GOLDMAN SACHS MONEY MARKET TRUST, 497, 1995-03-15

GOLDMAN SACHS MONEY MARKET TRUST
497, 1995-03-15

Previous: NEWPORT CORP, 8-K, 1995-03-15

Next: U S TRUST CORP, 10-K405, 1995-03-15

<PAGE>

OAKMARK UNITS

GOVERNMENT PORTFOLIO

--------

TAX-EXEMPT DIVERSIFIED
PORTFOLIO

A Cash Management Vehicle for
Existing and Prospective Shareholders of

LOGO THE OAKMARK FUNDS

PROSPECTUS

--------

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

--------

THIS BROCHURE INCLUDES A PROSPECTUS WHICH DESCRIBES IN DETAIL THE FUND'S OB-
JECTIVES, INVESTMENT POLICIES, RISKS, SALES CHARGES, FEES AND OTHER MATTERS OF
INTEREST. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MON-
EY.

--------
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unitholder and Portfolio
Expenses............... 2
Financial Highlights.... 3
An Introduction to the
Portfolios............. 6
Investment Objective and
Policies of the
Government Portfolio... 7
Investment Objective and
Policies of the Tax-
Exempt Diversified
Portfolio.............. 7
Description of
Securities and
Investment Techniques.. 8
Investment Limitations.. 11
Management.............. 13
Net Asset Value......... 14
Yield Information....... 15
Organization and Units
of the Portfolios...... 15
Distributions and Taxes. 16
Additional Services..... 18
Unitholder Services..... 19
How to Purchase Units... 20
How to Redeem Units..... 22
</TABLE>

QUESTIONS ABOUT YOUR ACCOUNT:
If you have questions about your account, please call Oakmark at: 1-800-626-
9392.

THIS COVER IS NOT PART OF THE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY
BEFORE YOU INVEST.
<PAGE>

OAKMARK UNITS

GOVERNMENT PORTFOLIO
TAX-EXEMPT DIVERSIFIED PORTFOLIO

The Government Portfolio seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity by
investing exclusively in high quality money market instruments. The Portfolio
pursues its objective by investing in a diversified portfolio of securities
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities ("U.S. Government Securities") and
repurchase agreements relating to U.S. Government Securities.

The Tax-Exempt Diversified Portfolio seeks to provide unitholders, to the
extent consistent with the preservation of capital and prescribed portfolio
standards, with a high level of income excluded from gross income for federal
income tax purposes, by investing primarily in municipal instruments. The
Portfolio pursues its objective by investing in a diversified portfolio of
municipal obligations issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies,
authorities and instrumentalities, and the District of Columbia.

Goldman Sachs Asset Management, a separate operating division of Goldman,
Sachs & Co. serves as each Portfolio's investment adviser. Goldman, Sachs & Co.
serves as each Portfolio's distributor and transfer agent. Harris Associates or
its designee will act as nominee and record holder of the Oakmark Units.
Investors should be aware that Oakmark Units of the Portfolios may be purchased
only through Harris Associates or its designee. Harris Associates is not the
distributor of the Portfolios.

AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT A PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER UNIT.

- --------------------------------------------------------------------------------
This Prospectus provides you with information about the Portfolios that you
should know before investing in Oakmark Units. It should be read and retained
for future reference. If you would like more detailed information, the
Statement of Additional Information dated March 15, 1995, as amended or
supplemented from time to time, is available upon request without charge by
calling The Oakmark Funds at 1-800-OAKMARK (1-800-625-6275) or by writing The
Oakmark Funds at Two North LaSalle Street, Chicago, Illinois 60602. The
Statement of Additional Information, which is incorporated by reference into
this Prospectus, has been filed with the Securities and Exchange Commission.
- --------------------------------------------------------------------------------

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

The date of this Prospectus is March 15, 1995.
<PAGE>

UNITHOLDER AND PORTFOLIO EXPENSES (NOTE 1)
OAKMARK UNITS (NOTE 2)
<TABLE>
<CAPTION>
TAX-EXEMPT
GOVERNMENT DIVERSIFIED
PORTFOLIO PORTFOLIO
---------- -----------
<S> <C> <C>
UNITHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases.............. None None
Sales Charge Imposed on Reinvested Distributions....... None None
Deferred Sales Load Imposed on Redemptions............. None None
Exchange Fee........................................... None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily net assets after ad-
justments)
Management Fees........................................ 0.35% 0.25%
Other Expenses (after expense limitation) (Note 3).....
Service Fees (Note 4)................................. 0.40% 0.40%
Other Expenses........................................ 0.06% 0.06%
---- ----
TOTAL OPERATING EXPENSES (Note 3)....................... 0.81% 0.71%
---- ----
</TABLE>

