ("Emerging
Countries") involves greater risks than investments in the developed
countries of Western Europe, the U.S., Canada, Australia, New Zealand and
Japan. In addition, because the International Equity, Emerging Markets
Equity and Asia Growth Funds invest primarily outside the U.S., these Funds
may involve greater risks, since the securities markets of foreign
countries are generally less liquid and subject to greater price
volatility. The securities markets of emerging countries, including those
in Asia, Latin America, Eastern Europe and Africa are marked by a high
concentration of market capitalization and trading volume in a small number
of issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of
investors.

Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.

WHO MANAGES THE FUNDS?

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's shares.

WHAT IS THE MINIMUM INVESTMENT?

5
<PAGE>

HOW DO I PURCHASE SERVICE SHARES?

ADDITIONAL SERVICES. The Trust, on behalf of the Funds, has adopted a
Service Plan with respect to the Service Shares which authorizes a Fund to
compensate Service Organizations for providing account administration and
shareholder liaison services to their customers who are the beneficial
owners of such Shares. The Trust, on behalf of the Funds, 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 Shares of
the Funds attributable to or held in the name of the Service Organization
for its customers. See "Additional Services."

HOW DO I SELL MY SERVICE SHARES?

You may redeem Service Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Service Shares."

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
Mid Cap Equity........................ Annually Annually
International Equity.................. Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>

6
<PAGE>

FEES AND EXPENSES
(SERVICE SHARES)

<TABLE>
<CAPTION>
GROWTH CORE CORE EMERGING
AND U.S. LARGE CAP MID CAP INT'L MARKETS ASIA
INCOME EQUITY GROWTH EQUITY EQUITY EQUITY GROWTH
FUND FUND FUND/1/ FUND/1/ FUND FUND/1/ FUND/1/
------ ------ --------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases. None None None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends............ None None None None None None None
Redemption Fees....... None None None None None None None
Exchange Fees......... None None None None None None None
ANNUAL FUND OPERATING
EXPENSES: (as a
percentage of average
daily net assets)
Management Fees (after
applicable limita-
tions)(/2/).......... 0.70% 0.59% 0.60% 0.75% 0.89% 1.10% 0.86%
Service Fees*......... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after
applicable limita-
tions)(/3/).......... 0.12% 0.06% 0.05% 0.10% 0.21% 0.20% 0.24%
---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE
AND EXPENSE
LIMITATIONS)(/4/)... 1.32% 1.15% 1.15% 1.35% 1.60% 1.80% 1.60%
==== ==== ==== ==== ==== ==== ====
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
Growth and Income Fund........................ $ 13 $ 42 $72 $159
CORE U.S. Equity Fund......................... $ 12 $ 37 $63 $140
CORE Large Cap Growth Fund.................... $ 12 $ 37 n/a n/a
Mid Cap Equity Fund........................... $ 14 $ 43 $74 $162
International Equity Fund..................... $ 16 $ 50 $87 $190
Emerging Markets Equity Fund.................. $ 18 $ 57 n/a n/a
Asia Growth Fund.............................. $ 16 $ 50 $87 $190
</TABLE>
- ---------------------
/1Based/on estimated amounts for the current fiscal year for the CORE Large
Cap Growth, Mid Cap Equity, Emerging Markets Equity and Asia Growth Funds.

/2The/Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE U.S. Equity, CORE Large Cap
Growth, International Equity, Emerging Markets Equity and Asia Growth Funds
equal to 0.16%, 0.15%, 0.11%, 0.10% and 0.14%, respectively. Without such
limitations, management fees would be 0.75%, 0.75%, 1.00%, 1.20% and 1.00%
of each Fund's average daily net assets, respectively.

/3The/Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, service fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of each Fund other than CORE
Large Cap Growth Fund) to the extent such expenses exceed the following
percentage of average daily net assets:

<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
Mid Cap Equity................................................... 0.06%
International Equity............................................. 0.20%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>

7
<PAGE>

/4/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the CORE U.S. Equity, Growth and Income and
International Equity Funds for the fiscal year ended January 31, 1997, would
have been as follows:

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Growth and Income...................................... 0.12% 1.32%
CORE U.S. Equity....................................... 0.10% 1.35%
International Equity................................... 0.25% 1.75%

In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the CORE Large Cap Growth, Mid Cap Equity,
Emerging Markets Equity and Asia Growth Funds for the current fiscal year are
estimated to be as follows:

<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Mid Cap Equity......................................... 0.16% 1.41%
CORE Large Cap Equity.................................. 0.65% 1.90%
Emerging Markets Equity................................ 0.82% 2.52%
Asia Growth............................................ 0.26% 1.76%
</TABLE>

/5Service/Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts. Due to the service fees, a long-term shareholder may pay more than
the economic equivalent of the maximum front-end sales charges permitted by
the NASD's rules regarding investment companies. See "Additional Services."

The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Service Shares of the Funds. Each
Fund also offers Institutional Shares and, except for Mid Cap Equity Fund,
Class A and Class B Shares, which are subject to different fees and expenses
(which affect performance), have different minimum investment requirements and
are entitled to different services. Information regarding Institutional, Class
A and Class B Shares may be obtained from an investor's sales representative
or from Goldman Sachs by calling the number on the back of this Prospectus.

The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above is based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers" and "Additional Services."

8
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE RATE(G) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
---------- ----------- ---------- ---------- ----------- ----------- ---------- -------------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 28.42% 53.03% $.0586 $615,103 1.22% 1.60% 1.43% 1.39%
1997--Class B
Shares(f)....... 22.23(d) 53.03 .0586 17,346 1.93(e) 0.15(e) 1.93(e) 0.15(e)
1997--Institu-
tional
Shares(f)....... 20.77(d) 53.03 .0586 193 0.82(e) 1.36(e) 0.82(e) 1.36(e)
1997--Service
Shares(f)....... 23.87(d) 53.03 .0586 3,174 1.32(e) 0.94(e) 1.32(e) 0.94(e)
1996--Class A
Shares.......... 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
1995--Class A
Shares.......... 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)....... 13.08(d) 102.23(d) -- 41,528 1.25(e) 1.23(e) 3.24(e) (0.76)(e)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Calculated based on the average shares outstanding methodology.
(c) For the period from Febraury 5, 1993 (commencement of operations) to
January 31, 1994.
(d) Not annualized.
(e) Annualized.
(f) For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.

9
<PAGE>

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
RATIO OF
RATIO OF NET
NET RATIO OF NET INVESTMENT
ASSETS AT NET INVESTMENT RATIO OF INCOME
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES TO
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE AVERAGE
RATE RATE(G) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- ---------- ----------- ----------- ---------- ------------
CORE U.S. EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 37.28% $.0417 $225,968 1.29% 0.91% 1.53% 0.67%
1997--Class B
Shares(f)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(f)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(d)....... 39.35(b) -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)....... 135.02(c) -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.

<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------------------- -----------------------
FROM NET
NET REALIZED REALIZED
NET REALIZED AND UNREALIZED GAIN ON NET
NET ASSET AND UNREALIZED GAIN (LOSS) ON FROM INVESTMENT, INCREASE NET ASSET
VALUE, NET GAIN (LOSS) ON FOREIGN NET OPTION AND (DECREASE) VALUE,
BEGINNING INVESTMENT INVESTMENTS, CURRENCY RELATED INVESTMENT FUTURES IN NET END OF
OF PERIOD INCOME (LOSS) OPTIONS AND FUTURES TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD
--------- ------------- ------------------- ---------------- ---------- ------------ ----------- ---------
INTERNATIONAL EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $17.20 $0.10 $3.51 $(1.28) $ -- $(0.21) $2.12 $19.32
1997--Class B
Shares(e)....... 18.91 (0.06) 0.94 (0.34) -- (0.21) 0.33 19.24
1997--Institu-
tional
Shares(e)....... 17.45 0.04 3.39 (1.24) (0.03) (0.21) 1.95 19.40
1997--Service
Shares(e)....... 17.70 (0.02) 2.95 (1.08) -- (0.21) 1.64 19.34
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42 (0.58) (0.87) 2.68 17.20
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01) -- (0.59) (3.58) 14.52
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38) -- -- 3.75 18.10
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11) -- -- 0.17 14.35

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- ---------- --------- ----------- ---------------- ---------- -------------
INTERNATIONAL EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 13.48% 38.01% $.0318 $536,283 1.69% (0.07)% 1.88% (0.26)%
1997--Class B
Shares(e)....... 2.83(c) 38.01 .0318 19,198 2.23(d) (0.97)(d) 2.38(d) (1.12)(d)
1997--Institu-
tional
Shares(e)....... 12.53(c) 38.01 .0318 68,374 1.10(d) 0.43(d) 1.25(d) 0.28(d)
1997--Service
Shares(e)....... 10.42(c) 38.01 .0318 674 1.60(d) (0.40)(d) 1.75(d) (0.55)(d)
1996--Class A
Shares.......... 28.68 68.48 -- 330,860 1.52 0.26 1.77 0.01
1995--Class A
Shares.......... (16.65) 84.54 -- 275,086 1.73 0.40 1.98 0.15
1994--Class A
Shares.......... 26.13 60.04 -- 269,091 1.76 0.51 2.01 0.26
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)....... 1.23(c) 0.00 -- 66,063 1.80(d) (0.42)(d) 2.58(d) (1.20)(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.

12
<PAGE>

<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(F) (000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
---------- ---------- --------- ----------- ------------- ---------- -------------
ASIA GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 48.40% $.0151 $263,014 1.67% 0.20% 1.87% 0.00%
1997--Class B
Shares(e)....... 48.40 .0151 3,354 2.21(d) (0.56)(d) 2.37(d) (0.72)(d)
1997--Institu-
tional
Shares(e)....... 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares.......... 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)....... 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional and Class B shares,
respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.

13
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

14
<PAGE>

Quantitative Style Funds. The CORE U.S. Equity and CORE Large Cap Growth
Funds are managed using both quantitative and fundamental techniques. CORE is
an acronym for "Computer-Optimized, Research-Enhanced," which reflects the
Funds' investment process. Equity securities are evaluated using both a
proprietary quantitative multifactor model and the investment opinions of
Goldman Sachs' research analysts. The Investment Adviser then uses
computerized optimization techniques to construct diversified portfolios
consisting of stock that are highly rated both by the Investment Adviser's
proprietary multifactor model and by Goldman Sachs' research analysts. The
optimizer seeks to balance expected returns against portfolio risk in an
effort to find the portfolio with the optimal reward to risk trade-off
relative to the Fund's investment objectives.

GROWTH AND INCOME FUND

Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.

CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")

Investment Process. The Investment Adviser begins with a universe consisting
primarily of blue chip and other large capitalization equity securities. The
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating, and, if the security is
followed by the Goldman Sachs Global Investment Research Department (the
"Research Department"), a second rating is assigned based upon the Research
Department's evaluation. In building a diversified portfolio for the Fund, the
Investment Adviser utilizes optimization techniques to seek to maximize the
Funds expected reward to risk ratio. This portfolio is primarily comprised of
securities rated highest by the Investment Adviser's Multifactor Model and
research analysts and has risk characteristics and industry weightings similar
to the S&P 500 Index. Under normal conditions, the securities of any one
issuer may not exceed 5% of the Fund's total assets.

15
<PAGE>

Research Department. In assigning ratings, the Research Department uses a
four category rating system ranging from "recommended for purchase" to "likely
to underperform." The ratings reflect the analyst's judgement as to the
investment results of a specific security and incorporate economic outlook,
valuation, risk and a variety of other factors. By employing both a
quantitative (i.e., the Multifactor Model) and a qualitative (i.e., the
analyst's ratings) method of selecting securities, the Fund seeks to
capitalize on the strengths of each discipline.

CORE LARGE CAP GROWTH FUND

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Investment Adviser
emphasizes a company's growth prospects in analyzing equity securities to be
purchased by the Fund. The Fund may invest in equity securities of foreign
issuers that are traded in the United States and that comply with U.S.
accounting standards. The Fund's investments are selected using both a variety
of quantitative techniques and fundamental research in seeking to maximize the
Fund's reward to risk ratio. The Fund's portfolio is designed to have risk,
style, capitalization and industry characteristics similar to the Russell 1000
Growth Index. The Fund seeks a portfolio comprised of companies with above
average capitalizations and earnings growth expectations and below average
dividend yields. The Fund may invest only in fixed income securities that are
considered cash equivalents.

For a description of the investment process of the Fund, see "Investment
Process," "Multifactor Model" and "Research Department" under "CORE U.S.
EQUITY FUND."

MID CAP EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

16
<PAGE>

INTERNATIONAL EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

EMERGING MARKETS EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

17
<PAGE>

Under normal circumstances, the Fund maintains investments in at least six
Emerging Countries and will not invest more than 35% of its total assets in
securities of issuers in any one Emerging Country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the Emerging
Country markets and particular issuers. In addition, macro-economic factors
and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and governmental Emerging Country
issuers, (ii) equity and fixed income securities of issuers in developed
countries and (iii) temporary investments.

ASIA GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

18
<PAGE>

DESCRIPTION OF SECURITIES

CONVERTIBLE SECURITIES

19
<PAGE>

FOREIGN INVESTMENTS

Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
the Funds, political or social instability or diplomatic developments which
could affect investments in those countries.

INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs") and each
Fund, other than CORE U.S. Equity and CORE Large Cap Growth Funds, may also
invest in European Depository Receipts ("EDRs") or other similar instruments
representing securities of foreign issuers (together, "Depository Receipts").
ADRs represent the right to receive securities of foreign issuers deposited in
a domestic bank or a correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or over-the-
counter and are sponsored and issued by domestic banks. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security. To the
extent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate
actions, such as stock splits or rights offerings involving the foreign
issuer, in a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. Investment in

20
<PAGE>

Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks or the failure to intervene or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.

21
<PAGE>

FIXED INCOME SECURITIES

22
<PAGE>

RATING CRITERIA. Except as noted below, each Fund (other than the CORE U.S.
Equity and CORE Large Cap Growth Funds, which only invest in debt instruments
that are cash equivalents) may invest in debt securities rated at least
investment grade at the time of investment. Investment grade debt securities
are securities rated BBB or higher by Standard & Poor's Ratings Group
("Standard & Poor's") or Baa or higher by Moody's Investors Service, Inc.
("Moody's"). A security will be deemed to have met a rating requirement if it
receives the minimum required rating from at least one such rating
organization even though it has been rated below the minimum rating by one or
more other rating organizations, or if unrated by such rating organizations,
determined by the Investment Adviser to be of comparable credit quality. The
Growth and Income, International Equity, Emerging Markets Equity and Asia
Growth Funds may invest up to 10%, 35%, 35% and 35%, respectively, of their
total assets in debt securities which are unrated or rated in the lowest
rating categories by Standard & Poor's or Moody's (i.e., BB or lower by
Standard & Poor's or Ba or lower by Moody's), including securities rated D by
Moody's or Standard & Poor's. Mid Cap Equity Fund may invest up to 10% of its
total assets in below investment grade debt securities rated B or higher by
Standard & Poor's or B or higher by Moody's. Fixed income securities rated BBB
or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers' capacity to pay interest and repay principal. Fixed
income securities rated BB or Ba or below (or comparable unrated securities)
are commonly referred to as "junk bonds," are considered predominately
speculative and may be questionable as to principal and interest payments. In
some cases, such bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, investment
in such bonds will entail greater

23
<PAGE>

REAL ESTATE INVESTMENT TRUSTS ("REITS")

Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependant upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.

INVESTMENT TECHNIQUES

OPTIONS ON SECURITIES AND SECURITIES INDICES

24
<PAGE>

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's net asset value. The profitability of a Fund's trading in futures to
seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to a
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

25
<PAGE>

ILLIQUID AND RESTRICTED SECURITIES

REPURCHASE AGREEMENTS

Each 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. The International Equity, Emerging Markets Equity
and Asia Growth Funds may also enter into repurchase agreements involving
certain foreign government securities. If the other party or "seller"
defaults, a 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. In addition, in the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, a Fund could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser, 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.

LENDING OF PORTFOLIO SECURITIES

26
<PAGE>

SHORT SALES AGAINST-THE-BOX

TEMPORARY INVESTMENTS

MISCELLANEOUS TECHNIQUES

RISK FACTORS

27
<PAGE>

28
<PAGE>

INVESTMENT RESTRICTIONS

Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund can not be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund remains an appropriate investment in light
of their then current financial positions and needs.

PORTFOLIO TURNOVER

29
<PAGE>

MANAGEMENT

TRUSTEES AND OFFICERS

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

INVESTMENT ADVISERS

INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the CORE Large Cap Growth, Growth and Income and
Mid Cap Equity Funds. Goldman Sachs registered as an investment adviser in
1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New
York 10004, a Delaware limited partnership which is an affiliate of Goldman
Sachs, serves as the investment adviser to the CORE U.S. Equity Fund. Goldman
Sachs Funds Management, L.P. registered as an investment adviser in 1990.
Goldman Sachs Asset Management International, 133 Peterborough Court, London
EC4A 2BB, England, an affiliate of Goldman Sachs, serves as the investment
adviser to the International Equity, Emerging Markets Equity and Asia Growth
Funds. Goldman Sachs Asset Management International became a member of the
Investment Management Regulatory Organisation Limited in 1990 and registered
as an investment adviser in 1991. As of March 24, 1997, Goldman Sachs Asset
Management, Goldman Sachs Funds Management, L.P. and Goldman Sachs Asset
Management International, together with their affiliates, acted as investment
adviser, administrator or distributor for assets in excess of $104.9 billion.

30
<PAGE>

FUND MANAGERS

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
G. Lee Portfolio Manager-- Since Mr. Anderson joined the Investment
Anderson Growth and Income 1996 Adviser in 1992. Prior to 1992, he
Vice Mid Cap Equity 1997 was a research analyst in the
President Investment Research Department of
Goldman, Sachs & Co.
- ------------------------------------------------------------------------------------------------
Eileen A. Portfolio Manager-- Since Ms. Aptman jointed the Investment
Aptman Mid Cap Equity 1996 Adviser in 1993. Prior to 1993, she
Vice Growth and Income 1996 was an equity analyst at Delphi
President Management.
- ------------------------------------------------------------------------------------------------
Robert Portfolio Manager Since Mr. Beckwitt joined the Investment
Beckwitt Emerging Markets Equity 1997 Adviser in 1996. Prior to 1996, he
Vice was Chief Investment Strategist--
President Portfolio Advisory at Fidelity
Investments.
- ------------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the Investment
Vice CORE U.S. Equity 1996 Adviser in 1992. Prior to 1992, he
President CORE Large-Cap Growth 1997 was studying for a Ph.D. in finance
at the University of Chicago.
- ------------------------------------------------------------------------------------------------
Ronald E. Senior Portfolio Manager-- Since Mr. Gutfleish joined the Investment
Gutfleish Growth and Income 1993 Adviser in 1993. Prior to 1993, he
Vice Mid Cap Equity 1995 was a principal of Sanford C.
President Bernstein & Co. in its Investment
Management Research Department.
- ------------------------------------------------------------------------------------------------
Roderick D. Portfolio Manager-- Since Mr. Jack joined the Investment
Jack International Equity 1992 Adviser in 1992. Prior to 1992, he
Managing worked in the advisory and financing
Director group for
S.G. Warburg in London.
- ------------------------------------------------------------------------------------------------
Robert C. Senior Portfolio Manager-- Since Mr. Jones joined the Investment
Jones CORE U.S. Equity 1991 Adviser in 1989. From 1987 to 1989,
Managing CORE Large Cap Growth 1997 Mr. Jones was a senior quantitative
Director analyst in the Research Department.
- ------------------------------------------------------------------------------------------------
Marcel Jongen Portfolio Manager-- Since Mr. Jongen joined the Investment
Executive International Equity 1992 Adviser in 1992. Prior to 1992, he
Director was head of equities at Philips
Pension Fund in Eindhoven.
- ------------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the Investment
Vice Asia Growth 1994 Adviser in 1990.
President
- ------------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the Investment
Vice International Equity 1994 Adviser in 1994. Prior to 1994, he
President worked at Nomura Investment
Management Incorporated and for a
period at Manufacturers Hanover Bank
in New York.
- ------------------------------------------------------------------------------------------------
Warwick M. Senior Portfolio Manager-- Since Mr. Negus joined the Investment
Negus Asia Growth 1994 Adviser in 1994. Prior to 1994, he
Managing Portfolio Manager-- was a vice president of Bankers
Director International Equity 1994 Trust Australia Ltd.
Emerging Markets Equity 1997
- ------------------------------------------------------------------------------------------------
Victor H. Portfolio Manager-- Since Mr. Pinter joined the Investment
Pinter CORE U.S. Equity 1996 Adviser in 1990.
Vice CORE Large Cap Growth 1997
President
</TABLE>

31
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Ramakrishna Portfolio Since Mr. Shanker joined the Investment
Shanker Manager-- 1997 Adviser in 1997. Prior to 1997, he
Vice Asia Growth worked for the Investment Banking
President Division of Goldman, Sachs & Co. in
Singapore.
- ------------------------------------------------------------------------------------
Karma Wilson Portfolio Since Ms. Wilson joined the Investment
Vice Manager-- 1995 Adviser in 1994. Prior to 1994, she
President Asia Growth was an investment analyst with
Bankers Trust Australia Ltd. Before
1992 she was employed by Arthur
Andersen LLP.
</TABLE>

As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1997*
----------- -----------------
<S> <C> <C>
GSAM
Growth and Income............................ 0.70% 0.70%
CORE Large Cap Growth........................ 0.75% n/a
Mid Cap Equity............................... 0.75% 0.75%
GSFM
CORE U.S. Equity............................. 0.75% 0.59%
GSAMI
International Equity......................... 1.00% 0.89%
Emerging Markets Equity...................... 1.20% n/a
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- ---------------------
*With respect to the Growth and Income, CORE U.S. Equity, Mid Cap Equity,
International Equity and Asia Growth Funds, a Management Agreement combining
both advisory and administrative services was adopted effective April 30,
1997. The contractual rate set forth in the table is the rate payable under
the Management Agreements and is identical to the aggregate advisory and
administration fees payable by each Fund under the previous separate
investment advisory (including subadvisory in the case of International Equity
Fund) and administration agreements. For the fiscal year ended January 31,
1997, the annual rate expressed is the combined advisory and administration
fees paid (after voluntary fee limitations). The difference, if any, between
the stated fees and the actual fees paid by the Funds reflects that the
applicable Investment Adviser did not charge the full amount of the fees to
which it would have been entitled. The Investment Advisers may discontinue or
modify such voluntary limitations in the future at their discretion, although
they have no current intention to do so.

32
<PAGE>

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, 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 a Fund or limit a Fund's 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 Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a 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, a 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
"Management--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

NET ASSET VALUE

33
<PAGE>

PERFORMANCE INFORMATION

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

34
<PAGE>

SHARES OF THE TRUST

Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation, and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify shares
of beneficial interests in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify and reclassify any series or portfolio of shares
into one or more classes.

When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares, are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that, at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.

The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.

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

TAXATION

FEDERAL TAXES

Each Fund is treated as a separate entity for tax purposes. The CORE Large
Cap Growth and Emerging Markets Equity Funds intend to elect and each other
Fund has elected to be treated as a regulated investment company and each Fund
intends to qualify for such treatment for each taxable year under Subchapter M
of the Code. To qualify as such, a Fund must satisfy certain requirements
relating to the sources of its income, diversification of its assets and
distribution of its income to shareholders. As a regulated investment company,
a Fund will not be subject to federal income or excise tax on any net
investment income and net realized capital gains that are distributed to its
shareholders in accordance with certain timing requirements of the Code.

35
<PAGE>

Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
International Equity, Emerging Markets Equity and Asia Growth Funds are not
generally expected to qualify, in the hands of corporate shareholders, for the
corporate dividends-received deduction, but a portion of each other Fund's
dividends may generally so qualify. Certain distributions paid by a Fund in
January of a given year may be taxable to shareholders as if received the
prior December 31. Shareholders will be informed annually about the amount and
character of distributions received from the Funds for federal income tax
purposes.

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

Redemptions and exchanges of shares are taxable events.

OTHER TAXES

36
<PAGE>

ADDITIONAL INFORMATION

37
<PAGE>

ADDITIONAL SERVICES

The Trust, on behalf of the Funds, has adopted a Service Plan with respect to
the Service Shares which authorizes a Fund to compensate certain institutions
("Service Organizations") for providing account administration and personal and
account maintenance services to their customers who are beneficial owners of
such Shares. The Trust, on behalf of the Funds, enters into agreements with
Service Organizations which purchase Service Shares on behalf of their custom-
ers ("Service Agreements"). The Service Agreements provide for compensation to
the Service Organizations in an amount up to 0.50% (on an annualized basis) of
the average daily net assets of the Service Shares 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 0.25% of such average daily net assets. The services provided by the
Service Organizations may include acting, directly or through an agent, as the
sole shareholder of record, maintaining account records for customers, process-
ing orders to purchase, redeem or exchange Service Shares for customers, re-
sponding to inquiries from prospective and existing shareholders and assisting
customers with investment procedures.

For the fiscal year ended January 31, 1997, Asia Growth Fund had no Service
Shares outstanding.

Holders of Service Shares of a Fund bear all expenses and fees paid to Serv-
ice Organizations for their services with respect to such Shares as well as any
other expenses which are directly attributable to such Shares.

Service Organizations may charge other fees to their customers who are the
beneficial owners of Service Shares in connection with their customer accounts.
These fees would be in addition to any amounts received by the Service Organi-
zation under a Service Agreement and may affect the return earned on an invest-
ment in a Fund. The Trust, on behalf of the Funds, accrues payments made pursu-
ant to a Service Agreement daily. All inquiries of beneficial owners of Service
Shares should be directed to such owners' Service Organization.

REPORTS TO SHAREHOLDERS

Recordholders of Service Shares of the Funds will receive an annual report
containing audited financial statements and a semi-annual report. Each
recordholder of Service Shares will also be provided with a printed confirma-
tion for each transaction in its account and a quarterly account statement. A
year-to-date statement for any account will be provided to a Service Organiza-
tion upon request made to Goldman Sachs.

38
<PAGE>

DIVIDENDS

Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Service Shares will, at the election
of each shareholder, be paid (i) in cash or (ii) in additional Service Shares
of such Fund. This election should initially be made on a shareholder's Account
Information Form and may be changed upon written notice to Goldman Sachs at any
time prior to the record date for a particular dividend or distribution. If no
election is made, all dividends from net investment income and capital gain
distributions will be reinvested in Service Shares of the applicable Fund.

The election to reinvest dividends and distributions paid by a Fund in addi-
tional Service Shares of the Fund will not affect the tax treatment of such
dividends and distributions, which will be treated as received by the share-
holder and then used to purchase Service Shares of a Fund.

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

PURCHASE OF SERVICE SHARES

Customers of Service Organizations may invest in Service Shares only through
Service Organizations. Service Shares may be purchased on any Business Day by a
Service Organization through Goldman Sachs at the net asset value per share
next determined after receipt of an order. No sales load will be charged. If,
by the close of regular trading on the New York Stock Exchange (normally 3:00
p.m. Chicago time, 4:00 p.m. New York time), an order is received from a Serv-
ice Organization by Goldman Sachs, the price per share will be the net asset
value per share computed on the day the purchase order is received. See "Net
Asset Value." Purchases of Service Shares of the Fund must be settled within
three (3) Business Days of the receipt of a complete purchase order. Payment of
the proceeds of redemption of shares purchased by check may be delayed for a
period of time as described under "Redemption of Service Shares."

The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to State Street. In order to
facilitate timely transmittal, the Service Organizations have established times
by which purchase orders and payments must be received by them.

39
<PAGE>

PURCHASE PROCEDURES

Purchases of Service Shares may be made by a Service Organization placing an
order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
State Street Bank and Trust Company ("State Street") or initiating an ACH
transfer. Purchases may also be made by a Service Organization by check (except
that the Trust will not accept a check drawn on a foreign bank or a third party
check) or Federal Reserve draft made payable to "Goldman Sachs Equity Funds--
Name of Fund and Class of shares" and should be directed to "Goldman Sachs
Equity Funds--Name of Fund and Class of shares," c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711.

OTHER PURCHASE INFORMATION

The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance. A Service
Organization may effect redemptions of noncomplying accounts, and may impose a
charge for any special services rendered to its customers. Customers should
contact their Service Organization for further information concerning such
requirements and charges.

The Funds reserve the right to redeem Service Shares of any Service Organiza-
tion whose account balance is less than $50 as a result of earlier redemptions.
Such redemptions will not be implemented if the value of such shareholder's ac-
count falls below the minimum account balance solely as a result of market con-
ditions. The Trust will give sixty (60) days' prior written notice to Service
Organizations whose Service Shares are being redeemed to allow them to purchase
sufficient additional Service Shares to avoid such redemption.

The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for ex-
ample, when a purchaser or group of purchaser's pattern of frequent purchases,
sales or exchanges of Service Shares of a Fund is evident, or if purchases,
sales, or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.

In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.

EXCHANGE PRIVILEGE

Service Shares of the Funds may be exchanged by a Service Organization for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and des-
ignated as an eligible fund for this purpose and (ii) the corresponding class
of any Goldman Sachs Money Market Fund at the net asset value next determined
either by writing to Goldman Sachs, Attention: Goldman Sachs Equity Funds--Name
of Fund and Class of shares, c/o GSAM Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account Infor-
mation Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder

40
<PAGE>

should obtain and read the prospectus relating to any other fund and its shares
and consider its investment objective, policies and applicable fees before mak-
ing an exchange. Service Shares acquired by telephone exchange must be regis-
tered in the same name(s) and have the same address as Service Shares of the
Fund for which the exchange is being made.

In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Service Shares" to confirm that such instructions are genuine. In times of
drastic economic or market changes the telephone exchange privilege may be dif-
ficult to implement. For federal income tax purposes, an exchange is treated as
a sale of the Service Shares surrendered in the exchange, on which an investor
may realize a gain or loss, followed by a purchase of Service Shares or the
corresponding class of any Goldman Sachs Money Market Fund received in the ex-
change. Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange. Exchanges are available only in states where ex-
changes may legally be made. The exchange privilege may be modified or with-
drawn at any time on sixty (60) days' written notice to recordholders of Serv-
ice Shares and is subject to certain limitations. See "Purchase of Service
Shares."

REDEMPTION OF SERVICE SHARES

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

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

The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Service Shares, or if the recordholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay),

41
<PAGE>

but may be paid up to three (3) days after receipt of a properly executed
redemption request. Wiring of redemption proceeds may be delayed one additional
Business Day if the Federal Reserve Bank is closed on the day redemption
proceeds would ordinarily be wired. Redemption proceeds paid by check will
normally be mailed to the address of record within three (3) Business Days of
receipt of a properly executed redemption request. Once wire transfer
instructions have been given by Goldman Sachs, neither the Funds, the Trust nor
Goldman Sachs assumes any further responsibility for the performance of
intermediaries or the customer's Service Organization in the transfer process.
If a problem with such performance arises, the customer should deal directly
with such intermediaries or Service Organizations.

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

42
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM

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

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

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

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

A-1
<PAGE>

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

GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB

GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004

GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110

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

EQPROSVC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS EQUITY FUNDS

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

PROSPECTUS

SERVICE SHARES

GOLDMAN
SACHS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

GOLDMAN SACHS MONEY MARKET FUNDS
FINANCIAL SQUARE FUNDS
FST SHARES
4900 Sears Tower
Chicago, Illinois 60606

Goldman Sachs Trust (the "Trust") is a no-load, open-end, management invest-
ment company (a "mutual fund") which includes the Financial Square Funds (the
"Funds"). This Prospectus relates only to the offering of FST shares of bene-
ficial interest ("FST Shares") of the Funds. Goldman Sachs Asset Management, a
separate operating division of Goldman, Sachs & Co., serves as each Fund's in-
vestment adviser. Goldman, Sachs & Co. serves as each Fund's distributor and
transfer agent.

The following Funds seek to maximize current income to the extent consistent
with the preservation of capital and the maintenance of liquidity by investing
exclusively in high quality money market instruments. The Funds may invest in
diversified portfolios of the following types of instruments:

Financial Square Prime Obligations Fund. Securities of the U.S. Government,
its agencies, authorities and instrumentalities, obligations of U.S. banks,
commercial paper and other short-term obligations of U.S. companies, states,
municipalities and other entities, and repurchase agreements.

Financial Square Money Market Fund. Securities of the U.S. Government, its
agencies, authorities and instrumentalities, U.S. dollar denominated obliga-
tions of U.S. and foreign banks, U.S. dollar denominated commercial paper and
other short-term obligations of U.S. and foreign companies, foreign govern-
ments, states, municipalities and other entities, and repurchase agreements.

Financial Square Money Market Plus Fund. Securities of the U.S. Government,
its agencies, authorities and instrumentalities, U.S. dollar denominated obli-
gations of U.S. and foreign banks, U.S. dollar denominated commercial paper
and other short-term obligations of U.S. and foreign companies, foreign gov-
ernments, states, municipalities and other entities, and repurchase agree-
ments. In order to obtain a rating from a rating organization, the Fund will
observe special investment restrictions.

Financial Square Treasury Obligations Fund. Securities issued or guaranteed
by the U.S. Treasury and repurchase agreements relating to such securities.

Financial Square Treasury Instruments Fund. Securities issued or guaranteed
by the U.S. Treasury, the interest income from which is generally exempt from
state income taxation.

Financial Square Government Fund. Securities of the U.S. Government, its
agencies, authorities, and instrumentalities, and repurchase agreements relat-
ing to such securities.

Financial Square Federal Fund. Securities of the U.S. Government and certain
of its agencies, authorities and instrumentalities, the interest income from
which is generally exempt from state income taxation.

Financial Square Tax-Free Money Market Fund. Securities issued by or on be-
half of states, territories and possessions of the United States and their po-
litical subdivisions, agencies, authorities and instrumentalities, and the
District of Columbia, the interest from which is, in the opinion of bond coun-
sel, if any, excluded from gross income for federal income tax purposes and
not an item of tax preference under the federal alternative minimum tax.

Financial Square Municipal Money Market Fund. Securities issued by or on be-
half of states, territories and possessions of the United States and their po-
litical subdivisions, agencies, authorities and instrumentalities, and the
District of Columbia, the interest from which is, in the opinion of bond coun-
sel, if any, excluded from gross income for federal income tax purposes (but
not necessarily exempt from federal alternative minimum tax or state and local
taxes).

AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOV-
ERNMENT AND THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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

ADDITIONAL INFORMATION........... Goldman Sachs Funds--Toll Free: 800-621-2550

This Prospectus provides you with information about the Funds that you should
know before investing in FST Shares. It should be read and retained for future
reference. If you would like more detailed information, the Statement of Addi-
tional Information dated May 1, 1997, as amended or supplemented from time to
time, is available upon request without charge by calling the telephone number
listed above or by writing Goldman Sachs, Attention: Shareholder Services,
Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois 60606. The Statement
of Additional Information, which is incorporated by reference into this Pro-
spectus, has been filed with the Securities and Exchange Commission. Not all
Funds are available in certain states. Please call the phone number listed
above to determine availability in your state. The SEC maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information and
other information regarding the Trust.

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

FST SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT IN-
SURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A 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 AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Prospectus is May 1, 1997.
<PAGE>

SHAREHOLDER AND FUND EXPENSES
FST SHARES

<TABLE>
<CAPTION>
FINANCIAL FINANCIAL FINANCIAL
FINANCIAL FINANCIAL SQUARE FINANCIAL FINANCIAL SQUARE SQUARE
SQUARE SQUARE MONEY SQUARE SQUARE FINANCIAL FINANCIAL TAX-FREE MUNICIPAL
PRIME MONEY MARKET TREASURY TREASURY SQUARE SQUARE MONEY MONEY
OBLIGATIONS MARKET PLUS OBLIGATIONS INSTRUMENTS GOVERNMENT FEDERAL MARKET MARKET
FUND FUND FUND FUND FUND FUND FUND FUND FUND
----------- --------- --------- ----------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION EXPENSES
Maximum Sales Charge
Imposed on Purchases. None None None None None None None None None
Sales Charge Imposed
on Reinvested
Distributions....... None None None None None None None None None
Deferred Sales Load
Imposed on
Redemptions......... None None None None None None None None None
Exchange Fee......... None None None None None None None None None
ANNUAL OPERATING
EXPENSES (1)
(as a percentage of
average daily net
assets)
Management Fees
(after
limitations)(2)..... 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17%
Other Expenses (after
expense limitations)
(3)................. 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL OPERATING EX-
PENSES (4)........... 0.18% 0.18% 0.18% 0.18% 0.18% 0.18% 0.18% 0.18% 0.18%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

EXAMPLE OF EXPENSES

You would pay the following expenses on a hypothetical $1,000 investment, as-
suming a 5% annual return and redemption at the end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Financial Square Prime Obligations Fund..... $2 $ 6 $10 $23
Financial Square Money Market Fund.......... $ 2 $ 6 $10 $23
Financial Square Money Market Plus Fund..... $ 2 $ 6 N/A N/A
Financial Square Treasury Obligations Fund.. $ 2 $ 6 $10 $23
Financial Square Treasury Instruments Fund.. $ 2 $ 6 N/A N/A
Financial Square Government Fund............ $ 2 $ 6 $10 $23
Financial Square Federal Fund............... $ 2 $ 6 N/A N/A
Financial Square Tax-Free Money Market Fund. $ 2 $ 6 $10 $23
Financial Square Municipal Money Market
Fund....................................... $ 2 $ 6 N/A N/A
</TABLE>

2
<PAGE>

(2) The Investment Adviser has voluntarily agreed not to impose 0.035% of its
management fee for each Fund. Without such limitation, management fees for
each Fund would be 0.205%.

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Financial Square Prime Obligations Fund................... .025% .23%
Financial Square Money Market Fund........................ .025% .23%
Financial Square Treasury Obligations Fund................ .035% .24%
Financial Square Government Fund.......................... .035% .24%
Financial Square Tax-Free Money Market Fund............... .025% .23%
</TABLE>

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Financial Square Money Market Plus Fund................... .035% .24%
Financial Square Treasury Instruments Fund................ .125% .33%
Financial Square Federal Fund............................. .095% .30%
Financial Square Municipal Money Market Fund.............. .285% .49%
</TABLE>

The information set forth in the foregoing table and hypothetical example
relates only to FST Shares of the Funds. The Funds also offer FST Preferred
Shares, FST Administration Shares and FST Service Shares. The other classes of
the Funds are subject to different fees and expenses (which affect perfor-
mance) and are entitled to different services. Information regarding any other
class of the Funds may be obtained from your sales representative or from
Goldman Sachs by calling the number on the front cover of this Prospectus.

The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on fees and expenses included in the table and the
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those indicat-
ed. Moreover, while the example assumes a 5% annual return, a Fund's actual
performance will vary and may result in an actual return greater or less than
5%. See "Management--Investment Adviser."

3
<PAGE>

FINANCIAL HIGHLIGHTS

The following data with respect to a share (of the class specified) of the
Financial Square Prime Obligations, Financial Square Money Market, Financial
Square Treasury Obligations, Financial Square Government and Financial Square
Tax-Free Money Market Funds outstanding during the periods indicated have been
audited by Arthur Andersen LLP, independent auditors, as indicated in their
report incorporated by reference and attached to the Statement of Additional
Information from the annual report to shareholders for the fiscal year ended
December 31, 1996 (the "Annual Report"), and should be read in conjunction
with the financial statements and related notes incorporated by reference and
attached to the Statement of Additional Information.

