GOLDMAN SACHS TRUST, 485APOS, 1997-02-28

GOLDMAN SACHS TRUST
485APOS, 1997-02-28

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<PAGE>

As filed with the Securities and Exchange Commission on February 28, 1997.

1933 Act Registration No. 33-17619
1940 Act Registration No. 811-5349

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

____________

FORM N-1A

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ( X )

Post-Effective Amendment No. 31 ( X )

and/or

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )

Amendment No. 33 ( X )
(Check appropriate box or boxes)
__________

GOLDMAN SACHS TRUST
(Exact name of registrant as specified in charter)

4900 Sears Tower
Chicago, Illinois 60606-6303
(Address of principal executive offices)

Registrant's Telephone Number,
including Area Code 312-993-4400
____________

Michael J. Richman, Esq. Copies to:
Goldman, Sachs & Co. Pamela J. Wilson, Esq.
85 Broad Street - 12th Floor Hale and Dorr
New York, New York 10004 60 State Street
Boston, MA 02109
(Name and address of agent for service)

It is proposed that this filing will become effective (check appropriate box)

( ) immediately upon filing pursuant to paragraph (b)
( ) on (date) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)

(X) On May 1, 1997 pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On (date) pursuant to paragraph (a)(2) of rule 485.

____________

Proposed Proposed
Title of Amount of Maximum Maximum Amount of
Securities Shares Offering Aggregate Registration
Being Being Price Per Offering Fee
Registered Registered Share Price
- ---------- ---------- ----- ----- ------------

Shares of
Beneficial
Interest 7,824,084 $12.22 $N/A 0

(1) Registrant elects to calculate the maximum aggregate offering price
pursuant to Rule 24e-2. 66,292,929 shares were redeemed during the fiscal
year ended October 31, 1996. 58,468,845 of such shares were used for
reductions pursuant to paragraph (c) of Rule 24f-2 during the current
fiscal year. 7,824,084 of the shares redeemed during the Registrant's
previous fiscal year are being used for the reduction of the registration
fee in this Amendment. No fee is required for the 7,824,084 shares. The
proposed maximum offering price per share has been calculated based on the
average of the prices of the Funds in the Trust as determined on December
20, 1996 pursuant to Rule 457(c).

Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2. On December 20, 1996, Registrant
filed a Rule 24f-2 notice for its fiscal year ended October 31, 1996.

This Post-Effective Amendment (No. 31 under the Securities Act of 1933; No. 33
under the Investment Company Act) to the Registration Statement on Form N-1A of
Goldman Sachs Trust, a Massachusetts business trust (the "Massachusetts Trust"),
is being filed by Goldman Sachs Trust, a Delaware business trust (the "Delaware
Trust"), pursuant to Rule 414(d) and Rule 485(a)(2) under the Securities Act of
1933 for, among other things, the purpose of the Delaware Trust adopting the
Massachusetts Trust's Registration Statement on Form N-1A. Unless effectiveness
is delayed by filing a subsequent post-effective amendment, this Post-Effective
Amendment will become effective automatically at the start of business on May 1,
1997 (60 days after the date of filing), which will be the first business date
that the Massachusetts Trust is reorganized as the Delaware Trust. It is
expected that the reorganization will be approved by the shareholders of the
Massachusetts Trust at a meeting to be held on April 1, 1997.

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

ADOPTION OF REGISTRATION STATEMENT

Upon the effectiveness of this Post-Effective Amendment, the Delaware Trust
hereby affirmatively adopts the Registration Statement (File Nos. 33-17619 and
811-5349) of the Massachusetts Trust.

================================================================================
<PAGE>

GOLDMAN SACHS TRUST
Institutional Shares

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

CROSS REFERENCE SHEET
(as required by Rule 485)

PART A CAPTION
- ------ -------

1. Cover Page Cover Page

2. Synopsis Fund Highlights

3. Condensed Financial Information Financial Highlights

4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objective and Policies;
Description of Securities; Risk
Factors; Investment Techniques;
Investment Restrictions; Portfolio
Turnover; Reports to Shareholders;
Shares of the Trust; Additional
Information

5. Management of the Fund Management

6. Capital Stock and Other Dividends; Shares of the Trust;
Securities Taxation; Additional Information

7. Purchase of Securities Purchase of Institutional Shares;
Being Offered Net Asset Value; Additional
Information

8. Redemption or Repurchase Redemption of Institutional Shares;
Additional Information

9. Pending Legal Proceedings Not Applicable

PART B CAPTION
- ------ -------

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and Not Applicable
History

<PAGE>

13. Investment Objectives Investment Objective and Policies;
and Policies Investment Restrictions

14. Management of the Registrant Management

15. Control Persons and Principal Shares of the Trust
Holders of Securities

16. Investment Advisory and Management
Other Services

17. Brokerage Allocation and Portfolio Transactions
Other Securities

18. Capital Stock and Other Shares of the Trust
Securities

19. Purchase, Redemption and Management; Net Asset Value
Pricing of Securities Being
Offered

20. Tax Status Taxation

21. Underwriters Management-Distributor

22. Calculation of Performance Information
Performance Data

23. Financial Statements Financial Statements
<PAGE>

GOLDMAN SACHS TRUST
Administration Shares
---------------

CROSS REFERENCE SHEET
(as required by Rule 485)

PART A CAPTION
- ------ -------

1. Cover Page Cover Page

2. Synopsis Fund Highlights

3. Condensed Financial
Information Financial Highlights

4. General Description of Cover Page; Fund Highlights;
Registrant Investment Objective and Policies;
Description of Securities; Risk
Factors; Investment Techniques;
Investment Restrictions; Portfolio
Turnover; Reports to Shareholders;
Shares of the Trust; Additional
Information

5. Management of the Fund Management

6. Capital Stock and Other Dividends; Shares of the Trust;
Securities Taxation; Additional Information

7. Purchase of Securities Purchase of Administration
Being Offered Shares; Net Asset Value;
Additional Information

8. Redemption or Repurchase Redemption of Administration
Shares; Additional Information

9. Pending Legal Proceedings Not Applicable

PART B CAPTION
- ------ -------

10. Cover Page Cover Page

11. Table of Contents Table of Contents

<PAGE>

12. General Information and Not Applicable
History

13. Investment Objectives Investment Objective and Policies;
Policies Investment Restrictions

14. Management of the Registrant Management

15. Control Persons and Principal Shares of the Trust
Holders of Securities

16. Investment Advisory and Management
Other Services

17. Brokerage Allocation and Portfolio Transactions
Other Securities

18. Capital Stock and Other Shares of the Trust
Securities

19. Purchase, Redemption and Management; Net Asset Value
Pricing of Securities Being
Offered

20. Tax Status Taxation

21. Underwriters Management-Distributor

22. Calculation of Performance Performance Information
Data

23. Financial Statements Financial Statements
<PAGE>

GOLDMAN SACHS TRUST
Service Shares

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

CROSS REFERENCE SHEET
(as required by Rule 485)

PART A CAPTION
- ------ -------

1. Cover Page Cover Page

2. Synopsis Fund Highlights

3. Condensed Financial
Information Financial Highlights

5. Management of the Fund Management

6. Capital Stock and Other Dividends; Shares of the Trust;
Securities Taxation; Additional Information

7. Purchase of Securities Purchase of Service Shares;
Being Offered Net Asset Value;
Additional Information

8. Redemption or Repurchase Redemption of Service Shares;
Additional Information

9. Pending Legal Proceedings Not Applicable

PART B CAPTION
- ------ -------

10. Cover Page Cover Page

11. Table of Contents Table of Contents

<PAGE>

12. General Information and Not Applicable
History

13. Investment Objectives and Investment Objective and Policies;
Policies Investment Restrictions

14. Management of the Registrant Management

15. Control Persons and Principal Shares of the Trust
Holders of Securities

16. Investment Advisory and Management
Other Services

17. Brokerage Allocation and Portfolio Transactions
Other Securities

18. Capital Stock and Other Shares of the Trust
Securities

19. Purchase, Redemption and Management; Net Asset Value
Pricing of Securities Being
Offered

20. Tax Status Taxation

21. Underwriters Management-Distributor

22. Calculation of Performance Performance Information
Data

23. Financial Statements Financial Statements
<PAGE>

GOLDMAN SACHS TRUST
Class A and Class B Shares

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

CROSS REFERENCE SHEET
(as required by Rule 485)

PART A CAPTION
- ------ -------

1. Cover Page Cover Page

2. Synopsis Fund Highlights

3. Condensed Financial
Information Financial Highlights

5. Management of the Fund Management

6. Capital Stock and Other Dividends; Shares of the Trust;
Securities Taxation; Additional Information

7. Purchase of Securities Purchase of Service Shares;
Being Offered Net Asset Value;
Additional Information

8. Redemption or Repurchase Redemption of Service Shares;
Additional Information

9. Pending Legal Proceedings Not Applicable

PART B CAPTION
- ------ -------

10. Cover Page Cover Page

11. Table of Contents Table of Contents

<PAGE>

12. General Information and Not Applicable
History

13. Investment Objectives and Investment Objective and Policies;
Policies Investment Restrictions

14. Management of the Registrant Management

15. Control Persons and Principal Shares of the Trust
Holders of Securities

16. Investment Advisory and Management
Other Services

17. Brokerage Allocation and Portfolio Transactions
Other Securities

18. Capital Stock and Other Shares of the Trust
Securities

19. Purchase, Redemption and Management; Net Asset Value
Pricing of Securities Being
Offered

20. Tax Status Taxation

21. Underwriters Management-Distributor

22. Calculation of Performance Performance Information
Data

23. Financial Statements Financial Statements

Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
<PAGE>

- --------------------------------------------------------------------------------
PROSPECTUS

May 1, 1997

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights........................ 1
Fees and Expenses...................... 5
Financial Highlights................... 9
Investment Objectives and Policies..... 12
Description of Securities.............. 18
Risk Factors........................... 24
Investment Techniques.................. 26
Investment Restrictions................ 30
Portfolio Turnover..................... 31
Management............................. 31
Reports to Shareholders................ 35
How to Invest.......................... 35
Services Available to Shareholders..... 42
Distribution and Authorized Dealer
Service Plans......................... 44
How to Sell Shares of the Funds........ 46
Dividends.............................. 47
Net Asset Value........................ 48
Performance Information................ 48
Shares of the Trust.................... 49
Taxation............................... 50
Additional Information................. 51
Appendix............................... 52
Account Application
</TABLE>

GOLDMAN SACHS FIXED INCOME FUNDS
CLASS A AND B SHARES

GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT
FUND

Seeks a high level of current income,
consistent with low volatility of princi-
pal. The Fund invests primarily in ad-
justable rate mortgage pass-through secu-
rities and other mortgage securities with
periodic interest rate resets, which are
issued or guaranteed by the U.S. Govern-
ment, its agencies, instrumentalities or
sponsored enterprises.

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 capi-
tal gain. The Fund invests primarily in
securities issued or guaranteed by the
U.S. government, its agencies, instrumen-
talities or sponsored enterprises.

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 pri-
marily in municipal securities.

GOLDMAN SACHS GOVERNMENT INCOME FUND

Seeks a high level of current income,
consistent with safety of principal. The
Fund invests primarily in securities, in-
cluding mortgage-backed securities, is-
sued or guaranteed by the U.S. Govern-
ment, its agencies, instrumentalities or
sponsored enterprises.

GOLDMAN SACHS MUNICIPAL INCOME FUND

Seeks a high level of current income that
is exempt from regular federal income
tax, consistent with preservation of cap-
ital. The Fund invests primarily in mu-
nicipal securities.

GOLDMAN SACHS CORE FIXED INCOME FUND

Seeks a total return consisting of capi-
tal appreciation and income that exceeds
the total return of the Lehman Brothers
Aggregate Bond Index. The Fund invests
primarily in fixed-income securities, in-
cluding securities issued or guaranteed
by the U.S. government, its agencies, in-
strumentalities or sponsored enterprises,
corporate securities, mortgage-backed se-
curities and asset-backed securities.

GOLDMAN SACHS GLOBAL INCOME FUND

Seeks a high total return, emphasizing
current income and, to a lesser extent,
providing opportunities for capital ap-
preciation. The Fund invests primarily in
a portfolio of high quality fixed-income
securities of U.S. and foreign issuers
and foreign currencies.

(continued on next page)

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

(cover continued)

THE CORE FIXED INCOME AND GLOBAL INCOME FUNDS 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
IN WHICH THE CORE FIXED INCOME FUND MAY INVEST 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 FUNDS THAT INVEST IN FOREIGN
SECURITIES 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."

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.

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 and Core Fixed Income
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.

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.
<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 objective.

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>
<CAPTION>
SHORT DURATION SHORT DURATION GOVERNMENT MUNICIPAL CORE FIXED GLOBAL
ADJUSTABLE RATE GOVERNMENT TAX-FREE INCOME INCOME INCOME INCOME
GOVERNMENT FUND FUND FUND FUND FUND FUND FUND
----------------- -------------- --------------- ----------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT A high level of A high level A high level of A high A high level Total return A high total
OBJECTIVES current income, of current current income, level of of current consisting of return,
consistent with income, and consistent with current income that capital emphasizing
low volatility of secondarily, low volatility income, is exempt appreciation current
principal. in seeking of principal, consistent from regular and income that income, and,
current that is exempt with safety federal exceeds the to a lesser
income, may from regular of income tax, total return of extent,
also consider federal income principal. consistent the Lehman providing
the potential tax. with Brothers opportunities
for capital preservation Aggregate Bond for capital
gain. of capital. Index. appreciation.
------------------------------------------------------------------------------------------------------------------------------
DURATION Target = 6-month Target = 2- Target = Lehman Target = Target = Target = Lehman Target = J.P.
to 1-year U.S. year U.S. Brothers 3-year Lehman Lehman Brothers Morgan Global
Treasury Security Treasury Municipal Bond Brothers Brothers 15- Aggregate Bond Government
Security plus Index plus or Mutual Fund year Index plus or Bond Index
or minus .5 minus .5 years Government/ Municipal minus 1 year (hedged) plus
years Mortgage Bond Index or minus 2.5
Index plus plus or years
or minus minus 1 year
1 year
Maximum = Maximum = Maximum = Maximum = Maximum = Maximum = Maximum =
2 years 3 years 4 years 6 years 12 years 6 years 7.5 years
------------------------------------------------------------------------------------------------------------------------------
APPROXIMATE 9-month note 2-year bond 3-year bond 5-year bond 15-year bond 5-year bond 6-year bond
INTEREST
RATE
SENSITIVITY
------------------------------------------------------------------------------------------------------------------------------
INVESTMENT At least 65% of At least 65% At least 80% of At least At least 80% At least 65% of Securities of
SECTOR total assets in of total net assets in 65% of of net assets in fixed U.S. and
securities issued assets in U.S. Municipal assets in assets in income foreign
or guaranteed by Government Securities. U.S. Municipal securities, governments
the U.S. Securities and Government Securities. including U.S. and
Government, its repurchase Securities, Government corporations.
agencies, agreements including Securities,
instrumentalities collateralized mortgage- corporate,
or sponsored by such backed U.S. mortgage-backed
enterprises securities. Government and asset-
("U.S. Government Securities. backed
Securities") that securities.
are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
</TABLE>

1
<PAGE>

<TABLE>
<CAPTION>
ADJUSTABLE
RATE SHORT DURATION SHORT DURATION GOVERNMENT MUNICIPAL CORE FIXED
GOVERNMENT GOVERNMENT TAX-FREE INCOME INCOME INCOME
FUND FUND FUND FUND FUND FUND
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CREDIT U.S. U.S. Minimum = U.S. Minimum = Minimum =
QUALITY Government Government BBB/Baa Government BBB/Baa BBB/Baa
Securities Securities Securities and Average = Minimum for
non-U.S. AA/Aa non-dollar
Government securities =
Securities AA/Aa
rated AAA/Aaa
-----------------------------------------------------------------------------------------------------------------
OTHER Fixed rate Mortgage pass- U.S. Non-government U.S. Foreign fixed
INVESTMENTS mortgage pass- through Government mortgage pass- Government income,
through securities and Securities and through Securities and municipal and
securities and other repurchase securities, repurchase convertible
repurchase securities agreements asset-backed agreements securities,
agreements representing collateralized securities, collateralized foreign
collateralized an interest in by such corporate by such currencies and
by U.S. or securities. fixed income securities. repurchase
Government collateralized securities and agreements
Securities. by mortgage repurchase collateralized
loans. agreements by U.S.
collateralized Government
by U.S. Securities.
Government
Securities.
-----------------------------------------------------------------------------------------------------------------
BENCHMARK 6-month and 1- 2-Year U.S Lehman Lehman Lehman
year U.S. Treasury Brothers 3- Brothers Lehman Brothers
Treasury Security Year Municipal Mutual Fund Brothers 15- Aggregate Bond
security Bond Index Government/ year Municipal Index
Mortgage Index Bond Index
<CAPTION>
GLOBAL
INCOME
FUND
----------------
<S> <C>
CREDIT Minimum =
QUALITY AA/Aa or A if
sovereign
issuer
At least 50% =
AAA/Aaa
-----------------------------------------------------------------------------------------------------------------
OTHER Mortgage and
INVESTMENTS asset backed
securities,
foreign
currencies and
repurchase
agreements
collateralized
by U.S.
Government
Securities or
certain
foreign
government
securities.
-----------------------------------------------------------------------------------------------------------------
BENCHMARK J.P. Morgan
Global
Government
Bond
Index (hedged)
</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, with
respect to the Core Fixed Income and Global Income 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.

2
<PAGE>

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.

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 investments in foreign
securities and currencies include changes in relative currency exchange
rates, political and economic developments, the 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. A Fund's investment in emerging market
countries includes greater risks than investments in developed countries.

Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures, and swap transactions,
will subject a 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 and Municipal Income Funds.
Goldman Sachs Asset Management International serves as Investment Adviser to
the Global Income Fund. As of April , 1997, the Investment Advisers,
together with their affiliates, acted as investment adviser, administrator
or distributor for assets in excess of $ 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................. $ 250 $50
Automatic Investment Plan...................... $ 50 $50
</TABLE>

For further information, see "How to Invest--How to Buy Shares of the Funds"
on page 35.

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 35.

3
<PAGE>

WHAT ARE MY PURCHASE ALTERNATIVES?

The Funds (other than 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>
GOVERNMENT INCOME FUND
MUNICIPAL INCOME FUND
CORE FIXED INCOME FUND
GLOBAL INCOME FUND
----------------------
<S> <C> <C>
Class A................... 4.5% (See above)
Class B................... N/A 5% declining to 0% after six years
<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
</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 35.

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
</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."

4
<PAGE>

FEES AND EXPENSES

<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION SHORT DURATION GOVERNMENT MUNICIPAL
GOVERNMENT GOVERNMENT TAX-FREE INCOME INCOME
FUND FUND FUND FUND FUND
--------------- ------------------ ------------------ ------------------ ------------------
CLASS A 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>
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
Maximum Sales
Charge Imposed
on Reinvested
Dividends........ 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%
Redemption
Fees/2/.......... none none none none none none none none none
Exchange Fees/2/.. 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)..... 0.40% 0.40%/3/ 0.40%/3/ 0.40% 0.40% 0.25%/3/ 0.25%/3/ 0.55% 0.55%
Distribution
(Rule 12b-1)
Fees
(after
applicable
limitations)..... 0.00%/3/ 0.00%/3/ 0.60% 0.00%/3/ 0.60% 0.00%/3/ 0.75% 0.00%/3/ 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%
Other Expenses
(after
applicable
limitations)... 0.05%/3/ 0.05%/3/ 0.05%/3/ 0.05%/3/ 0.05%/3/ 0.00%/3/ 0.00%/3/ 0.05%/3/ 0.05%/3/
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)..... 0.70%/3/ 0.70%/3/ 1.30%/3/ 0.70%/3/ 1.30%/3/ 0.50%/3/ 1.25%/3/ 0.85%/3/ 1.60%/3/
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
CORE FIXED GLOBAL
INCOME INCOME
FUND FUND
--------------------- ---------------------
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)..... 0.40% 0.40% 0.59%/3/ 0.59%/3/
Distribution
(Rule 12b-1)
Fees
(after
applicable
limitations)..... 0.00%/3/ 0.75% 0.21%/3/ 0.75%
Other Expenses:
Authorized
Dealer Service
Fees........... 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)... 0.05%/3/ 0.05%/3/ 0.11%/3/ 0.11%/3/
---------- ---------- ---------- ----------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)..... 0.70%/3/ 1.45%/3/ 1.16%/3/ 1.70%/3/
========== ========== ========== ==========
</TABLE>

5
<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.............................. $22 $37 $53 $101
Short Duration Government Fund
Class A Shares............................... 52 66 82 128
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 53 71 91 136
--Assuming no redemption.................... 13 41 71 136
Short Duration Tax-Free Fund
Class A Shares............................... 52 66 82 128
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 53 71 91 136
--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 80 107 164
--Assuming no redemption.................... 16 50 87 164
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 84 112 178
--Assuming no redemption.................... 17 54 92 178
</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.
- --------

/1As/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."

6
<PAGE>

/2A/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 upon estimated amounts for the current fiscal year. Goldman Sachs
voluntarily has agreed to waive the entire distribution fee attributable to
Class A shares of each Fund, except Global Income where Goldman Sachs
voluntarily has agreed to waive .04% of the distribution fee. Goldman Sachs
has also voluntarily agreed to limit the Class B distribution fee
attributable to the Short Duration Government and Short Duration Tax-Free
Funds to 0.60%. The Investment Advisers have voluntarily agreed to reduce or
limit certain "Other Expenses" of each Fund (excluding management,
distribution and authorized dealer service fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.05%, in each case other than
Government Income Fund and Global Income Fund in which case the other
expenses have been limited to 0.00% and 0.06%, respectively, of a Fund's
average daily net assets. The Investment Advisers have no current intention
of modifying or discontinuing any of such limitations but may do so in the
future at their discretion. Without such limitations, "Distribution Fees,"
"Other Expenses" and "Total Operating Expenses" of each Fund would be as
follows:

<TABLE>
<CAPTION>
DISTRIBUTION OTHER TOTAL OPERATING
FEES EXPENSES EXPENSES
--------------- --------------- ---------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C>
Adjustable Rate Govern-
ment................... 0.25% N/A 0.36% N/A 1.01% N/A
Short Duration Govern-
ment................... 0.25% 0.75% 0.46% 0.46% 1.21% 1.71%
----- ----- ----- ----- ----- -----
Short Duration Tax-Free. 0.25% 0.75% 0.86% 0.86% 1.51% 2.01%
Government Income....... 0.25% 0.75% 0.99% 0.99% 1.89% 2.39%
----- ----- ----- ----- ----- -----
Municipal Income........ 0.25% 0.75% 0.75% 0.75% 1.55% 2.05%
----- ----- ----- ----- ----- -----
Core Fixed Income....... 0.25% 0.75% 0.86% 0.68% 1.33% 1.83%
Global Income Fund...... 0.25% 0.75% 0.49% 0.49% 1.64% 2.14%
</TABLE>

Annual operating expenses incurred by each Fund during the fiscal year
ended October 31, 1996 (expressed as a percentage of average daily net
assets after fee adjustments) were as follows:

<TABLE>
<CAPTION>
MANAGEMENT DISTRIBUTION OTHER TOTAL OPERATING
FEES* FEES EXPENSES EXPENSES
--------------- --------------- --------------- ---------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable Rate Govern-
ment................... 0.40% N/A 0.00% N/A 0.30% N/A 0.70% N/A
Short Duration Govern-
ment**................. 0.40% 0.40% 0.00% 0.60% 0.30% 0.30% 0.70% 1.30%
----- ----- ----- ----- ----- ----- ----- -----
Short Duration Tax-
Free**................. 0.40% 0.40% 0.00% 0.60% 0.30% 0.30% 0.70% 1.30%
Government Income....... 0.25% 0.25% 0.00% 0.75% 0.25% 0.25% 0.50% 1.25%
----- ----- ----- ----- ----- ----- ----- -----
Municipal Income........ 0.55% 0.55% 0.00% 0.75% 0.30% 0.30% 0.85% 1.60%
----- ----- ----- ----- ----- ----- ----- -----
Core Fixed Income**..... 0.40% 0.40% 0.00% 0.75% 0.30% 0.30% 0.70% 1.45%
Global Income Fund...... 0.59% 0.59% 0.21% 0.75% 0.36% 0.36% 1.16% 1.70%
</TABLE>

* The Investment Adviser has voluntarily agreed that a portion of its
management fee would not be imposed on the Short Duration Government,
Government Income and Global Income Funds of 0.10%, 0.40% and 0.31%,
respectively. Without such limitation, management fees would be 0.50%,
0.65% and 0.90% of each Fund, respectively.

** Class A and B Shares of Short Duration Government, Short Duration Tax-
Free and Core Fixed Income Funds were not in existence at October 31,
1996. These amounts represent estimates of what would have been incurred
if these classes were in existence.

7
<PAGE>

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 Fund, Short Duration Government, Short Duration Tax-Free, Core
Fixed Income and Global Income 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 offers 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.

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 estimated fees and expenses for the
current fiscal year 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
------------------------------------------------
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-Institutional
Shares.................. $9.77 $0.5759(a) $0.0772(a) -- $0.6531
1996-Administration
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-Institutional
Shares.................. 9.74 0.5630(a) 0.0717(a) -- 0.6347
1995-Administration
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-Institutional
Shares.................. 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administration
Shares.................. 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institutional
Shares.................. 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administration
Shares(e)............... 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institutional
Shares.................. 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- ----------------------------
1991-Institutional
Shares.................. 10.00 0.1531 0.0322(d) -- 0.1853
</TABLE>

<TABLE>
<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-Institutional
Shares.................. $(0.5725) -- $(0.0206) -- -- $(0.5931)
1996-Administration
Shares.................. (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A Shares..... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institutional
Shares.................. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administration
Shares.................. (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A Shares(c).. (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institutional
Shares.................. (0.4486) -- -- -- -- (0.4486)
1994-Administration
Shares.................. (0.4239) -- -- -- -- (0.4239)
1993-Institutional
Shares.................. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administration
Shares(e)............... (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institutional
Shares.................. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- ----------------------------
1991-Institutional
Shares.................. (0.1553) -- -- -- -- (0.1553)
</TABLE>

<TABLE>
<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-Institutional
Shares.................. $0.0600 $9.83 6.86% 0.45% 5.85% 52.36% $613,149 0.51% 5.79%
1996-Administration
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-Institutional
Shares.................. 0.0301 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-Administration
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-Institutional
Shares.................. (0.2600) 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-Administration
Shares.................. (0.2600) 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-Institutional
Shares.................. (0.0400) 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-Administration
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-Institutional
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-Institutional
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>

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)
</TABLE>

<TABLE>
<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)
</TABLE>

<TABLE>
<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)
<CAPTION>
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>

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
--------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- -----------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A shares..... $14.47 $0.92(m) $ (0.11)(m) -- $ 0.81 (m)
1996-Class B shares(n).. 14.11 0.41(m) 0.26 (m) -- 0.67 (m)
1995-Class A shares..... 13.47 0.94(m) 1.00 (m) -- 1.94 (m)
1994-Class A shares..... 14.90 0.85(m) (1.28)(m) -- (0.43)(m)
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-Institutional
Shares.................. $10.00 $ 0.6448 $(0.0704) -- $0.5744
1996-Administration
Shares(1)............... 9.91 0.4083 (0.0703) -- 0.3380
1996-Service Shares(1).. 9.77 0.3756 0.0898 -- 0.4654
1995-Institutional
Shares.................. 9.24 0.6423 0.7610 -- 1.4033
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-Institutional
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(m) $0.62(m) $0.18 (m) $1.51 (m)
1996-Class B shares(n).. 14.03 0.34(m) 0.41(m) 0.11 (m) 0.86 (m)
1996-Institutional
shares.................. 14.45 1.15(m) 0.32(m) 0.10 (m) 1.57 (m)
1995-Class A shares..... 13.43 0.89(m) 0.92(m) 0.15 (m) 1.96 (m)
1995-Institutional
shares(o)............... 14.09 0.22(m) 0.34(m) 0.06 (m) 0.62 (m)
1994-Class A shares..... 15.07 0.84(m) (1.37)(m) (0.12)(m) (0.65)(m)
1993-Class A shares..... 14.69 0.85(m) 1.07(m) (0.42)(m) 1.50 (m)
1992-Class A shares..... 14.60 1.14(m) 0.45(m) (0.36)(m) 1.23 (m)
FOR THE PERIOD AUGUST 2, 1991(G)THROUGH OCTOBER 31,
- ---------------------------------------------------
1991-Class A shares..... 14.55 0.25(m) 0.23(m) (0.19)(m) 0.29(m)
MUNICIPAL INCOME FUND
- -------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A shares..... $14.17 $ 0.65(m) $0.20 (m) -- $ 0.85(m)
1996-Class B shares(n).. 14.03 0.27(m) 0.34 (m) -- 0.61(m)
1995-Class A shares..... 13.08 0.67(m) 1.09 (m) -- 1.76(m)
1994-Class A shares..... 14.64 0.73(m) (1.51)(m) -- (0.78)(m)
FOR THE PERIOD JULY 20, 1993(G)THROUGH OCTOBER 31,
- --------------------------------------------------
1993-Class A shares..... 14.32 0.22(m) 0.32(m) -- 0.54(m)
</TABLE>

<TABLE>
<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-Institutional
Shares.................. $(0.6438) $(0.0806) -- -- -- $(0.7244)
1996-Administration
Shares(1)............... (0.4080) -- -- -- -- (0.4080)
1996-Service Shares(1).. (0.3754) -- -- -- -- (0.3754)
1995-Institutional
Shares.................. (0.6433) -- -- -- -- (0.6433)
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-Institutional
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)
</TABLE>

<TABLE>
<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.

(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.

(n) Class B shares commenced operations on May 1, 1996.

(o) Institutional shares commenced operations on June 1, 1995.
- --------------------------------------------------------------------------------

11
<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.

12
<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 gain.

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.

13
<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.

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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 15-
year Municipal Bond Index, plus or minus one year. In addition, under normal
interest rate conditions, the Fund's maximum duration will not exceed 12
years. The approximate interest rate sensitivity of the Fund is comparable to
a 15-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 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 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."

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<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 including issuers in countries
with emerging markets and economies which are denominated in currencies other
than the U.S. dollar. 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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<PAGE>

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 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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<PAGE>

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.

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.

CORPORATE DEBT OBLIGATIONS

The Government Income, Core Fixed Income and Global Income 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

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<PAGE>

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.

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.

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 and Global 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.

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 and Global Income Funds may invest in Mortgage-Backed Securities
issued or sponsored by non-governmental entities.

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<PAGE>

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, and Global 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, Government Income, Core Fixed Income and Global 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. Although the market for SMBS is
increasingly liquid, certain SMBS may not be readily marketable and will be
considered illiquid for purposes of a Fund's limitation on investments in
illiquid securities. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from mortgage 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 and Global Income 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 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

20
<PAGE>

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.

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 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.

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<PAGE>

FOREIGN INVESTMENTS

FOREIGN SECURITIES. The Global Income Fund will, and the Core Fixed Income
Fund may invest in fixed-income securities of foreign issuers denominated in
any currency. However, the Core Fixed Income Fund 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 exchange rate for the currency in
which a Fund receives interest payments declines against the U.S. dollar
before such income is distributed as dividends to shareholders, 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 and Global Income 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."

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.

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 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

22
<PAGE>

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 and Global Income 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 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, as permitted by applicable
law, 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 United States 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 authorized for use by the
Funds 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

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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 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

The Core Fixed Income and Global Income 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 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 and capital appreciation bonds, stripped securities or pay-in-kind
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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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.

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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<PAGE>

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.

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.

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 similar (same type, coupon and maturity) but not
identical securities on a specified future date. During the roll period, a
Fund loses the right to receive principal and interest paid on the securities
sold. However the Fund would benefit to the extent of any difference between
the price received for the securities sold and the lower forward price for the
future purchase (often referred to as the "drop") or fee income plus the
interest earned on the cash proceeds of the securities sold until the
settlement date of the forward purchase. Unless such benefits exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the mortgage dollar
roll, the use of this technique will diminish the investment performance of a
Fund compared with what such performance would have been without the use of
mortgage dollar rolls. Successful use of mortgage dollar rolls may depend upon
the Investment Adviser's ability to predict correctly interest rates and
mortgage prepayments. The Fund will hold and maintain in a segregated account
until the settlement date cash, U.S. Government Securities or other liquid
assets, as permitted by applicable law, in an amount equal to the forward
purchase price. For financial reporting and tax purposes, each Fund proposes
to treat 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>

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.

OPTIONS ON FOREIGN CURRENCIES. The Core Fixed Income and Global Income 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 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 and Global Income 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 and
Global Income 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

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<PAGE>

maintain cash or liquid assets, as permitted by applicable law, 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
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 and Global Income 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 transactions in certain derivative
transactions may be limited by the requirements of the Code for qualification
as a regulated investment company.

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<PAGE>

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, as
permitted by applicable law, 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, 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 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 and Global Income
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.

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<PAGE>

MISCELLANEOUS TECHNIQUES

In addition to the techniques 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) investments in 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.

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, Core Fixed Income and Municipal Income 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>

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

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 and Core Fixed Income
Funds. Goldman Sachs registered as an investment adviser in 1981. Goldman
Sachs Asset Management International, 140 Fleet Street, London EC4A 2BJ,
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 April , 1997, GSAM,
GSFM and GSAMI, together with their affiliates, acted as investment adviser,
administrator or distributor for assets in excess of $ 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.

Under the Management Agreements, 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

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<PAGE>

clerical services as are reasonably necessary to provide effective
administration of the 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 prospectuses and
statements of additional information and (d) the preparation of reports to be
filed with the SEC and other regulatory authorities; (iv) maintains all of
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, Co-
Head U.S. Fixed Income Department of Goldman Sachs and joined the Investment
Adviser in 1990 after working in the trading and arbitrage group of Franklin
Savings Association.

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,
Co-Head U.S. Fixed Income Department of Goldman Sachs and 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.

32
<PAGE>

<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
FUND 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%
<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 Fund................................ 0.90% 0.59%
</TABLE>
- --------

* The Contractual Rate is identical to the aggregate advisory and
administration fee rate payable by each Fund under the previously separate
advisory (including subadvisory in the case of 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 advisory fee and the actual advisory fees paid by the Funds reflects
the fact that the Advisers did not charge the full amount of the advisory
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 Adviser to the Adjustable Rate Government, Short Duration
Government, Short Duration Tax-Free, Core Fixed Income, Government Income,
Municipal Income and Global Income Funds have voluntarily agreed to reduce or
limit certain "Other Expenses" of such Funds (excluding any applicable fees
payable by the Fund classes to service organizations advisory, management,
distribution, authorized dealer service and service fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses and, in the case of the Global Income Fund, transfer agency fees) to
the extent such expenses exceed 0.05%, 0.05%, 0.05%, 0.05%, 0.00%, 0.05 and
0.06% 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 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. The amount of such compensation may
be up to 0.1125% annually of the average daily net assets of Adjustable Rate
Government Fund, 0.125% annually of the average daily net assets of the
Government Income Fund, 0.10% annually of the average daily net assets of the
Municipal Income Fund, % annually of the average daily net assets of Short
Duration Government Fund, % annually of the average daily net assets of Core
Fixed Income Fund, % annually of the average daily net assets of Short
Duration Tax-Free Fund, and 0.1875% annually of the average daily net assets
of the Global Income Fund attributable to shares held by customers of such
Authorized Dealers. In addition, Goldman Sachs may from time to time, at its
own expense, provide compensation to certain Authorized Dealers who perform
administrative services with respect to

33
<PAGE>

depository institutions whose customers purchase shares of a Fund. These
services 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. The amount of such compensation may be up to 0.08%
annually of the average net assets of a Fund's shares attributable to
purchases through, and held by the customers of, such depository institutions.
Such compensation does not represent an additional expense to a Fund or its
shareholders, since it will be paid from the assets of Goldman Sachs or its
affiliates.

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 and Funds 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 and Global Income 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 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

34
<PAGE>

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.

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 up to 0.25% (which
currently is being waived in the case of Adjustable Rate Government, Short
Duration Government, Short Duration Tax-Free, Core Fixed Income, Municipal
Income and Government Income Funds and limited to 0.21% for the Global Income
Fund) and authorized dealer service fees of up to 0.25% (which is limited to
0.15% for the Short Duration Government and Short Duration Tax-Free Funds),
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 or up
to 5% in the case of the Government Income, Municipal Income, Core Fixed
Income and Global Income Funds if redeemed within six years of purchase. Class
B shares are subject to distribution and authorized dealer service fees of up
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 up to 0.75%

35
<PAGE>

and 0.25%, respectively, of each of Government Income, Municipal Income, Core
Fixed Income and Global Fixed Income 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
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 or Core
Fixed Income 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. 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 a check drawn on a
foreign bank or a third party check may be rejected at the discretion of
Goldman Sachs or the investor's Authorized Dealer), 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

36
<PAGE>

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 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 Government Income, Municipal Income,
Core Fixed Income and Global Income 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 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>

37
<PAGE>

- --------
* 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 assets, 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 of each Fund (other than
Adjustable Rate Government Fund Short Duration Government and Short Duration
Tax Free) 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 (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.

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>

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

38
<PAGE>

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 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 attributable to such
shares 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 realize a gain or loss for federal tax
purposes 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

39
<PAGE>

determining gain or loss 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 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 and Global Fixed Income 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.

STATEMENT OF INTENTION -- CLASS A SHARES

Purchases of $100,000 or more in the case of Government Income, Municipal
Income, Core Fixed Income and Global Fixed Income 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.

40
<PAGE>

<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE
OF DOLLAR AMOUNTS
GOVERNMENT INCOME, SUBJECT TO COSC
MUNICIPAL INCOME, SHORT DURATION
GLOBAL INCOME GOVERNMENT AND SHORT
YEAR SINCE AND CORE FIXED DURATION TAX
PURCHASE INCOME FUNDS FREE FUNDS
---------- ------------------ --------------------
<S> <C> <C>
First............................ 5.0% 4.0%
Second........................... 4.0% 4.0%
Third............................ 3.0% 3.0%
Fourth........................... 3.0% 3.0%
Fifth............................ 2.0% 2.0%
Sixth............................ 1.0% 2.0%
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 4.00% in the case of Government Income, Municipal Income,
Core Fixed Income and Global Fixed Income 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.

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.

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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

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 Portfolio 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 Portfolio 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 investors 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 $10,000 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 and defined contribution
plans such as 401(k) Salary Reduction Plans. Detailed information concerning
these plans and copies of the 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. Under all plans, dividends and distributions will be
automatically reinvested in additional shares of the same class of the Fund
or, if so directed by the shareholder, in cash or in shares of the same or an
equivalent class of any other Goldman Sachs Fund or ILA Portfolio.

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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 or units 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 a
sales charge. Shares or units 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, if previously elected in the Fund's Account Application, by
telephone at 800-526-7384 (8:00 a.m. to 3:00 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 request is in writing and is
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 sale of the shares surrendered in the exchange, on
which an investor may realize a gain or loss, followed by a purchase of shares
or units received in the exchange. If such sale 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 or units 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 realized on such sale for federal income tax purposes, but
instead will be added to the tax basis of the shares or units 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

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

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or give instructions concerning the account or to obtain information about the
account. Authorized Dealers who receive a portion of the sales charge
applicable to the purchase of Class A or Class B shares, will not be permitted
to impose any other fees on the shareholders in connection with the purchase
of such shares.

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). The Funds or Goldman
Sachs may reject or restrict purchases or exchanges of shares by a particular
purchaser or group, for example, when a pattern of frequent purchases and
sales of shares of a Fund is evident, or if the purchase and sale or exchange
orders are, or a subsequent abrupt redemption might be, of a size that would
disrupt management of a Fund. Goldman Sachs reserves the right to limit the
participation in the Fund of its partners and employees.

In addition to concessions allowed to Authorized Dealers, Goldman Sachs may,
from time to time, assist Authorized Dealers by, among other things, providing
sales literature to and holding informational programs for the benefit of
Authorized Dealers' registered representatives. Authorized Dealers may limit
the participation of registered representatives in such informational programs
by means of sales incentive programs which may require the sale of minimum
dollar amounts of shares of the Goldman Sachs Funds. Goldman Sachs may also
provide additional promotional incentives to Authorized Dealers in connection
with sales of shares of the Goldman Sachs Funds. These incentives may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by qualified registered representatives and members of their
families within or without the United States. Incentive payments will be
provided for out of the sales charge and distribution fees or out of Goldman
Sachs' other resources. Other than sales charges and distribution fees, a Fund
and its shareholders do not bear distribution expenses. An Authorized Dealer
receiving such incentives may be deemed to be an underwriter under the
Securities Act of 1933. In some instances, such incentives may be made
available only to certain Authorized Dealers whose representatives have sold
or are expected to sell significant amounts of shares.

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 and Municipal Income 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 theClass A Distribution Plan
include compensation paid to and expenses incurred by Authorized Dealers,
Goldman

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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 the average daily net assets of the Funds.
Goldman Sachs has voluntarily agreed to limit such fee to 0.60% of the average
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 and Authorized Dealers 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%
(0.15% in the case of Short Duration Government and Short Duration Tax-Free
Funds) 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 Board of Trustees. For the fiscal year
ended October 31, 1996, each Fund (other than Short Duration Government, Short
Duration Tax-Free and Core Fixed Income Funds which did not then 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.

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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.

[A shareholder may request redemptions by telephone if the optional
telephone redemption privilege is elected on the Account Application.] 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 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 implemented, the Trust may be liable for any
loss due to unauthorized or fraudulent transactions. [In all other cases,
neither a Fund, the Trust nor Goldman Sachs will be responsible for the
authenticity of instructions received by telephone.] 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. 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.

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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.

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 sale for tax
purposes. 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 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 and capital gains distribution, 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 of the Goldman Sachs Funds 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 Portfolio 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 Portfolio
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 Core Fixed Income and Global Income 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
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.

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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 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 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 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 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 Trust's Board of 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 performance rankings and indices.

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<PAGE>

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 (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.

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" below.

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 Trustees have authority
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 Adjustable Rate
Government Fund offers Institutional Shares, Administration Shares, Service
Shares and Class A shares. The Government Income and Municipal Income Funds
offer Class A and Class B shares. The Short Duration Government, Short
Duration Tax-Free, Core Fixed Income and Global Income Funds offer
Institutional Shares, Service Shares, Class A shares and Class B shares. The
Short Duration Government, Short Duration Tax-Free and Core Fixed Income Funds
offer Administration Shares.

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 entitle their holders to one vote per share, are freely transferable
and have no preemptive, subscription or conversion rights.

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<PAGE>

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, however, will call a special meeting
for the purpose of electing Trustees if, at any time, less than a majority of
Trustees holding office at the time were elected by shareholders.

In the interest of economy and convenience, the Trust does not issue
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.

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 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.

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, except for any exempt-
interest dividends paid by the Short Duration Tax-Free and Municipal Income
Funds, as described above. 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. 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

50
<PAGE>

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 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.

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

Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (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 and Global Income 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.

51
<PAGE>

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 (observed), Presidents' Day (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.

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
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 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 & Co. 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 & Co. 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 & Co. 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.

52
<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
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ

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

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

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

FIP-1AB-GST/100K/0396
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS

FIXED INCOME FUNDS

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

PROSPECTUS CLASS A AND CLASS B SHARES

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

- --------------------------------------------------------------------------------
PROSPECTUS

May 1, 1997

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.............. 15
Risk Factors........................... 22
Investment Techniques.................. 24
Investment Restrictions................ 28
Portfolio Turnover..................... 28
Management............................. 29
Dividends.............................. 32
Net Asset Value........................ 33
Performance Information................ 33
Shares of the Trust.................... 34
Taxation............................... 34
Additional Information................. 36
Reports to Shareholders................ 36
Purchase of Institutional Shares....... 37
Exchange Privilege..................... 38
Redemption of Institutional Shares..... 39
Appendix............................... A-1
Account Application
</TABLE>

GOLDMAN SACHS FIXED INCOME FUNDS
INSTITUTIONAL SHARES

GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT
FUND

Seeks a high level of current income,
consistent with low volatility of prin-
cipal. The Fund invests primarily in ad-
justable rate mortgage pass-through se-
curities and other mortgage securities
with periodic interest rate resets,
which are issued or guaranteed by the
U.S. government, its agencies, instru-
mentalities or sponsored enterprises.

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 cap-
ital gain. The Fund invests primarily in
securities issued or guaranteed by the
U.S. government, its agencies, instru-
mentalities or sponsored enterprises.

Seeks a high level of current income,
consistent with relatively low volatil-
ity of principal, that is exempt from
regular federal income tax. The Fund in-
vests primarily in municipal securities.

GOLDMAN SACHS SHORT DURATION TAX-FREE FUND

GOLDMAN SACHS CORE FIXED INCOME FUND

Seeks a total return consisting of capi-
tal appreciation and income that exceeds
the total return of the Lehman Brothers
Aggregate Bond Index. The Fund invests
primarily in fixed-income securities,
including securities issued or guaran-
teed by the U.S. government, its agen-
cies, instrumentalities or sponsored en-
terprises, corporate securities, mort-
gage-backed securities and asset-backed
securities.

GOLDMAN SACHS GLOBAL INCOME FUND

Seeks a high total return, emphasizing
current income, and, to a lesser extent,
providing opportunities for capital ap-
preciation. The Fund invests primarily
in a portfolio of high quality fixed-in-
come securities of U.S. and foreign is-
suers and foreign currencies.

(continued on next page)
- ----------

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.

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. 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.

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 objective.

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

<TABLE>
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
ADJUSTABLE RATE SHORT DURATION CORE FIXED
GOVERNMENT GOVERNMENT SHORT DURATION INCOME GLOBAL INCOME
FUND FUND TAX-FREE FUND FUND FUND
--------------- -------------- --------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT OBJECTIVES A high level A high level A high level of Total return A high total
of current of current current income, consisting of return, emphasizing
income, income, and consistent with capital current income,
consistent secondarily, low volatility appreciation and, to a lesser
with low in seeking of principal, and income that extent, providing
volatility of current that is exempt exceeds the opportunities for
principal. income, may from regular total return of capital
also consider federal income the Lehman appreciation.
the potential tax. Brothers
for capital Aggregate Bond
gain. Index.
------------------------------------------------------------------------------------------------------------
DURATION Target = 6- Target = 2- Target = Lehman Target = Lehman Target = J.P.
month to 1- year U.S. Brothers 3-year Brothers Morgan Global
year U.S. Treasury Municipal Bond Aggregate Bond Government Bond
Treasury Security plus Index plus or Index plus or Index (hedged) plus
Security or minus .5 minus .5 years minus 1year or minus 2.5 years
years
Maximum = 2 Maximum = 3 Maximum = 4 Maximum = 6
years years years years Maximum = 7.5 years
------------------------------------------------------------------------------------------------------------
APPROXIMATE INTEREST 9-month note 2-year bond 3-year bond 5-year bond 6-year bond
RATE SENSITIVITY
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)

1
<PAGE>

<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION CORE FIXED
GOVERNMENT GOVERNMENT SHORT DURATION INCOME GLOBAL INCOME
FUND FUND TAX-FREE FUND FUND FUND
----------------- -------------- ----------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT SECTOR At least 65% of At least 65% At least 80% of At least 65% of Securities of
total assets in of total net assets in assets in fixed- U.S. and
securities issued assets in U.S. Municipal income securities, foreign
or guaranteed by Government Securities. including U.S. governments and
the U.S. Securities and Government corporations.
government, its repurchase Securities,
agencies, agreements corporate,
instrumentalities collateralized mortgage-backed
or sponsored by such and asset-backed
enterprises securities. securities.
("U.S. Government
Securities") that
are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
-------------------------------------------------------------------------------------------------------------
CREDIT QUALITY U.S. Government U.S. Minimum = BBB/Baa Minimum = BBB/Baa Minimum = AA/Aa
Securities Government Minimum for or A if
Securities non-dollar sovereign
securities = AA/Aa issuer
At least 50% =
AAA/Aaa
-------------------------------------------------------------------------------------------------------------
OTHER INVESTMENTS Fixed-rate Mortgage pass- U.S. Government Foreign fixed- Mortgage and
mortgage pass- through Securities and income, municipal asset- backed
through securities and repurchase and convertible securities,
securities and other agreements securities, foreign
repurchase securities collateralized by foreign currencies currencies and
agreements representing such securities. and repurchase repurchase
collateralized by an interest in agreements agreements
U.S. Government or collateralized by collateralized
Securities. collateralized U.S. Government by U.S.
by mortgage Securities. Government
loans. Securities or
certain foreign
government
securities.
-------------------------------------------------------------------------------------------------------------
BENCHMARK 6-month and 1- 2-Year U.S. Lehman Brothers Lehman Brothers J.P. Morgan
year U.S. Treasury 3-Year Municipal Aggregate Bond Global
Treasury security security Bond Index Index Government Bond
Index (hedged)
</TABLE>

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

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

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.

2
<PAGE>

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.

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 investments in foreign
securities and currencies include changes in relative currency exchange
rates, political and economic developments, the 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 Core Fixed Income
Fund invests in securities of emerging market issuers, 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 the Investment Adviser to the Short
Duration Tax-Free and Core Fixed Income Funds. Goldman Sachs Asset
Management International serves as Investment Adviser to the Global Income
Fund. As of April , 1997, the Investment Advisers, together with their
affiliates, acted as investment adviser, administrator or distributor for
assets in excess of $ billion.

3
<PAGE>

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 Fund) 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."

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
</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 or the
corresponding class of any portfolio of a Goldman Sachs Money Market Fund.
For further information concerning dividends, see "Dividends."

4
<PAGE>

FEES AND EXPENSES (INSTITUTIONAL SHARES)

<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION CORE FIXED GLOBAL
GOVERNMENT GOVERNMENT SHORT DURATION INCOME INCOME
FUND FUND TAX-FREE FUND FUND FUND
--------------- -------------- -------------- ---------- ------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on
Purchases............ none none none none none
Maximum Sales Charge
Imposed on Reinvested
Dividends............ none none none none none
Redemption Fees....... none none none none none
Exchange Fees......... none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net
assets)
Management Fees (after
applicable
limitations)......... 0.40%/1/ 0.40%/1/ 0.40%/1/ 0.40%/1/ 0.59%/1/
Distribution (Rule
12b-1) Fees.......... none none none none none
Other Expenses (after
applicable
limitations)......... 0.05%/1/ 0.05%/1/ 0.05%/1/ 0.05%/1/ 0.06%/1/
---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (after fee
and expense
limitations)......... 0.45%/1/ 0.45%/1/ 0.45%/1/ 0.45%/1/ 0.65%/1/
==== ==== ==== ==== ====
</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 $14 $25 $57
Short Duration Government....................... $ 5 $14 $25 $57
Short Duration Tax-Free......................... $ 5 $14 $25 $57
Core Fixed Income............................... $ 5 $14 $25 $57
Global Income................................... $ 5 $21 $36 $81
</TABLE>
- --------

/1Based/upon estimated amounts for the current fiscal year. The Investment
Advisers have voluntarily agreed to reduce or limit certain "Other Expenses"
of each Fund (excluding management fees, taxes, interest and brokerage fees
and litigation, indemnification and other extraordinary expenses) to the
extent such expenses exceed 0.05% (and in the case of Global Income Fund
0.06%) of each Fund's average daily net assets. The Investment Advisers have
no current intention of modifying or discontinuing any of such limitations
but may do so in the future at their discretion. Without such limitations,
"Other Expenses" and "Total Operating Expenses" attributable to
Institutional Shares of each Fund would be as follows:

5
<PAGE>

<TABLE>
<CAPTION>
OTHER TOTAL OPERATING
EXPENSES EXPENSES
-------- ---------------
<S> <C> <C>
Adjustable Rate Government............................. 0.11% 0.51%
Short Duration Government*............................. 0.21% 0.71%
Short Duration Tax-Free................................ 0.61% 1.01%
Core Fixed Income...................................... 0.43% 0.83%
Global Income**........................................ 0.21% 1.11%
</TABLE>
- --------

* The Investment Adviser has voluntarily agreed that a portion of its
Management fee (0.10% on an annual basis) would not be imposed on Short
Duration Government Fund. Without such limitation, "Management Fees" would
be 0.50%.

** "Management Fees" paid by Global Income Fund include advisory fees of
0.59%. The Investment Adviser has voluntarily agreed to limit its
Management fees to such amount. Without such limitations, Management Fees
would be 0.90%.

Annual operating expenses incurred by Institutional Shares of each Fund during
the fiscal year ended October 31, 1996 (expressed as a percentage of average
daily net assets after fee adjustments) were as follows:

<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL OPERATING
FEES EXPENSES EXPENSES
---------- -------- ---------------
<S> <C> <C> <C>
Adjustable Rate Government.................. 0.40% 0.05% 0.45%
Short Duration Government................... 0.40% 0.05% 0.45%
Short Duration Tax-Free..................... 0.40% 0.05% 0.45%
Core Fixed Income........................... 0.40% 0.05% 0.45%
Global Income............................... 0.59% 0.06% 0.65%
</TABLE>

The information set forth in the foregoing table and hypothetical example
relates only to Institutional Shares of the Funds. Short Duration Government
Fund, Short Duration Tax-Free Fund and Core Fixed Income Fund 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; and Global Income Fund also offers 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.

6
<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.
<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(B) ASSETS NET ASSETS RATE(J) (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>
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-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
</TABLE>

<TABLE>
<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
- ------------------------------------------------------------------------------------------------------------------------------------
<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)
</TABLE>

<TABLE>
<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-Institutional
Shares ................ $0.0100 $9.83 6.75% 0.45% 6.44% 115.45% $99,944 0.71% 6.18%
1996-Administration
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-Institutional
Shares................. 0.1800 9.82 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administration
Shares................. (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institutional
Shares................. (0.5000) 9.64 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administration
Shares................. (0.5000) 9.64 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institutional
Shares................. (0.0200) 10.14 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administration
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-Institutional
Shares................. (0.0600) 10.16 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institutional
Shares................. 0.2200 10.22 10.93 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institutional
Shares................. (0.0700) 10.00 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institutional
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-Institutional
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-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>
CORE FIXED INCOME FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares.................. $10.00 $0.6448 $(0.0704) -- $0.5744
1996-Administration
Shares(1)............... 9.91 0.4083 (0.0703) -- 0.3380
1996-Service Shares(1).. 9.77 0.3756 0.0898 -- 0.4654
1995-Institutional
Shares.................. 9.24 0.6423 0.7610 -- 1.4033
FOR THE PERIOD JANUARY 5, 1994 THROUGH OCTOBER 31,
1994-Institutional
Shares.................. 10.00 0.4648 (0.7617) -- (0.2969)
</TABLE>

<TABLE>
<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 THROUGH OCTOBER 31,
1994-Institu-
tional Shares... (0.4648) -- -- -- -- (0.4648)
</TABLE>

<TABLE>
<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)
<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 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>

9
<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
--------- ---------- ------------ ------------ ----------
<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(c).. 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(f)............... 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
</TABLE>

<TABLE>
<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(c).. (0.36) -- -- -- -- (0.36)
1996-Institutional
shares.................. (1.50) -- -- -- -- (1.50)
1995-Class A shares..... (0.94) -- -- -- -- (0.94)
1995-Institutional
shares(f)............... (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)
</TABLE>

<TABLE>
<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
---------- ------ --------- -------- ---------- --------- -------- -------- ----------
<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(c).. 0.50 14.53 6.24(f) 1.70(e) 5.16(e) 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(f)............... 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.

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<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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<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 gain.

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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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."

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."

CORE FIXED INCOME FUND

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 (including issuers in countries
with emerging markets and economies) which are denominated in currencies other
than the U.S. dollar. 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

13
<PAGE>

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 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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<PAGE>

investment objective by pursuing investment opportunities in foreign and
domestic fixed-income securities markets and by engaging in currency
transactions 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.

DESCRIPTION OF SECURITIES

U.S. GOVERNMENT SECURITIES

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<PAGE>

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.

CORPORATE DEBT OBLIGATIONS

The Core Fixed Income and Global Income 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 Fund may invest in convertible securities, which may
include corporate notes or preferred stock but are ordinarily long-term debt
obligations of an issuer convertible at a stated exchange rate into common
stock of the issuer. 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. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. 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 value 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 will be
subject to the same rating criteria as its other investments in fixed- income
securities.

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

16
<PAGE>

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 and
Global 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.

PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Core Fixed Income and
Global Income 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 and Global 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.

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<PAGE>

STRIPPED MORTGAGE-BACKED SECURITIES. The Adjustable Rate Government, Short
Duration Government, Core Fixed Income and Global 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. Although the market for SMBS is increasingly
liquid, certain SMBS may not be readily marketable and will be considered
illiquid for purposes of a Fund's limitation on investments in illiquid
securities. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from mortgage 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 and Global Income 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 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 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.

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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 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.

FOREIGN INVESTMENTS

FOREIGN SECURITIES. The Global Income Fund will, and the Core Fixed Income
Fund may, invest in fixed- income securities of foreign issuers denominated in
any currency. However, the Core Fixed Income Fund 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.

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<PAGE>

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.

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 and Global Income 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

20
<PAGE>

liquid assets, as permitted by applicable law, 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.

The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments authorized for use by the
Funds 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 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 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 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

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<PAGE>

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, pay-in-kind 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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<PAGE>

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.

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.

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<PAGE>

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
similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, a Fund loses the right to
receive principal and interest paid on the securities sold. However the Fund
would benefit to the extent of any difference between the price received for
the securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and
gain or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of a Fund compared with what such
performance would have been without the use of mortgage dollar rolls.
Successful use of mortgage dollar rolls may depend upon the Investment
Adviser's ability to predict correctly interest rates and mortgage
prepayments. The Fund will hold and maintain in a segregated account until the
settlement date cash, U.S. Government Securities or other liquid assets, as
permitted by applicable law, in an amount equal to the forward purchase price.
For financial reporting and tax purposes, each Fund proposes to treat 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>

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, to hedge against changes in interest rates or securities prices,
or in the case of the Core Fixed Income and Global Income 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 and
Global Income 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 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 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, as permitted by applicable law, 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.

25
<PAGE>

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.

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, as permitted by applicable law, 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>

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 and Global Income
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 a 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 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

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<PAGE>

approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether the Fund still remains an appropriate investment in
light of their then current financial positions and needs.

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 and Core Fixed Income 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. 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

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<PAGE>

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 and Core Fixed Income Funds. Goldman Sachs registered
as an investment adviser in 1981. Goldman Sachs Asset Management
International, 140 Fleet Street, London EC4A 2BJ, 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 April , 1997, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser, administrator or
distributor for assets in excess of $ billion.

Under the Management Agreements, each Investment Adviser will also: (i)
supervise all non-advisory operations of each Fund that it advises; (ii)
provide personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective administration of
the Fund; (iii) arrange for at the Fund's expense (a) the preparation for the
Fund of all required tax returns, (b) the preparation and submission of
reports to existing shareholders, (c) the periodic updating of the Fund's
prospectus and statement of additional information and (d) the preparation of
reports, in each case to be filed with the SEC and other regulatory
authorities; (iv) maintain all of the Fund's records; and (v) provide 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, Co-
Head, U.S. Fixed Income Department of Goldman Sachs and 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, Co-Head, U.S. Fixed
Income Department of Goldman Sachs and joined the Investment Adviser in 1992
after spending nine years managing fixed income assets at Brown Brothers
Harriman & Co.

29
<PAGE>

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 Goldman Sachs's
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.

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
FUND 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%
GSAMI
Global Income 0.90% 0.59%
</TABLE>
- --------

* 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 previous separate investment advisory, subadvisory
and administration agreements). For the fiscal year ended October 31, 1996,
the annual rate expressed is the rate paid (combined advisory, subadvisory
and administration fees in the case of Global Income Fund) paid (after
voluntary fee limitations). The difference, if any, between the stated
management fee and the actual fees

30
<PAGE>

paid by the Funds reflect the fact that the Investment Advisers did not
charge the full amount of their fees to which they 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, Adjustable Rate
Government, Short Duration Tax-Free, Core Fixed Income and Global Income Funds
voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds
(excluding any applicable fees payable by the Fund classes to service
organizations, management and service fees, fees under distribution, service,
authorized dealer service and administration plans, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses (and, in the case of Global Income Fund, transfer agency fees) to the
extent such expenses exceed 0.05%, 0.05%, 0.05%, 0.05% and 0.06% 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 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 and Funds 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 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 Adjustable Rate Government, Short Duration Government, Short Duration Tax-
Free and Core Fixed Income Funds.

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<PAGE>

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 and Global Income 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 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>

(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.

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
performance rankings and indices.

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.

33
<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 Trustees have authority
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 Short Duration
Government, Short Duration Tax-Free and Core Fixed Income Funds each offer
Institutional Shares, Administration Shares, Service Shares, Class A shares
and Class B shares. The Adjustable Rate Government Fund offers Institutional
Shares, Administration Shares, Service Shares and Class A shares. The Global
Income Fund offers Institutional Shares, Service Shares, Class A shares and
Class B 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, however, 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.

As of April , 1997, the shareholders listed below owned beneficially and of
record 25% or more of the outstanding shares of such Fund.

TAXATION

FEDERAL TAXES

34
<PAGE>

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.

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, except for any exempt-
interest dividends paid by Short Duration Tax-Free Fund, as described above.
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. 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.

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

Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (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 and Global Income 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.

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<PAGE>

OTHER TAXES

ADDITIONAL INFORMATION

REPORTS TO SHAREHOLDERS

Institutional Shareholders will receive an annual report containing audited
financial statements and a semi-annual report. Each Institutional Shareholder
will also be provided with a printed confirmation for each transaction in the
shareholder's account and an individual monthly statement (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 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 3:00 p.m. Chicago time (4:00 p.m.

36
<PAGE>

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

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.

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 a check drawn on a foreign bank will not be accepted) or Federal Reserve
draft made payable to "Goldman Sachs Fixed Income Funds--Goldman Sachs Global
Income Fund" and should be directed to "Goldman Sachs Fixed Income Funds--
Goldman Sachs Global Income Fund" c/o National Financial Data Services, Inc.,
P.O. Box 419711, Kansas City, MO 64141-6711.

The minimum initial investment is $1,000,000 in Institutional Shares of the
Global Income Fund alone or in combination with other assets under the
management of GSAM and its affiliates. Institutional Shares of Global Income
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 who have entered into an agreement

37
<PAGE>

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 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. 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.

The Funds and Goldman Sachs each reserves the right to reject or restrict
any specific purchase order (including exchanges) by a particular purchaser
(or group of related purchasers). This may occur, for example, when a
purchaser's 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 the Funds.

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, c/o GSAM Shareholders Services, 4900 Sears Tower, Chicago, Illinois
60606 or, if previously elected in a Fund's Account Information Form, by
telephone at 800-621-2550 (7:00 a.m. to 3:00 p.m. Chicago time). A shareholder
should obtain and read the prospectus relating to any other fund and its
shares or units and consider its investment objective, policies and

38
<PAGE>

applicable fees before making an exchange. Under the telephone exchange
privilege, Institutional Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification numbers
only if the exchange request is in writing and is received in accordance with
the procedures set forth under "Redemption of Institutional Shares."

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 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 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 such Fund. Exchanges are available only in
states where exchanges may legally be made. The exchange privilege may be
modified or withdrawn at any time on sixty (60) days' written notice to
Institutional Shareholders and is subject to certain limitations. See
"Purchase of Institutional Shares."

REDEMPTION OF INSTITUTIONAL SHARES

The 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.

39
<PAGE>

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 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.

40
<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
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ

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

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

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

FIP-1IS-GST/10K/0396
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

THE GOLDMAN SACHS
FIXED INCOME

FUNDS

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

PROSPECTUS
INSTITUTIONAL SHARES

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

- --------------------------------------------------------------------------------
PROSPECTUS

May 1, 1997

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.................. 22
Investment Restrictions................ 26
Portfolio Turnover..................... 26
Management............................. 27
Dividends.............................. 29
Net Asset Value........................ 30
Performance Information................ 31
Shares of the Trust.................... 32
Taxation............................... 32
Additional Information................. 34
Administration Plan.................... 34
Reports to Shareholders................ 35
Purchase of Administration Shares...... 35
Exchange Privilege..................... 36
Redemption of Administration Shares.... 37
</TABLE>

GOLDMAN SACHS FIXED INCOME FUNDS
ADMINISTRATION SHARES

GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT
FUND

GOLDMAN SACHS SHORT DURATION GOVERNMENT
FUND

GOLDMAN SACHS SHORT DURATION TAX-FREE FUND

Seeks a high level of current income,
consistent with relatively low volatil-
ity of principal, that is exempt from
regular federal income tax. The Fund in-
vests primarily in municipal securities.

GOLDMAN SACHS CORE FIXED INCOME FUND

Seeks a total return consisting of capi-
tal appreciation and income that exceeds
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 sponsored
enterprises, corporate securities, mort-
gage-backed securities and asset-backed
securities.

(continued on next page)

- ----------

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.

(cover continued)

THE CORE FIXED INCOME FUND INVESTS IN SECURITIES OF FOREIGN ISSUERS AND
FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH
INVESTING IN DOLLAR-DENOMINATED FIXED-INCOME SECURITIES. IN PARTICULAR, THE
SECURITIES MARKETS OF EMERGING MARKET COUNTRIES IN WHICH THE CORE FIXED INCOME
FUND MAY INVEST 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 MARKETS. THE FUND IS
INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH ITS
INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF
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.

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 institutions ("Service Organizations")
that hold, directly or through an agent, Administration Shares for the benefit
of their customers or Goldman Sachs by calling the telephone number, or
writing to one of the addresses, listed on the back cover of this Prospectus.

<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 objective.

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

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

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

1
<PAGE>

<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION
GOVERNMENT GOVERNMENT SHORT DURATION CORE FIXED
FUND FUND TAX-FREE FUND INCOME FUND
----------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CREDIT QUALITY U.S. Government U.S. Government Minimum = Minimum =
Securities Securities BBB/Baa BBB/Baa
Minimum for non-
dollar = AA/Aa
------------------------------------------------------------------------------------------
OTHER INVESTMENTS Fixed-rate Mortgage pass- U.S. Government Foreign fixed-
mortgage pass- through securi- Securities and income,
through ties and other repurchase municipal and
securities and securities rep- agreements convertible
repurchase resenting an in- collateralized securities,
agreements terest in or by such foreign
collateralized collateralized securities. currencies and
by U.S. by mortgage repurchase
Government loans. agreements
Securities. collateralized
by U.S.
Government
Securities.
------------------------------------------------------------------------------------------
BENCHMARK 6-month and 1- 2-Year U.S Lehman Brothers Lehman Brothers
year U.S. Treasury 3-Year Municipal Aggregate Bond
Treasury Security Bond Index Index
Security
- -------------------------------------------------------------------------------------------
</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, 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."

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.

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.

2
<PAGE>

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 investments in foreign
securities and currencies include changes in relative currency exchange
rates, political and economic developments, the 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 Core Fixed Income
Fund invests in securities of emerging market issuers, these risks may be
hightened.

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

It is expected that all purchasers of Administration Shares of a Fund will
be Service Organizations or their nominees. 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."

3
<PAGE>

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
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 or the corresponding class of any portfolio of a
Goldman Sachs Money Market Fund. 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 FUND FREE FUND INCOME FUND
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EX-
PENSES:
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)...... 0.40%/1/ 0.40%/1/ 0.40%/1/ 0.40%/1/
Administration Fees/2/........ 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable limitations)...... 0.05%/1/ 0.05%/1/ 0.05%/1/ 0.05%/1/
---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES
(after fee and expense limi-
tations)..................... 0.70%/1/ 0.70%/1/ 0.70%/1/ 0.70%/1/
==== ==== ==== ====
</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..................... $7 $22 $39 $87
Short Duration Government...................... $7 $22 $39 $87
Short Duration Tax-Free........................ $7 $22 $39 $87
Core Fixed Income.............................. $7 $22 $39 $87
</TABLE>
- --------

/1Based/upon estimated amounts for the current fiscal year. The Investment
Advisers have voluntarily agreed to reduce or limit certain "Other Expenses"
of each 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% of each
Fund's average daily net assets. The Investment Advisers have no current
intention of modifying or discontinuing any of such limitations but may do
so in the future at their discretion. Without such limitations, "Other
Expenses" and "Total Operating Expenses" attributable to Administration
Shares of each Fund would be as follows:

<TABLE>
<CAPTION>
OTHER TOTAL OPERATING
EXPENSES EXPENSES
-------- ---------------
<S> <C> <C>
Adjustable Rate Government........................... 0.11% 0.76%
Short Duration Government*........................... 0.21% 0.96%
Short Duration Tax-Free.............................. 0.61% 1.26%
Core Fixed Income.................................... 0.43% 1.08%
</TABLE>
--------

* The Investment Adviser has voluntarily agreed that a portion of its
management fee (0.10% on an annual basis) would not be imposed on Short
Duration Government Fund. Without such limitation, "Management Fees" would
be 0.50%.

5
<PAGE>

Annual operating expenses incurred by Administration Shares of each Fund
during the fiscal year ended October 31, 1996 (expressed as a percentage of
average daily net assets after fee adjustments) were as follows:

<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER OPERATING
FEES EXPENSES EXPENSES
---------- -------- ---------
<S> <C> <C> <C>
Adjustable Rate Government...................... 0.40% 0.05% 0.70%
Short Duration Government....................... 0.40% 0.05% 0.70%
Short Duration Tax-Free......................... 0.40% 0.05% 0.70%
Core Fixed Income............................... 0.40% 0.05% 0.70%
</TABLE>

/2Service/Organizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of Administration Shares in
connection with their customer accounts. See "Administration Plans."