EXAMPLE OF EXPENSES

You would pay the following expenses on a hypothetical $1,000 investment,
assuming a 5% annual return and redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Portfolio....................... $8 $26 $45 $100
Tax-Exempt Diversified Portfolio........... $7 $23 $40 $88
</TABLE>
- --------
Notes:
(1) The purpose of this table is to assist investors in understanding the
various costs and expenses that an investment in the Portfolios will bear
directly or indirectly. Operating expenses for the Portfolios are based on
estimates of expenses expected to be incurred during the fiscal year
ending December 31, 1995. The table and hypothetical example should not be
considered a representation of past or future expenses; actual expenses
may vary depending upon a variety of factors including the actual
performance of each Portfolio, which may be greater or less than 5%.
Annual operating expenses incurred by the Portfolios during the fiscal
year ended December 31, 1994 (expressed as a percentage of average daily
net assets after fee adjustments and expense limitations) were as follows:
Management Fees, Service Fees and Other Expenses for the Government
Portfolio of 0.35%, 0.40% and 0.05%, respectively for Total Operating
Expenses of 0.80% and the Tax-Exempt Diversified Portfolio of 0.25%, 0.40%
and 0.05%, respectively for Total Operating Expenses of 0.70%. See
"Management". Investors should be aware that, due to the service fees, a
long-term unitholder in a Portfolio 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.
(2) The information set forth in the foregoing table and example relates only
to Oakmark Units of the Portfolios. The Oakmark Units are ILA Service
Units sold through Harris Associates. ILA Units and ILA Administration
Units are subject to different fees and expenses. See "Organization and
Units of the Portfolios." ILA Units are not subject to any administration
or service fees. ILA Administration Units are subject to an administration
fee of up to 0.15% of average daily net assets. All other expenses related
to ILA Units and ILA Administration Units are the same as for Oakmark
Units.
(3) Goldman Sachs Asset Management (the "Adviser" or "GSAM") has agreed to
reduce or otherwise limit certain expenses of the Portfolios (excluding
fees payable to Service Organizations, as defined herein, taxes, interest,
brokerage and litigation, indemnification and other extraordinary
expenses), on an annualized basis, to 0.41% of the average daily net
assets of such Portfolio, less the effect of fee reductions, if any. The
Adviser has also agreed that a portion of its fees will not be imposed for
the Tax-Exempt Diversified Portfolio. Had the reduction of fees otherwise
payable and expense limitations not been reflected in the above table, the
management fees payable by the Tax-Exempt Diversified Portfolio would be
0.35% of its average daily net assets and the amount of other expenses
payable by the Government Portfolio and Tax-Exempt Diversified Portfolio
would be 0.09% and 0.06%, respectively, of average daily net assets. Had
the reduction of fees otherwise payable and expense limitations not been
reflected in the above table, the annual operating expenses of the
Government Portfolio and the Tax-Exempt Portfolio would be 0.84% and
0.81%, respectively, of average daily net assets.
(4) Service Organizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of ILA Service Units in
connection with their customers' accounts. See "Additional Services." Such
fees, if any, may affect the return such customers realize with respect to
their investments.

2
<PAGE>

FINANCIAL HIGHLIGHTS

The following data with respect to a unit of the Government Portfolio and
Tax-Exempt Diversified Portfolio outstanding during the periods indicated have
been audited by Arthur Andersen LLP, independent auditors, as indicated in
their report incorporated by reference and attached to the Statement of
Additional Information from the annual report to unitholders for the fiscal
year ended December 31, 1994 (the "Annual Report"), and should be read in
conjunction with the financial statements and related notes incorporated by
reference and attached to the Statement of Additional Information.

3
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER UNIT DATA AND RATIOS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
GOVERNMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

INCOME FROM INVESTMENT OPERATIONS
--------------------------------------
NET
NET ASSET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN INCOME FROM VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN(a)
--------- ---------- ------------- ----------- -------------- --------- ---------
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994-ILA units.......................... $1.00 $0.0378 $0.0002 $0.0380 $(0.0380) $1.00 3.94%
1994-ILA Administration units........... 1.00 0.0362 0.0002 0.0364 (0.0364) 1.00 3.79
1994-ILA Service units.................. 1.00 0.0350 0.0002 0.0352 (0.0352) 1.00 3.53

1993-ILA units.......................... 1.00 0.0282 0.0008 0.0290 (0.0291) 1.00 2.94
1993-ILA Administration units........... 1.00 0.0267 0.0008 0.0275 (0.0276) 1.00 2.79
1993-ILA Service units.................. 1.00 0.0242 0.0006 0.0248 (0.0250) 1.00 2.53

1992-ILA units.......................... 1.00 0.0338 0.0027 0.0365 (0.0364) 1.00 3.70
1992-ILA Administration units........... 1.00 0.0325 0.0027 0.0352 (0.0351) 1.00 3.55
1992-ILA Service units.................. 1.00 0.0309 0.0030 0.0339 (0.0336) 1.00 3.29

1991-ILA units.......................... 1.00 0.0567 0.0011 0.0578 (0.0578) 1.00 5.91
1991-ILA Administration units........... 1.00 0.0545 0.0011 0.0556 (0.0556) 1.00 5.75
1991-ILA Service units.................. 1.00 0.0522 0.0011 0.0533 (0.0533) 1.00 5.49

1990-ILA units.......................... 1.00 0.0779 0.0003 0.0782 (0.0782) 1.00 8.11
1990-ILA Administration units(c)........ 1.00 0.0439 0.0004 0.0443 (0.0443) 1.00 7.74(b)
1990-ILA Service units(c)............... 1.00 0.0359 0.0002 0.0361 (0.0363) 1.00 7.42(b)

1989-ILA units.......................... 1.00 0.0877 0.0001 0.0878 (0.0878) 1.00 9.15

1988-ILA units.......................... 1.00 0.0716 0.0002 0.0718 (0.0718) 1.00 7.42

1987-ILA units.......................... 1.00 0.0622 0.0001 0.0623 (0.0624) 1.00 6.43

1986-ILA units.......................... 1.00 0.0629 0.0011 0.0640 (0.0641) 1.00 6.65

1985-ILA units.......................... 1.00 0.0780 0.0007 0.0787 (0.0785) 1.00 8.14

<CAPTION>
RATIO OF NET NET
RATIO OF NET INVESTMENT ASSETS AT
EXPENSES TO INCOME TO END OF
AVERAGE NET AVERAGE NET PERIOD
ASSETS ASSETS (IN 000S)
------------ ------------ ----------
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<S> <C> <C> <C>
1994-ILA units.......................... 0.40% 3.78% $ 881,520
1994-ILA Administration units........... 0.55 3.62 95,483
1994-ILA Service units.................. 0.80 3.50 156,930