Financial Square Municipal Money Market, Financial Square Money Market Plus,
Financial Square Federal and Financial Square Treasury Instruments Funds had
no operations during the fiscal year ended December 31, 1996. Accordingly,
there are no selected per share data and ratios presented for these Funds.

4
<PAGE>

Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding Throughout Each Period
Prime Obligations Fund

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

<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
RATIO OF NET RATIO OF NET
NET ASSET NET REALIZED TOTAL NET ASSET EXPENSES TO INVESTMENT
VALUE AT NET GAIN INCOME FROM DISTRIBUTIONS VALUE AT AVERAGE INCOME TO
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT TO END TOTAL NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS OF PERIOD RETURN(A) ASSETS ASSETS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------
1996-FST shares. $1.00 $0.0529 $ -- $0.0529 $(0.0529) $1.00 5.41% 0.18% 5.29%
1996-FST Pre-
ferred
shares(c)....... 1.00 0.0346 -- 0.0346 (0.0346) 1.00 5.28(b) 0.28(b) 5.19(b)
1996-FST Admin-
istration
shares.......... 1.00 0.0506 -- 0.0506 (0.0506) 1.00 5.14 0.43 5.06
1996-FST Service
shares.......... 1.00 0.0478 -- 0.0478 (0.0478) 1.00 4.88 0.68 4.78
1995-FST shares. 1.00 0.0586 -- 0.0586 (0.0586) 1.00 6.02 0.18 5.86
1995-FST Admin-
istration
shares.......... 1.00 0.0559 -- 0.0559 (0.0559) 1.00 5.75 0.43 5.59
1995-FST Service
shares.......... 1.00 0.0533 -- 0.0533 (0.0533) 1.00 5.49 0.68 5.33
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares(d)....... 1.00 0.0401 -- 0.0401 (0.0401) 1.00 4.38(b) 0.18(b) 4.38(b)
1994-FST Admin-
istration
shares(d)....... 1.00 0.0383 -- 0.0383 (0.0383) 1.00 4.12(b) 0.43(b) 4.18(b)
1994-FST Service
shares(d)....... 1.00 0.0364 -- 0.0364 (0.0364) 1.00 3.86(b) 0.68(b) 3.98(b)
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1994-FST shares. 1.00 0.0311 0.0002 0.0313 (0.0313) 1.00 3.18 0.17 3.11
1994-FST Admin-
istration
shares.......... 1.00 0.0286 0.0002 0.0288 (0.0288) 1.00 2.92 0.42 2.86
1994-FST Service
shares.......... 1.00 0.0261 0.0002 0.0263 (0.0263) 1.00 2.66 0.67 2.61
1993-FST shares. 1.00 0.0360 0.0007 0.0367 (0.0367) 1.00 3.75 0.18 3.60
1993-FST Admin-
istration
shares(e)....... 1.00 0.0068 0.0001 0.0069 (0.0069) 1.00 3.02(b) 0.44(b) 2.96(b)
1993-FST Service
shares.......... 1.00 0.0301 0.0007 0.0308 (0.0308) 1.00 3.23 0.68 3.01
1992-FST shares. 1.00 0.0572 0.0002 0.0574 (0.0574) 1.00 5.99 0.18 5.72
1992-FST Service
shares(e)....... 1.00 0.0027 -- 0.0027 (0.0027) 1.00 4.10(b) 0.66(b) 4.10(b)
FOR THE PERIOD MARCH 8, 1990(F) THROUGH JANUARY 31,
- ---------------------------------------------------
1991-FST shares. 1.00 0.0727 -- 0.0727 (0.0727) 1.00 8.27(b) 0.18(b) 8.04(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
NET RATIO OF NET
ASSETS AT RATIO OF INVESTMENT
END EXPENSES TO INCOME TO
OF PERIOD AVERAGE NET AVERAGE NET
(IN 000'S) ASSETS ASSETS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------
1996-FST shares. $3,901,797 0.23% 5.24%
1996-FST Pre-
ferred
shares(c)....... 127,126 0.33(b) 5.14(b)
1996-FST Admin-
istration
shares.......... 215,898 0.48 5.01
1996-FST Service
shares.......... 115,154 0.73 4.73
1995-FST shares. 3,295,791 0.22 5.82
1995-FST Admin-
istration
shares.......... 147,894 0.47 5.55
1995-FST Service
shares.......... 65,278 0.72 5.29
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares(d)....... 2,774,849 0.24(b) 4.32(b)
1994-FST Admin-
istration
shares(d)....... 66,113 0.49(b) 4.12(b)
1994-FST Service
shares(d)....... 41,372 0.74(b) 3.92(b)
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1994-FST shares. 1,831,413 0.25 3.03
1994-FST Admin-
istration
shares.......... 35,250 0.50 2.78
1994-FST Service
shares.......... 14,001 0.75 2.53
1993-FST shares. 813,126 0.25 3.53
1993-FST Admin-
istration
shares(e)....... 1,124 0.52(b) 2.88(b)
1993-FST Service
shares.......... 336 0.75 2.94
1992-FST shares. 917,073 0.27 5.63
1992-FST Service
shares(e)....... 118 0.74(b) 4.02(b)
FOR THE PERIOD MARCH 8, 1990(F) THROUGH JANUARY 31,
- ---------------------------------------------------
1991-FST shares. 578,495 0.28(b) 7.94(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the invest-
ment at the net asset value at the end of the period.
(b) Annualized.
(c) FST Preferred share activity commenced on May 1, 1996.
(d) The information presented reflects eleven months of operations due to a
change in fiscal year end. This change was caused by the reorganization of
the funds as a series of Goldman Sachs Money Market Trust.
(e) FST Administration share and FST Service share activity commenced during
November of 1992 and January of 1992, respectively.
(f) Commencement of operations.

5
<PAGE>

Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
Money Market Fund

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
RATIO OF NET
NET ASSET NET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT
VALUE AT NET GAIN INCOME FROM DISTRIBUTIONS VALUE AT EXPENSES TO INCOME TO
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT TO END TOTAL AVERAGE NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS OF PERIOD RETURN(A) ASSETS ASSETS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
- -----------------
1996-FST shares. $1.00 $0.0533 $0.0001 $0.0534 $(0.0534) $1.00 5.45% 0.18% 5.33%
1996-FST
Preferred
shares(c)....... 1.00 0.0348 -- 0.0348 (0.0348) 1.00 5.31(b) 0.28(b) 5.23(b)
1996-FST
Administration
shares.......... 1.00 0.0504 0.0001 0.0505 (0.0505) 1.00 5.19 0.43 5.04
1996-FST Service
shares.......... 1.00 0.0484 -- 0.0484 (0.0484) 1.00 4.93 0.68 4.84
1995-FST shares. 1.00 0.0589 -- 0.0589 (0.0589) 1.00 6.07 0.15 5.89
1995-FST
Administration
shares.......... 1.00 0.0561 -- 0.0561 (0.0561) 1.00 5.80 0.40 5.61
1995-FST Service
shares(d)....... 1.00 0.0231 -- 0.0231 (0.0231) 1.00 5.41(b) 0.65(b) 4.93(b)
FOR THE PERIOD ENDED
DECEMBER 31,
- --------------------
1994-FST
shares(d)....... 1.00 0.0305 -- 0.0305 (0.0305) 1.00 4.91(b) 0.11(b) 4.88(b)
1994-FST
Administration
shares(d)....... 1.00 0.0298 -- 0.0298 (0.0298) 1.00 4.65(b) 0.36(b) 4.82(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
NET RATIO OF NET
ASSETS AT RATIO OF INVESTMENT
END EXPENSES TO INCOME TO
OF PERIOD AVERAGE NET AVERAGE NET
(IN 000'S) ASSETS ASSETS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
- -----------------
1996-FST shares. $2,540,366 0.23% 5.28%
1996-FST
Preferred
shares(c)....... 17,510 0.33(b) 5.18(b)
1996-FST
Administration
shares.......... 165,766 0.48 4.99
1996-FST Service
shares.......... 234,376 0.73 4.79
1995-FST shares. 2,069,197 0.23 5.81
1995-FST
Administration
shares.......... 137,412 0.48 5.53
1995-FST Service
shares(d)....... 4,219 0.73(b) 4.85(b)
FOR THE PERIOD ENDED
DECEMBER 31,
- --------------------
1994-FST
shares(d)....... 862,971 0.25(b) 4.74(b)
1994-FST
Administration
shares(d)....... 66,560 0.50(b) 4.68(b)
</TABLE>
- ----
(a)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b)Annualized.
(c)FST Preferred share activity commenced on May 1, 1996.
(d)FST, FST Administration and FST Service share activity commenced May 18,
1994, May 20, 1994 and July 14, 1995, respectively.

6
<PAGE>

Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
Treasury Obligations Fund

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

<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
RATIO OF NET
NET ASSET NET REALIZED TOTAL RATIO OF NET INVESTMENT
VALUE AT NET GAIN (LOSS) INCOME FROM DISTRIBUTIONS NET ASSET EXPENSES TO INCOME TO
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT TO VALUE AT TOTAL AVERAGE NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS END OF PERIOD RETURN(A) ASSETS ASSETS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------
1996-FST shares. $1.00 $0.0522 $0.0003 $0.0525 $(0.0524) $1.00 5.35% 0.18% 5.22%
1996-FST
Preferred
shares(c)....... 1.00 0.0342 0.0001 0.0343 (0.0343) 1.00 5.24(b) 0.28(b) 5.11(b)
1996-FST
Administration
shares.......... 1.00 0.0497 0.0002 0.0499 (0.0498) 1.00 5.09 0.43 4.97
1996-FST Service
shares.......... 1.00 0.0472 0.0002 0.0474 (0.0474) 1.00 4.83 0.68 4.72
1995-FST shares. 1.00 0.0573 0.0005 0.0578 (0.0578) 1.00 5.96 0.18 5.73
1995-FST
Administration
shares.......... 1.00 0.0547 0.0005 0.0552 (0.0552) 1.00 5.69 0.43 5.47
1995-FST Service
shares.......... 1.00 0.0521 0.0005 0.0526 (0.0526) 1.00 5.43 0.68 5.21
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------
1994-FST
shares(d)....... 1.00 0.0379 (0.0001) 0.0378 (0.0378) 1.00 4.23(b) 0.18(b) 4.13(b)
1994-FST
Administration
shares(d)....... 1.00 0.0388 (0.0001) 0.0387 (0.0387) 1.00 3.97(b) 0.43(b) 4.24(b)
1994-FST Service
shares(d)....... 1.00 0.0349 (0.0001) 0.0348 (0.0348) 1.00 3.71(b) 0.68(b) 3.82(b)
FOR THE YEAR ENDED JANUARY 31,
- ----------------
1994-FST shares. 1.00 0.0301 0.0007 0.0308 (0.0307) 1.00 3.11 0.17 3.01
1994-FST
Administration
shares.......... 1.00 0.0276 0.0006 0.0282 (0.0281) 1.00 2.85 0.42 2.76
1994-FST Service
shares.......... 1.00 0.0251 0.0008 0.0259 (0.0256) 1.00 2.60 0.67 2.51
1993-FST shares. 1.00 0.0342 0.0012 0.0354 (0.0355) 1.00 3.69 0.18 3.42
1993-FST
Administration
shares(e) ...... 1.00 0.0009 -- 0.0009 (0.0009) 1.00 2.83(b) 0.43(b) 2.83(b)
1993-FST Service
shares.......... 1.00 0.0296 0.0016 0.0312 (0.0309) 1.00 3.17 0.68 2.96
1992-FST shares. 1.00 0.0549 0.0015 0.0564 (0.0561) 1.00 5.84 0.18 5.49
1992-FST Service
shares(e)....... 1.00 0.0113 0.0006 0.0119 (0.0116) 1.00 4.47(b) 0.68(b) 3.77(b)
FOR THE PERIOD MARCH 8, 1990(F) THROUGH JANUARY 31,
- ---------------------------------------------------
1991-FST shares. 1.00 0.0600 0.0006 0.0606 (0.0605) 1.00 8.06(b) 0.21(b) 7.74(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
NET RATIO OF NET
ASSETS AT RATIO OF INVESTMENT
END EXPENSES TO INCOME TO
OF PERIOD AVERAGE NET AVERAGE NET
(IN 000'S) ASSETS ASSETS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------
1996-FST shares. $2,291,051 0.24% 5.16%
1996-FST
Preferred
shares(c)....... 46,637 0.34(b) 5.05(b)
1996-FST
Administration
shares.......... 536,895 0.49 4.91
1996-FST Service
shares.......... 220,560 0.74 4.66
1995-FST shares. 1,587,715 0.23 5.68
1995-FST
Administration
shares.......... 283,186 0.48 5.42
1995-FST Service
shares.......... 139,117 0.73 5.16
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------
1994-FST
shares(d)....... 958,196 0.25(b) 4.06(b)
1994-FST
Administration
shares(d)....... 82,124 0.50(b) 4.17(b)
1994-FST Service
shares(d)....... 81,162 0.75(b) 3.75(b)
FOR THE YEAR ENDED JANUARY 31,
- ----------------
1994-FST shares. 812,420 0.24 2.94
1994-FST
Administration
shares.......... 24,485 0.49 2.69
1994-FST Service
shares.......... 35,656 0.74 2.44
1993-FST shares. 776,181 0.26 3.34
1993-FST
Administration
shares(e) ...... 1 0.51(b) 2.75(b)
1993-FST Service
shares.......... 5,155 0.76 2.88
1992-FST shares. 413,171 0.28 5.39
1992-FST Service
shares(e)....... 3,634 0.78(b) 3.67(b)
FOR THE PERIOD MARCH 8, 1990(F) THROUGH JANUARY 31,
- ---------------------------------------------------
1991-FST shares. 229,988 0.34(b) 7.61(b)
</TABLE>
- ----
(a)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b)Annualized.
(c)FST Preferred share activity commenced on May 1, 1996.
(d)The information presented reflects eleven months of operations due to a
change in fiscal year end. This change was caused by the reorganization of the
funds as a series of Goldman Sachs Money Market Trust.
(e)FST Administration and FST Service share activity commenced during January
of 1993 and October of 1991, respectively.
(f)Commencement of operations.

7
<PAGE>

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------
NET ASSET TOTAL
VALUE AT NET NET REALIZED GAIN INCOME FROM DISTRIBUTIONS NET ASSET
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT TO VALUE AT END TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS OF PERIOD RETURN(A)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31,
- ------------------
1996-FST shares...... $1.00 $0.0525 $0.0001 $0.0526 $(0.0526) $1.00 5.38%
1996-FST Preferred
shares(c)............ 1.00 0.0344 0.0001 0.0345 (0.0345) 1.00 5.26(b)
1996-FST Administra-
tion shares.......... 1.00 0.0501 0.0001 0.0502 (0.0502) 1.00 5.12
1996-FST Service
shares............... 1.00 0.0474 0.0001 0.0475 (0.0475) 1.00 4.86
1995-FST shares...... 1.00 0.0581 0.0001 0.0582 (0.0582) 1.00 6.00
1995-FST Administra-
tion shares.......... 1.00 0.0554 0.0001 0.0555 (0.0555) 1.00 5.74
1995-FST Service
shares(d)............ 1.00 0.0320 -- 0.0320 (0.0320) 1.00 5.40(b)
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST shares(e)... 1.00 0.0424 -- 0.0424 (0.0424) 1.00 4.36(b)
1994-FST Administra-
tion shares(e)....... 1.00 0.0426 -- 0.0426 (0.0426) 1.00 4.10(b)
FOR THE PERIOD ENDED
JANUARY 31,
- --------------------
1993-FST shares(d)... 1.00 0.0256 0.0001 0.0257 (0.0257) 1.00 3.14(b)
1993-FST Administra-
tion shares(d)....... 1.00 0.0120 0.0001 0.0121 (0.0121) 1.00 2.87(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
RATIO OF NET RATIO OF NET
RATIO OF NET INVESTMENT NET RATIO OF INVESTMENT
EXPENSES TO INCOME TO ASSETS AT END EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET OF PERIOD AVERAGE NET AVERAGE NET
ASSETS ASSETS (IN 000'S) ASSETS ASSETS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31,
- ------------------
1996-FST shares...... 0.18% 5.25% $858,769 0.24% 5.19%
1996-FST Preferred
shares(c)............ 0.28(b) 5.14(b) 112 0.34(b) 5.08(b)
1996-FST Administra-
tion shares.......... 0.43 5.01 145,108 0.49 4.95
1996-FST Service
shares............... 0.68 4.74 223,554 0.74 4.68
1995-FST shares...... 0.18 5.81 743,884 0.24 5.75
1995-FST Administra-
tion shares.......... 0.43 5.54 82,386 0.49 5.48
1995-FST Service
shares(d)............ 0.68(b) 5.08(b) 14,508 0.74(b) 5.02(b)
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST shares(e)... 0.15(b) 4.64(b) 258,350 0.25(b) 4.54(b)
1994-FST Administra-
tion shares(e)....... 0.40(b) 4.67(b) 54,253 0.50(b) 4.57(b)
FOR THE PERIOD ENDED
JANUARY 31,
- --------------------
1993-FST shares(d)... 0.08(b) 3.10(b) 44,697 0.59(b) 2.59(b)
1993-FST Administra-
tion shares(d)....... 0.35(b) 2.85(b) 14,126 0.76(b) 2.44(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the invest-
ment at the net asset value at the end of the period.
(b) Annualized.
(c) FST Preferred share activity commenced on May 1, 1996.
(d) FST share, FST Administration share and FST Service share activity com-
menced April 6, 1993, September 1, 1993 and May 16, 1995, respectively.
(e) The information presented reflects eleven months of operations due to a
change in fiscal year end. This change was caused by the reorganization of
the funds as a series of Goldman Sachs Money Market Trust.

8
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
---------------------------------------
NET NET TOTAL
ASSET NET REALIZED INCOME NET ASSET RATIO OF NET
VALUE AT INVEST- GAIN ON FROM DISTRIBUTIONS VALUE AT EXPENSES TO
BEGINNING MENT INVESTMENT INVESTMENT TO END OF TOTAL AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD RETURN (A) ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended December
31,
- --------------
1996-FST shares. $1.00 $ 0.0335 -- $ 0.0335 $(0.0335) $1.00 3.39% 0.18%
1996-FST Pre-
ferred
shares(c)....... 1.00 0.0218 -- 0.0218 (0.0218) 1.00 3.30(b) 0.28(b)
1996-FST Admin-
istration
shares.......... 1.00 0.0310 -- 0.0310 (0.0310) 1.00 3.13 0.43
1996-FST Service
shares.......... 1.00 0.0285 -- 0.0285 (0.0285) 1.00 2.88 0.68
1995-FST shares. 1.00 0.0381 -- 0.0381 (0.0381) 1.00 3.89 0.14
1995-FST Admin-
istration
shares.......... 1.00 0.0354 -- 0.0354 (0.0354) 1.00 3.63 0.39
1995-FST Service
shares.......... 1.00 0.0332 -- 0.0332 (0.0332) 1.00 3.38 0.64
For the Period
Ended December
31,
- --------------
1994-FST
shares(d)....... 1.00 0.0156 -- 0.0156 (0.0156) 1.00 3.41(b) 0.07(b)
1994-FST
Administration shares(d). 1.00 0.0136 -- 0.0136 (0.0136) 1.00 3.19(b) 0.32(b)
1994-FST Service
shares(d)....... 1.00 0.0091 -- 0.0091 (0.0091) 1.00 3.11(b) 0.57(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
RATIO OF NET NET RATIO OF NET
INVESTMENT ASSETS AT RATIO OF INVESTMENT
INCOME TO END OF EXPENSES TO INCOME TO
AVERAGE NET PERIOD AVERAGE NET AVERAGE NET
ASSETS (IN 000'S) ASSETS ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year
Ended December
31,
- --------------
1996-FST shares. 3.35% $440,838 0.23% 3.30%
1996-FST Pre-
ferred
shares(c)....... 3.26(b) 28,731 0.33(b) 3.21(b)
1996-FST Admin-
istration
shares.......... 3.10 51,661 0.48 3.05
1996-FST Service
shares.......... 2.85 19,855 0.73 2.80
1995-FST shares. 3.81 448,367 0.24 3.71
1995-FST Admin-
istration
shares.......... 3.54 20,939 0.49 3.44
1995-FST Service
shares.......... 3.32 19,860 0.74 3.22
For the Period
Ended December
31,
- --------------
1994-FST
shares(d)....... 3.42(b) 183,570 0.31(b) 3.18(b)
1994-FST
Administration shares(d). 3.25(b) 2,042 0.56(b) 3.01(b)
1994-FST Service
shares(d)....... 3.32(b) 2,267 0.81(b) 3.08(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b) Annualized.
(c) FST Preferred share activity commenced on May 1, 1996.
(d) FST share, FST Administration share and FST Service share activity com-
menced July 19, 1994, August 1, 1994 and September 23, 1994, respectively.

9
<PAGE>

AN INTRODUCTION TO THE FUNDS

THE TRUST: The Trust is a no-load, open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the "Invest-
ment Company Act"). Each Fund is a separate pool of assets which pursues its
investment objective through separate investment policies, as described below.

THE ADVISER: Goldman Sachs Asset Management, a separate operating division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Funds' investment ad-
viser (the "Adviser" or "GSAM").

THE DISTRIBUTOR: Goldman Sachs, which serves as the Funds' distributor and
transfer agent, is one of the largest international investment banking and
brokerage firms in the United States.

THE INVESTORS: The Funds are designed for institutional investors seeking a
high rate of return, a stable net asset value and convenient liquidation priv-
ileges. The Funds are particularly suitable for banks, corporations and other
financial institutions that seek investment of short-term funds for their own
accounts or for the accounts of their customers. Shares of the Government Fund
are intended to qualify as eligible investments for Federally chartered credit
unions pursuant to Sections 107(7), 107(8) and 107(15) of the Federal Credit
Union Act, Part 703 of the National Credit Union Administration ("NCUA") Rules
and Regulations and NCUA Letter Number 155. The Fund intends to review changes
in the applicable laws, rules and regulations governing eligible investments
for federally chartered credit unions, and to take such action as may be nec-
essary so that the investments of the Fund qualify as eligible investments un-
der the Federal Credit Union Act and the regulations thereunder. Shares of the
Government Fund, however, may or may not qualify as eligible investments for
particular state chartered credit unions. State chartered credit unions should
consult qualified legal counsel to determine whether the Government Fund is a
permissible investment under the law applicable to it.

THE FUNDS: Each Fund's securities are valued by the amortized cost method as
permitted by a rule ("Rule 2a-7") of the Securities and Exchange Commission
("SEC"). Under such rule, each Fund may invest only in securities that are de-
termined to present minimal credit risk and meet certain other criteria.

TAXABLE FUNDS: Prime Obligations, Money Market, Money Market Plus, Trea-
sury Obligations and Government Funds.

TAX ADVANTAGED FUNDS: Treasury Instruments and Federal Funds.

TAX-EXEMPT FUNDS: Tax-Free Money Market and Municipal Money Market Funds.

INVESTMENT OBJECTIVES AND POLICIES FOR TAXABLE, TAX-ADVANTAGED AND TAX-
EXEMPT FUNDS: To maximize current income to the extent consistent with the
preservation of capital and the maintenance of liquidity by investing ex-
clusively in high quality money market instruments. In order to obtain a
rating from a rating organization, the Money Market Plus Fund will observe
special investment restrictions. The Treasury Instruments and Federal Funds
pursue their objectives by limiting their investments to certain U.S. Trea-
sury Obligations and U.S. Government Securities (each as defined herein),
respectively, the interest from which is generally exempt from state income
taxation. Each investor should consult his or her tax adviser to determine
whether distributions from the Treasury Instruments and Federal Funds (and
any other Fund that may hold such obligations) derived from interest on
such obligations are exempt from state income taxation in the investor's
own state.

NET ASSET VALUE: Each Fund seeks to maintain a stable net asset value of
$1.00 per share.

MAXIMUM REMAINING MATURITY OF PORTFOLIO INVESTMENTS: Thirteen months at the
time of purchase.

10
<PAGE>

DOLLAR-WEIGHTED AVERAGE PORTFOLIO MATURITY ("WAM"): Not more than ninety
days as required by Rule 2a-7.

FIRST TIER SECURITIES: Each Fund may purchase securities which are rated (or
that have been issued by an issuer that is rated with respect to a class of
short-term debt obligations, or any security within that class, comparable in
priority and quality with such securities) in the highest short-term rating
category by at least two NRSROs (as defined below), or if only one NRSRO has
assigned a rating, by that NRSRO. U.S. Government Securities as defined herein
are considered First Tier Securities.

SECOND TIER SECURITIES: The Tax-Exempt Funds may purchase securities which
are not First Tier Securities but which are rated in the top two short-term
rating categories by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO. The Taxable Funds will not invest in a security which
is a Second Tier Security at the time of purchase.

UNRATED SECURITIES: To the extent permitted by Rule 2a-7, unrated securities
may be purchased if they are deemed to be of comparable quality to First Tier
Securities, or to the extent that a Fund may purchase Second Tier Securities,
comparable in quality to Second Tier Securities.

NRSROS: Nationally Recognized Statistical Rating Organizations include Stan-
dard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Services, Inc., Duff and Phelps, Inc., IBCA Lim-
ited and its affiliate IBCA Inc., and Thomson BankWatch, Inc. For a descrip-
tion of each NRSRO's rating categories, see Appendix A to the Statement of Ad-
ditional Information.

11
<PAGE>

INVESTMENT POLICIES MATRIX
<TABLE>
<CAPTION>
SHORT-TERM
OBLIGATIONS OF ASSET-BACKED & FOREIGN
US US CORPORATIONS RECEIVABLES- GOVERNMENT
TREASURY GOVERNMENT BANK COMMERCIAL AND OTHER REPURCHASE BACKED OBLIGATIONS
FUND OBLIGATIONS SECURITIES OBLIGATIONS PAPER ENTITIES AGREEMENTS SECURITIES+ (US$)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prime Obligations [_] [_] [_] [_] [_] [_] [_]
U.S. banks U.S. entities
only only
- ------------------------------------------------------------------------------------------------------------------------
Money Market [_] [_] [_] [_] [_] [_] [_] [_]
Over 25% of U.S. and U.S. and
total assets foreign foreign
must be (US$) (US$)
invested in commercial entities
US and paper
Foreign (US$)
Banks
- ------------------------------------------------------------------------------------------------------------------------
Money Market [_] [_] [_] [_] [_] [_] [_] [_]
Plus Over 25% of U.S. and U.S. and
total assets foreign foreign
must be (US$) (US$)
invested in commercial entities
US and paper
Foreign (US$)
Banks
- ------------------------------------------------------------------------------------------------------------------------
Treasury [_] [_]
Obligations
- ------------------------------------------------------------------------------------------------------------------------
Treasury [_]
Instruments
- ------------------------------------------------------------------------------------------------------------------------
Government [_] [_] [_]
- ------------------------------------------------------------------------------------------------------------------------
Federal [_] [_] (Does not
intend to
invest)
- ------------------------------------------------------------------------------------------------------------------------
Tax-Free Money [_]
Market Tax-exempt
only
- ------------------------------------------------------------------------------------------------------------------------
Municipal Money [_]
Market Tax-exempt
only
</TABLE>
Note: See "Description of Securities and Investment Techniques" for a descrip-
tion of, and certain criteria applicable to, each of these categories of
investments.
+To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of NRSROs.

12
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SUMMARY OF
TAXABLE TAX-EXEMPT CREDIT INVESTMENT UNRATED TAXATION FOR
MUNICIPALS MUNICIPALS QUALITY**** COMPANIES SECURITIES DISTRIBUTIONS* MISCELLANEOUS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
[_] First [_] [ ] Taxable
Tier Up to 10% of federal and
total assets state**
in other
investment
companies
- ---------------------------------------------------------------------------------------------------
[_] First [_] [_] Taxable May invest in
Tier Up to 10% of federal and obligations of
total assets state** the
in other International
investment Bank for
companies Reconstruction
and Development
- ---------------------------------------------------------------------------------------------------
[_]
First [_] [_] Taxable May invest in
Tier Up to 10% of federal and obligations of
total assets state** the
in other International
investment Bank for
companies Reconstruction
and Development
- ---------------------------------------------------------------------------------------------------

First [_] Taxable
Tier Up to 10% of federal and
total assets state**
in other
investment
companies
- ---------------------------------------------------------------------------------------------------
First [_] Taxable
Tier Up to 10% of federal and
total assets generally
in other exempt from
investment state taxation
companies
- ---------------------------------------------------------------------------------------------------
First [_]
Tier Up to 10% of Taxable
total assets federal and
in other state**
investment
companies
- ---------------------------------------------------------------------------------------------------
Under
First [_] Taxable extraordinary
Tier Up to 10% of federal and circumstances,
total assets generally may hold cash,
in other exempt from U.S. Government
investment state taxation Securities
companies subject to state
taxation or cash
equivalents
- ---------------------------------------------------------------------------------------------------

[_] First or [_] [_] Tax-exempt May (but does
At least 80% of Second Up to 10% of federal and not currently
net assets in Tier total assets taxable intend to)
Municipal in other state*** invest up to 20%
Instruments investment in AMT
(except in companies securities and
extraordinary may temporarily
circumstances) invest in the
taxable money
market
instruments
described herein
- ---------------------------------------------------------------------------------------------------

[_] First or [_] [_] Tax-exempt May invest up to
At least 80% of Second Up to 10% of federal and 100% in AMT
net assets in Tier total assets taxable securities and
Municipal in other state*** may temporarily
Instruments investment invest in the
(except in companies taxable money
extraordinary market
circumstances) instruments
described herein
- ---------------------------------------------------------------------------------------------------
</TABLE>
* See "Taxes" below for an explanation of the tax consequences summarized
in the table above.
** Taxable in many states except for distributions from U.S. Treasury obli-
gation interest income and certain U.S. Government securities interest
income.
*** Taxable except for distributions from interest on obligations of an in-
vestor's state of residence in certain states.
**** To the extent permitted by Rule 2a-7, a Fund holding a security fully
supported by a guarantee may substitute the credit quality of the guaran-
tee in determining the credit quality of the security.

13
<PAGE>

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

U.S. TREASURY OBLIGATIONS

"U.S. Treasury Obligations" are securities issued or guaranteed by the U.S.
Treasury, payments of principal and interest on which are backed by the full
faith and credit of the U.S. Government.

U.S. GOVERNMENT SECURITIES

"U.S. Government Securities" are obligations issued or guaranteed by the
U.S. Government, its agencies, authorities or instrumentalities. Unlike U.S.
Treasury Obligations, securities issued or guaranteed by U.S. Government agen-
cies, authorities or instrumentalities are supported either by (a) the full
faith and credit of the U.S. Government (such as securities of the Government
National Mortgage Association), (b) the right of the issuer to borrow from the
Treasury (such as securities of the Student Loan Marketing Association), (c)
the discretionary authority of the U.S. Government to purchase the agency's
obligations (such as securities of the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation), or (d) only the credit of the
issuer. No assurance can be given that the U.S. Government will provide finan-
cial support to U.S. Government agencies, authorities or instrumentalities in
the future. U.S. Government Securities may include zero coupon bonds. Such
bonds may be purchased when yields are attractive.

Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities are deemed to include (a) secu-
rities for which the payment of principal and interest is backed by an irrevo-
cable letter of credit issued by the U.S. Government, its agencies, authori-
ties or instrumentalities and (b) participations in loans made to foreign gov-
ernments or their agencies that are so guaranteed. The secondary market for
certain of these participations is limited. Such participations may therefore
be regarded as illiquid.

Each Fund may also invest in separately traded principal and interest compo-
nents of securities guaranteed or issued by the U.S. Treasury if such compo-
nents are traded independently under the Separate Trading of Registered Inter-
est and Principal of Securities program ("STRIPS").

The Treasury Instruments and Federal Funds invest in U.S. Treasury Obliga-
tions and the Federal Fund may also invest in certain U.S. Government Securi-
ties the interest from which is generally exempt from state income taxation.
Securities generally eligible for this exemption include those issued by the
U.S. Treasury and those issued by certain agencies, authorities or instrumen-
talities of the U.S. Government, including the Federal Home Loan Banks, Fed-
eral Farm Credit Banks, Tennessee Valley Authority and the Student Loan Mar-
keting Association.

CUSTODIAL RECEIPTS

Each Fund (other than the Treasury Obligations, Treasury Instruments, Gov-
ernment and Federal Funds) may also acquire securities issued or guaranteed as
to principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities in the form of custodial receipts that evidence ownership of
future interest payments, principal payments or both on certain notes or bonds
issued by the U.S. Government, its agencies, authorities or instrumentalities.
For certain securities law purposes, custodial receipts are not considered ob-
ligations of the U.S. Government.

U.S. AND FOREIGN BANK OBLIGATIONS

The Prime Obligations, Money Market and Money Market Plus Funds may invest
in "U.S. Bank Obligations" limited to securities issued or guaranteed by U.S.
banks (including certificates of deposit, commercial

14
<PAGE>

paper, unsecured bank promissory notes and bankers' acceptances) which have
more than $1 billion in total assets at the time of purchase. Such obligations
may also include debt obligations issued by U.S. subsidiaries of such banks.

The Money Market and Money Market Plus Funds may also invest in "Foreign
Bank Obligations" limited to U.S. dollar-denominated obligations issued or
guaranteed (including fixed time deposits) by foreign banks which have more
than $1 billion in total assets at the time of purchase, U.S. branches of such
foreign banks (Yankee obligations), foreign branches of such foreign banks and
foreign branches of U.S. banks having more than $1 billion in total assets at
the time of purchase. Such bank obligations may be general obligations of the
parent bank or may be limited to the issuing branch by the terms of the spe-
cific obligations or by government regulation.

The Money Market and Money Market Plus Funds will invest more than 25% of
their total assets in bank obligations (whether foreign or domestic), includ-
ing bank commercial paper. However, if adverse economic conditions prevail in
the banking industry (such as substantial losses on loans, increases in non-
performing assets and charge-offs and declines in total deposits) the Funds
may, for defensive purposes, temporarily invest less than 25% of their total
assets in bank obligations. As a result, the Funds may be especially affected
by favorable and adverse developments in or related to the banking industry.
The activities of U.S. banks and most foreign banks are subject to comprehen-
sive regulations which, in the case of U.S. regulations, have undergone sub-
stantial changes in the past decade. The enactment of new legislation or regu-
lations, as well as changes in interpretation and enforcement of current laws,
may affect the manner of operations and profitability of domestic and foreign
banks. Significant developments in the U.S. banking industry have included de-
regulation of interest rates, increased competition from other types of finan-
cial institutions, increased acquisition activity, geographic expansion and,
during the late 1980's, an increased number of bank failures. Banks may be
particularly susceptible to certain economic factors, such as interest rate
changes and adverse developments in the market for real estate. Fiscal and
monetary policy and general economic cycles can affect the availability and
cost of funds, loan demand and asset quality and thereby impact the earnings
and financial conditions of banks. See "Foreign Government Obligations--For-
eign Risks" below.

COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS

The Prime Obligations, Money Market and Money Market Plus Funds may invest
in "Commercial Paper" (including variable amount master demand notes and as-
set-backed commercial paper) which is payable in U.S. dollars and is issued or
guaranteed by U.S. corporations, U.S. commercial banks, foreign corporations
(Money Market and Money Market Plus Funds only), foreign commercial banks
(Money Market and Money Market Plus Funds only) or other entities. In addi-
tion, the Funds may invest in other short-term obligations (including short-
term funding agreements) payable in U.S. dollars and issued or guaranteed by
U.S. corporations, foreign corporations (Money Market and Money Market Plus
Funds only) or other entities.

ASSET-BACKED AND RECEIVABLES-BACKED SECURITIES

The Prime Obligations, Money Market and Money Market Plus Funds may invest
in "Asset-Backed and Receivables-Backed Securities" which represent participa-
tions in, or are secured by and payable from, pools of assets such as motor
vehicle installment sale contracts, installment loan contracts, leases of var-
ious types of real and personal property, receivables from revolving credit
(credit card) agreements and other categories of receivables. Such asset pools
are securitized through the use of privately-formed trusts or special purpose
corporations. Payments or distributions of principal and interest may be guar-
anteed up to certain amounts and for a certain

15
<PAGE>

time period by a letter of credit or a pool insurance policy issued by a fi-
nancial institution, or other credit enhancements may be present. To the ex-
tent consistent with its investment objectives and policies, each of the Prime
Obligations, Money Market and Money Market Plus Funds may invest in new types
of mortgage-related securities and in other asset-backed securities that may
be developed in the future.

FOREIGN GOVERNMENT OBLIGATIONS

The Money Market and Money Market Plus Funds may invest in U.S. dollar-de-
nominated obligations (limited to commercial paper and other notes) issued or
guaranteed by a foreign government or any entity located or organized in a
foreign country that maintains a short-term foreign currency rating in the
highest short-term ratings category by the requisite number of NRSROs. The
Money Market and Money Market Plus Funds may not invest more than 25% of their
total assets in the securities of any one foreign government.

FOREIGN RISKS. Investments in foreign securities and bank obligations may
present a greater degree of risk than investments in securities of domestic
issuers because of less publicly-available financial and other information,
less securities regulation, potential imposition of foreign withholding and
other taxes, war, expropriation or other adverse governmental actions. Foreign
banks and their foreign branches are not regulated by U.S. banking authori-
ties, and generally are not bound by the accounting, auditing and financial
reporting standards applicable to U.S. banks.

MUNICIPAL OBLIGATIONS

MUNICIPAL INSTRUMENTS. Obligations issued by or on behalf of states, terri-
tories and possessions of the United States and their political subdivisions,
agencies, authorities and instrumentalities, and the District of Columbia, the
interest from which is, in the opinion of bond counsel, if any, excluded from
gross income for federal income tax purposes.

TYPES OF MUNICIPAL INSTRUMENTS:

<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET AND
MUNICIPAL MONEY MARKET FUNDS
-------------------------------------------------------------------------
<S> <C>
FIXED RATE NOTES AND SIMILAR In highest short-term or one of the
DEBT INSTRUMENTS two highest long-term rating
categories
-------------------------------------------------------------------------
VARIABLE AND FLOATING RATE In highest short-term or one of the
DEMAND INSTRUMENTS two highest long-term rating
categories
-------------------------------------------------------------------------
TAX-EXEMPT COMMERCIAL PAPER In highest rating category
-------------------------------------------------------------------------
MUNICIPAL BONDS In one of the two highest rating
categories
-------------------------------------------------------------------------
UNRATED NOTES, PAPER, BONDS AND Determined to be of comparable quality
OTHER INSTRUMENTS by Adviser pursuant to criteria
approved by the Trustees
</TABLE>

16
<PAGE>

As a matter of fundamental policy, at least 80% of each of the Tax-Free
Money Market and Municipal Money Market Fund's net assets will ordinarily be
invested in Municipal Instruments. Each Tax-Exempt Fund may temporarily invest
in taxable money market instruments when the Adviser believes that the market
conditions dictate a defensive posture. Investments in taxable money market
instruments will be limited to those meeting the quality standards of each
Tax-Exempt Fund. The Prime Obligations, Money Market and Money Market Plus
Funds may invest in short-term obligations issued or guaranteed by state and
municipal governments when yields on such securities are attractive compared
to other taxable investments.

MUNICIPAL NOTES AND BONDS. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing munici-
pality and are considered the safest type of bonds. Revenue bonds are backed
by the revenues of a project or facility such as the tolls from a toll bridge.
Revenue bonds also include lease rental revenue bonds which are issued by a
state or local authority for capital projects and are secured by annual lease
payments from the state or locality sufficient to cover debt service on the
authority's obligations. Industrial development bonds (generally referred to
under current tax law as "private activity bonds") are a specific type of rev-
enue bond backed by the credit and security of a private user and therefore
have more potential risk. Municipal bonds may be issued in a variety of forms,
including commercial paper, tender option bonds and variable and floating rate
securities.