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 affects 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.

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 estimated fees and expenses for the
current fiscal year 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."

6
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

- --------------------------------------------------------------------------------
<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-Institutional
Shares.................. $ 9.77 $0.5759(a) $0.0772 (a) -- $0.6531
1996-Administration
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-Institutional
Shares.................. 9.74 0.5630(a) 0.0717 (a) -- 0.6347
1995-Administration
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-Institutional
Shares.................. 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administration
Shares.................. 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institutional
Shares.................. 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administration
Shares(e)............... 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institutional
Shares.................. 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institutional
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-Institutional
Shares.................. $(0.5725) -- $(0.0206) -- -- $(0.5931)
1996-Administration
Shares.................. (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A Shares..... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institutional
Shares.................. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administration
Shares.................. (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A Shares(c).. (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institutional
Shares.................. (0.4486) -- -- -- -- (0.4486)
1994-Administration
Shares.................. (0.4239) -- -- -- -- (0.4239)
1993-Institutional
Shares.................. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administration
Shares(e)............... (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institutional
Shares.................. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institutional
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 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-Institutional
Shares.................. $0.0600 $9.83 6.86% 0.45% 5.85% 52.36% $613,149 0.51% 5.79%
1996-Administration
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-Institutional
Shares.................. 0.0301 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-Administration
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-Institutional
Shares.................. (0.2600) 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-Administration
Shares.................. (0.2600) 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-Institutional
Shares.................. (0.0400) 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-Administration
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-Institutional
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-Institutional
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>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

- --------------------------------------------------------------------------------
<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
--------- ---------- ------------ ------------ ----------
GS ADJUSTABLE RATE GOVERNMENT FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares.................. $ 9.77 $0.5759(a) $0.0772 (a) -- $0.6531
1996-Administration
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-Institutional
Shares.................. 9.74 0.5630(a) 0.0717 (a) -- 0.6347
1995-Administration
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-Institutional
Shares.................. 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administration
Shares.................. 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institutional
Shares.................. 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administration
Shares(e)............... 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institutional
Shares.................. 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institutional
Shares.................. 10.00 0.1531 0.0322 (d) -- 0.1853
</TABLE>

7--1
<PAGE>

<TABLE>
<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
---------- ------------ ---------- ------------ ------- -------------
GS ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares.................. $(0.5725) -- $(0.0206) -- -- $(0.5931)
1996-Administration
Shares.................. (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A Shares..... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institutional
Shares.................. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administration
Shares.................. (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A Shares(c).. (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institutional
Shares.................. (0.4486) -- -- -- -- (0.4486)
1994-Administration
Shares.................. (0.4239) -- -- -- -- (0.4239)
1993-Institutional
Shares.................. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administration
Shares(e)............... (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institutional
Shares.................. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institutional
Shares.................. (0.1553) -- -- -- -- (0.1553)
</TABLE>

7--2
<PAGE>

<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 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
---------- ------ --------- -------- ---------- --------- ---------- -------- ----------
GS ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares.................. $0.0600 $9.83 6.86% 0.45% 5.85% 52.36% $613,149 0.51% 5.79%
1996-Administration
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-Institutional
Shares.................. 0.0301 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-Administration
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-Institutional
Shares.................. (0.2600) 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-Administration
Shares.................. (0.2600) 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-Institutional
Shares.................. (0.0400) 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-Administration
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-Institutional
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-Institutional
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-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
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<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-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)
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<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(/2/) ASSETS NET ASSETS RATE(/4/) 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-Institutional
Shares ................. $0.0100 $9.83 6.75% 0.45% 6.44% 115.45% $99,944 0.71% 6.18%
1996-Administration
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-Institutional
Shares.................. 0.1800 9.82 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administration
Shares.................. (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institutional
Shares.................. (0.5000) 9.64 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administration
Shares.................. (0.5000) 9.64 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institutional
Shares.................. (0.0200) 10.14 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administration
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-Institutional
Shares.................. (0.0600) 10.16 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institutional
Shares.................. 0.2200 10.22 10.93 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institutional
Shares.................. (0.0700) 10.00 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institutional
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-Institutional
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
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-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
</TABLE>

8--1
<PAGE>

8--2
<PAGE>

- -----

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-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)
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<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-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)
</TABLE>

- --------------------------------------------------------------------------------
<TABLE>
<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-Institutional
Shares.................. $0.0300 $9.96 4.50% 0.45% 4.21% 231.65% $34,814 1.01% 3.65%
1996-Administration
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-Institutional
Shares.................. 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-Administration
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-Institutional
Shares.................. (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-Administration
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-Institutional
Shares.................. 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-Administration
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-Institutional
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>

9
<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-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)
</TABLE>

9--1
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<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> <C> <C> <C>
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)
</TABLE>

9--2
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<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-Institutional
Shares.................. $0.0300 $9.96 4.50% 0.45% 4.21% 231.65% $34,814 1.01% 3.65%
1996-Administration
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-Institutional
Shares.................. 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-Administration
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-Institutional
Shares.................. (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-Administration
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-Institutional
Shares.................. 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-Administration
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-Institutional
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>

9
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<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-Institutional
Shares.................. $(0.1500) $9.85 5.98% 0.45% 6.51% 414.20% $72,061 0.83% 6.13%
1996-Administration
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-Institutional
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-Institutional
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.

10
<PAGE>

10--1
<PAGE>

10--2
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<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-Institutional
Shares.................. $(0.1500) $9.85 5.98% 0.45% 6.51% 414.20% $72,061 0.83% 6.13%
1996-Administration
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-Institutional
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-Institutional
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.

10
<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 gain.

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."

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
such income received from the Fund. See "Description of Securities."

CORE FIXED INCOME FUND

13
<PAGE>

foreign issuers (including issuers in countries with emerging markets and
economies) which are denominated in currencies other than the U.S. dollar. 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.

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

CONVERTIBLE SECURITIES

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

15
<PAGE>

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.

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

16
<PAGE>

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. Although the market for SMBS is increasingly
liquid, certain SMBS may not be readily marketable and will be considered
illiquid for purposes of a Fund's limitation on investments in illiquid
securities. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from mortgage 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

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.

17
<PAGE>

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.

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 exchange rate for the currency in
which the Fund receives interest payments declines against the U.S. dollar
before such income is distributed as dividends to shareholders, 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

18
<PAGE>

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."

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
the Fund, political or social instability or diplomatic developments which
could affect investments in those countries.

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 in 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 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, as permitted by applicable law, 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

19
<PAGE>

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 United States 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 authorized for use by the
Fund 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 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
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.

20
<PAGE>

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

Each Fund may invest in zero coupon, deferred interest, pay-in-kind 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. 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.

21
<PAGE>

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.

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

22
<PAGE>

month and simultaneously contracts with the same counterparty to repurchase
similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, a Fund loses the right to
receive principal and interest paid on the securities sold. However the Fund
would benefit to the extent of any difference between the price received for
the securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and
gain or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of a Fund compared with what such
performance would have been without the use of mortgage dollar rolls.
Successful use of mortgage dollar rolls may depend upon the Investment
Adviser's ability to predict correctly interest rates and mortgage
prepayments. The Fund will hold and maintain in a segregated account until the
settlement date cash, U.S. Government Securities or other liquid assets, as
permitted by applicable law, in an amount equal to the forward purchase price.
For financial reporting and tax purposes, each Fund proposes to treat 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, 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

23
<PAGE>

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 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 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, as permitted by applicable law,
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. 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. 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

24
<PAGE>

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, 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 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.

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

25
<PAGE>

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 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

PORTFOLIO TURNOVER

26
<PAGE>

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

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

27
<PAGE>

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 Goldman Sachs's Municipal Finance Department.

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
FUND 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 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 management fee and the actual fees
paid by the Funds reflect the fact that the Investment Advisers did not
charge the full amount of their fees to which they 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.

Each Investment Adviser has voluntarily agreed to reduce the fees payable to
it by a Fund (to the extent of its fees) by the amount (if any) that the
Fund's expenses would exceed the applicable expense limitations

28
<PAGE>

imposed by state securities administrators. See "Management -- Expenses" in
the Additional Statement. The Investment Adviser has voluntarily agreed to
reduce or limit certain "Other Expenses" of the Funds (excluding any
applicable fees payable by the Fund classes to service organizations,
management and service fees, taxes, interest and brokerage fees and
litigation, indemnification and other extraordinary expenses) to the extent
such expenses exceed 0.05% per annum of each 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 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 and Funds 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 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 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 agents)
applicable to Class A shares plus 0.04% of the average daily net assets
attributable to the other classes of the Adjustable Rate Government, Short
Duration Government, Short Duration Tax-Free and Core Fixed Income 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.
Shares will be eligible for dividends which accrue on or after the

29
<PAGE>

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 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.

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 (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.

30
<PAGE>

sources, under valuation procedures established by the Trust's Board of
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

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.

31
<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 Trustees are
responsible for the overall management and supervision of its affairs. The
Trustees have authority 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
Short Duration Government, Short Duration Tax-Free and Core Fixed Income Funds
each offer Institutional Shares, Administration Shares, Service Shares, Class
A Shares and Class B Shares. The Adjustable Rate Government Fund offers
Institutional Shares, Administration Shares, Service Shares and Class A
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, however, 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.

As of April , 1997, the shareholders listed below owned beneficially and of
record 25% or more of the outstanding shares of such Fund: Short Duration
Government Fund.

TAXATION

FEDERAL TAXES

32
<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 shareholders as ordinary income, except for any exempt-
interest dividends paid by Short Duration Tax-Free Fund, as described above.
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. 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.

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

Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (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.

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
they receive) their pro rata shares of qualified foreign taxes paid by the
Fund and may be entitled under the code to plain 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.

33
<PAGE>

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
intangibles 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

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 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. No Administration Shares of the Core Fixed Income Fund
were outstanding during the period.

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 (other than broker-dealers) 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

34
<PAGE>

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.

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.

PURCHASE OF ADMINISTRATION SHARES

It is expected that all direct purchasers of Administration Shares of the
Funds will be Service Organizations or their nominees. Customers of Service
Organizations may invest in Administration Shares only through their Service
Organizations. Administration Shares may be purchased 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
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 a check drawn on a foreign bank or a third-party check will not be
accepted) or Federal Reserve draft made payable to "Goldman Sachs Fixed Income
Funds -- Name of Fund"

35
<PAGE>

and should be directed to Goldman Sachs Fixed Income Funds -- Name of Fund,
c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago, Illinois 60606.

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 $100 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. The Trust 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 reserve the right to reject or restrict any
specific purchase order (including exchanges) by a particular purchaser (or
group of related purchasers). This may occur, for example, when a purchaser's
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 the
Funds.

EXCHANGE PRIVILEGE

Administration Shares of the Funds may be exchanged by Service Organizations
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 Fund -- Name of Fund, c/o GSAM Shareholder Services, 4900
Sears Tower, Chicago, Illinois 60606 or, if previously elected in a Fund's
Account Information Form, by telephone at 800-621-2550 (7:00 a.m. to 3:00 p.m.
Chicago time). A shareholder should obtain and read the prospectus relating to
any other fund and its shares or units and consider

36
<PAGE>

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 a 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 sale of the Administration Shares surrendered in the exchange, on
which an investor may realize a gain or loss, 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. Redemption proceeds
paid by wire transfer will normally be wired on

37
<PAGE>

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. 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.

38
<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

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

FIP-1AD-GST/10K/0396
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

THE GOLDMAN SACHS
FIXED INCOME

FUNDS

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

PROSPECTUS
ADMINISTRATION SHARES

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

- --------------------------------------------------------------------------------
PROSPECTUS

May 1, 1997

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.............. 15
Risk Factors........................... 22
Investment Techniques.................. 24
Investment Restrictions................ 27
Portfolio Turnover..................... 28
Management............................. 28
Net Asset Value........................ 32
Performance Information................ 33
Shares of the Trust.................... 34
Taxation............................... 34
Additional Information................. 36
Report to Shareholders................. 36
Purchase of Institutional Shares....... 36
Additional Services.................... 37
Reports to Shareholders................ 37
Purchase of Service Shares............. 38
Exchange Privilege..................... 39
Redemption of Service Shares........... 40
</TABLE>

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 prin-
cipal. The Fund invests primarily in ad-
justable rate mortgage pass-through se-
curities and other mortgage securities
with periodic interest rate resets,
which are issued or guaranteed by the
U.S. government, its agencies, instru-
mentalities or sponsored enterprises.

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 cap-
ital gain. The Fund invests primarily in
securities issued or guaranteed by the
U.S. government, its agencies, instru-
mentalities or sponsored enterprises.

GOLDMAN SACHS SHORT DURATION TAX-FREE FUND

Seeks a high level of current income,
consistent with relatively low volatil-
ity of principal, that is exempt from
regular federal income tax. The Fund in-
vests primarily in municipal securities.

GOLDMAN SACHS CORE FIXED INCOME FUND

Seeks a total return consisting of capi-
tal appreciation and income that exceeds
the total return of the Lehman Brothers
Aggregate Bond Index. The Fund invests
primarily in fixed-income securities,
including securities issued or guaran-
teed by the U.S. government, its agen-
cies, instrumentalities or sponsored en-
terprises, corporate securities, mort-
gage-backed securities and asset-backed
securities.
GOLDMAN SACHS GLOBAL INCOME FUND

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)

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. 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.

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 below)
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus.
<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 objective.

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
ADJUSTABLE
RATE SHORT DURATION CORE FIXED
GOVERNMENT GOVERNMENT SHORT DURATION INCOME GLOBAL INCOME
FUND FUND TAX-FREE FUND FUND FUND
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT OBJECTIVES A high level A high level A high level Total return A high total
of current of current of current consisting of return,
income, income, and income, capital emphasizing
consistent secondarily, consistent appreciation current
with low in seeking with low and income income, and,
volatility of current volatility of that exceeds to a lesser
principal. income, may principal, the total extent,
also consider that is exempt return of the providing
the potential from regular Lehman opportunities
for capital federal income Brothers for capital
gain. tax. Aggregate Bond appreciation.
Index.
--------------------------------------------------------------------------------------------------
DURATION Target = 6- Target = 2- Target = Target = Target = J.P.
month to year U.S. Lehman Lehman Morgan Global
1-year U.S. Treasury Brothers Brothers Government
Treasury Security plus 3-year Aggregate Bond Bond Index
Security or minus Municipal Bond Index plus or (hedged) plus
.5 years Index plus or minus 1-year or minus
minus .5 2.5 years
years
Maximum = 2 Maximum = 3 Maximum = 4 Maximum = 6 Maximum = 7.5
years years years years years
--------------------------------------------------------------------------------------------------
APPROXIMATE INTEREST 9-month note 2-year bonds 3-year bonds 5-year bonds 6-year bond
RATE SENSITIVITY
--------------------------------------------------------------------------------------------------
</TABLE>
(continued)

1
<PAGE>

<TABLE>
<CAPTION>
SHORT DURATION
ADJUSTABLE RATE GOVERNMENT SHORT DURATION CORE FIXED GLOBAL INCOME
GOVERNMENT FUND FUND TAX-FREE FUND INCOME FUND FUND
----------------- -------------- -------------- -------------- ------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT SECTOR At least 65% of At least 65% At least 80% At least 65% Securities of U.S. and
total assets in of total of net assets of assets in foreign governments and
securities issued assets in U.S. in Municipal fixed-income corporations.
or guaranteed by Government Securities. securities,
the U.S. Securities and including U.S.
government, its repurchase Government
agencies, agreements Securities,
instrumentalities collateralized corporate,
or sponsored by mortgage-
enterprises such backed and
("U.S. Government securities. asset-backed
Securities") that securities.
are adjustable
rate mortgage
pass- through
securities and
other mortgage
securities with
periodic interest
rate resets.
----------------------------------------------------------------------------------------------------------------

CREDIT QUALITY U.S. Government U.S. Minimum = Minimum = Minimum = AA/Aa
Securities Government BBB/Baa BBB/Baa or A if sovereign issuer
Securities Minimum for At least 50% = AAA/Aaa
non-dollar
securities =
AA/Aa
----------------------------------------------------------------------------------------------------------------
OTHER INVESTMENTS Fixed-rate Mortgage pass- U.S. Foreign fixed- Mortgage and asset-
mortgage pass- through Government income, backed securities,
through securities and Securities and municipal and foreign currencies and
securities and other repurchase convertible repurchase agreements
repurchase securities agreements securities, collateralized by
agreements representing collateralized foreign U.S. Government
collateralized by an interest in by currencies and Securities or certain
U.S. Government or such repurchase foreign government
Securities. collateralized securities. agreements securities.
by mortgage collateralized
loans. by U.S.
Government
Securities.
----------------------------------------------------------------------------------------------------------------
BENCHMARK 6-month and 1- 2-Year U.S. Lehman Lehman JP Morgan Global
year U.S. Treasury Brothers Brothers Government Bond Index
Treasury security security 3-Year Aggregate Bond (hedged)
Municipal Bond Index
Index
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

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

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.

2
<PAGE>

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.

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 investments in foreign
securities and currencies include changes in relative currency exchange
rates, political and economic developments, the 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 Core Fixed Income
Fund invests in securities of emerging market issuers, these risks may be
hightened.

WHO MANAGES THE FUNDS?

3
<PAGE>

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?

It is expected that all purchasers of Service Shares of a Fund will be
Service Organizations or their nominees. 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."

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
</TABLE>

Recordholders of Service Shares 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 or the corresponding class of any portfolio of a Goldman Sachs
Money Market Fund. For further information concerning dividends, see
"Dividends."

4
<PAGE>

FEES AND EXPENSES (SERVICE SHARES)

<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION CORE FIXED GLOBAL
GOVERNMENT GOVERNMENT SHORT DURATION INCOME INCOME
FUND FUND TAX-FREE FUND FUND FUND
--------------- -------------- -------------- ---------- ------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on
Purchases............ none none none none none
Maximum Sales Charge
Imposed on Reinvested
Dividends............ none none none none none
Redemption Fees....... none none none none none
Exchange Fees......... none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net
assets)
Management Fees (after
applicable
limitations)......... 0.40%/1/ 0.40%/1/ 0.40% 0.40%/1/ 0.59%/1/
Service Fees/2/....... 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after
applicable
limitations)......... 0.05%/1/ 0.05%/1/ 0.05% 0.05%/1/ 0.06%/1/
---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE
AND EXPENSE
LIMITATIONS)......... 0.95%/1/ 0.95%/1/ 0.95% 0.95%/1/ 1.15%/1/
==== ==== ==== ==== ====
</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 $30 $53 $117
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
</TABLE>
- --------

/1Based/upon estimated amounts for the current fiscal year. The Investment
Advisers have voluntarily agreed to reduce or limit certain "Other Expenses"
of each 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% (and in the
case of Global Income Fund 0.06%) of each Fund's average daily net assets.
The Investment Advisers have no current intention of modifying or
discontinuing any of such limitations but may do so in the future at their
discretion. Without such limitations, "Other Expenses" and "Total Operating
Expenses" attributable to Service Shares of each Fund would be as follows:

5
<PAGE>

<TABLE>
<CAPTION>
OTHER TOTAL OPERATING
EXPENSES EXPENSES
-------- ---------------
<S> <C> <C>
Adjustable Rate Government........................... 0.11% 1.01%
Short Duration Government*........................... 0.21% 1.21%
Short Duration Tax-Free.............................. 0.61% 1.51%
Core Fixed Income.................................... 0.43% 1.33%
Global Income**...................................... 0.21% 1.61%
</TABLE>

* The Investment Adviser has voluntarily agreed that a portion of its advisory
fee (0.10% on an annual basis) would not be imposed on Short Duration
Government Fund. Without such limitation, "Management Fees" would be 0.50%.

** "Management Fees" paid by Global Income Fund include Management Fees of
0.59%. The Investment Adviser has voluntarily agreed to limit its
Management Fees to such amounts. Without such limitations, Management Fees
would be 0.90%.

Annual operating expenses incurred by Service Shares of each Fund (in the
case of Adjustable Rate Government Fund and Global Income Fund, the annual
operating expenses shown represent expenses which would have been incurred by
Service Shares of these Funds had Service Shares been outstanding) during the
fiscal year ended October 31, 1996 (expressed as a percentage of average
daily net assets after fee adjustments) were as follows:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL OPERATING
FEES EXPENSES EXPENSES
---------- -------- ---------------
<S> <C> <C> <C>
Adjustable Rate Government................ 0.40% 0.05% 0.95%
Short Duration Government................. 0.40% 0.05% 0.95%
Short Duration Tax-Free................... 0.40% 0.05% 0.95%
Core Fixed Income......................... 0.40% 0.05% 0.95%
Global Income............................. 0.59% 0.06% 1.15%
</TABLE>

/2Service/Organizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of Service Shares in connection
with their customer accounts. See "Additional Services." 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.

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 also offers
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.

6
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<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-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>
CORE FIXED INCOME FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares.................. $10.00 $0.6448 $(0.0704) -- $0.5744
1996-Administration
Shares(1)............... 9.91 0.4083 (0.0703) -- 0.3380
1996-Service Shares(1).. 9.77 0.3756 0.0898 -- 0.4654
1995-Institutional
Shares.................. 9.24 0.6423 0.7610 -- 1.4033
FOR THE PERIOD JANUARY 5, 1994 THROUGH OCTOBER 31,
1994-Institutional
Shares.................. 10.00 0.4648 (0.7617) -- (0.2969)
</TABLE>

<TABLE>
<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)
<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 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>

9
<PAGE>

<TABLE>
<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(c).. (0.36) -- -- -- -- (0.36)
1996-Institutional
shares.................. (1.50) -- -- -- -- (1.50)
1995-Class A shares..... (0.94) -- -- -- -- (0.94)
1995-Institutional
shares(f)............... (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)
</TABLE>

<TABLE>
<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
---------- ------ --------- -------- ---------- --------- -------- -------- ----------
<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(c).. 0.50 14.53 6.24(f) 1.70(e) 5.16(e) 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(f)............... 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.

10
<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 gain.

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

SHORT DURATION TAX-FREE FUND

12
<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."

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."

CORE FIXED INCOME FUND

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 (including issuers in countries
with emerging markets and economies) which are denominated in currencies other
than the U.S. dollar. 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

13
<PAGE>

selection. In addition, the Investment Adviser will attempt to take advantage
of pricing inefficiencies in the fixed-income markets.

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.

14
<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.

DESCRIPTION OF SECURITIES

U.S. GOVERNMENT SECURITIES

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CORPORATE DEBT OBLIGATIONS

CONVERTIBLE SECURITIES

MORTGAGE-BACKED SECURITIES

16
<PAGE>

in sufficient amounts to fully amortize principal by maturity, although
certain fixed-rate mortgage loans provide for a large final "balloon" payment
upon maturity.

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ASSET-BACKED SECURITIES

MUNICIPAL SECURITIES

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.

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FOREIGN INVESTMENTS

19
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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.

FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income and Global Income 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

20
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The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments authorized for use by the
Funds 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 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 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 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

21
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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

22
<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.

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

23
<PAGE>

INVESTMENT TECHNIQUES

24
<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.

25
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26
<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. The Core Fixed Income and Global Income
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 a 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 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

27
<PAGE>

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 and Core Fixed Income 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

MANAGEMENT

TRUSTEES AND OFFICERS

28
<PAGE>

INVESTMENT ADVISERS

29
<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.

30
<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 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 and Funds 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

31
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DIVIDENDS

NET ASSET VALUE

32
<PAGE>

PERFORMANCE INFORMATION

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.

33
<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 Trustees have authority
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 Short Duration
Government, Short Duration Tax-Free and Core Fixed Income Funds each offer
Institutional Shares, Administration Shares, Service Shares, Class A shares
and Class B shares. The Adjustable Rate Government Fund offers Institutional
Shares, Administration Shares, Service Shares and Class A shares. The Global
Income Fund offers Institutional Shares, Service Shares, Class A shares and
Class B 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, however, 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.

As of April , 1997, the shareholders listed below owned beneficially and of
record 25% or more of the outstanding shares of such Fund.

TAXATION

FEDERAL TAXES

34
<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 shareholders as ordinary income, except for any exempt-
interest dividends paid by Short Duration Tax-Free Fund, as described above.
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. 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.

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

Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (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 and Global Income 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.

35
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OTHER TAXES

ADDITIONAL INFORMATION

REPORTS TO SHAREHOLDERS

SUB-ACCOUNTING SERVICE

PURCHASE OF INSTITUTIONAL SHARES

36
<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 (other than broker-dealers) 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.

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<PAGE>

PURCHASE OF SERVICE SHARES

It is expected that all direct purchasers of Service Shares of the Funds will
be Service Organizations or their nominees. Customers of Service Organizations
may invest in Service Shares only through their Service Organizations. Service
Shares may be purchased 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 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 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 a check drawn
on a foreign bank will not be accepted) or Federal Reserve draft made payable
to "Goldman Sachs Fixed Income Funds--Name of Fund" and should be directed to
Goldman Sachs Trust--Name of Fund, 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 a check drawn on a foreign bank will
not be accepted) or Federal Reserve draft made payable to "Goldman Sachs Fixed
Income Funds--Goldman Sachs Global Income Fund" and should be directed to
"Goldman Sachs Fixed Income Funds--Goldman Sachs Global Income Fund" c/o
National Financial Data Services, Inc., 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.

Service Shares of 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:

38
<PAGE>

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. 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 reserve the right to reject or restrict any
specific purchase order (including exchanges) by a particular purchaser (or
group of related purchasers). This may occur, for example, when a 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 the Funds.

EXCHANGE PRIVILEGE

Service Shares of the Funds may be exchanged by Service Organizations 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 a Goldman Sachs Money Market Fund at the net asset value next
determined either by writing to Goldman Sachs, Attention: Goldman Sachs Trust--
Name of Fund, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago,
Illinois 60606 or, if previously elected in a Fund's Account Information Form,
by telephone at 800-621-2550 (7:00 a.m. to 3:00 p.m. Chicago time). A
shareholder should obtain and read the prospectus relating to any other fund
and its shares or units and consider its investment objective, policies and
applicable fees before making an exchange. Service Shares acquired by telephone
exchange must be registered in the same name(s) and have the same address as
Service Shares of a 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 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 a 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."

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<PAGE>

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.

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. If Goldman Sachs receives a redemption request by 3:00 p.m. Chicago
time, the Service Shares of each Fund (other than Global Income Fund) 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 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.

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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
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ

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

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

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

FIP-1SS-GST /2K/0396
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

THE GOLDMAN SACHS

FIXED INCOME FUNDS

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

PROSPECTUS
SERVICE SHARES

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

PART B

STATEMENT OF ADDITIONAL INFORMATION

SERVICE SHARES

GS ADJUSTABLE RATE GOVERNMENT FUND
GS SHORT DURATION GOVERNMENT FUND
GS SHORT DURATION TAX-FREE FUND
GS CORE FIXED INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND

(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)

Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606

This Statement of Additional Information (the "Additional Statement") is
not a prospectus. This Additional Statement should be read in conjunction with
the prospectuses for the Service Shares of each of GS Adjustable Rate Government
Fund, GS Short Duration Government Fund, GS Short Duration Tax-Free Fund, GS
Core Fixed Income and Goldman Sachs Global Income Fund, each dated May 1, 1997,
as amended and/or supplemented from time to time (each a "Prospectus"), which
may be obtained without charge from institutions ("Service Organizations") that
hold Service Shares for the benefit of their customers, or by calling Goldman,
Sachs & Co. at the telephone number, or writing to one of the addresses, listed
below.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Introduction B-3
Other Investments and Practices B-10
Investment Restrictions B-53
Management B-70
Portfolio Transactions B-86
Shares of the Trust B-87
Net Asset Value B-91
Taxation B-92
Performance Information B-104
Other Information B-116
Financial Statements B-118
Service Plan B-119
Appendix A 1-A
Appendix B 1-B
Appendix C 1-C
</TABLE>

The date of this Additional Statement is May 1, 1997.
<PAGE>

GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN SACHS ASSET MANAGEMENT
ADVISER TO GS SHORT DURATION INTERNATIONAL
TAX-FREE FUND AND GS CORE ADVISER TO GOLDMAN SACHS
FIXED INCOME FUND GLOBAL INCOME FUND
ONE NEW YORK PLAZA 140 FLEET STREET
NEW YORK, NEW YORK 10004 LONDON EC4A 2BJ, ENGLAND

GOLDMAN SACHS FUNDS GOLDMAN, SACHS & CO.
MANAGEMENT, L.P. DISTRIBUTOR
ADVISER TO GS ADJUSTABLE RATE 85 BROAD STREET
GOVERNMENT FUND NEW YORK, NEW YORK 10004
AND GS SHORT DURATION
GOVERNMENT FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004 GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

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

SERVICE PLAN

Each Fund has adopted a service plan (the "Plan") with respect to its
Service Shares which authorizes it to compensate Service Organizations for
providing certain administration services and personal and account maintenance
services to their customers who are or may become beneficial owners of such
Shares. Pursuant to the Plan, a Fund will enter into agreements with Service
Organizations which purchase Service Shares of the Fund on behalf of their
customers ("Service Agreements"). Under such Service Agreements the Service
Organizations may perform some or all of the following services: (a) act,
directly or through an agent, as the sole shareholder of record and nominee for
all customers, (b) maintain account records for each customer who beneficially
owns Service Shares of a Fund, (c) answer questions and handle correspondence
from customers regarding their accounts, (d) process customer orders to
purchase, redeem and exchange Service Shares of a Fund, and handle the
transmission of funds representing the customers' purchase price or redemption
proceeds, (e) issue confirmations for transactions in shares by customers, (f)
provide facilities to answer questions from prospective and existing investors
about Service Shares of a Fund, (g) receive and answer investor correspondence,
including requests for prospectuses and statements of additional information,
(h) display and make prospectuses available on the Service Organization's
premises, (i) assist customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the Service
Organization and (j) act as liaison between customers and a Fund, including
obtaining information from a Fund, working with a Fund to correct errors and
resolve problems and providing statistical and other information to a Fund. As
compensation for such services, a Fund will pay each Service Organization a
service fee in an amount up to 0.50% (on an annualized basis) of the average
daily net assets of the Service Shares of such Fund attributable to or held in
the name of such Service Organization; provided, however, that the fee paid for
personal and account maintenance services shall not exceed 0.25% such average
daily net assets. For the fiscal years ended October 31, 1996, October 31, 1995
and October 31, 1994, services fees were paid by the Funds as follows:

B-119
<PAGE>

<TABLE>
<CAPTION>
Fund 1996 1995 1994
- ---- ---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Fund /(1)/ /(1)/ /(1)/
Short Duration Government Fund $1,222 /(2)/ /(2)/
Short Duration Tax-Free Fund $2,322 $1,797 $325
Core Fund $ 422 /(3)/ /(3)/
Global Income Fund /(4)/ /(4)/ /(4)/
</TABLE>

_________________________
/(1)/ No Service Shares of Adjustable Rate Fund were outstanding at October 31,
1996, 1995 and 1994.
/(2)/ No Service Shares of Short Duration Government Fund were outstanding at
October 31, 1995 and 1994.
/(3)/ No Service Shares of Core Fund were outstanding at October 31, 1995 and
1994.
/(4)/ No Service Shares of Global Income Fund were outstanding at October 31,
1996, 1995 and 1994.

Each Fund has adopted its Plan pursuant to Rule 12b-1 under the 1940 Act in
order to avoid any possibility that payments to the Service Organizations
pursuant to the Service Agreements might violate the 1940 Act. Rule 12b-1, which
was adopted by the SEC under the Act, regulates the circumstances under which an
investment company or series thereof may bear expenses associated with the
distribution of its shares. In particular, such an investment company or series
thereof cannot engage directly or indirectly in financing any activity which is
primarily intended to result in the sale of shares issued by the company unless
it has adopted a plan pursuant to, and complies with the other requirements of,
such Rule. The Trust believes that fees paid for the services provided in the
Plan and described above are not expenses incurred primarily for effecting the
distribution of Service Shares. However, should such payments be deemed by a
court or the SEC to be distribution expenses, such payments would be duly
authorized by the Plan.

The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling or
distribution securities, although institutions such as national banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. In addition, under some state securities laws, banks and other
financial institutions purchasing Service Shares on behalf of their customers
may be required to register as dealers. Should future legislative or
administrative action or judicial or administrative decisions or interpretations
prohibit or restrict the activities of one or more of the Service Organizations
in connection with the Funds, such Service Organizations might be required to
alter materially or discontinue the services performed under their Service
Agreements. If one or more of the Service Organizations were restricted from
effecting purchases or sales of Service Shares automatically pursuant to
pre-authorized instructions, for example, effecting such transactions on a
manual

B-120
<PAGE>

basis might affect the size and/or growth of a Fund. Any such alteration or
discontinuance of services could require the Board of Trustees to consider
changing a Fund's method of operations or providing alternative means of
offering Service Shares of a Fund to customers of such Service Organizations, in
which case the operation of such Fund, its size and/or its growth might be
significantly altered. It is not anticipated, however, that any alternation of
a Fund's operations would have any effect on the net asset value per share or
result in financial losses to any shareholder.

Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in Service Shares of such Fund. Service Organizations, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board or the
Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities regulators, are urged to consult legal advisers before
investing fiduciary assets in Service Shares of the Funds.

The Plans with respect to Adjustable Rate Fund, Short Duration Government
Fund, Short Duration Tax-Free Fund and Core Fund were approved by The Goldman
Sachs Group, L.P., as the sole shareholder of Service Shares of each Fund. The
Trustees, including a majority of the Trustees who are not interested persons of
the Trust and who have no direct or indirect financial interest in the operation
of the Plans or the related Service Agreements, most recently voted to approve
each Fund's Plan and Service Agreements (except Global Fund) at a meeting called
for the purpose of voting on such Plans and Service Agreements on April 23,
1997. The Trustees most recently voted to approve the Plan and Service
Agreements for the Global Fund at a meeting held on April 24, 1996. Each Plan
and Service Agreement will remain in effect until June 30, 1997 and will
continue in effect thereafter only if such continuance is specifically approved
annually by a vote of the Board of Trustees in the manner described above. No
Plan may be amended to increase materially the amount to be spent for the
services described therein without approval of the Service Shareholders of the
applicable Fund, and all material amendments of each Plan must also be approved
by the Board of Trustees in the manner described above. Each Plan may be
terminated at any time by a majority of the Board of Trustees as described above
or by vote of a majority of the outstanding Service Shares of the applicable
Fund. The Service Agreements may be terminated at any time, without payment of
any penalty, by vote of a majority of the Board of Trustees as described above
or by a vote of a majority of the outstanding Service Shares of the applicable
Fund on not more than sixty (60) days' written notice to any other party to the
Service Agreements. The Service Agreements will terminate automatically if
assigned.

B-121
<PAGE>

So long as the Plans are in effect, the selection and nomination of those
Trustees who are not interested persons will be committed to the discretion of
the Trust's Nominating Committee, which consists of all of the non-interested
members of the Board of Trustees. The Board of Trustees has determined that, in
its judgment, there is a reasonable likelihood that a Fund's Plan will benefit
such Fund and its holders of Service Shares. In the Board of Trustees'
quarterly review of the Plans and Service Agreements, the Board will consider
their continued appropriateness and the level of compensation provided therein.

B-122
<PAGE>

PART B

STATEMENT OF ADDITIONAL INFORMATION

ADMINISTRATION SHARES

GS ADJUSTABLE RATE GOVERNMENT FUND
GS SHORT DURATION GOVERNMENT FUND
GS SHORT DURATION TAX-FREE FUND
GS CORE FIXED INCOME FUND

(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)

Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606

This Statement of Additional Information (the "Additional Statement") is
not a prospectus. This Additional Statement should be read in conjunction with
the prospectuses for the Administration Shares of each of GS Adjustable Rate
Government Fund, GS Short Duration Government Fund, GS Short Duration Tax-Free
Fund and GS Core Fixed Income, each dated May 1, 1997, as amended and/or
supplemented from time to time (each a "Prospectus"), which may be obtained
without charge from institutions ("Service Organizations") that hold
Administration Shares for the benefit of their customers, or from Goldman, Sachs
& Co. by calling the telephone number, or writing to one of the addresses,
listed below. Goldman Sachs Global Income Fund does not offer Administration
Shares.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Introduction B-3
Other Investments and Practices B-10
Investment Restrictions B-53
Management B-70
Portfolio Transactions B-86
Shares of the Trust B-87
Net Asset Value B-91
Taxation B-92
Performance Information B-104
Other Information B-116
Financial Statements B-118
Administration Plan B-119
Appendix A 1-A
Appendix B 1-B
Appendix C 1-C
</TABLE>

The date of this Additional Statement is May 1, 1997.
<PAGE>

GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN, SACHS & CO.
ADVISER TO GS SHORT DURATION DISTRIBUTOR
TAX-FREE FUND AND GS CORE FIXED 85 BROAD STREET
INCOME FUND NEW YORK, NEW YORK 10004
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS FUNDS GOLDMAN, SACHS & CO.
MANAGEMENT, L.P. TRANSFER AGENT
ADVISER TO GS ADJUSTABLE RATE 4900 SEARS TOWER
GOVERNMENT FUND CHICAGO, ILLINOIS 60606
AND GS SHORT DURATION
GOVERNMENT FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

TOLL FREE .......800-621-2550
<PAGE>

ADMINISTRATION PLAN

Each Fund has adopted an administration plan (the "Plan") with respect to
its Administration Shares which authorizes it to compensate Service
Organizations for providing certain account administration services to their
customers who are beneficial owners of such Shares. Pursuant to the Plans, a
Fund enters into agreements with Service Organizations which purchase
Administration Shares on behalf of their customers ("Service Agreements").
Under such Service Agreements the Service Organizations may perform some or all
of the following services: (a) act, directly or through an agent, as the sole
shareholder of record and nominee for all customers, (b) maintain account
records for each customer who beneficially owns Administration Shares of a Fund,
(c) answer questions and handle correspondence from customers regarding their
accounts, (d) process customer orders to purchase, redeem and exchange
Administration Shares of a Fund and handle the transmission of funds
representing the customers' purchase price or redemption proceeds, and (e) issue
confirmations for transactions in shares by customers. As compensation for such
services, a Fund will pay each Service Organization an account administration
fee in an amount up to 0.25% (on an annualized basis) of the average daily net
assets of the Administration Shares of such Fund attributable to or held in the
name of such Service Organization. For the fiscal years ended October 31, 1996,
1995 and 1994, administration fees accrued by the Funds were as follows:

Adjustable Rate Fund $9,833 $12,632 $17,648
Core Fund $ 741 * *
Short Duration Government Fund $ 107 $ 425 $28,422
Short Duration Tax-Free Fund $ 129 $ 1,244 $13,825
</TABLE>
__________________
* No Administration Shares of Core Fund were outstanding at October 31, 1995
and October 31, 1994.

Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in Administration Shares of a Fund. Service Organizations, including
banks regulated by the Comptroller of the Currency, the Federal Reserve Board or
the Federal Deposit Insurance Corporation, and investment advisers and other
money managers subject to the jurisdiction of the SEC, the Department of Labor
or state securities commissions, are urged to consult legal advisers before
investing fiduciary assets in Administration Shares of a Fund. In addition,
under some state securities laws, banks and other financial institutions
purchasing Administration Shares on behalf of their customers may be required to
register as dealers.

B-119
<PAGE>

The Plans with respect to Adjustable Rate Fund, Short Duration Government
Fund, Short Duration Tax-Free Fund and Core Fund were approved by The Goldman
Sachs Group, L.P., as the sole shareholder of Administration Shares of each
Fund. The Board of Trustees, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plans or the related Service Agreements, most
recently voted to approve each Plan and Service Agreements at a meeting called
for the purpose of voting on such Plans and Service Agreements on April 23,
1997. The Plans and Service Agreements will remain in effect until June 30,
1997 and will continue in effect thereafter only if such continuance is
specifically approved annually by a vote of the Board of Trustees in the manner
described above. No Plan may be amended to increase materially the amount to be
spent for the services described therein without approval of the Administration
Shareholders of the applicable Fund and all material amendments of the Plans
must also be approved by the Board of Trustees in the manner described above.
Each Plan may be terminated at any time by a majority of the Board of Trustees
as described above or by vote of a majority of the outstanding Administration
Shares of the applicable Fund. The Service Agreements may be terminated at any
time, without payment of any penalty, by a vote of a majority of the Board of
Trustees as described above or by a vote of a majority of the outstanding
Administration Shares of the applicable Fund on not more than sixty (60) days'
written notice to any other party to the Service Agreements. The Service
Agreements will terminate automatically if assigned. So long as the Plans are
in effect, the selection and nomination of those Trustees who are not interested
persons will be committed to the discretion of the Trust's Nominating Committee,
which consists of all of the non-interested members of the Board of Trustees.
The Board of Trustees has determined that, in its judgment, there is a
reasonable likelihood that each Fund's Plan will benefit such Fund and the
holders of its Administration Shares. In the Board of Trustees' quarterly
review of the Plans and Service Agreements, the Board will consider continued
appropriateness and the level of compensation provided therein.

B-120
<PAGE>

PART B
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
CLASS B SHARES
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
GOLDMAN SACHS MUNICIPAL INCOME FUND
GOLDMAN SACHS GOVERNMENT INCOME FUND
GOLDMAN SACHS CORE FIXED INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)

Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606

This Statement of Additional Information (the "Additional Statement") is
not a prospectus. This Additional Statement should be read in conjunction with
the prospectus for the Class A Shares and Class B Shares of Goldman Sachs
Adjustable Rate Government Fund, Goldman Sachs Short Duration Govenment Fund,
Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Municipal Income Fund,
Goldman Sachs Government Income Fund, Goldman Sachs Core Fixed Income Fund and
Goldman Sachs Global Income Fund dated May 1, 1997, as amended and/or
supplemented from time to time, which may be obtained without charge from
Goldman, Sachs & Co. by calling the telephone number, or writing to one of the
addresses, listed below. Goldman Sachs Adjustable Rate Government Fund currently
does not offer Class B Shares. This Additional Statement describes each series
of Goldman Sachs Trust, not all of which offer Class A and Class B Shares.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Introduction B-3
Other Investments and Practices B-10
Investment Restrictions B-53
Management B-70
Portfolio Transactions B-86
Shares of the Trust B-87
Net Asset Value B-91
Taxation B-92
Performance Information B-104
Other Information B-116
Financial Statements B-118
Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends B-119
Distribution and Authorized Dealer Service Plans B-122
Appendix A 1-A
Appendix B 1-B
Appendix C 1-C
</TABLE>

The date of this Additional Statement is May 1, 1997.
<PAGE>

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

GOLDMAN SACHS ASSET MANAGEMENT
ADVISER TO GOLDMAN SACHS MUNICIPAL
INCOME FUND
GOLDMAN SACHS GOVERNMENT INCOME FUND
GOLDMAN SACHS SHORT DURATION TAX FREE FUND
GOLDMAN SACHS CORE FIXED INCOME FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS FUNDS GOLDMAN,SACHS & CO.
MANAGEMENT, L.P. TRANSFER AGENT
ADVISER TO GOLDMAN SACHS 4900 SEARS TOWER
ADJUSTABLE RATE GOVERNMENT FUND CHICAGO, ILLINOIS 60606
AND SHORT DURATION GOVERNMENT FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004

GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
ADVISER TO GOLDMAN SACHS
GLOBAL INCOME FUND
140 FLEET STREET
LONDON EC4A 2BJ ENGLAND

TOLL FREE .......800-526-7384
<PAGE>

OTHER INFORMATION REGARDING PURCHASES,
REDEMPTIONS,EXCHANGES AND DIVIDENDS

The following information supplements the information in the Prospectus
under the captions "How to Invest," "How to Sell Shares of the Funds" and
"Dividends." Please see the Prospectus for more complete information.

OTHER PURCHASE INFORMATION

If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distributions
relating to the beneficial owner's account will be performed by the Authorized
Dealer, and not by the Fund and its Transfer Agent. Since the Funds will have
no record of the beneficial owner's transactions, a beneficial owner 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 transfer of shares in a "street name" account to an
account with another dealer or to an account directly with the Fund involves
special procedures and will require the beneficial owner to obtain historical
purchase information about the shares in the account from the Authorized Dealer.

RIGHT OF ACCUMULATION - (CLASS A)

A Class A shareholder qualifies for cumulative quantity discounts if the
current purchase price of the new investment plus the shareholder's current
holdings of existing Class A Shares (acquired by purchase or exchange) of the
Funds and Class A Shares of any other Goldman Sachs Portfolio (as defined in the
Prospectus) total the requisite amount for receiving a discount. For example,
if a shareholder owns shares with a current market value of $65,000 and
purchases additional Class A Shares of any Fund with a purchase price of
$45,000, the sales charge for the $45,000 purchase would be 3.0% (the rate
applicable to a single purchase of more than $100,000). Class A Shares
purchased without the imposition of a sales charge and shares of another class
of the Funds may not be aggregated with Class A Shares purchased subject to a
sales charge. Class A Shares of the Funds and any other Goldman Sachs Portfolio
purchased (i) by an individual, his spouse and his minor children, and (ii) by a
trustee, guardian or other fiduciary of a single trust estate or a single
fiduciary account, will be combined for the purpose of determining whether a
purchase will qualify for such right of accumulation and, if qualifying, the
applicable sales charge level. For purposes of applying the right of
accumulation, shares of the Funds and any other Goldman Sachs Portfolio
purchased by an existing client of the Private Client Services Division of
Goldman Sachs will be combined with Class A Shares held by any other account
over which such client or the client's spouse

B-119
<PAGE>

exercises investment or voting power. In addition, Class A Shares of the Funds
and Class A Shares of any other Goldman Sachs Portfolio purchased by partners,
directors, officers or employees of the same business organization or by groups
of individuals represented by and investing on the recommendation of the same
accounting firm or other similar organization (collectively, "eligible persons")
may be combined for the purpose of determining whether a purchase will qualify
for the right of accumulation and, if qualifying, the applicable sales charge
level. This right of accumulation is subject to the following conditions: (i)
the business organization's or firm's agreement to cooperate in the offering of
the Funds' shares to eligible persons; and (ii) notification to the Funds at the
time of purchase that the investor is eligible for this right of accumulation.

STATEMENT OF INTENTION - (CLASS A)

If a shareholder anticipates purchasing at least $100,000 ($500,000 in the
case of Adjustable Rate Government Fund and $250,000 in the case of Short
Duration Government and Short Duration Tax-Free Funds) of Class A Shares of a
Fund alone or in combination with Class A Shares of any other Goldman Sachs
Portfolio within a 13-month period, the shareholder may purchase shares of the
Fund at a reduced sales charge by submitting a Statement of Intention (the
"Statement"). Shares purchased pursuant to a Statement will be eligible for the
same sales charge discount that would have been available if all of the
purchases had been made at the same time. The shareholder or his Authorized
Dealer must inform Goldman Sachs that the Statement is in effect each time
shares are purchased. There is no obligation to purchase the full amount of
shares indicated in the Statement. A shareholder may include the value of all
Class A Shares on which a sales charge has previously been paid as an
"accumulation credit" toward the completion of the Statement, but a price
readjustment will be made only on Class A Shares purchased within ninety (90)
days before submitting the Statement. The Statement authorizes the Transfer
Agent to hold in escrow a sufficient number of shares which can be redeemed to
make up any difference in the sales charge on the amount actually invested. For
purposes of satisfying the amount specified on the Statement, the gross amount
of each investment, exclusive of any appreciation on shares previously
purchased, will be taken into account.

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

A Fund shareholder should obtain and read the prospectus relating to any
other Fund, Goldman Sachs Portfolio or ILA Portfolio (as defined in the
Prospectus) and its shares or units and consider its investment objective,
policies and applicable fees before electing cross-reinvestment into that Fund
or Portfolio. The election to cross-reinvest dividends and capital gain
distributions will not affect the tax treatment of such dividends and

B-120
<PAGE>

distributions, which will be treated as received by the shareholder and then
used to purchase shares of the acquired fund. Such reinvestment of dividends
and distributions in shares of other Goldman Sachs Portfolios or in units of ILA
Portfolios is available only in states where such reinvestment may legally be
made.

AUTOMATIC EXCHANGE PROGRAM

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 relating to any other
Goldman Sachs Portfolio and its shares and consider its investment objective,
policies and applicable fees and expenses before electing an automatic exchange
into that Goldman Sachs Portfolio.

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan (the "Systematic Withdrawal Plan") is
available to shareholders of a Fund whose shares are worth at least $5,000. The
Systematic Withdrawal Plan provides for monthly payments to the participating
shareholder of any amount not less than $50.

Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the applicable Fund at net asset value. The Transfer Agent acts as
agent for the shareholder in redeeming sufficient full and fractional shares to
provide the amount of the systematic withdrawal payment. The Systematic
Withdrawal Plan may be terminated at any time. Goldman Sachs reserves the right
to initiate a fee of up to $5 per withdrawal, upon thirty (30) days written
notice to the shareholder. Withdrawal payments should not be considered to be
dividends, yield or income. If periodic withdrawals continuously exceed new
purchases and reinvested dividends and capital gains distributions, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. 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 purchases of Class A shares or the imposition of a CDSC
on redemptions of Class A and Class B shares. The CDSC applicable to Class B
shares redeemed under a systematic withdrawal plan may be waived. See "How to
Invest--Waiver or Reduction of Contingent Deferred Sales Charge" in the
Prospectus. In addition, each withdrawal constitutes a redemption of shares,
and any gain or loss realized

B-121
<PAGE>

must be reported for federal and state income tax purposes. A shareholder
should consult his or her own tax adviser with regard to the tax consequences of
participating in the Systematic Withdrawal Plan. For further information or to
request a Systematic Withdrawal Plan, please write or call the Transfer Agent.

OFFERING PRICE OF CLASS A SHARES

Class A Shares of Government Fund, Municipal Fund, Core Fund and Global
Income Fund are sold at a maximum sales charge of 4.5%, Adjustable Rate Fund at
1.5% and Short Duration Government Fund and Short Duration Tax-Free Fund at 3%.
Using the offering price as of October 31, 1996, the maximum offering price of
the class A shares of each Fund's shares then in existence would be as
follows:

<TABLE>
<CAPTION>
Offering
Net Asset Maximum Price
Value Sales Charge to Public
--------- ------------ ---------
<S> <C> <C> <C>
Adjustable Rate Fund $ 9.82 $0.15 $ 9.97

Municipal Income Fund $14.37 $0.68 $15.05

Government Income Fund $14.36 $0.68 $15.04

Global Income Fund $14.53 $0.68 $15.21
</TABLE>

DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS

CLASS A DISTRIBUTION PLANS. As described in the Prospectus, the Trust with
respect to the Class A Shares of each Fund has adopted a distribution plan (the
"Class A Plans") pursuant to Rule 12b-1 under the Act. See "Distribution and
Authorized Dealer Service Plans" in the Prospectus.

The Class A Plans were most recently approved on April 23, 1997 by a
majority vote of the Trustees of the Trust, including a majority of the non-
interested Trustees of the Trust who have no direct or indirect financial
interest in the Class A Plans, cast in person at a meeting called for the
purpose of approving the Plans. The Plans were approved by the sole initial
shareholder of Class A Shares of Adjustable Rate Fund on May 12, 1995, Municipal
Income Fund on July 16, 1993, Government Income Fund on January 29, 1993 and
Global Income Fund on December 5, 1991.

The compensation payable under the Class A Plans may not exceed 0.25% per
annum of each Fund's average daily net assets attributable to its Class A
Shares. Currently, Goldman Sachs is waiving its entire fee under the Class A
Plans applicable to each

B-122
<PAGE>

Fund other than Global Income Fund and is limiting the fee payable by Global
Income Fund to 0.21% of average daily net assets attributable to Class A Shares.
Goldman Sachs has no current intention of modifying or discontinuing such
waivers and limitation, but may do so in the future at its discretion.

Effective June 30, 1995, the Class A Plan for Adjustable Rate Government,
Government Income, Municipal and Global Income Funds was amended to reduce the
fee payable under the Plan from 0.50% to 0.25% of a Fund's average daily net
assets attributable to Class A Shares. At the same time, each Fund adopted an
Authorized Dealer Service Plan. See "Authorized Dealer Service Plans." For the
fiscal years ended October 31, 1996, 1995 and 1994, each Fund paid Goldman Sachs
the following amounts under the Class A Plans:

<TABLE>
<CAPTION>
1996 1995 1994
---- ------ ------
<S> <C> <C> <C>
Adjustable Rate $ $ $
Government Fund
with fee waivers 0 0 N/A
without fee waivers 30,905 17,967 N/A

Municipal Income Fund
with fee waivers 0 70,023 85,242
without fee waivers 131,925 195,152 217,701

Government Income Fund
with fee waivers 0 25,630 14,350
without fee waivers 73,949 76,499 65,604

Global Income Fund
with fee waivers 493,170 645,259 1,518,814
without fee waivers 549,164 1,257,211 3,037,628
</TABLE>

Goldman Sachs may pay up to the entire amount of such fee under the Plans
to Authorized Dealers for providing services in connection with the sale of each
Fund's shares. To the extent such fee is not paid to such dealers, Goldman
Sachs may retain such fee as compensation for its services and expenses incurred
in accordance with the Plans of distributing a Fund's shares. If such fee
exceeds its expenses, Goldman Sachs may realize a profit from these
arrangements.

The Plans are compensation plans which provide for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If a Plan were terminated by the Trustees of the Trust and no successor plan
were adopted, the Fund would cease to make payments under the Plan to Goldman
Sachs and Goldman Sachs would be unable to recover the amount of any of its
unreimbursed expenditures. However, Goldman Sachs does not intend to make
expenditures for which it may be compensated under a Plan at a rate

B-123
<PAGE>

that materially exceeds the rate of compensation received under the Plan.

During the fiscal year ended October 31, 1996, Goldman Sachs incurred the
following expenses in connection with distribution under the Class A Plan on
behalf of Adjustable Rate Government, Government Income, Municipal Income and
Global Income Funds (Goldman Sachs used the fees, if any, received under the
Plan in the same proportion to the amounts set forth below).

<TABLE>
<CAPTION>
Fiscal Year Compensation Compensation Allocable Printing and Preparation and
ended to Dealers and Expenses Overhead, Mailing of Distribution of
October 31, 1996 of the Telephone Prospectuses Sales Literature
Distributor and Travel to Other than and Advertising
and its Sales Expenses Current
Personnel Shareholders
<S> <C> <C> <C> <C> <C>
Adjustable
Rate Fund/1/ N/A N/A N/A N/A N/A

Municipal
Income Fund/2/ N/A N/A N/A N/A N/A

Government
Income Fund/2/ N/A N/A N/A N/A N/A

Global
Income Fund 0 $274,757 $116,417 $36,868 $102,215
</TABLE>

____________________________

/1/ No expenses are reflected for Class A shares of Adjustable Rate Fund.
Since inception of this class, Goldman Sachs has waived the 0.25% Class A Plan
fee; no revenue has therefore been earned for the period.

/2/ Commencing June 1, 1995, Goldman Sachs is waiving the 0.25% Class A Plan
fee; as no distribution revenue has therefore been earned after June 1, 1995, no
expenses are reflected above.

Under the Class A Plans, Goldman Sachs, as distributor of each Fund's Class
A Shares, will provide to the Trustees of the Trust for their review, and the
Trustees of the Trust will review at least quarterly a written report of the
services provided and amounts expended by Goldman Sachs under the Plans and the
purposes for which such services were performed and expenditures were made.

The Class A Plans will remain in effect until June 1, 1997 and from year to
year thereafter, provided such continuance is approved annually by a majority
vote of the Trustees of the Trust, including a majority of the non-interested
Trustees of the Trust who have no direct or indirect financial interest in the
Class A Plans. A

B-124
<PAGE>

Class A Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of a majority of the
outstanding Class A Shares of the applicable Fund. All material amendments of
the Class A Plan must also be approved by the Trustees of the Trust in the
manner described above. A Class A Plan may be terminated at any time without
payment of any penalty by a vote of a majority of the non-interested Trustees of
the Trust or by vote of a majority of the Class A Shares of the applicable Fund.
So long as a Class A Plan is in effect, the selection and nomination of non-
interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees of the Trust. The Trustees of the Trust have determined
that in their judgment there is a reasonable likelihood that the Plans will
benefit the Funds and their Class A Shareholders.

AUTHORIZED DEALER SERVICE PLAN. As described in the Prospectus, the Trust
with respect to each Fund has adopted non-Rule 12b-1 Authorized Dealer Service
Plans (the "Service Plans") with respect to Class A Shares and Class B Shares.
See "Distribution and Authorized Dealer Service Plans" in the Prospectus.

The compensation under the Service Plans may not exceed 0.25% per annum of
the average daily net assets attributable to the class of shares to which the
plan relates. Up to the entire amount of the fee under the Service Plans may be
paid to Authorized Dealers for providing personal and account maintenance
services in connection with each Fund's Shares. Under the Service Plans,
Goldman Sachs will provide to the Trustees for their review at least quarterly a
written report of the services provided and amount expended under the Service
Plans.

For the fiscal years ended October 31, 1996 and October 31, 1995 the
Adjustable Rate Government, Government Income, Municipal Income and Global
Income Funds paid Goldman Sachs the following amounts under their respective
Service Plan with respect to its Class A Shares and Class B shares:

B-125
<PAGE>

<TABLE>
<CAPTION>
Class A Class B
1996 1995 1996
---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Fund $ 30,905 17,967 $ N/A
Municipal Income Fund 131,925 55,106 126
Government Income Fund 74,060 25,239 111
Global Income Fund 549,164 281,949 125
</TABLE>

The Service Plans applicable to Class A Shares and Class B Shares were most
recently approved on April 23, 1997 by a majority of the Board of Trustees of
the Trust. The Service Plans will remain in effect until June 1, 1997 and from
year to year thereafter, provided that such continuance is approved annually by
a majority vote of the Trustees, including a majority of the non-interested
Trustees who have no direct or indirect financial interest in the Service
Plans.

CLASS B DISTRIBUTION PLAN. As described in the Prospectus, the Trust has
adopted on behalf of Short Duration Government Fund, Short Duration Tax Free
Fund, Municipal Income Fund, Government Income Fund, Core Fixed Income Fund and
Global Income Fund, distribution plans (the "Class B Plans") pursuant to Rule
12b-1 under the Act with respect to Class B Shares. See "Distribution and
Authorized Dealer Service Plans" in the Prospectus.

The Class B Plans were approved on January 28, 1997 on behalf of Municipal
Income, Government Income and Global Income Funds and April 1, 1997 with respect
to Short Duration Government, Short Duration Tax-Free and Core Fixed Income
Funds, in each case by a majority vote of the Trust's Board of Trustees,
including a majority of the Trustees who are not interested persons of the Trust
and have no direct or indirect financial interest in the Class B Plans (the
"non-interested Trustees"), cast in person at a meeting called for the purpose
of approving the Class B Plans.

With respect to each Fund, the compensation payable under the Class B Plans
is equal to 0.75% per annum of the average daily net assets attributable to
Class B Shares of that Fund. The fees received by Goldman Sachs under the Class
B Plans and contingent deferred sales charge on Class B Shares may be sold by
Goldman Sachs as distributor to entities which provide financing for payments to
Authorized Dealers in respect of sales of Class B Shares. To the extent such
fee is not paid to such dealers, Goldman Sachs may retain such fee as
compensation for its services and expenses of distributing the Funds' Class B
Shares. If such fee exceeds its expenses, Goldman Sachs may realize a profit
from these arrangements.

For the fiscal years ended October 31, 1996, each Fund paid Goldman Sachs
the following amounts under the Class B Plans:

B-126
<PAGE>

<TABLE>
<CAPTION>
1996
----
<S> <C>
Municipal Income Fund
with fee waivers 126
without fee waivers 126

Government Income Fund
with fee waivers 332
without fee waivers 332

Global Income Fund
with fee waivers 374
without fee waivers 374
</TABLE>

The Class B Plans are compensation plans which provide for the payment of a
specified distribution fee without regard to the distribution expenses actually
incurred by Goldman Sachs. If the Class B Plans were terminated by the Trust's
Board of Trustees and no successor plan were adopted, the Funds would cease to
make distribution payments to Goldman Sachs and Goldman Sachs would be unable to
recover the amount of any of its unreimbursed distribution expenditures.

During the fiscal year ended October 31, 1996, Goldman Sachs incurred the
following expenses in connection with distribution under the Class B Plan on
behalf of each Fund (Goldman Sachs used the fees, if any, received under the
Plan in the same proportion to the amounts set forth below).

<TABLE>
<CAPTION>
Fiscal Year Compensation Compensation Allocable Printing and Preparation and
ended to Dealers and Expenses Overhead, Mailing of Distribution
of
October 31, of the Telephone Prospectuses S a l e s
Literature
1996 Distributor and Travel to Other than and Advertising
and its Sales Expenses Current
Personnel Shareholders
<S> <C> <C> <C> <C> <C>
Municipal
Income Fund $ 241/(1)/ N/A N/A N/A N/A
Government
</TABLE>

B-127
<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C>
Income Fund $299 /(1)/ N/A N/A N/A N/A

Global
Income Fund $247 /(1)/ N/A N/A N/A N/A
</TABLE>

_______________________
(1) Advance commissions paid to dealers of 4% on Class B sales are
considered deferred assets which are amortized over a period of 6
years; amounts presented above reflect amortization expense recorded
during the period presented.

Under the Class B Plans, Goldman Sachs, as distributor of the Funds'
shares, will provide to the Board of Trustees for its review, and the Board will
review at least quarterly, a written report of the services provided and amounts
expended by Goldman Sachs under the Class B Plans and the purposes for which
such services were performed and expenditures were made.

The Class B Plans will remain in effect with respect to the Funds from year
to year, provided such continuance is approved annually by a majority vote of
the Board of Trustees, including a majority of the non-interested Trustees. A
Class B Plan may not be amended to increase materially the amount to be spent
for the services described therein as to any Fund without approval of a majority
of the outstanding Class B Shares of that Fund. All material amendments of the
Class B Plan must also be approved by the Board of Trustees of the Trust in the
manner described above. With respect to any Fund, a Class B Plan may be
terminated at any time without payment of any penalty by a vote of the majority
of the non-interested Trustees or by vote of a majority of the outstanding
voting securities of the Class B Shares of that Fund. So long as a Class B Plan
is in effect, the selection and nomination of non-interested Trustees shall be
committed to the discretion of the non-interested Trustees. The Trustees have
determined that in their judgment there is a reasonable likelihood that the
Class B Plans will benefit each Fund and their respective Class B shareholders.

B-128
<PAGE>

PART B

STATEMENT OF ADDITIONAL INFORMATION

INSTITUTIONAL SHARES

GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
GOLDMAN SACHS CORE FIXED INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)

Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606

This Statement of Additional Information (the "Additional Statement") is not a
prospectus. This Additional Statement describes each of the above-referenced
series of Goldman Sachs Trust. This Additional Statement should be read in
conjunction with the prospectus for the Institutional Shares of Goldman Sachs
Adjustable Rate Government Fund, Goldman Sachs Short Duration Government Fund,
Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Core Fixed Income Fund
and Goldman Sachs Global Income Fund, dated May 1, 1997, as amended and/or
supplemented from time to time (the "Prospectus"), which may be obtained without
charge from Goldman, Sachs & Co. by calling the telephone number, or writing to
one of the addresses, listed below.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Introduction B-3
Other Investments and Practices B-10
Investment Restrictions B-53
Management B-70
Portfolio Transactions B-86
Shares of the Trust B-87
Net Asset Value B-92
Taxation B-93
Performance Information B-105
Other Information B-117
Financial Statements B-118
Appendix A 1-A
Appendix B 1-B
Appendix C 1-C
</TABLE>

The date of this Additional Statement is May 1, 1997.
<PAGE>

GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN SACHS ASSET
ADVISER TO GOLDMAN SACHS MANAGEMENT INTERNATIONAL
SHORT DURATION TAX-FREE FUND ADVISER TO GOLDMAN SACHS
AND GOLDMAN SACHS CORE FIXED GLOBAL INCOME FUND
INCOME FUND 140 FLEET STREET
ONE NEW YORK PLAZA LONDON EC4A 2BJ, ENGLAND
NEW YORK, NEW YORK 10004

GOLDMAN SACHS FUNDS GOLDMAN, SACHS & CO.
MANAGEMENT, L.P. DISTRIBUTOR
ADVISER TO GOLDMAN SACHS 85 BROAD STREET
ADJUSTABLE RATE GOVERNMENT FUND NEW YORK, NY 10004
AND GOLDMAN SACHS SHORT DURATION
GOVERNMENT FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004 GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606

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

B-2
<PAGE>

INTRODUCTION

Goldman Sachs Trust (the "Trust") was formed under the laws of the state of
Delaware on January 28, 1997. The Trust is a successor to a Massachusetts
business trust that was merged with the Trust on April 30, 1997. The Trust
assumed its current name on March 22, 1991. The Trustees of the Trust have
authority under the Declaration of Trust to create and classify shares into
separate series and to classify and reclassify any series of shares into one or
more classes without further action by shareholders. Pursuant thereto, the
Trustees have created the following series, among others: Goldman Sachs
Adjustable Rate Government Fund ("Adjustable Rate Fund"), Goldman Sachs Core
Fixed Income Fund ("Core Fund"), Goldman Sachs Global Income Fund ("Global
Income Fund"), Goldman Sachs Government Income Fund ("Government Income Fund"),
Goldman Sachs Municipal Income Fund ("Municipal Income Fund"), Goldman Sachs
Short Duration Tax-Free Fund ("Short Duration Tax-Free Fund") and Goldman Sachs
Short Duration Government Fund ("Short Duration Government Fund") and 27 other
series of shares. Adjustable Rate Fund, Core Fund, Global Income Fund,
Government Income Fund, Municipal Income Fund, Short Duration Tax-Free Fund and
Short Duration Government Fund are each sometimes referred to herein as a "Fund"
and collectively as the "Funds." Short Duration Government Fund, Short Duration
Tax-Free Fund and Core Fund are each authorized to issue five classes of shares:
Institutional Shares, Administration Shares, Service Shares, Class A Shares and
Class B. Shares. Adjustable Rate Fund is authorized to issue four classes of
shares: Institutional Shares, Administration Shares, Service Shares and Class A
Shares. Global Income Fund is authorized to issue four classes of shares:
Institutional Shares, Service Shares, Class A Shares and Class B Shares.
Government Income Fund and Municipal Income Fund are each authorized to issue
two classes of shares: Class A Shares and Class B Shares.

Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as the investment adviser to Core
Fund, Government Income Fund, Municipal Income Fund and Short Duration Tax-Free
Fund. Goldman Sachs Asset Management International ("GSAMI"), an affiliate of
Goldman Sachs, serves as investment adviser to the Global Income Fund. Goldman
Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, serves as
the investment adviser to Adjustable Rate Fund and Short Duration Government
Fund. GSAM, GSAMI and GSFM are each sometimes referred to herein as the
"Adviser" and collectively herein as the "Advisers." In addition, Goldman Sachs
serves as each Fund's distributor and transfer agent. Each Fund's custodian is
State Street Bank and Trust Company.

Because each Fund's shares may be redeemed upon request of a shareholder on
any business day at net asset value, the Funds offer greater liquidity than many
competing investments, such as certificates of deposit and direct investments in
certain securities in which the respective Fund may invest. However, unlike
certificates of deposits, shares of the Funds are not insured by the Federal
Deposit Insurance Corporation.

B-3
<PAGE>

The following information relates to and supplements the description of
each Fund's investment policies contained in the Prospectus. See the Prospectus
for a fuller description of each Fund's investment objective and policies.
Investing in the Funds entails certain risks and there is no assurance that a
Fund will achieve its objective.

EXPERIENCED MANAGEMENT. Successfully creating and managing a diversified
----------------------
portfolio of securities requires professionals with extensive experience.
Goldman Sachs' highly skilled portfolio management team brings together many
years of experience in the analysis, valuation and trading of U.S. and foreign
fixed-income securities.

ADJUSTABLE RATE FUND AND SHORT DURATION GOVERNMENT FUND

Adjustable Rate Fund and Short Duration Government Fund are both designed
for investors who seek a high level of high current income, relative stability
of principal and the high credit quality of securities issued or guaranteed by
the U.S. government or its agencies, instrumentalities or sponsored enterprises,
without incurring the administrative and accounting burdens involved in direct
investment.

Market and economic conditions may affect the investments of Adjustable
Rate Fund and Short Duration Government Fund differently than the investments
normally purchased by such investors. Relative to U.S. Treasury and non-
fluctuating money market instruments, the market value of adjustable rate
mortgage securities in which Adjustable Rate and Short Duration Government Funds
may invest may be adversely affected by increases in market interest rates.
Conversely, decreases in market interest rates may result in less capital
appreciation for adjustable rate mortgage securities in relation to U.S.
Treasury and money market investments.

HIGH CURRENT INCOME. Adjustable Rate and Short Duration Government Funds
-------------------
seek a higher current yield than a money market fund or than that offered by
bank certificates of deposit and money market accounts. However, the Adjustable
Rate and Short Duration Government Funds do not maintain a constant net asset
value per share and are subject to greater fluctuations in the value of their
shares than a money market fund. Unlike bank certificates of deposit and money
market accounts, investments in shares of the Funds are not insured or
guaranteed by any government agency. Each of the Adjustable Rate and Short
Duration Government Funds seeks to provide such high current income without
sacrificing credit quality.