1993-ILA units.......................... 0.40 2.82 1,315,378
1993-ILA Administration units........... 0.55 2.67 161,845
1993-ILA Service units.................. 0.80 2.42 101,272

1992-ILA units.......................... 0.40 3.38 1,785,472
1992-ILA Administration units........... 0.55 3.25 461,542
1992-ILA Service units.................. 0.80 3.09 56,389

1991-ILA units.......................... 0.40 5.67 2,103,627
1991-ILA Administration units........... 0.55 5.45 464,060
1991-ILA Service units.................. 0.80 5.22 200,176

1990-ILA units.......................... 0.39 7.79 2,203,756
1990-ILA Administration units(c)........ 0.55(b) 7.49(b) 296,313
1990-ILA Service units(c)............... 0.80(b) 7.15(b) 132,888

1989-ILA units.......................... 0.40 8.77 2,268,330

1988-ILA units.......................... 0.40 7.16 2,197,796

1987-ILA units.......................... 0.40 6.22 2,243,870

1986-ILA units.......................... 0.40 6.29 2,401,140

1985-ILA units.......................... 0.38 7.80 2,085,494
</TABLE>

- ----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(b) Annualized.
(c) ILA Administration and Service unit activity commenced during June and July
of 1990, respectively.

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

4
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
TAX-EXEMPT DIVERSIFIED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

INCOME FROM INVESTMENT OPERATIONS
--------------------------------------
NET
NET ASSET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN (LOSS) INCOME FROM VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT DISTRIBUTIONS END
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD
--------- ---------- ------------- ----------- -------------- ---------
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994-ILA units....................... $1.00 $0.0264 $ -- $0.0264 $(0.0264) $1.00
1994-ILA Administration units........ 1.00 0.0250 -- 0.0250 (0.0250) 1.00
1994-ILA Service units............... 1.00 0.0220 -- 0.0220 (0.0220) 1.00

1993-ILA units....................... 1.00 0.0222 -- 0.0222 (0.0222) 1.00
1993-ILA Administration units........ 1.00 0.0207 -- 0.0207 (0.0207) 1.00
1993-ILA Service units............... 1.00 0.0183 -- 0.0183 (0.0183) 1.00

1992-ILA units....................... 1.00 0.0277 -- 0.0277 (0.0277) 1.00
1992-ILA Administration units........ 1.00 0.0266 -- 0.0266 (0.0266) 1.00
1992-ILA Service units .............. 1.00 0.0243 -- 0.0243 (0.0243) 1.00

1991-ILA units....................... 1.00 0.0424 -- 0.0424 (0.0424) 1.00
1991-ILA Administration units........ 1.00 0.0406 -- 0.0406 (0.0406) 1.00
1991-ILA Service units............... 1.00 0.0386 -- 0.0386 (0.0386) 1.00

1990-ILA units....................... 1.00 0.0550 (0.0001) 0.0549 (0.0549) 1.00
1990-ILA Administration units(c)..... 1.00 0.0301 -- 0.0301 (0.0300) 1.00
1990-ILA Service units(c)............ 1.00 0.0259 -- 0.0259 (0.0259) 1.00

1989-ILA units....................... 1.00 0.0591 (0.0001) 0.0590 (0.0590) 1.00

1988-ILA units....................... 1.00 0.0487 0.0003 0.0490 (0.0490) 1.00

1987-ILA units....................... 1.00 0.0413 (0.0003) 0.0410 (0.0410) 1.00

1986-ILA units....................... 1.00 0.0426 -- 0.0426 (0.0426) 1.00

1985-ILA units....................... 1.00 0.0491 -- 0.0491 (0.0491) 1.00

<CAPTION>
RATIO INFORMATION
ASSUMING NO WAIVER OF
ADVISORY FEES
--------------------------
RATIO OF NET NET RATIO OF NET
RATIO OF NET INVESTMENT ASSETS AT RATIO OF NET INVESTMENT
EXPENSES TO INCOME TO END OF EXPENSES TO INCOME TO
TOTAL AVERAGE NET AVERAGE NET PERIOD AVERAGE NET AVERAGE NET
RETURN(a) ASSETS ASSETS (IN 000S) ASSETS ASSETS
--------- ------------ ------------ --------- ------------ ------------
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994-ILA units....................... 2.71% 0.30% 2.64% $1,434,965 0.40% 2.54%
1994-ILA Administration units........ 2.55 0.45 2.50 97,778 0.55 2.40
1994-ILA Service units............... 2.30 0.70 2.20 36,492 0.80 2.10

1993-ILA units....................... 2.25 0.30 2.22 1,769,477 0.40 2.12
1993-ILA Administration units........ 2.09 0.45 2.08 99,896 0.55 1.98
1993-ILA Service units............... 1.84 0.70 1.83 45,172 0.80 1.73

1992-ILA units....................... 2.82 0.30 2.77 1,333,925 0.40 2.67
1992-ILA Administration units........ 2.67 0.45 2.66 50,225 0.55 2.56
1992-ILA Service units............... 2.41 0.70 2.43 29,534 0.80 2.33

1991-ILA units....................... 4.33 0.32 4.24 1,044,986 0.40 4.16
1991-ILA Administration units........ 4.17 0.47 4.06 37,567 0.55 3.98
1991-ILA Service units............... 3.91 0.72 3.86 52,399 0.80 3.78