TENDER OPTION BONDS. A tender option bond is a Municipal Instrument (gener-
ally held pursuant to a custodial arrangement) having a relatively long matu-
rity 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 finan-
cial institution, pursuant to which such institution grants the security
holder the option, at periodic intervals, to tender its securities to the in-
stitution and receive the face value thereof. As consideration for providing
the option, the financial institution receives periodic fees equal to the dif-
ference 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 pre-
vailing short-term, tax-exempt rate. However, an institution will not be obli-
gated to accept tendered bonds in the event of certain defaults or a signifi-
cant downgrading in the credit rating assigned to the issuer of the bond. The
tender option will be taken into account in determining the maturity of the
tender option bonds and a Fund's average portfolio maturity. There is a risk
that a Fund will not be considered the owner of a tender option bond for fed-
eral income tax purposes and thus will not be entitled to treat such interest
as exempt from federal income tax.

REVENUE ANTICIPATION WARRANTS. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at ma-
turity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which include a demand feature that permits the
holder to sell the RAWs to a bank or other financial institution at a purchase
price equal to par plus accrued interest on each interest rate reset date.

17
<PAGE>

upon short notice. The issuers or financial intermediaries providing demand
features may support their ability to purchase the obligations by obtaining
credit with liquidity supports. These may include lines of credit, which are
conditional commitments to lend and letters of credit, which will ordinarily
be irrevocable, both of which may be issued by domestic banks or foreign banks
which have a branch, agency or subsidiary in the United States. When consider-
ing whether an obligation meets a Fund's quality standards, the Fund will, to
the extent permitted by Rule 2a-7, look to the creditworthiness of the party
providing unconditional demand features or other unconditional obligations to
support the credit of the issuer of the security. A Fund may consider the ma-
turity of a variable or floating rate Municipal Instrument to be shorter than
its ultimate stated maturity if the Fund has the right to demand prepayment of
its principal at specified intervals prior to the security's ultimate stated
maturity, subject to the conditions for using amortized cost valuation under
the Investment Company Act. A Fund may purchase such variable or floating rate
obligations from the issuers or may purchase certificates of participation, a
type of floating or variable rate obligation, which are interests in a pool of
debt obligations held by a bank or other financial institution.

INDUSTRIAL DEVELOPMENT BONDS. The Funds (other than the Treasury Obliga-
tions, Treasury Instruments, Government and Federal Funds) may invest in in-
dustrial development bonds (generally referred to under current tax law as
"private activity bonds"), the interest from which would be an item of tax
preference when distributed as "exempt-interest dividends" to shareholders un-
der the federal alternative minimum tax. See "Taxes" and "Distributions." Mu-
nicipal Fund may invest up to 100% of its assets in private activity bonds.
Tax-Free Fund does not currently intend to invest in such bonds. If Tax-Free
Fund's policy not to invest in private activity bonds should change in the fu-
ture, shareholders would be notified and such investments would not exceed 20%
of Tax-Free Fund's net assets.

OTHER POLICIES. Ordinarily the Tax-Exempt Funds expect that 100% of their
portfolio securities will be Municipal Instruments. However, the Funds may
hold cash or invest in short-term taxable securities as set forth above. Such
Funds may invest 25% or more of the value of their respective total assets in
Municipal Instruments which are related in such a way that an economic, busi-
ness or political development or change affecting one Municipal Instrument
would also affect the other Municipal Instruments. For example, the Tax-Exempt
Funds may invest all of their respective assets in (a) Municipal Instruments
the interest on which is paid solely from revenues from similar projects such
as hospitals, electric utility systems, multi-family housing, nursing homes,
commercial facilities (including hotels), steel companies or life care facili-
ties, (b) Municipal Instruments whose issuers are in the same state or (c) in-
dustrial development obligations. Concentration of a Fund's investments in
these Municipal Instruments will subject the Fund, to a greater extent than if
such investment was more limited, to the risks of adverse economic, business
or political developments affecting any such state, industry or other area of
concentration.

Each Fund (other than the Treasury Obligations, Treasury Instruments, Gov-
ernment and Federal Funds) may purchase Municipal Instruments which are backed
by letters of credit, which will ordinarily be irrevocable, issued by domestic
banks or foreign banks (excluding Prime Obligations Fund) which have a branch,
agency or subsidiary in the United States. In addition, these Funds may ac-
quire securities in the form of custodial receipts which evidence ownership of
future interest payments, principal payments or both on obligations of certain
state and local governments and authorities.

In order to enhance the liquidity, stability, or quality of a Municipal In-
strument, each Fund (other than the Treasury Obligations, Treasury Instru-
ments, Government and Federal Funds) may acquire the right to sell the secu-
rity to another party at a guaranteed price and date.

18
<PAGE>

REPURCHASE AGREEMENTS

Each Fund (other than the Treasury Instruments Fund) may only enter into re-
purchase agreements with primary dealers in U.S. Government Securities. A re-
purchase agreement is an agreement under which a Fund purchases securities and
the seller agrees to repurchase the securities within a particular time at a
specified price. Such price will exceed the original purchase price, the dif-
ference being income to the Fund, and will be unrelated to the interest rate
on the purchased security. A Fund's custodian or sub-custodian will maintain
custody of the purchased securities for the duration of the agreement. The
value of the purchased securities, including accrued interest, will at all
times equal or exceed the value of the repurchase agreement. In the event of
bankruptcy of the seller or failure of the seller to repurchase the securities
as agreed, a Fund could suffer losses, including loss of interest on or prin-
cipal of the security and costs associated with delay and enforcement of the
repurchase agreement. In evaluating whether to enter into a repurchase agree-
ment, the Adviser will carefully consider the creditworthiness of the seller
pursuant to procedures reviewed and approved by the Trustees. Distributions of
the income from repurchase agreements entered into by a Fund will be taxable
to its shareholders. In addition, each Fund, together with other registered
investment companies having management agreements with the Adviser or any of
its affiliates, may transfer uninvested cash balances into a single joint ac-
count, the daily aggregate balance of which will be invested in one or more
repurchase agreements.

FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES

Each Fund may purchase when-issued securities and make contracts to purchase
or sell securities for a fixed price at a future date beyond customary settle-
ment time. A Fund is required to hold and maintain in a segregated account
with the Fund's custodian or sub-custodian until three days prior to settle-
ment date, cash or liquid assets in an amount sufficient to meet the purchase
price. Alternatively, a Fund may enter into offsetting contracts for the for-
ward sale of other securities that it owns. Securities purchased or sold on a
when-issued or forward commitment basis involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date or if the
value of the security to be sold increases prior to the settlement date. Al-
though a Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
the Fund may dispose of a when-issued security or forward commitment prior to
settlement if the Adviser deems it appropriate to do so.

OTHER INVESTMENT COMPANIES

The Adviser will determine, under guidelines established by the Trustees,
whether securities issued by other money market investment companies present
minimal credit risks. The amount of each Fund's investments in securities of
other investment companies will be subject to the limitations on such invest-
ments prescribed by the Investment Company Act. These limits include a prohi-
bition on any Fund acquiring more than 3% of the voting shares of any other
investment company and a prohibition on investing more than 5% of a Fund's to-
tal assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. Each Fund will indi-
rectly bear its proportionate share of any management fees and other expenses
paid by such other investment companies. Such other investment companies will
have investment objectives, policies and restrictions substantially similar to
those of the acquiring Fund and will be subject to substantially the same
risks.

INVESTMENT LIMITATIONS

TAXABLE AND TAX-EXEMPT FUNDS. Each Fund will comply with the conditions for
using amortized cost valuation set forth in Rule 2a-7 under the Investment
Company Act including, but not limited to, those condi-

19
<PAGE>

tions relating to maturity, diversification and credit quality. These operat-
ing policies may be more restrictive than the fundamental policies set forth
in the Statement of Additional Information.

INVESTMENT RESTRICTIONS. Each Fund is subject to certain investment restric-
tions that are described in detail under "Investment Restrictions" in the
Statement of Additional Information. Fundamental investment restrictions of a
Fund cannot be changed without approval of a majority of the outstanding
shares of that Fund. Treasury Obligations Fund's policy of limiting its in-
vestments to U.S. Treasury Obligations and related repurchase agreements is
also fundamental. All investment objectives and policies not specifically des-
ignated as fundamental are non-fundamental and may be changed without share-
holder approval.

RESTRICTED AND OTHER ILLIQUID SECURITIES. Each Fund may purchase securities
that are not registered ("restricted securities") under the Securities Act of
1933 ("1933 Act"), but can be offered and sold to "qualified institutional
buyers" under Rule 144A under the 1933 Act. However, a Fund will not invest
more than 10% of its net assets in illiquid investments, which include fixed
time deposits maturing in more than seven days and restricted securities.
Restricted securities (including commercial paper issued pursuant to Section
4(2) of the 1933 Act) which the Board of Trustees has determined are liquid,
based upon a continuing review of the trading markets for the specific re-
stricted security, will not be deemed to be illiquid investments for purposes
of this restriction. The Board of Trustees may adopt guidelines and delegate
to the Adviser the daily function of determining and monitoring the liquidity
of restricted securities. The Board, however, will retain sufficient oversight
and be ultimately responsible for the determinations. Since it is not possible
to predict with assurance that the market for restricted securities eligible
for resale under Rule 144A will continue to be liquid, the Adviser will care-
fully monitor each Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in a Fund to the extent that qualified institutional buy-
ers become for a time uninterested in purchasing these restricted securities.

In addition, each Fund may not invest in repurchase agreements maturing in
more than seven days and securities which are not readily marketable if, as a
result thereof, more than 10% of the net assets of that Fund (taken at market
value) would be invested in such investments. Certain repurchase agreements
which mature in more than seven days can be liquidated before the nominal
fixed term on seven days or less notice. Such repurchase agreements will be
regarded as liquid instruments.

MANAGEMENT

THE ADVISER

GSAM, One New York Plaza, New York, New York 10004, a separate operating di-
vision of Goldman, Sachs & Co., acts as investment adviser to the Funds.
Goldman Sachs registered as an investment adviser in 1981. As of March 24,
1997, Goldman Sachs, together with its affiliates, acted as investment advis-
er, administrator or distributor for approximately $104.9 billion in assets.

As of November 29, 1996, Goldman Sachs and its consolidated subsidiaries had
assets of approximately $152 billion and partners' capital of $5.3 billion and
ranked as one of the largest international investment banking and brokerage
firms in the United States. Founded in 1869, Goldman Sachs is a major invest-
ment banking and brokerage firm providing a broad range of financing and in-
vestment services both in the United States and abroad.

20
<PAGE>

Pursuant to an SEC order, each Taxable and Tax-Advantaged Fund may enter
into principal transactions in certain taxable money market instruments, in-
cluding repurchase agreements, with Goldman Sachs.

Under the Management Agreement, GSAM continually manages each Fund, includ-
ing the purchase, retention and disposition of its securities and other as-
sets. In addition, GSAM administers each Fund's business affairs and performs
various shareholder servicing functions to the extent not provided by other
organizations. The management of each Fund is subject to the supervision of
the Trustees and each Fund's investment policies. For these services, the
Trust, on behalf of each Fund, pays GSAM a monthly fee at an annual rate of
each Fund's average daily net assets as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
CONTRACTUAL DECEMBER 31,
RATE 1996
----------- ------------
<S> <C> <C>
Financial Square Prime Obligations Fund................ .205% .17%
Financial Square Money Market Fund..................... .205% .17%
Financial Square Money Market Plus Fund................ .205% N/A
Financial Square Treasury Obligations Fund............. .205% .17%
Financial Square Treasury Instruments Fund............. .205% N/A
Financial Square Government Fund....................... .205% .17%
Financial Square Federal Fund.......................... .205% N/A
Financial Square Tax Free Money Market Fund............ .205% .17%
Financial Square Municipal Money Market Fund........... .205% N/A
</TABLE>

A Management Agreement combining both advisory and administrative services
was adopted effective April 30, 1997. The contractual rate set forth in the
table is the rate payable under the Management Agreement and is identical to
the aggregate advisory and administration fees payable by each Fund under the
previously separate investment advisory and administration agreements. For the
fiscal year ended December 31, 1996, the annual rate expressed is the combined
advisory and administration fees paid (after voluntary fee limitations). The
difference, if any, between the stated fees and the actual fees paid by the
Funds reflects the fact that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled.

GSAM has agreed not to impose a portion of its management fee and/or to re-
duce or otherwise limit the total operating expenses of each Fund (excluding
fees payable to Service Organizations, as defined herein, taxes, interest,
brokerage and litigation, indemnification and other extraordinary expenses).
GSAM has no current intention to but may in the future discontinue or modify
any of such reductions or limitations at its discretion.

THE DISTRIBUTOR AND TRANSFER AGENT

Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, serves as the Dis-
tributor of shares of each Fund pursuant to a Distribution Agreement with the
Trust. The Distributor will assist in the sale of shares of each Fund upon the
terms described herein. Goldman Sachs also serves as the Transfer Agent of
each Fund.

From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds in order to increase the assets of the Funds. In-
creasing the Fund's assets may enhance investment flexibility and diversifica-
tion. Goldman Sachs reserves the right to redeem at any time some or all of
the Fund shares acquired for its own account. Goldman Sachs will consider the
effect of redemptions on the Funds and other shareholders in deciding whether
to redeem its shares.

TAXES

Each Fund is treated as a separate entity for federal income tax purposes.
The Treasury Instruments and Federal Funds intend to elect and each other Fund
has elected to be treated as a regulated investment company

21
<PAGE>

and each Fund intends to continue to qualify for such treatment under
Subchapter M of the Internal Revenue Code of 1986 (the "Code") for each tax-
able year. To qualify as such, each Fund must satisfy certain requirements re-
lating to the sources of its income, diversification of its assets and distri-
bution of its income to shareholders. As a regulated investment company, each
Fund will not be subject to federal income or excise tax on any net investment
income and net realized capital gains that are distributed to its shareholders
in accordance with certain timing requirements of the Code.

Dividends paid by a Fund from 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 shareholders as
ordinary income, except for any "exempt-interest dividends" paid by the Tax-
Exempt Funds, as described below. Dividends paid by a Fund from the excess of
net long-term capital gain over net short-term capital loss will be taxable as
long-term capital gain regardless of how long the shareholders have held their
shares. These tax consequences will apply to distributions of any Fund
regardless of whether distributions are received in cash or reinvested in
shares. Certain distributions paid by the Funds in January of a given year
will be taxable to shareholders as if received on December 31 of the year in
which they are declared. Shareholders will be informed annually about the
amount and character of distributions received from the Funds for federal
income tax purposes, including any distributions that may constitute a return
of capital or any distributions of Municipal Fund that may constitute a tax
preference item under the federal alternative minimum tax.

The Tax-Exempt Funds intend to satisfy certain requirements of the Code for
the payment of "exempt-interest dividends" not included in shareholders' fed-
eral gross income. Dividends paid by these Funds from interest on tax-exempt
obligations and properly designated by the Funds as exempt-interest dividends,
including dividends attributable to exempt-interest dividends received by a
Fund from other regulated investment companies, will generally be exempt from
federal income tax, although a portion of such dividends may be subject to the
federal alternative minimum tax. Exempt-interest dividends will be considered
in computing the corporate federal alternative minimum tax, and the extent, if
any, to which social security or railroad retirement benefits are taxable.
Persons who are "substantial users" of facilities financed by certain indus-
trial development or private activity bonds should consult their own tax ad-
visers before purchasing shares of these Funds. Interest incurred to purchase
or carry shares of these Funds will not be deductible for federal income tax
purposes to the extent related to exempt-interest dividends paid by the Funds.

Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on taxable distributions if they fail
to furnish their correct taxpayer identification number and certain certifica-
tions required by the Internal Revenue Service or if they are otherwise sub-
ject to backup withholding. Individuals, corporations and other shareholders
that are not U.S. persons under the Code are subject to different tax rules
and may be subject to nonresident alien withholding at the rate of 30% (or a
lower rate provided by an applicable tax treaty) on amounts treated as ordi-
nary dividends from the Funds.

If a Fund invests in foreign securities, it may be subject to foreign with-
holding or other foreign taxes on income earned on such securities and is ex-
pected to be unable to pass such taxes through to shareholders, who therefore
are not expected to include such taxes in income or be entitled to claim for-
eign tax credits or deductions with respect to such taxes.

In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from a Fund. A state income (and possi-
bly local income and/or intangible property) tax exemption is generally avail-
able to the extent a Fund's distributions are derived from interest on (or, in
the case of intangible property taxes, the value of its assets is attributable
to) certain U.S. Government obligations and/or tax-exempt

22
<PAGE>

municipal obligations issued by or on behalf of the particular state or a po-
litical subdivision thereof, provided in some states that certain thresholds
for holdings of such obligations and/or reporting requirements are satisfied.
Shareholders should consult their own tax advisers concerning these matters.

NET ASSET VALUE

The net asset value of each Fund (other than the Government, Treasury Obli-
gations and Money Market Plus Funds) is determined as of the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. New York time) on
each Business Day. The net asset value of Government, Treasury Obligations and
Money Market Plus Funds is determined as of 5:00 p.m. New York time on each
Business Day. Net asset value per share for each class of shares of each Fund
is calculated by determining the amount of net assets attributable to each
class of shares and dividing by the number of shares for such class.

On any Business Day, as defined herein, when the Public Securities Associa-
tion ("PSA") recommends that the securities markets close early, the Treasury
Instruments and Federal Funds will cease, and each other Fund reserves the
right to cease, accepting purchase and redemption orders for same Business Day
credit at the time PSA recommends that the securities markets close. On days
any Fund closes early, purchase and redemption orders received after the PSA
recommended closing time will be credited to the next Business Day. In addi-
tion, each Fund reserves the right to advance the time by which purchase and
redemption orders must be received for same Business Day credit as permitted
by the SEC.

Each Fund seeks to maintain a net asset value of $1.00 per share. In this
connection, each Fund values its portfolio securities on the basis of amor-
tized cost. The amortized cost method values a security at its cost on the
date of purchase and thereafter assumes a constant amortization to maturity of
any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. For a more complete description
of the amortized cost valuation method and its effect on existing and prospec-
tive shareholders, see the Statement of Additional Information. There can be
no assurance that a Fund will be able at all times to maintain a net asset
value per share of $1.00.

YIELD INFORMATION

From time to time, each Fund may advertise its yield, effective yield and
average annual total return. Average annual total return is determined by com-
puting the average annual percentage change in value of $1,000 invested at the
maximum public offering price for a specified period of at least one year, as-
suming 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. Each Fund may furnish total return calcula-
tions based on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. The
yield of a Fund refers to the income generated by an investment in that Fund
over a seven-day period (which period will be stated in the advertisement).
This income is then annualized; that is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-
week period and is shown as a percentage of the investment. The effective
yield is calculated similarly but, when annualized, the income earned by an
investment in the Fund is assumed to be reinvested. The effective yield will
be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.

23
<PAGE>

The Tax-Exempt Funds and the Federal and Treasury Instruments Funds may each
also quote tax-equivalent yield. Each Fund's tax-equivalent yield is calcu-
lated by determining the rate of return that would have to be achieved on a
fully taxable investment to produce the after-tax equivalent of the Fund's
yield, assuming certain tax brackets for a shareholder.

Investors should note that the investment results of a Fund are based on
historical performance and will fluctuate over time. Any presentation of a
Fund's total return, yield, effective yield or tax-equivalent yield for any
prior period should not be considered a representation of what an investment
may earn or what a Fund's total return, yield, effective yield or tax-equiva-
lent yield may be in any future period. In addition to the above, each Fund
may from time to time advertise its performance relative to certain averages,
performance rankings, indices, other information prepared by recognized mutual
fund statistical services and investments for which reliable performance data
is available.

Total return, yield, effective yield and tax-equivalent yield will be calcu-
lated separately for each class of shares in existence. Because each such
class of shares is subject to different expenses, the total return and net
yield of such classes of a Fund for the same period may differ. See "Organiza-
tion and Shares of the Trust" below.

ORGANIZATION AND SHARES OF THE TRUST

Each Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly se-
ries of Goldman Sachs Money Market Trust, a Massachusetts business trust, and
were reorganized into the Trust as of April 30, 1997. The Trustees have au-
thority under the Trust's Declaration of Trust to create and classify shares
of beneficial interest in separate series, without further action by share-
holders. Additional series may be added in the future. The Trustees also have
authority to classify or reclassify any series or portfolio of shares into one
or more classes. (Institutions that provide services to holders of FST Pre-
ferred Shares, FST Administration Shares or FST Service Shares are referred to
in this Prospectus as "Service Organizations").

When issued, shares are fully paid and nonassessable. In the event of liqui-
dation, shareholders are entitled to share pro rata in the net assets of the
applicable Fund available for distribution to such shareholders. All shares
are freely transferable and have no preemptive, subscription or conversion
rights. Shareholders are entitled to one vote per share, provided that, at the
option of the Trustees, shareholders will be entitled to a number of votes
based upon the net asset values represented by their shares.

Shares of a Fund will be voted seperately by Fund with respect to matters
pertaining to that Fund except for the election of Trustees and ratification
of independent accountants. For example, shareholders of each Fund are re-
quired to approve the adoption of any management agreement relating to that
Fund and any changes in fundamental investment restrictions or policies of
such Fund. Approval by the shareholders of one Fund is effective only as to
that Fund.

As of April 1, 1997, Harris Trust & Savings Bank, 200 W. Monroe St. Fl 12,
Chicago, IL 60606, owned of record 40.64% of the outstanding shares of Trea-
sury Instruments Fund.

The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose, and
recordholders may, under certain circumstances, as permitted by the Investment
Company Act, communicate with other shareholders in connection with requiring
a special meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.

24
<PAGE>

PURCHASE OF SHARES

FST Shares of a Fund may be purchased on any Business Day at the net asset
value next determined after receipt of a purchase order in the manner set
forth below, and provided that The Northern Trust Company ("Northern"), Chica-
go, Illinois, the sub-custodian for State Street Bank and Trust Company
("State Street"), receives the purchase amount in federal funds on the same
Business Day. Purchase orders may be made by telephoning Goldman Sachs at 800-
621-2550 or by a written request addressed to Goldman Sachs, Attention: Share-
holder Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois
60606. It is strongly recommended that payment be effected by wiring federal
funds to Northern.

Purchases of FST Shares may also be made by delivering a Federal Reserve
draft or check (except that a third party check will not be accepted) payable
only to the appropriate Fund and drawn on a U.S. bank to Goldman Sachs, Atten-
tion: Shareholder Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago,
Illinois 60606. It is expected that Federal Reserve drafts will ordinarily be
converted to federal funds on the day of receipt and that checks will be con-
verted to federal funds within two Business Days after receipt. FST Shares
purchased by check may not be redeemed until the check has cleared, as de-
scribed under "Redemption of Shares."

Purchases of shares of any Fund may also be made through an Automated Clear-
ing House ("ACH") transfer to Goldman Sachs Trust c/o Northern, as
subcustodian for State Street. Purchase orders are effected at the net asset
value next determined after receipt of both the purchase order and the pur-
chase amount in federal funds. It is expected that ACH transfers will ordinar-
ily be converted to federal funds on the Business Day following receipt of the
ACH transfer.

FST Shares of each Fund are deemed to have been purchased when an order be-
comes effective and are entitled to dividends on FST Shares purchased as fol-
lows:

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

<TABLE>
<CAPTION>
IF ORDER IS RECEIVED BY GOLDMAN SACHS DIVIDENDS BEGIN
------------------------------------- ---------------
<S> <C> <C>
(1) In the case of the Taxable and Tax-Advantaged Funds
(except for Government, Treasury Obligations and
Money Market Plus Funds)
By:3:00 p.m.--N.Y. time Same Business Day
- -----------------------------------------------------------------
After:3:00 p.m.--N.Y. time Next Business Day
- -----------------------------------------------------------------
(2) In the case of the Government, Treasury Obligations
and Money Market Plus Funds
By:5:00 p.m.--N.Y. time Same Business Day
- -----------------------------------------------------------------
After:5:00 p.m.--N.Y. time Next Business Day
- -----------------------------------------------------------------
(3) In the case of the Municipal Fund
By:1:00 p.m.- N.Y. time Same Business Day
- -----------------------------------------------------------------
After:1:00 p.m.- N.Y. time Next Business Day
- -----------------------------------------------------------------
(4) In the case of the Tax-Free Fund
By:2:00 p.m.- N.Y. time Same Business Day
- -----------------------------------------------------------------
After:2:00 p.m.- N.Y. time Next Business Day
- -----------------------------------------------------------------
</TABLE>

25
<PAGE>

A Business Day means any day on which the New York Stock Exchange is open,
except for days on which Chicago, Boston or New York banks are closed for lo-
cal holidays.

FST Shares of the Funds are purchased at the net asset value per share with-
out the imposition of a sales charge. However, banks, trust companies or other
institutions through which investors acquire FST Shares may impose charges in
connection with transactions in such Shares.

Goldman Sachs, as each Fund's transfer agent, will maintain a complete rec-
ord of transactions and FST Shares held in each shareholder's account. The
Trust and Goldman Sachs each reserves the right to reject any purchase order
for any reason.

INITIAL PURCHASES

The minimum initial investment requirement is $10 million, which may be al-
located among the Funds. The Trust and Goldman Sachs each reserves the right
to waive the minimum investment requirement. Before or immediately after plac-
ing an initial purchase order, investors should complete and send to Goldman
Sachs the Account Information Form included at the end of this Prospectus.

SUBSEQUENT INVESTMENTS

There is no minimum amount required for subsequent investments. Orders for
the purchase of additional FST Shares should be accompanied by information
identifying the account and the Fund in which FST Shares are to be purchased.

REPORTS TO SHAREHOLDERS

FST Shareholders of each Fund will receive an annual report containing au-
dited financial statements and a semiannual report. Each FST Shareholder will
also be furnished with an individual monthly statement. Upon request, a
printed confirmation for each transaction will be provided by Goldman Sachs.
Any dividends and distributions paid by a Fund are also reflected in regular
statements issued by Goldman Sachs. A year-to-date statement for any account
will be provided upon request made to Goldman Sachs. FST Shareholders with in-
quiries regarding a Fund may call Goldman Sachs at 800-621-2550 (8:00 a.m. to
6:30 p.m. New York time) or write Goldman Sachs at the address shown under
"The Distributor and Transfer Agent."

SUB-ACCOUNTING SERVICES

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

To assist banks and other institutional investors performing their own sub-
accounting, each Fund's daily income per share, calculated to nine decimal
places, and its annualized yield are normally available by 4:00 p.m. New York
time.

26
<PAGE>

DISTRIBUTIONS

All or substantially all of each Fund's net investment income will be de-
clared daily (as of 4:00 p.m. New York time for each Fund other than the Gov-
ernment, Treasury Obligations and Money Market Plus Funds and as of 5:00 p.m.
New York time for the Government, Treasury Obligations and Money Market Plus
Funds) as a dividend and distributed to FST Shareholders monthly. Distribu-
tions will be made in additional FST Shares of the same Fund or, at the elec-
tion of FST Shareholders, in cash. The election to reinvest dividends and dis-
tributions or receive them in cash may be changed at any time upon written no-
tice to Goldman Sachs. If no election is made, all dividends and capital gain
distributions will be reinvested. Dividends will be reinvested as of the last
calendar day of each month. Cash distributions will be paid on or about the
first business day of each month. Net short-term capital gains, if any, will
be distributed in accordance with the requirements of the Code and may be re-
flected in the Fund's daily distributions. Each Fund may distribute at least
annually its long-term capital gains, if any, after reduction by available
capital losses. In order to avoid excessive fluctuations in the amount of
monthly capital gains distributions, a portion of any net capital gains real-
ized on the disposition of securities during the months of November and Decem-
ber may be distributed during the subsequent calendar year. Although realized
gains and losses on the assets of a Fund are reflected in the net asset value
of the Fund, they are not expected to be of an amount which would affect the
Fund's net asset value of $1.00 per share.

The income declared as a dividend for the Treasury Obligations, Government
and Money Market Plus Funds is based on estimates of net investment income for
each Fund. Actual income may differ from estimates, and differences, if any,
will be included in the calculation of subsequent dividends.

A Fund's net investment income consists of the excess of (i) accrued
interest or discount (including both original issue and market discount on
taxable securities) on portfolio securities, and (ii) any income of the Fund
from sources other than capital gains over (iii) the amortization of market
premium on all portfolio securities and (iv) the estimated expenses of the
Fund, including a proportionate share of the general expenses of the Trust.

EXCHANGES

FST Shares of each Fund may be exchanged for shares of the corresponding
class of any Fund or Portfolio of Goldman Sachs Trust at the net asset value
next determined either by writing to Goldman Sachs, Attention: Shareholder
Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois 60606 or,
if previously elected in the Account Information Form included at the end of
this Prospectus, by calling Goldman Sachs at 800-621-2550. All telephone
exchanges must be registered in the same name(s) and with the same address as
are registered in the Fund from which the exchange is being made. It may be
difficult to implement the telephone exchange privilege in times of drastic
economic or market changes. In an effort to prevent unauthorized or fraudulent
exchange requests by telephone, Goldman Sachs employs reasonable procedures as
set forth under "Redemption of Shares" to confirm that such instructions are
genuine. Exchanges are available only in states where the exchange may legally
be made. The exchange privilege may be modified or withdrawn at any time on 60
days' written notice.

REDEMPTION OF SHARES

HOW TO REDEEM

FST Shareholders may redeem FST Shares of a Fund without charge upon request
on any Business Day at the net asset value next determined after receipt of
the redemption request. Redemption requests may be made by

27
<PAGE>

telephoning Goldman Sachs at 800-621-2550 or by a written request addressed to
Goldman Sachs, Attention: Shareholder Services, Goldman Sachs Trust, 4900
Sears Tower, Chicago, Illinois 60606. The letter of instruction must specify
the number of FST Shares of the particular Fund to be redeemed, the account
number, payment instructions and the exact registration on the account. Signa-
tures must be guaranteed in accordance with the procedures set forth below, if
the proceeds are to be paid to other than pre-established instructions on file
with the Fund. A FST Shareholder may request redemptions by telephone only if
the optional telephone redemption privilege has been elected on the Account
Information Form included at the end of this Prospectus. It may be difficult
to implement redemptions by telephone in times of drastic economic or market
changes.

In an effort to prevent unauthorized or fraudulent redemption requests by
telephone, Goldman Sachs employs reasonable procedures specified by the Trust
to confirm that such instructions are genuine. Among other things, any redemp-
tion request that requires money to go to an account or address other than
that designated on the Account Information Form must be in writing and signed
by an authorized person designated on the Account Information Form. Any such
written request is also confirmed by telephone with both the requesting party
and the designated bank account to verify instructions. Other procedures may
be implemented from time to time. If reasonable procedures are not implement-
ed, the Trust may be liable for any loss due to unauthorized or fraudulent
transactions. In all other cases, neither the Trust nor Goldman Sachs will be
responsible for the authenticity of redemption instructions received by tele-
phone. A redemption may also be made with respect to certain Funds by means of
the check redemption privilege described in the Statement of Additional Infor-
mation. Goldman Sachs reserves the right to redeem accounts with balances be-
low $500.

Additional documentation may be required by Goldman Sachs in order to estab-
lish that a redemption request has been properly authorized. A redemption re-
quest will not be considered to have been received in proper form until such
additional documentation has been submitted to Goldman Sachs. The payment of
redemption proceeds for FST Shares recently purchased by check will be delayed
for up to 15 days until the check has cleared.

PAYMENT OF REDEMPTION PROCEEDS AND DIVIDENDS

In accordance with the following, redemption proceeds will be wired to the
bank account designated on the FST Shareholder's Account Information Form, un-
less payment by check has been requested.

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REDEMPTION REQUEST RECEIVED REDEMPTION PROCEEDS
BY GOLDMAN SACHS ORDINARILY DIVIDENDS
- --------------------------- ------------------- ---------
<S> <C> <C> <C> <C> <C>
(1) In the case of the Taxable and Tax-Advantaged Funds (except for Government,
Treasury Obligations and Money Market Plus Funds)
By:3:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day request is
received
- ----------------------------------------------------------------------------------------------------
After:3:00 p.m.--N.Y.
time Wired Next Business Day Earned on Day request is
received
- ----------------------------------------------------------------------------------------------------
(2) In the case of the Government, Treasury Obligations and Money Market Plus Funds
By:5:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day request is
received
- ----------------------------------------------------------------------------------------------------
After:5:00 p.m.--N.Y.
time Wired Next Business Day Earned on Day request is
received
- ----------------------------------------------------------------------------------------------------
</TABLE>

28
<PAGE>

<TABLE>
- ---------------------------------------------------------------------------------------
<CAPTION>
REDEMPTION REQUEST RECEIVED REDEMPTION PROCEEDS
BY GOLDMAN SACHS ORDINARILY DIVIDENDS
- --------------------------- ------------------- ---------
<S> <C> <C>
(3) In the case of the Municipal Fund
By:12:00 noon--N.Y. time Wired Same Business Day Not earned on Day request is
received
- ---------------------------------------------------------------------------------------
After:12:00 noon--N.Y.
time Wired Next Business Day Earned on Day request is
received
- ---------------------------------------------------------------------------------------
(4) In the case of the Tax-Free Fund
By:1:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day request is
received
- ---------------------------------------------------------------------------------------
After:1:00 p.m.--N.Y.
time Wired Next Business Day Earned on Day request is
received
- ---------------------------------------------------------------------------------------
</TABLE>

The Funds will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the Account In-
formation Form. Redemption proceeds will normally be wired as set forth above,
but may be paid up to three Business Days after receipt of a properly executed
redemption request. For example, payment may be delayed if the Federal Reserve
Bank is closed on the day redemption proceeds would ordinarily be wired. After
a wire has been initiated by Goldman Sachs, neither Goldman Sachs nor the
Trust assumes any further responsibility for the performance of intermediaries
or the FST Shareholder's bank in the transfer process. If a problem with such
performance arises, the FST Shareholder should deal directly with such inter-
mediaries or bank.

An FST Shareholder may change the bank designated to receive redemption pro-
ceeds by providing a written notice to Goldman Sachs which has been signed by
the FST Shareholder or its authorized representative. This signature must be
guaranteed by a bank, a securities broker or dealer, a credit union having au-
thority to issue signature guarantees, a savings and loan association, a
building and loan association, a cooperative bank, a federal savings bank or
association, a national securities exchange, a registered securities associa-
tion or a clearing agency, provided that such institution satisfies the stan-
dards established by Goldman Sachs. Goldman Sachs may also require additional
documentation in connection with a request to change the designated bank.

OTHER REDEMPTION INFORMATION

A minimum account balance of $10 million is required to remain a FST Share-
holder. The Funds may redeem all of the FST Shares of any FST Shareholder
whose account has a net asset value which is less than the minimum described
above. The Trust will give sixty (60) days' prior written notice to such
shareholders whose FST Shares are being redeemed to allow them to purchase
sufficient additional FST Shares to avoid such redemption.

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

29
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM

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

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

If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal Reve-
nue Service (IRS). Backup withholding could apply to payments relating to your
account prior to the Fund's receipt of your TIN.

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

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

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

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

A-1
<PAGE>

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

GOLDMAN SACHS MONEY MARKET FUNDS
FST SHARES
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

TOLL FREE: 800-621-2550

-----------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Shareholder and Fund Expenses.............................................. 2
Financial Highlights....................................................... 4
An Introduction to the Funds............................................... 10
Investment Policies Matrix................................................. 12
Description of Securities and Investment Techniques........................ 14
Investment Limitations..................................................... 19
Management................................................................. 20
Taxes...................................................................... 21
Net Asset Value............................................................ 23
Yield Information.......................................................... 23
Organization and Shares of the Trust....................................... 24
Purchase of Shares......................................................... 25
Reports to Shareholders.................................................... 26
Distributions.............................................................. 27
Exchanges.................................................................. 27
Redemption of Shares....................................................... 27
Appendix................................................................... A-1
Account Information Form
</TABLE>

FSPROINSTMM
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

GOLDMAN SACHS MONEY MARKET FUNDS

FINANCIAL SQUARE FUNDS

FST SHARES

-----------

PROSPECTUS

-----------

MANAGED BY
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

GOLDMAN SACHS MONEY MARKET FUNDS
FINANCIAL SQUARE FUNDS
FST ADMINISTRATION SHARES
4900 Sears Tower
Chicago, Illinois 60606

Goldman Sachs Trust (the "Trust") is a no-load, open-end, management invest-
ment company (a "mutual fund") which includes the Financial Square Funds (the
"Funds"). This Prospectus relates only to the offering of FST Administration
shares of beneficial interest ("FST Administration Shares") of the Funds.
Goldman Sachs Asset Management, a separate operating division of Goldman,
Sachs & Co., serves as each Fund's investment adviser. Goldman, Sachs & Co.
serves as each Fund's distributor and transfer agent.

Financial Square Treasury Obligations Fund. Securities issued or guaranteed
by the U.S. Treasury and repurchase agreements relating to such securities.

Financial Square Treasury Instruments Fund. Securities issued or guaranteed
by the U.S. Treasury, the interest income from which is generally exempt from
state income taxation.

Financial Square Government Fund. Securities of the U.S. Government, its
agencies, authorities, and instrumentalities, and repurchase agreements relat-
ing to such securities.

AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOV-
ERNMENT AND THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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

ADDITIONAL INFORMATION...........................
Goldman Sachs Funds-Toll Free: 800-621-2550

This Prospectus provides you with information about the Funds that you should
know before investing in FST Administration Shares. It should be read and re-
tained for future reference. If you would like more detailed information, the
Statement of Additional Information dated May 1, 1997, as amended or supple-
mented from time to time, is available upon request without charge from Serv-
ice Organizations, as defined herein, or by calling the telephone number
listed above or by writing Goldman Sachs, Attention: Shareholder Services,
Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois 60606. The Statement
of Additional Information, which is incorporated by reference into this Pro-
spectus, has been filed with the Securities and Exchange Commission. Not all
Funds are available in certain states. Please call the phone number listed
above to determine availability in your state. The SEC maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information and
other information regarding the Trust.