RELATIVE LOW VOLATILITY OF PRINCIPAL. Adjustable Rate Fund seeks to
-------------------------------------
minimize net asset value fluctuations by investing primarily in adjustable rate
mortgage pass-through securities and other mortgage securities with periodic
interest rate resets, maintaining a maximum duration of two years and a target
duration equal to that of a six-month to one-year U.S. Treasury security,

B-4
<PAGE>

and utilizing certain active management techniques to seek to hedge interest
rate risk. Short Duration Government Fund seeks to minimize net asset value
fluctuations by utilizing certain interest rate hedging techniques and by
maintaining a maximum duration of not more than three years. The duration
target of the Short Duration Government Fund is that of the 2-year U.S. Treasury
Security plus or minus .5 years. There is no assurance that these strategies
for the Adjustable Rate Fund and Short Duration Government Fund will always be
successful.

PROFESSIONAL MANAGEMENT AND ADMINISTRATION. Investors who invest in
-------------------------------------------
securities of the Government National Mortgage Association ("Ginnie Mae") and
other mortgage-backed securities may prefer professional management and
administration of their mortgage-backed securities portfolios. A well-
diversified portfolio of such securities emphasizing minimal fluctuation of net
asset value requires significant active management as well as significant
accounting and administrative resources. Members of Goldman Sachs' highly
skilled portfolio management team bring together many years of experience in the
analysis, valuation and trading of U.S. fixed-income securities.

GOVERNMENT INCOME FUND

Government Income Fund is designed for investors who seek the relatively
high current income, relative safety of principal and the high credit quality of
securities issued by the U.S. government or its agencies, instrumentalities or
sponsored enterprises, without incurring the administrative and account burdens
involved in direct investment.

Government Income Fund's overall returns are generally likely to move in
the same direction as interest rates. Therefore, when interest rates decline,
Government Income Fund's return is also likely to decline. In exchange for
accepting a higher degree of share price fluctuation, investors have the
potential to achieve a higher return from the Government Income Fund than from
shorter-term investments.

High Current Income. Government Income Fund is designed to have a higher
-------------------
current yield than a money market fund, since it can invest in longer-term,
higher yielding securities, and may utilize certain investment techniques not
available to a money market fund. Similarly, Government Income Fund's yield is
expected to exceed that offered by bank certificates of deposit and money market
accounts. However, Government Income Fund does not maintain a constant net
asset value per share and is subject to greater fluctuation in the value of its
shares than a money market fund. Unlike bank certificates of deposit and money
market accounts, investments in shares of Government Income Fund are not insured
or guaranteed by any government agency. Government Income Fund seeks to provide
high current income without, however, sacrificing credit quality.

B-5
<PAGE>

Liquidity. Because Government Income Fund's shares may be redeemed upon
---------
request of a shareholder on any business day at net asset value, Government
Income Fund offers greater liquidity than many competing investments such as
certificates of deposit and direct investments in certain securities in which
Government Income Fund may invest.

A Sophisticated Investment Process. Government Income Fund's investment
----------------------------------
process starts with a review of trends for the overall economy as well as for
different sectors of the U.S. government and mortgage-backed securities markets.
Goldman Sachs' portfolio managers then analyze yield spreads, implied volatility
and the shape of the yield curve. In planning the Government Income Fund's
portfolio investment strategies, the Adviser is able to draw upon the economic
and fixed-income research resources of Goldman Sachs. The Adviser will use a
sophisticated analytical process involving Goldman Sachs' proprietary mortgage
prepayment model and option-adjusted spread model to structure and maintain the
Government Income Fund's investment portfolio. In determining the Government
Income Fund's investment strategy and making market timing decisions, the
Adviser will have access to information from Goldman Sachs' economists, fixed-
income analysts and mortgage specialists.

Convenience of a Fund Structure. Government Income Fund eliminates many of
-------------------------------
the complications that direct ownership of U.S. government and mortgage-backed
securities entails. Government Income Fund automatically reinvests all
principal payments within the Fund and distributes only current income each
month, thereby conserving principal and eliminating the investor's need to
segregate and reinvest the principal portion of each payment on his own.

SHORT DURATION TAX-FREE AND MUNICIPAL INCOME FUNDS

Short Duration Tax-Free Fund and Municipal Income Fund (the "Tax Exempt
Funds") are not money market funds. Each is designed for investors who seek the
tax benefits associated with investing in municipal securities and who are able
to accept greater risk with the possibility of higher returns than investors in
municipal money market funds. While municipal money market funds almost always
maintain a constant net asset value, they must meet stringent high quality
credit standards, their portfolios must be broadly diversified and their
portfolio securities must have remaining maturities of 397 days or less. An
example of an "eligible" investment for the Tax Exempt Funds is auction rate
municipal securities, which generally have higher yields than money market
municipal securities, but which typically are not eligible investments for
municipal money market funds.

In addition, unlike a municipal money market fund, the Tax Exempt Funds'
increased investment flexibility permits their portfolios to be more easily
adjusted to reflect the shape of the current yield curve as well as to respond
to anticipated developments that might affect the shape of the yield curve.

B-6
<PAGE>

Investors who wish to invest in municipal securities may find that a mutual
fund structure offers some important advantages when compared to investing in
individual municipal securities, including:

. The ratings given to municipal securities by the rating
organizations are difficult to evaluate. For example, some
municipal securities with relatively low credit ratings have yields
comparable to municipal securities with much higher ratings. The
credit research professionals at Goldman Sachs closely follow
market events and are well positioned to judge current and expected
credit conditions of municipal issuers;

. Because of the relative inefficiency of the secondary market in
municipal securities, the value of an individual municipal security
is often difficult to determine. As such, investors may obtain a
wide range of different prices when asking for quotes from
different dealers. In addition, a dealer may have a large
inventory of a particular issue that it wants to reduce.
Obtaining the best overall prices can require extensive
negotiation, which is a function performed by the portfolio
manager;

. Market expertise is also an important consideration for municipal
investors, and because the Tax Exempt Funds take relatively large
positions in different securities, the Tax Exempt Funds may be able
to obtain more favorable prices in the municipal securities market
than investors with relatively small positions; and

. Industry and geographical diversification are important
considerations for municipal investors. The Tax Exempt Funds are
designed to provide this diversification.

CORE FUND

Core Fund is designed for investors seeking a total return consisting of
both income and capital appreciation that exceeds the total return of the Lehman
Brothers Aggregate Bond Index, without incurring the administrative and
accounting burdens involved in direct investment. Such investors also prefer
liquidity, experienced professional management and administration, a
sophisticated investment process, and the convenience of a mutual fund
structure. Core Fund may be appropriate as part of a balanced investment
strategy consisting of stocks, bonds and cash or as a complement to positions in
other types of fixed-income investments.

Core Fund's overall returns are generally likely to move in the opposite
direction from interest rates. Therefore, when interest rates decline, Core
Fund's return is likely to increase. Conversely, when interest rates increase,
Core Fund's return is

B-7
<PAGE>

likely to decline. However, the Adviser believes that, given the flexibility of
managers to invest in a diversified portfolio of securities, Core Fund's return
is not likely to decline as quickly as that of other fixed-income funds with a
comparable average portfolio duration. In exchange for accepting a higher
degree of potential share price fluctuation, investors have the opportunity to
achieve a higher return from Core Fund than from shorter-term investments.

A number of investment strategies will be used to achieve the Core Fund's
investment objective, including market sector selection, determination of yield
curve exposure, and issuer selection. In addition, the Adviser will attempt to
take advantage of pricing inefficiencies in the fixed-income markets. Market
sector selection is the underweighting or overweighting of one or more of the
five market sectors (i.e., U.S. Treasuries, U.S. government agencies, corporate
securities, mortgage-backed securities and asset-backed securities) in which the
Fund primarily invests. The decision to overweight or underweight a given
market sector is based on expectations of future yield spreads between different
sectors. Yield curve exposure strategy consists of overweighting or
underweighting different maturity sectors to take advantage of the shape of the
yield curve. Issuer selection is the purchase and sale of corporate securities
based on a corporation's current and expected credit standing. To take
advantage of price discrepancies between securities resulting from supply and
demand imbalances or other technical factors, the Fund may simultaneously
purchase and sell comparable, but not identical, securities. The 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.

A SOPHISTICATED INVESTMENT PROCESS. Core Fund will attempt to control its
----------------------------------
exposure to interest rate risk, including overall market exposure and the spread
risk of particular sectors and securities, through active portfolio management
techniques. Core Fund's investment process starts with a review of trends for
the overall economy as well as for different sectors of the fixed-income
securities markets. Goldman Sachs' portfolio managers then analyze yield
spreads, implied volatility and the shape of the yield curve. In planning Core
Fund's portfolio investment strategies, the Adviser is able to draw upon the
economic and fixed-income research resources of Goldman Sachs. The Adviser will
use a sophisticated analytical process including Goldman Sachs' proprietary
mortgage prepayment model and option-adjusted spread model to assist in
structuring and maintaining Core Fund's investment portfolio. In determining
Core Fund's investment strategy and making market timing decisions, the Adviser
will have access to input from Goldman Sachs' economists, fixed-income analysts
and mortgage specialists.

B-8
<PAGE>

GLOBAL INCOME FUND

Global Income Fund is designed for investors seeking a combination of high
income, capital appreciation, stability of principal, experienced professional
management, flexibility and liquidity. However, investing in the Fund involves
certain risks and there is no assurance that the Fund will achieve its
investment objective.

In selecting securities for the Fund, portfolio managers consider such
factors as the security's duration, sector and credit quality rating as well as
the security's yield and prospects for capital appreciation. In determining the
countries and currencies in which the Fund will invest, the Fund's portfolio
mangers form opinions based primarily on the views of Goldman Sachs' economists
as well as information provided by securities dealers, including information
relating to factors such as interest rates, inflation, monetary and fiscal
policies, taxation, and political climate. The portfolio managers apply the
Black-Litterman Model (the "Model") to their views to develop a portfolio that
produces, in the view of the Adviser, the optimal expected return for a given
level of risk. The Model factors in the opinions of the portfolio managers,
adjusting for their level of confidence in such opinions, with the views implied
by an international capital asset pricing formula. The Model is also used to
maintain the level of portfolio risk within the guidelines established by the
Adviser.

High Income. Global Income Fund's portfolio managers will seek out the
-----------
highest yielding bonds in the global fixed-income market that meet the Global
Income Fund's credit quality standards and certain other criteria.

Capital Appreciation. Investing in the foreign bond markets offers the
--------------------
potential for capital appreciation due to both interest rate and currency
exchange rate fluctuations. The portfolio managers attempt to identify
investments with appreciation potential by carefully evaluating trends affecting
a country's currency as well as a country's fundamental economic strength.
However, there is a risk of capital depreciation as a result of unanticipated
interest rate and currency fluctuations.

Portfolio Management Flexibility. Global Income Fund is actively managed.
--------------------------------
The Fund's portfolio managers invest in countries that, in their judgment, meet
the Fund's investment guidelines and often have strong currencies and stable
economies and in securities that they believe offer favorable performance
prospects.

Relative Stability of Principal. Global Income Fund may be able to reduce
-------------------------------
principal fluctuation by investing in foreign countries with economic policies
or business cycles different from those of the United States and in foreign
securities markets that do not necessarily move in the same direction or
magnitude as the U.S. market. Investing in a broad range of U.S. and foreign
fixed-income securities and currencies reduces the dependence of the

B-9
<PAGE>

Fund's performance on developments in any particular market to the extent that
adverse events in one market are offset by favorable events in other markets.
The Fund's policy of investing primarily in high quality securities may also
reduce principal fluctuation. However, there is no assurance that these
strategies will always be successful.

Professional Management. Individual U.S. investors may prefer professional
-----------------------
management of their global bond and currency portfolios because a well-
diversified portfolio requires a large amount of capital and because the size of
the global market requires access to extensive resources and a substantial
commitment of time.

OTHER INVESTMENTS AND PRACTICES

OBLIGATIONS OF THE UNITED STATES, ITS AGENCIES, INSTRUMENTALITIES AND SPONSORED
ENTERPRISES

Each Fund may invest in U.S. government securities ("U.S. Government
Securities"), which are obligations issued or guaranteed by the U.S. government
and its agencies, instrumentalities or sponsored enterprises. Some U.S.
Government Securities (such as Treasury bills, notes and bonds, which differ
only in their interest rates, maturities and times of issuance) are supported by
the full faith and credit of the United States of America. Others, such as
obligations issued or guaranteed by U.S. government agencies, instrumentalities
or sponsored enterprises, are supported either by (a) the full faith and credit
of the U.S. government (such as securities of the Small Business
Administration), (b) the right of the issuer to borrow from the Treasury (such
as securities of Federal Home Loan Banks), (c) the discretionary authority of
the U.S. government to purchase the agency's obligations (such as securities of
Federal National Mortgage Association ("Fannie Mae")) or (d) only the credit of
the issuer (such as securities of the Financing Corporation). The U.S.
government is under no legal obligation, in general, to purchase the
obligations of its agencies, instrumentalities or sponsored enterprises. No
assurance can be given that the U.S. government will provide financial support
to the U.S. government agencies, instrumentalities or sponsored enterprises in
the future.

U.S. Government Securities include (to the extent consistent with the
Investment Company Act of 1940, as amended (the "Act")) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. government, or its agencies, instrumentalities or sponsored
enterprises. U.S. Government Securities also include (to the extent consistent
with the Act) participations in loans made to foreign governments or their
agencies that are guaranteed as to principal and interest by the U.S. government
or its agencies, instrumentalities or sponsored enterprises. The secondary
market for certain of these participations is extremely limited. In the absence
of a substantial secondary market, such participations are regarded as illiquid.
Each Fund may also purchase U.S. Government

B-10
<PAGE>

Securities in private placements, subject to the Fund's limitation on investment
in illiquid securities.

The Funds 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").

CUSTODIAL RECEIPTS

Each Fund may acquire custodial receipts in respect of U.S. Government
Securities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds. These custodial
receipts are known by various names, including "Treasury Receipts," "Treasury
Investors Growth Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury
Securities" ("CATS"). For certain securities law purposes, custodial receipts
are not considered U.S. Government Securities.

MORTGAGE LOANS AND MORTGAGE-BACKED SECURITIES

Adjustable Rate Fund, Short Duration Government Fund, Core Fund, Global
Income Fund and Government Income Fund (collectively, the "Taxable Funds") may
each invest in mortgage loans and mortgage pass-through securities and other
securities representing an interest in or collateralized by adjustable and
fixed-rate mortgage loans ("Mortgage-Backed Securities").

GENERAL CHARACTERISTICS. Each mortgage pool underlying Mortgage-Backed
-----------------------
Securities consists of mortgage loans evidenced by promissory notes secured by
first mortgages or first deeds of trust or other similar security instruments
creating a first lien on owner occupied and non-owner occupied one-unit to four-
unit residential properties, multi-family (i.e., five or more) properties,
agriculture properties, commercial properties and mixed use properties (the
"Mortgaged Properties"). The Mortgaged Properties may consist of detached
individual dwelling units, multi-family dwelling units, individual condominiums,
townhouses, duplexes, triplexes, fourplexes, row houses, individual units in
planned unit developments and other attached dwelling units. The Mortgaged
Properties may also include residential investment properties and second homes.

The investment characteristics of adjustable and fixed rate Mortgage-Backed
Securities differ from those of traditional fixed-income securities. The major
differences include the payment of interest and principal on Mortgage-Backed
Securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed-
income securities. As a result, a faster than expected prepayment rate will
reduce both the market value and the yield to maturity from those which were
anticipated.

B-11
<PAGE>

A prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity and market value. To the extent that the Funds
invest in Mortgage-Backed Securities, the Advisers will seek to manage these
potential risks by investing in a variety of Mortgage-Backed Securities and by
using certain hedging techniques.

ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). ARMs generally provide for a
---------------------------------------
fixed initial mortgage interest rate for a specified period of time.
Thereafter, the interest rates (the "Mortgage Interest Rates") may be subject to
periodic adjustment based on changes in the applicable index rate (the "Index
Rate"). The adjusted rate would be equal to the Index Rate plus a fixed
percentage spread over the Index Rate established for each ARM at the time of
its origination.

Adjustable interest rates can cause payment increases that some mortgagors
may find difficult to make. However, certain ARMs may provide that the Mortgage
Interest Rate may not be adjusted to a rate above an applicable lifetime maximum
rate or below an applicable lifetime minimum rate for such ARM. Certain ARMs
may also be subject to limitations on the maximum amount by which the Mortgage
Interest Rate may adjust for any single adjustment period (the "Maximum
Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may provide instead or
as well for limitations on changes in the monthly payment on such ARMs.
Limitations on monthly payments can result in monthly payments which are greater
or less than the amount necessary to amortize a Negatively Amortizing ARM by its
maturity at the Mortgage Interest Rate in effect in any particular month. In
the event that a monthly payment is not sufficient to pay the interest accruing
on a Negatively Amortizing ARM, any such excess interest is added to the
principal balance of the loan, causing negative amortization, and will be repaid
through future monthly payments. It may take borrowers under Negatively
Amortizing ARMs longer periods of time to build up equity and may increase the
likelihood of default by such borrowers. In the event that a monthly payment
exceeds the sum of the interest accrued at the applicable Mortgage Interest Rate
and the principal payment which would have been necessary to amortize the
outstanding principal balance over the remaining term of the loan, the excess
(or "accelerated amortization") further reduces the principal balance of the
ARM. Negatively Amortizing ARMs do not provide for the extension of their
original maturity to accommodate changes in their Mortgage Interest Rate. As a
result, unless there is a periodic recalculation of the payment amount (which
there generally is), the final payment may be substantially larger than the
other payments. These limitations on periodic increases in interest rates and
on changes in monthly payments protect borrowers from unlimited interest rate
and payment increases.

There are two main categories of indices which provide the basis for rate
adjustments on ARMs: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year, three-year and
five-year

B-12
<PAGE>

constant maturity Treasury rates, the three-month Treasury bill rate, the 180-
day Treasury bill rate, rates on longer-term Treasury securities, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year London Interbank
Offered Rate, the prime rate of a specific bank or commercial paper rates. Some
indices, such as the one-year constant maturity Treasury rate, closely mirror
changes in market interest rate levels. Others, such as the 11th District
Federal Home Loan Bank Cost of Funds index, tend to lag behind changes in market
rate levels and tend to be somewhat less volatile. The degree of volatility in
the market value of each Taxable Fund's portfolio and therefore in the net asset
value of each Taxable Fund's shares will be a function of the length of the
interest rate reset periods and the degree of volatility in the applicable
indices.

FIXED-RATE MORTGAGE LOANS. Generally, fixed-rate mortgage loans included
-------------------------
in a mortgage pool (the "Fixed-Rate Mortgage Loans") will bear simple interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed-Rate Mortgage Loans generally 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.

LEGAL CONSIDERATIONS OF MORTGAGE LOANS. The following is a discussion of
--------------------------------------
certain legal and regulatory aspects of the mortgage loans in which the Taxable
Funds may invest. These regulations may impair the ability of a mortgage lender
to enforce its rights under the mortgage documents. These regulations may
adversely affect the Funds' investments in Mortgage-Backed Securities (including
those issued or guaranteed by the U.S. government, its agencies or
instrumentalities) by delaying the Funds' receipt of payments derived from
principal or interest on mortgage loans affected by such regulations.

1. Foreclosure. A foreclosure of a defaulted mortgage loan may be delayed due
-----------
to compliance with statutory notice or service of process provisions,
difficulties in locating necessary parties or legal challenges to the
mortgagee's right to foreclose. Depending upon market conditions, the
ultimate proceeds of the sale of foreclosed property may not equal the
amounts owed on the Mortgage-Backed Securities.

Furthermore, courts in some cases have imposed general equitable principles
upon foreclosure generally designed to relieve the borrower from the legal
effect of default and have required lenders to undertake affirmative and
expensive actions to determine the causes for the default and the
likelihood of loan reinstatement.

2. Rights of Redemption. In some states, after foreclosure of a mortgage
--------------------
loan, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property,

B-13
<PAGE>

which right may diminish the mortgagee's ability to sell the property.

3. Legislative Limitations. In addition to anti-deficiency and related
-----------------------
legislation, numerous other federal and state statutory provisions,
including the federal bankruptcy laws and state laws affording relief to
debtors, may interfere with or affect the ability of a secured mortgage
lender to enforce its security interest. For example, a bankruptcy court
may grant the debtor a reasonable time to cure a default on a mortgage
loan, including a payment default. The court in certain instances may
also reduce the monthly payments due under such mortgage loan, change the
rate of interest, reduce the principal balance of the loan to the then-
current appraised value of the related mortgaged property, alter the
mortgage loan repayment schedule and grant priority of certain liens over
the lien of the mortgage loan. If a court relieves a borrower's obligation
to repay amounts otherwise due on a mortgage loan, the mortgage loan
servicer will not be required to advance such amounts, and any loss may be
borne by the holders of securities backed by such loans. In addition,
numerous federal and state consumer protection laws impose penalties for
failure to comply with specific requirements in connection with origination
and servicing of mortgage loans.

4. "Due-on-Sale" Provisions. Fixed-rate mortgage loans may contain a so-
------------------------
called "due-on-sale" clause permitting acceleration of the maturity of the
mortgage loan if the borrower transfers the property. The Garn-St. Germain
Depository Institutions Act of 1982 sets forth nine specific instances in
which no mortgage lender covered by that Act may exercise a "due-on-sale"
clause upon a transfer of property. The inability to enforce a "due-on-
sale" clause or the lack of such a clause in mortgage loan documents may
result in a mortgage loan being assumed by a purchaser of the property that
bears an interest rate below the current market rate.

5. Usury Laws. Some states prohibit charging interest on mortgage loans in
----------
excess of statutory limits. If such limits are exceeded, substantial
penalties may be incurred and, in some cases, enforceability of the
obligation to pay principal and interest may be affected.

GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are several types
------------------------------------------------
of guaranteed Mortgage-Backed Securities currently available, including
guaranteed mortgage pass-through certificates and multiple class securities,
which include guaranteed Real Estate Mortgage Investment Conduit Certificates
("REMIC Certificates"), other collateralized mortgage obligations and stripped
Mortgage-Backed Securities. The Taxable Funds are permitted to invest in other
types of Mortgage-Backed Securities that may be available in the future to the
extent consistent with their respective investment policies and objectives.

B-14
<PAGE>

GUARANTEED MORTGAGE PASS-THROUGH SECURITIES

GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
-----------------------
instrumentality of the United States authorized to guarantee the timely payment
of the principal of and interest on certificates that are based on and backed
by a pool of mortgage loans insured by the Federal Housing Administration ("FHA
Loans"), or guaranteed by the Veterans Administration ("VA Loans"), or by pools
of other eligible mortgage loans. In order to meet its obligations, Ginnie Mae
is authorized to borrow from the U.S. Treasury in an unlimited amount.

FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned corporation
-----------------------
chartered under an act of the U.S. Congress. Each Fannie Mae Certificate is
issued and guaranteed by Fannie Mae and represents an undivided interest in a
pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool consists of
residential mortgage loans ("Mortgage Loans") either previously owned by Fannie
Mae or purchased by it in connection with the formation of the Pool. The
Mortgage Loans may be either conventional Mortgage Loans (i.e., not insured or
guaranteed by any U.S. government agency) or Mortgage Loans that are either
insured by the FHA or guaranteed by the VA. However, the Mortgage Loans in
Fannie Mae Pools are primarily conventional Mortgage Loans. The lenders
originating and servicing the Mortgage Loans are subject to certain eligibility
requirements established by Fannie Mae.

Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether or
not received, to Certificate holders. Fannie Mae also is obligated to
distribute to holders of Certificates an amount equal to the full principal
balance of any foreclosed Mortgage Loan, whether or not such principal balance
is actually recovered. The obligations of Fannie Mae under its guaranty of the
Fannie Mae Certificates are obligations solely of Fannie Mae.

FREDDIE MAC CERTIFICATES. The Federal Home Loan Corporation ("Freddie
------------------------
Mac") is a publicly held U.S. government sponsored enterprise. The principal
activity of Freddie Mac currently is the purchase of first lien, conventional,
residential mortgage loans and participation interests in such mortgage loans
and their resale in the form of mortgage securities, primarily Freddie Mac
Certificates. A Freddie Mac Certificate represents a pro rata interest in a
group of mortgage loans or participations in mortgage loans (a "Freddie Mac
Certificate group") purchased by Freddie Mac.

Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received on the underlying loans).
Freddie Mac also guarantees to each registered Certificate holder ultimate
collection of all principal of the related mortgage loans, without any offset or
deduction, but does not, generally, guarantee the timely payment of scheduled

B-15
<PAGE>

principal. The obligations of Freddie Mac under its guaranty of Freddie Mac
Certificates are obligations solely of Freddie Mac.

The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed-rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one- to four-family residential properties
or multi-family projects. Each mortgage loan must meet the applicable standards
set forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac
Certificate group may include whole loans, participation interests in whole
loans, undivided interests in whole loans and participations comprising another
Freddie Mac Certificate group.

CONVENTIONAL MORTGAGE LOANS. The conventional mortgage loans underlying
---------------------------
the Freddie Mac and Fannie Mae Certificates consist of adjustable rate or fixed-
rate mortgage loans with original terms to maturity of between five and thirty
years. Substantially all of these mortgage loans are secured by first liens on
one- to four-family residential properties or multi-family projects. Each
mortgage loan must meet the applicable standards set forth in the law creating
Freddie Mac or Fannie Mae. A Freddie Mac Certificate group may include whole
loans, participation interests in whole loans, undivided interests in whole
loans and participations comprising another Freddie Mac Certificate group.

MORTGAGE PASS-THROUGH SECURITIES. The Taxable Funds may invest in
--------------------------------
government guaranteed mortgage pass-through securities ("Mortgage Pass-
Throughs"), that are fixed or adjustable rate Mortgage-Backed Securities which
provide for monthly payments that are a "pass-through" of the monthly interest
and principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees or other amounts paid to
any guarantor, administrator and/or servicer of the underlying mortgage loans.

The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.

DESCRIPTION OF CERTIFICATES. Mortgage Pass-Throughs may be issued in one
---------------------------
or more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate.
Generally, each certificate will evidence the specified interest of the holder
thereof in the payments of principal or interest or both in respect of the
mortgage pool comprising part of the trust fund for such certificates.

Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may

B-16
<PAGE>

be made on a sequential, concurrent, pro rata or disproportionate basis, or any
--- ----
combination thereof. The stated interest rate on any such subclass of
certificates may be a fixed rate or one which varies in direct or inverse
relationship to an objective interest index.

Generally, each registered holder of a certificate will be entitled to
receive its pro rata share of monthly distributions of all or a portion of
--- ----
principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate, or
both. The difference between the mortgage interest rate and the related
mortgage pass-through rate (less the amount, if any, of retained yield) with
respect to each mortgage loan will generally be paid to the servicer as a
servicing fee. Since certain adjustable rate mortgage loans included in a
mortgage pool may provide for deferred interest (i.e., negative amortization),
the amount of interest actually paid by a mortgagor in any month may be less
than the amount of interest accrued on the outstanding principal balance of the
related mortgage loan during the relevant period at the applicable mortgage
interest rate. In such event, the amount of interest that is treated as
deferred interest will be added to the principal balance of the related mortgage
loan and will be distributed pro rata to certificate-holders as principal of
--- ----
such mortgage loan when paid by the mortgagor in subsequent monthly payments or
at maturity.

MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
---------------------------------------------------------------------
OBLIGATIONS. Each Taxable Fund may invest in multiple class securities
- -----------
including collateralized mortgage obligations ("CMOs") and REMIC Certificates
issued by U.S. government agencies, instrumentalities (such as Fannie Mae) and
sponsored enterprises (such as Freddie Mac) or, in the case of Core, Global and
Government Income Funds, by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations of
a legal entity that are collateralized by, and multiple class Mortgage-Backed
Securities represent direct ownership interests in, a pool of mortgage loans or
Mortgage-Backed Securities the payments on which are used to make payments on
the CMOs or multiple class Mortgage-Backed Securities.

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

Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential

B-17
<PAGE>

mortgages or participations therein purchased by Freddie Mac and placed in a PC
pool. With respect to principal payments on PCs, Freddie Mac generally
guarantees ultimate collection of all principal of the related mortgage loans
without offset or deduction. Freddie Mac also guarantees timely payment of
principal of certain PCs.

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

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

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

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

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

B-18
<PAGE>

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

STRIPPED MORTGAGE-BACKED SECURITIES. The Taxable Funds may invest in
-----------------------------------
Stripped Mortgage-Backed Securities ("SMBS"), which are derivative multi-class
mortgage securities, issued or guaranteed by the U.S. government, its agencies
or instrumentalities. Core Fund, Government Income Fund and Global Fund may also
invest in privately-issued SMBS. Although the market for such securities is
increasingly liquid, privately-issued SMBS may not be readily marketable and
will be considered illiquid for purposes of each Fund's limitation on
investments in illiquid securities. The Adviser may determine that SMBS which
are U.S. Government Securities are liquid for purposes of each Fund's limitation
on investments in illiquid securities in accordance with procedures adopted by
the Board of Trustees. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from Mortgage Assets are generally higher than prevailing market yields
on other Mortgage-Backed Securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped.

PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES

RATINGS. The ratings assigned by a rating organization to Mortgage Pass-
-------
Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make payments required by such
certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating

B-19
<PAGE>

organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.

CREDIT ENHANCEMENT. Credit support falls generally into two categories:
------------------
(i) liquidity protection and (ii) protection against losses resulting from
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to ensure,
subject to certain limitations, that scheduled payments on the underlying pool
are made in a timely fashion. Protection against losses resulting from default
ensures ultimate payment of the obligations on at least a portion of the assets
in the pool. Such credit support can be provided by, among other things,
payment guarantees, letters of credit, pool insurance, subordination, or any
combination thereof.

SUBORDINATION; SHIFTING OF INTEREST; RESERVE FUND. In order to achieve
-------------------------------------------------
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior certificate-
holders on certain distribution dates, as payment of principal, a specified
percentage (which generally declines over time) of all principal payments
received during the preceding prepayment period ("shifting interest credit
enhancement"). This will have the effect of accelerating the amortization of
the senior certificates while increasing the interest in the trust fund
evidenced by the subordinate certificates. Increasing the interest of the
subordinate certificates relative to that of the senior certificates is intended
to preserve the availability of the subordination provided by the subordinate
certificates. In addition, because the senior certificate-holders in a shifting
interest credit enhancement structure are entitled to receive a percentage of
principal prepayments which is greater than their proportionate interest in the
trust fund, the rate of principal prepayments on the mortgage loans will have an
even greater effect on the rate of principal payments and the amount of interest
payments on, and the yield to maturity of, the senior certificates.

In addition to providing for a preferential right of the senior
certificate-holders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions otherwise
available

B-20
<PAGE>

to the subordinate certificate-holders or by excess servicing fees until the
Reserve Fund reaches a specified amount.

The subordination feature, and any Reserve Fund, are intended to enhance
the likelihood of timely receipt by senior certificate-holders of the full
amount of scheduled monthly payments of principal and interest due to them and
will protect the senior certificate-holders against certain losses; however, in
certain circumstances the Reserve Fund could be depleted and temporary
shortfalls could result. In the event that the Reserve Fund is depleted before
the subordinated amount is reduced to zero, senior certificate-holders will
nevertheless have a preferential right to receive current distributions from the
mortgage pool to the extent of the then outstanding subordinated amount. Unless
otherwise specified, until the subordinated amount is reduced to zero, on any
distribution date any amount otherwise distributable to the subordinate
certificates or, to the extent specified, in the Reserve Fund will generally be
used to offset the amount of any losses realized with respect to the mortgage
loans ("Realized Losses"). Realized Losses remaining after application of such
amounts will generally be applied to reduce the ownership interest of the
subordinate certificates in the mortgage pool. If the subordinated amount has
been reduced to zero, Realized Losses generally will be allocated pro rata among
--- ----
all certificate-holders in proportion to their respective outstanding interests
in the mortgage pool.

ALTERNATIVE CREDIT ENHANCEMENT. As an alternative, or in addition to the
------------------------------
credit enhancement afforded by subordination, credit enhancement for Mortgage
Pass-Throughs may be provided by mortgage insurance, hazard insurance, by the
deposit of cash, certificates of deposit, letters of credit, a limited guaranty
or by such other methods as are acceptable to a rating agency. In certain
circumstances, such as where credit enhancement is provided by guarantees or a
letter of credit, the security is subject to credit risk because of its exposure
to an external credit enhancement provider.

VOLUNTARY ADVANCES. Generally, in the event of delinquencies in payments
------------------
on the mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees
to make advances of cash for the benefit of certificate-holders, but only to the
extent that it determines such voluntary advances will be recoverable from
future payments and collections on the mortgage loans or otherwise.

OPTIONAL TERMINATION. Generally, the servicer may, at its option with
--------------------
respect to any certificates, repurchase all of the underlying mortgage loans
remaining outstanding at such time as the aggregate outstanding principal
balance of such mortgage loans is less than a specified percentage (generally 5-
10%) of the aggregate outstanding principal balance of the mortgage loans as of
the cut-off date specified with respect to such series.

B-21
<PAGE>

ASSET-BACKED SECURITIES

Core Fund, Government Income Fund and Global Income Fund may invest in
asset-backed securities. Such securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying asset-backed
securities can be expected to accelerate. Accordingly, a Fund's ability to
maintain positions in such securities will be affected by reductions in the
principal amount of such securities resulting from prepayments, and its ability
to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time.

Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.

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

Each Fund may invest in zero coupon bonds, deferred interest and capital
appreciation bonds and pay-in-kind ("PIK") securities. Zero coupon, deferred
interest and capital appreciation bonds are debt securities issued or sold at a
discount from their face value and which do not entitle the holder to any
periodic payment of interest prior to maturity or a specified date. The original
issue discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, the liquidity of the security and the
perceived credit quality of the issuer. These securities also may take the form
of debt securities that have been stripped of their unmatured interest coupons,
the coupons themselves or receipts or certificates representing interests in
such stripped debt obligations or coupons. The market prices of zero coupon,
deferred interest, capital appreciation bonds and PIK securities 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.

B-22
<PAGE>

PIK securities may be debt obligations or preferred shares that provide the
issuer with the option of paying interest or dividends on such obligations in
cash or in the form of additional securities rather than cash. Similar to zero
coupon bonds and deferred interest bonds, PIK securities are designed to give an
issuer flexibility in managing cash flow. PIK securities that are debt
securities can either be senior or subordinated debt and generally trade flat
(i.e., without accrued interest). The trading price of PIK debt securities
generally reflects the market value of the underlying debt plus an amount
representing accrued interest since the last interest payment.

Zero coupon, deferred interest, capital appreciation and PIK securities
involve the additional risk that, unlike securities that periodically pay
interest to maturity, a Fund will realize no cash until a specified future
payment date unless a portion of such securities is sold and, if the issuer of
such securities defaults, a Fund may obtain no return at all on its investment.
In addition, even though such securities do not provide for the payment of
current interest in cash, the Funds are nonetheless required to accrue income on
such investments for each taxable year and generally are required to distribute
such accrued amounts (net of deductible expenses, if any) to avoid being subject
to tax. Because no cash is generally received at the time of the accrual, a
Fund may be required to liquidate other portfolio securities to obtain
sufficient cash to satisfy federal tax distribution requirements applicable to
the Fund. See "Taxation."

VARIABLE AND FLOATING RATE SECURITIES

The interest rates payable on certain securities in which each Fund may
invest are not fixed and may fluctuate based upon changes in market rates. A
variable rate obligation has an interest rate which is adjusted at predesignated
periods in response to changes in the market rate of interest on which the
interest rate is based. Variable and floating rate obligations are less
effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation. The absence of an unconditional
demand feature on variable and floating rate municipal securities exercisable
within seven days would, and the failure of the issuer or a third party to honor
its obligations under a demand or put feature might, require a variable or
floating rate obligation to be treated as illiquid for purposes of the Tax
Exempt Funds' limitation on illiquid investments.

Each Fund may invest in "leveraged" inverse floating rate debt instruments
("inverse floaters"), including "leveraged inverse floaters." The interest rate
on inverse floaters resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index

B-23
<PAGE>

rate of interest. The higher the degree of leverage of an inverse floater, the
greater the volatility of its market value. Accordingly, the duration of an
inverse floater may exceed its stated final maturity. Certain inverse floaters
may be deemed to be illiquid securities for purposes of each Fund's limitation
on illiquid investments.

CORPORATE DEBT OBLIGATIONS

Core Fund, Global Income Fund and Government Income Fund may invest in
corporate debt obligations, including obligations of industrial, utility and
financial issuers. Corporate debt obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.

BANK OBLIGATIONS

Government Income Fund, Global Income Fund and Core Fund may each invest in
obligations issued or guaranteed by United States and foreign banks (Government
Income Fund may only invest in U.S. dollar denominated securities). Bank
obligations, including without limitation time deposits, bankers' acceptances
and certificates of deposit, may be general obligations of the parent bank or
may be obligations only of the issuing branch pursuant to the terms of the
specific obligations or government regulation.

Banks are subject to extensive governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. Foreign banks are subject to different regulations and are
generally permitted to engage in a wider variety of activities than U.S. banks.
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 operations of this
industry.

MUNICIPAL SECURITIES

Core Fund, Municipal Income Fund and Short Duration Tax-Free Fund may
invest in bonds, notes and other instruments issued by or on behalf of states,
territories and possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies or instrumentalities
("Municipal Securities"), the interest on which is exempt from regular federal
income tax (i.e., excluded from gross income for federal income tax purposes but
not necessarily exempt from the federal alternative minimum tax or from the
income taxes of any state or local government). In addition, Municipal
Securities include participation interests in such securities the interest on
which

B-24
<PAGE>

is, in the opinion of bond counsel or counsel selected by the Adviser, excluded
from gross income for federal income tax purposes. The Core Fund, Municipal
Income Fund and Short Duration Tax-Free Fund may revise their definition of
Municipal Securities in the future to include other types of securities that
currently exist, the interest on which is or will be, in the opinion of such
counsel, excluded from gross income for federal income tax purposes, provided
that investing in such securities is consistent with each Fund's investment
objective and policies.

Municipal Securities are often issued to obtain funds for various public
purposes including refunding outstanding obligations, obtaining funds for
general operating expenses, and obtaining funds to lend to other public
institutions and facilities. Municipal Securities also include certain
"private activity bonds" or industrial development bonds, which are issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct or equip facilities within a municipality for privately or publicly
owned corporations.

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

In addition to general obligations and revenue obligations, there is a
variety of hybrid and special types of Municipal Securities. There are also
numerous differences in the security of Municipal Securities both within and
between these two principal classifications.

For the purpose of applying a Fund's investment restrictions, the
identification of the issuer of a Municipal Security which is not a general
obligation is made by the Adviser based on the characteristics of the Municipal
Security, the most important of which is the source of funds for the payment of
principal and interest on such securities.

An entire issue of Municipal Securities may be purchased by one or a small
number of institutional investors such as Short

B-25
<PAGE>

Duration Tax-Free Fund, Municipal Income Fund and Core Fund. Thus, the issue may
not be said to be publicly offered. Unlike some securities that are not publicly
offered, a secondary market exists for many Municipal Securities that were not
publicly offered initially and such securities may be readily marketable.

The obligations of the issuer to pay the principal of and interest on a
Municipal Security are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, that may be enacted by Congress or state
legislatures extending the time for payment of principal or interest or imposing
other constraints upon the enforcement of such obligations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of the issuer to pay when due principal of or interest on a Municipal
Security may be materially affected.

Municipal Leases, Certificates of Participation and Other Participation
-----------------------------------------------------------------------
Interests. The Core, Municipal Income, and Short-Duration Tax-Free Funds may
- ---------
invest in municipal leases, certificates of participation and other
participation interests. 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. Income from such obligations is generally
exempt from state and local taxes in the state of issuance. Municipal leases
frequently involve special risks not normally associated with general
obligations or revenue bonds. Leases and installment purchase or conditional
sale contracts (which normally provide for title to the leased asset to pass
eventually to the governmental issuer) have evolved as a means for governmental
issuers to acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt issuance limitations
are deemed to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that relieve the governmental issuer of
any obligation to make future payments under the lease or contract unless money
is appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. In addition, such leases or contracts may be subject
to the temporary abatement of payments in the event the issuer is prevented from
maintaining occupancy of the leased premises or utilizing the leased equipment.
Although the obligations may be secured by the leased equipment or facilities,
the disposition of the property in the event of 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.

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

B-26
<PAGE>

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

The Core, Municipal Income and Short Duration Tax-Free Funds may purchase
participations in Municipal Securities held by a commercial bank or other
financial institution. Such participations provide a Fund with the right to a
pro rata undivided interest in the underlying Municipal Securities. In
addition, such participations generally provide a Fund with the right to demand
payment, on not more than seven days' notice, of all or any part of such Fund's
participation interest in the underlying Municipal Security, plus accrued
interest. A Fund will only invest in such participations if, in the opinion of
bond counsel, counsel for the issuers of such participations or counsel selected
by the Adviser, the interest from such participations is exempt from regular
federal income tax.

Municipal Notes. Municipal Securities in the form of notes generally are
---------------
used to provide for short-term capital needs, in anticipation of an issuer's
receipt of other revenues or financing, and typically have maturities of up to
three years. Such instruments may include tax anticipation notes, revenue
anticipation notes, bond anticipation notes, tax and revenue anticipation notes
and construction loan notes. Tax anticipation notes are issued to finance the
working capital needs of governments. Generally, they are issued in
anticipation of various tax revenues, such as income, sales, property, use and
business taxes, and are payable from these specific future taxes. Revenue
anticipation notes are issued in expectation of receipt of other kinds of
revenue, such as federal revenues available under federal revenue sharing
programs. Bond anticipation notes are issued to provide interim financing until
long-term bond financing can be arranged. In most cases, the long-term bonds
then provide the funds needed for repayment of the notes. Tax and revenue
anticipation notes combine the funding sources of both tax anticipation notes
and revenue anticipation notes. Construction Loan Notes are sold to provide
construction financing. These notes

B-27
<PAGE>

are secured by mortgage notes insured by the FHA; however, the proceeds from the
insurance may be less than the economic equivalent of the payment of principal
and interest on the mortgage note if there has been a default. The obligations
of an issuer of municipal notes are generally secured by the anticipated
revenues from taxes, grants or bond financing. An investment in such
instruments, however, presents a risk that the anticipated revenues will not be
received or that such revenues will be insufficient to satisfy the issuer's
payment obligations under the notes or that refinancing will be otherwise
unavailable.

Tax-Exempt Commercial Paper. Issues of commercial paper typically
---------------------------
represent short-term, unsecured, negotiable promissory notes. These obligations
are issued by state and local governments and their agencies to finance working
capital needs of municipalities or to provide interim construction financing and
are paid from general revenues of municipalities or are refinanced with long-
term debt. In most cases, tax-exempt commercial paper is backed by letters of
credit, lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions.

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

Private Activity Bonds. Short Duration Tax-Free Fund, Municipal Income
----------------------
Fund and Core Fund may each invest in certain types of Municipal Securities,
generally referred to as industrial development bonds (and referred to under
current tax law as private activity bonds), which are issued by or on behalf of
public authorities to obtain funds to provide privately operated housing
facilities, airport, mass transit or port facilities, sewage disposal, solid
waste disposal or hazardous waste treatment or disposal facilities and certain
local facilities for water supply, gas or electricity. Other types of industrial
development bonds, the proceeds of which are used for the construction,
equipment, repair or improvement of privately operated industrial or

B-28
<PAGE>

commercial facilities, may constitute Municipal Securities, although the current
federal tax laws place substantial limitations on the size of such issues. A Tax
Exempt Fund's distributions of its interest income from private activity bonds
may subject certain investors to the federal alternative minimum tax whereas
Core Fund's distributions of any tax-exempt interest it receives from any source
will be taxable for regular federal income tax purposes.

Tender Option Bonds. A tender option bond is a Municipal Security
-------------------
(generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than
prevailing short-term, tax-exempt rates. The bond is typically issued with the
agreement of a third party, such as a bank, broker-dealer or other financial
institution, which grants the security holders the option, at periodic
intervals, to tender their securities to the institution and receive the face
value thereof. As consideration for providing the option, the financial
institution receives periodic fees equal to the difference between the bond's
fixed coupon rate and the rate, as determined by a remarketing or similar agent
at or near the commencement of such period, that would cause the securities,
coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term, tax-
exempt rate. However, an institution will not be obligated to accept tendered
bonds in the event of certain defaults or a significant downgrade in the credit
rating assigned to the issuer of the bond. The liquidity of a tender option bond
is a function of the credit quality of both the bond issuer and the financial
institution providing liquidity. Tender option bonds are deemed to be liquid
unless, in the opinion of the Adviser, the credit quality of the bond issuer and
the financial institution is deemed, in light of the Fund's credit quality
requirements, to be inadequate and the bond would not otherwise be readily
marketable. The Tax Exempt Funds intend to invest in tender option bonds the
interest on which will, in the opinion of bond counsel, counsel for the issuer
of interests therein or counsel selected by the Adviser, be exempt from regular
federal income tax. However, because there can be no assurance that the Internal
Revenue Service (the "Service") will agree with such counsel's opinion in any
particular case, there is a risk that a Tax Exempt Fund will not be considered
the owner of such tender option bonds and thus will not be entitled to treat
such interest as exempt from such tax. Additionally, the federal income tax
treatment of certain other aspects of these investments, including the proper
tax treatment of tender option bonds and the associated fees in relation to
various regulated investment company tax provisions is unclear. The Tax Exempt
Funds intend to manage their portfolio in a manner designed to eliminate or
minimize any adverse impact from the tax rules applicable to these investments.

Auction Rate Securities. The Core, Municipal Income and Short Duration
-----------------------
Tax-Free Funds may invest in auction rate securities. Auction rate securities
consist of auction rate Municipal Securities and auction rate preferred
securities issued by closed-

B-29
<PAGE>

end investment companies that invest primarily in Municipal Securities
(collectively, "auction rate securities"). Provided that the auction mechanism
is successful, auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals. The dividend is
reset by "Dutch" auction in which bids are made by broker-dealers and other
institutions for a certain amount of securities at a specified minimum yield.
The dividend 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 some risk
that an auction will fail due to insufficient demand for the securities.

Dividends on auction rate preferred securities issued by a closed-end fund
may be designated as exempt from federal income tax to the extent they are
attributable to exempt income earned by the fund on the securities in its
portfolio and distributed to holders of the preferred securities, provided that
the preferred securities are treated as equity securities for federal income tax
purposes and the closed-end fund complies with certain tests under the Code.

A Fund's investments in auction rate securities of closed-end funds are
subject to the limitations prescribed by the Act and certain state securities
regulations. The Funds will indirectly bear their proportionate share of any
management and other fees paid by such closed-end funds in addition to the
advisory fees payable directly by the Funds.

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

The Funds may utilize new issue or secondary market insurance. A new issue
insurance policy is purchased by a bond issuer who wishes to increase the credit
rating of a security. By paying a premium and meeting the insurer's underwriting
standards, the bond issuer is able to obtain a high credit rating (usually, Aaa
from Moody's Investors Service, Inc. ("Moody's") or AAA from Standard & Poor's
Ratings Group ("Standard & Poor's")) for the issued security. Such insurance is
likely to increase the purchase price and resale value of the security. New
issue insurance policies are non-cancelable and continue in force as long as the
bonds are outstanding.

A secondary market insurance policy is purchased by an investor (such as a
Fund) subsequent to a bond's original issuance and generally insures a
particular bond for the remainder of its term. The Funds may purchase bonds
which have already been insured under a secondary market insurance policy by a
prior investor, or

B-30
<PAGE>

the Funds may directly purchase such a policy from insurers for bonds which are
currently uninsured.

An insured Municipal Security acquired by a Fund will typically be covered
by only one of the above types of policies. All of the insurance policies used
by a Fund will be obtained only from insurance companies rated, at the time of
purchase, Aaa by Moody's or AAA by Standard & Poor's.

Standby Commitments. In order to enhance the liquidity of Municipal
-------------------
Securities, the Tax Exempt Funds may acquire the right to sell a security to
another party at a guaranteed price and date. Such a right to resell may be
referred to as a "standby commitment" or liquidity put, depending on its
characteristics. The aggregate price which a Fund pays for securities with
standby commitments may be higher than the price which otherwise would be paid
for the securities. Standby commitments may not be available or may not be
available on satisfactory terms.

Standby commitments may involve letters of credit issued by domestic or
foreign banks supporting the other party's ability to purchase the security from
a Tax Exempt Fund. The right to sell may be exercisable on demand or at
specified intervals, and may form part of a security or be acquired separately
by a Tax Exempt Fund. In considering whether a security meets a Tax Exempt
Fund's quality standards, the particular Tax Exempt Fund will look to the
creditworthiness of the party providing the Fund with the right to sell as well
as the quality of the security itself.

The Tax Exempt Funds value Municipal Securities which are subject to
standby commitments at amortized cost. The exercise price of the standby
commitments is expected to approximate such amortized cost. No value is
assigned to the standby commitments for purposes of determining a Tax Exempt
Fund's net asset value. The cost of a standby commitment is carried as
unrealized depreciation from the time of purchase until it is exercised or
expires. Since the value of a standby commitment is dependent on the ability of
the standby commitment writer to meet its obligation to repurchase, a Tax Exempt
Fund's policy is to enter into standby commitment transactions only with banks,
brokers or dealers which present a minimal risk of default.

The Adviser understands that the Service has issued a favorable revenue
ruling to the effect that, under specified circumstances, a registered
investment company will be the owner of tax-exempt municipal obligations
acquired subject to a put option. The Service has subsequently announced that it
will not ordinarily issue advance ruling letters as to the identity of the true
owner of property in cases involving the sale of securities or participation
interests therein if the purchaser has the right to cause the security, or the
participation interest therein, to be purchased by either the seller or a third
party. The Tax Exempt Funds intend to take the position that they are the owner
of any Municipal Securities acquired subject to a standby commitment or acquired
or held with certain other types of put rights and that

B-31
<PAGE>

tax-exempt interest earned with respect to such Municipal Securities will be
tax-exempt in their hands. There is no assurance that standby commitments will
be available to the Tax Exempt Funds nor have the Tax Exempt Funds assumed that
such commitments would continue to be available under all market conditions.

Call Risk and Reinvestment Risk. Municipal Securities may include "call"
-------------------------------
provisions which permit the issuers of such securities, at any time or after a
specified period, to redeem the securities prior to their stated maturity. In
the event that Municipal Securities held in a Fund's portfolio are called prior
to the maturity, the Fund will be required to reinvest the proceeds on such
securities at an earlier date and may be able to do so only at lower yields,
thereby reducing the Fund's return on its portfolio securities.

FOREIGN INVESTMENTS

Core and Global Income Funds may invest in securities of foreign issuers
and in fixed-income securities quoted or denominated in a currency other than
U.S. dollars. Investing in the securities of foreign issuers involves certain
special considerations, including those set forth below, which are not typically
associated with investing in U.S. issuers. Since investments in the securities
of foreign issuers may involve currencies of foreign countries, and since Core
Fund and Global Income Fund may temporarily hold funds in bank deposits in
foreign currencies during completion of investment programs, Core Fund and
Global Income Fund may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.

Foreign companies are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies. In addition, there may be less publicly available
information about a foreign company than about a comparable U.S. company.
Volume and liquidity in most foreign bond markets are less than in the United
States markets and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Commissions on foreign
securities exchanges are often fixed and generally are higher than negotiated
commissions or dealer mark-ups in the U.S. markets, although each Fund endeavors
to achieve the most favorable net results on its portfolio transactions. There
is generally less government supervision and regulation of securities markets
and exchanges, brokers, dealers and listed companies than in the United States.
Mail service between the United States and foreign countries may be slower or
less reliable than within the United States, thus increasing the risk of delayed
settlement of portfolio transactions or loss of certificates for portfolio
securities.

B-32
<PAGE>

Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of Core Fund or Global Income Fund is
uninvested and no return is earned thereon. The inability of Core Fund or Global
Income Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of portfolio securities due to settlement problems could result either in losses
to Core Fund or Global Income Fund due to subsequent declines in value of the
portfolio securities, or, if Core Fund or Global Income Fund has entered into a
contract to sell the securities, could result in possible liability to the
purchaser. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could adversely affect Core Fund's
or Global Income Fund's investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resources self-sufficiency and balance of payments position.

SPECIAL RISKS OF INVESTMENTS IN EMERGING MARKETS. The Core 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"). Emerging markets
are generally located in the Asia-Pacific region, Eastern Europe, Latin and
South America and Africa. The Fund's purchase and sale of portfolio securities
in certain emerging markets 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 the Fund, the Adviser and its affiliates and their respective clients and
other service providers. The 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 markets 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 such company 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 the Fund. Furthermore, the repatriation of both

B-33
<PAGE>

investment income and capital from several of the Asian emerging markets is
subject to restrictions such as the need for certain governmental consents.

Many of the emerging markets 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 of the
emerging markets do not have fully democratic governments. For example, some
governments of emerging market countries are authoritarian in nature or have
been installed or removed as a result of military coups, while governments in
other emerging markets 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 emerging market countries. The
economies of most of the emerging markets are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Union. In addition, the economies of some
of the emerging markets are vulnerable to weakness in world prices for their
commodity exports.

Settlement procedures in emerging markets are frequently less developed and
reliable than those in the United States and may involve the 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 market countries. Consequently, there can be
no assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when the Fund wishes to use them.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Core Fund and Global Income
Fund may enter into forward foreign currency exchange contracts for hedging
purposes and to seek to increase total return. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
generally charged at any stage for trades.

B-34
<PAGE>

At the maturity of a forward contract, Global Income Fund and Core Fund may
either accept or make delivery of the currency specified in the contract or, at
or prior to maturity, enter into a closing purchase transaction involving the
purchase or sale of an offsetting contract. Closing purchase transactions with
respect to forward contracts are usually effected with the currency trader who
is a party to the original forward contract.

Global Income Fund or Core Fund may enter into forward foreign currency
exchange contracts in several circumstances. First, when Global Income Fund or
Core Fund enters into a contract for the purchase or sale of a security quoted
or denominated in a foreign currency, or when Global Income Fund or Core Fund
anticipates the receipt in a foreign currency of a dividend or interest payment
on such a security which it holds, Global Income Fund or Core Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of U.S. dollars,
of the amount of foreign currency involved in the underlying transactions,
Global Income Fund or Core Fund will attempt to protect itself against an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.

Additionally, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of U.S. dollars, the
amount of foreign currency approximating the value of some or all of a Fund's
portfolio securities quoted or denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.

Global Income Fund and Core Fund may engage in cross-hedging by using
forward contracts in one currency to hedge against fluctuations in the value of
securities denominated or quoted in a different currency if the Advisers
determine that there is a pattern of correlation between the two currencies.
The Global Income Fund and Core Fund may also purchase and sell forward
contracts to seek to increase total return when the Advisers
<PAGE>

anticipate that the foreign currency will appreciate or depreciate in value, but
securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in a Fund's portfolio.

Global Income Fund's and Core Fund's custodian will place cash or liquid
assets, as permitted by applicable law, into a segregated account of the Fund in
an amount equal to the value of the Fund's total assets committed to the
consummation of forward foreign currency exchange contracts requiring the Fund
to purchase foreign currencies forward contracts entered into to seek to
increase total return. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account on
a daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts. The segregated accounts will
be marked-to-market on a daily basis. Although the contracts are not presently
regulated by the Commodity Trading Futures Commission ("CFTC"), the CFTC may in
the future assert authority to regulate these contracts. In such event, a Fund's
ability to utilize forward foreign currency exchange contracts may be
restricted. The Global Income Fund and Core Fund will not enter into a forward
contract with a term of greater than one year.

While Global Income Fund and Core Fund may enter into forward contracts to
seek to reduce currency exchange rate risks, transactions in such contracts
involve certain other risks. Thus, while Global Income Fund and Core Fund may
benefit from such transactions, unanticipated changes in currency prices may
result in a poorer overall performance for a Fund than if it had not engaged in
any such transactions. Moreover, there may be imperfect correlation between a
Fund's portfolio holdings of securities quoted or denominated in a particular
currency and forward contracts entered into by Global Income Fund and Core Fund.
Such imperfect correlation may cause the Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.

Forward contracts are subject to the risk that the counterparty to such
contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearinghouse, a default
on the 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
such transactions 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 Adviser.

INTEREST RATE SWAPS, MORTGAGE SWAPS, CURRENCY SWAPS AND INTEREST RATE CAPS,
FLOORS AND COLLARS

Each Fund may enter into interest rate swaps, caps, floors and collars. In
addition, Core Fund, Adjustable Rate Fund, Government
<PAGE>

Income, Short Duration Government Fund and Global Income Fund may enter into
mortgage swaps and Core Fund and Global Income Fund may also enter into currency
swaps. Each Fund may enter into swap transactions for hedging purposes or to
seek to increase total return. Interest rate swaps involve the exchange by a
Fund with another party of their respective commitments to pay or receive
interest, such as an exchange of fixed-rate payments for floating rate payments.
Mortgage swaps are similar to interest rate swaps in that they represent
commitments to pay and receive interest. The notional principal amount, however,
is tied to a reference pool or pools of mortgages. Currency swaps involve the
exchange of the parties' respective rights to make or receive payments in
specified currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payment of interest on a notional principal amount from the
party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates. Since interest rate,
mortgage and currency swaps and interest rate caps, floors and collars are
individually negotiated, each Fund expects to achieve an acceptable degree of
correlation between its portfolio investments and its swap, cap, floor and
collar positions.

A Fund will enter into interest rate and mortgage swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate and mortgage swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate and mortgage swaps is limited to the net amount of
payments that a Fund is contractually obligated to make. If the other party to
an interest rate swap defaults, a Fund's risk of loss consists of the net amount
of payments that such Fund is contractually entitled to receive, if any. In
contrast, currency swaps usually involve the delivery of the entire principal
amount of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. The net amount of the excess, if any, of a Fund's obligations
over its entitlements with respect to each interest rate or currency swap will
be accrued on a daily basis and an amount of cash or liquid assets, as permitted
by applicable law, having an aggregate net asset value at least equal to such
accrued excess will be maintained in a segregated account by a Fund's custodian.
Inasmuch as these transactions are entered into for hedging purposes or are
offset by cash or liquid assets, as permitted by applicable law, maintained in a
segregated account the Funds and the Advisers believe that swaps do not
constitute senior securities under the
<PAGE>

Act and, accordingly, will not treat them as being subject to a Fund's borrowing
restriction.

The Funds will not enter into any swap transactions unless the unsecured
commercial paper, senior debt or claims-paying ability of the other party is
rated either AA or A-1 or better by Standard & Poor's or Aa or P-1 or better by
Moody's or their equivalent ratings. If there is a default by the other party
to such a transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As
a result, the swap market has become relatively liquid in comparison with the
markets for other similar instruments which are traded in the interbank market.
The staff of the Securities and Exchange Commission (the "SEC") currently takes
the position that swaps, caps, floors and collars are illiquid for purposes of
a Fund's limitation on illiquid investments.

The use of interest rate, mortgage and currency swaps, as well as interest
rate caps, floors and collars, is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser is incorrect in its forecasts
of market values, interest rates and 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.

OPTIONS ON SECURITIES AND SECURITIES INDICES

WRITING COVERED OPTIONS. Each Fund may write (sell) covered call and put
-----------------------
options on any securities in which it may invest or on any securities index
based on securities in which it may invest. A Fund may purchase and write such
options on securities that are listed on national domestic securities exchanges
or foreign securities exchanges or traded in the over-the-counter market. A
call option written by a Fund obligates the Fund to sell specified securities to
the holder of the option at a specified price if the option is exercised at any
time before the expiration date. All call options written by a Fund are
covered, which means that the Fund will own the securities subject to the option
so long as the option is outstanding or use the other methods described below.
The purpose of a Fund in writing covered call options is to realize greater
income than would be realized in portfolio securities transactions alone.
However, in writing covered call options for additional income, a Fund may
forego the opportunity to profit from an increase in the market price of the
underlying security.

A put option written by a Fund obligates the Fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. The purpose of writing such
options is to generate additional income. However, in return for the option
premium, the Fund accepts the risk that it will be required to purchase the
underlying securities
<PAGE>

at a price in excess of the securities' market value at the time of purchase.

All call and put options written by a Fund are covered. A written call
option or put option may be covered by (i) maintaining cash or liquid assets, as
permitted by applicable law, either of which, in the case of Global Income Fund
or Core Fund, may be quoted or denominated in any currency, in a segregated
account maintained by the Fund's custodian with a value at least equal to the
Fund's obligation under the option, (ii) entering into an offsetting forward
commitment and/or (iii) purchasing an offsetting option or any other option
which, by virtue of its exercise price or otherwise, reduces the Fund's net
exposure on its written option position.

A Fund may terminate its obligations under an exchange-traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases
are referred to as "closing purchase transactions."

Each Fund may also write (sell) covered call and put options on any
securities index composed of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security.

The Funds may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by their respective custodian) upon conversion or exchange of
other securities in its portfolio. The Funds may also cover call and put
options on a securities index by maintaining cash or liquid assets, as permitted
by applicable law, with a value equal to the exercise price in a segregated
account with their custodian or by using the other methods described above.

PURCHASING OPTIONS. Each Fund may also purchase put and call options on
------------------
any securities in which it may invest or on any securities index based on
securities in which it may invest, and each Fund may enter into closing sale
transactions in order to realize gains or minimize losses on options it had
purchased.

A Fund would normally purchase call options in anticipation of an increase,
or put options in anticipation of a decrease ("protective puts") in the market
value of securities of the type in which it may invest. The purchase of a call
option would
<PAGE>

entitle a Fund, in return for the premium paid, to purchase specified securities
at a specified price during the option period. A Fund would ordinarily realize a
gain on the purchase of a call option if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option. The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts is
designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs; otherwise the Fund
would realize either no gain or a loss on the purchase of the put option. Gains
and losses on the purchase of put options may be offset by countervailing
changes in the value of the underlying portfolio securities.

A Fund may purchase put and call options on securities indices for the same
purposes as it may purchase options on securities. Options on securities indices
are similar to options on securities, except that the exercise of securities
index options requires cash payments and does not involve the actual purchase or
sale of securities. In addition, securities index options are designed to
reflect price fluctuations in a group of securities or segment of the securities
market rather than price fluctuations in a single security.

Transactions by a Fund in options on securities and securities indices will
be subject to limitations established by each of the exchanges, boards of trade
or other trading facilities on which such options are traded governing the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written or purchased on the same or different exchanges, boards
of trade or other trading facilities or are held or written in one or more
accounts or through one or more brokers. Thus, the number of options which a
Fund may write or purchase may be affected by options written or purchased by
other investment advisory clients of the Advisers. An exchange, board of trade
or other trading facility may order the liquidation of positions found to be in
excess of these limits, and it may impose certain other sanctions.

WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Core Fund and
----------------------------------------------------
Global Income Fund may write covered put and call options and purchase put and
call options on foreign currencies in an attempt to protect against declines in
the dollar value of portfolio securities and against increases in the dollar
cost of securities to be acquired. Global Income Fund and Core Fund may use
options on currency to cross-hedge, which involves writing or
<PAGE>

purchasing options on one currency to seek to hedge against changes in exchange
rates for a different currency with a pattern of correlation. In addition,
Global Income Fund and Core Fund may purchase call options on currency to seek
to increase total return when the Advisers anticipate that the currency will
appreciate in value, but the securities denominated or quoted in that currency
do not present attractive investment opportunities and are not included in the
Fund's portfolios.

A call option written by Core Fund and Global Income Fund obligates the
Fund to sell specified currency to the holder of the option at a specified price
if the option is exercised at any time before the expiration date. A put option
written by a Fund obligates the Fund to purchase specified currency from the
option holder at a specified price if the option is exercised at any time before
the expiration date. The writing of currency options involves a risk that a
Fund will, upon exercise of the option, be required to sell currency subject to
a call at a price that is less than the currency's market value or be required
to purchase currency subject to a put at a price that exceeds the currency's
market value.

A Fund may terminate its obligations under a written call or put option by
purchasing an option identical to the one written. Such purchases are referred
to as "closing purchase transactions." A Fund would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
purchased options.

Core Fund and Global Income Fund would normally purchase call options in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by the Fund are denominated or quoted. The purchase of
a call option would entitle a Fund, in return for the premium paid, to purchase
specified currency at a specified price during the option period. A Fund would
ordinarily realize a gain if, during the option period, the value of such
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.

Core Fund or Global Income Fund would normally purchase put options in
anticipation of a decline in the U.S. dollar value of currency in which
securities in its portfolio are denominated or quoted ("protective puts"). The
purchase of a put option would entitle Core Fund and Global Income Fund, in
exchange for the premium paid, to sell specified currency at a specified price
during the option period. The purchase of protective puts is designed merely to
offset or hedge against a decline in the U.S. dollar value of a Fund's portfolio
securities due to currency exchange rate fluctuations. A Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
currency decreased below the exercise price sufficiently to more than cover the
premium and transaction costs; otherwise the Fund would realize either no gain
or a loss on the purchase of the put option. Gains and losses on the purchase
of protective put options would tend to
<PAGE>

be offset by countervailing changes in the value of underlying currency.

In addition to using options for the hedging purposes described above,
Global Income Fund and Core Fund may use options on currency to seek to increase
total return. Global Income Fund and Core Fund may write (sell) covered put and
call options on any currency in an attempt to realize greater income than would
be realized on portfolio securities transactions alone. However, in writing
covered call options for additional income, Global Income Fund and Core Fund may
forego the opportunity to profit from an increase in the market value of the
underlying currency. Also, when writing put options, Global Income Fund and
Core Fund accept, in return for the option premium, the risk that it may be
required to purchase the underlying currency at a price in excess of the
currency's market value at the time of purchase.

Global Income Fund and Core Fund would normally purchase call options to
seek to increase total return in anticipation of an increase in the market value
of a currency. Global Income Fund and Core Fund would ordinarily realize a gain
if, during the option period, the value of such currency exceeded the sum of the
exercise price, the premium paid and transaction costs. Otherwise Global Income
Fund and Core Fund would realize either no gain or a loss on the purchase of the
call option. Put options may be purchased by the Global Income Fund and Core
Fund for the purpose of benefiting from a decline in the value of currencies
which it does not own. Global Income Fund and Core Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
currency decreased below the exercise price sufficiently to more than cover the
premium and transaction costs. Otherwise Global Income Fund and Core Fund would
realize either no gain or a loss on the purchase of the put option.

YIELD CURVE OPTIONS. Each Fund may enter into options on the yield
-------------------
"spread," or yield differential between two securities. Such options are
referred to as "yield curve" options. In contrast to other types of options, a
yield curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a call) or narrows (in the
case of a put), regardless of whether the yields of the underlying securities
increase or decrease.

Yield curve options may be used for the same purposes as other options on
securities. For example, a Fund may purchase a call option on the yield spread
between two securities if it owns one of the securities and anticipates
purchasing the other security and wants to hedge against an adverse change in
the yield spread between the two securities. A Fund may also purchase or write
yield curve options for other than hedging purposes (i.e., in an attempt to
increase its current income) if, in the judgment of the Adviser, the Fund will
be able to profit from movements in the spread between the yields of the
underlying securities. The
<PAGE>

trading of yield curve options is subject to all of the risks associated with
the trading of other types of options. In addition, however, such options
present a risk of loss even if the yield of one of the underlying securities
remains constant, or if the spread moves in a direction or to an extent which
was not anticipated.

Yield curve options written by a Fund must be "covered." A call (or put)
option is covered if the Fund holds another call (or put) option on the spread
between the same two securities and maintains in a segregated account with its
custodian cash or liquid assets, as permitted by applicable law, sufficient to
cover the Fund's net liability under the two options. Therefore, a Fund's
liability for such a covered option is generally limited to the difference
between the amount of the Fund's liability under the option written by the Fund
less the value of the option held by the Fund. Yield curve options may also be
covered in such other manner as may be in accordance with the requirements of
the counterparty with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-counter, and because they
have been only recently introduced, established trading markets for these
options have not yet developed.

RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
------------------------------------------
liquid secondary market on a domestic or foreign options exchange will exist for
any particular exchange-traded option or at any particular time. If a Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if a Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
<PAGE>

A Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the SEC changes its position, the Funds will treat
purchased over-the-counter options and all assets used to cover written over-
the-counter options as illiquid securities, except that with respect to options
written with primary dealers in U.S. Government Securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to a formula
approved by the SEC.

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 successful use of options for
hedging purposes depends in part on the applicable Adviser's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.

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 Core Fund and Global Income Fund,
currency exchange rates, each 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 of such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
Securities), securities indices, foreign currencies in the case of Global Income
Fund and Core Fund, and any other financial instruments and indices. A Fund will
engage in futures and related options transactions only for bona fide hedging
purposes as defined below or for purposes of seeking to increase total return to
the extent permitted by regulations of the CFTC. All futures contracts entered
into by a Fund are traded on U.S. exchanges or boards of trade that are licensed
and regulated by the CFTC or on foreign exchanges.

FUTURES CONTRACTS. A futures contract may generally be described as an
-----------------
agreement between two parties to buy and sell particular financial instruments
or currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).

When interest rates are rising or securities prices are falling, a Fund can
seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
securities prices are rising, a Fund, through the purchase of futures contracts,
can attempt to secure better rates or prices than might later be available in
the market when it effects anticipated purchases. Core Fund and Global

B-44
<PAGE>

Income Fund may each seek to offset anticipated changes in the value of a
currency in which its portfolio securities, or securities that it intends to
purchase, are quoted or denominated by purchasing and selling futures contracts
on such currencies.

Positions taken in the futures markets are not normally held to maturity
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures contracts on securities or currency will usually
be liquidated in this manner, a Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
on securities or currency are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.

HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
------------------
establish with more certainty than would otherwise be possible the effective
price or rate of return on portfolio securities or securities that a Fund
proposes to acquire or the exchange rate of currencies in which portfolio
securities are quoted or denominated. A Fund may, for example, take a "short"
position in the futures market by selling futures contracts in an attempt to
hedge against an anticipated rise in interest rates or a decline in market
prices or foreign currency rates that would adversely affect the U.S. dollar
value of the Fund's portfolio securities. Such futures contracts may include
contracts for the future delivery of securities held by a Fund or securities
with characteristics similar to those of a Fund's portfolio securities.
Similarly, Core Fund and Global Income Fund may each sell futures contracts on
any currencies in which its portfolio securities are quoted or denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies. If, in the opinion of the
Advisers, there is a sufficient degree of correlation between price trends for a
Fund's portfolio securities and futures contracts based on other financial
instruments, securities indices or other indices, the Funds may also enter into
such futures contracts as part of its hedging strategy. Although under some
circumstances prices of securities in a Fund's portfolio may be more or less
volatile than prices of such futures contracts, the Advisers will attempt to
estimate the extent of this volatility difference based on historical patterns
and compensate for any such differential by having a Fund enter into a greater
or lesser number of futures contracts or by attempting to achieve only a partial
hedge against price changes affecting a Fund's portfolio securities. When
hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of a Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.

B-45
<PAGE>

On other occasions, a Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available.

OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
----------------------------
futures contracts will give a Fund the right (but not the obligation) for a
specified price to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.

The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By writing
a call option, a Fund becomes obligated, in exchange for the premium, (upon
exercise of the option) to sell a futures contract if the option is exercised,
which may have a value higher than the exercise price. Conversely, the writing
of a put option on a futures contract generates a premium which may partially
offset an increase in the price of securities that a Fund intends to purchase.
However, a Fund becomes obligated (upon exercise of the option) to purchase a
futures contract if the option is exercised, which may have a value lower than
the exercise price. Thus, the loss incurred by a Fund in writing options on
futures is potentially unlimited and may exceed the amount of the premium
received. The Funds will incur transaction costs in connection with the writing
of options on futures.

The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.

OTHER CONSIDERATIONS. Each Fund will engage in futures and related options
--------------------
transactions only for bona fide hedging or, except for purchases or sales by
Core Fund of futures on currencies, to seek to increase total return as
permitted by CFTC regulations which permit principals of an investment company
registered under the Act to engage in such transactions without registering as
commodity pool operators. Each Fund will determine that the price fluctuations
in the futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the Fund or
securities or instruments which it expects to purchase. Except as stated below,
each Fund's futures transactions will be entered into for traditional hedging
purposes -- i.e., futures contracts will be sold to protect against a decline in
the price of securities (or

B-46
<PAGE>

the currency in which they are quoted or denominated) that a Fund owns or
futures contracts will be purchased to protect a Fund against an increase in the
price of securities (or the currency in which they are quoted or denominated) it
intends to purchase. As evidence of this hedging intent, each Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for a Fund to do so, a
long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.

As an alternative to compliance with the bona fide hedging definition, a
CFTC regulation permits the Funds to elect to comply with a different test under
which the aggregate initial margin and premiums required to establish positions
to seek to increase total return in futures contracts and options on futures
will not exceed 5% of the net asset value of a Fund's portfolio, after taking
into account unrealized profits and losses on any such positions and excluding
the amount by which such options were in-the-money at the time of purchase. The
Funds will engage in transactions in futures contracts and related options only
to the extent such transactions are consistent with the requirements of the
Internal Revenue Code of 1986, as amended (the "Code") for maintaining their
qualifications as regulated investment companies for federal income tax
purposes. See "Taxation."

Transactions in futures contracts and options on futures 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
establish with the custodian a segregated account consisting of cash or liquid
assets, as permitted by applicable law, in an amount equal to the underlying
value of such contracts and options.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
while a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates or securities prices or currency
exchange rates may result in a poorer overall performance for a Fund than if it
had not entered into any futures contracts or options transactions. In the event
of an imperfect correlation between a futures position and a portfolio position
which is intended to be protected, the desired protection may not be obtained
and a Fund may be exposed to risk of loss. In addition, it is not possible to
hedge fully or protect against currency fluctuations affecting the value of
securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.

B-47
<PAGE>

Perfect correlation between a Fund's futures positions and portfolio
positions will be impossible to achieve. There are no futures contracts based
upon individual securities, except certain U.S. Government Securities. The only
futures contracts available to hedge a Fund's portfolio are various futures on
U.S. Government Securities, securities indices and foreign currencies.

MORTGAGE DOLLAR ROLLS

The Taxable 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 similar (same type, coupon and
maturity), but not identical securities on a specified future date. During the
roll period, a Fund loses the right to receive principal and interest paid on
the securities sold. However, a Fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of a Fund compared with what such performance would have been without the use of
mortgage dollar rolls. All cash proceeds will be invested in instruments that
are permissible investments for the applicable Fund. Each Fund will hold and
maintain in a segregated account until the settlement date cash or liquid
assets, as permitted by applicable law, in an amount equal to its forward
purchase price.

For financial reporting and tax purposes, the Funds treat 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.

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

CONVERTIBLE SECURITIES

Convertible securities include corporate notes or preferred stock but are
ordinarily long-term debt obligation of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all debt securities, the
market value of

B-48
<PAGE>

convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. 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 value 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 Fund invests will be subject to the same rating
criteria as its other investments in fixed-income securities.

LENDING OF PORTFOLIO SECURITIES

Each Fund may lend portfolio securities. Under present regulatory
policies, such loans may be made to institutions, such as brokers or dealers and
would be required to be secured continuously by collateral in cash, cash
equivalents, letters of credit 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. A Fund has the
right to call a loan and obtain the securities loaned at any time on five days'
notice. For the duration of a loan, a Fund continues to receive the equivalent
of the interest or dividends paid by the issuer on the securities loaned and
also receives compensation from investment of the collateral. A Fund would not
have the right to vote any securities having voting rights during the existence
of the loan, but a Fund would call the loan in anticipation of an important vote
to be taken among holders of the securities or the giving or withholding of
their consent on a material matter affecting the investment. As with other
extensions of credit there are risks of delay in recovering, or even loss of
rights in, the collateral should the borrower of the securities fail
financially. However, the loans are made only to firms deemed by the applicable
Adviser to be of good standing, and when, in the judgment of the applicable
Adviser, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If an Adviser determines to make
securities loans, the value of the securities loaned will not exceed one-third
of the value of the total assets of each Fund.

B-49
<PAGE>

RESTRICTED AND ILLIQUID SECURITIES

Each Fund may purchase securities that are not registered or offered in an
exempt non-public offering ("Restricted Securities") under the Securities Act of
1933, as amended ("1933 Act"), including securities eligible for resale to
"qualified institutional buyers" pursuant to Rule 144A under the 1933 Act.
However, a Fund will not invest more than 15% of its net assets in illiquid
investments, which includes repurchase agreements maturing in more than seven
days, interest rate, currency and mortgage swaps, interest rate caps, floors and
collars, certain SMBS, municipal leases, certain over-the-counter options,
securities that are not readily marketable and Restricted Securities, unless the
Board of Trustees determines, based upon a continuing review of the trading
markets for the specific Restricted Securities, that such Restricted Securities
are liquid. Certain commercial paper issued in reliance on Section 4(2) of the
1933 Act is treated like Rule 144A Securities. The Trustees have adopted
guidelines and delegated to the Advisers the daily function of determining and
monitoring the liquidity of the Funds' portfolio securities. The Board of
Trustees, however, will retain sufficient oversight and be ultimately
responsible for the determinations. Since it is not possible to predict with
assurance exactly how the market for Restricted Securities sold and offered
under Rule 144A or Section 4(2) will develop, the Trustees will carefully
monitor the Funds' 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 buyers become
for a time uninterested in purchasing these Restricted Securities.

The purchase price and subsequent valuation of Restricted Securities
normally reflect a discount from the price at which such securities trade when
they are not restricted, since the restriction makes them less liquid. The
amount of the discount from the prevailing market price is expected to vary
depending upon the type of security, the character of the issuer, the party who
will bear the expenses of registering the Restricted Securities and prevailing
supply and demand conditions.

WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES

Each Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. The Funds will purchase
securities on a when-issued basis or purchase or sell securities on a forward
commitment basis only with the intention of completing the transaction and
actually

B-50
<PAGE>

purchasing or selling the securities. If deemed advisable as a matter of
investment strategy, however, the Funds may dispose of or negotiate a commitment
after entering into it. A Fund also may sell securities it has committed to
purchase before those securities are delivered to the Fund on the settlement
date. The Funds may realize a capital gain or loss in connection with these
transactions. For purposes of determining each Fund's duration, the maturity of
when-issued or forward commitment securities will be calculated from the
commitment date. Each 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, as permitted by applicable law, 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. 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.

OTHER INVESTMENT COMPANIES

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

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. A repurchase agreement is an
arrangement under which a Fund purchases securities and the seller agrees to
repurchase the securities within a particular time and at a specified price.
Custody of the securities will be maintained by each Fund's custodian. The
repurchase price may be higher than the purchase price, the difference being
income to a Fund, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to a Fund together with the repurchase price on
repurchase. In either case, the income to a Fund is unrelated to the interest
rate on the security subject to the repurchase agreement.

B-51
<PAGE>

For purposes of the Act and, generally for tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security. For
other purposes, it is not clear whether a court would consider the security
purchased by a Fund subject to a repurchase agreement as being owned by a Fund
or as being collateral for a loan by a Fund to the seller. In the event of
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the security before repurchase of the security under a repurchase agreement,
a Fund may encounter delay and incur costs before being able to sell the
security. Such a delay may involve loss of interest or a decline in price of
the security. If the court characterizes the transaction as a loan and a Fund
has not perfected a security interest in the security, the Fund may be required
to return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and interest involved in the transaction.

As with any unsecured debt instrument purchased for each Fund, the
applicable Adviser seeks to minimize the risk of loss from repurchase agreements
by analyzing the creditworthiness of the obligor, in this case the seller of the
security. Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security. However, if
the market value of the security subject to the repurchase agreement becomes
less than the repurchase price (including accrued interest), each Fund will
direct the seller of the security to deliver additional securities so that the
market value of all securities subject to the repurchase agreement equals or
exceeds the repurchase price. Certain repurchase agreements which provide for
settlement 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.

In addition, the Funds, together with other registered investment companies
having management agreements with the Advisers or their affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.

INVESTMENT RESTRICTIONS

The Trust has adopted the following investment restrictions on behalf of
the Funds, none of which may be changed without the approval of the holders of a
majority of the outstanding voting securities of the applicable Fund. The
investment objective of each Fund and all other investment policies or practices
of the Funds, except for Short Duration Tax-Free Fund's and Municipal Income
Fund's policy to invest under normal market conditions 80% of its net assets in
Municipal Securities, are considered by the Trust not to be fundamental and
accordingly may be changed without shareholder approval. See "INVESTMENT
OBJECTIVES AND POLICIES"

B-52
<PAGE>

in the Prospectuses. As defined in the Act, "a majority of the outstanding
voting securities" of a Fund means the vote (a) of 67% or more of the shares of
the Fund 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 (b) more
than 50% of the outstanding shares of the Fund, whichever is less.

For the purposes of the limitations (except for the asset coverage
requirement with respect to borrowings), any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. With respect to the Tax
Exempt Funds, the identification of the issuer of a Municipal Security that is
not a general obligation is made by the Adviser based on the characteristics of
the Municipal Security, the most important of which is the source of funds for
the payment of principal and interest on such securities.

AS A MATTER OF FUNDAMENTAL POLICY, A FUND MAY NOT:

(1) make any investment inconsistent with the Fund's classification as a
diversified company under the Investment Company Act of 1940, as
amended (the "Act"). This restriction does not, however, apply to any
Fund classified as a non-diversified company under the Act.

(2) invest more than 25% of its total assets in the securities of one or
more issuers conducting their principal business activities in the
same industry (excluding the U.S. government or its agencies or
instrumentalities). (For the purposes of this restriction, state and
municipal governments and their agencies, authorities and
instrumentalities are not deemed to be industries; telephone companies
are considered to be a separate industry from water, gas or electric
utilities; personal credit finance companies and business credit
finance companies are deemed to be separate industries; and wholly-
owned finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the
activities of their parents). This restriction does not apply to
investments in municipal securities which have been pre-refunded by
the use of obligations of the U.S. government or any of its agencies
or instrumentalities. Each of the Municipal Income and Short Duration
Tax-Free Funds may invest 25% or more of the value of its total assets
in municipal securities which are related in such a way that an
economic, business or political development or change affecting one
municipal security would also affect the other municipal securities.
These municipal securities include (a) municipal securities, the
interest on which is paid solely form revenues of similar projects
such as hospitals, electric utility systems, multi-family housing,
nursing homes, commercial

B-53
<PAGE>

facilities (including hotels), steel companies or life care
facilities, (b) municipal securities whose issuers are in the same
state and (c) industrial development obligations.

(3) borrow money, except (a) the Fund may borrow from banks (as defined in
the Act) or through reverse repurchase agreements in amounts up to 33
1/3% or its total assets (including the amount borrowed), (b) the Fund
may, to the extent permitted by applicable law borrow up to an
additional 5% of its total assets for temporary purposes, (c) the Fund
may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities, (d) the Fund
may purchase securities on margin to the extent permitted by
applicable law and (e) the Fund may engage in transactions in mortgage
dollar rolls which are accounted for as financings.

(4) make loans, except through (a) the purchase of debt obligations in
accordance with the Fund's investment objective and policies, (b)
repurchase agreements with banks, brokers, dealers and other financial
institutions, and (c) loans of securities as permitted by applicable
law.

(5) underwrite securities issued by others, except to the extent that the
sale of portfolio securities by the Fund may be deemed to be an
underwriting.

(6) purchase, hold or deal in real estate, although a Fund may purchase
and sell securities that are secured by real estate or interests
therein, securities of real estate investment trusts and mortgage-
related securities and may hold and sell real estate acquired by a
Fund as a result of the ownership of securities.

(7) invest in commodities or commodity contracts, except that the Fund may
invest in currency and financial instruments and contracts that are
commodities or commodity contracts.

(8) issue senior securities to the extent such issuance would violate
applicable law.

Each Fund may, notwithstanding any other fundamental investment restriction
or policy, invest some or all of its assets in a single open-end investment
company or series thereof with substantially the same fundamental investment
objectives, restrictions and policies as the Fund.

In addition, as non-fundamental policies, a Fund may not:

(1) Invest in companies for the purpose of exercising control or
management.

B-54
<PAGE>

(2) Invest more than 15% of the Fund's net assets in illiquid investments
including repurchase agreements maturing in more than seven days,
securities which are not readily marketable and restricted securities
not eligible for resale pursuant to Rule 144A under the 1933 Act.

(3) Purchase additional securities if the Fund's borrowings exceed
(excluding covered mortgage dollar rolls) 5% of its net assets.

(4) Make short sales of securities, except short sales against the
box.

MANAGEMENT

TRUSTEES AND OFFICERS
- ---------------------

Information pertaining to the Trustees and officers of the Trust is set
forth below together with their respective positions and a brief statement of
their principal occupations during the past five years. Trustees deemed to be
"interested persons" of the Trust for purposes of the Act are indicated by an
asterisk.

Ashok N. Bakhru, Age 53, 1325 Avenue of the Americas, 34th Floor, New York, New
York 10019. Chairman and Trustee. Executive Vice President-Finance and
--------------------
Administration and Chief Financial Officer, Coty Inc. (since April 1996);
President, ABN Associates, Inc. (since June 1994). Retired, Senior Vice
President, Scott Paper Company (until June 1994); Director, Arkwright Mutual
Insurance Company; Trustee, International House of Philadelphia; Member of
Cornell University Council; Trustee of Walnut Street Theater.

David B. Ford,* Age 51, One New York Plaza, New York, New York 10004. Trustee.
-------
Managing Director, Goldman Sachs (since 1996); General Partner, Goldman Sachs,
(1986-1996); Co-Head of GSAM since December 1994.

Douglas C. Grip,* Age 35, One New York Plaza, New York, New York 10004.
President and Trustee. Vice President, Goldman Sachs since May 1996; President,
- ---------------------
MFS Retirement Services Inc., of Massachusetts Financial Services prior thereto.

John P. McNulty,* Age 44, One New York Plaza, New York, New York 10004.
Trustee. Managing Director, Goldman Sachs since 1996; General Partner of
- -------
Goldman Sachs from 1990 to 1994 and 1995-1996; Co-Head of GSAM since November
1996; Limited Partner of Goldman Sachs from 1994 to November 1995.

Mary P. McPherson, Age 60, Taylor Hall, Bryn Mawr College, Bryn Mawr, PA 19010.
Trustee. President of Bryn Mawr College since 1978; Director of Josiah Mach,
- -------
Jr. Foundation since 1977; Director of the Philadelphia Contributionship since
1985; Director of Amherst College since 1986; Director of Dayton Hudson
Corporation

B-55
<PAGE>

since 1988; Director of the Spencer Foundation since 1993; and member of PNC
Avisory Board since 1993.

Alan A. Shuch,* Age 48, One New York Plaza, New York, New York 10004. Trustee.
-------
Limited Partner, Goldman Sachs (since 1994); Director and Vice President,
Goldman Sachs Funds Management, Inc. from April 1990 to November 1994; President
and Chief Operating Officer, GSAM from September 1988 to November 1994; Limited
Partner, Goldman Sachs since December 1994.

Jackson W. Smart, Jr., Age 66, One Northfield Plaza, #218, Northfield, Illinois
60093. Trustee. Chairman, Executive Committee, First Commonwealth, Inc. (a
-------
managed dental care company, since January 1996); Chairman and Chief Executive
Officer, MSP Communications Inc. (a company engaged in radio broadcasting) since
November 1988; Director, Federal Express Corporation since 1976; Evanston
Hospital Corporation (since 1980) and First Commonwealth,Inc. (since 1988) and
North American Private Equity Group (a venture capital fund).

William H. Springer, Age 67, 701 Morningside Drive, Lake Forest, Illinois 60045.
Trustee. Vice Chairman and Chief Financial and Administrative Officer,
- -------
Ameritech (a telecommunications holding company) from February 1987 to
retirement in June 1992; Director, Walgreen Co. (a retail drugstore business);
and Baker, Fentress & Co. (a closed-end non-diversified management investment
company) April 1992 to present.

Richard P. Strubel, Age 57, 70 West Madison Street, Suite 1400, Chicago,
Illinois 60602. Trustee. Managing Director, Tandem Partners, Inc. (since
-------
1990); President and Chief Executive Officer, Microdot, Inc. (a diversified
manufacturer of fastening systems and connectors) from January 1984 to October
1994.

Pauline Taylor,* Age 50, 4900 Sears Tower, Chicago, Illinois 60606. Vice
----
President. Vice President, Goldman Sachs since June 1992; Director of
- ---------
Shareholder Servicing since June 1992.

Nancy L. Mucker,* Age 47, 4900 Sears Tower, Chicago, Illinois 60606. Vice
----
President. Vice President, Goldman Sachs; Manager, Shareholder Services for
- ---------
GSAM since November 1989.

John W. Mosior,* Age 58, 4900 Sears Tower, Chicago, Illinois 60606. Vice
----
President. Vice President, Goldman Sachs; Manager, Shareholder Services for
- ---------
GSAM since November 1989.

Scott M. Gilman,* Age 37, One New York Plaza, New York, New York 10004.
Treasurer. Director, Mutual Funds Administration, GSAM since April 1994.
- ---------
Assistant Treasurer of Goldman Sachs Funds Management, Inc. since March 1993.
Vice President, Goldman Sachs since March, 1990.

John M. Perlowski, Age 32, One New York Plaza, New York, New York 10004.
Assistant Treasurer. Vice President, Goldman, Sachs & Co., since July 1995.
- -------------------
Director/Fund Accounting & Custody, Investors

B-56
<PAGE>

Bank & Trust Co., November 1993 to July 1995. Formerly, Manager, Audit Division,
Arthur Andersen, September 1986 to November 1993.

Michael J. Richman,* Age 36, 85 Broad Street, New York, New York 10004.
Secretary. Associate General Counsel of GSAM since February 1994; Vice
- ---------
President and Assistant General Counsel of Goldman Sachs; Counsel to the Funds
Group, GSAM since June 1992; Partner, Hale and Dorr from September 1991 to June
1992.

Howard B. Surloff,* Age 31, 85 Broad Street, New York, New York 10004. Assistant
---------
Secretary. Vice President and Assistant General Counsel, Goldman Sachs since
- ---------
November 1993 and May 1994, respectively; Counsel to the Funds Group, GSAM since
November 1993; Associate of Shereff, Friedman, Hoffman & Goodman prior
thereto.

Steven E. Hartstein*, Age 33, 85 Broad Street, New York, New York 10004.
Assistant Secretary. Legal Products Analyst, Goldman Sachs since June 1993;
- -------------------
Funds Compliance Officer, Citibank Global Asset Management from August 1991 to
June 1993); Legal Assistant, Brown & Wood prior thereto.

Deborah A. Farrell*, Age 25, 85 Broad Street, New York, New York 10004.
Assistant Secretary. Administrative Assistant, Goldman Sachs since January
- -------------------
1994. Formerly at Cleary, Gottlieb, Stein and Hamilton.

Kaysie Uniacke*, Age 36, One New York Plaza, New York, New York 10004.
Assistant Secretary. Vice President and Senior Portfolio Manager, GSAM since
- -------------------
1988.

Elizabeth D. Anderson*, Age 27, One New York Plaza, New York, New York 10004.
Assistant Secretary. Portfolio Manager, GSAM since April 1996; Junior Portfolio
- -------------------
Manager, Goldman Sachs 1995-1996. Funds Trading Assistant, GSAM 1993-1995.
Compliance Analyst, Prudential Insurance, from 1991 to 1993.

The Trustees and officers of the Trust hold comparable positions with
certain other investment companies of which Goldman Sachs, GSAM or GSFM is the
investment adviser, administrator and/or distributor. As of April ____, 1997,
the Trustees and officers as a group owned less than 1% of the outstanding
shares of beneficial interest of each Fund.

The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended October
31, 1996:

B-57
<PAGE>

<TABLE>
<CAPTION>
Total
Pension or Compensation
Aggregate Retirement from Goldman
Compensation Benefits Accrued Sachs Mutual
from the as of Part of Funds (including
Funds Trust's Expenses the Funds)/1/
-------------- ---------------- ----------------
<S> <C> <C> <C>
Name of Trustees

Ashok N. Bakhru $4,109 $0 $77,375
Marcia L. Beck/2/ $ 0 $0 $ 0
David B. Ford $ 0 $0 $ 0
Douglas C. Grip $ 0 $0 $ 0
Paul C. Nagel, Jr./3/ $2,525 $0 $50,500
Alan A. Shuch $ 0 $0 $ 0
Jackson W. Smart $3,169 $0 $65,750
William H. Springer $3,169 $0 $65,750
Richard P. Strubel $3,169 $0 $65,750
</TABLE>

/1/ The Goldman Sachs Mutual Funds consisted of 29 mutual funds, including the
seven series of the Trust, on October 31, 1996.

/2/ Resigned as of May 1, 1996.

/3/ Retired as of June 30, 1996.

INVESTMENT ADVISERS
- -------------------

GSAM, One New York Plaza, New York, New York 10004, a separate operating
division of Goldman Sachs, serves as the investment adviser to Municipal Income
Fund, Government Income Fund, Short Duration Tax-Free Fund and Core Fund
pursuant to a management agreement. GSFM, One New York Plaza, New York, New York
10004, serves as the investment adviser to Adjustable Rate Fund and Short
Duration Government Fund pursuant to a management agreement. GSFM, a Delaware
limited partnership, is an affiliate of Goldman Sachs. GSAMI, 140 Fleet Street,
London EC4A 2BJ, England, serves as investment adviser to Global Income Fund
pursuant to a management agreement. As a company with unlimited liability under
the laws of England, GSAMI is regulated by the Investment Management Regulatory
Organization Limited, a United Kingdom self-regulatory organization, in the
conduct of its investment advisory business. See "MANAGEMENT" in the Funds'
Prospectuses for a description of the applicable Adviser's duties as investment
adviser.

Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes

B-58
<PAGE>

markets in a wide range of equity and debt securities 24 hours a day. The firm
is headquartered in New York and has offices throughout the United States and in
Beijing, Brazil, Frankfurt, George Town, Hong Kong, London, Madrid, Mexico,
Milan, Montreal, Osaka, Paris, Seoul, Shanghai, Singapore, Sydney, Taipei,
Tokyo, Toronto, Vancouver and Zurich. It has trading professionals throughout
the United States, as well as in London, Tokyo, Hong Kong and Singapore. The
active participation of Goldman Sachs in the world's financial markets enhances
its ability to identify attractive investments.

The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs, whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $160
million, Goldman Sachs' Investment Research Department covers approximately
1,700 companies, including approximately 1,000 U.S. corporations in 60
industries. The in-depth information and analyses generated by Goldman Sachs'
research analysts are available to the Advisers. The Advisers manage money for
some of the world's largest institutional investors.

For more than a decade, Goldman Sachs has been among the top-ranked firms
in Institutional Investor's annual "All-America Research Team" survey. In
addition, many of Goldman Sachs' economists, securities analysts, portfolio
strategists and credit analysts have consistently been highly ranked in
respected industry surveys conducted in the U.S. and abroad. Goldman Sachs is
also among the leading investment firms using quantitative analytics (now used
by a growing number of investors) to structure and evaluate portfolios. For
example, Goldman Sachs' options evaluation model analyzes each security's term,
coupon and call option, providing an overall analysis of the security's value
relative to its interest risk.

In planning the Tax Exempt Funds' strategies, the portfolio managers also
evaluate and monitor individual issues by using analytical techniques that have
traditionally been applied to corporate bonds and Mortgage-Backed Securities. In
particular, the Adviser's embedded option valuation model provides a picture of
an individual security's relative value and the portfolio's overall interest
rate risk. By constantly reviewing the positions of securities within the
portfolio, the Adviser looks for opportunities to enhance the Tax Exempt Funds'
yields by fine-tuning the portfolio, using quantitative tools designed for
municipal portfolio management. The Adviser, which managed approximately $3
billion in tax-free securities in 1996, has assembled an experienced team of
professionals for selection of the Tax Exempt Funds' portfolio securities.

In structuring Adjustable Rate Fund's and Short Duration Government Fund's
respective securities portfolio, the Adviser will review the existing overall
economic and mortgage market trends. The Adviser will then study yield spreads,
the implied volatility and the shape of the yield curve. The Adviser will then
apply this
B-59
<PAGE>

analysis to a list of eligible securities that meet the respective Fund's
investment guidelines. With respect to Adjustable Rate Fund, this analysis is
used to plan a two-part portfolio, which will consist of a "core" portfolio of
ARMs and a "relative value" portfolio of other mortgage assets that can enhance
portfolio returns and lower risk (such as investments in CMO floating-rate
tranches and interest only stripped Mortgage-Backed Securities).

With respect to Adjustable Rate Fund, Government Income Fund, Short
Duration Government Fund and Core Fund, the applicable Adviser expects to
utilize Goldman Sachs' sophisticated option-adjusted analytics to help make
strategic asset allocations within the markets for U.S. government, Mortgage-
Backed and other securities and to employ this technology periodically to re-
evaluate the Funds' investments as market conditions change. Goldman Sachs has
also developed a prepayment model designed to estimate mortgage prepayments and
cash flows under different interest rate scenarios. Because a Mortgage-Backed
Security incorporates the borrower's right to prepay the mortgage, the Advisers
use a sophisticated option-adjusted spread (OAS) model to measure expected
returns. A security's OAS is a function of the level and shape of the yield
curve, volatility and the applicable Adviser's expectation of how a change in
interest rates will affect prepayment levels. Since the OAS model assumes a
relationship between prepayments and interest rates, the Advisers consider it a
better way to measure a security's expected return and absolute and relative
values than yield to maturity. In using OAS technology, the Advisers will first
evaluate the absolute level of a security's OAS considering its liquidity and
its interest rate, volatility and prepayment sensitivity. The Advisers will then
analyze its value relative to alternative investments and to its own
investments. The Advisers will also measure a security's interest rate risk by
computing an option adjusted duration (OAD). The Advisers believe a security's
OAD is a better measurement of its price sensitivity than cash flow duration,
which systematically misstates portfolio duration. The Advisers also evaluate
returns for different mortgage market sectors and evaluate the credit risk of
individual securities. This sophisticated technical analysis allows the
Advisers to develop portfolio and trading strategies using Mortgage-Backed
Securities that are believed to be superior investments on a risk-adjusted basis
and which provide the flexibility to meet the respective Fund's duration targets
and cash flow pattern requirements.

Because the OAS is adjusted for the differing characteristics of the
underlying securities, the OAS of different Mortgage-Backed Securities can be
compared directly as an indication of their relative value in the market. The
Advisers also expect to use OAS-based pricing methods to calculate projected
security returns under different, discrete interest rate scenarios, and Goldman
Sachs' proprietary prepayment model to generate yield estimates under these
scenarios. The OAS, scenario returns, expected returns, and yields of
securities in the mortgage market can be combined and analyzed in an optimal
risk-return matching framework.

B-60
<PAGE>

The Advisers will use OAS analytics to choose what they believe is an
appropriate portfolio of investments for Adjustable Rate Fund, Government Income
Fund, Short Duration Government Fund and Core Fund from a universe of eligible
investments. In connection with initial portfolio selections, in addition to
using OAS analytics as an aid to meeting each Fund's particular composition and
performance targets, the Advisers will also take into account important market
criteria like the available supply and relative liquidity of various mortgage
securities in structuring the portfolio.

The Advisers also expect to use OAS analytics to evaluate the mortgage
market on an ongoing basis. Changes in the relative value of various Mortgage-
Backed Securities could suggest tactical trading opportunities for the Funds.
The Advisers will have access to both current market analysis as well as
historical information on the relative value relationships among different
Mortgage-Backed Securities. Current market analysis and historical information
is available in the Goldman Sachs database for most actively traded Mortgage-
Backed Securities.

Goldman Sachs has agreed to provide the Advisers, on a non-exclusive basis,
use of its mortgage prepayment model, OAS model and any other proprietary
services which it now has or may develop, to the extent such services are made
available to other similar customers. Use of these services by the Advisers
with respect to a Fund does not preclude Goldman Sachs from providing these
services to third parties or using such services as a basis for trading for its
own account or the account of others.

The fixed-income research capabilities of Goldman Sachs available to the
Advisers include the Goldman Sachs Fixed Income Research Department and the
Credit Department. The Fixed Income Research Department monitors developments
in U.S. and foreign fixed-income markets, assesses the outlooks for various
sectors of the markets and provides relative value comparisons, as well as
analyzes trading opportunities within and across market sectors. The Fixed
Income Research Department is at the forefront in developing and using computer-
based tools for analyzing fixed-income securities and markets, developing new
fixed income products and structuring portfolio strategies for investment policy
and tactical asset allocation decisions. The Credit Department tracks specific
governments, regions and industries and from time to time may review the credit
quality of a Fund's investments.

In addition to fixed-income research and credit research, the Advisers in
managing Global Income Fund are supported by Goldman Sachs' economics research.
The Economics Research Department, based in London, conducts economic, financial
and currency markets research which analyzes economic trends and interest and
exchange rate movements worldwide. The Economics Research Department tracks
factors such as inflation and money supply figures, balance of trade figures,
economic growth, commodity prices, monetary and fiscal policies, and political
events that can influence interest rates and currency trends. The success of
Goldman Sachs'

B-61
<PAGE>

international research team has brought wide recognition to its members. The
team has earned top rankings in the annual "Extel Financial Survey" of U.K.
investment managers in the following categories: U.K. Economy 1989-1995;
International Economies 1986, 1988-1995; International Government Bond Market
1993-1995; and Currency Movements 1986-1993.

In allocating assets in the Global Income Fund's portfolio among
currencies, the Adviser will have access to the Global Asset Allocation Model.
The model is based on the observation that the prices of all financial assets,
including foreign currencies, will adjust until investors globally are
comfortable holding the pool of outstanding assets. Using the model, the Adviser
will estimate the total returns from each currency sector which are consistent
with the average investor holding a portfolio equal to the market capitalization
of the financial assets among those currency sectors. These estimated
equilibrium returns are then combined with Goldman Sachs' research
professionals' expectations to produce an optimal currency and asset allocation
for the level of risk suitable for the Fund's investment objective and
criteria.

Each Fund's management agreement, (the "Management Agreements"), was most
recently approved by the Trustees of the Trust, including a majority of the
Trustees of the Trust who are not parties to such agreements or "interested
persons" (as such term is defined in the Act) of any party thereto (the "non-
interested Trustees"), on April 23, 1997. The applicable Fund's Management
Agreement was approved by the shareholders of Adjustable Rate Fund on October
30, 1991, the shareholders of Short Duration Government Fund on March 27, 1989,
the sole initial shareholder of Short Duration Tax-Free Fund on September 25,
1992, the sole initial shareholder of Core Fund on October 29, 1993 and the
shareholders of each other Fund on April 1, 1997. Each Management Agreement
will remain in effect until June 30, 1997 and will continue in effect with
respect to the applicable Fund from year to year thereafter provided such
continuance is specifically approved at least annually by (a) the vote of a
majority of the outstanding voting securities of such Fund or a majority of the
Trustees of the Trust, and (b) the vote of a majority of the non-interested
Trustees of the Trust, cast in person at a meeting called for the purpose of
voting on such approval.

Each Management Agreement will terminate automatically if assigned (as
defined in the Act). Each Management Agreement is also terminable at any time
without penalty by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of a Fund on 60 days' written notice to the
applicable Adviser or by the Adviser on 60 days' written notice of the
Trust.

The Management Agreements provide that GSAM, GSFM and GSAMI, in their
capacity as advisers may each render similar services to others so long as the
services under the Management Agreements are not impaired thereby. Pursuant to
the Management Agreements, the Advisers are entitled to receive the fee set

B-62
<PAGE>

forth below and the Advisers are currently limiting the fee to the rate set
forth below:

<TABLE>
<CAPTION>
Contractual Current
Fund Rate* Rate
- ---- ----- ----
<S> <C> <C>
GSAM
Municipal Income .55% .55%
Government Income .65% .25%
Short Duration Tax-Free .55% .40%
Core Fixed Income .55% .40%

GSFM
Short Duration Government .65% .40%
Adjustable Rate Government .55% .40%

GSAMI
Global Income .90% .59%
</TABLE>

____________________________

* The Contractual Rate is identical to the aggregate advisory and
administration fee rates payable by each Fund under the previous separate
advisory (including subadvisory in the case of 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 fee waivers). Such reduction or limits, if any, are calculated
monthly on a cumulative basis and may be discontinued or modified by the
applicable Adviser at its discretion at any time, although they have no
current intention to do so.

For the fiscal years ended October 31, 1996, 1995 and 1994, the amounts of
the investment advisory fees incurred by each Fund then in existence were as
follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Fund $2,535,709 $2,947,492 $6,798,185
Short Duration Government Fund/(1)/ 411,360 517,091 1,063,867
Short Duration Tax-Free Fund 169,796 260,970 468,868
Core Fund/(2)/ 246,568 137,158 56,255
Global Income Fund/(3)/ 1,117,226 706,460 1,518,814
Government Income Fund/(4)/ 74,060 44,037 0
Municipal Income Fund/(5)/ 211,283 154,707 35,494
</TABLE>

_________________________

/(1)/ Had expense limitations not been in effect, Short Duration Government Fund
would have paid advisory fees of $514,200, $646,364 and $1,329,834,
respectively, for such years.

/(2)/ Core Fund commenced operations January 5, 1994.

B-63
<PAGE>

/(3)/ For the same periods, Global Income Fund paid GSAMI subadvisory fees of
$837,920, $1,412,921 and $3,037,627, respectively. If expense limitations
had not been in effect, Global Income Fund would have paid advisory and
subadvisory fees of $1,474,204 and $491,401, respectively, for the year
ended October 31, 1996 and $789,127 and $1,578,254, respectively, for the
year ended October 31, 1995.

/(4)/ Had expense limitations not been in effect, Government Income Fund would
have paid advisory fees of $148,120, $101,737 and $65,604, respectively,
for such years.

/(5)/ Had expense limitations not been in effect for the years ended October 31,
1995 and 1994, Municipal Income Fund would have paid advisory fees of
$200,207 and $174,161, respectively, for such years.

Each Adviser performs administrative services for the applicable Funds
under the Management Agreements. Such administrative services include, subject
to the general supervision of the Trustees of the Trust, (a) providing
supervision of all aspects of the Funds' non-investment operations (other than
certain operations performed by others pursuant to agreements with the Funds),
(b) providing the Funds, to the extent not provided pursuant to the agreement
with the Trust's custodian, transfer and dividend disbursing agent or agreements
with other institutions, with personnel to perform such executive,
administrative and clerical services as are reasonably necessary to provide
effective administration of the Funds, (c) arranging, to the extent not provided
pursuant to such agreements, for the preparation, at the Funds' expense, of each
Fund's tax returns, reports to shareholders, periodic updating of the Funds'
prospectuses and statements of additional information, and reports filed with
the SEC and other regulatory authorities, (d) providing the Funds, to the extent
not provided pursuant to such agreements, with adequate office space and certain
related office equipment and services, and (e) maintaining all of the Funds'
records other than those maintained pursuant to such agreements.

For the fiscal years ended October 31, 1996, 1995 and 1994, the amounts of
the administration fees incurred by the Funds then in existence under the former
Administration Agreement (which was terminated as of April ___, 1997) were as
follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Municipal Income Fund/(1)/ 79,231 75,077 55,277
Government Income Fund/(2)/ 0 0 0
Global Income Fund 393,263 473,476 911,288
</TABLE>

_____________________

B-64
<PAGE>

/(1)/ For the fiscal year ended October 31, 1994, GSAM voluntarily agreed not to
impose a portion of its administration fee amounting to $10,229.

/(2)/ For the fiscal years ended October 31, 1996, October 31, 1995 and October
31, 1994, GSAM voluntarily agreed not to impose its administration fees,
which would have amounted to $44,433, $30,521 and $19,681, respectively,
for such periods.

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
-------------------------------------------------------------------------
BY GOLDMAN SACHS. The involvement of the Advisers and Goldman Sachs and their
- ----------------
affiliates, in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect to
the Funds or impede their investment activities.

Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, Goldman Sachs International ("GSI") and
J. Aron & Co. ("ARON") have proprietary interests in, and may manage or advise
with respect to, accounts or funds (including separate accounts and other funds
and collective investment vehicles) which have investment objectives similar to
those of the Funds and/or which engage in transactions in the same types of
securities, currencies and instruments as the Funds. Goldman Sachs and its
affiliates are major participants in the global currency, equities, swap and
fixed-income markets, in each case on a proprietary basis and for the accounts
of customers. As such, Goldman Sachs and its affiliates are actively engaged in
transactions in the same securities, currencies, and instruments in which the
Funds invest. Such activities could affect the prices and availability of the
securities, currencies, and instruments in which the Funds invest, which could
have an adverse impact on each Fund's performance. Such transactions,
particularly in respect of proprietary accounts or customer accounts other than
those included in the Advisers' and their advisory affiliates' asset management
activities, will be executed independently of the Funds' transactions and thus
at prices or rates that may be more or less favorable. When the Advisers and
their advisory affiliates seek to purchase or sell the same assets for their
managed accounts, including the Funds, the assets actually purchased or sold may
be allocated among the accounts on a basis determined in its good faith
discretion of such entitles to be equitable. In some cases, this system may
adversely affect the size or the price of the assets purchased or sold for the
Funds.

From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Advisers, and/or their affiliates,
will not initiate or recommend certain types of transactions in certain
securities or instruments with respect to which, or in securities of issuers for
which, the Advisers and/or their affiliates are performing services or when
position limits have been reached.

B-65
<PAGE>

In connection with their management of the Funds, the Advisers may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs, ARON and other affiliates. The Advisers will not be
under any obligation, however, to effect transactions on behalf of the Funds in
accordance with such analysis and models. In addition, neither Goldman Sachs nor
any of its affiliates will 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 it is not anticipated that the Advisers will have
access to such information for the purpose of managing the Funds. The
proprietary activities or portfolio strategies of Goldman Sachs and its
affiliates or the activities or strategies used for accounts managed by them or
other customer accounts could conflict with the transactions and strategies
employed by the Advisers in managing the Funds.

The results of each Fund's investment activities may differ significantly
from the results achieved by the Advisers and their affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment results
which are substantially more or less favorable than the results achieved by a
Fund. Moreover, it is possible that a Fund will sustain losses during periods
in which Goldman Sachs and its affiliates achieve significant profits on their
trading for proprietary or other accounts. The opposite result is also
possible.

An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities,
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any
such member of an investment policy committee will have direct or indirect
interests in the activities of Goldman Sachs and its affiliates in securities,
currencies and investments similar to those in which the Fund invests.

In addition, certain principals and certain of the employees of the
Advisers are also principals or employees of Goldman Sachs, ARON and/or their
affiliated entities. As a result, the performance by these principals and
employees of their obligations to such other entities may be a consideration of
which investors in the Funds should be aware.

The Advisers may enter into transactions and invest in instruments and, in
the case of Global Income Fund and Core Fund, currencies on behalf of the
applicable Funds in which customers of Goldman Sachs serve as the counterparty,
principal or issuer. In

B-66
<PAGE>

such cases, such party's interests in the transaction will be adverse to the
interests of the Funds, and such party may have no incentive to assure that the
Funds obtain the best possible prices or terms in connection with the
transactions. Goldman Sachs and its affiliates may also create, write or issue
derivative instruments for customers of Goldman Sachs or its affiliates, the
underlying securities currencies or instruments of which may be those in which
the Funds invest or which may be based on the performance of a Fund. The Funds
may, subject to applicable law, purchase investments which are the subject of an
underwriting or other distribution by Goldman Sachs or its affiliates and may
also enter into transactions with other clients of Goldman Sachs or its
affiliates where such other clients have interests adverse to those of the
Funds. At times, these activities may cause departments of the Firm to give
advice to clients that may cause these clients to take actions adverse to the
interest of the client. To the extent affiliated transactions are permitted, the
Funds will deal with Goldman Sachs and its affiliates on an arm's-length basis.

Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.

From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Fund in order to increase the assets
of the Fund. Increasing a Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce a
Fund's expense ratio. Goldman Sachs reserves the right to redeem at any time
some or all of the shares of a Fund acquired for its own account. A large
redemption of shares of a Fund by Goldman Sachs could significantly reduce the
asset size of the Fund, which might have an adverse effect on a Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.

DISTRIBUTOR AND TRANSFER AGENT
- ------------------------------

Goldman Sachs serves as the exclusive distributor of shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Trust dated April 30, 1997. Pursuant to the distribution agreement,
after the Funds' Prospectuses and periodic reports have been prepared, set in
type and mailed to shareholders, Goldman Sachs will pay for the printing and
distribution of copies thereof used in connection with the offering to
prospective investors. Goldman Sachs will also pay for other supplementary
sales literature and advertising costs. Goldman Sachs has entered into sales
agreements with certain investment dealers and financial service firms (the
"Authorized

B-67
<PAGE>

Dealers") to solicit subscriptions for Class A and Class B Shares of each of the
Funds that offer such classes of shares. Goldman Sachs received a portion of the
sales load imposed on the sale, in the case of Class A Shares, or redemption in
the case of Class B Shares, of such Fund shares. No Class B Shares were
outstanding during the fiscal years ended October 31, 1994 and 1995. Goldman
Sachs retained approximately the following commissions on sales of Class A
shares during the following periods:

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Adjustable Rate Fund*
Class A $79,000 $40,000 n/a
Municipal Income Fund
Class A $24,900 48,000 76,000
Government Income Fund
Class A $17,300 22,000 5,000
Global Income Fund
Class A $52,600 15,000 350,000
</TABLE>

__________________

* Prior to May 15, 1995 Adjustable Rate Fund did not offer Class A Shares.

Goldman Sachs serves as the Trust's transfer and dividend disbursing agent.
Under its transfer agency agreement with the Trust, Goldman Sachs has undertaken
with the Trust with respect to each Fund to (i) record the issuance, transfer
and redemption of shares, (ii) provide confirmations of purchases and
redemptions, and quarterly statements, as well as certain other statements,
(iii) provide certain information to the Trust's custodian and the relevant
subcustodian in connection with redemptions, (iv) provide dividend crediting and
certain disbursing agent services, (v) maintain shareholder accounts, (vi)
provide certain state Blue Sky and other information, (vii) provide shareholders
and certain regulatory authorities with tax-related information, (viii) respond
to shareholder inquiries, and (ix) render certain other miscellaneous services.

As compensation for the services rendered to the Trust by Goldman Sachs as
transfer and dividend disbursing agent and the assumption by Goldman Sachs of
the expenses related thereto, Goldman Sachs is entitled to receive a fee from
the Short Duration Government Fund, Short Duration Tax-Free Fund and Core Fund
equal to (i) 0.04 of 1% (on an annualized basis) of the average daily net assets
attributable to the applicable class of the Fund; (ii) from the Government
Income, Global Income and Municipal Income Funds with respect to Class A and
Class B shares, $12,000 plus $7.50 per account, together with out-of-pocket and
transactions-related expenses (including those out-of-pocket expenses payable to
servicing agents) and (iii) from the Adjustable Rate Fund equal to each class'
proportionate share of the total transfer agency fees borne by the Fund, which
are equal to $12,000 per year plus $7.50 per account, together with out-of-
pocket expenses (including those

B-68
<PAGE>

out-of-pocket expenses payable to servicing agents) applicable to Class A shares
and 0.04% of the average daily net assets of the other classes of Adjustable
Rate Fund. Goldman Sachs is not entitled to receive a fee from the Institutional
and Service Classes of shares of Global Income Fund.

For the fiscal years ended October 31, 1996, 1995 and 1994 the amounts of
transfer agency fees incurred by each Fund then in existence were as follows:

<TABLE>
<CAPTION>
Fund 1996 1995 1994
- ---- ---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Fund 278,337 306,662 679,819
Short Duration Government Fund 0 0 0
Short Duration Tax-Free Fund 16,980 26,098 46,887
Core Fund/(1)/ 24,657 13,716 5,637
Global Income Fund 121,212 106,764 132,123
Municipal Income Fund 90,284 63,695 70,811
Government Income Fund 72,237 94,095 57,960
</TABLE>

_____________________
/(1)/ Core Fund commenced operations on January 5, 1994.

The foregoing distribution and transfer agency agreements each provide that
Goldman Sachs may render similar services to others so long as the services each
provides thereunder to the Funds are not impaired thereby. Each such agreement
also provides that the Trust will indemnify Goldman Sachs against certain
liabilities.

B-69
<PAGE>

EXPENSES
- --------

Except as set forth in the Prospectuses under "MANAGEMENT" the Trust, on
behalf of each Fund, is responsible for the payment of each Fund's respective
expenses. The expenses borne by the outstanding classes of each Fund include,
without limitation, the fees payable to the Adviser and Goldman Sachs, the fees
and expenses of the Trust's custodian, transfer agent fees, brokerage fees and
commissions, filing fees for the registration or qualification of the Trust's
shares under federal or state securities laws, expenses of the organization of
the Trust, fees and expenses incurred by the Trust in connection with membership
in investment company organizations, taxes, interest, costs of liability
insurance, fidelity bonds or indemnification, any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against, the Trust for violation of any law, legal, tax and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of Goldman Sachs, or its affiliates, with respect to the Trust),
expenses of preparing and setting in type Prospectuses, Additional Statements,
proxy material, reports and notices and the printing and distributing of the
same to the Trust's shareholders and regulatory authorities, fees under any
distribution, authorized dealer service, administration or service plans
applicable to a particular class, any compensation and expenses of its "non-
interested" Trustees and extraordinary expenses, if any, incurred by the Trust.
Except for fees under any distribution, authorized dealer service,
administration or service plans applicable to a particular class and transfer
agency fees, all Fund expenses are borne on a non-class specific basis.

The Advisers voluntarily have agreed to reduce or otherwise limit certain
Other Expenses (excluding advisory fees, fees payable under administration,
distribution, service and authorized dealer service plans, taxes, interest,
brokerage fees and litigation, indemnification, transfer agency fees (in the
case of Global Income Fund) and other extraordinary expenses) to the following
percentage of each Fund's average daily net assets:

Short Duration Government Fund 0.05%
Adjustable Rate Fund 0.05%
Municipal Income Fund 0.05%
Government Income Fund 0.00%
Short Duration Tax-Free Fund 0.05%
Core Fund 0.05%
Global Income Fund 0.06%

Such reductions or limits are calculated monthly on a cumulative basis.
Although the Advisers have no current intention of modifying or discontinuing
such expense limitation or the limitations on the management fees, described
above under "Management -- Investment Advisers," each may do so in the future at
its discretion. For the fiscal year ended October 31, 1996,

B-70
<PAGE>

October 31, 1995 and October 31, 1994, Other Expenses of each Fund were reduced
by the Advisers in the following amounts:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Fund 386,863 551,405 442,880
Short Duration
Government Fund 169,069 219,994 115,389
Short Duration
Tax-Free Fund 238,097 213,139 192,696
Core Fund* 233,065 176,469 141,815
Municipal Income Fund 238,203 196,265 198,806
Government Income Fund 219,091 242,036 224,285
Global Income Fund** 337,079 70,195 0
</TABLE>

_______________________

* Core Fund commenced operations on January 5, 1994.
** For the fiscal year ended October 31, 1994, there was no expense
limitation.

Fees and expenses of legal counsel, registering shares of each Fund,
holding meetings and communicating with shareholders may include an allocable
portion of the cost of maintaining an internal legal and compliance department.
Each Fund may also bear an allocable portion of the costs incurred by the
Advisers in performing certain accounting services not being provided by the
Trust's custodian.

CUSTODIAN AND SUB-CUSTODIANS
- ----------------------------

State Street Bank and Trust Company ("State Street"), P.O. Box 1713,
Boston, Massachusetts 02105, is the custodian of the Trust's portfolio
securities and cash. State Street also maintains the Trust's accounting records.
State Street may appoint sub-custodians from time to time to hold certain
securities purchased by the Trust in foreign countries and to hold cash and
currencies for the Trust.

INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------

Arthur Andersen LLP, independent public accountants, One International
Place, Boston, Massachusetts 02110, have been selected as auditors of the Trust.
In addition to audit services, Arthur Andersen LLP prepares the Trust's federal
and state tax returns, and provides consultation and assistance on accounting,
internal control and related matters.

PORTFOLIO TRANSACTIONS

The portfolio transactions for the Funds are generally effected at a net
price without a broker's commission (i.e., a dealer is dealing with a Fund as
principal and receives

B-71
<PAGE>

compensation equal to the spread between the dealer's cost for a given security
and the resale price of such security). In certain foreign countries, debt
securities in which the Global Income Fund and Core Fund may invest are traded
on exchanges at fixed commission rates. In connection with portfolio
transactions, the Management Agreements provide that the Advisers shall attempt
to obtain the best net price and the most favorable execution. The Management
Agreements provide that, on occasions when an Adviser deems the purchase or sale
of a security to be in the best interests of a Fund as well as its other
customers (including any other fund or other investment company or advisory
account for which the Advisers or an affiliate act as investment adviser), a
Fund, to the extent permitted by applicable laws and regulations, may aggregate
the securities to be sold or purchased for the Fund with those to be sold or
purchased for such other customers in order to obtain the best net price and
most favorable execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the applicable Adviser in the manner it considers to be most equitable
and consistent with its fiduciary obligations to the applicable Fund and such
other customers. In some instances, this procedure may adversely affect the size
and price of the position obtainable for a Fund. The Management Agreements
permit each Adviser, in its discretion, to purchase and sell portfolio
securities to and from dealers who provide the Trust with brokerage or research
services in which dealers may execute brokerage transactions at a higher cost to
the Fund. Brokerage and research services furnished by firms through which the
Fund's effect their securities transactions may be used by the Advisers in
servicing other accounts and not all of these services may be used by the
Adviser in connection with the specific Fund generating the brokerage credits.
The fees received under the Management Agreements are not reduced by reason of
the Adviser receiving such brokerage and research services. In addition, the
Advisers may take sales of mutual fund shares into account in selecting brokers
and dealers.

For the fiscal years ended October 31, 1996 and 1995, the Funds then
in existence paid brokerage commissions as follows:

1996 1995
---- ----
Adjustable Rate Government $108,000 $91,000
Short Duration Government 24,000 2,800
Short Duration Tax Free 1,000 -0-
Core Fixed Income 4,000 900

For the fiscal year ended October 31, 1994, the Funds then in existence
paid no brokerage commissions.

During the fiscal year ended October 31, 1996, the Funds acquired and sold
securities of their regular broker-dealers: Chase Securities, Inc., Lehman
Brothers, Inc., Salomon Brothers, Inc., Merrill Lynch, Robert W. Baird, Daiwa
Securities, J.P. Morgan & Co., Inc., Donaldson, Lufkin, Jenrette, Nomura
Securities and Morgan Stanley & Co.

At October 31, 1996, Short Duration Tax-Free Fund, Global Income Fund and
Municipal Income Fund held no securities of their regular broker-dealers. As of
the same date, Short Duration Government Fund, Adjustable Rate Fund, Government
Income Fund and Core Fund held the following amounts of securities of their
regular broker-dealers, as defined in Rule 10b-1 under the 1940 Act, or their
parents ($ in thousands): Short Duration Government Fund: Lehman Brothers, Inc.
($370), Nomura Securities ($280) and Bear

B-72
<PAGE>

Stearns ($280); Adjustable Rate Fund: Lehman Brothers, Inc. ($4,531), Bear
Stearns ($3,430) and Nomura Securities ($3,430); Government Income Fund: Lehman
Brothers, Inc. ($2,774), Nomura Securities (2,774) and Bear Stearns ($2,100);
Nomura Securities (2,774); Core Fund: Lehman Brothers, Inc. ($4,808), Nomura
Securities ($3,640) and Bear Stearns ($3,640).

SHARES OF THE TRUST

The Trust's Declaration of Trust dated January 28, 1997, (the "Trust
Agreement"), permits the Trustees to issue an unlimited number of full and
fractional shares of beneficial interest of one or more separate series,
provided each share has a par value of $.001 per share, represents an equal
proportionate interest in that series with each other share of the same class
and is entitled to such dividends out of the income belonging to such series as
are declared by the Trustees.

The Trustees have authority under the Trust Agreement to create and
classify shares of beneficial interest in separate series of the Trust without
further action by shareholders. As of the date of this Additional Statement, the
Trustees have authorized shares of the Funds as well as 27 other series. The
Trust Agreement further authorizes the Trustees of the Trust to classify or
reclassify any series or portfolio of shares into one or more classes. Pursuant
thereto, the Board of Trustees has authorized: (i) the issuance of five classes
of shares of Short Duration Government Fund, Short Duration Tax-Free Fund and
Core Fund: Institutional Shares, Administration Shares, Service Shares, Class A
Shares and Class B Shares; (ii) the issuance of four classes of shares of
Adjustable Rate Fund: Institutional Shares, Administration Shares, Service
Shares and Class A Shares; (iii) the issuance of four classes of shares of
Global Income Fund: Class A Shares, Class B Shares, Institutional Shares,
Service Shares, Class A Shares and Class B Shares; and (iv) the issuance of two
classes of Municipal Income Fund and Government Income Fund: Class A Shares and
Class B Shares. As of October 31, 1996, no Service Shares of the Adjustable Rate
Fund were outstanding;

Each Institutional Share, Administration Share, Service Share, Class A
Share and Class B Share of a Fund represents an equal proportionate interest in
the assets belonging to the applicable class of a Fund. All Fund expenses are
allocated among classes based on a percentage of a Fund's aggregate average net
assets, except that transfer agency fees and fees under distribution, authorized
dealer service, administration and service plans relating to a particular class
will be borne exclusively by that class.

It is contemplated that most Administration Shares and Service Shares will
be held in accounts of which the record owner is a bank or other institution
acting, directly or through an agent, as nominee for its customers who are the
beneficial owners of the shares or another organization designated by such bank
or

B-73
<PAGE>

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

Class A Shares are sold, with an initial sales charge of up to 1.50%, in
the case of Adjustable Rate Fund, 3.0% in the case of the Short Duration Tax-
Free Fund and Short Duration Government Fund and 4.50%, in the case of Municipal
Income Fund, Core Fund, Government Income Fund and Global Income Fund, through
brokers and dealers who are members of the National Association of Securities
Dealers, Inc. and certain other financial service firms that have sales
agreements with Goldman Sachs. Class A Shares of the Funds bear the cost of
distribution (Rule 12b-1) fees at the aggregate rate of up to 0.25% of the
average daily net assets of such Class A Shares. Class A Shares also bear the
cost of an Authorized Dealer Service Plan at an annual rate of up to 0.25% of
average daily net assets attributable to Class A Shares.

Class B Shares of the Funds are sold subject to a contingent deferred sales
charge through brokers and dealers who are members of the National Association
of Securities Dealers, Inc. and certain other financial services firms that have
sales arrangements with Goldman Sachs. Class B shares bear the cost of
distribution (Rule 12b-1) fees at the aggregate rate of up to 0.75% of the
average daily net assets attributable to Class B shares. Class B shares also
bear the cost of an Authorized Dealer Service Plan at an annual rate of up to
0.25% of the average daily net assets attributable to Class B shares.

It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Administration, Service, Class A and
Class B Shares) to its customers and thus receive different compensation with
respect to different classes of shares of each Fund. Shares of each class may
each have certain exclusive voting rights on matters relating to their
respective

B-74
<PAGE>

plans. Shares of each class may be exchanged only for shares of the same class
in another fund and certain money market funds sponsored by Goldman Sachs.
Dividends paid by each Fund, if any, with respect to each class of shares will
be calculated in the same manner, at the same time on the same day and will be
in the same amount, except for differences caused by the fact that the
respective account administration, service, authorized dealer service plan and
distribution fees relating to a particular class will be borne exclusively by
that class. Similarly, the net asset value per share may differ depending upon
the class of shares purchased.

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

When issued, each Fund's shares are fully paid and non-assessable by the
Trust. In the event of liquidation of a Fund, shareholders of that Fund are
entitled to share pro rata in the net assets of that Fund available for
distribution to such shareholders. All shares entitle their holders to one vote
per share (but may, at the discretion of the Trustees, be voted on a net asset
value basis), are freely transferable and have no preemptive, subscription or
conversion rights.

As of April 1, 1997, the following entities and persons beneficially owned
5% or more of the outstanding shares of the following Funds: Adjustable Rate
Fund -

SHAREHOLDER AND TRUSTEE LIABILITY

The Trust is an entity of the type commonly known as a "Delaware business
trust," which is the form in which many mutual funds are organized.

Under Delaware law, the shareholders of the Delaware Trust are not
generally subject to liability for the debts or obligations of the Delaware
Trust. Similarly, Delaware law provides that a Fund will not be liable for the
debts or obligations of any other series of the Delaware Trust. However, no
similar statutory or other authority limiting business trust shareholder
liability exists in many other states. As a result, to the extent that a
Delaware business trust or a shareholder is subject to the jurisdiction of
courts of such other states, the courts may not apply Delaware law and may
thereby subject the Delaware business trust shareholders to liability. To guard
against this risk, the Declaration of Trust of the Delaware Trust contains
express disclaimer of shareholder liability for acts or obligations of a Fund.
Notice of such disclaimer will normally be given in each agreement, obligation
or instrument entered into or executed by a Fund or the Trustees. The
Declaration of Trust of the Delaware Trust provides for indemnification by the
relevant Fund for any loss suffered by a shareholder as a result of a obligation
of the Fund. The Declaration of Trust of the Delaware Trust also provides that a
Fund shall, upon request, assume the defense of any claim made

B-75
<PAGE>

against any shareholder for any act or obligation of the Fund and satisfy any
judgment thereon. In view of the above, the risk of personal liability of
shareholders is remote.

In addition to the requirement under Delaware law, the Declaration of Trust
of the Delaware Trust provides that shareholders of a Fund may bring a
derivative action on behalf of the Fund only if the following conditions are
met: (a) shareholders eligible to bring such derivative action under Delaware
law who hold at least 10% of the outstanding shares of the Fund, or 10% of the
outstanding shares of the series or class to which such action relates, shall
join in the request for the Trustees to commence such action; and (b) the
Trustees must be afforded a reasonable amount of time to consider such
shareholder request and to investigate the basis of other advisers in
considering the merits of the request and shall require an undertaking by the
shareholders making such request to reimburse the Fund for the expense of any
such advisers in the event that the Trustees determine not to bring such
action.

The Declaration of Trust of the Delaware Trust further provides that the
Trustees will not be liable for errors of judgment or mistakes of fact or law,
but nothing in the Declaration of Trust protects a Trustee against liability to
which he or she would otherwise be subject by reason or willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his or her office.

Rule 18f-2 under the Act provides that any matter required to be submitted
by the provisions of the Act, applicable state law or otherwise to the holders
of the outstanding voting securities of an investment company (such as the
Trust) shall not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each class or series
affected by such matter. Rule 18f-2 further provides that a class or series
shall be deemed to be affected by a matter unless the interests of each class or
series in the matter are substantially identical or the matter does not affect
any interest of such class or series. However, Rule 18f-2 exempts the selection
of independent public accountants, the approval of principal distribution
contracts and the election of Trustees from the separate voting requirements of
Rule 18f-2.

NET ASSET VALUE

Under the Act, the Trustees of the Trust are responsible for determining in
good faith the fair value of securities of the Funds. In accordance with
procedures adopted by the Trustees of the Trust, the net asset value per share
of each class of each Fund is calculated by determining the value of the net
assets attributable to each class of that Fund (assets, including securities at
value, minus liabilities) and dividing by the number of outstanding shares of
that class. All securities are valued as of the close of regular trading on the
New York Stock Exchange

B-76
<PAGE>

(normally 4:00 p.m. New York time) on each Business Day (as defined in each
Fund's Prospectus).

For the purpose of calculating the net asset value of the Funds,
investments are valued under valuation procedures established by the Trustees.
Portfolio securities, other than money market instruments, 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. The prices derived by a pricing agent reflect broker/dealer-supplied
valuations and electronic data processing techniques. Options and futures
contracts are valued at the last sale price on the market where any such option
or futures contract is principally traded. Forward foreign currency exchange
contracts are valued at the mean between the last bid and asked quotations
supplied by a dealer in such contracts. Portfolio securities for which accurate
market quotations are not readily available and other assets are valued at fair
value based upon yield equivalents, a pricing matrix or other sources as
determined in good faith pursuant to procedures established by the Board of
Trustees. Money market instruments held by a Fund with a remaining maturity of
sixty days or less will be valued by the amortized cost method, which the
Trustees have determined approximates market value.

The value of all assets and liabilities expressed in foreign currencies
will be converted into U.S. dollar values at current exchange rates of such
currencies against U.S. dollars last quoted by any major bank. If such
quotations are not available, the rate of exchange will be determined in good
faith by or under procedures established by the Board of Trustees.

Generally, trading in foreign securities is substantially completed each
day at various times prior to the time the Global Income Fund and Core Fund
calculate their net asset value. Occasionally, events affecting the values of
such securities may occur between the times at which they are determined and the
calculation of net asset value which will not be reflected in the computation of
the Fund's net asset value unless the Trustees deem that such event would
materially affect the net asset value, in which case an adjustment would be
made.

TAXATION

The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in the Funds. This summary does not address special
tax rules applicable to certain classes of investors, such as tax-exempt
entities, insurance companies and financial institutions. Each prospective
shareholder is urged to consult his own tax adviser with respect to the specific
federal, state, local and foreign tax consequences of investing in the Funds.
This summary is based on the laws in effect on the date of this Additional
Statement, which are subject to change.

B-77
<PAGE>

GENERAL
- -------

Each series of the Trust, including each Fund, is a separate taxable
entity. Each Fund has qualified and elected to be treated and intends to
continue to qualify for each taxable year as a regulated investment company
under Subchapter M of the Code.

Qualification as a regulated investment company under the Code requires,
among other things, that (a) a Fund derive at least 90% of its annual gross
income (including tax-exempt interest) from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stocks or securities, or foreign currencies or other income (including but not
limited to gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
(the "90% gross income test"); (b) a Fund derive less than 30% of its annual
gross income from the sale or other disposition of any of the following which
was held for less than three months: (i) stock or securities, (ii) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies) and (iii) foreign currencies and foreign currency
options, futures and forward contracts that are not directly related to the
Fund's principal business of investing in stocks or securities or options and
futures with respect to such stocks or securities (the "short-short test"); and
(c) a Fund diversify its holdings so that, at the close of each quarter of its
taxable year, (i) at least 50% of the market value of its total (gross) assets
is comprised of cash, cash items, United States Government Securities,
securities of other regulated investment companies and other securities limited
in respect of any one issuer to an amount not greater in value than 5% of the
value of the Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total (gross) assets is invested in the securities of any one issuer (other than
United States Government Securities and securities of other regulated investment
companies) or two or more issuers controlled by a Fund and engaged in the same,
similar or related trades or businesses. Gains from the sale or other
disposition of foreign currencies (or options, futures or forward contracts on
foreign currencies) that are not directly related to Core Fund's or Global
Income Fund's principal business of investing in stock or securities or options
and futures with respect to stock or securities will be treated as gains from
the sale of investments held for less than three months under the short-short
test (even though characterized as ordinary income for some purposes) if such
currencies or instruments were held for less than three months. In addition,
future Treasury regulations could provide that qualifying income under the 90%
gross income test will not include gains from foreign currency transactions that
are not directly related to Core Fund's or Global Income Fund's principal
business of investing in stock or securities or options and futures with respect
to stock or securities. Using foreign currency positions or entering into
foreign currency options, futures and forward contracts for purposes other than
hedging currency risk with respect to securities in Core Fund's or Global Income
Fund's portfolio or

B-78
<PAGE>

anticipated to be acquired may not qualify as "directly related" under these
tests.

As a regulated investment company, a Fund will not be subject to U.S.
federal income tax on the portion of its income and capital gains that it
distributes to its shareholders in any taxable year for which it distributes, in
compliance with the Code's timing and other requirements, at least 90% of its
"investment company taxable income" (which includes dividends, taxable interest,
taxable original issue discount income, market discount income, income from
securities lending, net short-term capital gain in excess of net long-term
capital loss, and any other taxable income other than "net capital gain" as
defined below and is reduced by deductible expenses) and at least 90% of the
excess of its gross tax-exempt interest income over certain disallowed
deductions ("net tax-exempt interest"). A Fund may retain for investment its
"net capital gain" (which consists of the excess of its net long-term capital
gain over its net short-term capital loss). However, if a Fund retains any
investment company taxable income or net capital gain, it will be subject to tax
at regular corporate rates on the amount retained. If a Fund retains any net
capital gain, that Fund may designate the retained amount as undistributed net
capital gain in a notice to its shareholders who, if subject to U.S. federal
income tax on long-term capital gains, (i) will be required to include in income
for federal income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by that Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares owned
by a shareholder of the Fund will be increased by an amount equal under current
law to 65% of the amount of undistributed net capital gain included in the
shareholder's gross income. Each Fund intends to distribute at least annually to
its shareholders all or substantially all of its investment company taxable
income (if any), net capital gain and any net tax-exempt interest. Exchange
control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as Global Income Fund or Core Fund and may therefore
make it more difficult for Global Income Fund or Core Fund to satisfy the
distribution requirements described above, as well as the excise tax
distribution requirements described below. However, Global Income Fund and Core
Fund generally expect to be able to obtain sufficient cash to satisfy such
requirements from new investors, the sale of securities or other sources. If for
any taxable year a Fund does not qualify as a regulated investment company, it
will be taxed on all of its investment company taxable income and net capital
gain at corporate rates, its net tax-exempt interest may be subject to the
alternative minimum tax, and its distributions to shareholders will be taxable
as ordinary dividends to the extent of its current and accumulated earnings and
profits.

For federal income tax purposes, each Fund is permitted to carry forward a
net capital loss in any year to offset its own

B-79
<PAGE>

capital gains, if any, during the eight years following the year of the loss. At
October 31, 1996, the Funds had approximately the following amounts of capital
loss carry forwards:

<TABLE>
<CAPTION>
Years of
Amount Expiration
----------- ----------
<S> <C> <C>
Adjustable Rate Fund $47,923,000 2000-2003
Short Duration
Government Fund $13,272,000 2002-2003
Short Duration
Tax-Free Fund $ 4,271,000 2002-2003
Core Fixed Income Fund $ 77,000 2004
Global Income Fund $ 4,472,000 2002
Municipal Income Fund $ 1,535,000 2002
</TABLE>

These amounts are available to be carried forward to offset future capital gains
to the extent permitted by the Code and applicable tax regulations.

In order to avoid a 4% federal excise tax, each Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and the excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which the Fund did not pay federal income tax. The Funds anticipate
that they will generally make timely distributions of income and capital gains
in compliance with these requirements so that they will generally not be
required to pay the excise tax.

For federal income tax purposes, dividends declared by a Fund in October,
November or December as of a record date in such a month which are actually paid
in January of the following year will be treated as if they were paid by the
Fund and received by shareholders on December 31 of the year declared.

The Tax Exempt Funds may purchase Municipal Securities together with the
right to resell the securities to the seller at an agreed-upon price or yield
within a specified period prior to the maturity date of the securities. Such a
right to resell is commonly known as a "put" and is also referred to as a
"standby commitment." The Tax Exempt Funds may pay for a standby commitment
either separately, in cash, or in the form of a higher price for the securities
which are acquired subject to the standby commitment, thus increasing the cost
of securities and reducing the yield otherwise available. Additionally, the Tax
Exempt Funds may purchase beneficial interests in Municipal Securities held by
trusts, custodial arrangements or partnerships and/or combined with third-party
puts and other types of features such as interest rate

B-80
<PAGE>

swaps; those investments may require the Fund to pay "tender fees" or other fees
for the various features provided.