1990-ILA units....................... 5.64 0.40 5.50 603,895 0.40 5.50
1990-ILA Administration units(c)..... 5.43(b) 0.55(b) 5.40(b) 42,498 0.55(b) 5.40(b)
1990-ILA Service units(c)............ 5.17(b) 0.80(b) 5.16(b) 56,810 0.80(b) 5.16(b)

1989-ILA units....................... 6.07 0.40 5.91 688,556 0.40 5.91

1988-ILA units....................... 5.03 0.40 4.87 907,782 0.40 4.87

1987-ILA units....................... 4.23 0.40 4.13 965,714 0.40 4.13

1986-ILA units....................... 4.45 0.40 4.26 1,492,752 0.40 4.26

1985-ILA units....................... 5.04 0.40 4.91 652,033 0.40 4.91
</TABLE>

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

5
<PAGE>

AN INTRODUCTION TO THE PORTFOLIOS

The Government Portfolio and Tax-Exempt Diversified Portfolio (the
"Portfolios") are portfolios of Goldman Sachs Money Market Trust (the "Trust"),
a no-load, open-end, management investment company registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act"). This
Prospectus relates to the offering of ILA Service Units ("Oakmark Units") of
the Portfolios through Harris Associates, L.P. ("Harris Associates") in its
capacity as a Service Organization for the Portfolios. Goldman Sachs Asset
Management, a separate operating division of Goldman, Sachs & Co. ("Goldman
Sachs"), serves as the Portfolios' investment adviser (the "Adviser" or
"GSAM"). Goldman Sachs, which serves as the Portfolios' distributor and
transfer agent, is one of the largest international investment banking and
brokerage firms in the United States.

The Portfolios are designed for investors seeking a high rate of return, a
stable net asset value and convenient liquidation privileges. Each Portfolio
seeks to maintain a stable net asset value of $1.00 per unit. To facilitate
this goal, each Portfolio's securities are valued by the amortized cost method
as permitted by a rule of the Securities and Exchange Commission ("SEC"). The
SEC rule requires, among other things, that all portfolio securities have at
the time of purchase a maximum remaining maturity of thirteen months and that
each Portfolio maintain a dollar-weighted average portfolio maturity of not
more than ninety (90) days. Investments by each Portfolio must present minimal
credit risk.

The Government Portfolio may only purchase '"First Tier Securities" as
defined herein. First Tier Securities are securities which are rated (or that
have been issued by an issuer that is rated with respect to a class of short-
term debt obligations, or any security within that class, comparable in
priority and quality with such securities) in the highest short-term rating
category by at least two nationally recognized statistical rating organizations
("NRSROs"), or if only one NRSRO has assigned a rating by that NRSRO.

Securities which are unrated may be purchased only if they are deemed to be
of comparable quality to First Tier Securities or, in the case of Tax-Exempt
Diversified Portfolio, "Second Tier Securities" as defined herein. The Tax-
Exempt Diversified Portfolio may invest in First and Second Tier Securities.
Second Tier Securities are securities rated in the top two short-term rating
categories by at least two NRSROs, or if only one NRSRO has assigned a rating,
by that NRSRO, but which are not First Tier Securities. Purchases of securities
which are unrated or rated by only one NRSRO must be approved or ratified by
the Trustees, except for purchases made on behalf of the Tax-Exempt Diversified
Portfolio.

NRSROs include Standard & Poor's Ratings Group, Moody's Investors Service,
Inc., Fitch Investors Service, Inc., Duff and Phelps, Inc., IBCA Limited and
its affiliate IBCA Inc., and Thomson BankWatch, Inc. For a description of each
NRSRO's rating categories, see Appendix A to the Statement of Additional
Information.

6
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES OF THE GOVERNMENT PORTFOLIO

The investment objective of the Government Portfolio is to maximize current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity by investing exclusively in high quality money market
instruments. The Portfolio pursues its objective by limiting its investments to
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies, authorities or instrumentalities ("U.S. Government
Securities") and repurchase agreements relating to such securities. The
Portfolio may acquire any of the above securities on a forward commitment or
when-issued basis.

INVESTMENT OBJECTIVE AND POLICIES OF THE TAX-EXEMPT DIVERSIFIED PORTFOLIO

The investment objective of the Tax-Exempt Diversified Portfolio is to
provide its unitholders, to the extent consistent with the preservation of
capital and prescribed portfolio standards, with a high level of income exempt
from federal income tax by investing primarily in Municipal Instruments, as
defined below. The Portfolio pursues its objective by investing primarily in
obligations issued by or on behalf of states, territories and possessions of
the United States and their political subdivisions, agencies, authorities and
instrumentalities, and the District of Columbia ("Municipal Instruments"), the
interest from which is, in the opinion of bond counsel, if any, excluded from
gross income for federal income tax purposes. Such Municipal Instruments may
include:

(A) fixed rate notes and similar debt instruments rated in the highest
short-term rating category or in one of the two highest long-term rat-
ing categories of at least one NRSRO;

(B) variable and floating rate demand instruments rated (i) in the highest
rating category for municipal notes or (ii) in one of the two highest
rating categories for long-term instruments or (iii) in the highest
rating category for commercial paper and municipal notes with demand
features of at least one NRSRO;

(D) unrated notes, paper or other instruments which are determined to be of
comparable high quality by the Adviser pursuant to criteria approved by
the Trustees; and

(E) municipal bonds rated in one of the two highest rating categories of at
least one NRSRO and unrated bonds determined to be of comparable qual-
ity by the Adviser pursuant to criteria approved by the Trustees.

The Portfolio may acquire any of the above securities on a forward commitment
or when-issued basis.