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

FST ADMINISTRATION SHARES OF THE FUNDS 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 A 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 AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Prospectus is May 1, 1997.
<PAGE>

SHAREHOLDER AND FUND EXPENSES
FST ADMINISTRATION SHARES

<TABLE>
<CAPTION>
FINANCIAL FINANCIAL FINANCIAL
FINANCIAL FINANCIAL SQUARE FINANCIAL FINANCIAL SQUARE SQUARE
SQUARE SQUARE MONEY SQUARE SQUARE FINANCIAL FINANCIAL TAX-FREE MUNICIPAL
PRIME MONEY MARKET TREASURY TREASURY SQUARE SQUARE MONEY MONEY
OBLIGATIONS MARKET PLUS OBLIGATIONS INSTRUMENTS GOVERNMENT FEDERAL MARKET MARKET
FUND FUND FUND FUND FUND FUND FUND FUND FUND
----------- --------- --------- ----------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION EXPENSES
Maximum Sales Charge
Imposed on
Purchases.......... None None None None None None None None None
Sales Charge Imposed
on Reinvested
Distributions...... None None None None None None None None None
Deferred Sales Load
Imposed on
Redemptions........ None None None None None None None None None
Exchange Fee........ None None None None None None None None None
ANNUAL OPERATING
EXPENSES (1)
(as a percentage of
average daily
net assets)
Management Fees
(after limitations)
(2)................ 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17%
Other Expenses
Administration
Fees.............. 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after ex-
pense limitations)
(3).............. 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL OPERATING
EXPENSES (4)......... 0.43% 0.43% 0.43% 0.43% 0.43% 0.43% 0.43% 0.43% 0.43%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Financial Square Prime Obligations Fund... $ 4 $14 $24 $54
Financial Square Money Market Fund........ $ 4 $14 $24 $54
Financial Square Money Market Plus Fund... $ 4 $14 N/A N/A
Financial Square Treasury Obligations
Fund..................................... $ 4 $14 $24 $54
Financial Square Treasury Instruments
Fund..................................... $ 4 $14 N/A N/A
Financial Square Government Fund.......... $ 4 $14 $24 $54
Financial Square Federal Fund............. $ 4 $14 N/A N/A
Financial Square Tax-Free Money Market
Fund..................................... $ 4 $14 $24 $54
Financial Square Municipal Money Market
Fund..................................... $ 4 $14 N/A N/A
</TABLE>

2
<PAGE>

- --------
(1) Based on estimated amounts for the current fiscal year for the Financial
Square Money Market Plus, Financial Square Treasury Instruments, Financial
Square Federal and Financial Square Municipal Money Market Funds.
(2) The Investment Adviser has voluntarily agreed not to impose 0.035% of its
management fee for each Fund. Without such limitation, management fees for
each Fund would be 0.205%.
(3) The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, fees payable to Service Organi-
zations, as defined herein, taxes, interest and brokerage and litigation,
indemnification and other extraordinary expenses) to the extent such ex-
penses exceed 0.01% of a Fund's average daily net assets.
(4) Without the limitations described above, "Other Expenses" and "Total Oper-
ating Expenses" of the Financial Square Prime Obligations, Financial
Square Money Market, Financial Square Treasury Obligations, Financial
Square Government and Financial Square Tax-Free Money Market Funds for the
fiscal year ended December 31, 1996, would have been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Financial Square Prime Obligations Fund................... .025% .48%
Financial Square Money Market Fund........................ .025% .48%
Financial Square Treasury Obligations Fund................ .035% .49%
Financial Square Government Fund.......................... .035% .49%
Financial Square Tax-Free Money Market Fund............... .025% .48%
</TABLE>

In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Financial Square Money Market Plus, Finan-
cial Square Treasury Instruments, Financial Square Federal and Financial
Square Municipal Money Market Funds for the current fiscal year are estimated
to be as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Financial Square Money Market Plus Fund................... .035% .49%
Financial Square Treasury Instruments Fund................ .125% .58%
Financial Square Federal Fund............................. .095% .55%
Financial Square Municipal Money Market Fund.............. .285% .74%
</TABLE>

The information set forth in the foregoing table and hypothetical example
relates only to FST Administration Shares of the Funds. The Funds also offer
FST Shares, FST Preferred Shares and FST Service Shares. The other classes of
the Funds are subject to different fees and expenses (which affect perfor-
mance) and are entitled to different services. Information regarding any other
class of the Funds may be obtained from your sales representative or from
Goldman Sachs by calling the number on the front cover of this Prospectus.

Service Organizations may charge other fees to their customers who are the
beneficial owners of FST Administration Shares in connection with their cus-
tomers' accounts. See "Administration." Such fees, if any, may affect the re-
turn such customers realize with respect to their investments.

The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on fees and expenses included in the table and the
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those indicat-
ed. Moreover, while the example assumes a 5% annual return, a Fund's actual
performance will vary and may result in an actual return greater or less than
5%. See "Management--Investment Adviser."

3
<PAGE>

FINANCIAL HIGHLIGHTS

4
<PAGE>

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

5
<PAGE>

6
<PAGE>

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

7
<PAGE>

8
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
---------------------------------------
NET NET TOTAL
ASSET NET REALIZED INCOME NET ASSET RATIO OF NET
VALUE AT INVEST- GAIN ON FROM DISTRIBUTIONS VALUE AT EXPENSES TO
BEGINNING MENT INVESTMENT INVESTMENT TO END OF TOTAL AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD RETURN (A) ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended December
31,
- --------------
1996-FST shares. $1.00 $ 0.0335 -- $ 0.0335 $(0.0335) $1.00 3.39% 0.18%
1996-FST Pre-
ferred
shares(c)....... 1.00 0.0218 -- 0.0218 (0.0218) 1.00 3.30(b) 0.28(b)
1996-FST Admin-
istration
shares.......... 1.00 0.0310 -- 0.0310 (0.0310) 1.00 3.13 0.43
1996-FST Service
shares.......... 1.00 0.0285 -- 0.0285 (0.0285) 1.00 2.88 0.68
1995-FST shares. 1.00 0.0381 -- 0.0381 (0.0381) 1.00 3.89 0.14
1995-FST Admin-
istration
shares.......... 1.00 0.0354 -- 0.0354 (0.0354) 1.00 3.63 0.39
1995-FST Service
shares.......... 1.00 0.0332 -- 0.0332 (0.0332) 1.00 3.38 0.64
For the Period
Ended December
31,
- --------------
1994-FST
shares(d)....... 1.00 0.0156 -- 0.0156 (0.0156) 1.00 3.41(b) 0.07(b)
1994-FST
Administration shares(d). 1.00 0.0136 -- 0.0136 (0.0136) 1.00 3.19(b) 0.32(b)
1994-FST Service
shares(d)....... 1.00 0.0091 -- 0.0091 (0.0091) 1.00 3.11(b) 0.57(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
RATIO OF NET NET RATIO OF NET
INVESTMENT ASSETS AT RATIO OF INVESTMENT
INCOME TO END OF EXPENSES TO INCOME TO
AVERAGE NET PERIOD AVERAGE NET AVERAGE NET
ASSETS (IN 000'S) ASSETS ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year
Ended December
31,
- --------------
1996-FST shares. 3.35% $440,838 0.23% 3.30%
1996-FST Pre-
ferred
shares(c)....... 3.26(b) 28,731 0.33(b) 3.21(b)
1996-FST Admin-
istration
shares.......... 3.10 51,661 0.48 3.05
1996-FST Service
shares.......... 2.85 19,855 0.73 2.80
1995-FST shares. 3.81 448,367 0.24 3.71
1995-FST Admin-
istration
shares.......... 3.54 20,939 0.49 3.44
1995-FST Service
shares.......... 3.32 19,860 0.74 3.22
For the Period
Ended December
31,
- --------------
1994-FST
shares(d)....... 3.42(b) 183,570 0.31(b) 3.18(b)
1994-FST
Administration shares(d). 3.25(b) 2,042 0.56(b) 3.01(b)
1994-FST Service
shares(d)....... 3.32(b) 2,267 0.81(b) 3.08(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b) Annualized.
(c) FST Preferred share activity commenced on May 1, 1996.
(d) FST share, FST Administration share and FST Service share activity com-
menced July 19, 1994, August 1, 1994 and September 23, 1994, respectively.

9
<PAGE>

AN INTRODUCTION TO THE FUNDS

THE ADVISER: Goldman Sachs Asset Management, a separate operating division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Funds' investment ad-
viser (the "Adviser" or "GSAM").

THE DISTRIBUTOR: Goldman Sachs, which serves as the Funds' distributor and
transfer agent, is one of the largest international investment banking and
brokerage firms in the United States.

TAXABLE FUNDS: Prime Obligations, Money Market, Money Market Plus, Trea-
sury Obligations and Government Funds.

TAX ADVANTAGED FUNDS: Treasury Instruments and Federal Funds.

TAX-EXEMPT FUNDS: Tax-Free Money Market and Municipal Money Market Funds.

NET ASSET VALUE: Each Fund seeks to maintain a stable net asset value of
$1.00 per share.

MAXIMUM REMAINING MATURITY OF PORTFOLIO INVESTMENTS: Thirteen months at the
time of purchase.

10
<PAGE>

DOLLAR-WEIGHTED AVERAGE PORTFOLIO MATURITY ("WAM"): Not more than ninety
days as required by Rule 2a-7.

11
<PAGE>

12
<PAGE>

13
<PAGE>

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

U.S. TREASURY OBLIGATIONS

"U.S. Treasury Obligations" are securities issued or guaranteed by the U.S.
Treasury, payments of principal and interest on which are backed by the full
faith and credit of the U.S. Government.

U.S. GOVERNMENT SECURITIES

CUSTODIAL RECEIPTS

U.S. AND FOREIGN BANK OBLIGATIONS

14
<PAGE>

COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS

ASSET-BACKED AND RECEIVABLES-BACKED SECURITIES

15
<PAGE>

FOREIGN GOVERNMENT OBLIGATIONS

MUNICIPAL OBLIGATIONS

TYPES OF MUNICIPAL INSTRUMENTS:

16
<PAGE>

17
<PAGE>

18
<PAGE>

REPURCHASE AGREEMENTS

FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES

OTHER INVESTMENT COMPANIES

INVESTMENT LIMITATIONS

19
<PAGE>

tions relating to maturity, diversification and credit quality. These operat-
ing policies may be more restrictive than the fundamental policies set forth
in the Statement of Additional Information.

MANAGEMENT

THE ADVISER

20
<PAGE>

THE DISTRIBUTOR AND TRANSFER AGENT

TAXES

21
<PAGE>

22
<PAGE>

NET ASSET VALUE

YIELD INFORMATION

23
<PAGE>

ORGANIZATION AND SHARES OF THE TRUST

As of April 1, 1997, Harris Trust & Savings Bank, 200 W. Monroe St. Fl 12,
Chicago, IL 60606, owned of record 40.64% of the outstanding shares of Trea-
sury Instruments Fund.

The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose, and
recordholders may, under certain circumstances, as permitted by the Investment
Company Act, communicate with other shareholders in connection with requiring
a special meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.

24
<PAGE>

ADMINISTRATION

Each Fund has adopted an Administration Plan with respect to the FST Admin-
istration Shares which authorizes it to compensate certain institutions for
providing account administration services to their customers who are benefi-
cial owners of such Shares (each a "Service Organization"). Each Fund will en-
ter into agreements with Service Organizations which purchase FST Administra-
tion Shares on behalf of their customers ("Service Agreements"). The Service
Agreements will provide for compensation to the Service Organization in an
amount up to .25% (on an annualized basis) of the average daily net asset
value of the FST Administration Shares of that Fund attributable to or held in
the name of the Service Organization for its customers. The services provided
by a Service Organization may include acting, directly or through an agent, as
the sole shareholder of record, maintaining account records for its customers,
and processing orders to purchase, redeem and exchange FST Administration
Shares for its customers.

For the fiscal year ended December 31, 1996, the Trust, on behalf of the
Prime Obligations Fund, Money Market Fund, Treasury Obligations Fund, Govern-
ment Fund and Tax-Free Fund paid Service Organizations fees at the annual rate
of .25% of each Fund's average daily net assets attributable to FST Adminis-
tration Shares.

Holders of FST Administration Shares of a Fund will bear all expenses and
fees paid to Service Organizations with respect to such Shares as well as any
other expenses which are directly attributable to such Shares.

Service Organizations may charge other fees to their customers who are the
beneficial owners of FST Administration Shares in connection with their cus-
tomer accounts. These fees would be in addition to any amounts received by the
Service Organization under a Service Agreement and may affect an investor's
return with respect to an investment in a Fund.

All inquiries of beneficial owners of FST Administration Shares of the Funds
should be directed to such owners' Service Organization.

PURCHASE OF SHARES

It is expected that all direct purchasers of FST Administration Shares will
be Service Organizations or their nominees, which may purchase FST Administra-
tion Shares of the Funds through Goldman Sachs. Customers of Service Organiza-
tions may invest in such shares only through their Service Organizations.

As set forth below, FST Administration Shares of the Funds may be purchased
on any Business Day at the net asset value next determined after receipt from
the Service Organization of both the purchase order and the purchase amount in
federal funds. Purchase orders may be made by telephoning Goldman Sachs at
800-621-2550 or by a written request addressed to Goldman Sachs, Attention:
Shareholder Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois
60606. It is strongly recommended that payment be effected by wiring federal
funds to The Northern Trust Company ("Northern"), Chicago, Illinois, as the
sub-custodian for State Street Bank and Trust Company ("State Street").

Purchases of FST Administration Shares may also be made by a Service Organi-
zation by delivering a Federal Reserve draft or check (except that a third
party check will not be accepted) payable only to the appropriate Fund and
drawn on a U.S. bank to Goldman Sachs, Attention: Shareholder Services,
Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois 60606. It is expected
that Federal Reserve drafts will ordinarily be converted to federal funds on
the day of receipt and that checks will be converted to federal funds within
two Business Days after receipt. FST Administration Shares purchased by check
may not be redeemed until the check has cleared, as described under "Redemp-
tion of Shares."

25
<PAGE>

FST Administration Shares of each Fund are deemed to have been purchased
when an order becomes effective and are entitled to dividends on FST Adminis-
tration Shares purchased as follows:

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

<TABLE>
<CAPTION>
IF ORDER IS RECEIVED FROM A SERVICE
ORGANIZATION BY GOLDMAN SACHS DIVIDENDS BEGIN
----------------------------------- ---------------
<C> <S> <C>
(1) In the case of the Taxable and Tax-
Advantaged Funds (except for
Government, Treasury Obligations and
Money Market Plus Funds)
By: 3:00 p.m.--N.Y. time Same Business Day
- ---------------------------------------------------------------------
After: 3:00 p.m.--N.Y. time Next Business Day
- ---------------------------------------------------------------------
(2) In the case of the Government,
Treasury Obligations and Money Market
Plus Funds
By: 5:00 p.m.--N.Y. time Same Business Day
- ---------------------------------------------------------------------
After: 5:00 p.m.--N.Y. time Next Business Day
- ---------------------------------------------------------------------
(3) In the case of the Municipal Fund
By: 1:00 p.m.--N.Y. time Same Business Day
- ---------------------------------------------------------------------
After: 1:00 p.m.--N.Y. time Next Business Day
- ---------------------------------------------------------------------
(4) In the case of the Tax-Free Fund
By: 2:00 p.m.--N.Y. time Same Business Day
- ---------------------------------------------------------------------
After: 2:00 p.m.--N.Y. time Next Business Day
- ---------------------------------------------------------------------
</TABLE>

The Service Organizations are responsible for timely transmittal of pur-
chase orders to Goldman Sachs and federal funds to Northern. In order to fa-
cilitate timely transmittal, the Service Organizations have established times
by which purchase orders and federal funds must be received by them.

A Business Day means any day on which the New York Stock Exchange is open,
except for days on which Chicago, Boston or New York banks are closed for lo-
cal holidays.

FST Administration Shares of a Fund are purchased at the net asset value per
share without the imposition of a sales charge. Goldman Sachs, as each Fund's
transfer agent, will maintain a complete record of transactions and FST Admin-
istration Shares held in each record holder's account. The Trust and Goldman
Sachs each reserves the right to reject any purchase order for any reason.

26
<PAGE>

MINIMUM INVESTMENT AND OTHER INFORMATION

The minimum initial investment requirement is $10 million, which may be al-
located among the Funds. The Trust and Goldman Sachs each reserves the right
to waive the minimum investment requirement. A Service Organization may impose
a minimum amount for initial and subsequent investments in FST Administration
Shares of the Funds, and may establish other requirements such as a minimum
account balance. A Service Organization may effect redemptions of noncomplying
accounts, and may impose a charge for any special services rendered to its
customers. Customers should contact their Service Organizations for further
information concerning such requirements and charges. A Service Organization
may purchase FST Administration Shares in connection with sweep account pro-
grams.

SUBSEQUENT INVESTMENTS

There is no minimum amount required for subsequent investments. Orders for
the purchase of additional FST Administration Shares should be accompanied by
information identifying the account and the Fund in which FST Administration
Shares are to be purchased.

REPORTS TO SHAREHOLDERS

The Trust will issue an annual report containing audited financial state-
ments and a semi-annual report to record holders of FST Administration Shares
of each Fund, including Service Organizations who hold such Shares for the
benefit of their customers. Upon request, a printed confirmation for each
transaction will be provided by Goldman Sachs. Any dividends and distributions
paid by the Funds are also reflected in regular statements issued by Goldman
Sachs to shareholders of record. Service Organizations will be responsible for
providing similar services to their own customers who are the beneficial own-
ers of such Shares.

DISTRIBUTIONS

All or substantially all of each Fund's net investment income will be de-
clared daily (as of 4:00 p.m. New York time for each Fund other than the Gov-
ernment, Treasury Obligations and Money Market Plus Funds and as of 5:00 p.m.
New York time for the Government, Treasury Obligations and Money Market Plus
Funds) as a dividend and distributed to Service Organizations monthly. Distri-
butions will be made in additional FST Administration Shares of the same Fund
or, at the election of a Service Organization, in cash. The election to rein-
vest dividends and distributions or receive them in cash may be changed by a
Service Organization at any time upon written notice to Goldman Sachs. If no
election is made, all dividends and capital gain distributions will be rein-
vested. Dividends will be reinvested as of the last calendar day of each
month. Cash distributions will be paid on or about the first business day of
each month. Net short-term capital gains, if any, will be distributed in ac-
cordance with the requirements of the Code and may be reflected in the Fund's
daily distributions. Each Fund may distribute at least annually its long-term
capital gains, if any, after reduction by available capital losses. In order
to avoid excessive fluctuations in the amount of monthly capital gains distri-
butions, a portion of any net capital gains realized on the disposition of se-
curities during the months of November and December may be distributed during
the subsequent calendar year. Although realized gains and losses on the assets
of a Fund are reflected in the net asset value of the Fund, they are not ex-
pected to be of an amount which would affect the Fund's net asset value of
$1.00 per share.

27
<PAGE>

A Fund's net investment income consists of the excess of (i) accrued inter-
est or discount (including both original issue and market discount on taxable
securities) on portfolio securities, and (ii) any income of the Fund from
sources other than capital gains over (iii) the amortization of market premium
on all portfolio securities and (iv) the estimated expenses of the Fund, in-
cluding a proportionate share of the general expenses of the Trust.

EXCHANGES

FST Administration Shares of each Fund may be exchanged by Service Organiza-
tions for shares of the corresponding class of any Fund or Portfolio of
Goldman Sachs Trust at the net asset value next determined either by writing
to Goldman Sachs, Attention: Shareholder Services, Goldman Sachs Trust, 4900
Sears Tower, Chicago, Illinois 60606 or, if previously elected in the Account
Information Form, by calling Goldman Sachs at 800-621-2550. All telephone ex-
changes must be registered in the same name(s) and with the same address as
are registered in the Fund from which the exchange is being made. It may be
difficult to implement the telephone exchange privilege in times of drastic
economic or market changes. In an effort to prevent unauthorized or fraudulent
exchange requests by telephone, Goldman Sachs employs reasonable procedures as
set forth under "Redemption of Shares" to confirm that such instructions are
genuine. Exchanges are available only in states where the exchange may legally
be made. The exchange privilege may be modified or withdrawn at any time on 60
days' written notice.

REDEMPTION OF SHARES

HOW TO REDEEM

Customers of Service Organizations may redeem FST Administration Shares of a
Fund through their respective Service Organizations. The Service Organizations
are responsible for the transmittal of redemption requests by their customers
to Goldman Sachs. In order to facilitate timely transmittal of redemption re-
quests, Service Organizations have established procedures by which redemption
requests must be made and times by which redemption requests must be received
by them. Additional documentation may be required when deemed appropriate by a
Service Organization.

A Service Organization may redeem such Shares without charge upon request on
any Business Day at the net asset value next determined after receipt by
Goldman Sachs of the redemption request. Redemption requests may be made by
telephoning Goldman Sachs at 800-621-2550 or by a written request addressed to
Goldman Sachs, Attention: Shareholder Services, Goldman Sachs Trust, 4900
Sears Tower, Chicago, Illinois 60606. A Service Organization may request re-
demptions by telephone only if the optional telephone redemption privilege has
been elected on the Account Information Form. It may be difficult to implement
redemptions by telephone in times of drastic economic or market changes.

28
<PAGE>

Additional documentation may be required by Goldman Sachs in order to estab-
lish that a redemption request has been properly authorized. A redemption re-
quest will not be considered to have been received in proper form until such
additional documentation has been submitted to Goldman Sachs by the Service
Organization. The payment of redemption proceeds for FST Administration Shares
recently purchased by check will be delayed for up to 15 days until the check
has cleared.

PAYMENT OF REDEMPTION PROCEEDS AND DIVIDENDS

In accordance with the following, redemption proceeds will be wired to the
record holder of FST Administration Shares.

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

<TABLE>
<CAPTION>
REDEMPTION REQUEST
RECEIVED FROM REDEMPTION
SERVICE ORGANIZATION PROCEEDS
BY GOLDMAN SACHS ORDINARILY DIVIDENDS
-------------------- ---------- ---------
<C> <S> <C>
(1) In the case of the Taxable and Tax-Advantaged Funds (except for
Government, Treasury Obligations and Money Market Plus Funds)
By:3:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day
request is received
- -----------------------------------------------------------------------------
After:3:00 p.m.--N.Y. time Wired Next Business Day Earned on Day
request is received
- -----------------------------------------------------------------------------
(2) In the case of the Government, Treasury Obligations and Money Market
Plus Funds
By:5:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day
request is received
- -----------------------------------------------------------------------------
After:5:00 p.m.--N.Y. time Wired Next Business Day Earned on Day
request is received
- -----------------------------------------------------------------------------
(3) In the case of the Municipal Fund
By:12:00 noon--N.Y. time Wired Same Business Day Not earned on Day
request is received
- -----------------------------------------------------------------------------
After:12:00 noon--N.Y. time Wired Next Business Day Earned on Day
request is received
- -----------------------------------------------------------------------------
(4) In the case of the Tax-Free Fund
By:1:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day
request is received
- -----------------------------------------------------------------------------
After:1:00 p.m.--N.Y. time Wired Next Business Day Earned on Day
request is received
- -----------------------------------------------------------------------------
</TABLE>

29
<PAGE>

will normally be wired as set forth above, but may be paid up to three Busi-
ness Days after receipt of the Service Organization's properly executed re-
demption request. For example, payment may be delayed if the Federal Reserve
Bank is closed on the day redemption proceeds would ordinarily be wired. After
a wire has been initiated by Goldman Sachs, neither Goldman Sachs nor the
Trust assumes any further responsibility for the performance of intermediaries
or the FST Administration Shareholder's Service Organization in the transfer
process. If a problem with such performance arises, the FST Administration
Shareholder should deal directly with such intermediaries or Service
Organization.

OTHER REDEMPTION INFORMATION

A minimum account balance of $10 million is required to remain a FST Admin-
istration Shareholder. The Funds may redeem all of the FST Administration
Shares of any FST Administration Shareholder whose account has a net asset
value which is less than the minimum described above. The Trust will give
sixty (60) days' prior written notice to such Shareholders whose FST
Administration Shares are being redeemed to allow them to purchase sufficient
additional FST Administration Shares to avoid such redemption.

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

30
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM

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

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

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

A-1
<PAGE>

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

GOLDMAN SACHS MONEY MARKET FUNDS
FST ADMINISTRATION SHARES
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

TOLL FREE: 800-621-2550

-----------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Shareholder and Fund Expenses.............................................. 2
Financial Highlights....................................................... 4
An Introduction to the Funds............................................... 10
Investment Policies Matrix................................................. 12
Description of Securities and Investment Techniques........................ 14
Investment Limitations..................................................... 19
Management................................................................. 20
Taxes...................................................................... 21
Net Asset Value............................................................ 23
Yield Information.......................................................... 23
Organization and Shares of the Trust....................................... 24
Administration............................................................. 25
Purchase of Shares......................................................... 25
Reports to Shareholders.................................................... 27
Distributions.............................................................. 27
Exchanges.................................................................. 28
Redemption of Shares....................................................... 28
Appendix................................................................... A-1
</TABLE>

FSPROADMM
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

GOLDMAN SACHS MONEY MARKET FUNDS

FINANCIAL SQUARE FUNDS

FST ADMINISTRATION SHARES

-----------

PROSPECTUS

-----------

MANAGED BY
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

GOLDMAN SACHS MONEY MARKET FUNDS
FINANCIAL SQUARE FUNDS
FST SERVICE SHARES
4900 Sears Tower
Chicago, Illinois 60606

Goldman Sachs Trust (the "Trust") is a no-load, open-end, management invest-
ment company (a "mutual fund") which includes the Financial Square Funds (the
"Funds"). This Prospectus relates only to the offering of FST Service shares
of beneficial interest ("FST Service Shares") of the Funds. Goldman Sachs As-
set Management, a separate operating division of Goldman, Sachs & Co., serves
as each Fund's investment adviser. Goldman, Sachs & Co. serves as each Fund's
distributor and transfer agent.

Financial Square Treasury Obligations Fund. Securities issued or guaranteed
by the U.S. Treasury and repurchase agreements relating to such securities.

Financial Square Treasury Instruments Fund. Securities issued or guaranteed
by the U.S. Treasury, the interest income from which is generally exempt from
state income taxation.

Financial Square Government Fund. Securities of the U.S. Government, its
agencies, authorities, and instrumentalities, and repurchase agreements relat-
ing to such securities.

AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOV-
ERNMENT AND THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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

ADDITIONAL INFORMATION............ Goldman Sachs Funds--Toll Free: 800-621-2550

This Prospectus provides you with information about the Funds that you should
know before investing in FST Service Shares. It should be read and retained
for future reference. If you would like more detailed information, the State-
ment of Additional Information dated May 1, 1997, as amended or supplemented
from time to time, is available upon request without charge from Service Orga-
nizations, as defined herein, or by calling the telephone number listed above
or by writing Goldman Sachs, Attention: Shareholder Services, Goldman Sachs
Trust, 4900 Sears Tower, Chicago, Illinois 60606. The Statement of Additional
Information, which is incorporated by reference into this Prospectus, has been
filed with the Securities and Exchange Commission. Not all Funds are available
in certain states. Please call the phone number listed above to determine
availability in your state. The SEC maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information and other information
regarding the Trust.

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

FST SERVICE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED 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 A FUND INVOLVES INVEST-
MENT 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 AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Prospectus is May 1, 1997.
<PAGE>

SHAREHOLDER AND FUND EXPENSES
FST SERVICE SHARES

<TABLE>
<CAPTION>
FINANCIAL FINANCIAL FINANCIAL
FINANCIAL FINANCIAL SQUARE FINANCIAL FINANCIAL SQUARE SQUARE
SQUARE SQUARE MONEY SQUARE SQUARE FINANCIAL FINANCIAL TAX-FREE MUNICIPAL
PRIME MONEY MARKET TREASURY TREASURY SQUARE SQUARE MONEY MONEY
OBLIGATIONS MARKET PLUS OBLIGATIONS INSTRUMENTS GOVERNMENT FEDERAL MARKET MARKET
FUND FUND FUND FUND FUND FUND FUND FUND FUND
----------- --------- --------- ----------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION EXPENSES
Maximum Sales Charge
Imposed on
Purchases........... None None None None None None None None None
Sales Charge Imposed
on Reinvested
Distributions....... None None None None None None None None None
Deferred Sales Load
Imposed
on Redemptions...... None None None None None None None None None
Exchange Fee......... None None None None None None None None None
ANNUAL OPERATING EXPENSES (1)
(as a percentage of average
daily net assets)
Management Fees
(after limitations)
(2) ................ 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17%
Other Expenses
Service Fees........ 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses
(after
expense
limitations) (3)... 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL OPERATING EXPENSES (4). 0.68% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68% 0.68%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Financial Square Prime Obligations Fund... $ 7 $22 $38 $85
Financial Square Money Market Fund........ $ 7 $22 $38 $85
Financial Square Money Market Plus Fund... $ 7 $22 N/A N/A
Financial Square Treasury Obligations
Fund..................................... $ 7 $22 $38 $85
Financial Square Treasury Instruments
Fund..................................... $ 7 $22 N/A N/A
Financial Square Government Fund.......... $ 7 $22 $38 $85
Financial Square Federal Fund............. $ 7 $22 N/A N/A
Financial Square Tax-Free Money Market
Fund..................................... $ 7 $22 $38 $85
Financial Square Municipal Money Market
Fund..................................... $ 7 $22 N/A N/A
</TABLE>

2
<PAGE>

(2) The Investment Adviser has voluntarily agreed not to impose 0.035% of its
management fee for each Fund. Without such limitation, management fees for
each Fund would be 0.205%.

(3) The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, fees payable to Service Organi-
zations, as defined herein, taxes, interest and brokerage and litigation,
indemnification and other extraordinary expenses) to the extent such ex-
penses exceed 0.01% of a Fund's average daily net assets.

(4) Without the limitations described above, "Other Expenses" and "Total Oper-
ating Expenses" of the Financial Square Prime Obligations, Financial
Square Money Market, Financial Square Treasury Obligations, Financial
Square Government and Financial Square Tax-Free Money Market Funds for the
fiscal year ended December 31, 1996, would have been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Financial Square Prime Obligations Fund................... .025% .73%
Financial Square Money Market Fund........................ .025% .73%
Financial Square Treasury Obligations Fund................ .035% .74%
Financial Square Government Fund.......................... .035% .74%
Financial Square Tax-Free Money Market Fund............... .025% .73%
</TABLE>

In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Financial Square Money Market Plus, Finan-
cial Square Treasury Instruments, Financial Square Federal and Financial
Square Municipal Money Market Funds for the current fiscal year are estimated
to be as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Financial Square Money Market Plus Fund................... .035% .74%
Financial Square Treasury Instruments Fund................ .125% .83%
Financial Square Federal Fund............................. .095% .80%
Financial Square Municipal Money Market Fund.............. .285% .99%
</TABLE>

The information set forth in the foregoing table and hypothetical example
relates only to FST Service Shares of the Funds. The Funds also offer FST
Shares, FST Preferred Shares and FST Administration Shares. The other classes
of the Funds are subject to different fees and expenses (which affect perfor-
mance) and are entitled to different services. Information regarding any other
class of the Funds may be obtained from your sales representative or from
Goldman Sachs by calling the number on the front cover of this Prospectus.

Service Organizations may charge other fees to their customers who are the
beneficial owners of FST Service Shares in connection with their customers'
accounts. Due to the service fees, a long-term shareholder may pay more than
the economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.'s rules regarding investment
companies. See "Additional Services." Such fees, if any, may affect the return
such customers realize with respect to their investments.

The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on fees and expenses included in the table and the
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those indicat-
ed. Moreover, while the example assumes a 5% annual return, a Fund's actual
performance will vary and may result in an actual return greater or less than
5%. See "Management--Investment Adviser."

3
<PAGE>

FINANCIAL HIGHLIGHTS

4
<PAGE>

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

5
<PAGE>

6
<PAGE>

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

7
<PAGE>

8
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
---------------------------------------
NET NET TOTAL
ASSET NET REALIZED INCOME NET ASSET RATIO OF NET
VALUE AT INVEST- GAIN ON FROM DISTRIBUTIONS VALUE AT EXPENSES TO
BEGINNING MENT INVESTMENT INVESTMENT TO END OF TOTAL AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD RETURN (A) ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended December
31,
- --------------
1996-FST shares. $1.00 $ 0.0335 -- $ 0.0335 $(0.0335) $1.00 3.39% 0.18%
1996-FST Pre-
ferred
shares(c)....... 1.00 0.0218 -- 0.0218 (0.0218) 1.00 3.30(b) 0.28(b)
1996-FST Admin-
istration
shares.......... 1.00 0.0310 -- 0.0310 (0.0310) 1.00 3.13 0.43
1996-FST Service
shares.......... 1.00 0.0285 -- 0.0285 (0.0285) 1.00 2.88 0.68
1995-FST shares. 1.00 0.0381 -- 0.0381 (0.0381) 1.00 3.89 0.14
1995-FST Admin-
istration
shares.......... 1.00 0.0354 -- 0.0354 (0.0354) 1.00 3.63 0.39
1995-FST Service
shares.......... 1.00 0.0332 -- 0.0332 (0.0332) 1.00 3.38 0.64
For the Period
Ended December
31,
- --------------
1994-FST
shares(d)....... 1.00 0.0156 -- 0.0156 (0.0156) 1.00 3.41(b) 0.07(b)
1994-FST
Administration shares(d). 1.00 0.0136 -- 0.0136 (0.0136) 1.00 3.19(b) 0.32(b)
1994-FST Service
shares(d)....... 1.00 0.0091 -- 0.0091 (0.0091) 1.00 3.11(b) 0.57(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
RATIO OF NET NET RATIO OF NET
INVESTMENT ASSETS AT RATIO OF INVESTMENT
INCOME TO END OF EXPENSES TO INCOME TO
AVERAGE NET PERIOD AVERAGE NET AVERAGE NET
ASSETS (IN 000'S) ASSETS ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year
Ended December
31,
- --------------
1996-FST shares. 3.35% $440,838 0.23% 3.30%
1996-FST Pre-
ferred
shares(c)....... 3.26(b) 28,731 0.33(b) 3.21(b)
1996-FST Admin-
istration
shares.......... 3.10 51,661 0.48 3.05
1996-FST Service
shares.......... 2.85 19,855 0.73 2.80
1995-FST shares. 3.81 448,367 0.24 3.71
1995-FST Admin-
istration
shares.......... 3.54 20,939 0.49 3.44
1995-FST Service
shares.......... 3.32 19,860 0.74 3.22
For the Period
Ended December
31,
- --------------
1994-FST
shares(d)....... 3.42(b) 183,570 0.31(b) 3.18(b)
1994-FST
Administration shares(d). 3.25(b) 2,042 0.56(b) 3.01(b)
1994-FST Service
shares(d)....... 3.32(b) 2,267 0.81(b) 3.08(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b) Annualized.
(c) FST Preferred share activity commenced on May 1, 1996.
(d) FST share, FST Administration share and FST Service share activity com-
menced July 19, 1994, August 1, 1994 and September 23, 1994, respectively.

9
<PAGE>

AN INTRODUCTION TO THE FUNDS

THE ADVISER: Goldman Sachs Asset Management, a separate operating division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Funds' investment ad-
viser (the "Adviser" or "GSAM").

THE DISTRIBUTOR: Goldman Sachs, which serves as the Funds' distributor and
transfer agent, is one of the largest international investment banking and
brokerage firms in the United States.

TAXABLE FUNDS: Prime Obligations, Money Market, Money Market Plus, Trea-
sury Obligations and Government Funds.

TAX ADVANTAGED FUNDS: Treasury Instruments and Federal Funds.

TAX-EXEMPT FUNDS: Tax-Free Money Market and Municipal Money Market Funds.

NET ASSET VALUE: Each Fund seeks to maintain a stable net asset value of
$1.00 per share.

MAXIMUM REMAINING MATURITY OF PORTFOLIO INVESTMENTS: Thirteen months at the
time of purchase.

10
<PAGE>

DOLLAR-WEIGHTED AVERAGE PORTFOLIO MATURITY ("WAM"): Not more than ninety
days as required by Rule 2a-7.

11
<PAGE>

12
<PAGE>

13
<PAGE>

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

U.S. TREASURY OBLIGATIONS

"U.S. Treasury Obligations" are securities issued or guaranteed by the U.S.
Treasury, payments of principal and interest on which are backed by the full
faith and credit of the U.S. Government.

U.S. GOVERNMENT SECURITIES

CUSTODIAL RECEIPTS

U.S. AND FOREIGN BANK OBLIGATIONS

14
<PAGE>

COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS

ASSET-BACKED AND RECEIVABLES-BACKED SECURITIES

15
<PAGE>

FOREIGN GOVERNMENT OBLIGATIONS

MUNICIPAL OBLIGATIONS

TYPES OF MUNICIPAL INSTRUMENTS:

16
<PAGE>

17
<PAGE>

18
<PAGE>

REPURCHASE AGREEMENTS

FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES

OTHER INVESTMENT COMPANIES

INVESTMENT LIMITATIONS

19
<PAGE>

tions relating to maturity, diversification and credit quality. These operat-
ing policies may be more restrictive than the fundamental policies set forth
in the Statement of Additional Information.

MANAGEMENT

THE ADVISER

20
<PAGE>

THE DISTRIBUTOR AND TRANSFER AGENT

TAXES

21
<PAGE>

22
<PAGE>

NET ASSET VALUE

YIELD INFORMATION

23
<PAGE>

ORGANIZATION AND SHARES OF THE TRUST

As of April 1, 1997, Harris Trust & Savings Bank, 200 W. Monroe St. Fl 12,
Chicago, IL 60606, owned of record 40.64% of the outstanding shares of Trea-
sury Instruments Fund.

The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose, and
recordholders may, under certain circumstances, as permitted by the Investment
Company Act, communicate with other shareholders in connection with requiring
a special meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.

24
<PAGE>

ADDITIONAL SERVICES

Each Fund has adopted a Service Plan with respect to the FST Service Shares
which authorizes it to compensate certain institutions for providing account
administration and personal and account maintenance services to their custom-
ers who are beneficial owners of such Shares (each a "Service Organization").
Each Fund will enter into agreements with Service Organizations which purchase
FST Service Shares on behalf of their customers ("Service Agreements"). The
Service Agreements will provide for compensation to the Service Organization
in an amount up to .50% (on an annualized basis) of the average daily net as-
set value of the FST Service Shares of that 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 ex-
ceed .25% of such average daily net assets. The services provided by a Service
Organization may include acting, directly or through an agent, as the sole
shareholder of record, maintaining account records for its customers, and
processing orders to purchase, redeem and exchange FST Service Shares of a
Fund for its customers, responding to inquiries from prospective and existing
shareholders and assisting customers with investment procedures.

For the fiscal year ended December 31, 1996, the Trust, on behalf of Prime
Obligations Fund, Money Market Fund, Treasury Obligations Fund, Government
Fund and Tax-Free Fund paid Service Organizations fees at the annual rate of
.50% of each Fund's average daily net assets attributable to FST Service
Shares.

Holders of FST Service Shares of a Fund will bear all expenses and fees paid
to Service Organizations with respect to such Shares as well as any other ex-
penses which are directly attributable to such Shares.

Service Organizations may charge other fees to their customers who are the
beneficial owners of FST Service Shares in connection with their customer ac-
counts. These fees would be in addition to any amounts received by the Service
Organization under a Service Agreement and may affect an investor's return
with respect to an investment in a Fund.

All inquiries of beneficial owners of FST Service Shares of the Funds should
be directed to such owners' Service Organization.

PURCHASE OF SHARES

It is expected that all direct purchasers of FST Service Shares will be
Service Organizations or their nominees, which may purchase FST Service Shares
of the Funds through Goldman Sachs. Customers of Service Organizations may in-
vest in such shares only through their Service Organizations.

As set forth below, FST Service Shares of the Funds may be purchased on any
Business Day at the net asset value next determined after receipt from the
Service Organization of both the purchase order and the purchase amount in
federal funds. Purchase orders may be made by telephoning Goldman Sachs at
800-621-2550 or by a written request addressed to Goldman Sachs, Attention:
Shareholder Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois
60606. It is strongly recommended that payment be effected by wiring federal
funds to The Northern Trust Company ("Northern"), Chicago, Illinois, as the
sub-custodian for State Street Bank and Trust Company ("State Street").

Purchases of FST Service Shares may also be made by a Service Organization
by delivering a Federal Reserve draft or check (except that a third party
check will not be accepted) payable only to the appropriate

25
<PAGE>

Fund and drawn on a U.S. bank to Goldman Sachs, Attention: Shareholder Servic-
es, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois 60606. It is ex-
pected that Federal Reserve drafts will ordinarily be converted to federal
funds on the day of receipt and that checks will be converted to federal funds
within two Business Days after receipt. FST Service Shares purchased by check
may not be redeemed until the check has cleared, as described under "Redemp-
tion of Shares."