The Internal Revenue Service (the "Service") has issued a revenue ruling to
the effect that, under specified circumstances, a registered investment company
will be the owner of tax-exempt municipal obligations acquired subject to a put
option. The Service has also issued private letter rulings to certain taxpayers
(which do not serve as precedent for other taxpayers) to the effect that tax-
exempt interest received by a regulated investment company with respect to such
obligations will be tax-exempt in the hands of the company and may be
distributed to its shareholders as exempt-interest dividends. The Service has
subsequently announced that it will not ordinarily issue advance ruling letters
as to the identity of the true owner of property in cases involving the sale of
securities or participation interests therein if the purchaser has the right to
cause the security, or the participation interest therein, to be purchased by
either the seller or a third party. Each of the Tax Exempt Funds intends to take
the position that it is the owner of any municipal obligations acquired subject
to a standby commitment or other third party put and that tax-exempt interest
earned with respect to such municipal obligations will be tax-exempt in its
hands. There is no assurance that the Service will agree with such position in
any particular case. Additionally, the federal income tax treatment of certain
other aspects of these investments, including the treatment of tender fees paid
by these Funds, in relation to various regulated investment company tax
provisions is unclear. However, the Adviser intends to manage the Tax Exempt
Funds' portfolios in a manner designed to minimize any adverse impact from the
tax rules applicable to these investments.

Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gain and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts or options will (except for certain foreign
currency options, forward contracts, and futures contracts) be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. As a
result of certain hedging transactions entered into by a Fund, that Fund may be
required to defer the recognition of losses on futures or forward contracts and
options or underlying securities or foreign currencies to the extent of any
unrecognized gains on related positions held by the Fund and the
characterization of gains or losses as long-term or short-term may be changed.
The short-short test described above may limit each Fund's ability to use
options, futures and forward transactions as well as its ability to engage in
short sales. The tax provisions

B-81
<PAGE>

described above applicable to options, futures and forward contracts may affect
the amount, timing, and character of a Fund's distributions to shareholders.
Certain tax elections may be available to the Funds to mitigate some of the
unfavorable consequences described in this paragraph.

Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions that may affect the amount, timing and character
of income, gain or loss recognized by Core Fund and Global Income Fund. Under
these rules, foreign exchange gain or loss realized by Core Fund or Global
Income Fund with respect to foreign currencies and certain futures and options
thereon, foreign currency-denominated debt instruments, foreign currency forward
contracts, and foreign currency-denominated payables and receivables will
generally be treated as ordinary income or loss, although in some cases
elections may be available that would alter this treatment. If a net foreign
exchange loss treated as ordinary loss under Section 988 of the Code were to
exceed a Fund's investment company taxable income (computed without regard to
such loss) for a taxable year, the resulting loss would not be deductible by the
Fund or its shareholders in future years. Net loss, if any, from certain foreign
currency transactions or instruments could exceed net investment income
otherwise calculated for accounting purposes with the result being either no
dividends being paid or a portion of Core Fund's or Global Income Fund's
dividends being treated as a return of capital for tax purposes, nontaxable to
the extent of a shareholder's tax basis in his shares and, once such basis is
exhausted, generally giving rise to capital gains.

Core Fund and Global Income Fund may be subject to foreign taxes on income
(possibly including, in some cases, capital gains) from foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes in some cases. Because more than 50% of Global Income Fund's total assets
at the close of any taxable year will generally consist of stock or securities
of foreign corporations, Global Income Fund will generally qualify to file an
election with the Internal Revenue Service pursuant to which shareholders of
Global Income Fund would be required to (i) include in ordinary gross income (in
addition to taxable dividends actually received) their pro rata shares of
foreign income taxes paid by Global Income Fund that are treated as income taxes
under U.S. tax regulations (which excludes, for example, stamp taxes, securities
transaction taxes, and similar taxes) even though not actually received, and
(ii) treat such respective pro rata portions as foreign income taxes paid by
them. Global Income Fund may or may not make this election for any particular
taxable year. Core Fund will not satisfy the 50% requirement described above
and, therefore, will not make this election. Core Fund and, if it does not make
the election, Global Income Fund will, however, be entitled to deduct such taxes
in computing investment company taxable income.

If Global Income Fund makes this election, its shareholders may then deduct
such pro rata portions of qualified foreign taxes

B-82
<PAGE>

in computing their taxable incomes, or, alternatively, use them as foreign tax
credits, subject to applicable limitations, against their U.S. federal income
taxes. Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata portion of
qualified foreign taxes paid by Global Income Fund, although such shareholders
will be required to include their shares of such taxes in gross income if Global
Income Fund makes the election referred to above.

If a shareholder chooses to take a credit for the foreign taxes deemed paid
by such shareholder as a result of any such election by Global Income Fund, the
amount of the credit that may be claimed in any year may not exceed the same
proportion of the U.S. tax against which such credit is taken which the
shareholder's taxable income from foreign sources (but not in excess of the
shareholder's entire taxable income) bears to his entire taxable income. For
this purpose, distributions from long-term and short-term capital gains or
foreign currency gains by Global Income Fund will generally not be treated as
income from foreign sources. This foreign tax credit limitation may also be
applied separately to certain specific categories of foreign-source income and
the related foreign taxes. As a result of these rules, which have different
effects depending upon each shareholder's particular tax situation, certain
shareholders of Global Income Fund may not be able to claim a credit for the
full amount of their proportionate shares of the foreign taxes paid by the Fund.

Shareholders who are not liable for U.S. federal income taxes, including
tax-exempt shareholders, will ordinarily not benefit from this election. Each
year, if any, that Global Income Fund files the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro rata
share of qualified foreign income taxes paid by Global Income Fund and (ii) the
portion of Fund dividends which represents income from each foreign country.

If Core Fund or Global Income Fund acquires stock (including, under
proposed regulations, an option to acquire stock such as is inherent in a
convertible bond) in certain non-U.S. corporations that receive at least 75% of
their annual gross income from passive sources (such as interest, dividends,
rents, royalties or capital gain) or hold at least 50% of their assets in
investments producing such passive income ("passive foreign investment
companies") Core Fund or Global Income Fund could be subject to federal income
tax and additional interest charges on "excess distributions" received from such
companies or gain from the sale of such stock in such companies, even if all
income or gain actually received by Core Fund or Global Income Fund is timely
distributed to its shareholders. Core Fund or Global Income Fund would not be
able to pass through to its shareholders any credit or deduction for such a tax.
Certain elections may, if available, ameliorate these adverse tax consequences,
but any such election would require Core Fund or Global Income Fund to recognize
taxable income or gain without the concurrent receipt of cash. Core Fund or
Global Income Fund may limit and/or manage its holdings in passive foreign

B-83
<PAGE>

investment companies to minimize its tax liability or maximize its return from
these investments.

A Fund's investment in zero coupon securities, deferred interest
securities, capital appreciation bonds or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark-to-market" gain from certain
options, futures or forward contracts, as described above, will generally cause
it to realize income or gain prior to the receipt of cash payments with respect
to these securities or contracts. In order to distribute this income or gain,
maintain its qualification as a regulated investment company and avoid federal
income or excise taxes, a Fund may be required to liquidate portfolio securities
that it might otherwise have continued to hold.

The federal income tax rules applicable to mortgage dollar rolls and
interest rate and currency swaps, floors, caps and collars are unclear in
certain respects, and a Fund may also be required to account for these
instruments under tax rules in a manner that, under certain circumstances, may
limit its transactions in these instruments.

TAXABLE U.S. SHAREHOLDERS -- DISTRIBUTIONS

TAX EXEMPT FUNDS. Each Tax Exempt Fund expects to qualify to pay "exempt-
interest dividends," as defined in the Code. To qualify to pay exempt-interest
dividends, the Fund must, at the close of each quarter of its taxable year, have
at least 50% of the value of its total assets invested in Municipal Securities
whose interest is excluded from gross income under Section 103(a) of the Code.
In purchasing Municipal Securities, each Tax Exempt Fund intends to rely on
opinions of nationally recognized bond counsel for each issue as to the
excludability of interest on such obligations from gross income for federal
income tax purposes. A Tax Exempt Fund will not undertake independent
investigations concerning the tax-exempt status of such obligations, nor does it
guarantee or represent that bond counsels' opinions are correct. Bond counsels'
opinions will generally be based in part upon covenants by the issuers and
related parties regarding continuing compliance with federal tax requirements.
Tax laws not only limit the purposes for which tax-exempt bonds may be issued
and the supply of such bonds, but also contain numerous and complex requirements
that must be satisfied on a continuing basis in order for bonds to be and remain
tax-exempt. If the issuer of a bond or a user of a bond-financed facility fails
to comply with such requirements at any time, interest on the bond could become
taxable, retroactive to the date the obligation was issued. In that event, a
portion of a Tax Exempt Fund's distributions attributable to interest the Fund
received on such bond for the current year and for prior years could be
characterized or recharacterized as taxable income. The availability of tax-
exempt obligations and the value of a Tax Exempt Fund's portfolio may be
affected by restrictive federal income tax legislation enacted in recent years
or by similar, future legislation. If a Tax Exempt

B-84
<PAGE>

Fund satisfies the applicable requirements, dividends paid by the Fund which are
attributable to tax exempt interest on Municipal Securities and designated by
the Fund as exempt-interest dividends in a written notice mailed to its
shareholders within sixty days after the close of its taxable year may be
treated by shareholders as items of interest excludable from their gross income
under Section 103(a) of the Code. Exempt-interest dividends a Tax Exempt Fund
receives from other regulated investment companies, including exempt-interest
dividends on auction rate preferred securities of such companies held by a Fund,
are treated as interest on Municipal Securities and may be distributed by a Tax
Exempt Fund as exempt-interest dividends. The recipient of tax-exempt income is
required to report such income on his federal income tax return. However, a
shareholder is advised to consult his tax adviser with respect to whether
exempt-interest dividends retain the exclusion under Section 103(a) if such
shareholder would be treated as a "substantial user" under Section 147(a)(1)
with respect to some or all of the tax-exempt obligations held by a Tax Exempt
Fund. The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of a Tax Exempt Fund is not deductible to the extent
attributable to exempt-interest dividends.

Although all or a substantial portion of the dividends paid by a Tax Exempt
Fund may be excluded by shareholders of such Fund from their gross income for
federal income tax purposes, each Tax Exempt Fund may purchase specified private
activity bonds, the interest from which (including a Fund's distributions
attributable to such interest) may be a preference item for purposes of the
federal alternative minimum tax (both individual and corporate). All exempt-
interest dividends from a Tax Exempt Fund, whether or not attributable to
private activity bond interest, may increase a corporate shareholder's
liability, if any, for corporate alternative minimum tax, and will be taken into
account in determining the extent to which a shareholder's Social Security or
certain railroad retirement benefits are taxable.

ALL FUNDS. Distributions from investment company taxable income, as
defined above, are taxable to shareholders who are subject to tax as ordinary
income whether paid in cash or reinvested in additional shares. Taxable
distributions include distributions from any Fund, including Short Duration Tax-
Free Fund and Municipal Income Fund, that are attributable to (i) taxable
income, including but not limited to dividends, taxable bond interest,
recognized market discount income, original issue discount income accrued with
respect to taxable bonds, income from repurchase agreements, income from
securities lending, income from dollar rolls, income from interest rate or
currency swaps, caps, floors and collars, and a portion of the discount from
certain stripped tax-exempt obligations or their coupons or (ii) capital gains
from the sale of securities or other investments (including from the disposition
of rights to when-issued securities prior to issuance) or from options, futures
or certain forward contracts. Any portion of such taxable distributions that is
attributable to a Fund's net capital gain, as defined above, may be designated
by the Fund as a "capital gain dividend," taxable to shareholders as

B-85
<PAGE>

long-term capital gain whether received in cash or additional shares and
regardless of the length of time their shares of a Fund have been held.

It is expected that distributions made by the Funds will ordinarily not
qualify for the dividends-received deduction for corporations because qualifying
distributions may be made only from a Fund's dividend income that it receives
from stock in U.S. domestic corporations. The Funds do not intend to purchase
stock of domestic corporations other than in limited instances, including
investments in investment companies, distributions from which may in rare cases
qualify as dividends for this purpose. The dividends-received deduction, if
available, is reduced to the extent the shares with respect to which the
dividends are received are treated as debt-financed under the federal income tax
law and is eliminated if the shares are deemed to have been held for less than a
minimum period, generally 46 days. Receipt of certain distributions qualifying
for the deduction may result in reduction of the tax basis of the corporate
shareholder's shares and may give rise to or increase its liability for federal
corporate alternative minimum tax.

Distributions in excess of a Fund's current and accumulated earnings and
profits, as computed for federal income tax purposes, will first reduce a
shareholder's basis in his shares and, after the shareholder's basis is reduced
to zero, will generally constitute capital gains to a shareholder who holds his
shares as capital assets. Amounts that are not allowable as a deduction in
computing taxable income, including expenses associated with earning tax-exempt
interest income, do not reduce a Fund's current earnings and profits for these
purposes. Consequently, the portion, if any, of Short Duration Tax-Free Fund's
or Municipal Income Fund's distributions from gross tax-exempt interest income
that exceeds its net tax-exempt interest would be taxable as ordinary income to
the extent of such disallowed deductions even though such excess portion may
represent an economic return of capital.

Shareholders receiving a distribution in the form of newly issued shares
will be treated for U.S. federal income tax purposes as receiving a distribution
in an amount equal to the amount of cash that they would have received had they
elected to receive cash and will have a cost basis in the shares received equal
to such amount.

TAXABLE U.S. SHAREHOLDERS -- SALE OF SHARES

When a shareholder's shares are sold, redeemed or otherwise disposed of,
the shareholder will generally recognize gain or loss equal to the difference
between the shareholder's adjusted tax basis in the shares and the cash, or fair
market value of any property, received. Assuming the shareholder holds the
shares as a capital asset at the time of such sale or other disposition, such
gain or loss should be capital in character, and long-term if the shareholder
has a tax holding period for the shares of more than

B-86
<PAGE>

one year, otherwise short-term. All or a portion of a sales charge paid in
purchasing Class A shares of Adjustable Rate Fund or Global Income Fund cannot
be taken into account for purposes of determining gain or loss on the redemption
or exchange of such shares within 90 days after their purchase to the extent
shares of that Fund or another fund are subsequently acquired without payment of
a sales charge pursuant to the reinvestment or exchange privilege. Any
disregarded portion of such charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. If a shareholder
received a capital gain dividend with respect to shares and such shares have a
tax holding period of six months or less at the time of the sale or redemption,
then any loss the shareholder realizes on the sale or redemption will be treated
as a long-term capital loss to the extent of such capital gain dividend. Also,
any losses realized by shareholders who dispose of shares of Short Duration Fund
or Municipal Income Fund with a tax holding period of six months or less are
disallowed to the extent of any exempt-interest dividends received with respect
to such shares. Additionally, any loss realized on a sale or redemption of
shares of a Fund may be disallowed under "wash sale" rules to the extent the
shares disposed of are replaced with other shares of the same Fund within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to a dividend reinvestment in shares of the
Fund. If disallowed, the loss will be reflected in an adjustment to the basis of
the shares acquired.

After the close of each calendar year, each of Short Duration Tax-Free Fund
and Municipal Income Fund will inform shareholders of the federal income tax
status of its dividends and distributions for such year, including the portion
of such dividends that qualifies as tax-exempt and the portion, if any, that
should be treated as a tax preference item for purposes of the federal
alternative minimum tax. Shareholders who have not held shares of Short
Duration Tax-Free Fund or Municipal Income Fund for such Fund's full taxable
year may have designated as tax-exempt or as a tax preference item a percentage
of distributions which is not equal to the actual amount of tax-exempt income or
tax preference item income earned by Short Duration Tax-Free Fund or Municipal
Income Fund during the period of their investment in Short Duration Tax-Free
Fund or Municipal Income Fund, as the case may be.

All distributions, whether received in shares or in cash, as well as
redemptions and exchanges, must be reported by each shareholder who is required
to file a U.S. Federal income tax return.

Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.

B-87
<PAGE>

BACKUP WITHHOLDING

Each Fund will be required to report to the Service all taxable
distributions, as well as gross proceeds from the redemption or exchange of Fund
shares, except in the case of certain exempt recipients, i.e., corporations and
certain other investors distributions to which are exempt from the information
reporting provisions of the Code. Under the backup withholding provisions of
Code Section 3406 and applicable Treasury regulations, all such reportable
distributions and proceeds may be subject to backup withholding of federal
income tax at the rate of 31% in the case of non-exempt shareholders who fail to
furnish the Funds with their correct taxpayer identification number and with
certain required certifications or if the Service or a broker notifies the Funds
that the number furnished by the shareholder is incorrect or that the
shareholder is subject to backup withholding as a result of failure to report
interest or dividend income. However, any taxable distributions from Short
Duration Tax-Free Fund or Municipal Income Fund will not be subject to backup
withholding if the applicable Fund reasonably estimates that at least 95% of its
distributions will be exempt-interest dividends. A Fund may refuse to accept an
application that does not contain any required taxpayer identification number or
certification that the number provided is correct. If the backup withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in shares, will be reduced by the amounts required to be
withheld. Any amounts withheld may be credited against a shareholder's U.S.
federal income tax liability. Investors should consult their tax advisers about
the applicability of the backup withholding provisions.

NON-U.S. SHAREHOLDERS

The foregoing discussion relates solely to U.S. federal income tax law as
it applies to "U.S. persons" (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates) subject to tax under
such law. Dividends from investment company taxable income distributed by a
Fund to a shareholder who is not a U.S. person will be subject to U.S.
withholding tax at the rate of 30% (or a lower rate provided by an applicable
tax treaty) unless the dividends are effectively connected with a U.S. trade or
business of the shareholder, in which case the dividends will be subject to tax
on a net income basis at the graduated rates applicable to U.S. individuals or
domestic corporations. Distributions of net capital gain, including amounts
retained by a Fund which are designated as undistributed capital gains, to a
shareholder who is not a U.S. person will not be subject to U.S. federal income
or withholding tax unless the distributions are effectively connected with the
shareholder's trade or business in the United States or, in the case of a
shareholder who is a nonresident alien individual, the shareholder is present in
the United States for 183 days or more during the taxable year and certain other
conditions are met. Non-U.S. shareholders may also be subject to U.S.
withholding tax on deemed income resulting from any election by Global Income
Fund to treat qualified foreign taxes

B-88
<PAGE>

it pays as passed through to shareholders (as described above), but they may not
be able to claim a U.S. tax credit or deduction with respect to such taxes.

Any gain realized by a shareholder who is not a U.S. person upon a sale or
redemption of shares of a Fund will not be subject to U.S. federal income or
withholding tax unless the gain is effectively connected with the shareholder's
trade or business in the United States, or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met.

Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from a Fund.

STATE AND LOCAL TAXES

A Fund may be subject to state or local taxes in certain jurisdictions in
which a Fund may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of a Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in a Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.

PERFORMANCE INFORMATION

Each Fund may from time to time quote or otherwise use yield and total
return information in advertisements, shareholder reports or sales literature.
Thirty-day yield and average annual total return values are computed pursuant to
formulas specified by the SEC. Each Fund may also from time to time quote
distribution rates in reports to shareholders and in sales literature.

Thirty-day yield is derived by dividing net investment income per share
earned during the period by the maximum public offering price per share on the
last day of such period. Yield is then annualized by assuming that yield is
realized each month for twelve months and is reinvested every six months. 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, a Tax Exempt Fund's tax-free

B-89
<PAGE>

yield. Tax equivalent yield is calculated by dividing a Tax Exempt Fund's tax-
exempt yield by one minus a stated federal and/or state tax rate.

Distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share on the last day of the period.

Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price applicable to the relevant
class (i.e., net asset value in the case of each class other than Class A) at
the beginning of the period, and then calculating the annual compounded rate of
return which would produce that amount, assuming a redemption (and in the case
of Class B Shares payment of any contingent deferred sales charge) at the end of
the period. This calculation assumes a complete redemption of the investment.
It also assumes that all dividends and distributions are reinvested at net asset
value on the reinvestment dates during the period.

Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price per share with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period.

The following table presents thirty-day yield, tax equivalent yield (Short
Duration Tax-Free and Municipal Income Funds only), distribution rate and
average annual total return (capital plus reinvestment of all distributions) for
each class of shares outstanding for the periods indicated.

Thirty-day yield, tax equivalent yield (Short Duration Tax-Free and
Municipal Income Funds only), distribution rate and average annual total return
are calculated separately for each class of shares in existence of each Fund.
Each class of shares of each Fund is subject to different fees and expenses and
may have different returns for the same period. Any performance data for Class
A or Class B Shares which is based upon a Fund's net asset value per share would
be reduced if a sales charge were taken into account.

B-90
<PAGE>

<TABLE>
<CAPTION>
YIELD

Investment SEC 30-Day Pro-Forma
Fund Period Yield Yield/1/
- ---- ---------- ----- --------
<S> <C> <C> <C>
30-Days
ended
10/31/96

ADJUSTABLE RATE FUND
Institutional Shares 6.00% 5.94%
Administration Shares 5.75% 5.69%
Service Shares/2/
Class A Shares
- Assumes 1.5% sales charge 5.66% 5.35%

SHORT DURATION GOVERNMENT FUND
Institutional Shares 6.43% 6.16%
Administration Shares 6.19% 5.93%
Service Shares 5.96% 5.71%

SHORT DURATION TAX-FREE FUND
Institutional Shares 4.34% 3.71%
Administration Shares 4.09% 3.42%
Service Shares 3.84% 3.22%

CORE FUND
Institutional Shares 6.60% 6.25%
Administration Shares 6.37% 6.03%
Service Shares 6.12% 5.78%

GLOBAL INCOME FUND
Institutional Shares 5.20% 4.76%
Service Shares/2/
Class A Shares
(Assumes 4.5% sales charge) 4.54% 4.08%
Class B Shares 4.23% 3.80%

MUNICIPAL INCOME FUND
Class A Shares 4.21% 3.56%
(assumes 4.5% sales charge)
Class B Shares 3.68% 3.25%

GOVERNMENT INCOME FUND
Class A Shares 6.04% 4.76%
(assumes 4.5% sales charge)
Class B Shares 5.57% 4.48%
</TABLE>

B-91
<PAGE>

<TABLE>
<CAPTION>
DISTRIBUTION RATE

30 Day Pro-Forma
Investment Distribution Distribution
Fund Period Rate Rate/1/
- ---- ---------- ------------ -------
<S> <C> <C> <C>
30-Days
ended
10/31/96

ADJUSTABLE RATE FUND
Institutional Shares 5.87% 5.81%
Administration Shares 5.62% 5.56%
Service Shares/2/
Class A Shares
- Assumes no sales charge 5.62% 5.31%

SHORT DURATION GOVERNMENT FUND
Institutional Shares 6.24% 5.97%
Administration Shares 6.00% 5.72%
Service Shares/2/ 5.78% 5.49%

SHORT DURATION TAX-FREE FUND
Institutional Shares 4.19% 3.56%
Administration Shares 3.94% 3.28%
Service Shares 3.69% 3.06%

MUNICIPAL INCOME FUND
Class A Shares 4.27% 3.59%
-assumes no sales charge
Class B Shares 3.53% 3.09%

GOVERNMENT INCOME FUND
Class A Shares 6.33% 5.00%
-assumes no sales charge
Class B Shares 5.58% 4.50%

CORE FUND
Institutional Shares 6.46% 6.12%
Administration Shares 6.23% 5.89%
Service Shares 5.98% 5.63%

GLOBAL INCOME FUND
Institutional Fund 5.95% 6.18%
Service Shares/2/
Class A Shares
- Assumes no sales charge 5.44% 4.96%
Class B Shares 5.02% 4.59%
</TABLE>

B-92
<PAGE>

TAX-EQUIVALENT YIELD/6/

<TABLE>
<CAPTION>
Pro-Forma
Investment Tax-Equivalent Tax-Equivalent
Fund Period Rate Yield/1/
- ---- ---------- ------------- -----------------
<S> <C> <C> <C>
30-Days
ended
10/31/96

SHORT DURATION
TAX-FREE FUND/3/
Institutional Shares 6.94% 5.89%
Administration Shares 6.52% 5.43%
Service Shares 6.11% 5.07%

MUNCIPAL INCOME FUND/3/
Class A Shares 7.07% 5.94%
-assumes no sales charge
Class B Shares 5.84% 5.12%
</TABLE>

_______________________________

1 Yield, tax equivalent yield and distribution rate if the applicable Adviser
had not voluntarily agreed to limit its advisory fees and to maintain
expenses at a specified level.
2 There were no Service Shares outstanding during the periods indicated.
3 The tax-equivalent rate of Short Duration Tax-Free Fund and Municipal Income
Fund is computed based on the 39.6% federal income tax rate.

The above tables should not be considered a representation of future
performance.

B-93
<PAGE>

VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)

<TABLE>
<CAPTION>
Average Annual
-----------------------------------------------------------
With Fee Without Fee
Reductions Reductions
and/or and/or
Investment Investment Expense Expense
Fund Date Period Limitations Limitations
- ---- -----------------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE FUND

Institutional Shares 7/17/91/1a/ ended 10/31/96 5.32% 5.19%

11/1/95 one year ended
10/31/96 6.86% 6.80%

11/1/91 five years ended 5.13% 5.05%
10/31/96

Administration Shares 4/15/93/1b/ ended 10/31/96 4.69% 4.64%

11/1/95 one year ended
10/31/96 6.60% 6.53%

Service Shares/1c/ N/A N/A

Class A Shares 5/12/95/1d/ ended 10/31/96

Assumes 1.5% Sales Charge 5.29% 4.96%
Assumes No Sales Charge 6.40% 6.07%
11/1/95 one year ended
Assumes 1.5% Sales Charge 10/31/96 4.99% 4.66%
Assumes No Sales Charge 6.60% 6.27%

SHORT DURATION GOVERNMENT FUND

Institutional Shares 8/15/88/2a/ ended 10/31/96 7.24% 6.84%

11/1/95 one year ended
10/31/96 6.75% 6.47%

11/1/91 five years
ended 10/31/96 5.67% 5.44%

Administration Shares 2/28/96/2b/ ended 10/31/96 4.00% 3.82%

Service Shares 4/10/96/2b/ ended 10/31/96 4.35% 4.20%
</TABLE>

B-94
<PAGE>

VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)

Institutional Shares 10/1/92/3a/ ended 10/31/96 4.21% 3.71%

11/1/95 one year ended
10/31/96 4.50% 3.92%

Administration Shares 5/20/93/3b/ ended 10/31/96 3.51% 3.15%

11/1/95 one year ended
10/31/96 4.24% 3.66%

Service Shares 9/20/94/3c/ ended 10/31/96 4.36% 3.92%

11/1/95 one year ended
10/31/96 3.98% 3.40%

CORE FUND

Institutional Shares 1/15/94/4a/ 10/31/96 6.34% 5.70%

11/1/95 one year ended
10/31/96 5.98% 5.58%

Administration Shares 2/28/96/4b/ ended
10/31/96 3.56% 3.29%

Service Shares 3/13/96/4b/ ended
10/31/96 4.90% 4.69%
</TABLE>

B-95

<PAGE>

VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)

<TABLE>
<CAPTION>
Average Annual
-------------------------------------------------------------------
With Fee Without Fee
Reductions Reductions
and/or and/or
Investment Investment Expense Expense
Fund Date Period Limitations Limitations
- ---- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
GLOBAL INCOME FUND/5C/

Class A Shares 8/2/91/5a/ ended 10/31/96

Assumes 4.5% Sales Charge 7.08% 6.76%
Assumes No Sales Charge 8.02% 7.71%

Assumes 4.5% Sales Charge 11/1/95 one year 6.08% 5.57%
Assumes No Sales Charge ended 10/31/96 11.05% 10.53%

Assumes 4.5% Sales Charge 11/1/91 five years 7.02% 6.73%
Assumes No Sales Charge ended 10/31/96 8.01% 7.69%

Class B Shares/5b/ 5/1/96 ended 10/31/96/5d/ 6.24% 6.01%

Institutional Shares 8/1/95/5e/ ended 10/31/96 12.95% 12.45%

11/1/95 one year
ended 10/31/96 11.55% 11.05%

Service Shares/5f/

MUNICIPAL INCOME FUND

Class A Shares 7/20/93/6a/ ended 10/31/96
Assumes 4.5% Sales Charge 3.80% 2.78%
Assumes No Sales Charge 5.27% 4.23%

11/1/95 ended 10/31/96

Assumes 4.5% Sales Charge 1.35% 0.65%
Assumes No Sales Charge 6.13% 5.40%

Class B Shares/6b/ 5/1/96 ended 10/31/96 4.40% 4.07%
</TABLE>

B-96
<PAGE>

VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)

<TABLE>
<CAPTION>
Average Annual
----------------------------------------------------------------
With Fee Without Fee
Reductions Reductions
and/or and/or
Investment Investment Expense Expense
Fund Date Period Limitations Limitations
- ---- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
GOVERNMENT INCOME FUND

Class A Shares 2/10/93/7a/ ended 10/31/96
Assumes 4.5% Sales Charge 5.41% 2.92%
Assumes No Sales Charge 6.72% 4.21%

11/1/95 ended 10/31/96
Assumes 4.5% Sales Charge 1.06% -0.33%
Assumes No Sales Charge 5.80% 4.35%

Class B Shares/7b/ 5/1/96 ended 10/31/96 4.85% 4.17%
</TABLE>
__________________
1a Institutional Shares of Adjustable Rate Fund commenced operations on July
17, 1991.
1b Administration Shares of Adjustable Rate Fund commended operations on April
15, 1993.
1c No Service Shares of Adjustable Rate Fund were outstanding during the
periods indicated.
1d Class A shares of Adjustable Rate Fund commenced operations on May 12, 1995.
2a Institutional Shares of Short Duration Government Fund commenced operations
on August 15, 1988.
2b Administration Shares of Short Duration Government Fund commenced operations
on February 28, 1996. Service Shares of Short Duration Government Fund
commenced operations on April 10, 1996.
3a Institutional Shares of Short Duration Tax-Free Fund commenced operations on
October 1, 1992.
3b Administration Shares of Short Duration Tax-Free Fund commenced operations
on May 20, 1993.
3c Service Shares of Short Duration Tax-Free Fund commenced operations on
September 20, 1994.
4a Institutional Shares of Core Fund commenced operations on January 5, 1994.
4b Administration Shares of Core Fund commenced operations on February 28,
1996. Service Shares of Core Fund commenced operations on March 13, 1996.
5a Class A Shares of Global Income Fund commenced operations on August 2, 1991.
5b Class B Shares of Global Income Fund commenced operations on May 1, 1996.
5c On November 27, 1992, the maximum sales charge was changed from 3% to 4.5%
of the offering price. All performance figures in this table incorporate the
sales charge currently in effect.
5d An aggregate total return (not annualized) is shown instead of an average
annual total return since Class B Shares have not completed a full 12 months
of operation as of October 31, 1996.
5e Institutional Shares of Global Income Fund commenced operations on August 1,
1995.
5f No Service Shares of Global Income Fund were outstanding during the periods
indicated.
6a Class A shares of Municipal Income Fund commenced operations on July 20,
1993.
6b Class B Shares of Municipal Income Fund commenced operations on May 1, 1996.
An aggregate total return (not annualized) is shown instead of an average
annual total return since Class B Shares have not completed a full 12 months
of operation as of October 31, 1996.
7a Class A Shares of Government Income Fund commenced operations on February
10, 1993.

B-97
<PAGE>

7b Class B Shares of Government Income Fund commenced operations on May 1,
1996. An aggregate total return (not annualized) is shown instead of an
average annual total return since Class B Shares have not completed a full
12 months of operation as of October 31, 1996.

The above table should not be considered a representation of future
performance.

B-98
<PAGE>

Occasionally statistics may be used to specify a Fund's volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market. A beta of
more than 1.00 indicates volatility greater than the market, and a beta of less
than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.

Each Fund may from time to time advertise comparative performance as
measured by various independent sources, including, but not limited to, Lipper
------
Analytical Services, Inc., Donaghues Money Fund Report, Barron's, The Wall
- ------------------------- --------------------------- -------- --------
Street Journal, Weisenberger Investment Companies Service, Business Week,
- -------------- ----------------------------------------- -------------
Changing Times, Financial World, Forbes, Fortune, Morningstar Mutual Funds The
- -------------- --------------- ------ ------- ------------------------ ---
New York Times, Personal Investor, Sylvia Porter's Personal Finance and Money.
- -------------- ----------------- -------------------------------- -----

In addition, Adjustable Rate Fund, Government Income Fund and Short
Duration Government Fund may from time to time advertise their performance
relative to certain indices and benchmark investments, including: (a) the
Shearson Lehman Government/Corporate (Total) Index, (b) Shearson Lehman
Government Index, (c) Merrill Lynch 1-3 Year Treasury Index, (d) Merrill Lynch
2-Year Treasury Curve Index, (e) the Salomon Brothers Treasury Yield Curve Rate
of Return Index, (f) the Payden & Rygel 2-Year Treasury Note Index, (g) 1
through 3 year U.S. Treasury Notes, (h) constant maturity U.S. Treasury yield
indices, (i) the Consumer Price Index, (j) the London Interbank Offered Rate,
(k) other taxable investments such as certificates of deposit, money market
deposit accounts, checking accounts, savings accounts, money market mutual
funds, repurchase agreements, commercial paper and (l) historical data
concerning the performance of adjustable and fixed-rate mortgage loans.

Short Duration Tax-Free Fund and Municipal Income Fund may from time to
time advertise their performance relative to certain indices, any components of
such indices and benchmark investments, including but not limited to: (a) the
Lipper Analytical Services, Inc. Mutual Fund Performance Analysis, Fixed Income
Analysis and Mutual Fund Indices (which measure total return and average current
yield for the mutual fund industry and rank mutual fund performance); (b) the
Lehman Brothers Municipal Bond Indices; (c) the Merrill Lynch Municipal Bond
Institutional Total Rate of Return Indices; (d) Bond Buyer Indices; (e)
IBC/Donoghue's Money Fund Averages/Institutional Only Tax Free; and constant
maturity U.S. Treasury yield indices.

Core Fund and Global Income Fund may each from time to time advertise its
performance relative to certain indices and benchmark investments, including:
(a) the Lipper Analytical Services, Inc.

B-99
<PAGE>

Mutual Fund Performance Analysis, Fixed Income Analysis and Mutual Fund Indices
(which measure total return and average current yield for the mutual fund
industry and rank mutual fund performance); (b) the CDA Mutual Fund Report
published by CDA Investment Technologies, Inc. (which analyzes price, risk and
various measures of return for the mutual fund industry); (c) the Consumer Price
Index published by the U.S. Bureau of Labor Statistics (which measures changes
in the price of goods and services); (d) Stocks, Bonds, Bills and Inflation
published by Ibbotson Associates (which provides historical performance figures
for stocks, government securities and inflation); (e) the Salomon Brothers'
World Bond Index (which measures the total return in U.S. dollar terms of
government bonds, Eurobonds and foreign bonds of ten countries, with all such
bonds having a minimum maturity of five years); (f) the Lehman Brothers
Aggregate Bond Index or its component indices; (g) the Standard & Poor's Bond
Indices (which measure yield and price of corporate, municipal and U.S.
government bonds); (h) the J.P. Morgan Global Government Bond Index; (i) other
taxable investments including certificates of deposit (CDs), money market
deposit accounts (MMDAs), checking accounts, savings accounts, money market
mutual funds and repurchase agreements; (j) historical investment data supplied
by the research departments of Goldman Sachs, Lehman Brothers Inc., First Boston
Corporation, Morgan Stanley & Co. Incorporated, Salomon Brothers, Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Donaldson Lufkin and Jenrette
Securities Corporation; and (k) Donoghue's Money Fund Report (which provides
industry averages for 7-day annualized and compounded yields of taxable, tax-
free and U.S. government money funds).

The composition of the investments in the above-referenced indices and the
characteristics of a Fund's benchmark investments are not identical to, and in
some cases may be very different from, those of a Fund's portfolio. These
indices and averages, as well as the averages set forth in the Appendices
hereto, are generally unmanaged and the items included in the calculations of
such indices and averages may not be identical to the formulas used by the a
Fund to calculate its performance figures.

From time to time advertisements or communications to shareholders may
summarize the substance of information contained in shareholder reports
(including the investment composition of a Fund), as well as the views of
Goldman Sachs as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
regulated matters believed to be of relevance to a Fund.

In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed by GSAM and/or its affiliates,
certain attributes or benefits to be derived from asset allocation strategies
and the Goldman Sachs mutual funds that may be offered as investment options for
the strategic asset allocations. Such advertisements and information may also
include GSAM's current economic outlook and domestic and international market
views to suggest periodic tactical

B-100
<PAGE>

modifications to current asset allocation strategies. Such advertisements and
information may include other material which highlight or summarize the services
provided in support of an asset allocation program.

In addition, advertisements or shareholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund. Such advertisements or information may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein.

Performance data is based on historical results and is not intended to
indicate future performance. Total return, thirty-day yield, tax equivalent
yield and distribution rate will vary based on changes in market conditions,
portfolio expenses, portfolio investments and other factors. The value of a
Fund's shares will fluctuate and an investor's shares may be worth more or less
than their original cost upon redemption. The Trust may also, at its discretion,
from time to time make a list of a Fund's holdings available to investors upon
request.

OTHER INFORMATION

Each of the Funds became a series of the Trust pursuant to Plans of
Reorganization effective April 30, 1997. Prior thereto, the Funds were a series
of a Massachusetts business trust with the same names. Short Duration Government
Fund assumed its current name in March 1996. Prior thereto, Short Duration
Government Fund's name was "GS Short-Intermediate Government Fund" until May
1991 and "GS Short-Term Government Agency Fund" until March 1996. Adjustable
Rate Government Fund assumed its current name in March 1996. Prior thereto,
Adjustable Rate Government Fund's name was "GS Adjustable Rate Government Agency
Fund." Goldman Sachs licensed the name "Goldman Sachs" and derivatives thereof
to the Trust (and Fund) on a royalty-free basis and Goldman Sachs has reserved
to itself the right to grant the non-exclusive right to use the name "Goldman
Sachs" to any other person. At such time as the Management Agreement for a Fund
is no longer in effect, the Trust on behalf of that Fund has agreed that such
Fund will (to the extent it lawfully can) cease using the name "Goldman
Sachs."

A Fund will redeem shares solely in cash up to the lesser of $250,000 or 1%
of its net asset value of each Fund during any 90-day period for any one
shareholder. Each Fund, however, reserves the right to pay redemptions exceeding
$250,000 or 1% of the net asset value of each respective Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating each
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur

B-101
<PAGE>

transaction costs upon the disposition of the securities received in the
redemption.

The right of a shareholder to redeem shares and the date of payment by a
Fund may be suspended for more than seven days for any period during which the
New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for a Fund to dispose of securities owned by it or
fairly to determine the value of its net assets; or for such other period as the
SEC may by order permit for the protection of shareholders of a Fund.

The Prospectuses and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectuses. Certain
portions of the Registration Statement have been omitted from the Prospectuses
and this Additional Statement pursuant to the rules and regulations of the SEC.
The Registration Statement including the exhibits filed therewith may be
examined at the office of the SEC in Washington, D.C.

Statements contained in the Prospectuses or in this Additional Statement as
to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectuses and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.

FINANCIAL STATEMENTS

The audited financial statements and related report of Arthur Andersen LLP,
independent public accounts, for each Fund contained in each Fund's 1996 Annual
Report are hereby incorporated by reference and attached hereto. A copy of the
annual reports may be obtained without charge by writing Goldman, Sachs & Co.,
4900 Sears Tower, Chicago, Illinois 60606 or by calling Goldman, Sachs & Co., at
the telephone number on the back cover of each Fund's Prospectus.

B-102
<PAGE>

APPENDIX A

The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:

. The performance of various types of securities (taxable money market funds,
U.S. Treasury securities, adjustable rate mortgage securities, government
securities, municipal bonds) over time. However, the characteristics of these
securities are not identical to, and may be very different from, those of a
Fund's portfolio;

. Volatility of total return of various market indices (i.e. Lehman
Government Bond Index, S&P 500, IBC/Donoghue's Money Fund Average/ All Taxable
Index) over varying periods of time.

. Credit Ratings of domestic government bonds in various countries

. Price volatility comparisons of types of securities over different periods
of time.

. Price and yield comparisons of a particular security over different periods
of time.

In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.

1-A
<PAGE>

APPENDIX B
CORE FUND
GLOBAL INCOME FUND

DESCRIPTION OF BOND RATINGS/1/

MOODY'S INVESTORS SERVICE, INC.

Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa: Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

Moody's also provides credit ratings for commercial paper. These are
promissory obligations (1) not having an original

____________________

/1/ The rating systems described herein are believed to be the most
recent ratings systems available from Moody's Investors Service, Inc. and
Standard & Poor's Ratings Group at the date of this Additional Statement for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which will be given to these securities on the
date of a Fund's fiscal year end.

1-B
<PAGE>

maturity in excess of nine months, and (2) backed by commercial banks.
Notes bearing the designation P-1 have a superior capacity for repayment.
Notes bearing the designation P-2 have a strong capacity for repayment.

STANDARD & POOR'S RATINGS GROUP

AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.

AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.

A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.

S&P's top ratings for notes issued after July 29, 1984 are SP-1 and SP-2.
The designation SP-1 indicates a very strong capacity to pay principal and
interest. A plus sign (+) is added for those issues determined to possess
overwhelming safety characteristics. An "SP-2" designation indicates a
satisfactory capacity to pay principal and interest.

Commercial paper rated A by S&P is regarded as having the greatest
capacity for timely payment. Commercial paper rated A-1 is described as
having an overwhelming or very strong degree of safety regarding timely
payment. Commercial Paper rated A-2 by Standard & Poor's is described as
having a strong degree of safety regarding timely payment.

FITCH INVESTORS SERVICE, CORP.

Bond Ratings
------------

The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political
and economic environment that might affect the issuer's future financial
strength and credit quality.

2-B
<PAGE>

AAA: Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.

AA: Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.

A: Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.

BBB: Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.

Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA Category covering 12-36
months.

Investment Grade Short-Term Ratings
-----------------------------------

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.

F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.

F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated "F-1+".

DUFF & PHELPS
-------------

Commercial Paper/Certificates of Deposits
-----------------------------------------
Category 1: Top Grade

3-B
<PAGE>

Duff 1 plus: Highest certainty of timely payment. Short-term liquidity
including internal operating factors and/or ready access to
alternative sources of funds, is clearly outstanding, and
safety is just below risk-free U.S. Treasury short-term
obligations.

Duff 1:
Very high certainty of timely payment. Liquidity factors are
excellent and supported by strong fundamental protection factors.
Risk factors are minor.

Notes: Bonds which are unrated may expose the investor to risks with
respect to capacity to pay interest or repay principal which
are similar to the risks of lower-rated bonds. The Fund is
dependent on the Investment Adviser's judgment, analysis and
experience in the evaluation of such bonds.

Investors should note that the assignment of a rating to a
bond by a rating service may not reflect the effect of recent
developments on the issuer's ability to make interest and
principal payments.

Description of Municipal Securities Ratings
-------------------------------------------

The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group represent their opinions as to the quality of various
Municipal Securities. It should be emphasized, however, that ratings are
not absolute standards of quality. Consequently, Municipal Securities with
the same maturity, coupon and rating may have different yields while
Municipal Securities of the same maturity and coupon with different ratings
may have the same yield.

Description of Ratings of State and Municipal Bonds
---------------------------------------------------

MOODY'S INVESTORS SERVICE, INC.

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.

4-B
<PAGE>

protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than
the Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.

Baa: Bonds which are rated Baa are considered medium-grade obligations,
i.e. they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

ABSENCE OF RATING: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities that are not
rated as a manner of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgement to be
formed; if a bond is called for redemption; or for other reasons.

NOTE: Those bonds in the Aa and A and Baa groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa 1, A 1 and Baa 1.

STANDARD & POOR'S RATINGS GROUP

AAA: Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.

5-B
<PAGE>

AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.

BBB: Debt rated BBB is regarding as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.

Plus (+) or minus (-) for ratings from AA to CCC may be used to show
relative standing within the major rating categories.

Description of Ratings of State and Municipal Notes
---------------------------------------------------

MOODY'S INVESTORS SERVICE, INC.

Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements
are critical in short-term ratings, while other factors of major importance
in bond risk, long-term secular trends for example, may be less important
over the short run. Symbols used will be as follows:

MIG-1/VMIG-1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.

MIG-2/VMIG-2 - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

STANDARD & POOR'S RATINGS GROUP

A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most
likely receive a long-term debt rating. The following criteria will be used
in making that assessment.

6-B
<PAGE>

- Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note).

- Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).

Note rating symbols are as follows:

SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term
of the notes.

SP-3 Speculative capacity to pay principal and interest.

Description of Ratings of State and Municipal
Commercial Paper
---------------------------------------------

MOODY'S INVESTORS SERVICE, INC.

Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity
in excess of nine months. Moody's two highest commercial paper rating
categories are as follows:

"PRIME-1" - Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the
following characteristics:

- Leading market positions in well established industries.

- High rates of return on funds employed.

- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.

- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.

- Well established access to a range of financial markets and
assured sources of alternate liquidity.

"PRIME-2" - Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of short-term debt

7-B
<PAGE>

obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

STANDARD & POOR'S RATINGS GROUP

A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original maturity of
no more than 365 days. Standard & Poor's two highest commercial paper
rating categories are as follows:

A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.

A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".

Description of Ratings of Preferred Stock
-----------------------------------------

MOODY'S INVESTORS SERVICE, INC.

Moody's utilizes a variation of its bond-rating symbols in the
quality ranking of preferred stocks because of the fundamental differences
between preferred stock and bonds. Preferred stock occupies a junior
position to bonds within a particular capital structure and such securities
are rated within the universe of preferred stocks.

AAA: An issue which is rated "aaa" is considered to be a top-
quality preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of preferred
stocks.

AA: An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a reasonable assurance
the earnings and asset protection will remain relatively well maintained in
the foreseeable future.

A: An issue rated "a" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.

8-B
<PAGE>

STANDARD & POOR'S RATINGS GROUP

A Standard & Poor's preferred stock rating is an assessment of the
capacity and willingness of an issuer to pay preferred stock dividends and
any applicable sinking fund obligations. A preferred stock rating differs
from a bond rating inasmuch as it is assigned to an equity issue, which
issue is intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating symbol
will normally not be higher than the debt of the same issuer.

The preferred stock ratings are based on the following considerations:

- Likelihood of payment - capacity and willingness of the issuer to
meet the timely payment of preferred stock dividends and any
applicable sinking fund requirements in accordance with the terms of
the obligation;

- Nature of, and provisions of, the issue; and

- Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.

AAA: This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates and extremely strong
capacity to pay the preferred stock obligations.

AA: A preferred stock issue rated AA also qualifies as a high-
quality fixed-income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues
rated AAA.

A: An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions.

9-B
<PAGE>

APPENDIX C

BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.

Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide. The following are three of our 14 business principles.

OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we serve
our clients well, our own success will follow.

OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these assets
diminish, reputation is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.

INTEGRITY AND HONESTY ARE AT THE HEART OF OUR BUSINESS. We expect our people to
maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.

1-C
<PAGE>

GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES

Goldman, Sachs & Co. is a leading global investment banking and securities firm
with a number of distinguishing characteristics.

. Privately owned and ranked among Wall Street's best capitalized firms, with
partners capital and subordinated liabilities of over $5.3 billion
as of November 29, 1996.

. Thirty-three offices worldwide where professionals focus on identifying
financial opportunities.

. The number one underwriter of all international equity issues for 1993,
1994 and 1995.*

. Premier lead manager of negotiated municipal bond offerings over the past
six years (1990-1995).

. The number one lead manager of U.S. common stock offerings from (1989-
1995).*

* Source: Securities Data Corporation. Ranking excludes REITS, Trusts and
-----------------------------------
Rights.

2-C
<PAGE>

GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE

1865 End of Civil War

1869 Marcus Goldman opens Goldman Sachs for business

1890 Dow Jones Industrial Average first published

1896 Goldman Sachs joins New York Stock Exchange

1906 Dow Jones Industrial Average tops 100

1925 Goldman Sachs finances Warner Brothers, producer of the first talking
film

1956 Goldman Sachs co-manages Ford's public offering, the largest to date

1972 Dow Jones Industrial Average breaks 1000

1986 Goldman Sachs takes Microsoft public

1991 Provides advisory services for the largest privatization in the region
of the sale of Telefonos de Mexico

1995 Dow Jones Industrial Average breaks 5000

1996 Goldman Sachs takes Deutsche Telekom public

Dow Jones Industrial Average breaks 6000

1997 Dow Jones Industrial Average breaks 7000

3-C

<PAGE>

- --------------------------------------------------------------------------------
Letter to Shareholders

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

Dear Shareholders:

We are pleased to have the opportunity to review the performance and
activity of the Goldman Sachs Fixed Income Portfolios for the 12-month period
ended October 31, 1995. To help put the portfolios' performance in perspective,
we are also providing a brief overview of the U.S. economy and bond market
during the period.

Bonds Rallied Strongly as Rates Fell

The U.S. bond market began the period under review (November 1, 1994
through October 31, 1995) still feeling the impact of rising rates. By year-end
1994, however, the bond market showed signs of strength and gained further
momentum in 1995, primarily due to the slowing economy and subdued inflation.
For the 12 months ended October 31, bonds enjoyed one of their best years ever,
with the 30-year Treasury recording a total return of approximately 29%,
competitive with the soaring stock market.

The Economy Started Strong, Slowed in Spring, Then Recovered

The 12-month period began with the economy exhibiting robust growth and a
wide range of indicators pointing to continued acceleration. The 1994 fourth-
quarter real Gross Domestic Product (GDP) grew 5.1%, with employment, real
disposable income, consumer spending and sales of new and existing homes all
displaying impressive strength.

While 1995 began with real GDP increasing by 2.7% during the first quarter,
the pace of growth had clearly moderated. That trend became more pronounced as a
host of weak or declining indicators during the spring revealed that the economy
abruptly slowed during the second quarter of 1995. Significantly, the growth of
second-quarter real GDP was an anemic 1.3%.

By August, the economy appeared to revive. Employment, housing,
construction spending and several other indicators showed signs of improvement
that persisted into the fall. The flow of positive economic data appeared to
indicate that the prior slowdown was largely due to a short-term inventory
correction.

Third-quarter GDP growth was reported at an unexpectedly high 4.2%, which
many interpreted as a result of one-time events. By the end of October, however,
key economic reports were sending mixed signals regarding the health of the
economy once again. Firmness in interest-rate-sensitive areas such as housing,
motor vehicle sales and durable goods orders suggested steady growth, but retail
sales and industrial output indicators were weak. Though the condition of the
economy appeared uncertain, most observers agreed that inflation remained
contained, with the Producer Price Index (PPI) and Consumer Price Index (CPI) up
2.6% and 2.8%, respectively, for the 12-month period ended October 31, 1995.

Fed Raised Rates Twice During the Period, Then Cut as Inflation Fears Eased

The U.S. Federal Reserve Board raised the federal funds rate (the rates
banks charge one another for overnight borrowing) by 75 basis points in November
1994 and by 50 basis points in February 1995. Including those two hikes, the Fed
raised rates a total of seven times in its tightening cycle (from February 1994
through February 1995) by a total of 300 basis points to 6.00%.

The Fed remained neutral until early July 1995, when receding inflationary
pressures and a weakening economy prompted it to cut the federal funds rate 25
basis points to 5.75%.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Table of Contents
<S> <C> <C> <C>
Market Overview 1 GS Core Fixed Income Fund 21
GS Adjustable Rate Government Agency Fund 3 Financial Statements 28
GS Short-Term Government Agency Fund 9 Notes to Financial Statements 32
GS Short Duration Tax-Free Fund 15 Financial Highlights 39
- -------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
Letter to Shareholders (continued)

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

During the period under review, the yield curve flattened dramatically. The
yield on six-month Treasury bills declined only slightly, from 5.66% on October
31, 1994, to 5.55% on October 31, 1995. However, for the same time period the
yield on the 30-year U.S. Treasury bond fell more dramatically, from 7.97% a
year ago to 6.33%.

Historical Treasury Yield Curve

[CHART APPEARS HERE]
<TABLE>
<CAPTION>
10/31/94 10/31/95
<S> <C> <C>
3-Month 5.14% 5.49%
6-Month 5.66% 5.55%
1 6.14% 5.55%
2 6.82% 5.61%
3 7.05% 5.68%
5 7.48% 5.81%
10 7.81% 6.02%
30 7.97% 6.33%
</TABLE>

Source: Bloomberg, L.P.

The yield curve flattened considerably as the yields on longer-term Treasuries
fell more than the yields on shorter-term Treasuries, which shifted the curve
downward at the longer end. The yield difference between two-year Treasury notes
and 30-year Treasury bonds narrowed significantly.

Economic Outlook: Signals Mixed as Economy Moderates and Budget Debate Continues

While the economy continues to show relative strength in some sectors such
as housing, durable goods orders and employment, and the stock market remains
strong, evidence of weakness has begun to emerge. Most notably, retail sales
declined amid increasing levels of consumer debt, and industrial production was
basically flat in October. With inflation under control, many expect the Fed to
ease rates again in December if further weakening occurs. The favorable
resolution of the federal budget debate, anticipated by year-end, is also a key
factor in influencing further rate cuts. Near term, a healthy bond market is
likely to persist. Longer term, economic growth is generally expected to pick up
gradually by mid-1996.

We thank you for making the Goldman Sachs Fixed Income Portfolios part of
your investment program and we look forward to continuing to serve your
investment needs.

Sincerely,

/s/ David B. Ford
David B. Ford
Chief Executive Officer

/s/ Sharmin Mossavar-Rahmani
Sharmin Mossavar-Rahmani
Chief Investment Officer - Fixed Income Investments

Goldman Sachs Asset Management
November 30, 1995

- --------------------------------------------------------------------------------
2

<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund

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

Investment Objective

The GS Adjustable Rate Government Agency Fund seeks a high level of current
income consistent with low volatility of principal. The portfolio ordinarily
invests substantially all of its assets in securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, with primary emphasis on
adjustable rate mortgage securities (ARMs). The target duration of the fund is
between six months and one year.

Special Events

On April 28, 1995, the GS Government Agency Portfolio (for Financial
Institutions) was reorganized into the GS Adjustable Rate Government Agency
Fund. In addition, on May 15, 1995, the Goldman Sachs Adjustable Rate Mortgage
Fund (ARM Fund) was reorganized into the GS Adjustable Rate Government Agency
Fund. Shareholders of the ARM Fund were issued GS Adjustable Rate Government
Agency Class A shares in exchange for their ARM Fund shares.

A Challenging ARM Market

Interest rate fluctuations during the period under review had a direct
impact on the ARM market. As a result, ARMs experienced three distinct phases:

. At the start of the fund's fiscal year on November 1, 1994, spreads between
ARMs and Treasuries were relatively wide, due to a fear that ARMs would reach
their periodic caps (the maximum their coupons can be raised within a specified
time period) in the rising interest rate environment.

. That situation generally persisted through January 1995, at which point the
ARM market entered a second phase: interest rates stabilized, cap risk declined
and the prospects for ARMs brightened. This favorable ARM environment continued
through late spring, until interest rates began to decline.

. Starting approximately in June 1995, spreads between ARMs and Treasuries
began widening again, this time as a result of increased prepayment risk based
on the assumption homeowners would refinance their mortgages at lower rates. For
the first time since 1989, it became possible for homeowners to switch from an
ARM to a fixed-rate mortgage and lower their effective coupon payments. ARM
spreads continued to be wide as of the end of the period, though there were
indications of stabilization as winter's seasonably slower prepayment period
approached.

Performance Review

For the 12-month period ended October 31, 1995, the fund's Institutional
shares had a total return of 6.75% (6.39% in monthly distributions and 0.36% in
share price appreciation) and its Administration shares had a total return of
6.48% (6.12% in monthly distributions and 0.36% in share price appreciation).
Both share classes outperformed the 6.21% return of the six-month U.S. Treasury
bill but underperformed the 6.98% return of the one-year U.S. Treasury bill. As
of the end of the period, the fund maintained a duration of approximately 0.7
years, about midway between that of the six-month U.S. Treasury bill and the
one-year U.S. Treasury bill. When the yield curve flattened during the period,
the fund's performance benefited more from the rise in bond prices than the six-
month U.S. Treasury bill, but not as much as the one-year U.S. Treasury bill.

From their inception on May 15, 1995, through October 31, 1995, the fund's
Class A shares returned 2.74% based on NAV (2.93% in monthly distributions and
- -0.19% in share price depreciation). For the same period, the six-month Treasury
bill returned 2.81% and the one-year Treasury bill returned 3.08%. The fund's
Class A shares underperformed the six-month and one-year Treasury bills during
the five and a half months they have been available because the ARM market
experienced a high level of volatility and prepayment risk during that brief
period.

- --------------------------------------------------------------------------------
3
<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund (continued)

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

<TABLE>
<CAPTION>
NAV NAV Change 30-Day SEC
Share Class (10/31/95) (10/31/94-10/31/95) Yield (10/31/95)
- ----------- ---------- ------------------- ----------------
<S> <C> <C> <C>
Institutional $9.77 +$0.03 6.12%
Administration $9.77 +$0.03 5.87%
Class A $9.77 -$0.02* 5.78%
</TABLE>

* From Class A shares' inception on May 15, 1995 through October 31, 1995.

Portfolio Composition and Investment Strategies

Portfolio composition remained quite similar to a year ago, with the
exception of a slight increase in the fund's repurchase agreement/cash
equivalent position and a decrease in its CMO position.

Portfolio Composition as of October 31, 1995*

[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
ARMs 80.2%
Agency Debentures 8.9%
CMOs 7.7%
Repos/Cash Equivalents 3.2%
</TABLE>

* The percentages shown are of total portfolio investments that have settled
and include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.

. ARMs. As of October 31, 1995, the fund's primary investment continued to be
in ARMs (80.2%), in approximately the same weighting as a year ago (78.6%). We
continued to stress fully indexed, one-year Constant Maturity Treasury (CMT)
ARMs. The rates on these CMT ARMs adjust annually, based on the yield of the
one-year U.S. Treasury bill and, as a result, they provide greater income
stability than ARMs linked to some other indexes.

We favored seasoned ARMs, which have lower prepayment risk than nonseasoned
ARMs. Seasoned ARMs are adjustable rate mortgages that have been in existence
for several years. They are preferred in a high-prepayment environment because
it is assumed that homeowners who did not refinance their mortgages in prior
periods of lower rates are less likely to refinance in the future.

. Agency Debentures. The fund's 8.9% position in agency debentures were
short-duration Small Business Administration (SBA) securities, held because they
offered attractive spreads relative to Treasuries.

. CMOs. The fund held a 7.7% position in collateralized mortgage obligations
(CMOs). We reduced the fund's position in sequential-pay CMOs to 1.9%, when they
became expensive relative to other sectors. The sequential-pay CMOs provided
diversification and relatively predictable cash flows that helped contribute to
the fund's principal stability.

The fund's CMO position also included CMO floaters (1.7% of the portfolio),
which added an incremental return over Treasuries. The remaining CMOs were
primarily super floaters and inverse floaters, as discussed below.

. Prudent Use of Derivatives. We used higher-risk derivatives very sparingly
during the period. As of October 31, 1995, the fund held super floaters and
inverse floaters representing 2.5% and 1.4% of the portfolio, respectively.
Super floaters are floating-rate securities whose coupons reset higher and more
quickly than regular ARMs. The super floaters performed well when rates were
rising at the beginning of the period under review, but they did not work in our
favor when rates declined. Inverse floaters were held for their potential
incremental yield and benefited the fund when rates fell. We also held small
positions in interest-only (IO) and inverse IOs.

- --------------------------------------------------------------------------------
4
<PAGE>

- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund (continued)

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

. Duration. As of October 31, 1995, the duration of the fund was 0.7 years,
approximately half its duration last year. Since January 13, 1995, the fund has
been permitted to hold financial futures, which we used as a tool to shorten the
fund's duration.

. Credit Quality. The fund invests solely in securities issued by the U.S.
government and its agencies or instrumentalities.

ARM Outlook

We are currently cautiously optimistic regarding the ARM market, but we
will continue to carefully monitor the sector's prepayment risk. Going forward,
we expect the recent spate of bank mergers to increase supply and further widen
yield spreads between ARMs and Treasuries. (Merging banks typically need to
raise funds, so they tend to securitize more of their mortgages.) Conversely,
because of the flattened yield curve, new ARM production is expected to be
stable or to decline, as homeowners opt for fixed-rate mortgages. As always, we
will use our proprietary models to identify individual ARM securities with
attractive coupons, average lives and option-adjusted spreads that are expected
to offer the most value for the fund.

Distribution Policy

The fund's Institutional and Administration shares distributed $0.60 per
share and $0.58 per share, respectively, for the 12-month period ended October
31. From their inception on May 15, 1995, through October 31, 1995, the fund's
Class A shares distributed $0.28 per share.

The fund distributes substantially all of its investment company taxable
income. The dividend is set at the start of each month, based on the income the
fund is expected to generate. However, because the fund invests primarily in
mortgage securities that are subject to prepayments, we cannot precisely predict
the amount of principal and interest that a portfolio will receive. Therefore,
at times a portfolio may distribute amounts above or below current income
levels. To date, however, our dividend policy has not affected the management of
the fund or significantly affected its NAV per share.

Thank you for your support during the past year's challenging ARM market.
Looking ahead, our team of experienced mortgage specialists will continue to do
their best to seek out attractive fixed income investment opportunities. We look
forward to serving your investment needs in the future.

Sincerely,

/s/ Jonathan A. Beinner
Jonathan A. Beinner

/s/ Theodore T. Sotir
Theodore T. Sotir

Portfolio Managers
GS Adjustable Rate Government Agency Fund
November 30, 1995

- --------------------------------------------------------------------------------
5
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
October 31, 1995
- --------------------------------------------------------------------------------

In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1995. The
performance for the GS Adjustable Rate Government Agency Fund based on each
classes normal minimum initial investment, is compared to its benchmarks--the
Lehman Brothers Mutual Fund Short (1-2) U.S. Government Index ("Lehman 1-2
Index") and the six month and one year U.S. Treasury Bills ("6-Month T-Bill / 1-
Year T-Bill). All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate as
market conditions change. The investment return and principal value of an
investment will fluctuate with changes in market conditions so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.

HYPOTHETICAL INVESTMENTS(a)

Institutional Shares
<TABLE>
<CAPTION>
Institutional Shares Lehman 1-2 Index One Yr. T-Bill Six Mo. T-Bill
<S> <C> <C> <C> <C>
8/1/91 $50,000 $50,000 $50,000 $50,000
10/31/91 $51,041 $51,581 $51,179 $50,870
10/31/92 $54,171 $55,506 $54,161 $53,376
10/31/93 $56,408 $58,368 $56,198 $55,197
10/31/94 $57,468 $59,511 $57,744 $57,257
10/31/95 $61,347 $64,343 $61,766 $60,819
</TABLE>
Administration Shares
<TABLE>
<CAPTION>
Administration Shares Lehman 1-2 Index One Yr. T-Bill Six Mo. T-Bill
<S> <C> <C> <C> <C>
5/1/93 50,000 50,000 50,000 50,000
10/31/93 50,914 50,931 50,785 50,780
10/31/94 51,744 51,931 52,182 52,675
10/31/95 55,097 56,148 55,835 55,951
</TABLE>

<TABLE>
<CAPTION>
Class A Shares

Class A Shares (no sales charge) Class A Shares (w/sales charge) Lehman 1-2 Index One Year T-Bill Six Month T-Bill
<S> <C> <C> <C> <C> <C>
6/1/95 $10,000 $ 9,850 $10,000 $10,000 $10,000
10/31/95 $10,222 $10,093 $10,277 $10,260 $10,246
</TABLE>

<TABLE>
<CAPTION>
-------------------------------
Average Annual Total Return
-------------------------------
One Year Since Inception (b)
- ------------------------------------------------------------
<S> <C> <C>
Institutional Shares 6.75% 4.91%
- ------------------------------------------------------------
Administration Shares 6.48% 3.96%
- ------------------------------------------------------------
Class A Shares(c)
excluding sales charge N/A 2.74%
- ------------------------------------------------------------
Class A Shares(c)
including sales charge N/A 1.17%
- ------------------------------------------------------------
</TABLE>

(a) For comparative purposes, initial investments are assumed to be made on the
first day of the month following the commencement of operations.
(b) The Institutional, Administration and Class A shares commenced operations
July 17, 1991, April 15, 1993 and May 15, 1995, respectively.
(c) An aggregate total return (not annualized) is shown instead of an average
annual total return since the Class A shares have not completed a full
twelve months of operations. The maximum sales charge for Class A shares
is 1.5%.

- --------------------------------------------------------------------------------
6
<PAGE>

Statement of Investments
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
October 31, 1995
<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Mortgage Backed Obligations--96.5%
Adjustable Rate Federal Home Loan Mortgage Corp. (FHLMC)(a)--9.8%
================================================================================
<S> <C> <C> <C>
$ 2,286,145 7.93% 01/01/19 $ 2,355,804
35,588,623 7.87 02/01/22 36,672,652
5,131,911 7.59 08/01/22 5,251,844
12,952,109 7.78 06/01/24 13,319,819
5,903,309 7.92 07/01/29 5,979,048
2,627,614 7.92 05/01/31 2,691,543
- --------------------------------------------------------------------------------
$ 66,270,710
- --------------------------------------------------------------------------------
<CAPTION>
Adjustable Rate Federal National Mortgage Association
(FNMA)(a)--63.4%
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
$7,600,334 7.07% 03/01/17 $ 7,673,601
4,287,117 7.53 03/01/17 4,396,139
5,080,289 6.82 03/01/18 5,100,103
8,001,888 7.84 04/01/18 8,230,262
1,196,631 8.12 05/01/18 1,227,887
6,091,151 7.63 07/01/18 6,265,845
8,464,646 8.11 07/01/18 8,723,749
7,825,996 7.72 08/01/18 8,022,507
4,348,196 7.88 08/01/18 4,500,774
4,642,121 7.75 10/01/18 4,775,443
8,203,755 7.61 11/01/18 8,395,231
1,179,065 7.36 12/01/18 1,207,434
15,102,048 7.58 12/01/18 (b) 15,607,060
2,048,926 7.39 02/01/19 2,045,726
4,073,221 7.43 06/01/19 4,169,472
2,244,571 7.48 07/01/19 2,300,192
5,416,257 7.68 07/01/19 5,575,116
5,484,231 7.66 09/01/19 5,634,992
3,357,086 7.69 01/01/20 3,439,268
3,583,590 7.83 03/01/20 3,705,647
10,824,349 7.72 07/01/20 11,063,675
6,085,401 7.79 02/25/21 6,269,302
6,387,980 7.41 04/01/21 6,541,356
81,692,876 7.71 09/01/21 84,086,477
5,601,363 7.89 11/01/21 5,751,760
26,823,840 8.03 02/01/22 27,726,462
17,754,998 7.80 06/01/22 18,328,662
8,302,252 7.96 08/01/22 8,561,199
47,443,395 7.87 09/01/22 48,930,745
2,497,584 7.66 02/01/23 2,554,104
$ 342,692 6.39% 12/01/23 $ 343,442
3,020,694 7.45 10/01/27 3,092,738
1,515,283 7.59 07/01/29 1,544,209
3,943,016 7.56 04/01/30 4,036,623
71,072,722 7.82 01/01/31 73,466,451
15,159,963 6.39 02/01/31 15,212,083
- --------------------------------------------------------------------------------
$428,505,736
- --------------------------------------------------------------------------------
Adjustable Rate Government National
Mortgage Association
(GNMA)(a)--4.8%
$31,667,582 6.50% 06/20/25 $ 32,170,147
- --------------------------------------------------------------------------------
Adjustable Rate Small Business
Administration(a)--8.8%
$ 1,641,659 7.25% 10/25/14 $ 1,679,622
2,630,491 7.25 02/25/15 2,691,321
3,945,429 7.25 03/25/15 4,036,667
3,020,766 7.25 04/25/15 3,090,621
3,024,506 7.25 05/25/15 3,094,448
2,003,530 7.25 08/25/15 2,051,114
2,887,210 7.25 09/25/15 2,955,781
2,120,643 7.25 10/25/15 2,171,008
1,512,192 6.87 09/25/16 1,532,039
5,114,360 6.87 07/25/17 5,184,682
11,831,402 6.87 08/25/17 11,980,008
4,926,385 6.87 09/25/17 4,994,123
4,065,626 6.87 10/25/17 4,112,912
9,922,169 6.87 02/25/18 10,064,801
- --------------------------------------------------------------------------------
$59,639,147
- --------------------------------------------------------------------------------
Fixed Rate GNMA--0.0%
$57,790 9.00% 04/15/20 $ 61,040
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations
(CMOs)--9.7%
Adjustable Rate CMOs(a)--2.0%
FNMA REMIC Trust 1990-145, Class A
$13,294,521 6.77% 12/25/20 $13,250,383
- --------------------------------------------------------------------------------
Inverse Floater CMOs(a)--1.5%
FHLMC Series 1134, Class H
$1,682,751 14.71% 09/15/96 $ 1,767,677
FHLMC Series 1727, Class O
11,000,000 3.56 05/15/24 5,993,999
FNMA REMIC Trust 1991-113, Class S
1,754,306 16.55 03/25/02 1,859,838
</TABLE>

The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
7
<PAGE>

Statement of Investments
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund (continued)
October 31, 1995

<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Mortgage Backed Obligations (continued)
Collateralized Mortgage Obligations (CMOs) (continued)
Inverse Floater CMOs(a) (continued)
FNMA REMIC Trust 1991-91, Class S
$ 218,226 15.96% 07/25/98 $ 243,970
- --------------------------------------------------------------------------------
$ 9,865,484
- --------------------------------------------------------------------------------
Inverse Floating Rate - Interest Only(a)--0.0%
FNMA REMIC Trust 1992-157, Class SA
$ 3,636,650(c) 11.38% 03/25/04 $ 325,902
- --------------------------------------------------------------------------------
Inverse IOette--0.1%
FHLMC Series 1164, Class O
$ 45,215(c) 612.25% 11/15/06 $ 501,671
- --------------------------------------------------------------------------------
IOette--0.1%
FNMA REMIC Trust 1990-145, Class B
$ 32,669(c) 1005.00% 12/25/20 $ 841,215
- --------------------------------------------------------------------------------
Regular Floater CMOs(a)--1.7%
FHLMC Series 1011, Class F
$11,485,217 6.84% 11/15/20 $ 11,566,865
- --------------------------------------------------------------------------------
Sequential Fixed Rate CMOs--1.8%
FHLMC Series 1056, Class G
$ 41,612 8.00% 12/15/18 $ 41,747
FHLMC Series 1316, Class D
155,830 8.00 09/15/17 155,541
FHLMC Series 1098, Class F
1,319,769 8.00 03/15/05 1,322,725
FNMA REMIC Trust 1990-143, Class H
1,000,000 9.25 10/25/19 1,019,160
FNMA REMIC Trust 1990-65, Class U
1,850,249 9.50 11/25/06 1,878,688
FNMA REMIC Trust 1991-140, Class C
1,179,822 8.50 05/25/20 1,183,126
FNMA REMIC Trust 1991-37, Class E
3,936,872 8.50 04/25/05 3,982,461
FNMA REMIC Trust 1991-82, Class PH
2,916,118 8.00 11/25/18 2,906,116
- --------------------------------------------------------------------------------
$ 12,489,564
- --------------------------------------------------------------------------------
Super Floater CMOs(a)--2.5%
FNMA REMIC Trust 1992-157, Class FA
$17,903,510 2.72% 03/25/04 $ 17,032,448
- --------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $ 65,873,532
- --------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $660,175,134) $652,520,312
- --------------------------------------------------------------------------------
Repurchase Agreement--2.4%
Joint Repurchase Agreement Account
$16,000,000 5.93% 11/01/95 $ 16,000,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $16,000,000) $ 16,000,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $676,175,134(d)) $668,520,312
================================================================================
</TABLE>

Futures contracts open at October 31, 1995 are as follows:

<TABLE>
<CAPTION>
Contracts Settlement Month Unrealized
Type Long (Short)(e) Gain (Loss)
- --------------------------- ----------------- --------------------------------
<S> <C> <C> <C>
Euro Dollars 807 December 1995 $(200,200)
Euro Dollars 350 March 1996 105,250
Euro Dollars 136 June 1996 28,050
Euro Dollars 90 September 1996 13,500
Euro Dollars (50) December 1996 (41,250)
Euro Dollars (50) March 1997 (41,250)
2-Year U.S. Treasury Notes 80 December 1995 80,000
5-Year U.S. Treasury Notes (183) December 1995 (194,516)
10-Year U.S. Treasury Notes (15) December 1995 (23,438)
U.S. Treasury Bond (122) December 1995 (400,312)
- --------------------------------------------------------------------------------
$(674,166)
================================================================================
</TABLE>

<TABLE>
<CAPTION>
Federal Income Tax Information:
<S> <C>
Gross unrealized gain for investments in which value exceeds
cost $ 1,648,951
Gross unrealized loss for investments in which cost exceeds
value (9,507,811)
- --------------------------------------------------------------------------------
Net unrealized loss $(7,858,860)
================================================================================
</TABLE>

(a) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1995.