As a matter of fundamental policy, at least 80% of the Portfolio's annual
gross income will be derived from Municipal Instruments, except in extraordi-
nary circumstances. For example, the Portfolio may temporarily invest in tax-
able money market instruments when the Adviser believes that market conditions
dictate a defensive posture. Investments in taxable money market instruments
will be limited to those meeting the quality standards of the Portfolio.

7
<PAGE>

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

U.S. GOVERNMENT SECURITIES

U.S. Government Securities are obligations issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities. 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. Others, such as obligations
issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities are supported either by (a) the full faith and credit of the
U.S. Government (such as securities of the Government National Mortgage
Association), (b) the right of the issuer to borrow from the Treasury (such as
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation), or (d) only the credit of the issuer. No assurance
can be given that the U.S. Government will provide financial support to U.S.
Government agencies, authorities or instrumentalities in the future. U.S.
Government Securities may include zero coupon bonds. Such bonds may be
purchased when yields are attractive.

Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities are deemed to include (a)
securities for which the payment of principal and interest is backed by an
irrevocable letter of credit issued by the U.S. Government, its agencies,
authorities or instrumentalities and (b) participations in loans made to
foreign governments or their agencies that are so guaranteed. The secondary
market for certain of these participations is limited. Such participations may
therefore be regarded as illiquid.

Each Portfolio may also invest in separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").

CUSTODIAL RECEIPTS

The Tax-Exempt Diversified Portfolio may also acquire securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities in the form of custodial receipts that
evidence ownership of future interest payments, principal payments or both on
certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities. For certain securities law purposes,
custodial receipts are not considered obligations of the U.S. Government.

MUNICIPAL INSTRUMENTS

Municipal notes include tax anticipation notes ("TANs"), revenue anticipa-
tion notes ("RANs"), bond anticipation notes ("BANs"), tax and revenue antici-
pation notes ("TRANs") and construction loan notes. Municipal bonds include
general obligation bonds and revenue bonds. General obligation bonds are
backed by the taxing power of the issuing municipality and are considered the
safest type of bonds. Revenue bonds are backed by the revenues of a project or
facility such as the tolls from a toll bridge. Revenue bonds also include
lease rental revenue bonds which are issued by a state or local authority for
capital projects and are secured by annual lease payments from the state or
locality sufficient to cover debt service on the authority's obligations. To
the extent that the Portfolio invests in unrated lease rental revenue bonds,
the Trustees will monitor on an ongoing basis the credit quality of such bonds
and the risks of cancellation of the underlying leases. Municipal bonds may be
issued in a variety of forms, including commercial paper, tender option bonds
and variable and floating rate securities.

8
<PAGE>

Industrial development bonds (generally referred to under current tax law as
"private activity bonds") are a specific type of revenue bond backed by the
credit and security of a private user and therefore have more potential risk.
The Tax-Exempt Diversified Portfolio does not currently intend to invest in
such bonds.

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

Revenue Anticipation Warrants ("RAWs") are issued in anticipation of the
issuer's receipt of revenues and present the risk that such revenues will be
insufficient to satisfy the issuer's payment obligations. The entire principal
amount of principal and interest on RAWs is due at maturity. RAWs have been
issued with maturities of up to 22 months. RAWs may also be repackaged as
instruments which include a demand feature that permits the holder to put the
RAWs to a bank or other financial institution at a purchase price equal to par
plus accrued interest on each interest rate reset date.

The value of floating and variable rate obligations generally is more stable
than that of fixed rate obligations in response to changes in interest rate
levels. Variable and floating rate obligations usually carry rights that
permit the Portfolio to sell them at par value plus accrued interest upon
short notice. The issuers or financial intermediaries providing rights to sell
may support their ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are conditional
commitments to lend, and letters of credit, which will ordinarily be
irrevocable, both of which may be issued by domestic banks or foreign banks
which have a branch, agency or subsidiary in the United States. When
considering whether an obligation meets the Portfolio's quality standards, the
Portfolio will look to the creditworthiness of the party providing the right
to sell as well as to the quality of the obligation itself. The Portfolio may
consider the maturity of a variable or floating rate Municipal Instrument to
be shorter that its ultimate stated maturity if the Portfolio has the right to
demand prepayment of its principal at specified intervals prior to the
security's ultimate stated maturity, subject to the conditions for using
amortized cost valuation under the Investment Company Act. The Portfolio may
purchase such variable or floating rate obligations from the issuers or may
purchase certificates of participation, a type of floating or variable rate
obligation, which are interests in a pool of municipal obligations held by a
bank or other financial institution.

Ordinarily, the Tax-Exempt Diversified Portfolio expects that 100% of its
portfolio securities will be Municipal Instruments. However, the Portfolio may
hold cash or invest in short-term taxable securities as

9
<PAGE>

set forth above. The Portfolio may invest 25% or more of the value of its total
assets in Municipal Instruments which are related in such a way that an
economic, business or political development or change affecting one Municipal
Instrument would also affect the other Municipal Instruments. For example, the
Portfolio may invest all of its assets in (a) Municipal Instruments the
interest on which is paid solely from revenues from similar projects such as
hospitals, electric utility systems, multi-family housing, nursing homes,
commercial facilities (including hotels), steel companies or life care
facilities, (b) Municipal Instruments whose issuers are in the same state or
(c) industrial development obligations. Concentration of the Portfolio's
investments in Municipal Instruments in any of the foregoing will subject the
Portfolio, to a greater extent than if such investment was more limited, to the
risks of adverse economic, business or political developments affecting any
such state, industry or other area of concentration.