FST Service Shares of each Fund are deemed to have been purchased when an
order becomes effective and are entitled to dividends on FST Service Shares
purchased as follows:

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

IF ORDER IS RECEIVED FROM A SERVICE
ORGANIZATION BY GOLDMAN SACHS DIVIDENDS BEGIN
- ----------------------------------- ---------------
<S> <C>
(1) In the case of the Taxable and Tax-Advantaged
Funds (except for Government, Treasury Obligations
and Money Market Plus Funds)
By: 3:00 p.m.--N.Y. time Same Business Day
- -------------------------------------------------------------------------------
After: 3:00 p.m.--N.Y. time Next Business Day
- -------------------------------------------------------------------------------
(2) In the case of the Government, Treasury Obligations
and Money Market Plus Funds
By: 5:00 p.m.--N.Y. time Same Business Day
- -------------------------------------------------------------------------------
After: 5:00 p.m.--N.Y. time Next Business Day
- -------------------------------------------------------------------------------
(3) In the case of the Municipal Fund
By: 1:00 p.m.--N.Y. time Same Business Day
- -------------------------------------------------------------------------------
After: 1:00 p.m.--N.Y. time Next Business Day
- -------------------------------------------------------------------------------
(4) In the case of the Tax-Free Fund
By: 2:00 p.m.--N.Y. time Same Business Day
- -------------------------------------------------------------------------------
After: 2:00 p.m.--N.Y. time Next Business Day
- -------------------------------------------------------------------------------
</TABLE>

The Service Organizations are responsible for timely transmittal of purchase
orders to Goldman Sachs and Federal Funds to Northern. In order to facilitate
timely transmittal, the Service Organizations have established times by which
purchase orders and federal funds must be received by them.

26
<PAGE>

A Business Day means any day on which the New York Stock Exchange is open,
except for days on which Chicago, Boston or New York banks are closed for lo-
cal holidays.

FST Service Shares of a Fund are purchased at the net asset value per share
without the imposition of a sales charge. Goldman Sachs, as each Fund's trans-
fer agent, will maintain a complete record of transactions and FST Service
Shares held in each record holder's account. The Trust and Goldman Sachs each
reserves the right to reject any purchase order for any reason.

MINIMUM INVESTMENT AND OTHER INFORMATION

The minimum initial investment requirement is $10 million, which may be al-
located among the Funds. The Trust and Goldman Sachs each reserves the right
to waive the minimum investment requirement. A Service Organization may impose
a minimum amount for initial and subsequent investments in FST Service Shares
of the Funds, and may establish other requirements such as a minimum account
balance. A Service Organization may effect redemptions of noncomplying ac-
counts, and may impose a charge for any special services rendered to its cus-
tomers. Customers should contact their Service Organizations for further in-
formation concerning such requirements and charges. A Service Organization may
purchase FST Service Shares in connection with sweep account programs.

SUBSEQUENT INVESTMENTS

There is no minimum amount required for subsequent investments. Orders for
the purchase of additional FST Service Shares should be accompanied by infor-
mation identifying the account and the Fund in which FST Service Shares are to
be purchased.

REPORTS TO SHAREHOLDERS

The Trust will issue an annual report containing audited financial state-
ments and a semi-annual report to record holders of FST Service Shares of each
Fund, including Service Organizations who hold such Shares for the benefit of
their customers. Upon request, a printed confirmation for each transaction
will be provided by Goldman Sachs. Any dividends and distributions paid by the
Funds are also reflected in regular statements issued by Goldman Sachs to
shareholders of record. Service Organizations will be responsible for provid-
ing similar services to their own customers who are the beneficial owners of
such Shares.

DISTRIBUTIONS

All or substantially all of each Fund's net investment income will be de-
clared daily (as of 4:00 p.m. New York time for each Fund other than the Gov-
ernment, Treasury Obligations and Money Market Plus Funds and as of 5:00 p.m.
New York time for the Government, Treasury Obligations and Money Market Plus
Funds) as a dividend and distributed to Service Organizations monthly. Distri-
butions will be made in additional FST Service Shares of the same Fund or, at
the election of a Service Organization, in cash. The election to reinvest div-
idends and distributions or receive them in cash may be changed by a Service
Organization at any time upon written notice to Goldman Sachs. If no election
is made, all dividends and capital gain distributions will be reinvested. Div-
idends will be reinvested as of the last calendar day of each month. Cash dis-
tributions will be paid on or about the first business day of each month. Net
short-term capital gains, if any, will be distributed in accordance with the
requirements of the Code and may be reflected in the Fund's daily distribu-
tions. Each Fund may distribute at least annually its long-term capital gains,
if any, after reduction by available capital losses. In order to avoid exces-
sive fluctuations in the amount of monthly capital gains distributions, a por-
tion of any net capital gains realized on the disposition of securities during
the months of November and December may be distributed

27
<PAGE>

during the subsequent calendar year. Although realized gains and losses on the
assets of a Fund are reflected in the net asset value of the Fund, they are
not expected to be of an amount which would affect the Fund's net asset value
of $1.00 per share.

EXCHANGES

FST Service Shares of each Fund may be exchanged by Service Organizations
for shares of the corresponding class of any Fund or Portfolio of Goldman
Sachs Trust at the net asset value next determined either by writing to
Goldman Sachs, Attention: Shareholder Services, Goldman Sachs Trust, 4900
Sears Tower, Chicago, Illinois 60606 or, if previously elected in the Account
Information Form, by calling Goldman Sachs at 800-621-2550. All telephone ex-
changes must be registered in the same name(s) and with the same address as
are registered in the Fund from which the exchange is being made. It may be
difficult to implement the telephone exchange privilege in times of drastic
economic or market changes. In an effort to prevent unauthorized or fraudulent
exchange requests by telephone, Goldman Sachs employs reasonable procedures as
set forth under "Redemption of Shares" to confirm that such instructions are
genuine. Exchanges are available only in states where the exchange may legally
be made. The exchange privilege may be modified or withdrawn at any time on 60
days' written notice.

REDEMPTION OF SHARES

HOW TO REDEEM

Customers of Service Organizations may redeem FST Service Shares of a Fund
through their respective Service Organizations. The Service Organizations are
responsible for the transmittal of redemption requests by their customers to
Goldman Sachs. In order to facilitate timely transmittal of redemption re-
quests, Service Organizations have established procedures by which redemption
requests must be made and times by which redemption requests must be received
by them. Additional documentation may be required when deemed appropriate by a
Service Organization.

28
<PAGE>

reasonable procedures are not implemented, the Trust may be liable for any
loss due to unauthorized or fraudulent transactions. In all other cases, nei-
ther the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption instructions received by telephone. A redemption may also be made
with respect to certain Funds by means of the check redemption privilege de-
scribed in the Statement of Additional Information. Goldman Sachs reserves the
right to redeem accounts with balances below $500.

Additional documentation may be required by Goldman Sachs in order to estab-
lish that a redemption request has been properly authorized. A redemption re-
quest will not be considered to have been received in proper form until such
additional documentation has been submitted to Goldman Sachs by the Service
Organization. The payment of redemption proceeds for FST Service Shares re-
cently purchased by check will be delayed for up to 15 days until the check
has cleared.

PAYMENT OF REDEMPTION PROCEEDS AND DIVIDENDS

In accordance with the following, redemption proceeds will be wired to the
record holder of FST Service Shares.

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

<TABLE>
<CAPTION>
REDEMPTION REQUEST RECEIVED
FROM SERVICE ORGANIZATION REDEMPTION PROCEEDS
BY GOLDMAN SACHS ORDINARILY DIVIDENDS
--------------------------- ------------------- ---------
<S> <C> <C>
(1) In the case of the Taxable and Tax-Advantaged Funds (except for Government,
Treasury
Obligations and Money Market Plus Funds)
By:3:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day
request is received
- ---------------------------------------------------------------------------------
After:3:00 p.m.--N.Y. time Wired Next Business Day Earned on Day
request is received
- ---------------------------------------------------------------------------------
(2) In the case of the Government, Treasury Obligations and
Money Market Plus Funds
By:5:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day
request is received
- ---------------------------------------------------------------------------------
After:5:00 p.m.--N.Y. time Wired Next Business Day Earned on Day
request is received
- ---------------------------------------------------------------------------------
(3) In the case of the Municipal Fund
By:12:00 noon--N.Y. time Wired Same Business Day Not earned on Day
request is received
- ---------------------------------------------------------------------------------
After:12:00 noon--N.Y. time Wired Next Business Day Earned on Day
request is received
- ---------------------------------------------------------------------------------
(4) In the case of the Tax-Free Fund
By:1:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day
request is received
- ---------------------------------------------------------------------------------
After:1:00 p.m.--N.Y. time Wired Next Business Day Earned on Day
request is received
- ---------------------------------------------------------------------------------
</TABLE>

29
<PAGE>

The Funds will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the Service Organization's bank account desig-
nated in the Account Information Form. Redemption proceeds will normally be
wired as set forth above, but may be paid up to three Business Days after re-
ceipt of the Service Organization's properly executed redemption request. For
example, payment may be delayed if the Federal Reserve Bank is closed on the
day redemption proceeds would ordinarily be wired. After a wire has been ini-
tiated by Goldman Sachs, neither Goldman Sachs nor the Trust assumes any fur-
ther responsibility for the performance of intermediaries or the FST Service
Shareholder's Service Organization in the transfer process. If a problem with
such performance arises, the FST Service Shareholder should deal directly with
such intermediaries or Service Organization.

OTHER REDEMPTION INFORMATION

A minimum account balance of $10 million is required to remain a FST Service
Shareholder. The Funds may redeem all of the FST Service Shares of any FST
Service Shareholder whose account has a net asset value which is less than the
minimum described above. The Trust will give sixty (60) days' prior written
notice to such shareholders whose FST Service Shares are being redeemed to al-
low them to purchase sufficient additional FST Service Shares to avoid such
redemption.

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

30
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM

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

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

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

A-1
<PAGE>

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

GOLDMAN SACHS MONEY MARKET FUNDS
FST SERVICE SHARES
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

TOLL FREE: 800-621-2550

-----------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Shareholder and Fund Expenses.............................................. 2
Financial Highlights....................................................... 4
An Introduction to the Funds............................................... 10
Investment Policies Matrix................................................. 12
Description of Securities and Investment
Techniques................................................................ 14
Investment Limitations..................................................... 19
Management................................................................. 20
Taxes...................................................................... 21
Net Asset Value............................................................ 23
Yield Information.......................................................... 23
Organization and Shares of the Trust....................................... 24
Additional Services........................................................ 25
Purchase of Shares......................................................... 25
Reports to Shareholders.................................................... 27
Distributions.............................................................. 27
Exchanges.................................................................. 28
Redemption of Shares....................................................... 28
Appendix................................................................... A-1
</TABLE>

FSPROSVCMM
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

GOLDMAN SACHS MONEY MARKET FUNDS

FINANCIAL SQUARE FUNDS

FST SERVICE SHARES

-----------

PROSPECTUS

-----------

MANAGED BY
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

GOLDMAN SACHS MONEY MARKET FUNDS
FINANCIAL SQUARE FUNDS
FST PREFERRED SHARES
4900 Sears Tower
Chicago, Illinois 60606

Goldman Sachs Trust (the "Trust") is a no-load, open-end, management invest-
ment company (a "mutual fund") which includes the Financial Square Funds (the
"Funds"). This Prospectus relates only to the offering of FST Preferred shares
of beneficial interest ("FST Preferred Shares") of the Funds. Goldman Sachs
Asset Management, a separate operating division of Goldman, Sachs & Co.,
serves as each Fund's investment adviser. Goldman, Sachs & Co. serves as each
Fund's distributor and transfer agent.

Financial Square Treasury Obligations Fund. Securities issued or guaranteed
by the U.S. Treasury and repurchase agreements relating to such securities.

Financial Square Treasury Instruments Fund. Securities issued or guaranteed
by the U.S. Treasury, the interest income from which is generally exempt from
state income taxation.

Financial Square Government Fund. Securities of the U.S. Government, its
agencies, authorities, and instrumentalities, and repurchase agreements relat-
ing to such securities.

AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOV-
ERNMENT AND THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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

ADDITIONAL INFORMATION..............Goldman Sachs Funds-Toll Free: 800-621-2550

This Prospectus provides you with information about the Funds that you should
know before investing in FST Preferred Shares. It should be read and retained
for future reference. If you would like more detailed information, the State-
ment of Additional Information dated May 1, 1997, as amended or supplemented
from time to time, is available upon request without charge from Service Orga-
nizations, as defined herein, or by calling the telephone number listed above
or by writing Goldman Sachs, Attention: Shareholder Services, Goldman Sachs
Trust, 4900 Sears Tower, Chicago, Illinois 60606. The Statement of Additional
Information, which is incorporated by reference into this Prospectus, has been
filed with the Securities and Exchange Commission. Not all Funds are available
in certain states. Please call the phone number listed above to determine
availability in your state. The SEC maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information and other information
regarding the Trust.

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

FST PREFERRED SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUAR-
ANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RE-
SERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A 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 AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Prospectus is May 1, 1997.
<PAGE>

SHAREHOLDER AND FUND EXPENSES
FST PREFERRED SHARES

<TABLE>
<CAPTION>
FINANCIAL FINANCIAL
FINANCIAL FINANCIAL FINANCIAL FINANCIAL FINANCIAL SQUARE SQUARE
SQUARE SQUARE SQUARE SQUARE SQUARE FINANCIAL FINANCIAL TAX-FREE MUNICIPAL
PRIME MONEY MONEY TREASURY TREASURY SQUARE SQUARE MONEY MONEY
OBLIGATIONS MARKET MARKET OBLIGATIONS INSTRUMENTS GOVERNMENT FEDERAL MARKET MARKET
FUND FUND PLUS FUND FUND FUND FUND FUND FUND FUND
----------- --------- --------- ----------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSAC-
TION EXPENSES
Maximum Sales Charge
Imposed on
Purchases........... None None None None None None None None None
Sales Charge Imposed
on Reinvested
Distributions....... None None None None None None None None None
Deferred Sales Load
Imposed on
Redemptions......... None None None None None None None None None
Exchange Fee......... None None None None None None None None None
ANNUAL OPERATING EXPENSES
(1)
(as a percentage of
average daily net
assets)
Management Fees
(after
limitations) (2).... 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17%
Other Expenses
Preferred Adminis-
tration Fees....... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Other Expenses
(after expense
limitation) (3).... 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL OPERATING
EXPENSES (4)......... 0.28% 0.28% 0.28% 0.28% 0.28% 0.28% 0.28% 0.28% 0.28%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

EXAMPLE OF EXPENSES
You would pay the following expenses on a hypothetical $1,000 investment, as-
suming a 5% annual return and redemption at the end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Financial Square Prime Obligations Fund... $ 3 $9 $16 $36
Financial Square Money Market Fund........ $ 3 $ 9 $16 $36
Financial Square Money Market Plus Fund... $ 3 $ 9 N/A N/A
Financial Square Treasury Obligations
Fund..................................... $ 3 $ 9 $16 $36
Financial Square Treasury Instruments
Fund..................................... $ 3 $ 9 N/A N/A
Financial Square Government Fund.......... $ 3 $ 9 $16 $36
Financial Square Federal Fund............. $ 3 $ 9 N/A N/A
Financial Square Tax-Free Money Market
Fund..................................... $ 3 $ 9 $16 $36
Financial Square Municipal Money Market
Fund..................................... $ 3 $ 9 N/A N/A
</TABLE>

2
<PAGE>

(2) The Investment Adviser has voluntarily agreed not to impose 0.035% of its
management fee for each Fund. Without such limitation, management fees for
each Fund would be 0.205%.

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Financial Square Prime Obligations Fund................... .025% .33%
Financial Square Money Market Fund........................ .025% .33%
Financial Square Treasury Obligations Fund................ .035% .34%
Financial Square Government Fund.......................... .035% .34%
Financial Square Tax-Free Money Market Fund............... .025% .33%
</TABLE>

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Financial Square Money Market Plus Fund................... .035% .34%
Financial Square Treasury Instruments Fund................ .125% .43%
Financial Square Federal Fund............................. .095% .40%
Financial Square Municipal Money Market Fund.............. .285% .59%
</TABLE>

The information set forth in the foregoing table and hypothetical example
relates only to FST Preferred Shares of the Funds. The Funds also offer FST
Shares, FST Administration Shares and FST Service Shares. The other classes of
the Funds are subject to different fees and expenses (which affect perfor-
mance) and are entitled to different services. Information regarding any other
class of the Funds may be obtained from your sales representative or from
Goldman Sachs by calling the number on the front cover of this Prospectus.

Service Organizations may charge other fees to their customers who are the
beneficial owners of FST Preferred Shares in connection with their customers'
accounts. See "Administration." Such fees, if any, may affect the return such
customers realize with respect to their investments.

The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on fees and expenses included in the table and the
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those indicat-
ed. Moreover, while the example assumes a 5% annual return, a Fund's actual
performance will vary and may result in an actual return greater or less than
5%. See "Management--Investment Adviser."

3
<PAGE>

FINANCIAL HIGHLIGHTS

4
<PAGE>

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

5
<PAGE>

6
<PAGE>

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

7
<PAGE>

8
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
---------------------------------------
NET NET TOTAL
ASSET NET REALIZED INCOME NET ASSET RATIO OF NET
VALUE AT INVEST- GAIN ON FROM DISTRIBUTIONS VALUE AT EXPENSES TO
BEGINNING MENT INVESTMENT INVESTMENT TO END OF TOTAL AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS PERIOD RETURN (A) ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended December
31,
- --------------
1996-FST shares. $1.00 $ 0.0335 -- $ 0.0335 $(0.0335) $1.00 3.39% 0.18%
1996-FST Pre-
ferred
shares(c)....... 1.00 0.0218 -- 0.0218 (0.0218) 1.00 3.30(b) 0.28(b)
1996-FST Admin-
istration
shares.......... 1.00 0.0310 -- 0.0310 (0.0310) 1.00 3.13 0.43
1996-FST Service
shares.......... 1.00 0.0285 -- 0.0285 (0.0285) 1.00 2.88 0.68
1995-FST shares. 1.00 0.0381 -- 0.0381 (0.0381) 1.00 3.89 0.14
1995-FST Admin-
istration
shares.......... 1.00 0.0354 -- 0.0354 (0.0354) 1.00 3.63 0.39
1995-FST Service
shares.......... 1.00 0.0332 -- 0.0332 (0.0332) 1.00 3.38 0.64
For the Period
Ended December
31,
- --------------
1994-FST
shares(d)....... 1.00 0.0156 -- 0.0156 (0.0156) 1.00 3.41(b) 0.07(b)
1994-FST
Administration shares(d). 1.00 0.0136 -- 0.0136 (0.0136) 1.00 3.19(b) 0.32(b)
1994-FST Service
shares(d)....... 1.00 0.0091 -- 0.0091 (0.0091) 1.00 3.11(b) 0.57(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
RATIO OF NET NET RATIO OF NET
INVESTMENT ASSETS AT RATIO OF INVESTMENT
INCOME TO END OF EXPENSES TO INCOME TO
AVERAGE NET PERIOD AVERAGE NET AVERAGE NET
ASSETS (IN 000'S) ASSETS ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year
Ended December
31,
- --------------
1996-FST shares. 3.35% $440,838 0.23% 3.30%
1996-FST Pre-
ferred
shares(c)....... 3.26(b) 28,731 0.33(b) 3.21(b)
1996-FST Admin-
istration
shares.......... 3.10 51,661 0.48 3.05
1996-FST Service
shares.......... 2.85 19,855 0.73 2.80
1995-FST shares. 3.81 448,367 0.24 3.71
1995-FST Admin-
istration
shares.......... 3.54 20,939 0.49 3.44
1995-FST Service
shares.......... 3.32 19,860 0.74 3.22
For the Period
Ended December
31,
- --------------
1994-FST
shares(d)....... 3.42(b) 183,570 0.31(b) 3.18(b)
1994-FST
Administration shares(d). 3.25(b) 2,042 0.56(b) 3.01(b)
1994-FST Service
shares(d)....... 3.32(b) 2,267 0.81(b) 3.08(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b) Annualized.
(c) FST Preferred share activity commenced on May 1, 1996.
(d) FST share, FST Administration share and FST Service share activity com-
menced July 19, 1994, August 1, 1994 and September 23, 1994, respectively.

9
<PAGE>

AN INTRODUCTION TO THE FUNDS

THE ADVISER: Goldman Sachs Asset Management, a separate operating division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Funds' investment ad-
viser (the "Adviser" or "GSAM").

THE DISTRIBUTOR: Goldman Sachs, which serves as the Funds' distributor and
transfer agent, is one of the largest international investment banking and
brokerage firms in the United States.

TAXABLE FUNDS: Prime Obligations, Money Market, Money Market Plus, Trea-
sury Obligations and Government Funds.

TAX ADVANTAGED FUNDS: Treasury Instruments and Federal Funds.

TAX-EXEMPT FUNDS: Tax-Free Money Market and Municipal Money Market Funds.

NET ASSET VALUE: Each Fund seeks to maintain a stable net asset value of
$1.00 per share.

MAXIMUM REMAINING MATURITY OF PORTFOLIO INVESTMENTS: Thirteen months at the
time of purchase.

10
<PAGE>

DOLLAR-WEIGHTED AVERAGE PORTFOLIO MATURITY ("WAM"): Not more than ninety
days as required by Rule 2a-7.

11
<PAGE>

12
<PAGE>

13
<PAGE>

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

U.S. TREASURY OBLIGATIONS

"U.S. Treasury Obligations" are securities issued or guaranteed by the U.S.
Treasury, payments of principal and interest on which are backed by the full
faith and credit of the U.S. Government.

U.S. GOVERNMENT SECURITIES

CUSTODIAL RECEIPTS

U.S. AND FOREIGN BANK OBLIGATIONS

14
<PAGE>

COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS

ASSET-BACKED AND RECEIVABLES-BACKED SECURITIES

15
<PAGE>

FOREIGN GOVERNMENT OBLIGATIONS

MUNICIPAL OBLIGATIONS

TYPES OF MUNICIPAL INSTRUMENTS:

16
<PAGE>

17
<PAGE>

18
<PAGE>

REPURCHASE AGREEMENTS

FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES

OTHER INVESTMENT COMPANIES

INVESTMENT LIMITATIONS

19
<PAGE>

tions relating to maturity, diversification and credit quality. These operat-
ing policies may be more restrictive than the fundamental policies set forth
in the Statement of Additional Information.

MANAGEMENT

THE ADVISER

20
<PAGE>

THE DISTRIBUTOR AND TRANSFER AGENT

TAXES

21
<PAGE>

22
<PAGE>

NET ASSET VALUE

YIELD INFORMATION

23
<PAGE>

ORGANIZATION AND SHARES OF THE TRUST

As of April 1, 1997, Harris Trust & Savings Bank, 200 W. Monroe St. Fl 12,
Chicago, IL 60606, owned of record 40.64% of the outstanding shares of Trea-
sury Instruments Fund.

The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose, and
recordholders may, under certain circumstances, as permitted by the Investment
Company Act, communicate with other shareholders in connection with requiring
a special meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.

24
<PAGE>

ADMINISTRATION

Each Fund has adopted a Preferred Administration Plan with respect to the
FST Preferred Shares which authorizes it to compensate certain institutions
for providing account administration services to their customers who are bene-
ficial owners of such Shares (each a "Service Organization"). Each Fund will
enter into agreements with Service Organizations which purchase FST Preferred
Shares on behalf of their customers ("Service Agreements"). The Service Agree-
ments will provide for compensation to the Service Organization in an amount
up to .10% (on an annualized basis) of the average daily net asset value of
the FST Preferred Shares of that Fund attributable to or held in the name of
the Service Organization for its customers. The services provided by a Service
Organization may include acting, directly or through an agent, as the sole
shareholder of record, maintaining account records for its customers, and
processing orders to purchase, redeem and exchange FST Preferred Shares for
its customers.

For the fiscal year ended December 31, 1996, the Trust, on behalf of Prime
Obligations Fund, Money Market Fund, Treasury Obligations Fund, Government
Fund and Tax-Free Fund paid Service Organizations fees at the annual rate of
.10% of each Fund's average daily net assets attributable to FST Preferred Ad-
ministration Shares.

Holders of FST Preferred Shares of a Fund will bear all expenses and fees
paid to Service Organizations with respect to such Shares as well as any other
expenses which are directly attributable to such Shares.

Service Organizations may charge other fees to their customers who are the
beneficial owners of FST Preferred Shares in connection with their customer
accounts. These fees would be in addition to any amounts received by the Serv-
ice Organization under a Service Agreement and may affect an investor's return
with respect to an investment in a Fund.

All inquiries of beneficial owners of FST Preferred Shares of the Funds
should be directed to such owners' Service Organization.

PURCHASE OF SHARES

It is expected that all direct purchasers of FST Preferred Shares will be
Service Organizations or their nominees, which may purchase FST Preferred
Shares of the Funds through Goldman Sachs. Customers of Service Organizations
may invest in such shares only through their Service Organizations.

As set forth below, FST Preferred Shares of the Funds may be purchased on
any Business Day at the net asset value next determined after receipt from the
Service Organization of both the purchase order and the purchase amount in
federal funds. Purchase orders may be made by telephoning Goldman Sachs at
800-621-2550 or by a written request addressed to Goldman Sachs, Attention:
Shareholder Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois
60606. It is strongly recommended that payment be effected by wiring federal
funds to The Northern Trust Company ("Northern"), Chicago, Illinois, as the
sub-custodian for State Street Bank and Trust Company ("State Street").

Purchases of FST Preferred Shares may also be made by a Service Organization
by delivering a Federal Reserve draft or check (except that a third party
check will not be accepted) payable only to the appropriate Fund and drawn on
a U.S. bank to Goldman Sachs, Attention: Shareholder Services, Goldman Sachs
Trust, 4900

25
<PAGE>

Sears Tower, Chicago, Illinois 60606. It is expected that Federal Reserve
drafts will ordinarily be converted to federal funds on the day of receipt and
that checks will be converted to federal funds within two Business Days after
receipt. FST Preferred Shares purchased by check may not be redeemed until the
check has cleared, as described under "Redemption of Shares."

FST Preferred Shares of each Fund are deemed to have been purchased when an
order becomes effective and are entitled to dividends on FST Preferred Shares
purchased as follows:

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

<TABLE>
<CAPTION>
IF ORDER IS RECEIVED FROM A SERVICE
ORGANIZATION BY GOLDMAN SACHS DIVIDENDS BEGIN
----------------------------------- ---------------
<C> <S> <C> <C> <C>
(1) In the case of the Taxable and Tax-Advantaged Funds
(except for Government, Treasury Obligations
and Money Market Plus Funds)
By: 3:00 p.m.--N.Y. time Same Business Day
- ---------------------------------------------------------------------
After: 3:00 p.m.--N.Y. time Next Business Day
- ---------------------------------------------------------------------
(2) In the case of the Government, Treasury Obligations
and Money Market Plus Funds
By: 5:00 p.m.--N.Y. time Same Business Day
- ---------------------------------------------------------------------
After: 5:00 p.m.--N.Y. time Next Business Day
- ---------------------------------------------------------------------
(3) In the case of the Municipal Fund
By: 1:00 p.m.--N.Y. time Same Business Day
- ---------------------------------------------------------------------
After: 1:00 p.m.--N.Y. time Next Business Day
- ---------------------------------------------------------------------
(4) In the case of the Tax-Free Fund
By: 2:00 p.m.--N.Y. time Same Business Day
- ---------------------------------------------------------------------
After: 2:00 p.m.--N.Y. time Next Business Day
- ---------------------------------------------------------------------
</TABLE>

The Service Organizations are responsible for timely transmittal of purchase
orders to Goldman Sachs and federal funds to Northern. In order to facilitate
timely transmittal, the Service Organizations have established times by which
purchase orders and federal funds must be received by them.

A Business Day means any day on which the New York Stock Exchange is open,
except for days on which Chicago, Boston or New York banks are closed for lo-
cal holidays.

26
<PAGE>

FST Preferred Shares of a Fund are purchased at the net asset value per
share without the imposition of a sales charge. Goldman Sachs, as each Fund's
transfer agent, will maintain a complete record of transactions and FST Pre-
ferred Shares held in each record holder's account. The Trust and Goldman
Sachs each reserves the right to reject any purchase order for any reason.

MINIMUM INVESTMENT AND OTHER INFORMATION

The minimum initial investment requirement is $10 million, which may be al-
located among the Funds. The Trust and Goldman Sachs each reserves the right
to waive the minimum investment requirement. A Service Organization may impose
a minimum amount for initial and subsequent investments in FST Preferred
Shares of the Funds, and may establish other requirements such as a minimum
account balance. A Service Organization may effect redemptions of noncomplying
accounts, and may impose a charge for any special services rendered to its
customers. Customers should contact their Service Organizations for further
information concerning such requirements and charges. A Service Organization
may purchase FST Preferred Shares in connection with sweep account programs.

SUBSEQUENT INVESTMENTS

There is no minimum amount required for subsequent investments. Orders for
the purchase of additional FST Preferred Shares should be accompanied by in-
formation identifying the account and the Fund in which FST Preferred Shares
are to be purchased.

REPORTS TO SHAREHOLDERS

The Trust will issue an annual report containing audited financial state-
ments and a semi-annual report to record holders of FST Preferred Shares of
each Fund, including Service Organizations who hold such Shares for the bene-
fit of their customers. Upon request, a printed confirmation for each transac-
tion will be provided by Goldman Sachs. Any dividends and distributions paid
by the Funds are also reflected in regular statements issued by Goldman Sachs
to shareholders of record. Service Organizations will be responsible for pro-
viding similar services to their own customers who are the beneficial owners
of such Shares.

DISTRIBUTIONS

All or substantially all of each Fund's net investment income will be de-
clared daily (as of 4:00 p.m. New York time for each Fund other than the Gov-
ernment, Treasury Obligations and Money Market Plus Funds and as of 5:00 p.m.
New York time for the Government, Treasury Obligations and Money Market Plus
Funds) as a dividend and distributed to Service Organizations monthly. Distri-
butions will be made in additional FST Preferred Shares of the same Fund or,
at the election of a Service Organization, in cash. The election to reinvest
dividends and distributions or receive them in cash may be changed by a Serv-
ice Organization at any time upon written notice to Goldman Sachs. If no elec-
tion is made, all dividends and capital gain distributions will be reinvested.
Dividends will be reinvested as of the last calendar day of each month. Cash
distributions will be paid on or about the first business day of each month.
Net short-term capital gains, if any, will be distributed in accordance with
the requirements of the Code and may be reflected in the Fund's daily distri-
butions. Each Fund may distribute at least annually its long-term capital
gains, if any, after reduction by available capital losses. In order to avoid
excessive fluctuations in the amount of monthly capital gains distributions, a
portion of any net capital gains realized on the disposition of securities
during the months of November and December may be distributed during the sub-
sequent calendar year. Although realized gains and losses on the assets of a
Fund are reflected in the net asset value of the Fund, they are not expected
to be of an amount which would affect the Fund's net asset value of $1.00 per
share.

27
<PAGE>

EXCHANGES

FST Preferred Shares of each Fund may be exchanged by Service Organizations
for FST Preferred Shares of any other Financial Square Fund at the net asset
value next determined either by writing to Goldman Sachs, Attention: Share-
holder Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois
60606, if previously elected in the Account Information Form, or by calling
Goldman Sachs at 800-621-2550. All telephone exchanges must be registered in
the same name(s) and with the same address as are registered in the Fund from
which the exchange is being made. It may be difficult to implement the tele-
phone exchange privilege in times of drastic economic or market changes. In an
effort to prevent unauthorized or fraudulent exchange requests by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Shares" to confirm that such instructions are genuine. Exchanges are available
only in states where the exchange may legally be made. The exchange privilege
may be modified or withdrawn at any time on 60 days' written notice.

REDEMPTION OF SHARES

HOW TO REDEEM

Customers of Service Organizations may redeem FST Preferred Shares of a Fund
through their respective Service Organizations. The Service Organizations are
responsible for the transmittal of redemption requests by their customers to
Goldman Sachs. In order to facilitate timely transmittal of redemption re-
quests, Service Organizations have established procedures by which redemption
requests must be made and times by which redemption requests must be received
by them. Additional documentation may be required when deemed appropriate by a
Service Organization.

28
<PAGE>

the Account Information Form must be in writing and signed by an authorized
person designated on the Account Information Form. Any such written request is
also confirmed by telephone with both the requesting party and the designated
bank account to verify instructions. Other procedures may be implemented from
time to time. If reasonable procedures are not implemented, the Trust may be
liable for any loss due to unauthorized or fraudulent transactions. In all
other cases, neither the Trust nor Goldman Sachs will be responsible for the
authenticity of redemption instructions received by telephone. A redemption
may also be made with respect to certain Funds by means of the check redemp-
tion privilege described in the Statement of Additional Information. Goldman
Sachs reserves the right to redeem accounts with balances below $500.

Additional documentation may be required by Goldman Sachs in order to estab-
lish that a redemption request has been properly authorized. A redemption re-
quest will not be considered to have been received in proper form until such
additional documentation has been submitted to Goldman Sachs by the Service
Organization. The payment of redemption proceeds for FST Preferred Shares re-
cently purchased by check will be delayed for up to 15 days until the check
has cleared.

PAYMENT OF REDEMPTION PROCEEDS AND DIVIDENDS

In accordance with the following, redemption proceeds will be wired to the
record holder of FST Preferred Shares.
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
REDEMPTION REQUEST
RECEIVED FROM REDEMPTION
SERVICE ORGANIZATION PROCEEDS
BY GOLDMAN SACHS ORDINARILY DIVIDENDS
-------------------- ---------- ---------
<C> <S> <C> <C>
(1) In the case of the Taxable and Tax-Advantaged Funds (except for
Government, Treasury Obligations and Money Market Plus Funds)
By: 3:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day
request is received
- ----------------------------------------------------------------------------
After: 3:00 p.m.--N.Y. time Wired Next Business Day Earned on Day
request is received
- ----------------------------------------------------------------------------
(2) In the case of the Government, Treasury Obligations and Money
Market Plus Funds
By: 5:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day
request is received
- ----------------------------------------------------------------------------
After: 5:00 p.m.--N.Y. time Wired Next Business Day Earned on Day
request is received
- ----------------------------------------------------------------------------
(3) In the case of the Municipal Fund
By: 12:00 noon--N.Y. time Wired Same Business Day Not earned on Day
request is received
- ----------------------------------------------------------------------------
After: 12:00 noon--N.Y. time Wired Next Business Day Earned on Day
request is received
- ----------------------------------------------------------------------------
(4) In the case of the Tax-Free Fund
By: 1:00 p.m.--N.Y. time Wired Same Business Day Not earned on Day
request is received
- ----------------------------------------------------------------------------
After: 1:00 p.m.--N.Y. time Wired Next Business Day Earned on Day
request is received
- ----------------------------------------------------------------------------
</TABLE>

29
<PAGE>

The Funds will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the Service Organization's bank account desig-
nated in the Account Information Form. Redemption proceeds will normally be
wired as set forth above, but may be paid up to three Business Days after re-
ceipt of the Service Organization's properly executed redemption request. For
example, payment may be delayed if the Federal Reserve Bank is closed on the
day redemption proceeds would ordinarily be wired. After a wire has been ini-
tiated by Goldman Sachs, neither Goldman Sachs nor the Trust assumes any fur-
ther responsibility for the performance of intermediaries or the FST Preferred
Shareholder's Service Organization in the transfer process. If a problem with
such performance arises, the FST Preferred Shareholder should deal directly
with such intermediaries or Service Organization.

OTHER REDEMPTION INFORMATION

A minimum account balance of $10 million is required to remain a FST Pre-
ferred Shareholder. The Funds may redeem all of the FST Preferred Shares of
any FST Preferred Shareholder whose account has a net asset value which is
less than the minimum described above. The Trust will give sixty (60) days'
prior written notice to such shareholders whose FST Preferred Shares are being
redeemed to allow them to purchase sufficient additional FST Preferred Shares
to avoid such redemption.

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

30
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM

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

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

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

A-1
<PAGE>

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

GOLDMAN SACHS MONEY MARKET FUNDS
FST PREFERRED SHARES
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

TOLL FREE: 800-621-2550

-----------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Shareholder and Fund Expenses.............................................. 2
Financial Highlights....................................................... 4
An Introduction to the Funds............................................... 10
Investment Policies Matrix................................................. 12
Description of Securities and Investment Techniques........................ 14
Investment Limitations..................................................... 19
Management................................................................. 20
Taxes...................................................................... 21
Net Asset Value............................................................ 23
Yield Information.......................................................... 23
Organization and Shares of the Trust....................................... 24
Administration............................................................. 25
Purchase of Shares......................................................... 25
Reports to Shareholders.................................................... 27
Distributions.............................................................. 27
Exchanges.................................................................. 28
Redemption of Shares....................................................... 28
Appendix................................................................... A-1
</TABLE>

FSPROPRMM
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

GOLDMAN SACHS MONEY MARKET FUNDS

FINANCIAL SQUARE FUNDS

FST PREFERRED SHARES

-----------

PROSPECTUS

-----------

MANAGED BY
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

GOLDMAN SACHS MONEY MARKET FUNDS
GOLDMAN SACHS--INSTITUTIONAL LIQUID ASSETS
ILA UNITS
4900 Sears Tower
Chicago, Illinois 60606

The following Portfolios seek to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
by investing exclusively in high quality money market instruments. These
Portfolios may invest in diversified portfolios of the following types of
instruments:

Prime Obligations Portfolio. Securities of the U.S. Government, its
agencies, authorities and instrumentalities, obligations of U.S. banks,
commercial paper and other short-term obligations of U.S. companies, states,
municipalities and other entities, and repurchase agreements.

Money Market Portfolio. Securities of the U.S. Government, its agencies,
authorities and instrumentalities, U.S. dollar denominated obligations of U.S.
and foreign banks, U. S. dollar denominated commercial paper and other short-
term obligations of U.S. and foreign companies, foreign governments, states,
municipalities and other entities, and repurchase agreements.

Treasury Obligations Portfolio. Securities issued or guaranteed by the U.S.
Treasury and repurchase agreements relating to such securities.

Treasury Instruments Portfolio. Securities issued or guaranteed by the U.S.
Treasury, the interest income from which is generally exempt from state income
taxation.

Government Portfolio. Securities of the U.S. Government, its agencies,
authorities and instrumentalities, and repurchase agreements relating to such
securities.

Federal Portfolio. Securities of the U.S. Government and certain of its
agencies, authorities and instrumentalities, the interest income from which is
generally exempt from state income taxation.

The following Portfolios seek to the extent consistent with the preservation
of capital and prescribed portfolio standards, a high level of income excluded
from gross income for federal income tax purposes, and in the case of the Tax-
Exempt California Portfolio and Tax-Exempt New York Portfolio, exempt from
California state and New York state and city personal income taxes,
respectively, by investing primarily in municipal instruments. The Tax-Exempt
California and Tax-Exempt New York Portfolios concentrate their investments in
securities issued by or on behalf of California and New York municipal issuers
and therefore investment in such Portfolios may be riskier than other types of
money market funds. These Portfolios may invest in the following types of
instruments:

Tax-Exempt Diversified Portfolio. A diversified portfolio of municipal
obligations issued by or on behalf of states, territories and possessions of
the United States and their political subdivisions, agencies, authorities and
instrumentalities, and the District of Columbia.