(b) Portions of these securities are being segregated for futures margin
requirements.

(c) Represents security with notional or nominal principal amount. The actual
effective yields of these securities are different from the stated rates
due to the amortization of related premiums.

(d) The aggregate cost for federal income tax purposes is $676,379,172.

(e) Each 2-Year U.S. Treasury Note contract represents $200,000, in notional par
value. Each 5-Year U.S. Treasury Note, 10-Year U.S. Treasury Note and U.S.
Treasury Bond contract represents $100,000 in notional par value. Each Euro
Dollar contract represents $1,000,000 in notional par value. The total net
notional amount and net market value at risk are $1,267,000,000 and
$283,579,706, respectively. The determination of notional amounts does not
consider market risk factors and therefore notional amounts as presented
here are indicative only of volume of activity and not a measure of market
risk.

The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.

8
<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short-Term Government Agency Fund
- --------------------------------------------------------------------------------
Investment Objective

The GS Short-Term Government Agency Fund's primary objective is to provide
a high level of current income by investing in a portfolio that consists of
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, including mortgage-backed securities as well as repurchase
agreements collateralized by such instruments. To enhance principal stability,
the fund has a two-year target duration and a maximum duration of three years.

Performance Review

For the 12 months ended October 31, the fund's Institutional shares had a
total return of 8.97% (7.00% in distributions and 1.97% from share price
appreciation) compared with 9.02% for the fund's benchmark, the two-year U.S.
Treasury security. During the period, the fund's net asset value (NAV) rose
$0.18 per share to $9.82 as the bond market rallied.

The fund's slight underperformance versus the benchmark was primarily due
to its large position in mortgage-backed securities (an allocation not reflected
in the benchmark), which felt the impact of rising prepayment risk during the
second half of the period.

The fund's term structure helped offset some of the decline. During the
period, the fund held mortgage-backed securities with a range of maturities that
provided cash flows along the yield curve. As the yield curve flattened, the
mortgage-backed securities at the longer end of the curve performed better than
Treasury securities concentrated in the two-year maturity range, thus benefiting
the fund.

Portfolio Composition and Investment Strategies

While the fund continued to emphasize mortgage-backed securities, which
accounted for 58.2% of the portfolio on October 31, its combined holdings in
Treasuries and repurchase agreements/cash equivalents approximately doubled
during the period to 41.8%.

- ------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
Portfolio Composition as of October 31, 1995*

Fixed Rate Mortgage
Pass Throughs 9.1%
Repos/Cash Equivalents 4.7%
U.S. Treasuries 37.1%
CMOs 25.4%
ARMs 23.7%

. U.S. Treasuries and Repurchase Agreements/Cash Equivalents. We used these
positions to manage the portfolio's duration, weighting one relative to the
other according to our need to shorten or lengthen the portfolio's duration
relative to that of the benchmark, which were both 1.9 years as of October 31,
1995. At the end of the period, 37.1% of the portfolio was invested in U.S.
Treasuries and 4.7% was in repurchase agreements/cash equivalents, as compared
with no position in Treasuries and 20.9% in repurchase agreements/cash
equivalents last October.

. CMOs. We reduced the fund's collateralized mortgage obligations (CMO)
position during the first half of 1995 when CMOs appeared fully priced relative
to other sectors that offered greater yield and return potential. CMOs accounted
for 25.4% of the portfolio as of October 31, 1995, less than half the fund's
position a year ago. Within the CMO sector, 10.4% was invested in sequential-pay
CMOs (down from 28.5% last year) and
- --------------------------------------------------------------------------------

9
<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short-Term Government Agency Fund (continued)

- --------------------------------------------------------------------------------
1.9% was invested in planned amortization
class (PAC) CMOs (down from 26.7% last year). Sequentials and PACs added to the
portfolio's principal stability, due to their relatively stable cash flows.

. ARMs. During the past 12 months, we added to the fund's position in
adjustable rate mortgage securities (ARMs), particularly during May and June,
when they traded at attractive option-adjusted spreads relative to Treasuries
and appeared cheap. As of October 31, 1995, ARMs accounted for 23.7% of the
portfolio, compared with 13.1% a year ago. We focused on ARMs that are indexed
to the one-year Constant Maturity Treasury (CMT) Index and adjust faster to
changing interest rates than ARMs based on other indexes. Following our
purchases, however, ARM spreads continued to widen, making ARMs even cheaper. We
view this as a short-term decline resulting from prepayment fears (mortgage
prepayments tend to rise as interest rates fall) and expect ARMs to perform well
when prepayments slow. In the interim, ARMs added incremental yield over
Treasuries.

. Fixed Rate Mortgage Pass-Throughs. The fixed rate pass-through sector
accounted for 9.1% of the portfolio as of October 31, 1995, a slight increase
from last year's 7.3% allocation. We focused on seasoned mortgages, which are
attractive because they typically experience fewer prepayments relative to newly
issued mortgages.

. Issuer Composition. The portfolio's mortgage-backed securities composition by
issuer was: 27.0% in Federal National Mortgage Association (FNMA) issues, 22.8%
in Federal Home Loan Mortgage Corporation (FHLMC) issues and 8.4% in Government
National Mortgage Association (GNMA) issues.

. Credit Quality. The fund invests exclusively in securities issued by the U.S.
government and its agencies or instrumentalities.

. Prudent Use of Derivatives. The fund held selected lower-risk derivatives,
including sequential-pay CMOs (10.4%), floaters (6.3%) and PAC CMOs (1.9%). In
addition, the fund also took small positions in higher-risk securities,
including inverse floaters (4.1%) and PAC IOs (2.5%), which the fund held for
their incremental yield and potential incremental return. We used higher-risk
derivatives sparingly in an effort to enhance returns without taking undue risk.
During the declining rate environment of the second half of the period, the
inverse floaters performed well, while the PAC IOs were basically unchanged. We
have also occasionally used mortgage dollar rolls to take advantage of short-
term supply and demand imbalances in the mortgage settlement process. (Mortgage
dollar rolls refer to transactions that involve selling mortgage securities
owned by the fund and simultaneously contracting to buy back similar mortgage
securities with the same coupon on a specified future date.) At all times, we
"cover" the mortgage dollar rolls by keeping cash or high-grade liquid debt
securities equal to the dollar amount of the forward commitment in a segregated
account with the fund's custodian. In addition, since September 29, 1995, the
fund has been permitted to hold futures, which we used in conjunction with
Treasuries and repurchase agreements/cash equivalents to manage the portfolio's
duration.

Fund Outlook

We expect to continue to emphasize mortgage-backed securities, because they
offer favorable performance potential, but we will carefully monitor potential
risks. These include rising prepayments, which we believe are largely reflected
in current prices, as well as an increased ARM supply resulting from bank
mergers. (Merging banks typically need to raise funds, so they tend to
securitize more of their mortgages.) Conversely, because of the flatter yield
curve, new ARM issuance is expected to stabilize or decline, which should help
offset other negative technical events. We are currently cautious regarding the
CMO sector, which has performed well in recent months and now appears fully
priced.

- --------------------------------------------------------------------------------
10
<PAGE>

- --------------------------------------------------------------------------------
GS Short-Term Government Agency Fund (continued)

- --------------------------------------------------------------------------------
Distribution Policy

During the period under review, the fund distributed $0.65 per share to
Institutional shareholders. Dividends are declared daily and paid on a monthly
basis. The fund intends to distribute substantially all of its investment
company taxable income, as required by tax law.

We value your continued confidence in the GS Short-Term Government Agency
Fund and look forward to reporting on the fund's progress in the coming year.

Sincerely,

/s/ Jonathan A. Beinner
Jonathan A. Beinner

/s/ Theodore T. Sotir
Theodore T. Sotir

Portfolio Managers
GS Short-Term Government Agency Fund
November 30, 1995

- --------------------------------------------------------------------------------
11
<PAGE>

- --------------------------------------------------------------------------------
Goldman Sachs Trust
GS Short-Term Government Agency Fund
October 31, 1995
- --------------------------------------------------------------------------------

In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1995. The
performance for the GS Short-Term Government Agency Fund based on the Fund's
normal minimum initial investment of $50,000, is compared to its benchmarks, the
U.S. 2-Year Treasury Bill ("2-Year T-Bill") and the Lehman Brothers Mutual
Fund Short (1-3) U.S. Government Index ("Lehman Short (1-3) Gov't Index"). All
performance data shown represents past performance and should not be considered
indicative of future performance which will fluctuate as market conditions
change. The investment return and principal value of an investment will
fluctuate with changes in market conditions so that an investor's shares, when
redeemed, may be worth more or less than their original cost.

HYPOTHETICAL $50,000 INVESTMENT(a)

GS STGA Fund Lehman Short (1-3) 2 Year T-Bil
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
9/1/88 50000 50000 50000
10/31/88 51286 51091 51057
10/31/89 55943 55919 55412
10/31/90 60547 60861 59876
10/31/91 67165 67699 66615
10/31/92 71356 73208 72161
- --------------------------------------------------------------------------------
</TABLE>
Average Annual Total Return
- --------------------------------------------------------------------------------
One Year Five Year Since Inception (b)
- --------------------------------------------------------------------------------
8.97% 6.48% 7.31%
- --------------------------------------------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on the
first day of the month following the Fund's commencement of operations.
(b) The Institutional shares commenced operations August 15, 1988.

- --------------------------------------------------------------------------------
12
<PAGE>

Statement of Investments
- --------------------------------------------------------------------------------
GS Short-Term Government Agency Fund
October 31, 1995
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Mortgage Backed Obligations--57.7%
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)(a)--12.8%
$2,479,915 7.51% 12/01/18 $ 2,534,200
10,467,242 7.87 02/01/22 10,786,074
- --------------------------------------------------------------------------------
$13,320,274
- --------------------------------------------------------------------------------
Adjustable Rate Federal National Mortgage
Association (FNMA)(a)--10.8%
$3,255,463 7.93% 11/01/14 $ 3,361,265
2,320,167 7.93 07/01/19 2,381,280
5,309,603 7.91 08/01/22 (b) 5,429,494
- --------------------------------------------------------------------------------
$11,172,039
- --------------------------------------------------------------------------------
Fixed Rate
FNMA--0.7%
$688,776 9.00% 12/01/97 $ 704,919
- --------------------------------------------------------------------------------
Fixed Rate Government National Mortgage Association--8.3%
$2,845,341 10.00% 12/15/17 $ 3,113,870
5,108,882 9.50 05/15/25 5,530,364
- --------------------------------------------------------------------------------
$ 8,644,234
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations (CMOs)--25.1%
Inverse Floater CMOs(a)--4.2%
FHLMC Series 1134, Class H
$631,031 14.71% 09/15/96 $ 662,879
FHLMC Series 1134, Class I
2,404,687 14.71 09/15/96 2,552,443
FHLMC Series 1325, Class C
1,028,325 6.39 07/15/97 1,034,752
FNMA REMIC Trust 1991-127, Class S
67,973 11.38 09/25/98 71,340
- --------------------------------------------------------------------------------
$ 4,321,414
- --------------------------------------------------------------------------------
Inverse Floating Rate - Interest Only--0.1%
FNMA REMIC Trust 1993-110, Class SC
$4,046,398(c) 3.17% 04/25/19 $ 161,366
- --------------------------------------------------------------------------------
Planned Amortization Class (PAC)
CMOs--1.9%
FNMA REMIC Trust 1992-138, Class A
$1,990,971 6.00% 08/25/13 $ 1,980,519
- --------------------------------------------------------------------------------
Planned Amortization Class Interest-
Only (PAC IO) CMOs--1.4%
FHLMC Series 1552, Class JE
$16,170,393 (c) 7.00% 02/15/14 $ 1,422,348
- --------------------------------------------------------------------------------
Planned Amortization Class IOette
CMOs--0.9%
FNMA REMIC Trust 1992-198, Class K
$61,237(c) 1008.00% 12/25/15 $ 895,808
- --------------------------------------------------------------------------------
Regular Floater CMOs(a)--6.2%
FHLMC Series 1325, Class B
$2,416,565 6.56% 07/15/97 $ 2,427,137
FNMA REMIC Trust 1993-110, Class FC
4,046,398 5.83 04/25/19 4,030,593
- --------------------------------------------------------------------------------
$ 6,457,730
- --------------------------------------------------------------------------------
Sequential Fixed Rate CMOs--10.4%
FHLMC Series 1033, Class G
$2,000,000 8.00% 01/15/06 $ 2,081,360
FNMA REMIC Trust 1988-12, Class A
2,635,634 10.00 02/25/18 2,834,783
FNMA REMIC Trust 1988-12, Class B
2,635,634 4.86 02/25/18 2,445,684
FNMA REMIC Trust 1992-44, Class CA
3,000,000 12.00 08/25/20 3,394,920
- --------------------------------------------------------------------------------
$10,756,747
- --------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $25,995,932
- --------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $59,921,535) $59,837,398
- --------------------------------------------------------------------------------
U.S. Treasury Obligations--36.1%
United States Treasury Notes
$36,270,000 7.38% 11/15/97 $37,448,776
- --------------------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $37,398,446) $37,448,776
- --------------------------------------------------------------------------------
Repurchase Agreement--0.5%
Joint Repurchase Agreement Account
$500,000 5.93% 11/01/95 $ 500,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $500,000) $ 500,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $97,819,981(d)) $97,786,174
================================================================================

- --------------------------------------------------------------------------------
13
<PAGE>

Statement of Investments
- --------------------------------------------------------------------------------
GS Short-Term Government Agency Fund (continued)
October 31, 1995
================================================================================

Futures contracts open at October 31, 1995 are as follows:

Number of
Contracts Settlement Month
Long (Short) Unrealized
Type (e) Gain (Loss)
- ---------------------------- ------------ ----------------- ------------
<S> <C> <C> <C>
Euro Dollars 10 March 1997 $750
Euro Dollars 10 June 1997 250
2-Year U.S. Treasury Notes 284 December 1995 126,859
5-Year U.S. Treasury Notes (70) December 1995 (53,593)
- --------------------------------------------------------------------------------
$ 74,266
================================================================================
================================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 416,484
Gross unrealized loss for investments in which
cost exceeds value (450,291)
- --------------------------------------------------------------------------------
Net unrealized loss ($33,807)
================================================================================
</TABLE>
(a) Variable rate security. Coupon rate disclosed is that which is in
effect at October 31, 1995.

(b) Portions of these securities are being segregated for futures margin
requirements.

(c) Represents security with notional or nominal principal amount. The actual
effective yields of these securities are different from the stated rates due
to the amortization of related premiums.

(d) The amount stated also represents aggregate cost for federal
income tax purposes.

(e) Each 2-Year U.S. Treasury Note, 5-Year U.S. Treasury Note and Euro Dollar
contract represents $200,000, $100,000 and $1,000,000, respectively, in
notional par value. The total net notional amount and net market value at
risk for the futures contracts shown above are $69,800,000 and $56,296,812,
respectively. The determination of notional amounts does not consider market
risk factors and therefore notional amounts as presented here are indicative
only of volume of activity and not a measure of market risk.

The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.

- --------------------------------------------------------------------------------
14
<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
- --------------------------------------------------------------------------------
Investment Objective

The GS Short Duration Tax-Free Fund seeks to provide a high level of
current income exempt from regular federal income tax, consistent with
relatively low principal volatility, through investments in municipal securities
rated single-A or better or deemed to be of comparable quality. The portfolio
seeks to maintain an average duration of two to three years and invests in
securities with remaining effective maturities of five years or less.

Municipal Bonds Rally Amid Uncertainty

The municipal bond market performed well during the period under review
(November 1, 1994 through October 31, 1995), with the average price of a three-
year municipal bond (as calculated from data provided by Municipal Market Data,
an independent municipal market information provider) rising approximately 2%,
while yields fell from 4.85% on November 1, 1994, to 4.10% on October 31, 1995.
During the past 12 months the yield curve for municipal bonds became quite steep
compared with Treasuries, and three-year municipal bonds outperformed similar-
duration Treasuries.

The first month of the fund's fiscal year coincided with the bottom of the
1994 bear market, as 30-year U.S. Treasury yields rose to 8.13% and long-term
municipal bond yields rose to over 7%. In December 1994, however, the bond
market stabilized. Fueled by strong municipal bond demand and a significant
decrease in supply, municipal bonds surged from January through early April.
Though municipals continued to record positive performance, the rally's momentum
slowed from mid-April onward, reflecting investors' concern surrounding various
tax reform proposals (e.g., the flat tax and a reduction in capital gains taxes)
and the growing allure of the strong equity rally.

By midyear, short-term municipal bonds became more expensive as investors
favored defensive maturities that provided greater liquidity, while demand for
long-term bonds stagnated. At the end of October, however, growing bullish
sentiment in the municipal bond market and a flattening municipal bond yield
curve made longer-term bonds increasingly attractive in terms of price.

Performance Review

For the 12 months ended October 31, 1995, the fund's Institutional shares
achieved a total return of 5.98% (4.42% from monthly distributions and 1.56%
from share price appreciation) compared with a return of 7.80% for the Lehman
Brothers Three-Year Municipal Bond Index (the "Index"), the fund's benchmark.
For the same period, the fund's Administration shares realized a total return of
5.76% (4.16% from monthly distributions and 1.60% from share price appreciation)
and its Service shares recorded a total return of 5.59% (3.90% from monthly
distributions and 1.69% from share price appreciation).

Though the fund performed well in the bond rally, it underperformed the
Index, primarily because it was more defensively positioned early in the period
in response to last year's volatility. We favored premium (higher coupon,
callable) bonds that offered greater liquidity and were less likely to suffer
from adverse tax consequences associated with short-term discount securities,
which can have a significant impact in the short-term market. Though premium
bonds typically retain principal better than discount bonds when interest rates
rise as they did in 1994, they tend to lag when rates fall, as was the case
during 1995. In contrast, the benchmark's allocation included a higher
percentage of discount bonds, which typically outperform as interest rates fall.
In general, higher coupon bonds were less desirable in the declining rate
environment because they tended to be called, shortening the portfolio's
duration at a time when it would have been more advantageous to extend it.

Another aspect of our defensive strategy was that we stressed higher credit
quality securities (triple- and double-A-rated) over lower quality. The Index,
however, held a greater percentage of lower-rated securities, which added to its
performance when credit spreads tightened during the year and lower-quality
bonds appreciated more than those of higher quality.

- --------------------------------------------------------------------------------
15
<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund (continued)

- --------------------------------------------------------------------------------
Portfolio Composition and Investment Strategies

Portfolio Composition as of October 31, 1995*

[PIE CHART APPEARS HERE]

Pre-refunded Bonds 9.8%
General Obligations 34.8%
Insured Revenue Bonds 18.2%
Insured General Obligations 16.2%
Revenue Bonds 11.0%
Variable Rate Demand Notes 10.0%

. Insured Revenue and General Obligation Bonds. Insured municipal bonds
continued to be attractive because of their liquidity and availability. Insured
bonds allow the portfolio to capitalize on a security's other features such as
coupon and callability, while removing the credit quality variable. Also, there
was a larger supply of insured bonds in states with high taxes and high savings
rates. In general, we emphasized securities from California, New York and
Michigan that we determined to be undervalued due to a temporary lack of demand.
We anticipate that these securities will appreciate as demand improves and yield
spreads tighten. As of October 31, we had overweighted the fund's holdings in
insured bonds relative to the Index (34.4% versus 22.2%).

. General Obligation (GO) Bonds. GOs, which are typically higher credit
quality and lower yielding than revenue bonds, are backed by the general taxing
power of a municipality. When credit spreads tightened during the period, the
additional income from lower-quality bonds did not warrant taking additional
risk. As a result, we significantly increased the fund's investment in GOs to
34.8%, approximately four times the level of last year's allocation. Also, the
short-duration municipal bond market has a larger percentage of uninsured GOs
than uninsured revenue bonds, due to the nature of the issuers.

. Revenue Bonds. Noninsured revenue bonds, generally single-A- and double-A-
rated debt, accounted for 11.0% of the portfolio, half of the benchmark's
weighting in the sector. (Revenue bonds pay interest and principal out of a
specific revenue stream, which includes sales taxes, hospital charges, tolls,
electric rates and airport fees.) Revenue bond allocations reflect security-
specific opportunities, which are more closely tied to credit quality than
sector preference.

. Variable Rate Demand Notes (VRDNs). VRDNs, a 10.0% portfolio position, are
high-quality cash equivalents. We used VRDNs to manage the portfolio's duration
to be neutral to the Index.

. Pre-refunded Bonds. The portfolio was 9.8% invested in pre-refunded bonds
as of October 31, 1995 (versus just over 50% last year), slightly overweighted
versus the Index's 8.2%. We sold the majority of the fund's large position in
pre-refunded bonds during the past year as spreads of pre-refunded bonds over
other higher-grade debt tightened significantly and they provided little
relative value.

. Forward Contracts. During April, the fund bought a forward contract (a
commitment to take possession of a financial instrument at a specified date and
price), which functioned as a long-dated settlement of a purchase. Because of
its unconventional structure, the forward was available at a more attractive
price than a conventional bond.

- --------------------------------------------------------------------------------
16
<PAGE>

- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund (continued)

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

. Duration. As of October 31, the fund's duration was 2.86 years, slightly
longer than the Index's duration of 2.77 years. During the course of the year,
the fund's duration was neutral to the Index. In general, we manage the fund's
duration to approximate the Index's, rather than attempting to make interest
rate predictions. Instead, we look for opportunities to outperform the Index
through coupon, state, security and sector allocations.

. Credit Quality. The portfolio's overall credit quality was not
significantly changed during the period. As of October 31, the portfolio was
77.1% invested in triple-A-rated bonds, 16.1% in double-A's and 6.8% in single-
A's.

Market Outlook: Improved Technicals Expected

Going forward, the municipal bond market appears to be entering a period of
potential technical strength. We estimate that over $80 billion in coupon and
principal payments will be distributed to municipal investors between November
1995 and February 1996, a significant percentage of which may be reinvested into
municipal bonds. In contrast, we expect just over $37 billion in new municipal
debt securities to be issued over the same four-month period, creating a
potential supply and demand imbalance that could increase municipal bond prices.
That scenario, coupled with the likelihood of an even flatter yield curve near
term, should benefit our longer term bonds. In addition, yields on long-term
municipals are relatively high in relation to Treasury securities and short-term
municipals. Regarding security selection, we anticipate concentrating on bonds
issued by states that have high taxes, high wealth concentration and large
populations (e.g., New York, California and Michigan).

Distribution Policy

The fund's Institutional, Administration and Service shares distributed
monthly distributions totaling approximately $0.42, $0.40 and $0.37 per share,
respectively, during the 12-month period ended October 31, 1995. Dividends are
declared daily and paid on a monthly basis. The fund intends to distribute
substantially all of its investment company tax-exempt income, as required by
tax law.

Your investment in the GS Short Duration Tax-Free Fund means a great deal
to us and we look forward to continuing our relationship.

Sincerely,

/s/ Benjamin S. Thompson

Benjamin S. Thompson

/s/ Theodore T. Sotir

Theodore T. Sotir
Portfolio Managers
GS Short Duration Tax-Free Fund
November 30, 1995

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

17
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
October 31, 1995

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

In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1995. The
performance for the GS Short Duration Tax-Free Fund based on the Fund's normal
minimum initial investment of $50,000, is compared to its benchmark, the Lehman
Brothers 3-Year Municipal Bond Index ("3-Year Bond Index"). All performance
data shown represents past performance and should not be considered indicative
of future performance which will fluctuate as market conditions change. The
investment return and principal value of an investment will fluctuate with
changes in market conditions so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
<TABLE>
<CAPTION>
HYPOTHETICAL $50,000 INVESTMENT/(a)/

Institutional Shares

Institutional Shares 3-Year Bond Index
<S> <C> <C>
10/1/92 50,000 50,000
10/31/92 49,831 49,805
10/31/93 53,335 53,102
10/31/93 53,425 53,825
10/31/95 56,620 58,023
</TABLE>

<TABLE>
<CAPTION>
Administration Share

Administrative Shares 3-Year Bond Index
<S> <C> <C>
6/1/93 50,000 50,000
10/31/93 51,092 51,144
10/31/94 51,036 51,840
10/31/95 53,976 55,884
</TABLE>

<TABLE>
<CAPTION>
Service Shares

Service Shares 3-Year Bond Index
<S> <C> <C>
10/1/94 50,000 50,000
10/31/94 49,696 49,880
10/31/95 52,474 53,771
</TABLE>

Average Annual Total Return
------------------------------

One Year Since Inception (b)
- ----------------------------------------------------------------
<S> <C> <C>
Institutional Shares 5.98% 4.12%
- ----------------------------------------------------------------
Administration Shares 5.76% 3.21%
- ----------------------------------------------------------------
Service Shares 5.59% 4.70%
- ----------------------------------------------------------------
</TABLE>

(a) For comparative purposes, initial investments are assumed to be made on the
first day of the month following the commencement of operations of the
Administration and Service share classes.
(b) The Institutional, Administration and Service shares commenced operations
October 1, 1992, May 20, 1993 and September 20, 1994, respectively.

18
<PAGE>

Statement of Investments
- -------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
October 31, 1995

- ----------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
============================================================================
Debt Obligations-- 104.9%
Alabama--3.6%
Alabama State GO/(a)/ (AA/Aa)
$2,000,000 5.90% 03/01/99 $2,094,940
- ----------------------------------------------------------------------------
California--13.4%
California State Revenue Anticipation
Warrants (Sp1/MIG1)
$1,500,000 5.75% 04/25/96 $1,514,280
Sacramento County, CA Tax and Revenue
Anticipation Notes(a) (Sp1+/MIG1)
3,000,000 4.75 10/04/96 3,024,270
San Francisco, CA City and County GO
Series 1995 A and B (FGIC) (AAA/Aaa)
1,450,000 7.25 06/15/99 1,607,644
1,570,000 7.25 06/15/00 1,771,211
- ----------------------------------------------------------------------------
$7,917,405
- ----------------------------------------------------------------------------
Connecticut--5.2%
Connecticut State Series A GO/(a)/
(AA-/Aa)
$3,000,000 5.00% 03/15/00 $3,077,520
- ----------------------------------------------------------------------------
Florida--15.9%
Florida State Certificates of
Participation Equipment Financing
Program (A+/A)
$1,115,000 5.90% 11/15/96 $1,132,929
Lakeland, FL Electric and Water RB
(FGIC)/(b)/ (AAA/Aaa)
2,640,000 5.25 10/01/97 2,679,626
5,415,000 5.25 10/01/98 5,521,460
- ----------------------------------------------------------------------------
$9,334,015
- ----------------------------------------------------------------------------
Illinois--3.8%
Illinois Health Facilities Authority
Revenue- Lutheran Healthcare System
Prerefunded/(c)/ (AAA/NR)
$2,000,000 7.50% 04/01/99 $2,232,140
- ----------------------------------------------------------------------------
Kansas--4.5%
Kansas City, KS GO Series A (MBIA)
(AAA/Aaa)
$1,000,000 5.25% 09/01/99 $1,037,780
Topeka, KS GO Notes (NR/MIG1)
1,620,000 4.25 07/15/96 1,624,082
- ----------------------------------------------------------------------------
$2,661,862
- ----------------------------------------------------------------------------
Louisiana--3.8%
Lafayette Parish, LA School Board Sales
Tax GO (FGIC) (AAA/Aaa)
$2,130,000 6.00% 04/01/99 $2,242,272
- ----------------------------------------------------------------------------
Massachusetts--5.4%
Boston, MA GO (A/A)
$ 595,000 9.50% 03/01/96 $ 604,199
Boston, MA GO (MBIA) (AAA/Aaa)
2,500,000 5.25 10/01/99 2,586,375
- ----------------------------------------------------------------------------
$3,190,574
- ----------------------------------------------------------------------------
Michigan--5.1%
Michigan Municipal Bond Authority
Revenue Notes (Sp1+/NR)
$3,000,000 5.00% 05/03/96 $3,018,570
- ----------------------------------------------------------------------------
Nevada--2.2%
Nevada State GO/(b)/ (AA/Aa)
$1,170,000 8.00% 11/01/99 $1,321,375
- ----------------------------------------------------------------------------
New Jersey--9.9%
New Jersey Healthcare Facilities
Financing Authority Prerefunded/(c)/
(AAA/Aaa)
$2,380,000 8.38% 02/01/98 $2,637,611
New Jersey State Turnpike Authority
Series A RB (A/A)
3,000,000 6.20 01/01/00 3,187,590
- ----------------------------------------------------------------------------
$5,825,201
- ----------------------------------------------------------------------------
New Mexico--2.1%
Albuquerque City, New Mexico GO Series
C (AA/Aa)
$1,200,000 5.10% 07/01/00 $1,231,980
- ----------------------------------------------------------------------------
New York--3.5%
Erie County, New York GO Series A
(MBIA)/(a)/ (AAA/Aaa)
$2,000,000 5.50% 06/01/99 $2,080,060
- ----------------------------------------------------------------------------
Ohio--2.6%
Ohio State Building Authorities Series
A Escrowed-To-Maturity/(c)/ (NR/Aaa)
$1,400,000 7.15% 08/01/99 $1,536,500
- ----------------------------------------------------------------------------
Oklahoma--6.7%
Enid, OK Hospital Authority RB (Societe
General LOC)/(a)/ (NR/Aa1)
$2,800,000 7.20%/(d)/ 10/01/15 $2,880,640
Oklahoma County, OK Independent School
District GO (A+/Aa)
1,000,000 5.40 02/01/99 1,034,440
- ----------------------------------------------------------------------------
$3,915,080
- ----------------------------------------------------------------------------
Pennsylvania--1.9%
Philadelphia, PA Water and Sewer RB
(MBIA) (AAA/Aaa)
$1,000,000 6.85% 10/01/99 $1,094,610
- ----------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.

19
<PAGE>

Statement of Investments
- -------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund (continued)
October 31, 1995

/(a)/Portions of these securities are being segregated for when-issued
securities.
/(b)/When-issued security.
/(c)/Pre-refunded and escrowed-to-maturity bonds have been collateralized by
U.S. Treasury securities which are held in escrow and used to pay principal
and interest on the tax-exempt issue and to redeem the bonds in full upon
the refunding date. The maturity date shown for these securities is the
refunding date.
/(d)/Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1995.
/(e)/Securities with "Put" features with resetting interest rates. Maturity
dates disclosed are the next reset interest dates.
/(f)/The amount stated also represents aggregate cost for federal income tax
purposes.

The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.

Investment Abbreviations:

AMBAC Insured by American Municipal Bond Assurance Corp.
FGIC -Insured by Financial Guaranty Insurance Co.
GO -General Obligation
LOC -Letter of Credit
MBIA -Insured by Municipal Bond Investors Assurance
NR -Not Rated
RB -Revenue Bond
VRDN -Variable Rate Demand Note

The accompanying notes are an integral part of these financial statements.

20
<PAGE>

Letter to Shareholders
- -------------------------------------------------------------------------------
GS Core Fixed Income Fund

Investment Objective

The GS Core Fixed Income Fund seeks to achieve a total return that exceeds
the total return of the Lehman Brothers Aggregate Bond Index (the "Index")
through a diversified portfolio of fixed income securities. The fund may invest
in U.S. Treasury, agency, corporate, mortgage-backed and asset-backed
securities, as well as in a limited amount of nondollar-denominated fixed income
securities. While the fund's performance will be measured against the Index, the
portfolio is not required to hold the same securities or match the sector
weightings of the Index. Every security in the portfolio must be rated at least
investment grade by an independent rating agency or be considered to be of
equivalent quality by Goldman Sachs Asset Management at the time it is
purchased.

Performance Review

For the 12 months ended October 31, 1995, the fund's total return was 15.72%
(7.20% from monthly distributions and 8.52% from share price appreciation)
compared with a return of 15.65% for the Lehman Brothers Aggregate Bond Index,
the fund's benchmark. The fund's NAV as of October 31 was $10.00 per share, up
$0.76 from last year.

The fund outperformed the Index by seven basis points during the period,
primarily due to its sector allocations. The fund was significantly overweighted
versus the benchmark in corporate bonds, which added incremental yield and
return as spreads tightened. The fund also held a small position in emerging
market debt that performed well, a sector not included in the benchmark. In
addition, the fund benefited from being significantly overweighted in asset-
backed securities, which also performed well during the period.

Portfolio Composition and Investment Strategies

Portfolio Composition as of October 31, 1995*

[PIE CHART APPEARS HERE]

<TABLE>
<S> <C>
Fixed Rate Mortgage Pass-Throughs 30.2%
Corporate Bonds 28.1%
U.S. Treasuries 24.7%
Asset-Backed Securities 9.9%
Emerging Market Debt 2.6%
Agency Debentures 2.1%
CMOs 2.0%
Repos/Cash Equivalents 0.4%
</TABLE>

. Fixed Rate Mortgage Pass-Throughs. As of October 31, the portfolio's largest
sector holding was 30.2% in fixed rate mortgage pass-throughs, slightly
overweighting the Index allocation of 28.2%. We increased the fund's position in
fixed-rate mortgages when they became relatively inexpensive during the summer.
Subsequently, mortgages have continued to get even cheaper based on prepayment
fears. However, we still believe they represent good value that may be realized
when the rate of prepayments begins to slow. In our opinion, they continue to
offer attractive spreads relative to Treasuries.

21
<PAGE>

Letter to Shareholders
- -------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)

Our security selection within the sector continued to be significantly
different from that of the Index. During the early part of the period under
review, the fund underweighted 15-year mortgage-backed securities and
consequently didn't fully participate when the 15-year sector outperformed. We
also emphasized seasoned mortgages, which tended to help the portfolio,
particularly during the latter part of the period, because they are less prone
to prepayments than newly issued mortgages.

As anticipated in the April semiannual report, we shifted the fund's
emphasis to favor securities issued by the Government National Mortgage
Association (GNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) over
the Federal National Mortgage Association (FNMA), as the former were more
attractively priced.

. Corporate Bonds. We continued to emphasize corporate bonds during the period
because they offered incremental yield. Corporates represented 28.1% of the
portfolio on October 31 compared with 17.1% for the Index.

. Asset-Backed Securities (ABSs). We found the ABS sector attractive due to
its high credit quality debt and incremental yield over Treasuries. As a result,
we overweighted the sector relative to the Index, 9.9% versus 1.3%. Our ABS
holdings included credit card receivables (5.8%) and automobile loan receivables
(4.1%).

. Emerging Market Debt. During the period, we added a 2.6% allocation in
emerging market debt. We intend to keep the position relatively small and to
carefully manage risk by emphasizing higher-credit, short-duration bonds
(typically with average maturities of under five years). Thus far we have
focused primarily on Latin American corporate debentures. In particular, we
stressed Colombian bonds that were inexpensive relative to comparably rated U.S.
credits. In our view, some Latin American debt had been unfairly penalized and
therefore offered attractively priced bonds that the fund continued to own as of
the end of the period. The fund also briefly held a Republic of Poland bond that
was subsequently sold at a profit.

. Agency Debentures. We established a small position in agency debentures
(2.1%) in April, because we believed that they represented better relative value
than Treasuries. During most of the period, the fund's underweighting in agency
debentures versus the Index worked in its favor, because this sector
underperformed Treasuries as spreads widened.

. PAC CMOs and ARMs. The fund's position in planned amortization class
collateralized mortgage obligations (PAC CMOs) declined from 1.7% of the
portfolio a year ago to 0.9% on October 31, 1995. The percentage of PAC
securities fell relative to total portfolio assets as the fund attracted new
investments. During the period, we liquidated the portfolio's 1.9% position in
adjustable rate mortgage securities (ARMs) in favor of other sectors that
appeared to offer greater yield and return potential.

. Duration. We have targeted the fund's duration to approximate that of the
Index. Both were 4.8 years as of October 31.

. Credit Quality. As of October 31, 58.9% of the portfolio was invested in
government and agency securities, 9.9% in AAA securities and 0.4% in cash
equivalents. To add incremental yield potential, 30.8% of the portfolio was
invested in A and BBB securities, a significant overweighting versus the Index.

. Prudent Use of Derivatives. As noted previously, the fund held a 9.9%
position in asset-backed securities and a 0.9% position in PAC CMOs, both
considered to be lower risk derivatives. During the period, we added very small
positions in higher risk interest only (IO) and principal only (PO) CMOs (0.3%
and 0.8% of the portfolio, respectively) for their potential incremental return.
The fund also used covered mortgage dollar rolls (where

22
<PAGE>

- -------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
- -------------------------------------------------------------------------------

mortgage securities owned by the fund are sold and the fund simultaneously
contracts to buy back similar mortgage securities with the same coupon on a
specified future date) to provide incremental yield. At all times, we "cover"
the mortgage dollar rolls by keeping cash or high-grade liquid debt securities
equal to the dollar amount of the forward commitment in a segregated account
with the fund's custodian.

Portfolio Outlook

Looking forward, we are still cautiously optimistic regarding the corporate
debt sector, based on the continuation of relatively strong corporate earnings
despite the softening economy. Within the sector, we continue to favor
industrial and financial issues over Yankees (dollar-denominated bonds issued in
the U.S. by foreign banks and corporations) and utility bonds. We are also
cautiously optimistic about the mortgage-backed securities market. Yield spreads
of mortgage pass-throughs relative to Treasuries are currently very wide, but we
remain concerned about prepayment risk. Additionally, we have a neutral outlook
for the ABS sector over the next quarter. Though strong investor demand is
likely to continue longer term, we believe the ABS sector may be affected by
increases in consumer debt delinquencies and by year-end selling.

We will continue to look for attractive investment opportunities in emerging
markets. For the near term, we tend to favor Latin American debt over
investment-grade bonds in Asia and eastern Europe, which we currently consider
too expensive.

Distribution Policy

During the 12-month period under review, the fund distributed $0.64 per
share. Dividends are declared daily and paid on a monthly basis. The fund
intends to distribute substantially all of its investment company taxable
income, as required by tax law.

We value your continued confidence in the GS Core Fixed Income Fund and look
forward to reporting on the fund's progress in the coming year.

Sincerely,

/s/ Jonathan A. Beinner

Jonathan A. Beinner

/s/ Richard H. Buckholz

Richard H. Buckholz

/s/ C. Richard Lucy

C. Richard Lucy

/s/ Theodore T. Sotir

Theodore T. Sotir

Portfolio Managers
GS Core Fixed Income Fund
November 30, 1995
- -------------------------------------------------------------------------------

23
<PAGE>

Goldman Sachs Trust
- -------------------------------------------------------------------------------
GS Core Fixed Income Fund
October 31, 1995

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

In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1995. The
performance for the GS Core Fixed Income Fund based on the Fund's normal minimum
initial investment of $50,000, is compared to its benchmark, the Lehman Brothers
Aggregate Bond Index ("Lehman Aggregate Index"). All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate as market conditions change. The investment
return and principal value of an investment will fluctuate with changes in
market conditions so that an investor's shares, when redeemed, may be worth more
or less than their original cost.

HYPOTHETICAL $50,000 INVESTMENT/(a)/

[LINE GRAPH APPEARS HERE]

<TABLE>
<CAPTION>
GS Core Lehman
Fixed Income Fund Aggregate Index
<S> <C> <C>
1/5/94 50,000 50,000
10/31/94 48,498 46,980
10/31/95 56,122 54,332
</TABLE>

<TABLE>
<CAPTION>
Average Annual Total Return
--------------------------------
One Year Since Inception/(a)/
--------------------------------
<S> <C>
15.72% 6.54%
</TABLE>

/(a)/ Commenced operations January 5, 1994.
- -------------------------------------------------------------------------------

24
<PAGE>

Statement of Investments
- -------------------------------------------------------------------------------
GS Core Fixed Income Fund
October 31, 1995

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Bonds--28.2%
Finance Bonds--19.1%
Bancponce Financial Corp.
$ 500,000 5.17% 07/15/96 $ 496,150
BankAmerica Corp.
200,000 4.99 05/17/99 199,118
Capital One Bank
600,000 8.63 01/15/97 616,830
500,000 8.13 02/27/98 518,910
Chrysler Financial Corp.
50,000 6.22 10/27/97 50,136
500,000 6.10 11/02/97 500,000
Comdisco Inc.
600,000 9.75 01/15/97 624,798
200,000 7.33 03/06/97 202,722
Continental Bank N.A.
525,000 11.25 07/01/01 586,924
Corp. Andina de Fomento
280,000 7.25 04/30/98 279,370
60,000 7.38 07/21/00 60,167
Countrywide Funding Corp.
125,000 6.08 07/14/99 123,881
250,000 8.43 11/16/99 267,858
Financiera Energy Nacional
530,000 6.63 12/13/96 526,025
First USA
200,000 5.05 12/27/95 199,674
400,000 5.05 12/29/95 399,324
400,000 6.88 09/12/96 402,804
Ford Capital Corp.
200,000 9.38 01/01/98 213,388
600,000 9.50 07/01/01 686,688
General Motors Acceptance Corp.
400,000 7.50 11/04/97 410,344
275,000 7.63 03/09/98 283,740
200,000 7.13 05/10/00 205,652
Golden West Financial Corp.
600,000 8.62 08/30/98 635,418
Maybank, New York
975,000 7.13 09/15/05 991,030
Security Pacific Corp.
695,000 11.50 11/15/00 843,070
Corporate Bonds (continued)
Finance Bonds (continued)
Signet Banking Corp.
$ 240,000 9.63% 06/01/99 $ 262,387
- -------------------------------------------------------------------------------
$10,586,408
- -------------------------------------------------------------------------------
Industrial Bonds--8.5%
Auburn Hills Trust
$ 360,000 12.00% 05/01/20 $ 539,770
Empresa Col Petroleos
250,000 7.25 07/08/98 245,000
News America Holdings Inc.
350,000 9.13 10/15/99 382,659
500,000 7.50 03/01/00 517,620
RJR Nabisco Inc.
175,000 8.00 07/15/01 176,444
350,000 8.62 12/01/02 359,594
Tele-Communications Inc.
400,000 6.10 05/15/96 399,532
Tenneco Inc.
575,000 10.00 08/01/98 628,320
Time Warner Inc.
1,225,000 7.95 02/01/00 1,273,473
175,000 7.98 08/15/04 179,776
- -------------------------------------------------------------------------------
$ 4,702,188
- -------------------------------------------------------------------------------
Utility Bonds--0.6%
Central Maine Power Co.
$ 330,000 7.45% 08/30/99 $ 335,521
- -------------------------------------------------------------------------------
Total Corporate Bonds
(Cost $15,375,809) $15,624,117
- -------------------------------------------------------------------------------
Asset-Backed Securities--9.7%
Discover Card Trust Series 1991-C, Class A
$1,035,000 7.20% 04/16/98 $ 1,035,135
Ford Credit Auto Loan Master Trust Series
1995-1, Class A
650,000 6.50 08/15/02 657,378
General Motors Acceptance Corp. Series 1994,
Class A(a)
831,244 6.30 06/15/99 833,239
General Motors Acceptance Corp. Series 1995,
Class A
185,548 7.15 03/15/00 187,487
Premier Auto Trust Series 1994-1, Class A3
120,000 4.75 02/02/00 118,625
Premier Auto Trust Series 1995-1, Class A4
360,000 7.85 02/04/98 368,132
</TABLE>

25
<PAGE>

Statement of Investments
- -------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
October 31, 1995

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset-Backed Securities (continued)
Premier Auto Trust Series 1995-1, Class A5
$80,000 7.90% 05/04/99 $ 82,566
Sears Credit Card Master Trust, Series 1995-2, Class A
550,000 8.10 06/15/04 589,914
Sears Credit Card Master Trust, Series 1995-3, Class A
300,000 7.00 10/15/04 309,900
Standard Credit Card Trust, Series 1990-3, Class A
1,120,000 9.50 07/10/98 1,176,370
- -------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $5,346,628) $ 5,358,746
- -------------------------------------------------------------------------------
Government Bonds--1.2%
Province of Quebec
$ 520,000 13.25% 09/15/14 $ 656,250
- -------------------------------------------------------------------------------
Total Government Bonds
(Cost $656,517) $ 656,250
- -------------------------------------------------------------------------------
Mortgage Backed Obligations--32.0%
Federal Home Loan Mortgage Corp. (FHLMC)
$2,000,000 7.50% TBA-30 year(b) $ 2,050,624
3,000,002 7.00 09/01/25 2,975,627
500,000 7.50 10/01/25 505,625
1,000,000 8.00 10/15/25 1,025,313
2,000,000 8.00 TBA-30 year(b) 2,022,500
Federal National Mortgage Association (FNMA)
831,998 9.00 08/01/06 872,558
578,679 7.00 11/01/24 573,616
FNMA Remic Trust Series 1993-58, Class G
500,000 5.50 12/25/20 476,100
FNMA Remic Trust Series 189, Class 1 Principal Only Strips
519,544 4.55(c) 11/25/19 414,843
FNMA Remic Trust Series 189, Class 2 Principal Only Strips
660,175 9.50(c) 11/01/19 151,698
Government National Mortgage Association
1,000,000 7.50 TBA-30 year(b) 1,012,812
1,005,000 9.50 06/15/17 1,081,318
879,262 9.00 07/15/17 932,292
525,920 9.00 02/15/21 555,503
2,998,514 8.00 08/15/24 3,087,534
- --------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $17,570,371) $17,737,963
- --------------------------------------------------------------------------------
Sovereign Debt--0.5%
Republic of Colombia
$ 260,000 9.25% 02/15/00 $ 261,542
- --------------------------------------------------------------------------------
Total Sovereign Debt
(Cost $260,400) $ 261,542
- --------------------------------------------------------------------------------
U.S. Government Agency Obligations--2.1%
FHLMC
$ 300,000 8.20% 01/16/98 $ 308,337
250,000 6.83 09/18/02 252,455
FNMA Medium Term Notes
170,000 8.79 01/30/02 172,946
Resolution Funding Corp. Principal Only Strips(c)
1,160,000 6.78 10/15/20 219,194
1,140,000 6.78 01/15/21 212,359
- --------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $1,116,619) $ 1,165,291
- --------------------------------------------------------------------------------
U.S. Treasury Obligations--24.7%
United States Treasury Bonds
$ 100,000 6.40% 08/15/20 $ 128,125
100,000 8.75 08/15/20 128,125
120,000 7.88 02/15/21 141,263
60,000 8.00 11/15/21(d) 71,719
United States Treasury Interest Only Stripped Securities(c)
2,250,000 6.43 08/15/09 943,313
350,000 6.48 11/15/10 134,537
United States Treasury Notes
750,000 7.25 11/15/96 762,188
2,790,000 7.38 11/15/97 2,881,121
830,000 7.75 01/31/00 889,528
2,080,000 6.25 02/15/03 2,116,733
United States Treasury Principal Only Stripped Securities(c)
40,000 5.65 11/15/97 35,706
400,000 6.15 11/15/04 231,060
6,320,000 6.17 11/15/04 3,650,748
1,010,000 6.63 05/15/20 203,576
6,940,000 6.63 08/15/20 1,376,203
- --------------------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $13,147,205) $13,693,945
- --------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.

26
<PAGE>

- -------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
October 31, 1995

<TABLE>
<CAPTION>
Number of
Contracts
Long (Short) Settlement Month Unrealized
Type (f) Gain (Loss)
- ------------------------------ ------------- ------------------ -------------
<S> <C> <C> <C>
Euro Dollars 3 September 1997 ($150)
Euro Dollars 3 December 1997 (225)
2-Year U.S. Treasury Notes 3 December 1995 188
5-Year U.S. Treasury Notes 6 December 1995 5,281
10-Year U.S. Treasury Notes 12 December 1995 10,875
U..S. Treasury Bond (5) December 1995 (35,313)
- --------------------------------------------------------------------------------
($19,344)
================================================================================
</TABLE>

<TABLE>
<CAPTION>
Federal Income Tax Information:
================================================================================
<S> <C>
Gross unrealized gain for investments in which value exceeds cost $1,035,697
Gross unrealized loss for investments in which cost exceeds value (15,571)
- --------------------------------------------------------------------------------
Net unrealized gain $1,020,126
================================================================================
</TABLE>

(a) Portions of these securities are being segregated for open TBA purchases and
mortgage dollar rolls.
(b) TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally + / -2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
(c) The interest rate disclosed for these securitites represents effective
yields to maturity.
(d) Portions of these securities are being segregated for futures margin
requirements.
(e) The aggregate cost for federal income tax purposes is $59,077,728.
(f) Each 2-Year U.S. Treasury Note contract represents $200,000, in notional par
value. Each 5-Year U.S. Treasury Note, 10-Year U.S. Treasury Note and U.S.
Treasury Bond contract represents $100,000 in notional par value. Each Euro
Dollar contract represents $1,000,000 in notional par value. The total net
notional amount and net market value at risk for the futures contracts shown
above are $7,900,000 and $3,447,201, respectively. The determination of
notional amounts does not consider market risk factors and therefore
notional amounts as presented here are indicative only of volume of activity
and not a measure of market risk.

The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.

- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.

27
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
October 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GS Adjustable GS Short-Term GS Short GS Core
Rate Government Duration Fixed
Government Agency Tax-Free Income
Agency Fund Fund Fund Fund
=======================================================
<S> <C> <C> <C> <C>
Assets:
Investments in securities, at value (cost $676,175,134, $97,819,981,
$71,763,971 and $59,073,549, respectively) $668,520,312 $ 97,786,174 $72,362,466 $60,097,854
Receivables:
Investment securities sold 2,522,537 7,389,364 7,084,752 501,611
Interest 4,758,629 1,877,430 810,907 693,394
Fund shares sold 1,816,089 -- -- --
Cash 834,124 24,111 58,457 46,820
Deferred organization expenses, net 20,848 -- 43,483 77,914
Other assets 363,405 227,642 116,718 76,278
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets 678,835,944 107,304,721 80,476,783 61,493,871
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payables:
Dividends 1,964,420 262,952 80,916 --
Investment securities purchased -- 3,077,455 21,417,313 5,942,377
Fund shares repurchased 350,373 139,117 1,099 --
Investment adviser fees 230,618 35,221 20,005 18,684
Transfer agent fees 79,466 -- 2,000 1,868
Authorized dealer service fees 3,162 -- -- --
Accrued expenses and other liabilities 74,887 29,946 66,141 28,664
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,702,926 3,544,691 21,587,474 5,991,593
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Paid in capital 733,171,454 116,985,113 62,694,923 53,994,311
Accumulated undistributed (distributions in excess of) net
investment income (2,129,902) 708,450 67,398 40,202
Accumulated net realized gain (loss) on investment and futures
transactions (46,579,546) (13,973,992) (4,471,507) 462,804
Net unrealized gain (loss) on investments and futures (8,328,988) 40,459 598,495 1,004,961
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets $676,133,018 $103,760,030 $58,889,309 $55,502,278
==================================================================================================================================
Net asset value, offering and redemption price per share
Institutional shares $9.77 $9.82 $9.94 $10.00
Administration shares $9.77 -- $9.94 --
Service shares -- -- $9.95 --
Class A shares(a) $9.77 -- -- --
==================================================================================================================================
Shares Outstanding:
Institutional shares 67,312,163 10,567,526 5,871,894 5,549,690
Administration shares 365,725 -- 4,614 --
Service shares -- -- 45,968 --
Class A shares 1,556,301 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total shares of beneficial interest outstanding, $.001 par value
(unlimited number of shares authorized) 69,234,189 10,567,526 5,922,476 5,549,690
==================================================================================================================================
</TABLE>

(a) Maximum public offering price per share (NAV per share *1.0152) for Class A
shares of GS Adjustable Rate Government Agency Fund is $9.92.

- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.

28
<PAGE>

- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended October 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GS Adjustable GS Short-Term GS Short GS Core
Rate Government Duration Fixed
Government Agency Tax-Free Income
Agency Fund Fund Fund Fund
=======================================================
<S> <C> <C> <C> <C>
Investment income:
Interest $45,991,431 $ 9,467,818 $3,112,135 $2,402,498
- ---------------------------------------------------------------------------------------------------------------------------------
Total income 45,991,431 9,467,818 3,112,135 2,402,498
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment adviser fees 2,947,492 646,364 260,970 137,158
Distribution fees 17,967 -- -- --
Authorized dealer service fees 17,967 -- -- --
Administration share fees 12,632 425 1,244 --
Service share fees -- -- 2,847 --
Transfer agent fees 306,662 -- 26,098 13,716
Custodian fees 202,330 53,175 40,586 46,412
Professional fees 73,276 79,913 37,300 49,918
Printing fees 84,609 30,942 42,972 37,167
Registration fees 7,192 71,103 42,630 12,708
Amortization of deferred organization expenses 29,381 -- 22,673 25,947
Trustees' fees 53,525 6,783 1,989 690
Other 221,317 42,713 31,511 7,056
- ---------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,974,350 931,418 510,820 330,772
Less--expenses reimbursable and fees waived by Goldman Sachs (569,372) (349,267) (213,139) (176,469)
- ---------------------------------------------------------------------------------------------------------------------------------
Net expenses 3,404,978 582,151 297,681 154,303
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 42,586,453 8,885,667 2,814,454 2,248,195
- ---------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment and
futures transactions:
Net realized gain (loss) from:
Investment transactions (6,834,903) (4,027,343) (472,312) 908,346
Futures transactions (5,165,576) (2,831) -- 12,784
Net change in unrealized gain (loss) on:
Investments 16,816,889 5,661,425 1,270,197 1,682,520
Futures (678,522) 74,266 -- (19,344)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investment and futures
transactions 4,137,888 1,705,517 797,885 2,584,306
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $46,724,341 $10,591,184 $3,612,339 $4,832,501
=================================================================================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.

29
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended October 31, 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GS Adjustable GS Short-Term GS Short GS Core
Rate Government Duration Fixed
Government Agency Tax-Free Income
Agency Fund Fund Fund Fund
===========================================================
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 42,586,453 $ 8,885,667 $ 2,814,454 $ 2,248,195
Net realized gain (loss) from investment and futures transactions (12,000,479) (4,030,174) (472,312) 921,130
Net change in unrealized gain on investments and futures 16,138,367 5,735,691 1,270,197 1,663,176
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 46,724,341 10,591,184 3,612,339 4,832,501
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders from:
Net investment income
Institutional shares (42,629,917) (8,684,213) (2,771,793) (2,253,625)
Administration shares (278,448) (11,164) (20,584) --
Service shares -- -- (22,077) --
Class A shares (425,863) -- -- --
In excess of net investment income
Institutional shares (2,124,188) -- -- --
Administration shares (13,875) -- -- --
Class A shares (21,220) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (45,493,511) (8,695,377) (2,814,454) (2,253,625)
- ----------------------------------------------------------------------------------------------------------------------------------
From Share Transactions:
Net proceeds from sales of shares 456,762,969 49,034,023 36,468,900 30,256,879
Proceeds from reorganizations 37,593,780 -- -- --
Reinvestment of dividends and distributions 21,273,685 4,993,443 1,873,154 2,232,160
Cost of shares repurchased (790,211,526) (145,988,674) (67,865,169) (4,073,379)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
shares transactions (274,581,092) (91,961,208) (29,523,115) 28,415,660
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) (273,350,262) (90,065,401) (28,725,230) 30,994,536
Net Assets:
Beginning of year 949,483,280 193,825,431 87,614,539 24,507,742
- ----------------------------------------------------------------------------------------------------------------------------------
End of year $ 676,133,018 $ 103,760,030 $ 58,889,309 $55,502,278
==================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment
income $ (2,129,902) $ 708,450 $ 67,398 $ 40,202
==================================================================================================================================
Summary of Share Transactions:
Shares sold 46,809,171 5,072,030 3,733,382 3,077,397
Shares exchanged in reorganizations 3,843,169 -- -- --
Reinvestment of dividends and distributions 2,181,117 516,178 190,942 230,595
Shares repurchased (81,125,615) (15,135,663) (6,950,294) (411,156)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding (28,292,158) (9,547,455) (3,025,970) 2,896,836
==================================================================================================================================
</TABLE>

- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.

30
<PAGE>

- --------------------------------------------------------------------------------
Statement of Changes in Net Assets (continued)
For the Year Ended October 31, 1994
- --------------------------------------------------------------------------------

GS Adjustable GS Short-Term GS Short GS Core
Rate Government Duration Fixed
Government Agency Tax-Free Income
Agency Fund Fund Fund Fund(a)
- -----------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 74,486,356 $ 15,104,529 $ 4,367,575 $ 912,083
Net realized loss from
investment and futures
transactions (21,946,744) (9,489,099) (3,998,966) (458,326)
Net change in unrealized
loss on investments (23,081,906) (3,394,603) (773,951) (658,215)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 29,457,706 2,220,827 (405,342) (204,458)
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to
Shareholders from:
Net investment income
Institutional shares (73,960,549) (14,220,333) (4,170,854) (912,083)
Administration shares (304,939) (674,883) (193,928) --
Service shares -- -- (2,793) --
Net realized gain on
investment and futures
transactions
Institutional shares -- (1,416,326) (931,790) --
Administration shares -- (66,034) (784) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (74,265,488) (16,377,576) (5,300,149) (912,083)
- ----------------------------------------------------------------------------------------------------------------------------------
From Share Transactions:
Proceeds from sales of
shares 1,013,097,417 97,865,803 117,286,528 24,765,017
Reinvestment of dividends
and distributions 30,771,600 10,376,478 4,009,244 911,363
Cost of shares repurchased (2,815,775,329) (276,458,244) (144,689,428) (52,097)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
share transactions (1,771,906,312) (168,215,963) (23,393,656) 25,624,283
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) (1,816,714,094) (182,372,712) (29,099,147) 24,507,742
Net Assets:
Beginning of period 2,766,197,374 376,198,143 116,713,686 --
- ----------------------------------------------------------------------------------------------------------------------------------
End of period $ 949,483,280 $ 193,825,431 $ 87,614,539 $24,507,742
==================================================================================================================================
Accumulated undistributed
net investment income $ 747,775 $ 481,675 $ 44,725 $ 20,085
==================================================================================================================================
Summary of Share
Transactions:
Shares sold 102,107,323 9,829,690 11,568,942 2,561,774
Reinvestment of dividends
and distributions 3,113,434 1,051,206 400,203 96,676
Shares repurchased (284,303,787) (27,853,643) (14,425,718) (5,596)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in shares outstanding (179,083,030) (16,972,747) (2,456,573) 2,652,854
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)For the period from January 5, 1994 (Commencement of Operations) to October
31, 1994.

The accompanying notes are an integral part of these financial statements.

31
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
October 31, 1995
- --------------------------------------------------------------------------------

1. Organization

Goldman Sachs Trust (the "Trust") is a Massachusetts business trust
registered under the Investment Company Act of 1940 (as amended) as an open-end,
management investment company. Included in this report are the financial
statements for the GS Adjustable Rate Government Agency Fund, GS Short-Term
Government Agency Fund, GS Short Duration Tax-Free Fund and GS Core Fixed Income
Fund, collectively, ("the Funds"). The Funds are diversified portfolios of the
Trust offering three classes of shares - Institutional shares, Administration
shares and Service shares. In addition, the GS Adjustable Rate Government Agency
Fund offers Class A shares.

2. Significant Accounting Policies

The following is a summary of significant accounting policies consistently
followed by the Funds which are in conformity with those generally accepted in
the investment company industry:

A. Investment Valuation
------------------------
Investments in mortgage backed, asset backed and U.S. Treasury obligations
are valued based on yield equivalents, a pricing matrix or other sources, under
valuation procedures established by the Trust's Board of Trustees. Other
portfolio securities for which accurate market quotations are readily available
are valued on the basis of quotations furnished by a pricing service or provided
by dealers in such securities. Portfolio securities for which accurate market
quotations are not readily available are valued in accordance with the Trust's
valuation procedures. Short-term debt obligations maturing in sixty days or less
are valued at amortized cost.

B. Security Transactions and Investment Income
-----------------------------------------------
Security transactions are recorded on trade date. Realized gains and losses
on sales of portfolio securities are calculated on the identified cost basis.
Interest income is recorded on the basis of interest accrued. Premiums on
interest-only securities and on collateralized mortgage obligations with nominal
principal amounts are amortized, on an effective yield basis, over the expected
lives of the respective securities, taking into account actual principal
prepayment experience and estimates of future principal prepayments. Certain
mortgage security paydown gains and losses are taxable as ordinary income. Such
paydown gains and losses increase or decrease taxable ordinary income available
for distribution and are classified as interest income in the accompanying
Statements of Operations. Original issue discounts on debt securities are
amortized to interest income over the life of the security with a corresponding
increase in the cost basis of that security. Market premiums resulting from the
purchase of long-term debt securities are amortized to interest income over the
life of the security with a corresponding decrease in the cost basis of that
security for GS Short Duration Tax-Free Fund. Market discounts and market
premiums on debt securities, other than mortgage backed securities, are
amortized to interest income over the life of the security with a corresponding
adjustment in the cost basis of that security for GS Core Fixed Income Fund.

C. Mortgage Dollar Rolls
-------------------------
The Funds, with the exception of the GS Short Duration Tax-Free Fund, may
enter into mortgage "dollar rolls" in which the Fund sells securities in the
current month for delivery and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity) but not
identical securities on a specified future date. The Fund loses the right to
receive principal and interest paid on the securities sold. However, the Fund
benefits to the extent of any price received for the securities sold and the
lower forward price for the future purchase (often referred to as the "drop") or
fee income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. The Fund will hold and
maintain in a segregated account, until the settlement date, cash or liquid,
high grade debt securities in an amount equal to the forward purchase price. For
financial reporting and

32
<PAGE>

tax reporting 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.

D. Futures Contracts
---------------------
The Funds may enter into futures transactions for hedging purposes or,
except for futures transactions on currencies by the GS Core Fixed Income Fund,
to seek to increase total return as permitted by CFTC regulations. The Funds may
also use futures contracts to manage their exposure to fluctuations in interest
rates and in the case of the GS Core Fixed Income Fund, currency values. The use
of futures contracts involve, to varying degrees, elements of market risk which
may exceed the amounts recognized in the Statements of Assets and Liabilities.
The underlying total net notional amount and net market value at risk for
outstanding futures contracts at October 31, 1995 are noted on the appropriate
Schedules of Investments.

Upon entering into a futures contract, a Fund is required to deposit with a
broker an amount of cash or securities equal to the minimum "initial margin"
requirement of the futures exchange on which the contract is traded. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the contract, and are
recorded for financial reporting purposes as unrealized gains or losses by the
Fund. When entering into a closing transaction, the Fund will realize, for book
purposes, a gain or loss equal to the difference between the value of the
futures contract to sell and the futures contract to buy. Futures contracts are
valued at the most recent settlement price, unless such price does not reflect
the fair market value of the contract, in which case the position will be valued
using methods as approved by the Board of Trustees.

Certain risks may arise upon entering into futures contracts. The
predominant risk is that the changes in the value of the futures contract may
not directly correlate with changes in the value of the underlying securities.
This risk may decrease the effectiveness of the Funds' hedging strategies and
may also result in a loss to the Funds.

E. Deferred Organization Expenses
----------------------------------
Organization-related costs are being amortized on a straight-line basis over
a period of five years.

F. Expenses
------------
Expenses incurred by the Trust that do not specifically relate to an
individual portfolio of the Trust are allocated to the portfolios based on each
portfolio's relative average net assets for the period.

Shareholders of Administration shares and Service shares bear all expenses
and fees paid to service organizations for their services with respect to such
shares as well as other expenses (subject to expense limitations) which are
directly attributable to such shares. For the GS Adjustable Rate Government
Agency Fund, shareholders of Class A shares bear all expenses and fees relating
to the distribution and authorized dealer service plans as well as other
expenses which are directly attributable to such shares.

G. Federal Taxes
-----------------
It is each Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute each
year substantially all of its investment company taxable and tax-exempt income
to its shareholders. Accordingly, no federal tax provisions are required. The
characterization of distributions to shareholders for financial statement
purposes as either from or in excess of net investment income or net realized
gain on investment transactions, or from capital, depends on the type of
book/tax differences that may exist as well as timing differences associated
with having different book and tax year ends.

33
<PAGE>

Goldman Sachs Trust
- -------------------------------------------------------------------------------
Notes to Financial Statements (continued)
October 31, 1995

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

At October 31, 1995, the Funds had approximately the following amounts of
capital loss carryforward for U.S. Federal tax purposes:

<TABLE>
<CAPTION>
Years of
Fund Amount Expiration
- ------------------------------ ----------- -----------
<S> <C> <C>
GS Adjustable Rate
Government Agency Fund $38,311,000 2000-2002
GS Short-Term Government
Agency Fund $11,136,000 2002
GS Short Duration Tax-Free
Fund $ 3,999,000 2002
</TABLE>

These amounts are available to be carried forward to offset future capital
gains to the extent permitted by applicable laws or regulations.

3. Agreements

Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as the investment adviser for the GS
Adjustable Rate Government Agency and GS Short-Term Government Agency Funds
pursuant to Investment Advisory Agreements. Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman Sachs, serves as the
investment adviser for the GS Short Duration Tax-Free and GS Core Fixed Income
Funds pursuant to Investment Advisory Agreements. Under the Investment Advisory
Agreements, the adviser, subject to the general supervision of the Trust's Board
of Trustees, manages the Funds' portfolios and provides for the administration
of the Funds' other affairs. As compensation for the services rendered under the
Investment Advisory Agreements and the assumption of the expenses related
thereto, the adviser is entitled to a fee, computed daily and payable monthly at
an annual rate equal to .40% of average daily net assets of GS Adjustable Rate
Government Agency, GS Short Duration Tax-Free and GS Core Fixed Income Funds and
.50% of average daily net assets of GS Short-Term Government Agency Fund. Until
further notice, GSFM has voluntarily agreed not to impose .10% of its investment
advisory fee for the GS Short-Term Government Agency Fund. For the period ended
October 31, 1995, investment advisory fees of $129,273 were waived for the GS
Short-Term Government Agency Fund.