The Tax-Exempt Diversified Portfolio may purchase Municipal Instruments which
are backed by letters of credit, which will ordinarily be irrevocable, issued
by domestic banks or foreign banks which have a branch, agency or subsidiary in
the United States. In addition, the Portfolio may acquire securities in the
form of custodial receipts which evidence ownership of future interest
payments, principal payments or both on obligations of certain state and local
governments and authorities.

In order to enhance the liquidity, stability, or quality of a Municipal
Instrument, the Tax-Exempt Diversified Portfolio may acquire the right to sell
the security to another party at a guaranteed price and date. These rights may
be referred to as puts, demand features, or standby commitments.

REPURCHASE AGREEMENTS

Each Portfolio may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. A repurchase agreement is an
agreement under which a Portfolio purchases securities and the seller agrees to
repurchase the securities within a particular time at a specified price. Such
price will exceed the original purchase price, the difference being income to
the Portfolio, and will be unrelated to the interest rate on the purchased
security. A Portfolio's custodian or sub-custodian will maintain custody of the
purchased securities for the duration of the agreement. The value of the
purchased securities, including accrued interest, will at all times exceed the
value of the repurchase agreement. In the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, the Portfolio
could suffer losses, including loss of interest on or principal of the security
and costs associated with delay and enforcement of the repurchase agreement. In
evaluating whether to enter into a repurchase agreement, the Adviser will
carefully consider the creditworthiness of the seller pursuant to procedures
reviewed and approved by the Trustees. Distribution of the income from
repurchase agreements entered into by a Portfolio will be taxable to its
unitholders. In addition, each Portfolio, together with other registered
investment companies having advisory agreements with the Adviser or any of its
affiliates, may transfer uninvested cash balances into a single joint account,
the daily aggregate balance of which will be invested in one or more repurchase
agreements.

FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES

Each Portfolio may purchase when-issued securities and make contracts to
purchase or sell securities for a fixed price at a future date beyond customary
settlement time. A Portfolio is required to hold and maintain in a segregated
account with the Portfolio's custodian or subcustodian until the settlement
date, cash or liquid, high quality debt obligations in an amount sufficient to
meet the purchase

10
<PAGE>

price. Alternatively, a Portfolio may enter into offsetting contracts for the
forward sale of other securities that it owns. Securities purchased or sold on
a when-issued or forward commitment basis involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date or if the
value of the security to be sold increases prior to the settlement date.
Although a Portfolio would generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring securities for its
portfolio, the Portfolio may dispose of a when-issued security or forward
commitment prior to settlement if the Adviser deems it appropriate to do so.

OTHER INVESTMENT COMPANIES

The Tax-Exempt Diversified Portfolio may invest in securities issued by other
money market investment companies. Such investments will be determined by the
Adviser, under guidelines established by the Trustees, to present minimal
credit risks. The amount of the Portfolio's investments in securities of other
investment companies will be subject to the limitations on such investments
prescribed by the Investment Company Act and certain state securities
regulations. These limits include a prohibition on the Portfolio acquiring more
than 3% of the voting shares of any other investment company, and investing
more than 5% of its assets in securities of any one investment company or more
than 10% of its assets in securities of all investment companies. The Portfolio
will indirectly bear its proportionate share of any management fees and other
expenses paid by such other investment companies. Goldman Sachs will not impose
a portion of the management fees payable by the Portfolio (the "Acquiring
Portfolio") with respect to assets invested in another money market investment
company (the "Acquired Portfolio") as follows. The amount of the management
fees otherwise payable by the Acquiring Portfolio and not imposed by Goldman
Sachs will be equal to the amount of management fees indirectly borne by the
Acquiring Portfolio as a unitholder of the Acquired Portfolio. Such other
investment companies will have investment objectives, policies and restrictions
substantially similar to those of the Acquiring Portfolio and will be subject
to substantially the same risks.

INVESTMENT LIMITATIONS

GOVERNMENT PORTFOLIO. Pursuant to SEC Rule 2a-7 under the Investment Company
Act, the Government Portfolio may not invest more than 5% of its assets (taken
at amortized cost) in the securities of any one issuer (except U.S. Government
Securities and repurchase agreements collateralized by such securities). The
Portfolio may, however, invest more than 5% of its assets in the First Tier
Securities of a single issuer for a period of up to three business days after
the purchase thereof, although the Portfolio may not make more than one such
investment at any time. The Government Portfolio may not invest in securities
which are Second Tier Securities at the time of purchase. Immediately after the
acquisition of any put by the Portfolio, not more than 5% of such Portfolio's
total assets may be invested in securities issued by or subject to puts from
the same issuer. However, this limitation will not apply to the issuer of
unconditional puts if the Portfolio does not have more than 10% of its total
assets invested in securities issued by or subject to unconditional puts from
such issuer. Pursuant to SEC Rule 2a-7 the foregoing restrictions are not
applicable to the Tax-Exempt Diversified Portfolio. The foregoing operating
policies are more restrictive than the fundamental policy set forth below,
which would give the Government Portfolio the ability to invest with respect to
25% of its assets, more than 5% of its assets in any one issuer. The Government
Portfolio will operate in accordance with these operating policies which comply
with SEC Rule 2a-7.

11
<PAGE>

TAX-EXEMPT DIVERSIFIED PORTFOLIO. Pursuant to SEC Rule 2a-7, immediately
after the acquisition of any put by the Tax-Exempt Diversified Portfolio, not
more than 5% of the Portfolio's total assets may be invested in securities
issued by or subject to puts from the same issuer. However, this limitation
applies only with respect to 75% of the Portfolio's total assets. This
limitation will not apply to the issuer of unconditional puts if the Portfolio
does not have more than 10% of its total assets invested in securities issued
by or subject to unconditional puts from such issuer. The Tax-Exempt
Diversified Portfolio will operate in accordance with this operating policy
which complies with SEC Rule 2a-7.