Tax-Exempt California Portfolio. A non-diversified portfolio consisting
primarily of municipal obligations issued by or on behalf of the State of
California and its political subdivisions, agencies and instrumentalities and
other obligations that are exempt from federal and California state income
taxes.

Tax-Exempt New York Portfolio. A non-diversified portfolio consisting
primarily of municipal obligations issued by or on behalf of the State of New
York and its political subdivisions, agencies and instrumentalities and other
obligations that are exempt from federal, New York state and New York City
personal income taxes.

AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT A PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER UNIT.
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION............ Goldman Sachs Funds--Toll Free: 800-621-2550

This Prospectus provides you with information about the Portfolios that you
should know before investing in ILA Units. It should be read and retained for
future reference. If you would like more detailed information, the Statement
of Additional Information dated May 1, 1997, as amended or supplemented from
time to time, is available upon request without charge by calling the
telephone number listed above or by writing Goldman Sachs, Attention:
Shareholder Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois
60606. The Statement of Additional Information, which is incorporated by
reference into this Prospectus, has been filed with the Securities and
Exchange Commission. Not all Portfolios are available in certain states.
Please call the phone number listed above to determine availability in your
state. The SEC maintains a Web site (http://www.sec.gov) that contains the
Statement of Additional Information and other information regarding the Trust.
- -------------------------------------------------------------------------------
ILA UNITS OF THE PORTFOLIOS 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 A PORTFOLIO INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

The date of this Prospectus is May 1, 1997.
<PAGE>

UNITHOLDER AND PORTFOLIO EXPENSES
ILA UNITS

<TABLE>
<CAPTION>
PRIME MONEY TREASURY TREASURY TAX-EXEMPT TAX-EXEMPT
OBLIGATIONS MARKET OBLIGATIONS INSTRUMENTS GOVERNMENT FEDERAL DIVERSIFIED CALIFORNIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- --------- ----------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNITHOLDER TRANSAC-
TION EXPENSES
Maximum Sales
Charge Imposed on
Purchases.......... None None None None None None None None
Sales Charge
Imposed on
Reinvested
Distributions...... None None None None None None None None
Deferred Sales Load
Imposed on
Redemptions........ None None None None None None None None
Exchange Fee....... None None None None None None None None
ANNUAL OPERATING EX-
PENSES(1)
(as a percentage of average daily
net assets)
Management Fees
(after
limitations)(2).... 0.35% 0.31% 0.35% 0.16% 0.35% 0.21% 0.26% 0.35%
Other Expenses
(after expense
limitation)(3)..... 0.07% 0.06% 0.07% 0.06% 0.07% 0.06% 0.06% 0.07%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL OPERATING EX-
PENSES (4).......... 0.42% 0.37% 0.42% 0.22% 0.42% 0.27% 0.32% 0.42%
==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
TAX-
EXEMPT
NEW YORK
PORTFOLIO
---------
<S> <C>
UNITHOLDER TRANSAC-
TION EXPENSES
Maximum Sales
Charge Imposed on
Purchases.......... None
Sales Charge
Imposed on
Reinvested
Distributions...... None
Deferred Sales Load
Imposed on
Redemptions........ None
Exchange Fee....... None
ANNUAL OPERATING EX-
PENSES(1)
(as a percentage of average daily
net assets)
Management Fees
(after
limitations)(2).... 0.27%
Other Expenses
(after expense
limitation)(3)..... 0.06%
---------
TOTAL OPERATING EX-
PENSES (4).......... 0.33%
=========
</TABLE>

EXAMPLE OF EXPENSES

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Obligations Portfolio................ $4 $13 $24 $53
Money Market Portfolio..................... $4 $12 $21 $47
Treasury Obligations Portfolio............. $4 $13 $24 $53
Treasury Instruments Portfolio............. $2 $ 7 $12 $28
Government Portfolio....................... $4 $13 $24 $53
Federal Portfolio.......................... $3 $ 9 $15 $34
Tax-Exempt Diversified Portfolio........... $3 $10 $18 $41
Tax-Exempt California Portfolio............ $4 $13 $24 $53
Tax-Exempt New York Portfolio.............. $3 $11 $19 $42
</TABLE>

2
<PAGE>

- --------
(1) Based on estimated amounts for the current fiscal year.

(2) The Investment Adviser has voluntarily agreed that a portion of the man-
agement fee would not be imposed on the Money Market, Treasury Instru-
ments, Federal, Tax-Exempt Diversified and Tax-Exempt New York Portfolios
equal to .04%, .19%, .14%, .09% and .08%, respectively. Without such limi-
tation, management fees for each Portfolio would be 0.35%.

(3) The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest and brokerage
and litigation, indemnification and other extraordinary expenses) to the
extent such expenses exceed 0.07% of the Prime Obligations, Treasury Obli-
gations, Government and Tax-Exempt California Portfolio's average daily
net assets and 0.06% of each other Portfolio's average daily net assets.

(4) Without the limitations described above, "Other Expenses" and "Total Oper-
ating Expenses" of the Portfolios for the current fiscal year are esti-
mated to be as follows:

<TABLE>
<CAPTION>
OTHER TOTAL OPERATING
EXPENSES EXPENSES
-------- ---------------
<S> <C> <C>
Prime Obligations Portfolio......................... .08% 0.43%
Money Market Portfolio.............................. .08% 0.43%
Treasury Obligations Portfolio...................... .08% 0.43%
Treasury Instruments Portfolio...................... .08% 0.43%
Government Portfolio................................ .09% 0.44%
Federal Portfolio................................... .08% 0.43%
Tax-Exempt Diversified Portfolio.................... .06% 0.41%
Tax-Exempt California Portfolio..................... .07% 0.42%
Tax-Exempt New York Portfolio....................... .08% 0.43%
</TABLE>

The information set forth in the foregoing table and hypothetical example
relates only to ILA Units of the Portfolios. The Portfolios also offer ILA Ad-
ministration Units, ILA Service Units and ILA Class B Units (Prime Obligations
only). The other classes of the Portfolios are subject to different fees and
expenses (which affect performance) and are entitled to different services.
Information regarding any other class of the Portfolios may be obtained from
your sales representative or from Goldman Sachs by calling the number on the
front cover of this Prospectus.

The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Portfolio that an investor will bear di-
rectly or indirectly. The information on fees and expenses included in the ta-
ble and the hypothetical example above are based on each Portfolio's estimated
fees and expenses and 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, a Portfo-
lio's actual performance will vary and may result in an actual return greater
or less than 5%. See "Management--Investment Adviser."

3
<PAGE>

FINANCIAL HIGHLIGHTS

The following data with respect to a unit (of the class specified) of the
Prime Obligations, Money Market, Treasury Obligations, Treasury Instruments,
Government, Federal, Tax-Exempt Diversified, Tax-Exempt California and Tax-Ex-
empt New York Portfolios outstanding during the periods indicated have been
audited by Arthur Andersen LLP, independent auditors, as indicated in their
report incorporated by reference and attached to the Statement of Additional
Information from the annual report to unitholders for the fiscal year ended
December 31, 1996 (the "Annual Report"), and should be read in conjunction
with the financial statements and related notes incorporated by reference and
attached to the Statement of Additional Information.

4
<PAGE>

Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

Selected Data for a Unit Outstanding Throughout Each Period Prime Obligations
Portfolio

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

<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
NET RATIO OF NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT
VALUE AT NET GAIN ON INCOME FROM VALUE AT EXPENSES TO INCOME TO
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
- ----------------
1996-ILA units.. $1.00 $0.0511 -- $0.0511 $(0.0511) $1.00 5.22% 0.41% 5.11%
1996-ILA Admin-
istration units. 1.00 0.0497 -- 0.0497 (0.0497) 1.00 5.06 0.56 4.97
1996-ILA Service
units........... 1.00 0.0474 -- 0.0474 (0.0474) 1.00 4.80 0.81 4.74
1996-ILA B
units (b)....... 1.00 0.0262 -- 0.0262 (0.0262) 1.00 3.97(d) 1.41(d) 4.09(d)
1995-ILA units.. 1.00 0.0566 -- 0.0566 (0.0566) 1.00 5.79 0.41 5.66
1995-ILA Admin-
istration units. 1.00 0.0551 -- 0.0551 (0.0551) 1.00 5.63 0.56 5.51
1995-ILA Service
units........... 1.00 0.0522 -- 0.0522 (0.0522) 1.00 5.37 0.81 5.22
1994-ILA units.. 1.00 0.0394 -- 0.0394 (0.0394) 1.00 4.07 0.40 3.94
1994-ILA Admin-
istration units. 1.00 0.0379 -- 0.0379 (0.0379) 1.00 3.91 0.55 3.79
1994-ILA Service
units........... 1.00 0.0365 -- 0.0365 (0.0365) 1.00 3.66 0.80 3.65
1993-ILA units.. 1.00 0.0291 0.0002 0.0293 (0.0293) 1.00 2.97 0.40 2.91
1993-ILA Admin-
istration units. 1.00 0.0275 0.0003 0.0278 (0.0278) 1.00 2.82 0.55 2.75
1993-ILA Service
units........... 1.00 0.0250 0.0001 0.0251 (0.0252) 1.00 2.56 0.80 2.50
1992-ILA units.. 1.00 0.0364 0.0010 0.0374 (0.0374) 1.00 3.75 0.40 3.64
1992-ILA Admin-
istration units. 1.00 0.0339 0.0010 0.0349 (0.0349) 1.00 3.60 0.55 3.39
1992-ILA Service
units........... 1.00 0.0311 0.0010 0.0321 (0.0320) 1.00 3.34 0.80 3.11
1991-ILA units.. 1.00 0.0591 0.0003 0.0594 (0.0594) 1.00 6.10 0.40 5.91
1991-ILA Admin-
istration units. 1.00 0.0568 0.0003 0.0571 (0.0571) 1.00 5.94 0.55 5.68
1991-ILA Service
units........... 1.00 0.0558 0.0003 0.0561 (0.0561) 1.00 5.68 0.80 5.58
1990-ILA units.. 1.00 0.0793 -- 0.0793 (0.0793) 1.00 8.21 0.38 7.93
1990-ILA Admin-
istration
units (c)....... 1.00 0.0438 -- 0.0438 (0.0438) 1.00 7.81(d) 0.55(d) 7.62(d)
1990-ILA Service
units (c)....... 1.00 0.0425 -- 0.0425 (0.0425) 1.00 7.56(d) 0.80(d) 7.25(d)
1989-ILA units.. 1.00 0.0890 -- 0.0890 (0.0890) 1.00 9.27 0.40 8.90
1988-ILA units.. 1.00 0.0714 -- 0.0714 (0.0714) 1.00 7.48 0.40 7.14
1987-ILA units.. 1.00 0.0634 -- 0.0634 (0.0634) 1.00 6.50 0.40 6.34
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
NET RATIO OF NET
ASSETS AT RATIO OF NET INVESTMENT
END OF EXPENSES INCOME TO
PERIOD TO AVERAGE AVERAGE NET
(IN 000'S) NET ASSETS ASSETS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
- -----------------
1996-ILA units.. $1,154,787 0.43% 5.09%
1996-ILA Admin-
istration units. 23,738 0.58 4.95
1996-ILA Service
units........... 84,707 0.83 4.72
1996-ILA B
units (b)....... 346 1.43(d) 4.07(d)
1995-ILA units.. 1,261,251 0.43 5.64
1995-ILA Admin-
istration units. 63,018 0.58 5.49
1995-ILA Service
units........... 227,233 0.83 5.20
1994-ILA units.. 1,963,846 0.42 3.92
1994-ILA Admin-
istration units. 149,234 0.57 3.77
1994-ILA Service
units........... 170,453 0.82 3.63
1993-ILA units.. 2,332,771 0.42 2.89
1993-ILA Admin-
istration units. 189,431 0.57 2.73
1993-ILA Service
units........... 137,804 0.82 2.48
1992-ILA units.. 3,444,591 0.42 3.62
1992-ILA Admin-
istration units. 257,321 0.57 3.37
1992-ILA Service
units........... 22,044 0.82 3.09
1991-ILA units.. 3,531,736 0.42 5.89
1991-ILA Admin-
istration units. 198,417 0.57 5.66
1991-ILA Service
units........... 18,789 0.82 5.56
1990-ILA units.. 2,833,541 0.38 7.93
1990-ILA Admin-
istration
units (c)....... 209,272 0.55(d) 7.62(d)
1990-ILA Service
units (c)....... 19,039 0.80(d) 7.25(d)
1989-ILA units.. 3,761,964 0.40 8.90
1988-ILA units.. 3,799,628 0.40 7.14
1987-ILA units.. 5,814,280 0.40 6.34
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the invest-
ment at the net asset value at the end of the period.
(b)ILA Class B unit activity commenced during May of 1996.
(c)ILA Administration and Service unit activity commenced during June of 1990.
(d)Annualized.

5
<PAGE>

Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Money Market Portfolio

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
RATIO OF NET
NET ASSET NET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT
VALUE AT NET GAIN ON INCOME FROM VALUE AT EXPENSES TO INCOME TO
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
- --------------
1996-ILA units.. $1.00 $0.0515 $0.0001 $0.0516 $(0.0516) $1.00 5.27% 0.36% 5.15%
1996-ILA Admin-
istration units. 1.00 0.0500 0.0001 0.0501 (0.0501) 1.00 5.12 0.51 5.00
1996-ILA Service
units........... 1.00 0.0475 0.0001 0.0476 (0.0476) 1.00 4.86 0.76 4.75
1995-ILA units.. 1.00 0.0571 -- 0.0571 (0.0571) 1.00 5.85 0.36 5.71
1995-ILA Admin-
istration units. 1.00 0.0555 -- 0.0555 (0.0555) 1.00 5.69 0.51 5.55
1995-ILA Service
units........... 1.00 0.0529 -- 0.0529 (0.0529) 1.00 5.43 0.76 5.29
1994-ILA units.. 1.00 0.0401 -- 0.0401 (0.0401) 1.00 4.13 0.35 4.01
1994-ILA Admin-
istration units. 1.00 0.0388 -- 0.0388 (0.0388) 1.00 3.98 0.50 3.88
1994-ILA Service
units........... 1.00 0.0364 -- 0.0364 (0.0364) 1.00 3.72 0.75 3.61
1993-ILA units.. 1.00 0.0296 0.0003 0.0299 (0.0299) 1.00 3.03 0.35 2.96
1993-ILA Admin-
istration units. 1.00 0.0281 0.0003 0.0284 (0.0284) 1.00 2.88 0.50 2.81
1993-ILA Service
units........... 1.00 0.0257 0.0002 0.0259 (0.0259) 1.00 2.62 0.75 2.57
1992-ILA units.. 1.00 0.0368 0.0004 0.0372 (0.0372) 1.00 3.76 0.35 3.68
1992-ILA Admin-
istration units. 1.00 0.0356 0.0004 0.0360 (0.0360) 1.00 3.61 0.50 3.56
1992-ILA Service
units........... 1.00 0.0358 0.0006 0.0364 (0.0364) 1.00 3.35 0.75 3.58
1991-ILA units.. 1.00 0.0591 0.0004 0.0595 (0.0595) 1.00 6.12 0.35 5.91
1991-ILA Admin-
istration units. 1.00 0.0574 0.0004 0.0578 (0.0578) 1.00 5.96 0.50 5.74
1991-ILA Service
units........... 1.00 0.0547 0.0004 0.0551 (0.0551) 1.00 5.70 0.75 5.47
1990-ILA units.. 1.00 0.0793 0.0001 0.0794 (0.0794) 1.00 8.24 0.35 7.93
1990-ILA Admin-
istration
units (c)....... 1.00 0.0424 0.0001 0.0425 (0.0425) 1.00 7.86(b) 0.50(b) 7.63(b)
1990-ILA Service
units (c)....... 1.00 0.0438 -- 0.0438 (0.0438) 1.00 7.61(b) 0.75(b) 7.46(b)
1989-ILA units.. 1.00 0.0885 0.0001 0.0886 (0.0886) 1.00 9.31 0.35 8.85
1988-ILA units.. 1.00 0.0751 -- 0.0751 (0.0751) 1.00 7.66 0.27 7.51
<CAPTION>
FOR THE PERIOD DECEMBER 2, 1987 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31,
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987-ILA units.. 1.00 0.0063 -- 0.0063 (0.0063) 1.00 7.38(b) 0.15(b) 7.62(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
NET RATIO OF NET
ASSETS AT RATIO OF NET INVESTMENT
END OF EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE NET
(IN 000'S) ASSETS ASSETS
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
- --------------
1996-ILA units.. $ 703,097 0.43% 5.08%
1996-ILA Admin-
istration units. 257,258 0.58 4.93
1996-ILA Service
units........... 28,845 0.83 4.68
1995-ILA units.. 574,155 0.42 5.65
1995-ILA Admin-
istration units. 164,422 0.57 5.49
1995-ILA Service
units........... 23,080 0.82 5.23
1994-ILA units.. 559,470 0.43 3.93
1994-ILA Admin-
istration units. 145,867 0.58 3.80
1994-ILA Service
units........... 21,862 0.83 3.53
1993-ILA units.. 699,604 0.43 2.88
1993-ILA Admin-
istration units. 150,452 0.58 2.73
1993-ILA Service
units........... 11,166 0.83 2.49
1992-ILA units.. 884,571 0.43 3.60
1992-ILA Admin-
istration units. 187,445 0.58 3.48
1992-ILA Service
units........... 15,114 0.83 3.50
1991-ILA units.. 1,153,191 0.42 5.84
1991-ILA Admin-
istration units. 210,330 0.57 5.67
1991-ILA Service
units........... 56,586 0.82 5.40
1990-ILA units.. 924,141 0.40 7.88
1990-ILA Admin-
istration
units (c)....... 204,477 0.55(b) 7.58(b)
1990-ILA Service
units (c)....... 38,128 0.80(b) 7.41(b)
1989-ILA units.. 1,295,389 0.40 8.80
1988-ILA units.. 701,105 0.40 7.38
<CAPTION>
FOR THE PERIOD DECEMBER 2, 1987 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31,
- ------------------------------------------------------------
<S> <C> <C> <C>
1987-ILA units.. 183,633 0.40(b) 7.37(b)
</TABLE>
- ----
(a)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b)Annualized.
(c)ILA Administration and Service unit activity commenced during June of 1990.

6
<PAGE>

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
NET RATIO OF NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT
VALUE AT NET GAIN ON INCOME FROM VALUE AT EXPENSES TO INCOME TO
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN(A) ASSETS ASSETS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
- --------------
1996-ILA units.. $1.00 $0.0504 $0.0001 $0.0505 $(0.0504) $1.00 5.15% 0.41% 5.04%
1996-ILA Admin-
istration units. 1.00 0.0489 0.0001 0.0490 (0.0489) 1.00 4.99 0.56 4.89
1996-ILA Service
units........... 1.00 0.0463 0.0001 0.0464 (0.0463) 1.00 4.73 0.81 4.63
1995-ILA units.. 1.00 0.0562 0.0002 0.0564 (0.0564) 1.00 5.77 0.41 5.62
1995-ILA Admin-
istration units. 1.00 0.0549 0.0002 0.0551 (0.0551) 1.00 5.62 0.56 5.49
1995-ILA Service
units........... 1.00 0.0519 0.0002 0.0521 (0.0521) 1.00 5.35 0.81 5.19
1994-ILA units.. 1.00 0.0378 0.0002 0.0380 (0.0380) 1.00 3.94 0.40 3.78
1994-ILA Admin-
istration units. 1.00 0.0362 0.0002 0.0364 (0.0364) 1.00 3.79 0.55 3.62
1994-ILA Service
units........... 1.00 0.0350 0.0002 0.0352 (0.0352) 1.00 3.53 0.80 3.50
1993-ILA units.. 1.00 0.0282 0.0008 0.0290 (0.0291) 1.00 2.94 0.40 2.82
1993-ILA Admin-
istration units. 1.00 0.0267 0.0008 0.0275 (0.0276) 1.00 2.79 0.55 2.67
1993-ILA Service
units........... 1.00 0.0242 0.0006 0.0248 (0.0250) 1.00 2.53 0.80 2.42
1992-ILA units.. 1.00 0.0338 0.0027 0.0365 (0.0364) 1.00 3.70 0.40 3.38
1992-ILA Admin-
istration units. 1.00 0.0325 0.0027 0.0352 (0.0351) 1.00 3.55 0.55 3.25
1992-ILA Service
units........... 1.00 0.0309 0.0030 0.0339 (0.0336) 1.00 3.29 0.80 3.09
1991-ILA units.. 1.00 0.0567 0.0011 0.0578 (0.0578) 1.00 5.91 0.40 5.67
1991-ILA Admin-
istration units. 1.00 0.0545 0.0011 0.0556 (0.0556) 1.00 5.75 0.55 5.45
1991-ILA Service
units........... 1.00 0.0522 0.0011 0.0533 (0.0533) 1.00 5.49 0.80 5.22
1990-ILA units.. 1.00 0.0779 0.0003 0.0782 (0.0782) 1.00 8.11 0.39 7.79
1990-ILA Admin-
istration units
(c)............. 1.00 0.0439 0.0004 0.0443 (0.0443) 1.00 7.74(b) 0.55(b) 7.49(b)
1990-ILA Service
units (c)....... 1.00 0.0359 0.0002 0.0361 (0.0363) 1.00 7.42(b) 0.80(b) 7.15(b)
1989-ILA units.. 1.00 0.0877 0.0001 0.0878 (0.0878) 1.00 9.15 0.40 8.77
1988-ILA units.. 1.00 0.0716 0.0002 0.0718 (0.0718) 1.00 7.42 0.40 7.16
1987-ILA units.. 1.00 0.0622 0.0001 0.0623 (0.0624) 1.00 6.43 0.40 6.22
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
NET RATIO OF NET
ASSETS AT RATIO OF NET INVESTMENT
END OF EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE NET
(IN 000'S) ASSETS ASSETS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
- --------------
1996-ILA units.. $ 694,651 0.44% 5.01%
1996-ILA Admin-
istration units. 36,055 0.59 4.86
1996-ILA Service
units........... 94,228 0.84 4.60
1995-ILA units.. 570,469 0.43 5.60
1995-ILA Admin-
istration units. 47,558 0.58 5.47
1995-ILA Service
units........... 85,401 0.83 5.17
1994-ILA units.. 881,520 0.44 3.74
1994-ILA Admin-
istration units. 95,483 0.59 3.58
1994-ILA Service
units........... 156,930 0.84 3.46
1993-ILA units.. 1,315,378 0.43 2.79
1993-ILA Admin-
istration units. 161,845 0.58 2.64
1993-ILA Service
units........... 101,272 0.83 2.39
1992-ILA units.. 1,785,472 0.42 3.36
1992-ILA Admin-
istration units. 461,542 0.57 3.23
1992-ILA Service
units........... 56,389 0.82 3.07
1991-ILA units.. 2,103,627 0.43 5.64
1991-ILA Admin-
istration units. 464,060 0.58 5.42
1991-ILA Service
units........... 200,176 0.83 5.19
1990-ILA units.. 2,203,756 0.39 7.79
1990-ILA Admin-
istration units
(c)............. 296,313 0.55(b) 7.49(b)
1990-ILA Service
units (c)....... 132,888 0.80(b) 7.15(b)
1989-ILA units.. 2,268,330 0.40 8.77
1988-ILA units.. 2,197,796 0.40 7.16
1987-ILA units.. 2,243,870 0.40 6.22
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the invest-
ment at the net asset value at the end of the period.
(b) Annualized.
(c)ILA Administration and Service unit activity commenced during June and July
of 1990, respectively.

7
<PAGE>

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
NET
NET ASSET REALIZED TOTAL
VALUE AT NET GAIN ON INCOME FROM
BEGINNING INVESTMENT INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS OPERATIONS
-----------------------------------------------------------------------------------------------------
FOR THE YEARS
ENDED DECEMBER
31,
- --------------
<S> <C> <C> <C> <C>
1996-ILA units.. $1.00 $0.0498 $0.0002 $0.0500
1996-ILA Admin-
istration units. 1.00 0.0483 0.0003 0.0486
1996-ILA Service
units........... 1.00 0.0459 0.0001 0.0460
1995-ILA units.. 1.00 0.0551 0.0007 0.0558
1995-ILA Admin-
istration units. 1.00 0.0537 0.0007 0.0544
1995-ILA Service
units........... 1.00 0.0511 0.0007 0.0518
1994-ILA units.. 1.00 0.0377 -- 0.0377
1994-ILA Admin-
istration units. 1.00 0.0368 -- 0.0368
1994-ILA Service
units........... 1.00 0.0340 -- 0.0340
1993-ILA units.. 1.00 0.0279 0.0006 0.0285
1993-ILA Admin-
istration units. 1.00 0.0264 0.0006 0.0270
1993-ILA Service
units........... 1.00 0.0239 0.0006 0.0245
1992-ILA units.. 1.00 0.0339 0.0025 0.0364
1992-ILA Admin-
istration units. 1.00 0.0320 0.0023 0.0343
1992-ILA Service
units........... 1.00 0.0294 0.0024 0.0318
1991-ILA units.. 1.00 0.0557 0.0018 0.0575
1991-ILA Admin-
istration units. 1.00 0.0540 0.0018 0.0558
1991-ILA Service
units........... 1.00 0.0515 0.0018 0.0533
1990-ILA units.. 1.00 0.0772 0.0002 0.0774
1990-ILA Admin-
istration
units (c)....... 1.00 0.0413 0.0002 0.0415
1990-ILA Service
units (c)....... 1.00 0.0417 0.0003 0.0420
1989-ILA units.. 1.00 0.0864 0.0005 0.0869
1988-ILA units.. 1.00 0.0704 0.0004 0.0708
1987-ILA units.. 1.00 0.0617 0.0002 0.0619
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
RATIO OF NET NET RATIO OF NET
NET ASSET RATIO OF NET INVESTMENT ASSETS AT RATIO OF NET INVESTMENT
VALUE AT EXPENSES TO INCOME TO END OF EXPENSES TO INCOME TO
DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET PERIOD AVERAGE NET AVERAGE NET
TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS (IN 000'S) ASSETS ASSETS
-----------------------------------------------------------------------------------------------------
FOR THE YEARS
ENDED DECEMBER
31,
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996-ILA units.. $(0.0500) $1.00 5.11% 0.41% 4.98% $ 574,734 0.43% 4.96%
1996-ILA Admin-
istration units. (0.0486) 1.00 4.95 0.56 4.83 108,850 0.58 4.81
1996-ILA Service
units........... (0.0460) 1.00 4.69 0.81 4.59 123,483 0.83 4.57
1995-ILA units.. (0.0558) 1.00 5.73 0.41 5.51 711,209 0.43 5.49
1995-ILA Admin-
istration units. (0.0544) 1.00 5.57 0.56 5.37 92,643 0.58 5.35
1995-ILA Service
units........... (0.0518) 1.00 5.31 0.81 5.11 119,692 0.83 5.09
1994-ILA units.. (0.0377) 1.00 3.91 0.40 3.77 713,816 0.44 3.73
1994-ILA Admin-
istration units. (0.0368) 1.00 3.75 0.55 3.68 97,626 0.59 3.64
1994-ILA Service
units........... (0.0340) 1.00 3.49 0.80 3.40 108,972 0.84 3.35
1993-ILA units.. (0.0286) 1.00 2.89 0.40 2.79 969,565 0.43 2.76
1993-ILA Admin-
istration units. (0.0270) 1.00 2.74 0.55 2.64 121,327 0.58 2.61
1993-ILA Service
units........... (0.0246) 1.00 2.48 0.80 2.39 185,506 0.83 2.36
1992-ILA units.. (0.0362) 1.00 3.65 0.40 3.39 1,328,036 0.43 3.36
1992-ILA Admin-
istration units. (0.0343) 1.00 3.49 0.55 3.20 152,804 0.58 3.17
1992-ILA Service
units........... (0.0318) 1.00 3.23 0.80 2.94 183,208 0.83 2.91
1991-ILA units.. (0.0575) 1.00 5.90 0.40 5.57 1,709,321 0.43 5.54
1991-ILA Admin-
istration units. (0.0558) 1.00 5.74 0.55 5.40 146,795 0.58 5.37
1991-ILA Service
units........... (0.0533) 1.00 5.48 0.80 5.15 154,419 0.83 5.12
1990-ILA units.. (0.0774) 1.00 8.05 0.39 7.72 1,816,991 0.39 7.72
1990-ILA Admin-
istration
units (c)....... (0.0415) 1.00 7.67(b) 0.55(b) 7.42(b) 132,088 0.55(b) 7.42(b)
1990-ILA Service
units (c)....... (0.0421) 1.00 7.42(b) 0.80(b) 7.11(b) 148,323 0.80(b) 7.11(b)
1989-ILA units.. (0.0869) 1.00 9.06 0.40 8.64 1,769,974 0.40 8.64
1988-ILA units.. (0.0708) 1.00 7.30 0.40 7.04 1,657,215 0.40 7.04
1987-ILA units.. (0.0619) 1.00 6.32 0.40 6.17 1,693,767 0.40 6.17
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the invest-
ment at the net asset value at the end of the period.
(b) Annualized.
(c) ILA Administration and Service unit activity commenced during June and
July of 1990, respectively.

8
<PAGE>

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
NET RATIO OF NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT
VALUE AT NET GAIN ON INCOME FROM VALUE AT EXPENSES TO INCOME TO
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
1996-ILA units.. $1.00 $0.0496 $0.0004 $0.0500 $(0.0500) $1.00 5.10% 0.21% 4.96%
1996-ILA Admin-
istration units. 1.00 0.0482 0.0004 0.0486 (0.0486) 1.00 4.95 0.36 4.82
1996-ILA Service
units........... 1.00 0.0456 0.0004 0.0460 (0.0460) 1.00 4.68 0.61 4.56
1995-ILA units.. 1.00 0.0550 0.0006 0.0556 (0.0556) 1.00 5.70 0.21 5.50
1995-ILA Admin-
istration units. 1.00 0.0534 0.0007 0.0541 (0.0540) 1.00 5.54 0.36 5.34
1995-ILA Service
units........... 1.00 0.0500 0.0005 0.0505 (0.0505) 1.00 5.28 0.61 5.00
1994-ILA units.. 1.00 0.0397 0.0001 0.0398 (0.0398) 1.00 4.01 0.20 3.96
1994-ILA Admin-
istration units. 1.00 0.0397 0.0001 0.0398 (0.0398) 1.00 3.85 0.35 3.97
1994-ILA Service
units........... 1.00 0.0371 0.0001 0.0372 (0.0372) 1.00 3.59 0.60 3.72
1993-ILA units.. 1.00 0.0288 0.0006 0.0294 (0.0294) 1.00 2.98 0.20 2.88
1993-ILA Admin-
istration units. 1.00 0.0273 0.0006 0.0279 (0.0279) 1.00 2.83 0.35 2.73
1993-ILA Service
units........... 1.00 0.0248 0.0006 0.0254 (0.0254) 1.00 2.57 0.60 2.48
1992-ILA units.. 1.00 0.0338 0.0012 0.0350 (0.0350) 1.00 3.54 0.18 3.38
1992-ILA Admin-
istration units. 1.00 0.0326 0.0012 0.0338 (0.0338) 1.00 3.38 0.33 3.26
1992-ILA Service
units........... 1.00 0.0275 0.0011 0.0286 (0.0286) 1.00 3.13 0.58 2.75
FOR THE PERIOD JANUARY 30, 1991 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
1991-ILA units.. 1.00 0.0486 0.0013 0.0499 (0.0499) 1.00 5.75(b) 0.10(b) 5.28(b)
1991-ILA Admin-
istration
units (c)....... 1.00 0.0210 0.0010 0.0220 (0.0220) 1.00 5.21(b) 0.25(b) 4.77(b)
1991-ILA Service
units (c)....... 1.00 0.0473 0.0009 0.0482 (0.0482) 1.00 5.33(b) 0.50(b) 5.13(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
NET RATIO OF NET
ASSETS AT RATIO OF NET INVESTMENT
END OF EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE NET
(IN 000'S) ASSETS ASSETS
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
1996-ILA units.. $708,999 0.43% 4.74%
1996-ILA Admin-
istration units. 137,706 0.58 4.60
1996-ILA Service
units........... 383,901 0.83 4.34
1995-ILA units.. 586,294 0.44 5.27
1995-ILA Admin-
istration units. 68,713 0.59 5.11
1995-ILA Service
units........... 123,254 0.84 4.77
1994-ILA units.. 547,351 0.43 3.73
1994-ILA Admin-
istration units. 64,388 0.58 3.74
1994-ILA Service
units........... 74,451 0.83 3.49
1993-ILA units.. 456,411 0.44 2.64
1993-ILA Admin-
istration units. 26,553 0.59 2.49
1993-ILA Service
units........... 34,014 0.84 2.24
1992-ILA units.. 422,506 0.45 3.11
1992-ILA Admin-
istration units. 6,915 0.60 2.99
1992-ILA Service
units........... 29,522 0.85 2.48
FOR THE PERIOD JANUARY 30, 1991 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
1991-ILA units.. 424,436 0.45(b) 4.93(b)
1991-ILA Admin-
istration
units (c)....... 17,649 0.60(b) 4.42(b)
1991-ILA Service
units (c)....... 9,430 0.85(b) 4.78(b)
</TABLE>
- ----
(a)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b)Annualized.
(c)ILA Administration and Service unit activity commenced during July and Jan-
uary of 1991, respectively.

9
<PAGE>

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
NET RATIO OF NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT
VALUE AT NET GAIN ON INCOME FROM VALUE AT EXPENSES TO INCOME TO
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
1996-ILA units.. $1.00 $0.0513 -- $0.0513 $(0.0513) $1.00 5.24% 0.26% 5.13%
1996-ILA Admin-
istration units. 1.00 0.0498 -- 0.0498 (0.0498) 1.00 5.09 0.41 4.98
1996-ILA Service
units........... 1.00 0.0473 -- 0.0473 (0.0473) 1.00 4.83 0.66 4.73
1995-ILA units.. 1.00 0.0569 -- 0.0569 (0.0569) 1.00 5.83 0.26 5.69
1995-ILA Admin-
istration units. 1.00 0.0550 -- 0.0550 (0.0550) 1.00 5.67 0.41 5.50
1995-ILA Service
units........... 1.00 0.0522 -- 0.0522 (0.0522) 1.00 5.41 0.66 5.22
1994-ILA units.. 1.00 0.0407 -- 0.0407 (0.0407) 1.00 4.11 0.25 4.07
1994-ILA Admin-
istration units. 1.00 0.0388 -- 0.0388 (0.0388) 1.00 3.95 0.40 3.88
1994-ILA Service
units........... 1.00 0.0392 -- 0.0392 (0.0392) 1.00 3.69 0.65 3.92
1993-ILA units.. 1.00 0.0296 -- 0.0296 (0.0296) 1.00 3.00 0.25 2.96
1993-ILA Admin-
istration units. 1.00 0.0281 -- 0.0281 (0.0281) 1.00 2.84 0.40 2.81
1993-ILA Service
units (c)....... 1.00 0.0157 -- 0.0157 (0.0157) 1.00 2.56(b) 0.65(b) 2.54(b)
1992-ILA units.. 1.00 0.0358 -- 0.0358 (0.0358) 1.00 3.61 0.25 3.58
1992-ILA Admin-
istration units. 1.00 0.0340 -- 0.0340 (0.0340) 1.00 3.46 0.40 3.40
1991-ILA units.. 1.00 0.0576 -- 0.0576 (0.0576) 1.00 5.94 0.25 5.76
1991-ILA Admin-
istration units. 1.00 0.0542 -- 0.0542 (0.0542) 1.00 5.78 0.40 5.42
1991-ILA Service
units (c)....... 1.00 0.0196 -- 0.0196 (0.0196) 1.00 5.55b) 0.65(b) 5.56(b)
1990-ILA units.. 1.00 0.0772 -- 0.0772 (0.0772) 1.00 8.06 0.25 7.72
1990-ILA Admin-
istration
units (d)....... 1.00 0.0205 -- 0.0205 (0.0205) 1.00 7.39(b) 0.40(b) 7.25(b)
FOR THE PERIOD MAY 22, 1989 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
1989-ILA units.. 1.00 0.0516 -- 0.0516 (0.0516) 1.00 7.62(b) 0.19(b) 8.41(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
NET RATIO OF NET
ASSETS AT RATIO OF NET INVESTMENT
END OF EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE NET
(IN 000'S) ASSETS ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
1996-ILA units.. $2,303,677 0.43% 4.96%
1996-ILA Admin-
istration units. 794,537 0.58 4.81
1996-ILA Service
units........... 192,416 0.83 4.56
1995-ILA units.. 1,731,935 0.42 5.53
1995-ILA Admin-
istration units. 516,917 0.57 5.34
1995-ILA Service
units........... 102,576 0.82 5.06
1994-ILA units.. 1,625,567 0.42 3.90
1994-ILA Admin-
istration units. 329,896 0.57 3.71
1994-ILA Service
units........... 15,539 0.82 3.75
1993-ILA units.. 1,430,292 0.42 2.79
1993-ILA Admin-
istration units. 362,401 0.57 2.64
1993-ILA Service
units (c)....... 1,425 0.82(b) 2.37(b)
1992-ILA units.. 1,600,989 0.42 3.41
1992-ILA Admin-
istration units. 312,792 0.57 3.23
1991-ILA units.. 1,656,232 0.42 5.59
1991-ILA Admin-
istration units. 291,810 0.57 5.25
1991-ILA Service
units (c)....... -- 0.82(b) 5.39(b)
1990-ILA units.. 1,368,765 0.40 7.57
1990-ILA Admin-
istration
units (d)....... 90,748 0.55(b) 7.10(b)
FOR THE PERIOD MAY 22, 1989 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
1989-ILA units.. 455,230 0.40(b) 8.20(b)
</TABLE>
- ----
(a)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b)Annualized.
(c)ILA Service unit activity commenced during April of 1991; no shares were
outstanding during the period from August 7, 1991 through May 15, 1993.
(d)ILA Administration unit activity commenced during September of 1990.