The adviser has voluntarily agreed to limit certain of the Funds' expenses
(excluding investment advisory fees, taxes, interest, brokerage, litigation,
administrative and service fees, indemnification and other extraordinary
expenses and with respect to GS Adjustable Rate Government Agency Class A
shares, distribution and authorized dealer service fees) to the extent that such
expenses exceed .05% per annum of each Fund's average daily net assets. For the
year ended October 31, 1995, the amount of reimbursed expenses for the GS
Adjustable Rate Government Agency, GS Short-Term Government Agency, GS Short
Duration Tax-Free and GS Core Fixed Income Funds were $551,405, $219,994,
$213,139 and $176,469, respectively. The amounts reimbursable to the GS
Adjustable Rate Government Agency, GS Short-Term Government Agency, GS Short
Duration Tax-Free and the GS Core Fixed Income Funds at October 31, 1995 were
approximately $178,000, $79,000, $18,000 and $41,000, respectively, and are
included in "Other assets" in the accompanying Statements of Assets and
Liabilities.

Goldman Sachs serves as Distributor of the shares of the Funds pursuant to a
Distribution Agreement and receives no compensation in this capacity with the
exception of GS Adjustable Rate Government Agency Fund Class A shares. At
October 31, 1995, Goldman Sachs retained approximately $40,000 of sales load
related to Class A shares. Goldman Sachs also serves as Transfer Agent of the
Funds.

The Trust, on behalf of the GS Adjustable Rate Government Agency Fund, has
adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 for the Class A
shares. Under the Plan, Goldman Sachs is entitled to receive a quarterly
distribution fee equal, on an annual basis, to .25% of the average daily net
assets of Class A shares. Currently, Goldman Sachs has agreed to voluntarily
waive this distribution fee. Distribution fees waived for the period amounted
to $17,967.

34
<PAGE>

The Trust, on behalf of the GS Adjustable Rate Government Agency Fund, has
adopted a non-Rule 12b-1 Authorized Dealer Service Plan (the "Service Plan")
pursuant to which Goldman Sachs and Authorized Dealers are compensated for
providing personal and account maintenance services. GS Adjustable Rate
Government Agency Fund pays a fee under the Service Plan equal, on an annual
basis, to .25% of its average daily net assets attributable to Class A shares.

For the period ended October 31, 1995, GS Adjustable Rate Government Agency
Fund, GS Short-Term Government Agency Fund and GS Core Fixed Income Fund
incurred commissions expense of approximately $91,000, $2,800, and $900,
respectively, in connection with futures contracts entered into with Goldman
Sachs.

4. Line of Credit Facility

The Funds participate in a $100,000,000 uncommitted, unsecured revolving
line of credit facility to be used solely for temporary or emergency purposes.
Under the most restrictive arrangement, each fund must own securities having a
market value in excess of 300% of the total bank borrowings. The interest rate
on the borrowings is based on the Federal Funds rate. During fiscal year 1995,
the Funds did not have any borrowings under this facility.

5. Investment Transactions

Purchases and proceeds of sales or maturities of long-term securities for
the year ended October 31, 1995, were as follows:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
GS Adjustable GS GS
Rate Short-Term Short GS
Government Government Duration Core Fixed
Agency Agency Tax-Free Income
Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases of U.S.
Government and
agency obligations $ 168,570,797 $363,854,703 $ -- $132,227,192
- ----------------------------------------------------------------------------------------------
Purchases (excluding
U.S. Government and
agency obligations) -- -- 160,557,538 26,393,743
- ----------------------------------------------------------------------------------------------
Sales or maturities of
U.S. Government and
agency obligations 496,940,962 420,674,507 -- 114,081,532
- ----------------------------------------------------------------------------------------------
Sales or maturities
(excluding U.S.
Government and
agency obligations) -- -- 185,231,508 16,705,497
- ----------------------------------------------------------------------------------------------
</TABLE>

6. Summary of Share Transactions

Share activity for the period ended October 31, 1995 is as follows:

<TABLE>
<CAPTION>
Fund Dollars Shares
- --------------------------------------------------------------------------------------
<S> <C> <C>
GS Adjustable Rate Government Agency Fund
Institutional Shares:
Shares sold $ 445,293,934 45,635,666
Shares exchanged in reorganization 18,823,725 1,926,438
Reinvestment of dividends and distributions 20,730,137 2,125,494
Shares repurchased (771,265,543) (79,186,935)
----------------------------
(286,417,747) (29,499,337)
----------------------------
Administration Shares:
Shares sold 648,042 66,628
Shares exchanged in reorganization 1,561,584 159,814
Reinvestment of dividends and distributions 124,368 12,743
Shares repurchased (5,731,937) (588,307)
----------------------------
(3,397,943) (349,122)
----------------------------
Class A Shares:
Shares sold 10,820,993 1,106,877
Shares exchanged in reorganization 17,208,471 1,756,917
Reinvestment of dividends and distributions 419,180 42,880
Shares repurchased (13,214,046) (1,350,373)
----------------------------
15,234,598 1,556,301
----------------------------
$(274,581,092) (28,292,158)
============================
GS Short-Term Government Agency Fund
Institutional Shares:
Shares sold $ 49,032,419 5,071,865
Reinvestment of dividends and distributions 4,993,225 516,155
Shares repurchased (145,260,300) (15,059,774)
----------------------------
(91,234,656) (9,471,754)
----------------------------
Administration Shares:
Shares sold 1,604 165
Reinvestment of dividends and distributions 218 23
Shares repurchased (728,374) (75,889)
----------------------------
(726,552) (75,701)
----------------------------
$ (91,961,208) (9,547,455)
============================
</TABLE>

35
<PAGE>

<TABLE>
<S> <C> <C>
GS Short Duration Tax-Free Fund
Institutional Shares:
Shares sold $ 18,780,011 1,920,432
Reinvestment of dividends and distributions 1,860,104 189,624
Shares repurchased (46,762,899) (4,787,105)
------------------------------
(26,122,784) (2,677,049)
------------------------------
Administration Shares:
Shares sold -- --
Reinvestment of dividends and distributions 2,483 246
Shares repurchased (3,800,930) (390,639)
------------------------------
(3,798,447) (390,393)
------------------------------
Service Shares:
Shares sold 17,688,889 1,812,950
Reinvestment of dividends and distributions 10,567 1,072
Shares repurchased (17,301,340) (1,772,550)
------------------------------
398,116 41,472
------------------------------
$ (29,523,115) (3,025,970)
==============================
</TABLE>

- -------------------------------------------------------------------------------
Share activity for the year ended October 31, 1994 is as follows:

Fund Dollars Shares
- -------------------------------------------------------------------------------
<S> <C> <C>
GS Adjustable Rate Government Agency Fund
Institutional Shares:
Shares sold $ 1,004,949,426 101,283,294
Reinvestment of dividends and distributions 30,671,269 3,103,267
Shares repurchased (2,809,311,423) (283,651,840)
------------------------------
(1,773,690,728) (179,265,279)
------------------------------
Administration Shares:
Shares sold 8,147,991 824,029
Reinvestment of dividends and distributions 100,331 10,167
Shares repurchased (6,463,906) (651,947)
------------------------------
1,784,416 182,249
------------------------------
$(1,771,906,312) (179,083,030)
==============================
GS Short-Term Government Agency Fund
Institutional Shares:
Shares sold $ 97,738,708 9,816,887
Reinvestment of dividends and distributions 10,373,791 1,050,930
Shares repurchased (261,183,718) (26,290,525)
------------------------------
$ (153,071,219) (15,422,708)
------------------------------

Administration Shares:
Shares sold $ 127,095 12,803
Reinvestment of dividends and distributions 2,687 276
Shares repurchased (15,274,526) (1,563,118)
------------------------------
(15,144,744) (1,550,039)
------------------------------
$ (168,215,963) (16,972,747)
==============================
GS Short Duration Tax-Free Fund
Institutional Shares:
Shares sold $ 100,275,689 9,879,219
Reinvestment of dividends and distributions 4,003,867 399,664
Shares repurchased (130,867,805) (13,045,936)
------------------------------
(26,588,249) (2,767,053)
------------------------------
Administration Shares:
Shares sold 12,399,454 1,221,381
Reinvestment of dividends and distributions 5,160 517
Shares repurchased (9,256,757) (915,914)
------------------------------
3,147,857 305,984
------------------------------
Service Shares:
Shares sold 4,611,385 468,342
Reinvestment of dividends and distributions 217 22
Shares repurchased (4,564,866) (463,868)
------------------------------
46,736 4,496
------------------------------
$ (23,393,656) (2,456,573)
==============================
</TABLE>

7. Repurchase Agreements

During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping in the customer-only account of State Street
Bank & Trust Co., the Fund's custodian, or at subcustodians. GSFM and GSAM
monitor the market value of the underlying securities by pricing them daily.

8. Joint Repurchase Agreement Account

The Funds, together with other registered investment companies having
advisory agreements with GSFM and

36
<PAGE>

GSAM or their affiliates, transfer uninvested cash balances into a joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury obligations and mortgage-related securities issued by the U.S.
Government, its agencies or instrumentalities. As of October 31, 1995, the GS
Adjustable Rate Government Agency, GS Short-Term Government Agency and GS Core
Fixed Income Funds had an 0.89%, 0.03% and 0.31%, respectively, undivided
interest in the repurchase agreements in the following joint account which
equaled $16,000,000, $500,000 and $5,600,000, respectively, in principal amount.

As of October 31, 1995, the repurchase agreements in the joint account along
with the corresponding underlying securities (including the type of security,
market value, interest rate and maturity date) were as follows:

Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------
Lehman Brothers, Inc. dated 10/31/95, repurchase price $965,159,225 (U.S.
Treasury Notes: $955,186,569, 4.25%-9.50%, 11/15/95-08/15/02; U.S. Treasury
Interest-Only Strips:$19,548,855, 11/15/00-08/15/02; U.S. Treasury Principal-
Only Strips:$6,376,719, 6.38%-8.50%, 11/15/00-08/15/02))

$965,000,000 5.94% 11/01/95 $ 965,000,000

Salomon Brothers, Inc. dated 10/31/95, repurchase price $830,136,489 (U.S.
Treasury Notes: $383,210,541, 4.25%-8.87%, 11/15/95-08/31/00; U.S. Treasury
Interest-Only Strips: $356,333,527, 11/15/95-08/15/02; U.S. Treasury Principal-
Only Strips: $107,445,042, 6.38%-9.50%, 11/15/95-08/15/02)

$830,000,000 5.92% 11/01/95 $ 830,000,000
- --------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account $ 1,795,000,000
================================================================================

9. Administration and Service Plans

The Fund has adopted Administration and Service Plans. These plans allow for
Administration shares and Service shares, respectively, to compensate service
organizations for providing varying levels of account administration and
shareholder liaison services to their customers who are beneficial owners of
such shares. The Administration and Service Plans provide for compensation to
the service organizations in an amount up to .25% and .50% (on an annualized
basis), respectively, of the average daily net asset value of the respective
shares.

10. Other Matters

On April 28, 1995, the GS Adjustable Rate Government Agency Fund acquired
the assets of GS Government Agency Portfolio (For Financial Institutions) in
exchange solely for (i) the issuance of Institutional shares and Administration
shares of beneficial interest of the GS Adjustable Rate Government Agency Fund
and (ii) the assumption by GS Adjustable Rate Government Agency Fund of the
liabilities of GS Government Agency Portfolio (For Financial Institutions).
Following this transfer, GS Government Agency Portfolio (For Financial
Institutions) was liquidated and GS Adjustable Rate Government Agency Fund's
Institutional and Administration shares were distributed to the former
shareholders of GS Government Agency Portfolio (For Financial Institutions).

The Reorganization was accomplished by a tax-free transfer of assets whereby
each shareholder of GS Government Agency Portfolio (For Financial Institutions)
received a number of full and fractional shares of GS Adjustable Rate Government
Agency Fund having a total net asset value of their shares of GS Government
Agency Portfolio (For Financial Institutions) held on April 28, 1995. The net
assets, including $370,489 of unrealized depreciation for the GS Government
Agency Portfolio (For Financial Institutions), net asset values per share and
shares outstanding as of April 28, 1995 were:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
GS Government
Agency
Portfolio GS Adjustable GS Adjustable
(For Financial Rate Government Rate Government
Institutions) Agency Fund Agency Fund
(Pre- (Pre- (Post-
Reorganization) Reorganization) Reorganization)
--------------- --------------- ---------------
<S> <C> <C> <C>
Net Assets $20,385,309 $673,292,455 $693,677,764
Shares Outstanding
Institutional Shares 1,912,506 68,506,367 70,432,805
Administration Shares 158,661 401,122 560,936
Net Asset Value Per Share
Institutional Shares 9.84 9.77 9.77
Administration Shares 9.84 9.77 9.77
- -------------------------------------------------------------------------------
</TABLE>

37
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
October 31, 1995
- --------------------------------------------------------------------------------
On May 11, 1995, shareholders of the GS Adjustable Rate Mortgage Fund
approved a Plan of Reorganization (the Plan) which was completed on May 12,
1995. Under the Plan, GS Adjustable Rate Mortgage Fund was reorganized as a
separate class (Class A) of the GS Adjustable Rate Government Agency Fund. GS
Adjustable Rate Mortgage Fund's assets were acquired by GS Adjustable Rate
Government Agency Fund in exchange solely for (i) the issuance of Class A shares
of beneficial interest of GS Adjustable Rate Government Agency Fund and (ii) the
assumption by GS Adjustable Rate Government Agency Fund of the liabilities of GS
Adjustable Rate Mortgage Fund. Following this transfer, GS Adjustable Rate
Mortgage Fund was liquidated and the GS Adjustable Rate Government Agency Fund
Class A shares were distributed to the former shareholders of GS Adjustable Rate
Mortgage Fund.

The Reorganization was accomplished by a tax-free transfer of assets whereby
each shareholder of GS Adjustable Rate Mortgage Fund received a number of Class
A full and fractional shares of GS Adjustable Rate Government Agency Fund having
a total net asset value of their shares of GS Adjustable Rate Mortgage Fund held
as of May 12, 1995. The net assets, including $45,684 of net unrealized
depreciation for the GS Adjustable Rate Mortgage Fund, net asset values per
share and shares outstanding as of May 12, 1995 were:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
GS Adjustable GS Adjustable GS Adjustable
Rate Mortgage Rate Government Rate Government
Fund Agency Fund Agency Fund
(Pre- (Pre- (Post-
Reorganization) Reorganization) Reorganization)
--------------- --------------- ---------------
<S> <C> <C> <C>
Net Assets $17,208,471 $727,300,372 $744,508,843
Shares Outstanding
Institutional Shares -- 73,743,084 73,743,084
Administration Shares -- 561,352 561,352
Class A Shares 3,552,167 -- 1,756,917
Net Asset Value Per Share
Institutional Shares -- 9.79 9.79
Administration Shares -- 9.79 9.79
Class A Shares 4.84 -- 9.79
- -------------------------------------------------------------------------------
</TABLE>

The total amount of capital loss carryforward brought on to the books of the
GS Adjustable Rate Government Agency Fund due to these reorganizations was
approximately $3,154,000.

For the period ended October 31, 1994, $15.9 million of the GS Core Fixed
Income Fund shareholder subscriptions were made through in-kind contributions of
securities.

As of October 31, 1995, the Goldman, Sachs & Co. Employees Profit Sharing
and Retirement Income Plan and the Goldman Sachs Asset Management Retirement
Plan were the beneficial owners of approximately 31% of the outstanding shares
of the GS Short-Term Government Agency Fund.

11. Certain Reclassifications

In accordance with Statement of Position 93-2, the GS Adjustable Rate
Government Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration
Tax-Free Fund and GS Core Fixed Income Fund have reclassified $29,381, $36,485,
$22,673 and $25,547, respectively, from paid-in capital to accumulated
undistributed net investment income. These reclassifications have no impact on
the net asset value of the Fund and are designed to present the Funds' capital
accounts on a tax basis.

38
<PAGE>

Goldman Sachs Trust
- -------------------------------------------------------------------------------
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.74 $0.5630/(c)/ $0.0717/(c)/ - $0.6347(c) $(0.5759) $ -- $(0.0287)
1995-Administration
Shares........... 9.74 0.5366/(c)/ 0.0737/(c)/ - 0.6103(c) (0.5528) -- (0.0275)
1995-Class A
Shares/(d)/...... 9.79 0.2721/(c)/ (0.0090)/(c)/ - 0.2631(c) (0.2697) -- (0.0134)
1994-Institutional
Shares........... 10.00 0.4341/(c)/ (0.2455)/(c)/ - 0.1886(c) (0.4486) -- --
1994-Administration
Shares........... 10.00 0.4211/(c)/ (0.2572)/(c)/ - 0.1639(c) (0.4239) -- --
1993-Institutional
Shares........... 10.04 0.4397 (0.0376)/(a)/ - 0.4021 (0.4397) -- (0.0024)
1993-Administration
Shares/(f)/...... 10.02 0.2146 (0.0173)/(a)/ - 0.1973 (0.2146) 0.0000 (0.0027)
1992-Institutional
Shares........... 10.03 0.5599 (0.0029)/(a) - 0.5570 (0.5470) -- --

For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 10.00 0.1531 0.0322/(a)/ - 0.1853 (0.1553) -- --

<CAPTION>
Distributions to shareholders
-------------------------------------
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $ -- $(0.6046) $ 0.0301 $ 9.77 6.75% 0.46% 5.77%
1995-Administration
Shares........... -- -- (0.5803) 0.0300 9.77 6.48 0.71 5.50
1995-Class A
Shares/(d)/...... -- -- (0.2831) (0.0200) 9.77 2.74 0.69/(e)/ 5.87/(e)/
1994-Institutional
Shares........... -- -- (0.4486) (0.2600) 9.74 1.88 0.46 4.38
1994-Administration
Shares........... -- -- (0.4239) (0.2600) 9.74 1.63 0.71 4.27
1993-Institutional
Shares........... -- -- (0.4421) (0.0400) 10.00 4.13 0.45 4.36
1993-Administration
Shares/(f)/...... -- -- (0.2173) (0.0200) 10.00 2.01/(k)/ 0.70/(e)/ 3.81/(e)/
1992-Institutional
Shares........... -- -- (0.5470) 0.0100 10.04 6.12 0.42 5.61

For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... -- -- (0.1553) 0.0300 10.03 2.14(k) 0.20/(e)/ 7.31/(e)/

<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 24.12% $ 657,358 0.53% 5.70%
1995-Administration
Shares........... 24.12 3,572 0.78 5.43
1995-Class A
Shares/(d)/...... 24.12 15,203 1.01/(e)/ 5.55/(e)/
1994-Institutional
Shares........... 37.81 942,523 0.49 4.35
1994-Administration
Shares........... 37.81 6,960 0.74 4.24
1993-Institutional
Shares........... 103.74 2,760,871 0.48 4.33
1993-Administration
Shares/(f)/...... 103.74 5,326 0.73/(e)/ 3.78/(e)/
1992-Institutional
Shares........... 286.40 2,145,064 0.55 5.48

For the Period July 17, 1991/(g)/through October 31,
- ----------------------------------------------------
1991-Institutional
Shares........... 145.67/(e)/ 239,642 1.02(e) 6.49/(e)/
</TABLE>

The accompanying notes are an integral part of these financial statements.
39
<PAGE>

Goldman Sachs Trust
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Income (loss) from investment operations Distributions to shareholders
--------------------------------------------------------- --------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
------------------------------------------------------------------------------------------------------------
GS SHORT-TERM GOVERNMENT AGENCY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ 9.64 $0.6652/(c)/ $ 0.1666/(c)/ $ -- $0.8318/(c)/ $(0.6518) $-- $--
1995-Administration
Shares........... 9.64 0.2384/(c)/ (0.0433)/(c)/ -- 0.1951/(c)/ (0.2051) -- --
1994-Institutional
Shares........... 10.14 0.5628/(c)/ (0.4592)/(c)/ -- 0.1036/(c)/ (0.5598) (0.0438) --
1994-Administration
Shares........... 10.14 0.5329/(c)/ (0.4539)/(c)/ -- 0.0790/(c)/ (0.5352) (0.0438) --
1993-Institutional
Shares........... 10.16 0.5627 (0.0135)/(a)/ -- 0.5492 (0.5627) -- (0.0065)
1993-Administration
Shares/(f)/...... 10.23 0.2725 (0.0900)/(a)/ -- 0.1825 (0.2725) -- --
1992-Institutional
Shares........... 10.22 0.6703 (0.0600)/(a)/ -- 0.6103 (0.6703) -- --
1991-Institutional
Shares........... 10.00 0.8020 0.2200/(a)/ -- 1.0220 (0.8020) -- --
1990-Institutional
Shares........... 10.07 0.8300 (0.0700)/(a)/ -- 0.7600 (0.8300) -- --
1989-Institutional
Shares........... 10.10 0.8800 -- -- 0.8800 (0.8800) -- --

For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... 10.00 0.1800 0.1000/(a)/ -- 0.2800 (0.1800) -- --

<CAPTION>
In excess of Ratio of
net realized Net net
gain on increase Ratio of investment
investment, From Total (decrease) Net asset net income
option and paid distributions in net value at expenses (loss)
futures in to asset end of Total to average to average
transactions capital shareholders value period return/(b)/ net assets net assets
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... $ -- $-- $(0.6518) $ 0.1800 $ 9.82 8.97% 0.45% 6.87%
1995-Administration
Shares........... -- -- (0.2051) (0.0100) 9.63/(h)/ 2.10 0.70/(e)/ 7.91/(e)/
1994-Institutional
Shares........... -- -- (0.6036) (0.5000) 9.64 0.99 0.45 5.69
1994-Administration
Shares........... -- -- (0.5790) (0.5000) 9.64 0.73 0.70 5.38
1993-Institutional
Shares........... -- -- (0.5692) (0.0200) 10.14 5.55 0.45 5.46
1993-Administration
Shares/(f)/...... -- -- (0.2725) (0.0900) 10.14 1.74 0.70/(e)/ 4.84/(e)/
1992-Institutional
Shares........... -- -- (0.6703) (0.0600) 10.16 6.24 0.45 6.60
1991-Institutional
Shares........... -- -- (0.8020) 0.2200 10.22 10.93 0.45 8.25
1990-Institutional
Shares........... -- -- (0.8300) (0.0700) 10.00 8.23 0.45 8.62
1989-Institutional
Shares........... -- (0.0300) (0.9100) (0.0300) 10.07 9.08 0.46 8.71

For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... -- -- (0.1800) 0.1000 10.10 3.30 0.55/(e)/ 8.55/(e)/

<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 292.56% $103,760 0.72% 6.60%
1995-Administration
Shares........... 292.56 -- 0.90/(e)/ 7.71/(e)/
1994-Institutional
Shares........... 289.79 193,095 0.59 5.55
1994-Administration
Shares........... 289.79 730 0.84 5.24
1993-Institutional
Shares........... 411.66 359,708 0.64 5.31
1993-Administration
Shares/(f)/...... 411.66 16,490 0.80/(e)/ 4.74/(e)/
1992-Institutional
Shares........... 216.07 277,927 0.69 6.36
1991-Institutional
Shares........... 155.44 158,848 0.79 7.91
1990-Institutional
Shares........... 173.21 68,995 0.95 8.12
1989-Institutional
Shares........... 137.37 31,015 1.39 7.78

For the Period August 15, 1988/(g)/through October 31,
- ------------------------------------------------------
1988-Institutional
Shares........... 167.00(e) 39,052 1.42/(e)/ 7.68/(e)/
</TABLE>

40
<PAGE>

1994-Institutional
Shares........... 10.23 0.3787/(c)/ (0.3575)/(c)/ -- 0.0212/(c)/ (0.3787) (0.0825) --
1994-Administration
Shares........... 10.23 0.3537/(c)/ (0.3575)/(c)/ -- (0.0038)/(c)/ (0.3537) (0.0825) --
1994-Service
Shares/(i)/...... 9.86 0.0475/(c)/ (0.0700)/(c)/ -- (0.0225)/(c)/ (0.0475) -- --

1993-Institutional
Shares........... 9.93 0.3834 0.3000/(a)/ -- 0.6834 (0.3834) -- --
1993-Administration
Shares/(i)/...... 10.16 0.1555 0.0720/(a)/ -- 0.2275 (0.1555) -- --

For the Period October 1, 1992/(g)/through October 31,
- ------------------------------------------------------
1992-Institutional
Shares........... 10.00 0.0341 (0.0700)/(a)/ -- (0.0359) (0.0341) -- --

1994-Institutional
Shares........... -- -- (0.4612) (0.4400) 9.79 0.17 0.45 3.74
1994-Administration
Shares........... -- -- (0.4362) (0.4400) 9.79 (0.11) 0.70 3.51
1994-Service
Shares/(i)/...... -- -- (0.0475) (0.0700) 9.79 (0.32)/(k)/ 0.95/(e)/ 4.30/(e)/

1993-Institutional
Shares........... -- -- (0.3834) 0.3000 10.23 7.03 0.41 3.70
1993-Administration
Shares/(i)/...... -- -- (0.1555) 0.0720 10.23 2.28/(k)/ 0.70/(e)/ 3.32/(e)/

For the Period October 1, 1992/(g)/ through October 31,
- -------------------------------------------------------
1992-Institutional
Shares........... -- -- (0.0341) (0.0700) 9.93 (0.34)/(k)/ 0.05/(e)/ 4.58/(e)/

<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-----------------------
Ratio of
Net net
assets investment
at end Ratio of income
Portfolio of expenses (loss)
turnover period to average to average
rate/(j)/ (in 000s) net assets net assets
------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
- -------------------------------
1995-Institutional
Shares........... 259.52% $ 58,389 0.77% 3.99%
1995-Administration
Shares........... 259.52 46 1.02 3.82
1995-Service Shares.. 259.52 454 1.27 3.55
1994-Institutional
Shares........... 354.00 83,704 0.61 3.58
1994-Administration
Shares........... 354.00 3,866 0.86 3.35
1994-Service
Shares/(i)/...... 354.00 44 1.11/(e)/ 4.14/(e)/
1993-Institutional
Shares........... 404.60 115,803 1.06 3.05
1993-Administration
Shares/(i)/...... 404.60 911 1.07/(e)/ 2.95/(e)/

For the Period October 1, 1992/(g)/ through October 31,
- -------------------------------------------------------
1992-Institutional
Shares........... 31.19/(k)/ 14,601 2.68/(e)/ 1.95/(e)/
</TABLE>

41
<PAGE>

Goldman Sachs Trust
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period

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

For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... 10.00 0.4648 (0.7617) -- (0.2969) (0.4648) -- --

For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... -- -- (0.4648) (0.7617) 9.24 (3.00) 0.45/(e)/ 6.48/(e)/

For the Period January 5, 1994/(g)/ through October 31,
- -------------------------------------------------------
1994-Institutional
Shares........... 288.25 24,508 1.46/(e)/ 5.47/(e)/
</TABLE>

- ------------------
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period. For Class A
shares only, total return would be reduced if a sales charge were taken into
account.
(c) Calculated based on the average shares outstanding methodology.
(d) Class A shares commenced operations on May 15, 1995.
(e) Annualized.
(f) Administration share activity commenced on April 15, 1993.
(g) Commencement of operations.
(h) GS Short-Term Government Agency Administration shares were redeemed in full
on February 23, 1995. Amount shown represents net asset value on February
23, 1995.
(i) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(j) Includes the effect of mortgage dollar roll transactions.
(k) Not annualized.

42
<PAGE>

- -------------------------------------------------------------------------------
Report of Independent Public Accountants

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

To the Shareholders and Board of Trustees of the GS Adjustable Rate Government
Agency Fund, GS Short-Term Government Agency Fund, GS Short Duration Tax-Free
Fund and GS Core Fixed Income Fund:

We have audited the accompanying statements of assets and liabilities of the
GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund,
GS Short Duration Tax-Free Fund and GS Core Fixed Income Fund (portfolios of
Goldman Sachs Trust, a Massachusetts Business Trust) including the statements of
investments, as of October 31, 1995, and the related statements of operations,
the statements of changes in net assets and the financial highlights for each of
the periods presented. These financial statements and the financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of the
GS Adjustable Rate Government Agency Fund, GS Short-Term Government Agency Fund,
GS Short Duration Tax-Free Fund and GS Core Fixed Income Fund as of October 31,
1995, the results of their operations and the changes in their net assets and
the financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.

Arthur Andersen LLP

Boston, Massachusetts
December 8, 1995

43
<PAGE>

[This Page Intentionally Left Blank]

44
<PAGE>

[This Page Intentionally Left Blank]

45
<PAGE>

[This Page Intentionally Left Blank]

46
<PAGE>

- -------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Trust Institutional Funds
Prospectus which contains facts concerning each Fund's objectives and policies,
management, expenses and other information.
- -------------------------------------------------------------------------------

47
<PAGE>

The Goldman Sachs
Fixed Income
Portfolios

Annual Report
October 31, 1995

[ ]

GS Adjustable Rate Government Agency Fund
GS Short-Term Government Agency Fund
GS Short Duration Tax-Free Fund
GS Core Fixed Income Fund

Goldman Sachs
1 New York Plaza
New York, NY 10004

Trustees
Paul C. Nagel, Jr., Chairman
Ashok N. Bakhru
Marcia L. Beck
David B. Ford
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel

Officers
Marcia L. Beck, President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary

Goldman Sachs
Investment Adviser, Administrator,
Distributor and Transfer Agent

GST/AR/1095(INST)
===============================================================================

<PAGE>

- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS

DEAR SHAREHOLDERS:

We are pleased to have the opportunity to review the performance and activity
of the Goldman Sachs Fixed Income Portfolios for the 12-month period ended
October 31, 1995. To help put the portfolios' performance in perspective, we are
also providing a brief overview of the U.S. economy and bond market during the
period.

BONDS RALLIED STRONGLY AS RATES FELL

The U.S. bond market began the period under review (November 1, 1994, through
October 31, 1995) still feeling the impact of rising rates. By year-end 1994,
however, the bond market showed signs of strength and gained further momentum in
1995, primarily due to the slowing economy and subdued inflation. For the 12
months ended October 31, bonds enjoyed one of their best years ever, with the
30-year Treasury recording a total return of approximately 29%, competitive with
the soaring stock market.

THE ECONOMY STARTED STRONG, SLOWED IN SPRING, THEN RECOVERED

The 12-month period began with the economy exhibiting robust growth and a wide
range of indicators pointing to continued acceleration. The 1994 fourth-quarter
real Gross Domestic Product (GDP) grew 5.1%, with employment, real disposable
income, consumer spending and sales of new and existing homes all displaying
impressive strength.

By August, the economy appeared to revive. Employment, housing, construction
spending and several other indicators showed signs of improvement that persisted
into the fall. The flow of positive economic data appeared to indicate that the
prior slowdown was largely due to a short-term inventory correction.

Third-quarter GDP growth was reported at an unexpectedly high 4.2%, which many
interpreted as a result of one-time events. By the end of October, however, key
economic reports were sending mixed signals regarding the health of the economy
once again. Firmness in interest-rate-sensitive areas such as housing, motor
vehicle sales and durable goods orders suggested steady growth, but retail sales
and industrial output indicators were weak. Though the condition of the economy
appeared uncertain, most observers agreed that inflation remained contained,
with the Producer Price Index (PPI) and Consumer Price Index (CPI) up 2.6% and
2.8%, respectively, for the 12-month period ended October 31, 1995.

FED RAISED RATES TWICE DURING THE PERIOD, THEN CUT AS INFLATION FEARS EASED

The U.S. Federal Reserve Board raised the federal funds rate (the rates banks
charge one another for overnight borrowing) by 75 basis points in November 1994
and by 50 basis points in February 1995. Including those two hikes, the Fed
raised rates a total of seven times in its tightening cycle (from February 1994
through February 1995) by a total of 300 basis points to 6.00%.

The Fed remained neutral until early July 1995, when receding inflationary
pressures and a weakening economy prompted it to cut the federal funds rate 25
basis points to 5.75%.

<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
Market Overview 1 Financial Statements 22
Goldman Sachs Government Income Fund 3 Notes to Financial Statements 26
Goldman Sachs Global Income Fund 9 Financial Highlights 33
Goldman Sachs Municipal Income Fund 15
</TABLE>
<PAGE>

- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS (continued)

HISTORICAL TREASURY YIELD CURVE

[CHART]

Years to Maturity 10/31/94 10/31/95
----------------- -------- --------

3-Month 5.14% 5.49%

6-Month 5.66% 5.55%

1 6.14% 5.55%

2 6.82% 5.61%

3 7.05% 5.68%

5 7.48% 5.81%

10 7.81% 6.02%

30 7.97% 6.33%

Source: Bloomberg, L.P.

DOLLAR REBOUNDED AFTER FALLING TO POST-WORLD WAR II LOWS

The U.S. dollar remained relatively strong from November 1994 through year-end
1994, due in large part to the Federal Reserve's tightening, then weakened
signifi-cantly starting in January 1995. The U.S.-Japan trade imbalance, the
Mexican peso devaluation and weakness in the U.S. economy (which led to reduced
expectations of rising rates) contributed to the precipitous drop. By April, the
dollar had declined to new postwar lows against the Deutsche mark and Japanese
yen.

The dollar rallied against the yen and the Deutsche mark during the summer and
early fall. Among the factors contributing to the dollar's rebound were the
resolution of the U.S.-Japan trade dispute, the Japanese Ministry of Finance's
package of measures to encourage foreign investment, the intervention of U.S.
and foreign central banks in support of the dollar and Japan's discount rate
cut. The dollar rallied from its April levels by approx-imately 26% against the
yen and by approximately 4% against the Deutsche mark through the end of
October.

ECONOMIC OUTLOOK: SIGNALS MIXED AS ECONOMY MODERATES AND BUDGET DEBATE CONTINUES

While the economy continues to show relative strength in some sectors such as
housing, durable goods orders and employment, and the stock market remains
strong, evidence of weakness has begun to emerge. Most notably, retail sales
declined amid increasing levels of consumer debt, and industrial production was
basically flat in October. With inflation under control, many expect the Fed to
ease rates again in December if further weakening occurs. The favorable
resolution of the federal budget debate, anticipated by year-end, is also a key
factor in influencing further rate cuts. Near term, a healthy bond market is
likely to persist. Longer term, economic growth is generally expected to pick up
gradually by mid-1996.

We thank you for making the Goldman Sachs Fixed Income Portfolios part of your
investment program and we look forward to continuing to serve your investment
needs.

Sincerely,

/s/ David B. Ford
David B. Ford
Chief Executive Officer

/s/ Sharmin Mossavar-Rahmani
Sharmin Mossavar-Rahmani
Chief Investment Officer - Fixed Income Investments

Goldman Sachs Asset Management
November 30, 1995

2
<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS GOVERNMENT INCOME FUND

INVESTMENT OBJECTIVE

The Goldman Sachs Government Income Fund seeks to provide shareholders with a
high level of current income consistent with safety of principal. Under normal
conditions, at least 65% of the portfolio's total assets will be invested in
U.S. government securities and in repurchase agreements collateralized by U.S.
government securities. The fund may also invest in securities of nongovernmental
issuers, including asset-backed securities, privately issued mortgage-backed
securities and corporate debt obligations. Such securities will be rated triple-
A at the time of investment or, if unrated, deemed to be of comparable quality
by Goldman Sachs Asset Management, the fund's investment adviser.

PERFORMANCE REVIEW

For the 12-month period ended October 31, the fund had a total return of
14.90% based on net asset value (NAV) (7.23% in monthly distributions and 7.67%
in share price appreciation) as compared with a return of 15.12% for the fund's
benchmark, the Lehman Brothers Government/Mortgage Index (the "Index"). The
fund's NAV rose $1.00 during the past 12 months as interest rates declined.

The fund underperformed the benchmark primarily due to its overweighting in
mortgage-backed securities (MBS) (47.5% versus 34.5% for the benchmark). MBSs
came under pressure as interest rates fell and homeowners opted to prepay their
mortgages, which in turn depressed mortgage-backed security prices. We believe
much of the prepayment risk has been factored into the market at this point and
the fund is well positioned for a rebound in this sector.

During the period, the fund performed well versus its peers. Based on total
return, the fund ranked 16th out of 93 (in the top 20%) intermediate U.S.
government income funds tracked by Lipper Analytical Services, Inc., for the 12
months ended October 31 and significantly outperform-ed the category average of
12.92%. (Please note that Lipper rankings do not take sales charges into account
and that past performance is not a guarantee of future results.)

PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES

As noted, the fund's sector weightings differed significantly from that of the
Index as of October 31, 1995. The greatest differences were the fund's
overweighting in mortgage-backed securities and underweighting in U.S.
Treasuries. In addition, the fund also held a position in asset-backed
securities, which are not included as part of the benchmark.

PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1995*

[GRAPHIC]

Fixed Rate Mortgage Pass-Throughs ...... 39.8%
U.S. Treasuries ........................ 31.5%
Asset-Backed Securities ................ 14.3%
CMOs ................................... 7.7%
Agency Debentures ...................... 4.1%
Repos/Cash Equivalents ................. 2.6%

. Fixed Rate Mortgage Pass-Throughs. The fund was overweighted in this sector as
compared with the Index (39.8% versus 34.5%) in order to benefit from the
potentially higher return of mortgage-backed securities relative to similar-
duration securities. However, as mortgage-backed securities came under pressure
in the declining interest rate environment and prepayment risk increased, this
sector's performance was somewhat disappointing.

3
<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS GOVERNMENT INCOME FUND (continued)

. U.S. Treasuries and Repurchase Agreements/Cash Equivalents. As was the case
last year, the fund's sector weighting in U.S. Treasuries on October 31, 1995
was significantly less than the Index (31.5% as compared with 57.0%). We used
U.S. Treasuries and repurchase agreements/cash equivalents (2.6%) to manage the
portfolio's duration, weighting one relative to the other according to our need
to shorten or lengthen the portfolio's duration to target the benchmark. Using
this strategy, the fund matched the benchmark's duration of 4.6 years at the end
of the period.

. Asset-Backed Securities (ABSs). The portfolio's 14.3% position in triple-A-
rated ABSs (including those backed by credit card debt and automobile and home
equity loans) reflected their attractive yields compared with equal-duration
Treasuries. The fund's ABS allocation, approximately the same as last year's,
was not included in the benchmark.

. Agency Debentures. During the year, we increased the fund's holdings in
agency debentures, because they represented attractive relative value versus
Treasuries. Despite increasing the allocation, the fund was still underweighted
relative to the benchmark (4.1% compared with 8.5%).

. Portfolio Composition by Issuer. The portfolio composition of the fund's
mortgage-backed security holdings by issuer was: the Federal Home Loan Mortgage
Corporation (26.6%), the Government National Mortgage Association (13.0%), the
Federal National Mortgage Association (4.9%) and non-agency (3.0%).

. Credit Quality. As of October 31, the fund was primarily invested in U.S.
government and agency securities (80.1%), with the remainder in triple-A-rated
securities (17.3%) and repurchase agreements/cash equivalents (2.6%).

. Prudent Use of Derivatives. As of October 31, the fund held a 6.3% position
in planned amortization class (PAC) CMOs that contributed incremental return
relative to Treasuries and pass-through mortgages. We also added a position in
inverse floaters (1.4%), whose yields move in the opposite direction from an
index, for their potential to add incremental yield to the fund. These
securities performed well as interest rates declined.

The fund has occasionally used mortgage dollar rolls to take advantage of
short-term supply and demand imbalances in the mortgage settlement process.
(Mortgage dollar rolls refer to transactions that involve selling mortgage
securities owned by the fund and simul-taneously contracting to buy back similar
mortgage securities with the same coupon on a specified future date - usually
one month forward.) At all times, we "cover" the mortgage dollar rolls by
keeping cash or high-grade liquid debt securities equal to the dollar amount of
the forward commitment in a segregated account with the fund's custodian.

FUND OUTLOOK

We will continue to utilize Goldman Sachs' extensive economic, fixed income
and mortgage research to help manage the fund and identify attractive
opportunities as they occur. In the near term, we are cautiously optimistic
about the mortgage pass-through sector. Though mortgage prepayments may
potentially rise at year-end, widening yield spreads of mortgage pass-throughs
relative to Treasuries may create attractive investment opportunities. When the
pace of prepayments slows, we expect to use our proprietary analytical models to
help us identify securities with the best potential for future gains.

Additionally, we have a neutral outlook for the ABS sector over the next
quarter. Near term, the sector may experience an increase in consumer debt
delinquencies and year-end selling. Strong investor demand, however, is likely
to support prices over the longer term.

4
<PAGE>

- --------------------------------------------------------------------------------
GOLDMAN SACHS GOVERNMENT INCOME FUND (continued)

DISTRIBUTION POLICY

The fund paid out monthly distributions of approximately $0.94 per share
during the 12-month period ended October 31, 1995. Dividends are declared daily
and paid on a monthly basis. The fund intends to distribute substantially all of
its investment company taxable income, as is required by tax law.

We value your continued confidence in the Goldman Sachs Government Income Fund
and look forward to reporting on the fund's progress in the coming year.

Sincerely,

/s/ Jonathan A. Beinner
Jonathan A. Beinner

/s/ Theodore T. Sotir
Theodore T. Sotir

Portfolio Managers
Goldman Sachs Government Income Fund
November 30, 1995

5
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
GOLDMAN SACHS GOVERNMENT INCOME FUND
October 31, 1995

In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1995. The
performance for the Goldman Sachs Government Income Fund ("Goldman Sachs
Government Income") (assuming both the maximum sales charge of 4.5% and no sales
charge), is compared with its benchmarks--the Lehman Brothers Mutual Fund
Government/Mortgage Index ("Lehman Gov't/MBS Index") and the Lehman Brothers
Mutual Fund General U.S. Government Index ("Lehman U.S. Gov't Index"). All
performance data shown represents past performance and should not be considered
indicative of future performance which will fluctuate as market conditions
change. The investment return and principal value of an investment will
fluctuate with changes in market conditions so that an investor's shares, when
redeemed, may be worth more or less than their original cost.

HYPOTHETICAL $10,000 INVESTMENT/(a)/

[CHART]

Goldman Sachs Goldman Sachs Lehman Lehman
Government Income Government Income Gov't/MBS U.S. Gov't
(no sales charge) (w/sales charge) Index Index
----------------- ----------------- --------- ----------

3/1/93 10,000 9,550 10,000 10,000

10/31/93 10,506 10,033 10,584 10,699

10/31/94 10,192 9,734 10,267 10,220

10/31/95 11,710 11,183 11,819 11,792

Average Annual Total Return
---------------------------------
One Year Since Inception/(b)/
-------- --------------------
GS Government Income, 14.90% 7.06%
excluding sales charge

GS Government Income, 9.76% 5.27%
including sales charge

/(a)/ For comparative purposes, initial investments are assumed to be made on
the first day of the month following the Fund's commencement of
operations.
/(b) Commenced operations February 10, 1993.

6
<PAGE>

Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS GOVERNMENT INCOME FUND
October 31, 1995

Principal Interest Maturity
Amount Rate Date Value
- ---------- -------- -------- -----------
MORTGAGE BACKED OBLIGATIONS--47.3%
FEDERAL HOME LOAN MORTGAGE CORP.--27.0%
$ 110,000 8.20% 01/16/98 $ 113,057
2,000,000 8.00 TBA-30 year/(a)/ 2,050,624
745,844 9.00 04/01/04 781,504
951,570 9.00 02/01/25 994,985
2,000,000 7.50 08/01/25 2,022,501
2,000,000 7.00 09/01/25 1,983,751
- -------------------------------------------------------------------------
$ 7,946,422
- -------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--12.7%
$ 654,909 9.00% 10/15/19 - 07/15/21 $ 691,748
928,887 9.50 05/15/25 1,005,521
1,998,192 8.00 09/15/25 2,057,515
- -------------------------------------------------------------------------
$ 3,754,784
- -------------------------------------------------------------------------
INVERSE FLOATER COLLATERALIZED MORTGAGE OBLIGATIONS--1.4%
Federal National Mortgage Association Remic Trust Series 1993-62,
Class S
$ 404,038 8.83% 05/25/99 $ 405,808
- -------------------------------------------------------------------------
FIXED RATE COLLATERALIZED MORTGAGE OBLIGATIONS--6.2%
Federal National Mortgage Association Remic Trust Series 1993-58,
Class G
$1,000,000 5.50% 12/25/20 $ 952,200
GE Capital Mortgage Services, Inc. 1994-11,
Class A1
882,484 6.50 03/25/24 883,111
- -------------------------------------------------------------------------
$ 1,835,311
- -------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(Cost $13,894,498) $13,942,325
- -------------------------------------------------------------------------
ASSET-BACKED SECURITIES--14.0%
Chemical Bank Master Credit Card Trust, Series 1995-2,
Class A
$ 720,000 6.23% 06/15/03 $ 722,153
First Chicago Master Trust II, Series 1992-E,
Class A
500,000 6.25 08/15/99 502,045
General Motors Acceptance Corp. Grantor Trust, Series 1994-A,
Class A
122,242 6.30 06/15/99 122,535
MBNA Master Credit Card Trust, Series
1991-1, Class A
490,000 7.75 10/15/98 497,355
Premier Auto Trust Series 1993-6,
Class A2
768,284 4.65 11/02/99 757,421
Premier Auto Trust Series 1994-1,
Class A3
640,000 4.75 02/02/00 632,665

Principal Interest Maturity
Amount Rate Date Value
- ---------- -------- -------- -----------
ASSET-BACKED SECURITIES(CONTINUED)
Standard Credit Card Trust, Series 1990-3,
Class A
860,000 9.50 07/10/98 903,284
- -------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $4,161,356) $ 4,137,458
- -------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS--3.7%
Federal National Mortgage Association
$ 70,000 8.79% 01/30/02 $ 71,213
Student Loan Marketing Association
980,000 7.76 04/17/00 1,008,479
- -------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (Cost $1,051,036) $ 1,079,692
- -------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS--31.4%
United States Treasury Bonds
$ 320,000 11.13% 08/15/03 $ 420,749
560,000 8.75 08/15/20 718,635
United States Treasury Notes
100,000 7.25 11/15/96 101,625
880,000 7.38 11/15/97 908,743
2,570,000 7.50 10/31/99 2,723,403
1,490,000 6.25 02/15/03 1,516,313
United States Treasury Principal-Only Stripped Securities/(b)/
3,100,000 6.17 11/15/04 1,790,715
5,550,000 6.63 08/15/20 1,100,564
- -------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $8,924,525) $ 9,280,747
- -------------------------------------------------------------------------
REPURCHASE AGREEMENT--9.8%
Joint Repurchase Agreement Account/(c)/
$2,900,000 5.93% 11/01/95 $ 2,900,000
- -------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $2,900,000) $ 2,900,000
- -------------------------------------------------------------------------
Total Investments
(Cost $30,931,415/(d)/) $31,340,222
=========================================================================

The accompanying notes are an integral part of these financial statements.

7
<PAGE>

Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS GOVERNMENT INCOME FUND (continued)
October 31, 1995

FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $ 456,535

Gross unrealized loss for investments in which cost exceeds
value (54,364)
- -------------------------------------------------------------------------
Net unrealized gain $ 402,171
=========================================================================

/(a)/ TBA (To Be Assigned) securities are purchased on a forward commitment
basis with an approximate (generally + / -2.5%) principal amount and no
definite maturity date. The actual principal amount and maturity date will
be determined upon settlement when the specific mortgage pools are
assigned.
/(b)/ The interest rate disclosed for these securities represents effective
yields to maturity.
/(c)/ Portions of these securities are being segregated for mortgage dollar
rolls and/or open TBA purchases.
/(d)/ The aggregate cost for federal income tax purposes is $30,938,051.

The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.

The accompanying notes are an integral part of these financial statements.

8
<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS GLOBAL INCOME FUND

INVESTMENT OBJECTIVE

The Goldman Sachs Global Income Fund seeks high total return, composed of both
current income and capital appreciation. The fund is permitted to invest in
govern-ment and other high-quality (double-A or better) fixed income securities
issued in the United States and in foreign markets. Since June 1, 1995, the fund
has had the additional flexibility to invest in sovereign (government) debt
rated single-A or better or deemed to be of comp-arable quality. In addition,
the maximum duration the fund can target has been increased to 7.5 years from
five years. Under normal market conditions, the fund's neutral position is to be
fully hedged into U.S. dollars to best serve the needs of U.S. shareholders.
However, the fund may engage in currency transactions, both to hedge exchange
rate risk and enhance returns. The fund added an Institutional share class on
August 1, 1995.

GLOBAL BOND MARKETS RALLIED

Foreign bond markets recorded impressive gains during the past 12 months,
following the lead of the U.S. bond market. Bond markets in dollar bloc
countries, including New Zealand and Canada, continued to perform well. In
Europe, the "core" and "near core" bond markets (e.g., Germany, Holland,
Belgium, France and Denmark) rallied, due to a supportive bond environment
characterized by slowing economic activity, relatively low inflation and
declining interest rates. In contrast, the European higher-yielding markets
(Italy, Spain and Sweden) were affected by political uncertainties and inflation
fears sparked by large budget deficits. The economic concerns of these and other
European countries triggered a flight to quality as investors sought the
perceived safety of the Deutsche mark and the Swiss franc. Currency weakness
raised doubts about the readiness of some countries, particularly Italy, to
participate in the European monetary union.

The Japanese economy remained weak during the period under review and appeared
in danger of falling into a deflationary spiral. The Japanese government
responded with a monetary and fiscal stimulus package, which included a discount
rate cut on September 8, 1995. The government's continuing efforts to introduce
liquidity into the Japanese economy triggered a market rally and resulted in the
yen's decline relative to the U.S. dollar.

PERFORMANCE REVIEW

For the 12 months ended October 31, 1995, the fund's Class A shares had a
total return of 15.08% based on net asset value (NAV) (7.23% from monthly
distributions and 7.85% from share price appreciation) compared with a return of
15.37% for the fund's benchmark, the J. P. Morgan Global Government Bond Index
(hedged into U.S. dollars) (the "Index").

From their inception on August 1, 1995, through October 31, 1995, the fund's
Institutional shares returned 4.42% (1.85% from monthly distributions and 2.57%
from share price appreciation) compared with 3.51% for the Index. The Index
covers 14 major bond markets and reflects their currency exposures.

NAV NAV Change 30-Day SEC
Share Class (10/31/95) (10/31/94-10/31/95) Yield (10/31/95)
- ----------- ---------- ------------------- ----------------
Class A $14.45 +$1.02 4.81%
Institutional $14.45 +$0.36* 5.54%

* From Institutional shares' inception on August 1, 1995 through October 31,
1995.

The fund performed well relative to its peers. According to Lipper Analytical
Services, Inc., the fund's Class A shares ranked 31st out of 131 general world
income funds, based on total return for the 12 months ended October 31, 1995.
The fund's Class A shares far outperformed the Lipper general world income fund
average of 11.52% for the period. (Please note that Lipper rankings do not take
sales charges into account and that past performance is not a guarantee of
future results. Institutional shares are not ranked by Lipper for this period
because they were not available for the full year.)

The fund's Class A shares slightly underperformed the Index, due to the
portfolio's underweighting in the higher-yielding bond markets of Europe. Though
the portfolio is typically fully hedged into dollars, we

9
<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS GLOBAL INCOME FUND (continued)

employed several currency strategies during the period that contributed to the
fund's positive performance. In August, when the dollar appreciated against the
yen, the fund took a short position in the yen and a long position in the U.S.
dollar, successfully positioning the portfolio. Earlier in the period, we
correctly anticipated that the dollar would decline and unhedged part of the
fund's yen and Deutsche mark exposure.

PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES

PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1995*

[GRAPH]

U.S. ...................... 27.5%
Cash Equivalents .......... 16.4%
U.K. ...................... 13.2%
Japan ..................... 12.2%
France .................... 8.1%
Canada .................... 7.7%
Germany ................... 6.4%
Spain ..................... 5.0%
Belgium ................... 3.5%

. U.S. As was the case a year ago, the fund's single largest country position
continued to be in U.S. Treasury notes, which represented 27.5% of the portfolio
as of October 31, 1995. The fund is still significantly under-weighted versus
the Index, which allocates 39.2% to the United States, because we believe that
U.S. bond yields do not adequately compensate the fund for the inflationary risk
given the pickup in commodity prices and the growth in the U.S. economy.

. Other Dollar Bloc Countries. In general, during the period we favored dollar
bloc countries, with a preference for Canada and New Zealand based on the yield
advantage they offered over U.S. Treasuries. As of October 31, the fund had a
7.7% position in Canada, significantly overweighting the Index (2.7%) but lower
than its 12% position six months ago. At the time of the Quebec referendum in
late October, the fund sold its Canadian holdings, because we determined that
the Canadian bond risk/return trade-off had become unattractive during the
Quebec election period. Following the Quebec vote, we reestablished the fund's
position in the belief that the Canadian bond environment appeared favorable.
Due in part to our concern about Australia's large current account deficit, we
sold the fund's position in that country in March. In contrast, although the
fund is not currently invested in New Zealand, it has held New Zealand bonds at
various times during the past 12 months and we view its bond market favorably.

. Europe. Bond markets throughout Europe were affected by a number of
uncertainties, ranging from perceived government instability to potential
inflationary pressures. As a result of the unfavorable risk/return trade-off, we
reduced last year's overweighting in Europe to 36.2% of the fund (as of October
31) compared with 41.4% for the benchmark.

[RIGHT ARROW] Germany. We view Germany, the leading "core" European market, as
attractive, due to its relatively low inflation and weak monetary growth. The
fund was underweighted in Germany relative to the Index (6.4% compared with
9.7%), however, because we favored the "near core" European markets of France
and Belgium. We believe these countries offer better value than Germany and will
behave as proxies in the event of a German bond rally.

10
<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS GLOBAL INCOME FUND (continued)

[RIGHT ARROW] U.K. In October, the fund had a 13.2% position in the U.K.,
overweighted versus the Index position of 5.9%. During the period, the U.K. was
attractive due to its slowing economic growth and subdued inflation, which
created a supportive environment for bonds.

[RIGHT ARROW] France. France's political instability caused us to cut the fund's
position approximately in half during the past six months. The fund is still
slightly overweighted in France with an 8.1% position, compared with 7.4% for
the Index. Going forward, we are somewhat encouraged by President Chirac's
apparent commitment to reduce France's budget deficit and reform its Social
Security system.

[RIGHT ARROW] Belgium. We expect Belgium (3.5%) to emerge as one of the key
members of the European monetary union and therefore added a small position in
June.

[RIGHT ARROW] Italy and Spain. We remain cautious about European higher-yielding
bonds in general. However, we added a 5.0% position in Spain in October, because
we believe Spain's economic and political risks are fully reflected in its bond
prices. We sold the fund's position in Italy, due to that country's political
and economic uncertainty.

- - Japan. We increased the fund's position in Japan during the past year, because
its weak economy and low inflation appeared favorable for Japanese bonds. As of
October 31, the fund had a 12.2% position in Japanese bonds, slightly
underweighted versus the Index allocation of 15.5%. We have recently been
reducing the fund's Japanese holdings, however, due to the government's
aggressive monetary easing and expansionist fiscal policy. In addition, we are
concerned by the extent to which the Bank of Japan has become the dominant buyer
of Japanese bonds, creating artificial support for the market that may be
unsustainable.

. Cash Equivalents. During the period, we raised the fund's cash equivalent
position to 16.4%, up from 3.5% a year earlier, as a defensive move which also
helped reduce the fund's duration. Going forward, we expect to reduce this
position as attractive opportunities arise.

. Credit Quality. The portfolio was 100% invested in triple-A-rated securities
as of October 31, and we will continue to stress high-quality bonds.

. Duration. As of October 31, the fund's duration was shorter than that of the
Index (4.33 years compared with 4.94 years), largely due to its underweighting
in Japan and its cash equivalent position. (Duration is a measurement of the
fund's sensitivity to interest rate movements; the shorter the duration, the
less the fund's NAV will move in relation to interest rate fluctuations.)

DISTRIBUTION POLICY

The fund declares and pays dividends on a monthly basis. During the period
under review, the fund's Class A shares paid out distributions of $0.94 per
share. From its inception on August 1, 1995, through October 31, 1995, the
fund's Institutional shares paid out distributions of $0.26 per share. The fund
intends to distribute substantially all of its investment company taxable
income, as is required by tax law.

FUND OUTLOOK

Due to uncertainty concerning U.S. bond yield levels, for the near term we
intend to keep the fund underweighted in U.S. Treasuries. Within the dollar
bloc, we continue to prefer Canada and New Zealand, because of their wide yield
spreads over U.S. Treasuries. In our opinion, New Zealand is particularly
attractive and therefore we anticipate reestablishing the fund's position there.
After three years of strong growth, that economy is showing signs of slowing and
it has a credible central bank. In general, Europe appears poised for a rally as

11
<PAGE>

Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS GLOBAL INCOME FUND (continued)

economic growth slows. We intend to keep a neutral weighting in Europe compared
with the benchmark, and we currently favor Belgium and France. In the U.K.,
financial markets may be affected by political instability stemming from the
unpopularity of the Conservative government and the possibility of increased
wage-based inflation. Consequently, we expect to reduce the fund's U.K. position
to be approximately in line with the benchmark. We also anticipate continuing to
reduce the fund's exposure in Japan, based on our concern that the government's
economic stimulus may lead to economic growth and higher interest rates, which
would further erode bond prices.

We will continue to utilize the resources of Goldman, Sachs & Co.'s London-based
Economics Research Group for economic and market trend analysis, as well as the
Goldman Sachs Asset Allocation Model to allocate the portfolio's assets and
manage risk. We value your investment in the Goldman Sachs Global Income Fund
and look forward to continuing our relationship in the future.

Sincerely,

/s/ Stephen C. Fitzgerald
Stephen C. Fitzgerald
Portfolio Manager, Fixed Income Investments

/s/ Gareth I. Evans
Gareth I. Evans
Portfolio Manager, Currency

Goldman Sachs Global Income Fund
London, November 30, 1995

12
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
GOLDMAN SACHS GLOBAL INCOME FUND
October 31, 1995

In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1995. The
performance for the Goldman Sachs Global Income Fund (assuming both the maximum
sales charge of 4.5% and no sales charge for the Class A shares and at net asset
value for the Institutional shares), is compared with its benchmark--the J.P.
Morgan Global Government Bond Index hedged to U.S. Dollars ("J.P. Morgan GGB
Index-$ Hedged"). All performance data shown represents past performance and
should not be considered indicative of future performance which will fluctuate
as market conditions change. The investment return and principal value of an
investment will fluctuate with changes in market conditions so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.

<TABLE>
<CAPTION>
HYPOTHETICAL $10,000 INVESTMENT/(a)/ HYPOTHETICAL $10,000 INVESTMENT
Class A Shares Institutional Shares

[CHART] [CHART]

J.P. Morgan J.P. Morgan
Class A Shares Class A Shares GGB Index- Institutional GGB Index-
(no sales charge) (w/sales charge) $ Hedged Shares $ Hedged
----------------- ---------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
9/1/91 10,000 9,550 10,000 8/1/95 10,000 10,000
10/31/91 10,144 9,688 10,263 10/31/95 10,442 10,351
10/31/92 11,094 10,594 11,156
10/31/93 12,286 11,733 12,509
10/31/94 11,734 11,206 12,051
10/31/95 13,503 12,895 13,903
</TABLE>

Average Annual Total Return
--------------------------------
One Year Since Inception/(b)/
-------- --------------------
GS Global Income-Class A,
excluding sales charge 15.08% 7.32%

GS Global Income-Class A,
including sales charge 9.92% 6.16%

GS Global Income,
Institutional Class N/A 4.42%/(c)/

/(a)/ For comparative purposes, initial investments are assumed to be made on
the first day of the month following the Fund's commencement of operations
of the Class A shares.
/(b)/ The Class A shares commenced operations August 2, 1991 and the
Institutional shares commenced operations on August 1, 1995.
/(c)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since the Institutional Class has not completed a full
twelve months of operations.

13
<PAGE>

Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS GLOBAL INCOME FUND
October 31, 1995

Principal Interest Maturity
Amount/(a)/ Rate Date Value
- ----------- -------- -------- ------------
DEBT OBLIGATIONS--81.7%
BELGIAN FRANC--3.3%
Kingdom of Belgium
BEF 277,000,000 6.50% 03/31/05 $ 9,265,385
- -------------------------------------------------------------------------
BRITISH POUND STERLING--12.9%
United Kingdom Conversion
BPS 4,000,000 9.00% 03/03/00 $ 6,698,546
United Kingdom Treasury
17,700,000 8.50 12/07/05 29,046,495
- -------------------------------------------------------------------------
$ 35,745,041
- -------------------------------------------------------------------------
CANADIAN DOLLAR--7.6%
Government of Canada
CAD 28,000,000 7.50% 09/01/00 $ 21,191,223
- -------------------------------------------------------------------------
DEUTSCHE MARK--6.2%
Government of Germany
DEM 21,750,000 8.38% 05/21/01 $ 17,299,872
- -------------------------------------------------------------------------
FRENCH FRANC--7.7%
Government of France
FRF 58,000,000 8.50% 03/28/00 $ 12,741,948
39,500,000 8.25 02/27/04 8,614,701
- -------------------------------------------------------------------------
$ 21,356,649
- -------------------------------------------------------------------------
JAPANESE YEN--12.1%
Japanese Development Bank
JPY 1,820,000,000 6.60% 06/20/01 $ 21,924,730
1,100,000,000 4.10 12/22/03 11,705,218
- -------------------------------------------------------------------------
$ 33,629,948
- -------------------------------------------------------------------------
SPANISH PESETA--4.7%
Government of Spain
ESP 1,670,000,000 10.00% 02/28/05 $ 12,922,986
- -------------------------------------------------------------------------
UNITED STATES DOLLAR--27.2%
United States Treasury Notes
USD 10,000,000 6.88% 07/31/99 $ 10,360,900
16,700,000 6.25 05/31/00 16,984,401
22,000,000 6.13 09/30/00 22,271,478
14,200,000 6.25 02/15/03 14,450,772
10,000,000 7.88 11/15/04 11,270,300
- -------------------------------------------------------------------------
$ 75,337,851
- -------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(Cost $227,304,485) $226,748,955
- -------------------------------------------------------------------------

Principal Interest Maturity
Amount/(a)/ Rate Date Value
- ----------- -------- -------- ------------
SHORT-TERM OBLIGATIONS--16.7%
Euro-Time Deposit-State Street Bank & Trust Co.
USD 46,196,597 5.81% 11/01/95 $ 46,196,597
- -------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(Cost $46,196,597) $ 46,196,597
- -------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $273,501,082/(b)/) $272,945,552
=========================================================================

=========================================================================
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $ 5,186,935
Gross unrealized loss for investments in which cost
exceeds value (5,893,905)
- -------------------------------------------------------------------------
Net unrealized loss $ (706,970)
=========================================================================

/(a)/ The principal amount of each security is stated in the currency in which
the bond is denominated. See below.

BEF = Belgian Franc FRF = French Franc
BPS = British Pound Sterling JPY = Japanese Yen
CAD = Canadian Dollar ESP = Spanish Peseta
DEM = Deutsche mark USD = United States Dollar

/(b)/ The aggregate cost for federal income tax purposes is $273,652,522.

The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.

The accompanying notes are an integral part of these financial statements.

14
<PAGE>

Letters to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND

INVESTMENT OBJECTIVE

The Goldman Sachs Municipal Income Fund seeks to provide a high level of
current income that is exempt from regular federal income tax, consistent with
the preser-vation of capital. In pursuit of its objective, the fund invests in a
diversified portfolio of municipal securities with an average credit quality of
double-A or better. Under normal market conditions the fund will maintain an
average portfolio maturity approximately equal to the average maturity of the
Lehman Brothers 15-Year Municipal Bond Index.

MUNICIPAL BONDS RALLY AMID UNCERTAINTY

The municipal bond market performed well during the period under review
(November 1, 1994, through October 31, 1995), with the average price of a 15-
year municipal bond (as calculated from data provided by Municipal Market Data,
an independent municipal market information provider) rising 9% while yields
fell from 6.30% on November 1, 1994, to 5.35% on October 31, 1995. However,
during the past 12 months the yield curve for municipal bonds became quite steep
compared with Treasuries, and 15-year municipal bonds underperformed similar-
duration Treasuries.

By midyear, short-term municipal bonds became more expensive as investors
favored defensive maturities that provided greater liquidity, while demand for
long-term bonds stagnated. By the end of October, however, growing bullish
sentiment in the municipal bond market and a flattening municipal bond yield
curve made longer term bonds increasingly attractive.

PERFORMANCE REVIEW

For the 12-month period ended October 31, 1995, the fund had a total return of
13.79%, based on net asset value (NAV) (5.26% from income distributions and
8.53% from share price appreciation) compared with a return of 15.76% for the
Lehman Brothers 15-Year Municipal Bond Index (the "Index"), the fund's
benchmark. The fund's NAV rose $1.09 during the period to $14.17 as of October
31, 1995, benefiting from the rallying bond market.

The portfolio underperformed the Index, primarily because it was defensively
positioned early in the period in response to last year's volatility. The
portfolio held a higher percentage of premium coupon bonds, which tend to
perform well in a declining bond market. These premiums, which typically have
optional call features, performed like shorter-maturity bonds when interest
rates fell this year, because of the increased likelihood of their calls being
exercised prior to maturity. As this occurred, the durations of the callable
bonds shortened, which was undesirable because longer duration bonds appreciated
faster than those with shorter durations. In contrast, the Index held a higher
percentage of deeper discount bonds, which outperformed premium bonds as
interest rates fell.

15
<PAGE>

Letters to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND (continued)

PORTFOLIO COMPOSITION AND INVESTMENT STRATEGIES

PORTFOLIO COMPOSITION AS OF OCTOBER 31, 1995*

[GRAPHIC]

Insured Revenue Bonds ......... 40.1%
Revenue Bonds ................. 23.4%
General Obligations............ 16.6%
Insured General Obligations.... 12.6%
Variable Rate Demand Notes..... 7.3%

. Insured Revenue and General Obligation Bonds. During the period, we continued
to emphasize insured bonds because of their liquidity and availability. Insured
bonds allow the portfolio to capitalize on a security's other features such as
coupon and callability, while removing the credit quality variable. We stressed
securities from Texas and New York that we determined to be undervalued due to a
temporary lack of demand. We anticipate that these securities will appreciate as
supplies tighten and flat tax issues are resolved. As of October 31, we
overweighted the fund's holdings in insured bonds relative to the Index (52.7%
as compared with 32.0%), approximately the same allocation as a year ago.

. Revenue Bonds. Noninsured revenue bonds, generally single-A- and
double-A-rated debt, accounted for 23.4% of the portfolio, underweighted
compared with the benchmark allocation of 31.0%. (Revenue bonds pay interest and
principal out of a specific revenue stream, which includes sales taxes, hospital
charges, tolls, electric rates and airport fees.) The allocation to sectors with
high credit sensitivity fluctuates over time, based on specific securities and
overall credit spreads. We currently view overall credit spreads as rich, and
beyond unique situations we are not emphasizing credit-sensitive sectors.

. General Obligation (GO) Bonds. When credit quality spreads tightened during
the period, we dramatically increased the fund's investment in the GO sector to
16.6%, tripling last year's position. Uninsured GOs are generally of higher
credit quality than uninsured revenue bonds, because they are backed by the
general taxing power of the municipality.

. Variable Rate Demand Notes (VRDNs). VRDNs are high-quality cash equivalents
and were used to manage the portfolio's duration to approximate that of the
Index at 8.76 years.

. Credit Quality. During the period, we emphasized higher credit quality debt
over lower quality. As of October 31, 69.6% of the portfolio was invested in
triple-A-rated bonds, up from approximately 59% a year ago, while the positions
in double-A-rated securities (18.0%) and single-A-rated securities (12.4%) were
reduced since last year. The bias toward triple-A-rated securities is the direct
result of the emphasis on insured bonds.

. Term Structure. The portfolio's term structure contributed to its performance
in the declining interest rate environment. The portfolio was "barbelled,"
emphasizing bonds with maturities of 20 years on the long end and bonds with
maturities of five years or less on the short end. Approximately one-third of
the portfolio was invested in maturities of 18 years or longer, a segment which
performed well when the yield curve flattened during the period.

16
<PAGE>

- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND (continued)

. We added a very small position in a call option in March (less than 1% of the
portfolio) for its potential incremental return. This position contributed to
the portfolio's positive performance during the period and the fund continues to
hold it.

MARKET OUTLOOK: IMPROVED TECHNICALS EXPECTED

Going forward, the municipal bond market appears to be entering a period of
potential technical strength. We estimate that over $80 billion in coupon and
principal payments will be distributed to municipal investors between November
1995 and February 1996, a significant percentage of which may be reinvested into
municipal bonds. In contrast, we expect just over $37 billion in new municipal
debt to be issued over the same four-month period, creating a potential supply
and demand imbalance that could increase municipal bond prices. That scenario,
coupled with the likelihood of an even flatter yield curve near term, should
benefit the fund's longer-term bonds. In addition, yields on long-term
municipals are relatively high in relation to Treasury securities and short-term
municipals. Regarding security selection, we anticipate concentrating on bonds
issued by states that have high taxes, high wealth concentration and large
populations (e.g., New York, California and Michigan).

Distribution Policy

The fund paid out distributions of $0.67 per share during the period under
review. Dividends are declared daily and paid on a monthly basis. The fund
intends to distribute substantially all of its investment company tax-exempt and
taxable income, as required by tax law.