INVESTMENT RESTRICTIONS

The Trust, on behalf of each Portfolio, has adopted certain fundamental in-
vestment restrictions which are enumerated in detail in the Statement of Addi-
tional Information and which may not be changed with respect to a Portfolio
unless authorized by a majority of its outstanding units. Among other restric-
tions, each Portfolio may not, with respect to 75% of its total assets taken
at market value, invest more than 5% of its total assets in the securities of
any one issuer (except U.S. Government Securities and repurchase agreements
collateralized by such securities) or acquire more than 10% of any class of
the outstanding voting securities of any one issuer. See the above paragraphs
for a summary of SEC Rule 2a-7 restrictions. In addition, each Portfolio may
not invest more than 25% of its total assets in securities of issuers in any
one industry (the electric, gas, water and telephone utility industries being
treated as separate industries for the purpose of the restriction), provided
that there is no 25% limitation in respect of, and each Portfolio reserves
freedom of action to concentrate its investments in, U.S. Government Securi-
ties, obligations (other than commercial paper) issued or guaranteed by U.S.
banks and U.S. branches of foreign banks, provided such branches are subject
to the same regulations as U.S. banks, and repurchase agreements and loans of
securities collateralized by U.S. Government Securities or such bank obliga-
tions, provided the investment policies of the Portfolio permit the particular
investment. Tax diversification requirements for qualification as a regulated
investment company apply to the Portfolios and are in certain instances more
strict than these investment restrictions. In applying the above restrictions,
a Portfolio will not treat a guarantee as a security issued by the guarantor
if the value of all securities issued or guaranteed by the guarantor and owned
by the Portfolio does not exceed 10% of its total assets.

Each Portfolio may borrow money as a temporary measure in amounts not ex-
ceeding 5% of its total assets or from banks in an aggregate amount not ex-
ceeding one-third of the value of its total assets. A Portfolio may not pur-
chase securities while such borrowings exceed 5% of the value of its total as-
sets. The investment restrictions listed above are fundamental policies and
accordingly may not be changed with respect to a Portfolio without the ap-
proval of the majority of the outstanding units of that Portfolio. The invest-
ment objective of each Portfolio is fundamental and may not be changed without
a vote of the unitholders. However, the investment policies and practices of
each Portfolio, unless otherwise specifically stated, are not fundamental.

RESTRICTED AND OTHER ILLIQUID SECURITIES

Each Portfolio may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933 ("1933 Act"), but can be offered
and sold to "qualified institutional buyers" under Rule 144A under the 1933
Act. However, a Portfolio will not invest more than 10% of its net assets in
illiquid investments, which includes fixed time deposits maturing in more than
seven days and restricted securities. Restricted securities (including
commercial paper issued pursuant to Section 4(2) of the 1933 Act) which the
Board of Trustees has determined are liquid, based upon a continuing review of
the trading

12
<PAGE>

markets for the specific restricted security, will not be deemed to be illiquid
investments for purposes of this restriction. The Board of Trustees may adopt
guidelines and delegate to the Adviser the daily function of determining and
monitoring the liquidity of restricted securities. The Board, however, will
retain sufficient oversight and be ultimately responsible for the
determinations. Since it is not possible to predict with assurance that the
market for restricted securities eligible for resale under Rule 144A will
continue to be liquid, the Board will carefully monitor each Portfolio's
investments in these securities, focusing on such important factors, among
others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of
illiquidity in each Portfolio to the extent that qualified institutional buyers
become for a time uninterested in purchasing these restricted securities.

In addition, the Trustees of the Trust have adopted the following non-
fundamental policy which may be changed or amended with respect to either
Portfolio by action of the Trustees without the approval of unitholders.
Accordingly, each Portfolio may not invest in repurchase agreements maturing in
more than seven days and securities which are not readily marketable if, as a
result thereof, more than 10% of the net assets of that Portfolio (taken at
market value) would be invested in such investments. Certain repurchase
agreements which mature in more than seven days can be liquidated before the
nominal fixed term on seven days or less notice. Such repurchase agreements
will be regarded as liquid instruments.

MANAGEMENT

THE ADVISER

GSAM, One New York Plaza, New York, New York, a separate operating division
of Goldman Sachs, acts as investment adviser to the Portfolios. Goldman Sachs
became registered as an investment adviser in 1981. As of January 31, 1995,
Goldman Sachs, together with its affiliates, acted as investment adviser,
administrator or distributor for approximately $48.7 billion in assets.

As of November 25, 1994, Goldman Sachs and its consolidated subsidiaries had
assets of approximately $54.6 billion and partners' capital of $1.8 billion and
ranked as one of the largest international investment banking and brokerage
firms in the United States. Founded in 1869, Goldman Sachs is a major player
among investment banking and brokerage firms providing a broad range of
financing and investing services both in the United States and abroad.

Pursuant to an SEC order, the Government Portfolio may enter into principal
transactions in certain taxable money market instruments, including repurchase
agreements, with Goldman Sachs or its affiliate, Goldman Sachs Money Market,
L.P.