10
<PAGE>

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------
NET RATIO OF NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT
VALUE AT NET GAIN (LOSS) ON INCOME FROM VALUE AT EXPENSES TO INCOME TO
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
1996-ILA units.. $1.00 $0.0320 $ -- $0.0320 $(0.0320) $1.00 3.25% 0.31% 3.20%
1996-ILA Admin-
istration units. 1.00 0.0306 -- 0.0306 (0.0306) 1.00 3.09 0.46 3.06
1996-ILA Service
units........... 1.00 0.0279 -- 0.0279 (0.0279) 1.00 2.84 0.71 2.79
1995-ILA units.. 1.00 0.0365 -- 0.0365 (0.0365) 1.00 3.72 0.31 3.65
1995-ILA Admin-
istration units. 1.00 0.0351 -- 0.0351 (0.0352) 1.00 3.57 0.46 3.51
1995-ILA Service
units........... 1.00 0.0324 -- 0.0324 (0.0325) 1.00 3.31 0.71 3.24
1994-ILA units.. 1.00 0.0264 -- 0.0264 (0.0264) 1.00 2.71 0.30 2.64
1994-ILA Admin-
istration units. 1.00 0.0250 -- 0.0250 (0.0250) 1.00 2.55 0.45 2.50
1994-ILA Service
units........... 1.00 0.0220 -- 0.0220 (0.0220) 1.00 2.30 0.70 2.20
1993-ILA units.. 1.00 0.0222 -- 0.0222 (0.0222) 1.00 2.25 0.30 2.22
1993-ILA Admin-
istration units. 1.00 0.0207 -- 0.0207 (0.0207) 1.00 2.09 0.45 2.08
1993-ILA Service
units........... 1.00 0.0183 -- 0.0183 (0.0183) 1.00 1.84 0.70 1.83
1992-ILA units.. 1.00 0.0277 -- 0.0277 (0.0277) 1.00 2.82 0.30 2.77
1992-ILA Admin-
istration units. 1.00 0.0266 -- 0.0266 (0.0266) 1.00 2.67 0.45 2.66
1992-ILA Service
units........... 1.00 0.0243 -- 0.0243 (0.0243) 1.00 2.41 0.70 2.43
1991-ILA units.. 1.00 0.0424 -- 0.0424 (0.0424) 1.00 4.33 0.32 4.24
1991-ILA Admin-
istration units. 1.00 0.0406 -- 0.0406 (0.0406) 1.00 4.17 0.47 4.06
1991-ILA Service
units........... 1.00 0.0386 -- 0.0386 (0.0386) 1.00 3.91 0.72 3.86
1990-ILA units.. 1.00 0.0550 (0.0001) 0.0549 (0.0549) 1.00 5.64 0.40 5.50
1990-ILA Admin-
istration
units (c)....... 1.00 0.0301 -- 0.0301 (0.0300) 1.00 5.43(b) 0.55(b) 5.40(b)
1990-ILA Service
units (c)....... 1.00 0.0259 -- 0.0259 (0.0259) 1.00 5.17(b) 0.80(b) 5.16(b)
1989-ILA units.. 1.00 0.0591 (0.0001) 0.0590 (0.0590) 1.00 6.07 0.40 5.91
1988-ILA units.. 1.00 0.0487 0.0003 0.0490 (0.0490) 1.00 5.03 0.40 4.87
1987-ILA units.. 1.00 0.0413 (0.0003) 0.0410 (0.0410) 1.00 4.23 0.40 4.13
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
NET RATIO OF NET
ASSETS AT RATIO OF NET INVESTMENT
END OF EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE NET
(IN 000'S) ASSETS ASSETS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
1996-ILA units.. $1,514,443 0.41% 3.10%
1996-ILA Admin-
istration units. 59,097 0.56 2.96
1996-ILA Service
units........... 28,921 0.81 2.69
1995-ILA units.. 1,342,585 0.42 3.54
1995-ILA Admin-
istration units. 48,773 0.57 3.40
1995-ILA Service
units........... 49,647 0.82 3.13
1994-ILA units.. 1,434,965 0.41 2.53
1994-ILA Admin-
istration units. 97,778 0.56 2.39
1994-ILA Service
units........... 36,492 0.81 2.09
1993-ILA units.. 1,769,477 0.41 2.11
1993-ILA Admin-
istration units. 99,896 0.56 1.97
1993-ILA Service
units........... 45,172 0.81 1.72
1992-ILA units.. 1,333,925 0.42 2.65
1992-ILA Admin-
istration units. 50,225 0.57 2.54
1992-ILA Service
units........... 29,534 0.82 2.31
1991-ILA units.. 1,044,986 0.42 4.14
1991-ILA Admin-
istration units. 37,567 0.57 3.96
1991-ILA Service
units........... 52,399 0.82 3.76
1990-ILA units.. 603,895 0.40 5.50
1990-ILA Admin-
istration
units (c)....... 42,498 0.55(b) 5.40(b)
1990-ILA Service
units (c)....... 56,810 0.80(b) 5.16(b)
1989-ILA units.. 688,556 0.40 5.91
1988-ILA units.. 907,782 0.40 4.87
1987-ILA units.. 965,714 0.40 4.13
</TABLE>
- ----
(a)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b)Annualized.
(c)ILA Administration and Service unit activity commenced during June and July
of 1990, respectively.

11
<PAGE>

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
---------------------------------------
NET RATIO OF NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT
VALUE AT NET LOSS ON INCOME FROM VALUE AT EXPENSES TO INCOME TO
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS
----------------------------------------------------------------------------------------------------------
FOR THE YEARS
ENDED DECEMBER
31,
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996-ILA units.. $1.00 $0.0299 -- $0.0299 $(0.0299) $1.00 3.03% 0.41% 2.99%
1996-ILA Admin-
istration units. 1.00 0.0284 -- 0.0284 (0.0284) 1.00 2.88 0.56 2.84
1995-ILA units.. 1.00 0.0349 -- 0.0349 (0.0350) 1.00 3.55 0.41 3.49
1995-ILA Admin-
istration units. 1.00 0.0332 -- 0.0332 (0.0332) 1.00 3.40 0.56 3.32
1994-ILA units.. 1.00 0.0250 -- 0.0250 (0.0250) 1.00 2.53 0.40 2.50
1994-ILA Admin-
istration units. 1.00 0.0233 -- 0.0233 (0.0233) 1.00 2.37 0.55 2.33
1993-ILA units.. 1.00 0.0206 -- 0.0206 (0.0206) 1.00 2.09 0.40 2.06
1993-ILA Admin-
istration units. 1.00 0.0191 -- 0.0191 (0.0191) 1.00 1.93 0.55 1.91
1993-ILA Service
units........... 1.00 0.0166 -- 0.0166 (0.0166) 1.00 1.68 0.76 1.66
1992-ILA units.. 1.00 0.0256 (0.0001) 0.0255 (0.0256) 1.00 2.62 0.40 2.56
1992-ILA Admin-
istration units. 1.00 0.0235 (0.0002) 0.0233 (0.0235) 1.00 2.47 0.55 2.35
1992-ILA Service
units........... 1.00 0.0081 -- 0.0081 (0.0081) 1.00 1.99(b) 0.80(b) 2.03(b)
1991-ILA units.. 1.00 0.0388 -- 0.0388 (0.0388) 1.00 3.92 0.40 3.88
1991-ILA Admin-
istration units
units........... 1.00 0.0376 -- 0.0376 (0.0376) 1.00 3.80 0.55 3.76
1990-ILA units.. 1.00 0.0511 (0.0001) 0.0510 (0.0511) 1.00 5.24 0.40 5.11
1990-ILA Admin-
istration
units (c)....... 1.00 0.0042 -- 0.0042 (0.0042) 1.00 5.14(b) 0.55(b) 5.33(b)
1989-ILA units.. 1.00 0.0573 (0.0001) 0.0572 (0.0572) 1.00 5.93 0.40 5.73
<CAPTION>
FOR THE PERIOD OCTOBER 3, 1988 (COMMENCEMENT OF
OPERATIONS) THROUGH DECEMBER 31,
- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988-ILA units.. 1.00 0.0139 -- 0.0139 (0.0139) 1.00 5.81(b) 0.24(b) 5.74(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
NET RATIO OF NET
ASSETS AT RATIO OF NET INVESTMENT
END OF EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE NET
(IN 000'S) ASSETS ASSETS
----------------------------------------------------------------------------------------------------------
FOR THE YEARS
ENDED DECEMBER
31,
- --------------
<S> <C> <C> <C>
1996-ILA units.. $440,476 0.42% 2.98%
1996-ILA Admin-
istration units. 142 0.57 2.83
1995-ILA units.. 346,728 0.41 3.49
1995-ILA Admin-
istration units. 61 0.56 3.32
1994-ILA units.. 227,399 0.41 2.49
1994-ILA Admin-
istration units. 790 0.56 2.32
1993-ILA units.. 229,839 0.44 2.02
1993-ILA Admin-
istration units. 1,425 0.59 1.87
1993-ILA Service
units........... -- 0.84 1.54
1992-ILA units.. 161,868 0.47 2.49
1992-ILA Admin-
istration units. 31 0.62 2.28
1992-ILA Service
units........... 3 0.87(b) 1.96(b)
1991-ILA units.. 102,494 0.47 3.81
1991-ILA Admin-
istration units
units........... 13 0.62 3.69
1990-ILA units.. 106,972 0.40 5.11
1990-ILA Admin-
istration
units (c)....... 68 0.55(b) 5.33(b)
1989-ILA units.. 112,463 0.40 5.73
<CAPTION>
FOR THE PERIOD OCTOBER 3, 1988 (COMMENCEMENT OF
OPERATIONS) THROUGH DECEMBER 31,
- -----------------------------------------------
<S> <C> <C> <C>
1988-ILA units.. 41,028 0.38(b) 5.60(b)
</TABLE>
- ----
(a)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b)Annualized.
(c)ILA Administration and Service unit activity commenced during December of
1990 and August of 1992, respectively. No service shares were outstanding for
the years ended December 31, 1996, 1995, 1994.

12
<PAGE>

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
NET
NET ASSET REALIZED TOTAL
VALUE AT NET LOSS ON INCOME FROM
BEGINNING INVESTMENT INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS OPERATIONS
-----------------------------------------------------------------------------------------------------
FOR THE YEARS
ENDED DECEMBER
31,
- --------------
<S> <C> <C> <C> <C>
1996-ILA units.. $1.00 $0.0301 -- $0.0301
1996-ILA Admin-
istration units. 1.00 0.0288 -- 0.0288
1995-ILA units.. 1.00 0.0344 -- 0.0344
1995-ILA Admin-
istration units. 1.00 0.0328 -- 0.0328
1994-ILA units.. 1.00 0.0262 -- 0.0262
1994-ILA Admin-
istration units. 1.00 0.0247 -- 0.0247
1993-ILA units.. 1.00 0.0221 -- 0.0221
1993-ILA Admin-
istration units. 1.00 0.0205 -- 0.0205
1992-ILA units.. 1.00 0.0265 -- 0.0265
1992-ILA Admin-
istration units. 1.00 0.0253 -- 0.0253
FOR THE PERIOD FEBRUARY 15, 1991 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31,
- -------------------------------------------------------------
1991-ILA units.. 1.00 0.0347 (0.0002) 0.0345
1991-ILA Admin-
istration
<CAPTION>units (c)....... 1.00 0.0330 -- 0.0330
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
RATIO OF NET NET RATIO OF NET
NET ASSET RATIO OF NET INVESTMENT ASSETS AT RATIO OF NET INVESTMENT
VALUE AT EXPENSES TO INCOME TO END OF EXPENSES TO INCOME TO
DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET PERIOD AVERAGE NET AVERAGE NET
TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS (IN 000'S) ASSETS ASSETS
-----------------------------------------------------------------------------------------------------
FOR THE YEARS
ENDED DECEMBER
31,
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996-ILA units.. $(0.0301) $1.00 3.05% 0.32% 3.01% $70,175 0.43% 2.90%
1996-ILA Admin-
istration units. (0.0288) 1.00 2.90 0.47 2.88 44,319 0.58 2.77
1995-ILA units.. (0.0344) 1.00 3.51 0.30 3.44 90,537 0.44 3.30
1995-ILA Admin-
istration units. (0.0328) 1.00 3.35 0.45 3.28 26,724 0.59 3.14
1994-ILA units.. (0.0262) 1.00 2.56 0.24 2.62 84,517 0.47 2.39
1994-ILA Admin-
istration units. (0.0247) 1.00 2.41 0.39 2.47 38,970 0.62 2.24
1993-ILA units.. (0.0221) 1.00 2.21 0.10 2.21 48,367 0.51 1.80
1993-ILA Admin-
istration units. (0.0205) 1.00 2.05 0.25 2.05 20,306 0.66 1.64
1992-ILA units.. (0.0265) 1.00 2.71 0.10 2.65 16,844 0.57 2.18
1992-ILA Admin-
istration units. (0.0253) 1.00 2.55 0.25 2.53 14,641 0.72 2.06
FOR THE PERIOD FEBRUARY 15, 1991 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31,
- -------------------------------------------------------------
1991-ILA units.. (0.0347) 1.00 4.02(b) 0.10(b) 3.96(b) 11,070 0.76(b) 3.30(b)
1991-ILA Admin-
istration
units (c)....... (0.0330) 1.00 3.87(b) 0.25(b) 3.90(b) 19,198 0.91(b) 3.24(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the invest-
ment at the net asset value at the end of the period.
(b) Annualized.
(c)ILA Administration unit activity commenced during February of 1991.

13
<PAGE>

AN INTRODUCTION TO THE PORTFOLIOS

THE TRUST: The Trust is a no-load, open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the "Invest-
ment Company Act"). Each Portfolio is a separate pool of assets which pursues
its investment objective through separate investment policies, as described
below.

THE ADVISER: Goldman Sachs Asset Management, a separate operating division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Portfolios' invest-
ment adviser (the "Adviser" or "GSAM").

THE DISTRIBUTOR: Goldman Sachs, which serves as the Portfolios' distributor
and transfer agent, is one of the largest international investment banking and
brokerage firms in the United States.

THE INVESTORS: The Portfolios are designed for investors seeking a high rate
of return, a stable net asset value and convenient liquidation privileges. The
Portfolios are particularly suitable for banks, corporations and other finan-
cial institutions that seek investment of short-term funds for their own ac-
counts or for the accounts of their customers.

THE PORTFOLIOS: Each Portfolio's securities are valued by the amortized cost
method as permitted by a rule ("Rule 2a-7") of the Securities and Exchange
Commission ("SEC"). Under such rule, each Portfolio may invest only in securi-
ties that are determined to present minimal credit risk and meet certain other
criteria.

TAXABLE PORTFOLIOS: Prime Obligations, Money Market, Treasury Obligations
and Government Portfolios.

TAX-ADVANTAGED PORTFOLIOS: Treasury Instruments and Federal Portfolios.

INVESTMENT OBJECTIVES AND POLICIES FOR TAXABLE AND TAX-ADVANTAGED
PORTFOLIOS: To seek to maximize current income to the extent consistent
with the preservation of capital and the maintenance of liquidity by in-
vesting exclusively in high quality money market instruments. The Treasury
Instruments and Federal Portfolios pursue their objectives by limiting
their investments to certain U.S. Treasury Obligations and U.S. Government
Securities (each as defined herein), respectively, the interest from which
is generally exempt from state income taxation. Each investor should con-
sult his or her tax adviser to determine whether distributions from the
Treasury Instruments and Federal Portfolios (and any other Portfolio that
may hold such obligations) derived from interest on such obligations are
exempt from state income taxation in the investor's own state.

TAX-EXEMPT PORTFOLIOS: Tax-Exempt Diversified, Tax-Exempt California and
Tax-Exempt New York Portfolios.

INVESTMENT OBJECTIVES AND POLICIES FOR TAX-EXEMPT PORTFOLIOS: To seek to
provide unitholders, to the extent consistent with the preservation of cap-
ital and prescribed portfolio standards, with a high level of income exempt
from federal income tax by investing primarily in Municipal Instruments, as
defined herein. In addition, the Tax-Exempt California and Tax-Exempt New
York Portfolios seek to provide unitholders with income exempt from Cali-
fornia state and New York state and city personal income taxes, respective-
ly.

NET ASSET VALUE: Each Portfolio seeks to maintain a stable net asset value
of $1.00 per unit.

MAXIMUM REMAINING MATURITY OF PORTFOLIO INVESTMENTS: Thirteen months at the
time of purchase.

DOLLAR-WEIGHTED AVERAGE PORTFOLIO MATURITY ("WAM"): Not more than ninety
days as required by Rule 2a-7.

14
<PAGE>

comparable in priority and quality with such securities) in the highest short-
term rating category by at least two NRSROs (as defined below), or if only one
NRSRO has assigned a rating, by that NRSRO. U.S. Government Securities as de-
fined herein are considered First Tier Securities.

SECOND TIER SECURITIES: The Tax-Exempt Portfolios may purchase securities
which are not First Tier Securities but which are rated in the top two short-
term rating categories by at least two NRSROs, or if only one NRSRO has as-
signed a rating, by that NRSRO. The Taxable Portfolios will not invest in a
security which is a Second Tier Security at the time of purchase.

UNRATED SECURITIES: To the extent permitted by Rule 2a-7, unrated securities
may be purchased if they are deemed to be of comparable quality to First Tier
Securities, or to the extent that a Portfolio may purchase Second Tier Securi-
ties, comparable in quality to Second Tier Securities.

15
<PAGE>

INVESTMENT POLICIES MATRIX

<TABLE>
<CAPTION>
SHORT-TERM
OBLIGATIONS OF ASSET-BACKED &
US US CORPORATIONS RECEIVABLES-
TREASURY GOVERNMENT BANK COMMERCIAL AND OTHER REPURCHASE BACKED
PORTFOLIO OBLIGATIONS SECURITIES OBLIGATIONS PAPER ENTITIES AGREEMENTS SECURITIES+
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Prime
Obligations [_] [_] [_] [_] [_] [_] [_]
U.S. Banks Only U.S. entities only
- -------------------------------------------------------------------------------------------------------------------------------
Money Market
[_] [_] [_] [_] [_] [_] [_]
Over 25% of total U.S. and U.S. and foreign
assets must be foreign (US$) (US$) entities
invested in U.S. Commercial Paper
and Foreign
(US$) Banks
- -------------------------------------------------------------------------------------------------------------------------------
Treasury
Obligations [_] [_]
- -------------------------------------------------------------------------------------------------------------------------------
Treasury
Instruments [_]
- -------------------------------------------------------------------------------------------------------------------------------
Government [_] [_] [_]
- -------------------------------------------------------------------------------------------------------------------------------
Federal [_] [_]
(Does not intend
to invest)
- -------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt
Diversified [_]
Tax-exempt only
- -------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt
California [_]
Tax-exempt only
- -------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt New
York [_]
Tax-exempt only
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOREIGN
GOVERNMENT
OBLIGATIONS
PORTFOLIO (US$)
- -----------------------------
<S> <C>
Prime
Obligations
- -----------------------------
Money Market [_]

- -----------------------------
Treasury
Obligations
- -----------------------------
Treasury
Instruments
- -----------------------------
Government
- -----------------------------
Federal
- -----------------------------
Tax-Exempt
Diversified
- -----------------------------
Tax-Exempt
California
- -----------------------------
Tax-Exempt New
York
- -----------------------------
</TABLE>

Note: See "Description of Securities and Investment Techniques" for a de-
scription of, and certain criteria applicable to, each of these categories
of investments.
+ To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of NRSROs.

16
<PAGE>

SUMMARY
OF
TAXABLE TAX-EXEMPT CREDIT INVESTMENT UNRATED TAXATION FOR
MUNICIPALS MUNICIPALS QUALITY**** COMPANIES SECURITIES DISTRIBUTIONS* MISCELLANEOUS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
[_] [_] [_]
First Up to 10% of Taxable federal
Tier total assets and state**
in other
investment
companies
- ----------------------------------------------------------------------------------------------------------------------
[_] [_] [_]
First Up to 10% Taxable federal May invest in
Tier of total and state** obligations of
assets in the
other International
investment Bank for
companies Reconstruction
and Development
- ----------------------------------------------------------------------------------------------------------------------
[_]
First Up to 10% Taxable federal
Tier of total and state**
assets in
other
investment
companies
- ----------------------------------------------------------------------------------------------------------------------
[_]
First Up to 10% Taxable federal
Tier of total and generally
assets in exempt from
other state taxation
investment
companies
- ----------------------------------------------------------------------------------------------------------------------
[_]
First Up to 10% Taxable federal
Tier of total and state**
assets in
other
investment
companies
- ----------------------------------------------------------------------------------------------------------------------
[_]
First Up to 10% Taxable federal Under
Tier of total and generally extraordinary
assets in exempt from circumstances,
other state taxation may hold cash,
investment U.S. Government
companies Securities
subject to
state taxation
or cash
equivalents
- ----------------------------------------------------------------------------------------------------------------------
[_] [_] [_]
At least 80% of net assets First or Up to 10% Tax-exempt May (but does
in Municipal Instruments Second of total federal and not currently
(except in extraordinary Tier assets in taxable intend to)
circumstances) other state*** invest up to
investment 20% in AMT
companies securities and
may temporarily
invest in the
taxable money
market
instruments
described
herein
- ----------------------------------------------------------------------------------------------------------------------
[_] [_] [_]
First or Up to 10% Tax-exempt May (but does
At least 80% of net assets Second of total federal and not currently
in Municipal Instruments and Tier assets in California intend to)
at least 65% of its total other State invest up to
assets must be invested in investment 20% in AMT
California Instruments companies securities and
(except in extraordinary may temporarily
circumstances) invest in the
taxable money
market
instruments
described
herein
- ----------------------------------------------------------------------------------------------------------------------
[_] [_] [_]
At least 80% of net assets First or Up to 10% Tax-exempt May invest up
in Municipal Instruments and Second of total federal, New to 20% in AMT
at least 65% of its total Tier assets in York State and securities and
assets must be invested in other New York City may temporarily
New York Instruments (except investment invest in the
in extraordinary companies taxable money
circumstances) market
instruments
described
herein
</TABLE>

* See "Taxes" below for an explanation of the tax consequences summarized in
the table above.
** Taxable in many states except for distributions from U.S. Treasury obliga-
tion interest income and certain U.S. Government securities interest in-
come.
*** Taxable except for distributions from interest on obligations of an in-
vestor's state of residence in certain states.
**** To the extent permitted by Rule 2a-7, a Portfolio holding a security fully
supported by a guarantee may substitute the credit quality of the guaran-
tee in determining the credit quality of the security.

17
<PAGE>

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

U.S. TREASURY OBLIGATIONS

"U.S. Treasury Obligations" are securities issued or guaranteed by the U.S.
Treasury, payments of principal and interest on which are backed by the full
faith and credit of the U.S. Government.

U.S. GOVERNMENT SECURITIES

Each Portfolio may also invest in separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").

The Treasury Instruments and Federal Portfolios invest in U.S. Treasury Ob-
ligations and the Federal Portfolio may also invest in certain U.S. Government
Securities the interest from which is generally exempt from state income taxa-
tion. Securities generally eligible for this exemption include those issued by
the U.S. Treasury and those issued by certain agencies, authorities or instru-
mentalities of the U.S. Government, including the Federal Home Loan Banks,
Federal Farm Credit Banks, Tennessee Valley Authority and the Student Loan
Marketing Association.

CUSTODIAL RECEIPTS

Each Portfolio (other than the Treasury Obligations, Treasury Instruments,
Government and Federal Portfolios) may also acquire securities issued or guar-
anteed as to principal and interest by the U.S. Government, its agencies, au-
thorities or instrumentalities in the form of custodial receipts that evidence
ownership of future

18
<PAGE>

interest payments, principal payments or both on certain notes or bonds issued
by the U.S. Government, its agencies, authorities or instrumentalities. For
certain securities law purposes, custodial receipts are not considered obliga-
tions of the U.S. Government.

U.S. AND FOREIGN BANK OBLIGATIONS

The Prime Obligations and Money Market Portfolios may invest in "U.S. Bank
Obligations" limited to securities issued or guaranteed by U.S. banks (includ-
ing certificates of deposit, commercial paper, unsecured bank promissory notes
and bankers' acceptances) which have more than $1 billion in total assets at
the time of purchase. Such obligations may also include debt obligations is-
sued by U.S. subsidiaries of such banks.

The Money Market Portfolio may also invest in "Foreign Bank Obligations"
limited to U.S. dollar denominated obligations issued or guaranteed (including
fixed time deposits) by foreign banks which have more than $1 billion in total
assets at the time of purchase, U.S. branches of such foreign banks (Yankee
obligations), foreign branches of such foreign banks and foreign branches of
U.S. banks having more than $1 billion in total assets at the time of pur-
chase. Such bank obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligation
or by government regulation.

The Money Market Portfolio will invest more than 25% of its total assets in
bank obligations (whether foreign or domestic), including bank commercial pa-
per. However, if adverse economic conditions prevail in the banking industry
(such as substantial losses on loans, increases in non-performing assets and
charge-offs and declines in total deposits) the Portfolio may, for defensive
purposes, temporarily invest less than 25% of its total assets in bank obliga-
tions. As a result, the Portfolio may be especially affected by favorable and
adverse developments in or related to the banking industry. The activities of
U.S. banks and most foreign banks are subject to comprehensive regulations
which, in the case of U.S. regulations, have undergone substantial changes in
the past decade. The enactment of new legislation or regulations, as well as
changes in interpretation and enforcement of current laws, may affect the man-
ner of operations and profitability of domestic and foreign banks. Significant
developments in the U.S. banking industry have included deregulation of inter-
est rates, increased competition from other types of financial institutions,
increased acquisition activity, geographic expansion and, during the late
1980's, an increased number of bank failures. Banks may be particularly sus-
ceptible to certain economic factors, such as interest rate changes and ad-
verse developments in the market for real estate. Fiscal and monetary policy
and general economic cycles can affect the availability and cost of funds,
loan demand and asset quality and thereby impact the earnings and financial
conditions of banks. See "Foreign Government Obligations--Foreign Risks" be-
low.

COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS

The Prime Obligations and Money Market Portfolios may invest in "Commercial
Paper" (including variable amount master demand notes and asset-backed commer-
cial paper) which is payable in U.S. dollars and is issued or guaranteed by
U.S. corporations, U.S. commercial banks, foreign corporations (Money Market
Portfolio only), foreign commercial banks (Money Market Portfolio only) or
other entities. In addition, the Portfolios may invest in other short-term ob-
ligations (including short-term funding agreements) payable in U.S. dollars
and issued or guaranteed by U.S. corporations, foreign corporations (Money
Market Portfolio only) or other entities.

ASSET-BACKED AND RECEIVABLES-BACKED SECURITIES

The Prime Obligations and Money Market Portfolios may invest in "Asset-
Backed and Receivables-Backed Securities" which represent participations in,
or are secured by and payable from, pools of assets such as motor

19
<PAGE>

vehicle installment sale contracts, installment loan contracts, leases of
various types of real and personal property, receivables from revolving credit
(credit card) agreements and other categories of receivables. Such asset pools
are securitized through the use of privately-formed trusts or special purpose
corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution, or other
credit enhancements may be present. To the extent consistent with its
investment objectives and policies, each of the Prime Obligations and Money
Market Portfolios may invest in new types of mortgage-related securities and
in other asset-backed securities that may be developed in the future.

FOREIGN GOVERNMENT OBLIGATIONS

The Money Market Portfolio may invest in U.S. dollar-denominated obligations
(limited to commercial paper and other notes) issued or guaranteed by a for-
eign government or entity located or organized in a foreign country that main-
tains a short-term foreign currency rating in the highest short-term ratings
category by the requisite number of NRSROs. The Money Market Portfolio may not
invest more than 25% of its total assets in the securities of any one foreign
government.

MUNICIPAL OBLIGATIONS

MUNICIPAL INSTRUMENTS: Obligations issued by or on behalf of states, terri-
tories and possessions of the United States and their political subdivisions,
agencies, authorities and instrumentalities, and the District of Columbia, the
interest from which is, in the opinion of bond counsel, if any, excluded from
gross income for federal income tax purposes.

CALIFORNIA INSTRUMENTS: Obligations issued by or on behalf of the State of
California and its political subdivisions, agencies and instrumentalities and
the governments of Puerto Rico, the U.S. Virgin Islands and Guam, the interest
from which is excluded from gross income for federal income tax purposes and
is exempt from California state personal income tax.

NEW YORK INSTRUMENTS: Obligations issued by or on behalf of the State of New
York and its political subdivisions, agencies and instrumentalities and the
governments of Puerto Rico, the U.S. Virgin Islands and Guam, the interest
from which is excluded from gross income for federal income tax purposes and
is exempt from New York state and New York city personal income tax.

20
<PAGE>

TYPES OF MUNICIPAL, CALIFORNIA AND NEW YORK INSTRUMENTS:

<TABLE>
<CAPTION>
TAX- TAX-
EXEMPT DIVERSIFIED EXEMPT CALIFORNIA TAX-EXEMPT NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED RATE NOTES AND In highest short- In one of the two In one of the two
SIMILAR DEBT term or one of the highest short-term highest short-term
INSTRUMENTS two highest long- or long-term rating or long-term rating
term rating categories categories
categories
- --------------------------------------------------------------------------------------
VARIABLE AND In highest short- In one of the two In one of the two
FLOATING RATE DEMAND term or one of the highest short-term highest short-term
INSTRUMENTS two highest long- or long-term rating or long-term rating
term rating categories categories
categories
- --------------------------------------------------------------------------------------
TAX-EXEMPT In highest rating In one of the two In one of the two
COMMERCIAL PAPER category highest rating highest rating
categories categories
- --------------------------------------------------------------------------------------
MUNICIPAL BONDS In one of the two In one of the two In one of the two
highest rating highest rating highest rating
categories categories categories
- --------------------------------------------------------------------------------------
UNRATED NOTES, Determined to be of Determined to be of Determined to be of
PAPER, BONDS AND comparable quality comparable quality comparable quality
OTHER INSTRUMENTS by Adviser pursuant by Adviser pursuant by Adviser pursuant
to criteria approved to criteria approved to criteria approved
by the Trustees by the Trustees by the Trustees
</TABLE>

As a matter of fundamental policy, at least 80% of each of the Tax-Exempt
Diversified, Tax-Exempt California and Tax-Exempt New York Portfolio's net as-
sets will ordinarily be invested in Municipal Instruments, except in extraor-
dinary circumstances. In addition, as a matter of fundamental policy, at least
65% of each of the Tax-Exempt California and Tax-Exempt New York Portfolio's
total assets will be invested in California and New York Instruments, respec-
tively, except in extraordinary circumstances. Each Tax-Exempt Portfolio may
temporarily invest in taxable money market instruments or, in the case of the
Tax-Exempt California and New York Portfolios, in Municipal Instruments that
are not California or New York Instruments, respectively, when acceptable Cal-
ifornia and New York Instruments are not available or when the Adviser be-
lieves that the market conditions dictate a defensive posture. Investments in
taxable money market instruments will be limited to those meeting the quality
standards of each Tax-Exempt Portfolio. The Tax-Exempt California and Tax-Ex-
empt New York Portfolios' distributions of interest from Municipal Instruments
other than California and New York Instruments, respectively, may be subject
to California and New York state and New York city personal income taxes, re-
spectively.

The Prime Obligations and Money Market Portfolios may invest in short-term
obligations issued or guaranteed by state and municipal governments when
yields on such securities are attractive compared to other taxable invest-
ments.

21
<PAGE>

therefore have more potential risk. Municipal bonds may be issued in a variety
of forms, including commercial paper, tender option bonds and variable and
floating rate securities.

TENDER OPTION BONDS. A tender option bond is a Municipal Instrument (gener-
ally held pursuant to a custodial arrangement) having a relatively long matu-
rity 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 finan-
cial institution, pursuant to which such institution grants the security
holder the option, at periodic intervals, to tender its securities to the in-
stitution and receive the face value thereof. As consideration for providing
the option, the financial institution receives periodic fees equal to the dif-
ference 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 pre-
vailing short-term, tax-exempt rate. However, an institution will not be obli-
gated to accept tendered bonds in the event of certain defaults or a signifi-
cant downgrading in the credit rating assigned to the issuer of the bond. The
tender option will be taken into account in determining the maturity of the
tender option bonds and a Portfolio's average portfolio maturity. There is a
risk that a Portfolio will not be considered the owner of a tender option bond
for federal income tax purposes and thus will not be entitled to treat such
interest as exempt from federal income tax.

REVENUE ANTICIPATION WARRANTS. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at
maturity. RAWs, including those with a maturity of more than 397 days, may
also be repackaged as instruments which include a demand feature that permits
the holder to sell the RAWs to a bank or other financial institution at a
purchase price equal to par plus accrued interest on each interest rate reset
date.

FLOATING AND VARIABLE RATE OBLIGATIONS. The value of floating and variable
rate obligations generally is more stable than that of fixed rate obligations
in response to changes in interest rate levels. Variable and floating rate ob-
ligations usually have demand features that permit the Portfolios to sell them
at par value plus accrued interest upon short notice. The issuers or financial
intermediaries providing demand features may support their ability to purchase
the obligations by obtaining credit with liquidity supports. These may include
lines of credit, which are conditional commitments to lend and letters of
credit, which will ordinarily be irrevocable, both of which may be issued by
domestic banks or foreign banks which have a branch, agency or subsidiary in
the United States. When considering whether an obligation meets a Portfolio's
quality standards, the Portfolio will, to the extent permitted by Rule 2a-7,
look to the creditworthiness of the party providing unconditional demand fea-
tures or other unconditional obligations to support the credit of the issuer
of the security. A Portfolio may consider the maturity of a variable or float-
ing rate Municipal Instrument to be shorter than its ultimate stated maturity
if the Portfolio has the right to demand prepayment of its principal at speci-
fied intervals prior to the security's ultimate stated maturity, subject to
the conditions for using amortized cost valuation under the Investment Company
Act. A Portfolio may purchase such variable or floating rate obligations from
the issuers or may purchase certificates of participation, a type of floating
or variable rate obligation, which are interests in a pool of debt obligations
held by a bank or other financial institution.

INDUSTRIAL DEVELOPMENT BONDS. The Portfolios (other than the Treasury Obli-
gations, Treasury Instruments, Government and Federal Portfolios) may invest
in industrial development bonds (generally referred to under current tax law
as "private activity bonds"), the interest from which would be an item of tax
preference when distributed as "exempt-interest dividends" to unitholders un-
der the federal alternative minimum tax. See

22
<PAGE>

"Taxes" and "Distributions." The Tax-Exempt New York Portfolio may invest up
to 20% of its net assets in private activity bonds. The Tax-Exempt Diversified
and Tax-Exempt California Portfolios do not currently intend to invest in such
bonds. If such policy should change in the future, unitholders would be noti-
fied and such investments would not exceed 20% of each Portfolio's net assets.

OTHER POLICIES. Ordinarily, the Tax-Exempt Portfolios expect that 100% of
their portfolio securities will be Municipal Instruments. However, the Portfo-
lios may hold cash or invest in short-term taxable securities as set forth
above. Such Portfolios may invest 25% or more of the value of their respective
total assets in Municipal Instruments which are related in such a way that an
economic, business or political development or change affecting one Municipal
Instrument would also affect the other Municipal Instruments. For example, the
Tax-Exempt Portfolios may invest all of their respective assets in (a) Munici-
pal Instruments the interest on which is paid solely from revenues from simi-
lar projects such as hospitals, electric utility systems, multi-family hous-
ing, nursing homes, commercial facilities (including hotels), steel companies
or life care facilities, (b) Municipal Instruments whose issuers are in the
same state (including, in the case of the Tax-Exempt California and Tax-Exempt
New York Portfolios, issuers in states other than California and New York, re-
spectively), or (c) industrial development obligations. Concentration of a
Portfolio's investments in these Municipal Instruments will subject the Port-
folio, to a greater extent than if such investment was more limited, to the
risks of adverse economic, business or political developments affecting any
such state, industry or other area of concentration.

Each Portfolio (other than the Treasury Obligations, Treasury Instruments,
Government and Federal Portfolios) may purchase Municipal Instruments which
are backed by letters of credit, which will ordinarily be irrevocable, issued
by domestic banks or foreign banks (excluding Prime Obligations Portfolio)
which have a branch, agency or subsidiary in the United States. In addition,
these Portfolios may acquire securities in the form of custodial receipts
which evidence ownership of future interest payments, principal payments or
both on obligations of certain state and local governments and authorities.

In order to enhance the liquidity, stability, or quality of a Municipal In-
strument, each Portfolio (other than the Treasury Obligations, Treasury In-
struments, Government and Federal Portfolios) may acquire the right to sell
the security to another party at a guaranteed price and date.

INVESTING IN CALIFORNIA AND NEW YORK

The Tax-Exempt California and Tax-Exempt New York Portfolios concentrate
their investments in California and New York Instruments, respectively. Conse-
quently, such Portfolios are more susceptible to factors adversely affecting
issuers of California and New York Instruments, respectively, and may be risk-
ier than comparable municipal bond funds and money market funds that do not
emphasize these issuers to this degree.

The Tax-Exempt California Portfolio's investments can be affected by politi-
cal and economic developments within the State of California (the "State'),
and by the financial condition of the State, its public authorities and polit-
ical subdivisions. After suffering a severe recession in the early 1990's
which caused the State to experience financial difficulties, California's
economy entered a sustained recovery since late 1993 and the State's budget
has returned to a positive balance. California's long-term credit rating has
been raised after being reduced during the recession. To respond to its own
revenue shortfalls during the recession, the State reduced assistance to its
public authorities and political subdivisions. Cutbacks in state aid could
further adversely affect the financial condition of cities, counties and edu-
cation districts which are subject to their own fiscal constraints. California
voters in the past have passed amendments to the California Constitution and
other measures that limit the taxing and spending authority of California gov-
ernmental entities and future voter initiatives could result in adverse

23
<PAGE>

consequences affecting California Instruments. Also, the ultimate fiscal ef-
fect of federally-mandated reform of welfare programs on the State and its lo-
cal governments is still to be resolved.

These factors, among others (including the outcome of related pending liti-
gation), could reduce the credit standing of certain issuers of California In-
struments. A more detailed discussion of the risks of investing in California
is included in the Statement of Additional Information.

The Tax-Exempt New York Portfolio's investments can be affected by political
and economic developments within the State of New York (the "State"), and by
the financial conditions of the State, its public authorities and political
subdivisions, particularly the City of New York (the "City"). The State and
the City face long-term economic problems that could seriously affect their
ability and that of other issuers of New York Instruments to meet their finan-
cial obligations. Certain substantial issuers of New York Instruments (includ-
ing issuers whose obligations may be acquired by the Portfolio) have experi-
enced serious financial difficulties in recent years. These difficulties have
at times jeopardized the credit standing and impaired the borrowing abilities
of all New York issuers and have generally contributed to higher interest
costs for their borrowings and fewer markets for their outstanding debt obli-
gations. In recent years, several different issues of municipal securities of
the State and its agencies and instrumentalities and of the City have been
downgraded by S&P and Moody's. On the other hand, strong demand for New York
Instruments has at times had the effect of permitting New York Instruments to
be issued with yields relatively lower, and after issuance, to trade in the
market at prices relatively higher, than comparably rated municipal obliga-
tions issued by other jurisdictions. A recurrence of the financial difficul-
ties previously experienced by certain issuers of New York Instruments could
result in defaults or declines in the market values of those issuers' existing
obligations and, possibly, in the obligations of other issuers of New York In-
struments. Although as of April 1, 1997 no issuers of New York Instruments
were in default with respect to the payment of their municipal obligations,
the occurrence of any such default could affect adversely the market values
and marketability of all New York Instruments and, consequently, the net asset
value of the Portfolio's holdings. A more detailed discussion of the risks of
investing in New York is included in the Statement of Additional Information.

If California, New York, or any of their local governmental entities are un-
able to meet their financial obligations, the corresponding Portfolio's in-
come, net asset value, ability to preserve or realize appreciation of capital
or liquidity could be adversely affected. Also, neither of these Portfolios is
a diversified fund (except to the extent that diversification is required for
federal income tax purposes). For these tax purposes, with respect to 50% of
the value of its total assets, none of these Portfolios invests more than 5%
of the value of its total assets in securities of a single issuer (except U.S.
Government Securities or securities of other regulated investment companies),
nor, with respect to the other 50% of the value of its total assets, does it
invest more than 25% of the value of its total assets in the securities of a
single issuer (except U.S. Government Securities or securities of other regu-
lated investment companies). These Federal tax diversification requirements
apply only at taxable quarter ends and are subject to certain qualifications
and exceptions. Because they may invest a larger percentage of their assets in
the securities of fewer issuers than do diversified funds, these Portfolios
may be exposed to greater risk in that an adverse change in the condition of
one or a small number of issuers would have a greater impact on them.