Your investment in the Goldman Sachs Municipal Income Fund means a great deal
to us and we look forward to continuing our relationship.

Sincerely,

/s/ Benjamin S. Thompson
Benjamin S. Thompson

/s/ Theodore T. Sotir
Theodore T. Sotir

Portfolio Managers
Goldman Sachs Municipal Income Fund
November 30, 1995

17
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND
October 31, 1995

In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1995. The
performance for the Goldman Sachs Municipal Income Fund ("Goldman Sachs
Municipal Income") (assuming both the maximum sales charge of 4.5% and no sales
charge), is compared with its benchmark--the Lehman Brothers 15-Year Municipal
Bond Index ("Lehman 15-Year Muni Index"). All performance data shown represents
past performance and should not be considered indicative of future performance
which will fluctuate as market conditions change. The investment return and
principal value of an investment will fluctuate with changes in market
conditions so that an investor's shares, when redeemed, may be worth more or
less than their original cost.

HYPOTHETICAL $10,000 INVESTMENT/(a)/

[CHART]

GOLDMAN SACHS GOLD SACHS
MUNICIPAL INCOME MUNICIPAL INCOME LEHMAN 15-YEAR
(NO SALES CHARGE) (W/SALES CHARGE) MUNI INDEX
----------------- ---------------- ---------------

8/1/93 10,000 9,550 10,000

10/31/93 10,454 9,984 10,385

10/31/94 9,879 9,434 9,860

10/31/95 11,241 10,735 11,414

Average Annual Total Return
--------------------------------
One Year Since Inception/(b)/
-------- --------------------
GS Muni Income,
excluding sales charge 13.79% 4.89%

GS Muni Income,
including sales charge 8.64% 2.80%

/(a)/ For comparative purposes, initial investments are assumed to be made on
the first day of the month following the Fund's commencement of
operations.
/(b)/ Commenced operations July 20, 1993.

18
<PAGE>

Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND
October 31, 1995

Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------
DEBT OBLIGATIONS--105.8%
ALABAMA--2.3%
Alabama Mental Health Finance Authority RB (MBIA)
(AAA/Aaa)
$1,200,000 5.00% 05/01/04 $ 1,215,912
- -------------------------------------------------------------------------
CALIFORNIA--6.7%
Rancho, CA Water District Financing Authority RB (FGIC)
(AAA/Aaa)
$1,000,000 5.88% 11/01/10 $ 1,036,700
Riverside County, CA Transportation Services (AMBAC)
(AAA/Aaa)
2,400,000 6.50 06/01/09 2,577,456
- -------------------------------------------------------------------------
$ 3,614,156
- -------------------------------------------------------------------------
COLORADO--4.0%
Westminster County Multi Family Housing (FNMA)
(AAA/Aaa)/(a)/
$2,145,000 5.35% 12/01/25 $ 2,139,530
- -------------------------------------------------------------------------
DISTRICT OF COLUMBIA--2.6%
District of Columbia, Series E- Insured GO (MBIA)
(AAA/Aaa)
$1,370,000 6.00% 06/01/10 $ 1,384,399
- -------------------------------------------------------------------------
FLORIDA--16.5%
Dade County, FL Guaranteed Entitlement Pre-refunded zero
coupon RB (AMBAC) (AAA/Aaa)
$3,500,000 5.15/(b)/% 08/01/10 $ 1,548,925
Escambia County, FL Housing Financing Authority, Single
Family Multi-County Progress (GNMA/FNMA)
(NR/Aaa)
2,300,000 6.80 10/01/15 2,419,232
Florida Board of Education GO (AA/Aa)
2,330,000 5.75 01/01/13 2,357,075
Lakeland, FL Electric & Water Revenue Refunding, Jr. Sub
Lien (FGIC) (AAA/Aaa)/(a)/
2,500,000 5.25 10/01/97 2,537,525
- -------------------------------------------------------------------------
$ 8,862,757
- -------------------------------------------------------------------------
ILLINOIS--4.0%
Illinois Health Facilities Authority RB (MBIA) (AAA/Aaa)/(c)/
$2,000,000 6.25% 08/15/13 $ 2,130,818
- -------------------------------------------------------------------------
KENTUCKY--3.8%
Nelson County, KY Industrial Building RB for Mabex
Universal Corp. Project AMT (NR/A3)/(c)/
$1,900,000 6.50% 04/01/05 $ 2,034,710
- -------------------------------------------------------------------------

Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------
DEBT OBLIGATIONS (CONTINUED)
MAINE--1.7%
Maine Educational Loan Authority, RB Series A-1 (NR/Aaa)/(c)/
$ 845,000 6.80% 12/01/07 $ 895,489
- -------------------------------------------------------------------------
MASSACHUSETTS--1.8%
Lowell, MA Series B GO (FSA) (AAA/Aaa)
$1,000,000 5.60% 11/01/12 $ 989,920
- -------------------------------------------------------------------------
MICHIGAN--5.3%
Goodrich Area School District Refunding GO (AMBAC)
(AAA/Aaa)
$1,000,000 7.65% 05/01/11 $ 1,194,040
Grand Ledge Public Schools District GO (MBIA)
(AAA/Aaa)/(a)/
1,640,000 5.45 05/01/11 1,642,821
- -------------------------------------------------------------------------
$ 2,836,861
- -------------------------------------------------------------------------
NEBRASKA--0.9%
Omaha, NE Package Facilities Corp. RB (AAA/Aa1)
$ 500,000 5.70% 09/15/15 $ 507,340
- -------------------------------------------------------------------------
NEW JERSEY--1.9%
New Jersey Turnpike Authority Series A RB (A/A)
$1,000,000 5.70% 01/01/01 $ 1,046,360
- -------------------------------------------------------------------------
NEW YORK--10.2%
New York City IDA USTA National Tennis Control Project
AMT (FSA) (AAA/Aaa)
$ 800,000 6.60% 11/15/11 $ 879,408
New York State GO (A-/A)
2,000,000 5.63 03/01/13 1,983,440
New York State Local Government Assistance Corp.
(A+/A)/(c)/
2,575,000 5.90 04/01/13 2,609,016
- -------------------------------------------------------------------------
$ 5,471,864
- -------------------------------------------------------------------------
OHIO--4.6%
Ohio State Water Development Authority Pollution Control
Facilities (MBIA) (AAA/Aaa)
$2,500,000 5.25% 12/01/09 $ 2,469,725
- -------------------------------------------------------------------------
OKLAHOMA--8.1%
Grand River Dam Authority RB (MBIA) (AAA/Aaa)
$3,000,000 5.50% 06/01/03 $ 3,169,200

19
<PAGE>

Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND (continued)
October 31, 1995

Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------
DEBT OBLIGATIONS (CONTINUED)
OKLAHOMA (CONTINUED)
Tulsa, OK GO (AA/Aa)
$1,140,000 6.50% 02/01/15 $ 1,217,360
- -------------------------------------------------------------------------
$ 4,386,560
- -------------------------------------------------------------------------
PENNSYLVANIA--4.1%
Delaware River Bridge Authority RB (AMBAC) (AAA/Aaa)
$2,000,000 7.38% 01/01/07 $ 2,219,800
- -------------------------------------------------------------------------
TEXAS--18.6%
Bexar County, TX Health Facilities Development Corp,
Revenue Refunding- Baptist Memorial Hospital Systems
Project RB (MBIA) (AAA/Aaa)
$1,245,000 6.90% 08/15/14 $ 1,368,803
Goose Creek Independent School District GO (PSF)
(AAA/Aaa)
2,825,000 5.00 02/15/16 2,600,865
Richardson, TX GO (AA/Aa)
3,260,000 5.00 02/15/11 3,120,309
Southwestern Texas State University RB (CAPGTY)
(AAA/Aaa)
1,375,000 5.10 08/15/14 1,285,006
Texas State AMT- Veterans Land GO (AA/Aa)/(c)/
1,555,000 6.30 12/01/14 1,614,199
- -------------------------------------------------------------------------
$ 9,989,182
- -------------------------------------------------------------------------
VERMONT--4.4%
Vermont Student Assistance Corp., Education Loan RB,
Series B (FSA) (AAA/Aaa)
$2,250,000 6.70% 12/15/12 $ 2,377,418
- -------------------------------------------------------------------------
WISCONSIN--4.3%
Wisconsin Housing & Economic Development Authority,
Series B AMT (AA/Aa)
$2,200,000 7.10% 09/01/15 $ 2,326,544
- -------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(Cost $55,551,381) $56,899,345
- -------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS--8.4%
Harris County, TX Health Facilities Hospital
VRDN (A-1+/NR)
$ 700,000 4.00%/(d)/ 11/01/95 $ 700,000
200,000 4.00/(d)/ 11/07/95 200,000
Monroe County, GA Pollution Control
VRDN (A-1/VMIG-1)
1,100,000 3.90/(d)/ 11/07/95 1,100,000
- -------------------------------------------------------------------------

Principal Interest Maturity
Amount Rate Date Value
- -------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS (CONTINUED)
New York, NY Series VRDN (A-1+/VMIG-1)
$1,000,000 4.05%/(d)/ 11/01/95 $ 1,000,000
New York City Muni Water Finance Authority VRDN Fiscal
1993 Series C (FGIC) (A-1+/MIG-1)
1,500,000 4.00/(d)/ 11/01/95 1,500,000
- -------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(Cost $4,500,000) $ 4,500,000
- -------------------------------------------------------------------------
WARRANTS--0.9%
$5,000,000 Intermountain Power Agency, Utah
Certificates of Beneficial Interest @
90.306 expiring 05/07/96/(e)/ $ 500,000
- -------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $343,750) $ 500,000
- -------------------------------------------------------------------------
Total Investments
(Cost $60,395,131/(f)/) $61,899,345
=========================================================================

=========================================================================
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $ 1,544,592
Gross unrealized loss for investments in which cost exceeds
value (40,378)
- -------------------------------------------------------------------------
Net unrealized gain $ 1,504,214
=========================================================================

The accompanying notes are an integral part of these financial statements.

20
<PAGE>

- --------------------------------------------------------------------------------
GOLDMAN SACHS MUNICIPAL INCOME FUND (continued)
October 31, 1995

/(a)/ When issued security.
/(b)/ The interest rate disclosed for this security represents effective yield
to maturity.
/(c)/ Portions of these securities are being segregated for when-issued
securities.
/(d)/ Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1995.
/(e)/ Non-income producing security.
/(f)/ The amount stated also represents aggregate cost for federal income tax
purposes.

The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.

INVESTMENT ABBREVIATIONS:
AMBAC - Insured by American Municipal Bond Assurance Corp.
AMT - Alternative Minimum Tax
CAPGTY - Capital Guaranty Insurance Co.
FGIC - Insured by Financial Guaranty Insurance Co.
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance Co.
GNMA - Government National Mortgage Association
GO - General Obligation
IDA - Industrial Development Authority
MBIA - Insured by Municipal Bond Investors Assurance
NR - Not rated
PSF - Permanent School Fund
RB - Revenue Bond
VRDN - Variable Rate Demand Note

The accompanying notes are an integral part of these financial statements.

21
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1995

<TABLE>
<CAPTION>
GOLDMAN GOLDMAN GOLDMAN
SACHS SACHS SACHS
GOVERNMENT GLOBAL MUNICIPAL
INCOME INCOME INCOME
FUND FUND FUND
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value
(cost $30,931,415, $273,501,082 and $60,395,131) $ 31,340,222 $272,945,552 $61,899,345
Receivables:
Investment securities sold -- 20,579,927 5,791,250
Interest 210,018 5,814,585 851,486
Forward foreign currency exchange contracts -- 2,950,813 --
Foreign tax withheld -- 675,843 --
Fund shares sold 59,203 51,644 71,355
Cash 4,974 1,232 42,845
Deferred organization expenses, net 42,846 46,256 47,683
Other assets 79,092 111,218 56,881
------------ ------------ -----------
Total assets 31,736,355 303,177,070 68,760,845
------------ ------------ -----------
LIABILITIES:
Payables:
Investment securities purchased 2,144,668 21,461,760 14,753,768
Forward foreign currency exchange contracts -- 3,825,677 --
Fund shares repurchased 11,371 50,000 44,777
Investment adviser fees 6,127 93,769 18,167
Administration fees -- 35,163 6,813
Authorized dealer service fees 6,127 51,936 11,354
Distribution fees -- 51,936 --
Transfer agent fees 13,928 26,305 13,779
Accrued expenses and other liabilities 51,535 126,175 114,953
------------ ------------ -----------
Total liabilities 2,233,756 25,722,721 14,963,611
------------ ------------ -----------
NET ASSETS:
Paid in capital 29,150,881 272,761,135 54,514,862
Accumulated undistributed net investment income 36,251 16,641,827 42,738
Accumulated net realized loss on investment
transactions (93,340) (13,043,346) (2,264,580)
Accumulated net realized foreign currency gain -- 2,443,547 --
Net unrealized gain on investments 408,807 4,810,713 1,504,214
Net unrealized loss on translation of assets and
liabilities denominated in foreign currencies -- (6,159,527) --
----------- ------------ -----------
Net assets $29,502,599 $277,454,349 $53,797,234
=========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
CLASS A INSTITUTIONAL
------- -------------
<S> <C> <C> <C> <C>
Net asset value and redemption price per share
(net assets/shares outstanding) $14.47 $14.45 $14.45 $14.17
========= ========== ========= =========
Maximum public offering price per share
(NAV per share x 1.0471)/(a)/ $15.15 $15.13 $14.45 $14.84
========= ========== ========= =========
Shares outstanding, $.001 par value
(unlimited number of shares authorized) 2,038,356 17,008,968 2,188,371 3,796,312
========= ========== ========= =========
</TABLE>

/(a)/ The Goldman Sachs Global Income Fund's Institutional shares maximum public
offering price per share is equivalent to the net asset value per share.

The accompanying notes are an integral part of these financial statements.

22
<PAGE>

- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended October 31, 1995

<TABLE>
<CAPTION>
GOLDMAN GOLDMAN GOLDMAN
SACHS SACHS SACHS
GOVERNMENT GLOBAL MUNICIPAL
INCOME INCOME INCOME
FUND FUND FUND
------------ ------------ -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest/(a)/ $1,452,092 $ 23,662,535 $2,846,866
---------- ------------ ----------
Total income 1,452,092 23,662,535 2,846,866
---------- ------------ ----------
EXPENSES:
Investment adviser fees 101,737 2,367,381 200,207
Administration fees 30,521 473,476 75,077
Authorized dealer service fees 25,239 281,949 55,106
Distribution fees 76,499 1,257,211 195,152
Custodian fees 36,551 179,346 25,915
Transfer agent fees 94,095 106,764 63,695
Professional fees 39,836 70,511 53,407
Registration fees 37,256 75,289 21,406
Amortization of deferred organization expenses 18,796 61,394 17,545
Trustee fees 597 11,034 1,258
Other 14,808 49,443 38,062
---------- ------------ ----------
TOTAL EXPENSES 475,935 4,933,798 746,830
Less--expenses reimbursable and fees waived
by Goldman Sachs (381,105) (930,147) (366,894)
---------- ------------ ----------
NET EXPENSES 94,830 4,003,651 379,936
---------- ------------ ----------
NET INVESTMENT INCOME 1,357,262 19,658,884 2,466,930
---------- ------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT,
OPTIONS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from:
Investment transactions 603,048 5,556,002 938,332
Foreign currency related transactions -- 18,804,029 --
Net change in unrealized gain (loss) on:
Investments 902,391 14,759,004 3,055,111
Translation of assets and liabilities denominated
in foreign currencies -- (15,288,240) --
---------- ------------ ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT,
OPTIONS AND FOREIGN CURRENCY TRANSACTIONS 1,505,439 23,830,795 3,993,443
---------- ------------ ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,862,701 $ 43,489,679 $6,460,373
========== ============ ==========
</TABLE>

/(a)/ Net of $101,514 in foreign withholding tax for the Global Income Fund.

The accompanying notes are an integral part of these financial statements.

23
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended October 31, 1995

<TABLE>
<CAPTION>
GOLDMAN GOLDMAN GOLDMAN
SACHS SACHS SACHS
GOVERNMENT GLOBAL MUNICIPAL
INCOME INCOME INCOME
FUND FUND FUND
------------ ------------ -----------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,357,262 $ 19,658,884 $ 2,466,930
Net realized gain from investment transactions 603,048 5,556,002 938,332
Net realized gain from foreign currency
related transactions -- 18,804,029 --
Net change in unrealized gain on investments 902,391 14,759,004 3,055,111
Net change in unrealized loss on translation of
assets and liabilities denominated
in foreign currencies -- (15,288,240) --
----------- ------------ -----------
Net increase in net assets resulting
from operations 2,862,701 43,489,679 6,460,373
----------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,361,620) (20,883,123)/(a)/ (2,466,930)
----------- ------------ -----------
Total distributions to shareholders (1,361,620) (20,883,123) (2,466,930)
----------- ------------ -----------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 15,973,014 53,349,100 11,879,853
Reinvestment of dividends and distributions 1,123,498 13,008,610 1,551,121
Cost of shares repurchased (3,546,816) (208,094,050) (11,000,210)
----------- ------------ -----------
Net increase (decrease) in net assets
resulting from share transactions 13,549,696 (141,736,340) 2,430,764
----------- ------------ -----------
Total increase (decrease) 15,050,777 (119,129,784) 6,424,207
----------- ------------ -----------
NET ASSETS:
Beginning of year 14,451,822 396,584,133 47,373,027
----------- ------------ -----------
End of year $29,502,599 $277,454,349 $53,797,234
=========== ============ ===========
Accumulated undistributed net investment income $ 36,251 $ 16,641,827 $ 42,738
=========== ============ ===========
SUMMARY OF SHARE TRANSACTIONS:
Shares sold 1,139,008 3,822,903 876,447
Reinvestment of dividends and distributions 80,152 935,191 113,767
Shares repurchased (253,583 ) (15,079,626) (816,569)
----------- ------------ -----------
Net increase (decrease) in shares outstanding 965,577 (10,321,532) 173,645
=========== ============ ===========
</TABLE>

/(a)/ The Global Income Fund distributed $20,322,640 and $560,483 from net
investment income for the Class A and Institutional class of shares,
respectively.

The accompanying notes are an integral part of these financial statements.

24
<PAGE>

- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (continued)
For the Year Ended October 31, 1994

<TABLE>
<CAPTION>
GOLDMAN GOLDMAN GOLDMAN
SACHS SACHS SACHS
GOVERNMENT GLOBAL MUNICIPAL
INCOME INCOME INCOME
FUND FUND/(a)/ FUND
------------ ------------ -----------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 794,938 $ 34,832,452 $ 2,300,535
Net realized loss from investment,
option and futures transactions (693,341) (29,399,159) (3,202,912)
Net realized loss from foreign currency
related transactions -- (12,649,508) --
Net change in unrealized loss on
investments and options (502,522) (31,154,593) (1,799,359)
Net change in unrealized gain on translation
of assets and liabilities denominated in
foreign currencies -- 7,363,987 --
----------- ------------- ------------
Net decrease in net assets resulting
from operations (400,925) (31,006,821) (2,701,736)
----------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (794,938) (8,807,313) (2,300,535)
In excess of net investment income (17,584) -- --
Net realized gain on investment,
option and futures transactions (106,548) (7,198,898) (108,139)
In excess of net realized gain on investment,
option and futures transactions (3,047) -- --
Paid-in capital -- (25,765,213) --
----------- ------------- ------------
Total distributions to shareholders (922,117) (41,771,424) (2,408,674)
----------- ------------- ------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 8,616,512 133,966,890 40,579,374
Reinvestment of dividends and distributions 762,895 26,726,504 1,557,330
Cost of shares repurchased (6,464,527) (366,992,820) (19,819,419)
----------- ------------- ------------
Net increase (decrease) in net assets
resulting from share transactions 2,914,880 (206,299,426) 22,317,285
----------- ------------- ------------
Total increase (decrease) 1,591,838 (279,077,671) 17,206,875

NET ASSETS:
Beginning of year 12,859,984 675,661,804 30,166,152
----------- ------------- ------------
End of year $14,451,822 $ 396,584,133 $ 47,373,027
=========== ============= ============
Accumulated undistributed net investment income $ 22,212 $ 1,318,755 $ 25,593
=========== ============= ============
SUMMARY OF SHARE TRANSACTIONS:
Shares sold 615,568 9,067,823 2,852,822
Reinvestment of dividends and distributions 54,242 1,870,918 112,990
Shares repurchased (460,162) (26,266,551) (1,404,132)
----------- ------------- ------------
Net increase (decrease) in shares outstanding 209,648 (15,327,810) 1,561,680
=========== ============= ============
</TABLE>

/(a)/ For the year ended October 31, 1994 only Class A shares were outstanding.

The accompanying notes are an integral part of these financial statements.

25
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
October 31, 1995

1. ORGANIZATION

Goldman Sachs Trust (the "Trust") is a Massachusetts business trust registered
under the Investment Company Act of 1940 (as amended) as an open-end, management
investment company. Included in this report are the financial statements for
the Goldman Sachs Government Income Fund (Government Income), the Goldman Sachs
Global Income Fund (Global Income) and the Goldman Sachs Municipal Income Fund
(Municipal Income), collectively, "the Funds" or individually a "Fund".
Government Income and Municipal Income are diversified portfolios whereas Global
Income is a separate non-diversified portfolio. The Global Income Fund currently
offers two classes of shares - Class A and Institutional shares.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Funds which are in conformity with those generally accepted in
the investment company industry:

A. Investment Valuation
- ------------------------

Investments in debt securities, other than money market instruments, held by
Global Income are valued on the basis of dealer-supplied quotations or by a
pricing service approved by the Board of Trustees if such prices are believed by
the investment adviser to accurately represent market value. The prices derived
by a pricing agent reflect broker/dealer-supplied valuations and electronic data
processing techniques. If those prices are not deemed by the Fund's Investment
Adviser to be representative of the market values at the time the net asset
value is calculated, then such securities will be valued at fair value as
described below. Options and futures contracts are valued at the last sale
price on the market where any such option or futures contract is principally
traded. Forward foreign currency exchange contracts are valued at the mean
between the last bid and asked quotations supplied by a dealer in such
contracts. All other securities and other assets, including debt securities,
for which prices are supplied by a pricing agent but are not deemed by the
Fund's Investment Adviser to be representative of market values, restricted
securities and securities for which no market quotation is available, but
excluding money market instruments with a remaining maturity of sixty days or
less, are valued at fair value as determined in good faith pursuant to
procedures established by the Board of Trustees. Money market instruments held
by the Fund with a remaining maturity of sixty days or less will be valued by
the amortized cost method, which approximates market value.

Investments in portfolio securities held by the Government Income and Municipal
Income Funds for which accurate market quotations are readily available are
valued on the basis of quotations furnished by a pricing service or provided by
dealers in such securities. Portfolio securities held by the Government Income
and Municipal Income Funds, for which accurate market quotations are not readily
available are valued at fair value using methods determined in good faith under
procedures established by the Trust's Board of Trustees and may include yield
equivalents or a pricing matrix. Exchange traded options and futures contracts
will be valued by the investment adviser at the last sale price on the exchange
where such contracts and options are principally traded. Short-term debt
obligations maturing in sixty days or less are valued at amortized cost.

B. SecurityTransactions and Investment Income
- ----------------------------------------------

Security transactions are recorded on the trade date. Realized gains and losses
on sales of portfolio securities are calculated on the identified cost basis.
Interest income is recorded on the basis of interest accrued. Premiums on
interest-only securities and on collateralized mortgage obligations with nominal
principal amounts are amortized, on an effective yield basis, over the expected
lives of the respective securities, taking into account principal prepayment
experience and estimates of future principal prepayments. Certain mortgage
security paydown gains and losses are taxable as ordinary income. Such paydown
gains and losses increase or decrease taxable ordinary income available

26
<PAGE>

for distribution and are classified as interest income in the accompanying
Statements of Operations. Original issue discounts on debt securities are
amortized to interest income over the life of the security with a corresponding
increase in the cost basis of that security. For the Municipal Income Fund,
market premiums on other long-term debt securities are amortized to interest
income while for the Global Income Fund, market discounts on other long-term
debt securities are accreted to interest income.

C. Foreign Currency Translations
- ---------------------------------

Amounts denominated in foreign currencies are translated into U.S. dollars on
the following basis: (i) investment valuations, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates; (ii) purchases and sales of
foreign investments, income and expenses are converted into U.S. dollars based
upon currency exchange rates prevailing on the respective dates of such
transactions.

Net realized and unrealized gain (loss) on foreign currency transactions will
represent: (i) foreign exchange gains and losses from the sale and holdings of
foreign currencies and investments; (ii) gains and losses between trade date and
settlement date on investment securities transactions and forward exchange
contracts; and (iii) gains and losses from the difference between amounts of
interest recorded and the amounts actually received.

D. Forward Foreign Currency Exchange Contracts
- -----------------------------------------------

The Global Income Fund may enter into forward foreign exchange contracts for the
purchase or sale of a specific foreign currency at a fixed price on a future
date as a hedge or cross-hedge against either specific transactions or portfolio
positions. The Global Income Fund may also purchase and sell forward contracts
to seek to increase total return. The aggregate principal amounts of the
contracts for which delivery is anticipated are reflected in the Fund's
accounts, while the aggregate principal amounts are reflected net in the
accompanying Statements of Assets and Liabilities if the Fund intends to settle
the contract prior to delivery. All commitments are "marked-to-market" daily at
the applicable translation rates and any resulting unrealized gains or losses
are recorded in the Fund's financial statements. The Fund records realized
gains or losses at the time the forward contract is offset by entry into a
closing transaction or extinguished by delivery of the currency. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.

E. Mortgage Dollar Rolls
- -------------------------

The Government Income Fund may enter into mortgage "dollar rolls" in which the
Fund sells securities in the current month for delivery and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Fund
loses the right to receive principal and interest paid on the securities sold
but benefits to the extent of any price received for the securities sold and the
lower forward price for the future purchase (often referred to as the "drop") or
fee income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. The Fund will hold and
maintain in a segregated account, until the settlement date, cash or liquid,
high grade debt securities in an amount equal to the forward purchase price.
For financial reporting and tax reporting 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.

F. Options
- -----------

When call or put options are written, an amount equal to the premium received is
recorded as an asset and as an equivalent liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written. When a written option expires on its stipulated expiration date,
or a closing

27
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 1995

purchase transaction has been entered into, a gain or loss is realized
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. When a written call
option is exercised, a gain or loss is realized from the sale of the underlying
security, and the proceeds of the sale are increased by the premium originally
received. When a written put option is exercised, the amount of the premium
originally received will reduce the cost of the security purchased upon
exercise.

Upon the purchase of a call option or a protective put option, the premium paid
is recorded as an investment, and subsequently marked-to-market to reflect the
current market value of the option. If an option which has been purchased
expires on the stipulated expiration date, a loss is realized in the amount of
the cost of the option. If a closing sale transaction has been entered into, a
gain or loss is realized, depending on whether the sale proceeds from the
closing sale transaction are greater or less than the cost of the option. If a
purchased put option is exercised, a gain or loss from the sale of the
underlying security is realized, and the proceeds from such sale will be
decreased by the premium originally paid. If a purchased call option is
exercised, the cost of the security purchased upon exercise will be increased by
the premium originally paid. In the case of index options, there is a risk of
loss from a change in value of such options which may exceed the related
premiums received.

G. Futures Contracts
- ---------------------

Upon entering into a futures contract, the Funds are required to deposit with a
broker an amount of cash or securities equal to the minimum "initial margin"
requirement of the futures exchange on which the contract is traded. Subsequent
payments ("variation margin") are made or received by the Funds each day,
dependent on the daily fluctuations in the value of the contract, and are
recorded for financial reporting purposes, as unrealized gains or losses. When
entering into a closing transaction, the Funds will realize a gain or loss equal
to the difference between the value of the futures contract to sell and the
futures contract to buy. Futures contracts are valued at the most recent
settlement price, unless such price does not reflect the fair market value of
the contract, in which case the position will be valued using methods as
approved by the Funds' Board of Trustees. Certain risks may arise upon entering
into futures contracts. These risks may include changes in the value of the
futures contract that may not directly correlate with changes in the value of
the underlying securities, or that the counterparty to a contract may default on
its obligations to perform.

H. Federal Taxes
- -----------------

It is each Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute each year
substantially all investment company tax-exempt and taxable income to its
shareholders. Accordingly, no federal tax provisions are required.

The characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of a portfolio's distributions may be shown in the accompanying financial
statements as either from or in excess of net investment income or net realized
gain on investment transactions, or from paid-in capital, depending on the type
of book/tax differences that may exist.

At October 31, 1995, the Funds had approximately the following amounts of
capital loss carryforward for U.S. Federal tax purposes:

Fund Amount Year of Expiration
- ---- ----------- ------------------
Government Income Fund $ 735,561 2002
Global Income Fund $10,295,502 2002
Municipal Income Fund $ 3,202,911 2002

28
<PAGE>

I. Deferred Organization Expenses
- ----------------------------------

Organization-related costs are being amortized on a straight-line basis over a
period of five years.

J. Expenses
- ------------

Expenses incurred by the Trust that do not specifically relate to an individual
portfolio of the Trust are allocated to the portfolios based on each portfolio's
relative average net assets for the period.

Class A shareholders of the Global Income Fund bear all expenses and fees
relating to the distribution and authorized dealer service plans as well as
other expenses which are directly attributable to such shares. The Class A and
Institutional shareholders separately bear transfer agency fees.

3. AGREEMENTS

Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as each Fund's investment adviser
pursuant to Investment Advisory Agreements. Goldman Sachs Asset Management
International ("GSAM International"), an affiliate of Goldman Sachs, acts as
subadviser under a Subadvisory Agreement for the Global Income Fund. Under the
Investment Advisory and Subadvisory Agreements, GSAM and GSAM International,
subject to the general supervision of the Trust's Board of Trustees, manage the
Funds' portfolios. As compensation for the services rendered pursuant to the
Investment Advisory Agreements and the assumption of the expenses related
thereto, GSAM is entitled to a fee, computed daily and payable monthly at an
annual rate equal to .50%, .25% and .40% of average daily net assets of the
Government Income, Global Income and Municipal Income Funds, respectively. As
compensation for the services rendered pursuant to the Subadvisory Agreement,
GSAM International is entitled to a subadvisory fee from the Global Income Fund
of .50% of the average daily net assets. For the year ended October 31, 1995,
GSAM voluntarily agreed to waive a portion of its investment advisory fees
amounting to approximately $57,700, $248,000 and $45,500 for the Government
Income, Global Income and Municipal Income Funds, respectively.

GSAM serves as each Fund's administrator pursuant to an Administration
Agreement. Under the Administration Agreement, GSAM administers the Funds'
business affairs, including providing facilities. As compensation for the
services rendered pursuant to the Administration Agreement, GSAM is entitled to
a fee, computed daily and payable monthly at an annual rate equal to .15% of
each Fund's average daily net assets. For the year ended October 31, 1995, GSAM
voluntarily agreed to waive a portion of its administration fee amounting to
approximately $30,500 for the Government Income Fund.

GSAM has voluntarily agreed to limit certain of the Funds'expenses (excluding
advisory, administration, distribution and authorized dealer service fees,
taxes, interest, brokerage, litigation, indemnification and other extraordinary
expenses and with respect to the Global Income Fund, transfer agent fees) to the
extent such expenses exceed .30%, .06% and .05% per annum of the Government
Income, Global Income and Municipal Income Funds, respectively. For the year
ended October 31, 1995, GSAM voluntarily agreed to reimburse all such expenses
for the Government Income Fund. For the year ended October 31, 1995 the amount
of reimbursed expenses for the Government Income, Global Income and Municipal
Income Funds were approximately $242,000, $70,000 and $196,000, respectively.
The amounts reimbursable to the Government Income, Global Income and Municipal
Income Funds at October 31, 1995 are approximately $49,000, $40,000 and $54,000,
respectively, and are included in "Other Assets" on the accompanying Statements
of Assets and Liabilities.

Goldman Sachs serves as the Distributor of shares of the Funds pursuant to a
Distribution Agreement and as such may receive a portion of the sales load
imposed on the sale of Fund shares. During the year ended October 31, 1995,

29
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 1995

Goldman Sachs retained approximately $22,000, $15,000 and $48,000 of sales loads
related to the Government Income, Global Income and Municipal Income Funds,
respectively.

The Trust, on behalf of each Fund, has adopted a Distribution Plan (the
"Distribution Plan") pursuant to Rule 12b-1. Under the Distribution Plan,
Goldman Sachs is entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25% of each Fund's average daily net
assets (or, in the case of Global Income Fund, the average daily net assets
attributable to the Class A shares). Currently, Goldman Sachs has voluntarily
agreed to waive the entire amount of such fee for the Government Income and
Municipal Income Funds. Effective June 1, 1995, each Fund's Distribution Plan
was amended to reduce the contractual fee from .50% to .25% of average daily net
assets and to eliminate the provision of certain services under the Distribution
Plan which are currently provided under the Authorized Dealer Service Plan.
Distribution fees waived for the period amounted to $50,869, $611,952 and
$125,129 for the Government Income, Global Income and Municipal Income Funds,
respectively.

Effective June 1, 1995, the Company on behalf of each Fund adopted an Authorized
Dealer Service Plan (the "Service Plan") pursuant to which Goldman Sachs and
Authorized Dealers are compensated for providing personal and account
maintenance services. Each Fund pays a fee under its Service Plan equal, to on
an annual basis, to .25% of each Fund's average daily net assets (or, in the
case of Global Income Fund, the average daily net assets attributable solely to
the Class A shares). Goldman Sachs also serves as the Transfer Agent of the
Funds for a fee.

4. LINE OF CREDIT FACILITY

The Funds participate in a $100,000,000 uncommitted, unsecured revolving line of
credit facility. In addition, the Global Income Fund has an $8,000,000
committed, unsecured revolving line of credit facility available. Both
facilities are to be used solely for temporary or emergency purposes. The
interest rate on borrowings is based on the federal funds rate. The committed
facility also requires a fee to be paid based on the amount of the commitment
which has not been utilized. For the year ended October 31, 1995, the Funds did
not have any borrowings under these facilities.

5. INVESTMENT TRANSACTIONS

Purchases and proceeds of sales or maturities of long-term securities for the
year ended October 31, 1995, were as follows:

GOVERNMENT GLOBAL MUNICIPAL
FUND INCOME INCOME INCOME
- ----------------------------------------------------------------------------
Purchases of U.S.
Government and
agency obligations $100,296,354 $ 83,722,782 $ --
- ----------------------------------------------------------------------------
Purchases (excluding
U.S. Government and
agency obligations) 3,011,921 656,349,335 174,160,831
- ----------------------------------------------------------------------------
Sales or maturities of
U.S. Government and
agency obligations 87,845,570 196,872,555 --
- ----------------------------------------------------------------------------
Sales or maturities
(excluding U.S.
Government and
agency obligations) 1,887,472 704,661,927 166,318,514
- ----------------------------------------------------------------------------

For the year ended October 31, 1995, option transactions in the Global Income
Fund were as follows:

PREMIUMS
OPTIONS WRITTEN RECEIVED
- ----------------------------------------------------------------------------
Balance outstanding, beginning of year $ --
Options written 130,440
Options exercised (130,440)
- ----------------------------------------------------------------------------
Balance outstanding, end of year $ --
- ----------------------------------------------------------------------------

30
<PAGE>

OPTIONS PURCHASED COST
- ----------------------------------------------------------------------------
Balance outstanding, beginning of year $ --
Options purchased 84,446
Options exercised (84,446)
- ----------------------------------------------------------------------------
Balance outstanding, end of year $ --
============================================================================

Certain risks related to written call or put options arise from the possible
inability of counterparties to meet the terms of their contracts and from
movement in currency values and interest rates.

At October 31, 1995, the Global Income Fund had outstanding forward foreign
currency exchange contracts, both to purchase and sell foreign currencies as
follows:

VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
PURCHASE CONTRACTS DATE VALUE GAIN/(LOSS)
- ----------------------------------------------------------------------------
DEUTSCHE MARK
Expiring 11/16/95 $ 268,323 $ 281,721 $ 13,398
Expiring 9/9/96/(a)/ 14,435,171 15,391,612 956,441
- ----------------------------------------------------------------------------
Total Foreign Currency
Purchase Contracts $ 14,703,494 $ 15,673,333 $ 969,839
============================================================================

============================================================================

VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
PURCHASE CONTRACTS DATE VALUE GAIN/(LOSS)
- ----------------------------------------------------------------------------
BELGIAN FRANC
Expiring 2/28/96 $ 9,255,202 $ 9,165,116 $ 90,086
Expiring 9/9/96/(a)/ 14,435,171 15,409,951 (974,780)
BRITISH POUND STERLING
Expiring 12/11/95 35,559,013 36,300,525 (741,512)
DEUTSCHE MARK
Expiring 1/24/96 18,148,618 18,165,060 (16,442)
Expiring 1/31/96 144,844 144,844 --
FRENCH FRANC
Expiring 11/30/95 21,550,856 22,041,337 (490,481)
JAPANESE YEN
Expiring 12/18/95 13,687,026 13,561,625 125,401
Expiring 1/17/96 34,125,931 33,541,512 584,419
SPANISH PESETA
Expiring 11/27/95 13,646,350 13,953,670 (307,320)
- ----------------------------------------------------------------------------
Total Foreign Currency
Sale Contracts $160,553,011 $162,283,640 $(1,730,629)
============================================================================

/(a)/ Represents a cross-currency forward foreign exchange contract.

The contractual amounts of forward foreign currency exchange contracts do not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.

At October 31,1995, the Global Income Fund had sufficient cash and/or securities
to cover any commitments under these contracts.

The Global Income Fund has recorded a "Receivable for forward foreign currency
exchange contracts" and "Payable for forward foreign currency exchange
contracts" resulting from open and closed but not settled forward foreign
currency exchange contracts of $2,950,813 and $3,825,677, respectively, in the
accompanying Statement of Assets and Liabilities. Included in the "Receivable
and payable for forward foreign currency exchange contracts" are $1,181,068 and
$1,295,142, respectively, related to forward contracts closed but not settled as
of October 31, 1995.

6. SUMMARY OF SHARE TRANSACTIONS

GLOBAL INCOME FUND DOLLARS SHARES
- -----------------------------------------------------------------------------
Class A Shares:
Shares sold $ 22,864,336 1,659,380
Reinvestment of dividends and distributions 12,448,128 895,996
Shares repurchased (207,889,246) (15,065,279)
------------- -----------
(172,576,782) (12,509,903)
------------- -----------
Institutional Shares:
Shares sold 30,484,764 2,163,523
Reinvestment of dividends and distributions 560,482 39,195
Shares repurchased (204,804) (14,347)
------------- -----------
30,840,442 2,188,371
------------- -----------
Total $(141,736,340) (10,321,532)
============= ===========

7. REPURCHASE AGREEMENTS

During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is

31
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 1995

required to equal or exceed the value of the repurchase agreement. The
underlying securities for all repurchase agreements are held in safekeeping in
the customer-only account of State Street Bank & Trust Co., the Funds'
custodian, or at subcustodians. GSAM monitors the market value of the underlying
securities by pricing them daily.

8. JOINT REPURCHASE AGREEMENT ACCOUNT

The Government Income Fund, together with other registered investment companies
having advisory agreements with GSAM or its affiliates, transfers uninvested
cash balances into a joint account, the daily aggregate balance of which is
invested in one or more repurchase agreements. The underlying securities for the
repurchase agreements are U.S. Treasury obligations and mortgage-related
securities issued by the U.S. Government, its agencies or instrumentalities. As
of October 31, 1995, the Government Income Fund had a 0.16% undivided interest
in the repurchase agreement in the joint account which equaled $2,900,000, in
principal amount. As of October 31, 1995, the repurchase agreement in the joint
account along with the corresponding underlying securities (including the type
of security, market value, interest rate and maturity date) were as follows:

PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
- --------------------------------------------------------------------------------
Lehman Brothers, Inc. dated 10/31/95, repurchase price $965,159,225 (U.S.
Treasury Notes: $955,186,569, 4.25%-9.50%, 11/15/95-08/15/02; U.S. Treasury
Interest-Only Strips:$19,548,855, 11/15/00-08/15/02; U.S. Treasury Principal-
Only Strips:$6,376,719, 6.38%-8.50%, 11/15/00-08/15/02))

$965,000,000 5.94% 11/01/95 $ 965,000,000

Salomon Brothers, Inc. dated 10/31/95, repurchase price $830,136,489 (U.S.
Treasury Notes: $383,210,541, 4.25%-8.87%, 11/15/95-08/31/00; U.S. Treasury
Interest-Only Strips: $356,333,527, 11/15/95-08/15/02; U.S. Treasury
Principal-Only Strips: $107,445,042, 6.38%-9.50%, 11/15/95-08/15/02)

830,000,000 5.92 11/01/95 830,000,000
- --------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account $1,795,000,000
================================================================================

9. CERTAIN RECLASSIFICATIONS

In accordance with Statement of Position 93-2, the Government Income, Global
Income and Municipal Income Funds have reclassified $18,397, $61,394 and
$17,145, respectively, from paid-in capital to accumulated undistributed net
investment income. Additionally, the Global Income Fund has reclassified
$16,485,917 from accumulated net realized foreign currency gain to accumulated
undistributed net investment income. These reclassifications have no impact on
the net asset values of the Funds and are designed to present the Funds' capital
accounts on a tax basis.

10. OTHER

As of October 31, 1995, Goldman, Sachs & Co. Employees Profit Sharing and
Retirement Income Plan was the beneficial owner of approximately 9% of the
outstanding shares of the Goldman Sachs Global Income Fund.

32
<PAGE>

Goldman Sachs Trust
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding Throughout Each Period

<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/(a)/ TRANSACTIONS/(a)/ OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
For the Years Ended
October 31,
- --------------------------
1995...................... $13.47 $ 0.94 $ 1.00 $ -- $ 1.94
1994...................... 14.90 0.85 (1.28) -- (0.43)

For the Period February
10, 1993/(e)/ through
October 31,
- --------------------------
1993...................... 14.32 0.56 0.58 -- 1.14
<CAPTION>
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares 13.43 0.89 0.92 0.15 1.96
1995 - Institutional
shares/(f)/ 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/(e)/ through
October 31,
- --------------------------
1991 - Class A shares 14.55 0.25 0.23 (0.19) 0.29
<CAPTION>
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
For the Years Ended
October 31,
- --------------------------
1995...................... 13.08 0.67 1.09 -- 1.76
1994...................... 14.64 0.73 (1.51) -- (0.78)

For the Period July 20,
1993/(e)/ through
October 31,
- --------------------------
1993...................... 14.32 0.22 0.32 -- 0.54
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------------------------------------------------------------

IN EXCESS OF
FROM NET NET REALIZED
REALIZED GAIN GAIN ON
ON INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT AND FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
For the Years Ended
October 31,
- --------------------------
1995...................... $(0.94) $ -- $ -- $ -- $ -- $(0.94)
1994...................... (0.85) (0.12) (0.02) (0.01) -- (1.00)

For the Period February
10, 1993/(e)/ through
October 31,
- --------------------------
1993...................... (0.56) -- -- -- -- (0.56)
<CAPTION>
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
For the Years Ended
October 31,
- --------------------------
1995 - Class A shares (0.94) -- -- -- -- (0.94)
1995 - Institutional
shares/(f)/ (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/(e)/ through
October 31,
- --------------------------
1991 - Class A shares (0.24) -- -- -- -- (0.24)
<CAPTION>
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
For the Years Ended
October 31,
- --------------------------
1995...................... (0.67) -- -- -- -- (0.67)
1994...................... (0.73) (0.05) -- -- -- (0.78)

For the Period July 20,
1993/(e)/ through
October 31,
- --------------------------
1993...................... (0.22) -- -- -- -- (0.22)
</TABLE>

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

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended
October 31,
- --------------------------
1995...................... $ 1.00 $14.47 14.90% 0.47% 6.67% 449.53% $ 29,503 2.34% 4.80%
1994...................... (1.43) 13.47 (2.98) 0.11 6.06 654.90 14,452 2.86 3.31

For the Period February
10, 1993/(e)/ through
October 31,
- --------------------------
1993...................... 0.58 14.90 8.03 0.00/(c)/ 4.87/(c)/ 725.41 12,860 4.00/(c)/ 0.87/(c)/
<CAPTION>
GLOBAL INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended
October 31,
- --------------------------
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/(f)/ 0.36 14.45 4.42 0.65/(c)/ 6.01/(c)/ 265.86 31,619 1.08/(c)/ 5.58/(c)/

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/(e)/ through
October 31,
- --------------------------
1991 - Class A shares 0.05 14.60 2.00 0.38/(g)/ 1.72/(g)/ 34.22 388,744 0.44/(g)/ 1.66/(g)/

<CAPTION>
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended
October 31,
1995...................... 1.09 14.17 13.79 0.76 4.93 335.55 53,797 1.49 4.20
1994...................... (1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373 1.55 4.18

For the Period July 20,
1993/(e)/ through
October 31,
- --------------------------
1993...................... 0.32 14.64 3.73 0.00/(c)/ 5.15/(c)/ 99.99 30,166 2.42/(c)/ 2.73/(c)/

</TABLE>

/(a)/ Includes the balancing effect of calculating per share amounts.
/(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. For the Retail classes total return would be reduced if a
sales charge were taken into account.
/(c)/ Annualized.
/(d)/ Includes effect of mortgage dollar roll transactions for the Government
Income Fund.
/(e)/ Commencement of operations.
/(f)/ Institutional shares commenced operations on August 1, 1995.
/(g)/ Not annualized.

The accompanying notes are an integral part of these financial statements.

33
<PAGE>

- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Trustees of the Goldman Sachs Government Income
Fund, Goldman Sachs Global Income Fund and Goldman Sachs Municipal Income Fund:

We have audited the accompanying statements of assets and liabilities of the
Goldman Sachs Government Income Fund, Goldman Sachs Global Income Fund and
Goldman Sachs Municipal Income Fund, (portfolios of Goldman Sachs Trust, a
Massachusetts Business Trust) including the statements of investments, as of
October 31, 1995, and the related statements of operations, the statements of
changes in net assets and the financial highlights for each of the periods
presented. These financial statements and the financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.

In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of the
Goldman Sachs Government Income Fund, Goldman Sachs Global Income Fund and
Goldman Sachs Municipal Income Fund as of October 31, 1995, the results of their
operations and the changes in their net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles.

Arthur Andersen LLP

Boston, Massachusetts
December 8, 1995

34
<PAGE>

- --------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Trust Prospectus which contains
facts concerning the Fund's objectives and policies, management, expenses and
other information.
- --------------------------------------------------------------------------------

35
<PAGE>

Goldman Sachs
1 New York Plaza
New York, NY 10004

TRUSTEES
Paul C. Nagel, Jr., Chairman
Ashok N. Bakhru
Marcia L. Beck
David B. Ford
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel

OFFICERS
Marcia L. Beck, President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary

GOLDMAN SACHS
Investment Adviser, Administrator,
Distributor and Transfer Agent

GST/AR/1095(RET)

The Goldman Sachs
Fixed Income
Portfolios

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

Annual Report
October 31, 1995

Goldman Sachs Government Income Fund
Goldman Sachs Global Income Fund
Goldman Sachs Municipal Income Fund

Goldman
Sachs

<PAGE>

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------

(a) Financial Statements

Included in the Prospectus:

Financial Highlights for the GS Adjustable Rate Government Fund, GS Short
Duration Government Fund, GS Short Duration Tax-Free Fund, GS Core Fixed
Income Fund and Goldman Sachs Global Income Fund for the periods ended
October 31, 1996 (audited).

Financial Highlights for the GS Adjustable Rate Government Fund, Goldman
Sachs Municipal Income Fund, Goldman Sachs Government Income Fund and
Goldman Sachs Global Income Fund for the periods ended October 31, 1996
(audited).

Incorporated by Reference in the Statement of Additional Information:

Report of Independent Public Accountants.

Statement of Investments for the GS Adjustable Rate Government Fund, GS
Short Duration Government Fund, GS Short Duration Tax-Free Fund, GS Core
Fixed Income Fund and Goldman Sachs Global Income Fund as of October 31,
1996 (audited).

Statement of Investments for the GS Adjustable Rate Government Fund,
Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income Fund
and Goldman Sachs Global Income Fund as of October 31, 1996 (audited).

Statement of Assets and Liabilities for the GS Adjustable Rate Government
Fund, GS Short Duration Government Fund, GS Short Duration Tax-Free Fund,
GS Core Fixed Income Fund and Goldman Sachs Global Income Fund as of
October 31, 1996 (audited).

Statement of Assets and Liabilities for the GS Adjustable Rate Government
Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income
Fund and Goldman Sachs Global Income Fund as of October 31, 1996 (audited).

Statement of Operations for the GS Adjustable Rate Government Fund, GS
Short Duration Government Fund, GS Short Duration Tax-Free Fund, GS Core
Fixed Income Fund and
<PAGE>

Goldman Sachs Global Income Fund for the fiscal year ended October 31, 1996
(audited).

Statement of Operations for the GS Adjustable Rate Government Fund,
Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income Fund
and Goldman Sachs Global Income Fund for the fiscal year ended October 31,
1996 (audited).

Statements of Changes in Net Assets for the GS Adjustable Rate Government
Fund, GS Short Duration Government Fund, GS Short Duration Tax-Free Fund,
GS Core Fixed Income Fund and Goldman Sachs Global Income Fund for the
fiscal year ended October 31, 1996 (audited).

Statements of Changes in Net Assets for the GS Adjustable Rate Government
Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income
Fund and Goldman Sachs Global Income Fund for the fiscal year ended October
31, 1996 (audited).

Notes to Financial Statements.

(b) Exhibits

The following exhibits are incorporated herein by reference to Registrant's
Registration Statement on form N-1A as initially filed (Reference A), to Pre-
Effective Amendment No. 1 to such Registration Statement (Reference B), or to
Post-Effective Amendment No. 1 to such Registration Statement (Reference C), or
to Post-Effective Amendment No. 2 to such Registration Statement (Reference D),
or to Post-Effective Amendment No. 4 to such Registration Statement (Reference
F), or to Post-Effective Amendment No. 12 to such Registration Statement
(Reference M), or to Post-Effective Amendment No. 16 to such Registration
Statement (Reference Q) or to Post-Effective Amendment No. 17 to such
Registration Statement (Reference R), or to Post-Effective Amendment No. 19 to
such Registration Statement (Reference T), or to Post-Effective Amendment No. 20
to such Registration Statement (Reference U), or to Post-Effective Amendment No.
21 to such

2
<PAGE>

Registration Statement (Reference V), or to Post-Effective Amendment No. 24 to
such Registration Statement (Reference Y), or to Post-Effective Amendment No. 25
to such Registration Statement (Reference Z), to Post-Effective Amendment No. 26
to such Registration Statement (Accession No. 0000950130-95-002856), to
Post-Effective Amendment No. 27 to such Registration Statement (Accession No.
0000950130-96-004931) or to Post-Effective Amendment No. 29 to such Registration
Statement (Accession No.0000950130-97-000573).

1(a). Amendment No. 2 to the Agreement and Declaration of Trust of the
Registrant. (Reference B)

1(b). Amendment to the Agreement and Declaration of Trust of the
Registrant. (Reference G)

1(c). Amended and Restated Agreement and Declaration of Trust.
(Reference I).

1(d). Amendment to the Amended and Restated Declaration of Trust of the
Registrant dated August 19, 1992. (Reference K)

1(e). Amendment to Amended and Restated Agreement and Declaration of
Trust. (Reference L)

1(f). Amendment to the Amended and Restated Agreement and Declaration
of Trust (Reference S)

1(g). Agreement and Declaration of Trust on behalf of Delaware business
trust. (Accession No. 0000950130-97-000573)

2. By-laws of the Registrant. (Reference B)

2(a). By-laws of the Registrant on behalf of Delaware business trust
(Accession No. 0000950130-97-000573)

5(a). Advisory Agreement between Registrant on behalf of GS Short-Term
Government Agency Fund and Goldman, Sachs & Co. (Reference P)

5(b). Advisory Agreement between Registrant on behalf of Goldman Sachs
Global Income Fund and Goldman Sachs Asset Management. (Reference
P)

5(c). Subadvisory Agreement between Registrant on behalf of Goldman
Sachs Global Income Fund and Goldman Sachs Asset Management
International Limited. (Reference P)

3
<PAGE>

5(d). Advisory Agreement between Registrant on behalf of GS Adjustable
Rate Government Agency Fund and Goldman Sachs Asset Management.
(Reference P)

5(e). Advisory Agreement between Registrant on behalf of GS Short
Duration Tax-Free Fund and Goldman, Sachs & Co. (Reference P)

5(g). Advisory Agreement between Registrant on behalf of Goldman Sachs
Government Income Fund and Goldman Sachs Asset Management.
(Reference P)

5(i). Advisory Agreement between Registrant on behalf of Goldman Sachs
Municipal Income Fund and Goldman Sachs Asset Management.
(Reference P)

5(h). Administration Agreement between the Registrant on behalf of
Goldman Sachs Municipal Income Fund and Goldman Sachs Asset
Management. (Reference P)

5(k). Administration Agreement between Registrant on behalf of Goldman
Sachs Global Income Fund and Goldman Sachs Asset Management.
(Reference P)

5(m). Administration Agreement between Registrant on behalf of Goldman
Sachs Government Income Fund and Goldman Sachs Asset Management.
(Reference P)

5(n). Advisory Agreement between Registrant on behalf of GS Core Fixed
Income Fund and Goldman Sachs Asset Management. (Reference T)

5(o). Form of Management Agreements on behalf of Delaware business
trust (Accesssion No. 0000950130-97-000573)

6(a). Distribution Agreement between Registrant and Goldman, Sachs &
Co. (Reference P)

8(a). Custodian Agreement between Registrant and State Street Bank and
Trust Company. (Reference P)

8(b). Form of Wiring Agreement among State Street Bank and Trust
Company, Goldman, Sachs & Co. and The Northern Trust Company.
(Reference B)

8(c). Fee schedule relating to the Custodian Agreement between
Registrant and State Street Bank and Trust Company. (Reference C)

8(d). Form of Letter Agreement between Registrant and State Street Bank
and Trust pertaining to the

4
<PAGE>

latter's designation of Security Pacific National Bank as its
sub-custodian and certain other matters. (Reference C)

8(g). Form of Amendment dated August, 1989 to the Wiring Agreement
among State Street Bank and Trust Company,Goldman, Sachs & Co.
and The Northern Trust Company relating to the indemnification of
The Northern Trust Company. (Reference D)

10. Opinion of Counsel (filed with 24f-2)

13. Subscription Agreement with Goldman, Sachs & Co. (Reference B)

15(a). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs
Municipal Income Fund. (Reference P)

15(c). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs
Government Income Fund (Reference O)

15(d). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs Global
Income Fund. (Reference O)

15(f). Distribution Plan Pursuant to Rule 12b-1 for GS Adjustable Rate
Government Agency Fund-Class A Shares. (Reference Y)

15(h). Administration Plan and Service Plan of the Trust. (Reference X)

17(a). Transfer Agency Agreement between Registrant and Goldman, Sachs &
Co. (Reference P)

17(b). Fee schedule relating to the Transfer Agency Agreement between
Registrant and Goldman, Sachs & Co. (Reference B)

17(c). Power of Attorney of Ms. Beck. (Reference N)

17(d). Powers of Attorney of Messrs. Armellino, Bakhru, Mayo, Nagel,
Shuch, Smart, Springer, Strubel, Gilman, Hopkins, Mosior,
Richman, Mmes. Mucker and Taylor. (Reference O)

17(e). Power of Attorney Messr. Ford. (Reference W)

18. Form of Plan entered into by Registrant pursuant to Rule 18f-3
(Reference Z).

27. Financial Data Schedules (Accession No. 0000 950130-96-004931).

5
<PAGE>

The following exhibits relating to Goldman Sachs Trust are filed herewith
electronically pursuant to EDGAR rules:

11. Consent of Arthur Andersen.

17(f) Powers of Attorney of Messrs. Bakhru, Ford, Grip, Shuch, Smart,
Springer, Strubel, McNulty, Mosior, Gilman, Perlowski, Richman,
Surloff, Mmes. MacPherson, Mucker and Taylor.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
-------------------------------------------------------------

Not Applicable.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
-------------------------------
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
- -------------- --------------
<S> <C>

GS Short Duration Government Fund
Institutional Shares 340
Administration Shares 21
Service Shares 1
Class A 0
Class B 0
GS Adjustable Rate Government Fund
Institutional Shares 466
Administration Shares 17
Service Shares 0
Class A Shares 365
GS Short Duration Tax-Free Fund
Institutional Shares 147
Administration Shares 3
Service Shares 0
Class A 0
Class B 0
GS Core Fixed Income Fund
Institutional Shares 144
Administration Shares 19
Service Shares 1
Class A 0
Class B 0
Goldman Sachs Global Income Fund
Institutional Shares 34
Service Shares 4
Class A Shares 2,493
Class B Shares 42
Goldman Sachs Government Income Fund
Class A Shares 728
Class B Shares 35
</TABLE>

6
<PAGE>

<TABLE>
<S> <C>
Goldman Sachs Municipal Income Fund
Class A Shares 1,533
Class B Shares 19
Treasury Obligations Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Treasury Instruments Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Federal Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Government Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Prime Obligations Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
ILA Class B Units 0
Money Market Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Tax-Exempt Diversified Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Tax-Exempt California Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Tax-Exempt New York Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Financial Square Treasury Obligations Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Prime Obligations Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Government Fund
FST Shares 0
</TABLE>

7
<PAGE>

<TABLE>
<S> <C>
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Money Market Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Tax-Free Money Market Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Municipal Money Market Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Money Market Plus Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Treasury Instruments Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Federal Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Goldman Sachs Capital Growth Fund Shares
Class A 0
Class B 0
Goldman Sachs CORE U.S. Equity Fund Shares
Class A 0
Class B 0
Institutional Class 0
Goldman Sachs Small Cap Equity Fund Shares
Class A 0
Class B 0
Goldman Sachs International Equity Fund Shares
Class A 0
Class B 0
Institutional Class 0
Service Class 0
Goldman Sachs Growth and Income Fund Shares
Class A 0
Class B 0
Institutional Class 0
</TABLE>

8
<PAGE>

<TABLE>
<S> <C>
Service Class 0
Goldman Sachs Asia Growth Fund Shares
Class A 0
Class B 0
Institutional Class 0
Service Class 0
Goldman Sachs Balanced Fund Shares
Class A 0
Class B 0
Goldman Sachs Mid-Cap Equity Fund
Institutional Shares 0
Service Shares 0
Goldman Sachs CORE Large Cap Growth Fund
Class A 0
Class B 0
Institutional 0
Service 0
Goldman Sachs Growth Fund
Class A 0
Class B 0
Institutional 0
Service 0
Goldman Sachs Emerging Markets Equity Fund
Class A 0
Class B 0
Institutional 0
Service 0
</TABLE>

(Information supplied as of January 31, 1997)

ITEM 27. INDEMNIFICATION
---------------

Article VI of the Registrant's Amended and Restated Agreement and Declaration of
Trust provides for indemnification of the Registrant's trustees and officers
under certain circumstances. A copy of each Amended and Restated Agreement and
Declaration of Trust is filed as Exhibit 1(f) in Post Effective Amendment No. 7
(Reference I).

Paragraph 7 of the Advisory Agreement dated March 28, 1988 between the
Registrant on behalf of GS Short-Term Government Agency Fund and Goldman, Sachs
& Co., paragraph 7 of the Advisory Agreement dated as of July 15, 1991 between
the Registrant on behalf of Goldman Sachs Global Income Fund and Goldman Sachs
Asset Management, paragraph 7 of the Advisory Agreement dated as of July 15,
1991 between GS Adjustable Rate Government Agency Fund and Goldman Sachs Asset
Management, and paragraph 7 of the Advisory Agreement dated September 25, 1992
between the Registrant on behalf of GS Short Duration Tax-Free Fund and Goldman
Sachs & Co., paragraph 7 of the Advisory Agreement dated November 23, 1993
between the Registrant on behalf of GS Government Agency Portfolio and Goldman,
Sachs & Co., paragraph 7 of the

9
<PAGE>

Advisory Agreement dated February 1, 1993 between the Registrant on behalf of
each of GS Adjustable Rate Mortgage Fund and Goldman Sachs Government Income
Fund and Goldman Sachs Asset Management, and paragraph 7 of the Advisory
Agreement dated July 16, 1993 between the Registrant on behalf of Goldman Sachs
Municipal Income Fund and Goldman Sachs Asset Management and paragraph 7 of the
Advisory Agreement between the Registrant on behalf of GS Core Fixed Income Fund
and Goldman Sachs Asset Management and paragraph 7 of the Advisory Agreement
dated October 27, 1993 between the registrant on behalf of each of Goldman Sachs
California Municipal Income Fund and Goldman Sachs New York Municipal Income
Fund and Goldman Sachs Asset Management, provide for indemnification of Goldman,
Sachs & Co., Goldman Sachs Asset Management or, in lieu thereof, contribution by
the Registrant under certain circumstances. Copies of such Agreements were filed
as Exhibits 5(a), (b), (d), (e), (f), (g), (h), (i), (n), (o), and (p),
respectively, to Registrant's Registration Statement.

Article III of the Declaration of Trust of Goldman Sachs Trust, the Delaware
business trust, provides for indemnification of the Trustees, offices and agents
of the Trust, subject to certain limitations. The Declaration of Trust was filed
as Exhibit 1(g).

The Management Agreement with each of the Funds (other than the ILA Portfolios)
provides that the applicable Investment Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund, except a loss
resulting from wilful misfeasance, bad faith or gross negligence on the party of
the Investment Adviser or from reckless disregard by the Investment Adviser of
its obligations or duties under the Management Agreement. Section 7 of the
Advisory Agreement with respect to the ILA Portfolios provides that the ILA
Portfolios will indemnify the Adviser against certain liabilities; provided,
however, that such indemnification does not apply to any loss by reason of its
wilful misfeasance, bad faith or gross negligence or the Adviser's reckless
disregard of its obligation under the Advisory Agreement. The Management
Agreements were filed as Exhibit 5(o).

Section XI of the Distribution Agreement and Section 7 of the Transfer Agency
Agreement between the Registrant and Goldman, Sachs & Co. dated July 15, 1991
each provides that the Registrant will indemnify Goldman, Sachs & Co. against
certain liabilities. A copy of such Agreements were filed as Exhibits 6(a) and
17(a), respectively, to the Registrant's Registration Statement.

Mutual fund and Trustees and officers liability policies purchased jointly by
the Registrant, Goldman Sachs Money Market Trust, Goldman Sachs Equity
Portfolios, Inc., Trust for Credit Unions, The Benchmark Funds and The Commerce
Funds and Goldman, Sachs & Co. insure such persons and their respective
trustees, partners, officers and employees, subject to the policies' coverage
limits and exclusions and varying deductibles, against loss

10
<PAGE>

resulting from claims by reason of any act, error, omission, misstatement,
misleading statement, neglect or breach of duty.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
----------------------------------------------------

The business and other connections of the officers and Managing Directors of
Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are listed on their respective Forms ADV as
currently filed with the Commission (File Nos. 801-16048, 801-37591 and
801-38157, respectively) the text of which are hereby incorporated by reference.

ITEM 29. PRINCIPAL UNDERWRITERS.
----------------------

(a). Goldman, Sachs & Co. or an affiliate or a division thereof currently
serves as investment adviser and distributor of the units of Goldman Money
Market Trust, Trust for Credit Unions and for shares of Goldman Sachs Trust and
Goldman Sachs Equity Portfolios, Inc. Goldman, Sachs & Co., or a division
thereof currently serves as administrator and distributor of the units or shares
of The Benchmark Funds and The Commerce Funds.

(b). Set forth below is certain information pertaining to the Managing
Directors of Goldman, Sachs & Co., the Registrant's principal underwriter. None
of the members of the executive committee holds a position or office with the
Registrant.

GOLDMAN SACHS MANAGING DIRECTORS
<TABLE>
<CAPTION>
Name and Principal
Business Address Position
---------------- --------
<S> <C>
Jon S. Corzine (1) Chief Executive Officer
Robert J. Hurst (1) Managing Director
Henry M. Paulson, Jr. (1) Chief Operating Officer
John A. Thain (1)(3) Chief Financial Officer
John L. Thornton (3) Managing Director
Roy J. Zuckerberg (2) Managing Director
</TABLE>
_______________________

(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB, England

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
--------------------------------

The Amended and Restated Agreement and Declaration of Trust, By-laws and minute
books of the Registrant are in the physical

11
<PAGE>

possession of Goldman Sachs Asset Management, One New York Plaza, New York, New
York 10004. All other accounts, books and other documents required to be
maintained under Section 31(a) of the Investment Company Act of 1940 and the
Rule promulgated thereunder are in the physical possession of State Street Bank
and Trust Company, P.O. Box 1713, Boston, Massachusetts 02105 except for certain
transfer agency records which are maintained by Goldman, Sachs & Co., 4900 Sears
Tower, Chicago, Illinois 60606.

ITEM 31. MANAGEMENT SERVICES
-------------------

The Custodian Agreement between State Street Bank and Trust Company and
Registrant provides for State Street Bank and Trust Company to act as custodian
and to maintain certain accounting records for Registrant. Remuneration is based
on a minimum fixed dollar charge per annum and the Funds' average daily net
assets (such remuneration being subject to adjustment on the basis of the amount
of the Funds' uninvested cash) and on the number of portfolio transactions. Such
Agreement together with the related letter and other agreements and amendments
pertaining thereto, referred to under Item 24(b) are hereby incorporated by
reference.

ITEM 32. UNDERTAKINGS
------------

(a) The Funds Annual Reports contain performance information and are available
to any recipient of the Prospectuses upon request and without charge by writing
to Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.

12
<PAGE>

SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 31 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto to duly authorized, in the City and State of New York on
the 25th day of February, 1997.

GOLDMAN SACHS TRUST

/s/ Michael J. Richman
By:_________________________
Michael J. Richman
Secretary

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 30 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
*Douglas C. Grip President and Trustee February 25, 1997
- --------------------
Douglas C. Grip

*Scott M. Gilman Principal Accounting February 25, 1997
- --------------------
Scott M. Gilman Officer And Principal
Financial Officer

*David B. Ford Trustee February 25, 1997
- --------------------
David B. Ford

*Ashok N. Bakhru Trustee February 25, 1997
- --------------------
Ashok N. Bakhru

*Alan A. Shuch Trustee February 25, 1997
- --------------------
Alan A. Shuch

*Jackson W. Smart Trustee February 25, 1997
- --------------------
Jackson W. Smart, Jr.

*William H. Springer Trustee February 25, 1997
- --------------------
William H. Springer
</TABLE>

13
<PAGE>

<TABLE>
<S> <C> <C>
*Richard P. Strubel Trustee February 25, 1997
- ---------------------
Richard P. Strubel

/s/ Michael J. Richman
*By: _______________________ February 25, 1997
Michael J. Richman,
Attorney-In-Fact
</TABLE>

* Pursuant to a power of attorney previously filed.

14
<PAGE>

SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Goldman Sachs Trust, a Delaware business trust
(the "Delaware Trust"), has duly caused this Post-Effective Amendment No. 31 to
the Registration Statement of Goldman Sachs Trust, a Massachusetts business
trust (the "Massachusetts Trust"), to be signed on its behalf by the under
signed, thereunto duly authorized, in the City and State of New York of the 25th
day of February, 1997.

GOLDMAN SACHS TRUST
(the Delaware business trust)

By: \s\ Michael J. Richman
----------------------------
Michael J. Richman
Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 31 to the Registration Statement of the
Massachusetts Trust has been signed below by the following persons in the
capacities and on the date indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
*Douglas C. Grip President and Trustee February 25, 1997
- --------------------
Douglas C. Grip

*Scott M. Gilman Principal Accounting February 25, 1997
- --------------------
Scott M. Gilman Officer And Principal
Financial Officer

*David B. Ford Trustee February 25, 1997
- --------------------
David B. Ford

*Ashok N. Bakhru Trustee February 25, 1997
- --------------------
Ashok N. Bakhru

*John P. McNulty Trustee February 25, 1997
- --------------------
John P. McNulty

*Mary P. McPherson Trustee February 25, 1997
- --------------------
Mary P. McPherson

*Alan A. Shuch Trustee February 25, 1997
- --------------------
Alan A. Shuch

*Jackson W. Smart Trustee February 25, 1997
- --------------------
Jackson W. Smart, Jr.

*William H. Springer Trustee February 25, 1997
- --------------------
William H. Springer
</TABLE>

15
<PAGE>

<TABLE>
<S> <C> <C>
*Richard P. Strubel Trustee February 25, 1997
- --------------------
Richard P. Strubel

*By: \s\ Micheal J. Richman February 25, 1997
-----------------------
Michael J. Richman,
Attorney-In-Fact
</TABLE>

* Pursuant to a power of attorney filed herein.

16
<PAGE>

INDEX TO EXHIBITS
-----------------

Exhibit
- -------

11. Consent of Arthur Andersen.

17(f). Powers of Attorney of Messrs. Bakhru, Ford, Grip, Shuch, Smart,
Springer, Strubel, McNulty, Mosior, Gilman, Perlowski, Richman,
Surloff, Mmes. McPherson, Mucker and Taylor.

<PAGE>

EXHIBIT 11

ARTHUR ANDERSEN LLP

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
for Goldman Sachs Trust dated December 12, 1996 (and to all references to our
firm) included in or made a part of Post-Effective Amendment No. 31 and
Amendment No. 33 to Registration Statement File Nos. 33-17619 and 811-5349,
respectively.

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 28, 1997

<PAGE>