REPURCHASE AGREEMENTS

Each Portfolio (other than the Treasury Instruments Portfolio) may only en-
ter into repurchase agreements with primary dealers in U.S. Government Securi-
ties. A repurchase agreement is an agreement under which a Portfolio purchases
securities and the seller agrees to repurchase the securities within a partic-
ular time at a specified price. Such price will exceed the original purchase
price, the difference being income to the Portfolio,

24
<PAGE>

and will be unrelated to the interest rate on the purchased security. A Port-
folio's custodian or subcustodian will maintain custody of the purchased secu-
rities for the duration of the agreement. The value of the purchased securi-
ties, including accrued interest, will at all times equal or exceed the value
of the repurchase agreement. In the event of bankruptcy of the seller or fail-
ure of the seller to repurchase the securities as agreed, a Portfolio could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. In
evaluating whether to enter into a repurchase agreement, the Adviser will
carefully consider the creditworthiness of the seller pursuant to procedures
reviewed and approved by the Trustees. Distributions of the income from repur-
chase agreements entered into by a Portfolio will be taxable to its
unitholders. In addition, each Portfolio (other than the Treasury Instruments
Portfolio), together with other registered investment companies having advi-
sory agreements with the Adviser or any of its affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate bal-
ance of which will be invested in one or more repurchase agreements.

FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES

Each Portfolio may purchase when-issued securities and make contracts to
purchase or sell securities for a fixed price at a future date beyond custom-
ary settlement time. A Portfolio is required to hold and maintain in a segre-
gated account with the Portfolio's custodian or subcustodian until three days
prior to settlement date, cash or liquid assets in an amount sufficient to
meet the purchase price. Alternatively, a Portfolio may enter into offsetting
contracts for the forward sale of other securities that it owns. Securities
purchased or sold on a when-issued or forward commitment basis involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date or if the value of the security to be sold increases prior to
the settlement date. Although a Portfolio would generally purchase securities
on a when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, the Portfolio may dispose of a when-issued secu-
rity or forward commitment prior to settlement if the Adviser deems it appro-
priate to do so.

OTHER INVESTMENT COMPANIES

The Adviser will determine, under guidelines established by the Trustees,
whether securities issued by other money market investment companies present
minimal credit risks. The amount of each Portfolio's investments in securities
of other investment companies will be subject to the limitations on such in-
vestments prescribed by the Investment Company Act. These limits include a
prohibition on any Portfolio acquiring more than 3% of the voting shares of
any other investment company and a prohibition on investing more than 5% of a
Portfolio's total assets in securities of any one investment company or more
than 10% of its total assets in securities of all investment companies. Each
Portfolio will indirectly bear its proportionate share of any management fees
and other expenses paid by such other investment companies. Such other invest-
ment companies will have investment objectives, policies and restrictions sub-
stantially similar to those of the acquiring Portfolio and will be subject to
substantially the same risks.

25
<PAGE>

INVESTMENT LIMITATIONS

TAXABLE AND TAX-EXEMPT PORTFOLIOS. Each Portfolio will comply with the con-
ditions for using amortized cost valuation set forth in Rule 2a-7 under the
Investment Company Act including, but not limited to, those conditions relat-
ing to maturity, diversification and credit quality. These operating policies
may be more restrictive than the fundamental policies set forth in the State-
ment of Additional Information.

INVESTMENT RESTRICTIONS. Each Portfolio is subject to certain investment re-
strictions that are described in detail under "Investment Restrictions" in the
Statement of Additional Information. Fundamental investment restrictions and
the investment objective of a Portfolio (except the Tax-Exempt California and
Tax-Exempt New York Portfolios' objectives of providing unitholders with in-
come exempt from California state and New York state and New York city per-
sonal income tax, respectively) cannot be changed without approval of a major-
ity of the outstanding units of that Portfolio. The Treasury Obligations Port-
folio's policy of limiting its investments to U.S. Treasury Obligations and
related repurchase agreements is also fundamental. All investment policies not
specifically designated as fundamental are non-fundamental and may be changed
without unitholder approval.

RESTRICTED AND OTHER ILLIQUID SECURITIES. Each Portfolio may purchase secu-
rities that are not registered ("restricted securities") under the Securities
Act of 1933 ("1933 Act"), but can be offered and sold to "qualified institu-
tional buyers" under Rule 144A under the 1933 Act. However, a Portfolio will
not invest more than 10% of its net assets in illiquid investments, which in-
clude fixed time deposits maturing in more than seven days and restricted se-
curities. Restricted securities (including commercial paper issued pursuant to
Section 4(2) of the 1933 Act) which the Board of Trustees has determined are
liquid, based upon a continuing review of the trading markets for the specific
restricted security, will not be deemed to be illiquid investments for pur-
poses of this restriction. The Board of Trustees may adopt guidelines and del-
egate to the Adviser the daily function of determining and monitoring the li-
quidity of restricted securities. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations. Since it is
not possible to predict with assurance that the market for restricted securi-
ties eligible for resale under Rule 144A will continue to be liquid, the Ad-
viser will carefully monitor each Portfolio's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in a Portfolio to the extent that quali-
fied institutional buyers become for a time uninterested in purchasing these
restricted securities.

In addition, each Portfolio may not invest in repurchase agreements maturing
in more than seven days and securities which are not readily marketable if, as
a result thereof, more than 10% of the net assets of that Portfolio (taken at
market value) would be invested in such investments. Certain repurchase agree-
ments which mature in more than seven days can be liquidated before the nomi-
nal fixed term on seven days or less notice. Such repurchase agreements will
be regarded as liquid instruments.

26
<PAGE>

MANAGEMENT

THE ADVISER

GSAM, One New York Plaza, New York, New York 10004, a separate operating di-
vision of Goldman, Sachs & Co., acts as investment adviser to the Portfolios.
Goldman Sachs registered as an investment adviser in 1981. As of March 24,
1997, Goldman Sachs, together with its affiliates, acted as investment advis-
er, administrator or distributor for approximately $104.9 billion in assets.

Pursuant to an SEC order, each Taxable and Tax-Advantaged Portfolio may en-
ter into principal transactions in certain taxable money market instruments,
including repurchase agreements, with Goldman Sachs.

Under the Investment Advisory Agreements, GSAM continually manages each
Portfolio, including the purchase, retention and disposition of its securities
and other assets. In addition, GSAM administers each Portfolio's business af-
fairs and performs various unitholder servicing functions to the extent not
provided by other organizations. The management of each Portfolio is subject
to the supervision of the Trustees and each Portfolio's investment policies.
For these services, the Trust, on behalf of each Portfolio, pays GSAM a
monthly fee at an annual rate of each Portfolio's average daily net assets as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
CONTRACTUAL RATE DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Prime Obligations Portfolio .35% .35%
Money Market Portfolio .35% .30%
Treasury Obligations Portfolio .35% .35%
Treasury Instruments Portfolio .35% .15%
Government Portfolio .35% .35%
Federal Portfolio .35% .20%
Tax-Exempt Diversified Portfolio .35% .25%
Tax-Exempt California Portfolio .35% .35%
Tax-Exempt New York Portfolio .35% .26%
</TABLE>

The difference, if any, between the stated advisory fee and the actual fee
paid by the Portfolios reflects the fact that GSAM did not charge the full
amount of the advisory fees to which it would have been entitled.

GSAM has agreed to reduce or otherwise limit the daily expenses of each
Portfolio (excluding fees payable to Service Organizations, as defined herein,
taxes, interest, brokerage and litigation, indemnification and other extraor-
dinary expenses) on an annualized basis to .43% of the average daily net as-
sets of the Portfolio less the effect of fee reductions, if any. Such reduc-
tions or limits, if any, are calculated monthly on a cumulative basis. Any
such reductions or limits may be discontinued or modified only with the ex-
press approval of the Trustees. In addition, with respect to the Money Market,
Treasury Instruments, Federal, Tax-Exempt Diversified and Tax-Exempt New York
Portfolios, GSAM has voluntarily agreed to reduce or limit each Portfolio's
annual total

27
<PAGE>

operating expenses (excluding fees payable to Service Organizations, as de-
fined herein) to .37%, .22%, .27%, .32% and .33% respectively, of average
daily net assets and for each other Portfolio to .42% of average daily net as-
sets. GSAM has no current intention to but may in the future discontinue or
modify any of such limitations at its discretion.

THE DISTRIBUTOR AND TRANSFER AGENT

Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, serves as the Dis-
tributor of units of each Portfolio pursuant to a Distribution Agreement with
the Trust. The Distributor will assist in the sale of units of each Portfolio
upon the terms described herein. Goldman Sachs also serves as the Transfer
Agent of each Portfolio. For the transfer agency services, Goldman Sachs re-
ceives .04% (on an annualized basis) of the average daily net assets with re-
spect to each Portfolio (other than the Prime Obligations Portfolio). Goldman
Sachs is entitled to receive a fee from the Prime Obligations Portfolio equal
to each classes proportionate share of the total transfer agency fees borne by
the Portfolio. Such fees are equal to the fixed per account charge of $12,000
per year plus $7.50 per account, together with out-of-pocket and transaction
related expenses (including those out-of-pocket expenses payable to servicing
and/or sub-transfer agents) applicable to Class B shares plus .04% of the av-
erage daily net assets of the other classes of the Prime Obligations Portfo-
lio.

From time to time, Goldman Sachs or any of its affiliates may purchase and
hold units of the Portfolios in order to increase the assets of the Portfo-
lios. Increasing the Portfolios' assets may enhance investment flexibility and
diversification. Goldman Sachs reserves the right to redeem at any time some
or all of the Portfolio units acquired for its own account. Goldman Sachs will
consider the effect of redemptions on the Portfolios and other unitholders in
deciding whether to redeem its units.

TAXES

Each Portfolio is treated as a separate entity for federal income tax pur-
poses, has elected to be treated and intends to continue to qualify and be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986 (the "Code") for each taxable year. To qualify as such,
each Portfolio 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, each Portfolio 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.

Dividends paid by a Portfolio from 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 or-
dinary income, except for any "exempt interest dividends" paid by the Tax-Ex-
empt Portfolios, as described below. Dividends paid by a Portfolio from the
excess of net long-term capital gain over net short-term capital loss will be
taxable as long-term capital gain regardless of how long the unitholders have
held their units. These tax consequences will apply to distributions of any
Portfolio regardless of whether distributions are received in cash or rein-
vested in units. Certain distributions paid by the Portfolios in January of a
given year will be taxable to unitholders as if received on December 31 of the
year in which they are declared. Unitholders will be informed annually about
the amount and character of distributions received from the Portfolios for
federal income tax purposes, including any distributions that may constitute a
return of capital or any distributions of the Tax-Exempt Portfolios that may
constitute a tax preference item under the federal alternative minimum tax.

The Tax-Exempt Portfolios intend to satisfy certain requirements of the Code
for the payment of "exempt-interest dividends" not included in unitholders'
federal gross income. The Tax-Exempt California Portfolio and the Tax-Exempt
New York Portfolio also intend to satisfy certain requirements of the Califor-
nia and New York City and State personal income tax laws, respectively, so
that exempt-interest dividends paid by these Portfolios

28
<PAGE>

will generally not be subject to personal income tax of the relevant state
(and, in the case of the Tax-Exempt New York Portfolio, New York City personal
income tax). Dividends paid by the Tax-Exempt Portfolios from interest on tax-
exempt obligations and properly designated by the Portfolio as exempt-interest
dividends, including dividends attributable to exempt-interest dividends re-
ceived by a Portfolio from other regulated investment companies, will gener-
ally be exempt from federal income tax, although a portion of such dividends
may be subject to the federal alternative minimum tax. Exempt-interest divi-
dends will be considered in computing the corporate federal alternative mini-
mum tax, and the extent, if any, to which social security or railroad retire-
ment benefits are taxable. Persons who are "substantial users" of facilities
financed by certain industrial development or private activity bonds should
consult their own tax advisers before purchasing units of these Portfolios.
Interest incurred to purchase or carry units of these Portfolios will not be
deductible for federal income tax purposes to the extent related to exempt-in-
terest dividends paid by the Portfolios and may not be deductible in whole or
in part for California or New York City and State income tax purposes.

Exempt-interest dividends of the Tax-Exempt California and Tax-Exempt New
York Portfolios that are derived from interest on California and New York In-
struments, respectively, will generally not be subject to the personal income
tax of the corresponding state, and in the case of the Tax-Exempt New York
Portfolio, New York City personal income tax. Other distributions will gener-
ally be taxable to unitholders for these state and city tax purposes.

Individuals and certain other classes of unitholders may be subject to 31%
backup withholding of federal income tax on taxable distributions if they fail
to furnish their correct taxpayer identification number and certain certifica-
tions required by the Internal Revenue Service or if they are otherwise sub-
ject 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 ordi-
nary dividends from the Portfolios.

If a Portfolio invests in foreign securities, it may be subject to foreign
withholding or other foreign taxes on income earned on such securities and is
expected to be unable to pass such taxes through to unitholders, who therefore
are not expected to include such taxes in income or be entitled to claim for-
eign tax credits or deductions with respect to such taxes.

In addition to federal taxes, a unitholder may be subject to state, local or
foreign taxes on payments received from a Portfolio. A state income (and pos-
sibly local income and/or intangible property) tax exemption is generally
available to the extent a Portfolio's distributions are derived from interest
on (or, in the case of intangible property taxes, the value of its assets is
attributable to) certain U.S. Government obligations and/or tax-exempt munici-
pal obligations issued by or on behalf of the particular state or a political
subdivision thereof, provided in some states that certain thresholds for hold-
ings of such obligations and/or reporting requirements are satisfied.
Unitholders should consult their own tax advisers concerning these matters.

NET ASSET VALUE

The net asset value of each Portfolio is determined as of the close of regu-
lar trading on the New York Stock Exchange (normally 4:00 P.M. New York time)
on each Business Day. Net asset value per unit for each class of units of each
Portfolio is calculated by determining the amount of net assets attributable
to each class of units and dividing by the number of units for such class.

29
<PAGE>

On any Business Day, as defined herein, when the Public Securities Associa-
tion ("PSA") recommends that the securities markets close early, the Treasury
Instruments and Federal Portfolios will cease, and each other Portfolio re-
serves the right to cease, accepting purchase and redemption orders for same
Business Day credit at the time the PSA recommends that the securities markets
close. On days any Portfolio closes early, purchase and redemption orders re-
ceived after the PSA recommended closing time will be credited to the next
Business Day. In addition, each Portfolio reserves the right to advance the
time by which purchase and redemption orders must be received for same Busi-
ness Day credit as permitted by the SEC.

Each Portfolio seeks to maintain a net asset value of $1.00 per unit. In
this connection, each Portfolio values its portfolio securities on the basis
of amortized cost. The amortized cost method values a security at its cost on
the date of purchase and thereafter assumes a constant amortization to matu-
rity of any discount or premium, regardless of the impact of fluctuating in-
terest rates on the market value of the instrument. For a more complete de-
scription of the amortized cost valuation method and its effect on existing
and prospective unitholders, see the Statement of Additional Information.
There can be no assurance that a Portfolio will be able at all times to main-
tain a net asset value per unit of $1.00.

YIELD INFORMATION

From time to time, each Portfolio may advertise its yield, effective yield
and average total return. Average annual total return is determined by comput-
ing the average annual percentage change in value of $1,000 invested at the
maximum public offering price for a specified period of at least one year, as-
suming 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. Each Portfolio may furnish total return calcu-
lations based on a cumulative, average, year-by-year or other basis for vari-
ous specified periods by means of quotations, charts, graphs or schedules. The
yield of a Portfolio refers to the income generated by an investment in the
Portfolio over a seven-day period (which period will be stated in the adver-
tisement). This income is then annualized; that is, the amount of income gen-
erated by the investment during that week is assumed to be generated each week
over a 52-week period and is shown as a percentage of the investment. The ef-
fective yield is calculated similarly but, when annualized, the income earned
by an investment in the Portfolio is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment.

The Tax-Exempt Portfolios and the Federal and Treasury Instruments Portfo-
lios may each also quote tax-equivalent yield. Each Portfolio's tax-equivalent
yield is calculated by determining the rate of return that would have to be
achieved on a fully taxable investment to produce the after-tax equivalent
(which, in the case of the Tax-Exempt California combines federal and state
taxes, in the case of Tax-Exempt New York Portfolio, combines federal, state
and city taxes, and in the case of the Federal and Treasury Instruments Port-
folios assumes a level of state taxes) of the Portfolio's yield, assuming cer-
tain tax brackets for a unitholder.

Investors should note that the investment results of a Portfolio are based
on historical performance and will fluctuate over time. Any presentation of a
Portfolio's total return, yield, effective yield or tax-equivalent yield for
any prior period should not be considered a representation of what an invest-
ment may earn or what a Portfolio's total return, yield, effective yield or
tax-equivalent yield may be in any future period. In addition to the above,
each Portfolio may from time to time advertise its performance relative to
certain averages, performance rankings, indices, other information prepared by
recognized mutual fund statistical services and investments for which reliable
performance data is available.

30
<PAGE>

Total return, yield, effective yield and tax-equivalent yield will be calcu-
lated separately for each class of units in existence. Because each such class
of units is subject to different expenses, the total return and net yield of
such classes of a Portfolio for the same period may differ. See "Organization
and Units of the Portfolios" below.

ORGANIZATION AND UNITS OF THE PORTFOLIOS

Each Portfolio is a series of the Goldman Sachs Trust, which was formed un-
der the laws of the State of Delaware on January 28, 1997. The Funds were for-
merly series of Goldman Sachs Money Market Trust, a Massachusetts business
trust, and were reorganized into the Trust as of April 30, 1997. The Trustees
have authority under the Trust's Declaration of Trust to create and classify
units of beneficial interest in separate series, without further action by
unitholders. 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. (Institutions that provide services to holders of ILA Ad-
ministration or ILA Service Units are referred to in this Prospectus as "Serv-
ice Organizations").

When issued, units are fully paid and nonassessable. In the event of liqui-
dation, unitholders are entitled to share pro rata in the net assets of the
applicable Portfolio available for distribution to such unitholders. All units
are freely transferable and have no preemptive, subscription or conversion
rights. Unitholders are entitled to one vote per unit, provided that, at the
option of the Trustees, unitholders will be entitled to a number of votes
based upon the net asset values represented by their unitholders.

Units of a Portfolio will be voted separately by Portfolio with respect to
matters pertaining to that Portfolio except for the election of Trustees and
ratification of independent accountants. For example, unitholders of each
Portfolio are required to approve the adoption of any investment advisory
agreement relating to that Portfolio and any changes in fundamental investment
restrictions or policies of such Portfolio. Approval by the unitholders of one
Portfolio is effective only as to that Portfolio.

As of April 1, 1997, Bank of New York, 48 Wall Street, New York, NY 10286,
owned of record 32.49% of the outstanding units of Treasury Instruments Port-
folio.

The Trust does not intend to hold annual meetings of unitholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
units outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of unitholders for any purpose, and
recordholders may, under certain circumstances, as permitted by the Investment
Company Act, communicate with other unitholders in connection with requiring a
special meeting of unitholders. The Trustees will call a special meeting of
unitholders 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.

31
<PAGE>

PURCHASE OF UNITS

ILA Units of a Portfolio may be purchased on any Business Day at the net as-
set value next determined after receipt of a purchase order in the manner set
forth below, and provided that The Northern Trust Company ("Northern"), Chica-
go, Illinois, the subcustodian for State Street Bank and Trust Company ("State
Street"), receives the purchase amount in federal funds on the same Business
Day. Purchase orders may be made by telephoning Goldman Sachs at 800-621-2550
or by a written request addressed to Goldman Sachs, Attention: Shareholder
Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois 60606. It
is strongly recommended that payment be effected by wiring federal funds to
Northern.

Purchases of ILA Units may also be made by delivering a Federal Reserve
draft or check (except that a third party check will not be accepted) payable
only to the appropriate Portfolio and drawn on a U.S. bank to Goldman Sachs,
Attention: Shareholder Services, Goldman Sachs Trust, 4900 Sears Tower, Chica-
go, Illinois 60606. It is expected that Federal Reserve drafts will ordinarily
be converted to federal funds on the day of receipt and that checks will be
converted to federal funds within two Business Days after receipt. ILA Units
purchased by check may not be redeemed until the check has cleared, as de-
scribed under "Redemption of Units."

Purchases of units of any Portfolio may also be made through an Automated
Clearing House ("ACH") transfer to Goldman Sachs Trust c/o Northern, as sub-
custodian for State Street. Purchase orders are effected at the net asset
value next determined after receipt of both the purchase order and the pur-
chase amount in federal funds. It is expected that ACH transfers will ordinar-
ily be converted to federal funds on the Business Day following receipt of the
ACH transfer.

ILA Units of each Portfolio are deemed to have been purchased when an order
becomes effective and are entitled to dividends on ILA Units purchased as fol-
lows:

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

<TABLE>
<CAPTION>
IF ORDER IS RECEIVED BY
GOLDMAN SACHS DIVIDENDS BEGIN
----------------------- ---------------

(1) In the case of the Taxable and Tax-Advantaged Portfolios

<S> <C> <C> <C> <C>
By: 3:00 p.m.-N.Y. time Same Business Day
- ---------------------------------------------------------------------------------------
After: 3:00 p.m.-N.Y. time Next Business Day
- ---------------------------------------------------------------------------------------
(2) In the case of the Tax-Exempt Portfolios

By: 1:00 p.m.-N.Y. time Same Business Day
- ---------------------------------------------------------------------------------------
After: 1:00 p.m.-N.Y. time Next Business Day
- ---------------------------------------------------------------------------------------
</TABLE>

32
<PAGE>

A Business Day means any day on which the New York Stock Exchange is open,
except for days on which Chicago, Boston or New York banks are closed for lo-
cal holidays.

ILA Units of the Portfolios are purchased at the net asset value per unit
without the imposition of a sales charge. However, banks, trust companies or
other institutions through which investors acquire ILA Units may impose
charges in connection with transactions in such Units.

Goldman Sachs, as each Portfolio's transfer agent, will maintain a complete
record of transactions and ILA Units held in each unitholder's account. The
Trust and Goldman Sachs each reserves the right to reject any purchase order
for any reason.

INITIAL PURCHASES

The minimum initial investment requirement is $50,000, which may be allo-
cated among the Portfolios. The Trust and Goldman Sachs each reserves the
right to waive the minimum investment requirement. Before or immediately after
placing an initial purchase order, investors should complete and send to
Goldman Sachs the Account Information Form included at the end of this Pro-
spectus.

SUBSEQUENT INVESTMENTS

There is no minimum amount required for subsequent investments. Orders for
the purchase of additional ILA Units should be accompanied by information
identifying the account and the Portfolio in which ILA Units are to be pur-
chased.

REPORTS TO UNITHOLDERS

ILA Unitholders of each Portfolio will receive an annual report containing
audited financial statements and a semiannual report. Each ILA Unitholder will
also be furnished with an individual monthly statement. Upon request, a
printed confirmation for each transaction will be provided by Goldman Sachs.
Any dividends and distributions paid by the Portfolios are also reflected in
regular statements issued by Goldman Sachs. A year-to-date statement for any
account will be provided upon request made to Goldman Sachs. ILA Unitholders
with inquiries regarding a Portfolio may call Goldman Sachs at 800-621-2550
(8:00 a.m. to 6:30 p.m. New York time) or write Goldman Sachs at the address
shown under "The Distributor and Transfer Agent."

SUB-ACCOUNTING SERVICES

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

To assist banks and other institutional investors performing their own sub-
accounting, each Portfolio's daily income per unit, calculated to nine decimal
places, and its annualized yield are normally available by 4:00 p.m. New York
time.

33
<PAGE>

DISTRIBUTIONS

All or substantially all of each Portfolio's net investment income will be
declared daily (as of 4:00 p.m. New York time) as a dividend and distributed
to ILA Unitholders monthly. Distributions will be made in additional ILA Units
of the same Portfolio or, at the election of ILA Unitholders, in cash. The
election to reinvest dividends and distributions or receive them in cash may
be changed at any time upon written notice to Goldman Sachs. If no election is
made, all dividends and capital gain distributions will be reinvested. Divi-
dends will be reinvested as of the last calendar day of each month. Cash dis-
tributions will be paid on or about the first business day of each month. Net
short-term capital gains, if any, will be distributed in accordance with the
requirements of the Code and may be reflected in a Portfolio's daily distribu-
tions. Each Portfolio may distribute at least annually its long-term capital
gains, if any, after reduction by available capital losses. In order to avoid
excessive fluctuations in the amount of monthly capital gains distributions, a
portion of any net capital gains realized on the disposition of securities
during the months of November and December may be distributed during the sub-
sequent calendar year. Although realized gains and losses on the assets of a
Portfolio are reflected in the net asset value of the Portfolio, they are not
expected to be of an amount which would affect the Portfolio's net asset value
of $1.00 per unit.

A Portfolio's net investment income consists of the excess of (i) accrued
interest or discount (including both original issue and market discount on
taxable securities) on portfolio securities, and (ii) any income of the Port-
folio from sources other than capital gains over (iii) the amortization of
market premium on all portfolio securities and (iv) the estimated expenses of
the Portfolio, including a proportionate share of the general expenses of the
Trust.

EXCHANGES

ILA Units of each Portfolio may be exchanged for units of the corresponding
class of any Portfolio or Fund of Goldman Sachs Trust at the net asset value
next determined either by writing to Goldman Sachs, Attention: Shareholder
Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois 60606 or,
if previously elected in the Account Information Form included at the end of
this Prospectus, by calling Goldman Sachs at 800-621-2550. All telephone ex-
changes must be registered in the same name(s) and with the same address as
are registered in the Portfolio from which the exchange is being made. It may
be difficult to implement the telephone exchange privilege in times of drastic
economic or market changes. In an effort to prevent unauthorized or fraudulent
exchange requests by telephone, Goldman Sachs employs reasonable procedures as
set forth under "Redemption of Units" to confirm that such instructions are
genuine. Exchanges are available only in states where the exchange may legally
be made. The exchange privilege may be modified or withdrawn at any time on 60
days' written notice.

REDEMPTION OF UNITS

HOW TO REDEEM

ILA Unitholders may redeem ILA Units of a Portfolio without charge upon re-
quest on any Business Day at the net asset value next determined after receipt
of the redemption request. Redemption requests may be made by telephoning
Goldman Sachs at 800-621-2550 or by a written request addressed to Goldman
Sachs, Attention: Shareholder Services, Goldman Sachs Trust, 4900 Sears Tower,
Chicago, Illinois 60606. The letter of instruction must specify the number of
ILA Units of the particular Portfolio to be redeemed, the account number, pay-
ment instructions and the exact registration on the account. Signatures must
be guaranteed in

34
<PAGE>

accordance with the procedures set forth below, if the proceeds are to be paid
to other than pre-established instructions on file with the Portfolio. An ILA
Unitholder may request redemptions by telephone only if the optional telephone
redemption privilege has been elected on the Account Information Form included
at the end of this Prospectus. It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes.

In an effort to prevent unauthorized or fraudulent redemption requests by
telephone, Goldman Sachs employs reasonable procedures specified by the Trust
to confirm that such instructions are genuine. Among other things, any redemp-
tion request that requires money to go to an account or address other than
that designated on the Account Information Form must be in writing and signed
by an authorized person designated on the Account Information Form. Any such
written request is also confirmed by telephone with both the requesting party
and the designated bank account to verify instructions. Other procedures may
be implemented from time to time. If reasonable procedures are not implement-
ed, the Trust may be liable for any loss due to unauthorized or fraudulent
transactions. In all other cases, neither the Trust nor Goldman Sachs will be
responsible for the authenticity of redemption instructions received by tele-
phone. A redemption may also be made with respect to certain Portfolios by
means of the check redemption privilege described below. Goldman Sachs re-
serves the right to redeem accounts with balances below $500.

Additional documentation may be required by Goldman Sachs in order to estab-
lish that a redemption request has been properly authorized. A redemption re-
quest will not be considered to have been received in proper form until such
additional documentation has been submitted to Goldman Sachs. The payment of
redemption proceeds for ILA Units recently purchased by check will be delayed
for up to 15 days until the check has cleared.

PAYMENT OF REDEMPTION PROCEEDS AND DIVIDENDS

In accordance with the following, redemption proceeds will be wired to the
bank account designated on the ILA Unitholder's Account Information Form, un-
less payment by check has been requested.

<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
REDEMPTION
REDEMPTION REQUEST PROCEEDS
RECEIVED BY GOLDMAN SACHS ORDINARILY DIVIDENDS
----------------------------- ---------- -------------------
<S> <C> <C> <C>
(1) In the case of the Taxable and Tax-Advantaged Portfolios
By: 3:00 p.m.-N.Y. time Wired Same Not earned on day
Business request is received
Day
- -----------------------------------------------------------------------------
After: 3:00 p.m.-N.Y. time Wired Next Earned on day
Business request is received
Day
- -----------------------------------------------------------------------------
(2) In the case of the Tax-Exempt Portfolios
By: 12:00 noon-N.Y. time Wired Same Not earned on day
Business request is received
Day
- -----------------------------------------------------------------------------
After: 12:00 noon-N.Y. time Wired Next Earned on day
Business request is received
Day
- -----------------------------------------------------------------------------
</TABLE>

The Portfolios will arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the bank account designated in the Ac-
count Information Form. Redemption proceeds will normally be wired as set
forth above, but may be paid up to three Business Days after receipt of a
properly executed

35
<PAGE>

redemption request. For example, payment may be delayed if the Federal Reserve
Bank is closed on the day redemption proceeds would ordinarily be wired. After
a wire has been initiated by Goldman Sachs, neither Goldman Sachs nor the
Trust assumes any further responsibility for the performance of intermediaries
or the ILA Unitholder's bank in the transfer process. If a problem with such
performance arises, the ILA Unitholder should deal directly with such interme-
diaries or bank.

An ILA Unitholder may change the bank designated to receive redemption pro-
ceeds by providing a written notice to Goldman Sachs which has been signed by
the ILA Unitholder or its authorized representative. This signature must be
guaranteed by a bank, a securities broker or dealer, a credit union having au-
thority to issue signature guarantees, a savings and loan association, a
building and loan association, a cooperative bank, a federal savings bank or
association, a national securities exchange, a registered securities associa-
tion or a clearing agency, provided that such institution satisfies the stan-
dards established by Goldman Sachs. Goldman Sachs may also require additional
documentation in connection with a request to change the designated bank.

CHECK REDEMPTION PRIVILEGE

An ILA Unitholder of any Portfolio may elect to have a special account with
State Street for the purpose of redeeming ILA Units from his or her account in
that Portfolio by check. When State Street receives a completed signature card
and authorization form, the ILA Unitholder will be provided with a supply of
checks. Checks drawn on this account may be payable to the order of any person
in any amount of $500 or more, but cannot be certified. The payee of the check
may cash or deposit it like any other check drawn on a bank. When such a check
is presented to State Street for payment, a sufficient number of full and
fractional ILA Units will be redeemed to cover the amount of the check. Can-
celled checks will be returned to the ILA Unitholder by State Street.

The check redemption privilege enables an ILA Unitholder to receive the div-
idends declared on the ILA Units to be redeemed until such time as the check
is processed. Because of this feature, the check redemption privilege may not
be used for a complete liquidation of an ILA Unitholder's account. If the
amount of a check is greater than the value of ILA Units held in the ILA
Unitholder's account, the check will be returned unpaid, and the ILA
Unitholder may be subject to extra charges.

Goldman Sachs reserves the right to impose conditions on, limit the avail-
ability of or terminate the check redemption privilege at any time with re-
spect to a particular ILA Unitholder or all ILA Unitholders in general. The
Trust and State Street reserve the right at any time to suspend redemptions by
check and intend to do so in the event that federal legislation or regulations
impose reserve requirements or other restrictions deemed by the Trustees to be
adverse to the interests of the Portfolios.

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

36
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM

You are required by law to provide the Trust with your correct Social Secu-
rity or other Taxpayer Identification Number (TIN), regardless of whether you
file tax returns. Failure to do so may subject you to penalties. Failure to
provide your correct TIN and to sign your name in the certification section of
the Account Information Form could result in withholding of 31% by the Trust
for the federal backup withholding tax on distributions, redemptions, ex-
changes and other payments relating to your account.

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

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

If you are a nonresident alien or foreign entity you must provide a com-
pleted Form W-8 to the Trust in order to avoid backup withholding on certain
payments. Other payments to you may be subject to non-resident alien withhold-
ing of up to 30%.

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

A-1
<PAGE>

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

GOLDMAN SACHS MONEY MARKET FUNDS
ILA UNITS
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

TOLL FREE:800-621-2550

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unitholder and Portfolio Expenses.......................................... 2
Financial Highlights....................................................... 4
An Introduction to the Portfolios.......................................... 14
Investment Policies Matrix................................................. 16
Description of Securities and Investment Techniques........................ 18
Investment Limitations..................................................... 26
Management................................................................. 27
Taxes...................................................................... 28
Net Asset Value............................................................ 29
Yield Information.......................................................... 30
Organization and Units of the Portfolios................................... 31
Purchase of Units.......................................................... 32
Reports to Unitholders..................................................... 33
Distributions.............................................................. 34
Exchanges.................................................................. 34
Redemption of Units........................................................ 34
Appendix................................................................... A-1
Account Information Form
</TABLE>

ILAPROINSTMM
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

GOLDMAN SACHS MONEY MARKET FUNDS

GOLDMAN SACHS--INSTITUTIONAL LIQUID ASSETS

ILA UNITS

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

PROSPECTUS

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

MANAGED BY
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

GOLDMAN SACHS MONEY MARKET FUNDS
GOLDMAN SACHS--INSTITUTIONAL LIQUID ASSETS
ILA ADMINISTRATION UNITS
4900 Sears Tower
Chicago, Illinois 60606

Money Market Portfolio. Securities of the U.S. Government, its agencies,
authorities and instrumentalities, U.S. dollar denominated obligations of U.S.
and foreign banks, U.S. dollar denominated commercial paper and other short-
term obligations of U.S. and foreign companies, foreign governments, states,
municipalities and other entities, and repurchase agreements.

Treasury Obligations Portfolio. Securities issued or guaranteed by the U.S.
Treasury and repurchase agreements relating to such securities.

Treasury Instruments Portfolio. Securities issued or guaranteed by the U.S.
Treasury, the interest income from which is generally exempt from state income
taxation.

Government Portfolio. Securities of the U.S. Government, its agencies,
authorities and instrumentalities, and repurchase agreements relating to such
securities.

Federal Portfolio. Securities of the U.S. Government and certain of its
agencies, authorities and instrumentalities, the interest income from which is
generally exempt from state income taxation.

AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT A PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER UNIT.
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION
................................................................................
Goldman Sachs Funds--Toll Free: 800-621-2550

This Prospectus provides you with information about the Portfolios that you
should know before investing in ILA Administration Units. It should be read
and retained for future reference. If you would like more detailed
information, the Statement of Additional Information dated May 1, 1997, as
amended or supplemented from time to time, is available upon request without
charge from Service Organizations, as defined herein, or by calling the
telephone number listed above or by writing Goldman Sachs, Attention:
Shareholder Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois
60606. The Statement of Additional Information, which is incorporated by
reference into this Prospectus, has been filed with the Securities and
Exchange Commission. Not all Portfolios are available in certain states.
Please call the phone number listed above to determine availability in your
state. The SEC maintains a Web site (http://wp.sec.gov) that contains the
Statement of Additional Information and other information regarding the Trust.
- -------------------------------------------------------------------------------
ILA ADMINISTRATION UNITS OF THE PORTFOLIOS 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 A
PORTFOLIO INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

UNITHOLDER AND PORTFOLIO EXPENSES
ILA ADMINISTRATION UNITS

<TABLE>
<CAPTION>
TAX-
PRIME MONEY TREASURY TREASURY TAX-EXEMPT TAX-EXEMPT EXEMPT
OBLIGATIONS MARKET OBLIGATIONS INSTRUMENTS GOVERNMENT FEDERAL DIVERSIFIED CALIFORNIA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- --------- ----------- ----------- ---------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITHOLDER
TRANSACTION
EXPENSES
Maximum Sales
Charge Imposed on
Purchases......... None None None None None None None None None
Sales Charge
Imposed on
Reinvested
Distributions..... None None None None None None None None None
Deferred Sales
Load Imposed on
Redemptions....... None None None None None None None None None
Exchange Fee...... None None None None None None None None None
ANNUAL OPERATING
EXPENSES (1)
(as a percentage
of average daily
net assets)
Management Fees
(after
limitations) (2).. 0.35% 0.31% 0.35% 0.16% 0.35% 0.21% 0.26% 0.35% 0.27%
Other Expenses
Administration
Fees............. 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Other Expenses
(after expense
limitation) (3).. 0.07% 0.06% 0.07% 0.06% 0.07% 0.06% 0.06% 0.07% 0.06%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL OPERATING
EXPENSES (4)....... 0.57% 0.52% 0.57% 0.37% 0.57% 0.42% 0.47% 0.57% 0.48%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

EXAMPLE OF EXPENSES

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Obligations Portfolio................ $6 $18 $32 $71
Money Market Portfolio..................... $5 $17 $29 $65
Treasury Obligations Portfolio............. $6 $18 $32 $71
Treasury Instruments Portfolio............. $4 $12 $21 $47
Government Portfolio....................... $6 $18 $32 $71
Federal Portfolio.......................... $4 $13 $24 $53
Tax-Exempt Diversified Portfolio........... $5 $15 $26 $59
Tax-Exempt California Portfolio............ $6 $18 $32 $71
Tax-Exempt New York Portfolio.............. $5 $15 $27 $60
</TABLE>

2
<PAGE>

- --------
(1) Based on estimated amounts for the current fiscal year.
(2) The Investment Adviser has voluntarily agreed that a portion of the
management fee would not be imposed on the Money Market, Treasury
Instruments, Federal, Tax-Exempt Diversified and Tax-Exempt New York
Portfolios equal to .04%, .19%, .14%, .09% and .08%, respectively. Without
such limitation, management fees for each Portfolio would be 0.35%.
(3) The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, fees payable to Service
Organizations, as defined herein, taxes, interest and brokerage and
litigation, indemnification and other extraordinary expenses) to the
extent such expenses exceed 0.07% of the Prime Obligations, Treasury
Obligations, Government and Tax-Exempt California Portfolio's average
daily net assets and 0.06% of each other Portfolio's average daily net
assets.
(4) Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Portfolios for the current fiscal year are
estimated to be as follows:

<TABLE>
<CAPTION>
OTHER TOTAL OPERATING
EXPENSES EXPENSES
-------- ---------------
<S> <C> <C>
Prime Obligations Portfolio......................... 0.08% 0.58%
Money Market Portfolio.............................. 0.08% 0.58%
Treasury Obligations Portfolio...................... 0.08% 0.58%
Treasury Instruments Portfolio...................... 0.08% 0.58%
Government Portfolio................................ 0.09% 0.59%
Federal Portfolio................................... 0.08% 0.58%
Tax-Exempt Diversified Portfolio.................... 0.06% 0.56%
Tax-Exempt California Portfolio..................... 0.07% 0.57%
Tax-Exempt New York Portfolio....................... 0.08% 0.58%
</TABLE>

The information set forth in the foregoing table and hypothetical example
relates only to ILA Administration Units of the Portfolios. The Portfolios
also offer ILA Units, ILA Service Units and ILA Class B Units (Prime Obliga-
tions only). The other classes of the Portfolios are subject to different fees
and expenses (which affect performance) and are entitled to different servic-
es. Information regarding any other class of the Portfolios may be obtained
from your sales representative or from Goldman Sachs by calling the number on
the front cover of this Prospectus.

Service Organizations may charge other fees to their customers who are the
beneficial owners of ILA Administration Units in connection with their custom-
ers' accounts. See "Administration." Such fees, if any, may affect the return
such customers realize with respect to their investments.