Under its Investment Advisory Agreement with the Trust, GSAM continually
manages each Portfolio, including the purchase, retention and disposition of
its securities and other assets. In addition, GSAM administers the Portfolios'
business affairs and performs various unitholder servicing functions to the
extent not provided by other organizations. The management of each Portfolio is
subject to the supervision of the Board of Trustees and each Portfolio's
investment policies. For these services, the

13
<PAGE>

Trust, on behalf of each Portfolio, pays GSAM a monthly fee at an annual rate
of each Portfolio's average daily net assets as follows:

<TABLE>
<CAPTION>
RATE PAID
APPROXIMATE FOR FISCAL
ANNUAL YEAR ENDED
RATE 12/31/94
----------- ----------
<S> <C> <C>
Government Portfolio .35% .35%
Tax-Exempt Diversified Portfolio .35% .25%
</TABLE>

The difference between the stated advisory fee and the actual advisory fee
paid by the Tax-Exempt Diversified Portfolio reflects the fact that GSAM did
not charge the full amount of the advisory fee to which it would have been
entitled.

GSAM has agreed to reduce or otherwise limit the daily expenses of each
Portfolio (excluding fees payable to Service Organizations, as defined herein,
taxes, interest, brokerage and litigation, indemnification and other extraor-
dinary expenses) on an annualized basis to .43% of the average daily net as-
sets of the Portfolio less the effect of fee reductions, if any. Such reduc-
tions or limits, if any, are calculated monthly on a cumulative basis. Any
such reductions or limits may be discontinued or modified only with the ex-
press approval of the Trustees. In addition, GSAM has voluntarily agreed not
to impose all or a portion of its advisory fee and/or to reduce or otherwise
limit the Government and Tax-Exempt Diversified Portfolios' annual total oper-
ating expenses (excluding fees payable to Service Organizations, as defined
herein) to .41% and .31%, respectively, of average daily net assets. GSAM has
no current intention to, but may in the future, discontinue or modify the vol-
untary limitations at its discretion.

THE DISTRIBUTOR AND TRANSFER AGENT

Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, serves as the
Distributor of units of each Portfolio pursuant to a Distribution Agreement
with each Portfolio. The Distributor will assist in the sale of units of the
Portfolios upon the terms described herein. Goldman Sachs also serves as the
Transfer Agent of each Portfolio.

NET ASSET VALUE

The net asset value of the Portfolios is determined as of the close of regu-
lar trading on the New York Stock Exchange (normally 4:00 p.m. New York time)
on each Business Day. Net asset value per unit for each class of units of each
Portfolio is calculated by determining the amount of net assets attributable
to each class of units and dividing by the number of units for such class.

On any Business Day, as defined herein, when the Public Securities
Association (PSA) recommends that the securities market close early, the
Government Portfolio and Tax-Exempt Diversified Portfolio reserve the right to
cease, accepting purchase and redemption orders for same Business Day credit
at the time the PSA recommends that the securities market close. On days
either Portfolio closes early, purchase and redemption orders received after
the PSA recommended closing time will be credited for the next Business Day.
In addition, each Portfolio reserves the right to advance the time by which
purchase and redemption orders must be received for same Business Day credit
as permitted by the SEC.

14
<PAGE>

The portfolio securities of each Portfolio are valued at their amortized
cost, which does not take into account unrealized securities gains or losses.
This method involves initially valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any premium paid or discount
received.

YIELD INFORMATION

From time to time, each Portfolio may advertise its yield and effective
yield. The yield of a Portfolio refers to the income generated by an investment
in the Portfolio over a seven-day period (which period will be stated in the
advertisement). This income is then annualized; that is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
effective yield is calculated similarly but, when annualized, the income earned
by an investment in the Portfolio is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment.

The Tax-Exempt Diversified Portfolio may also quote tax-equivalent yield. The
Portfolio's tax-equivalent yield is calculated by determining the rate of
return that would have to be achieved on a fully taxable investment to produce
the after-tax equivalent of the Portfolio's yield, assuming certain tax
brackets for a unitholder.

Investors should note that the investment results of a Portfolio are based on
historical performance and will fluctuate over time. Any presentation of a
Portfolio's yield, effective yield or tax-equivalent yield for any prior period
should not be considered a representation of what an investment may earn or
what a Portfolio's yield, effective yield or tax-equivalent yield may be in any
future period.

Yield, effective yield and tax-equivalent yield will be calculated separately
for Oakmark Units, ILA Units and ILA Administration Units. Because each such
class of units is subject to different expenses, the net yield of such classes
of a Portfolio for the same period may differ. Due to the fees payable under
the Service Plan and the Administration Plan, the investment performance, for
any period, of the ILA Units will always be higher than that of the Oakmark
Units and ILA Administration Units and the investment performance of the ILA
Administration Units will always be higher than that of the Oakmark Units. See
"Organization and Units of the Portfolios" below.

ORGANIZATION AND UNITS OF THE PORTFOLIOS

The Trust was formed as a business trust under the laws of The Commonwealth
of Massachusetts on December 6, 1978. The Trustees of the Trust are responsible
for the overall management and supervision of its affairs. The Declaration of
Trust authorizes the Trustees to classify or reclassify any series or portfolio
of units into one or more classes. The Trustees have authorized the issuance of
three classes of units of each of the portfolios, which are: ILA Units, ILA
Administration Units and ILA Service Units. The Oakmark Units are ILA Service
Units.

Each ILA Unit, ILA Administration Unit and ILA Service Unit of a Portfolio
represents an equal proportionate interest in the assets belonging to that
Portfolio. It is contemplated that most units will be

15
<PAGE>

held in accounts of which the record owner is a bank or other institution
acting as nominee for its customers who are the beneficial owners of the units
or another organization designated by such bank or institution. ILA Units may
be purchased for accounts held in the name of an institution that is not
compensated by the Trust for services provided to the institution's investors.
ILA Administration Units may be purchased for accounts held in the name of an
institution that provides certain account administration services to its
customers, including maintenance of account records and processing orders to
purchase, redeem and exchange ILA Administration Units. ILA Administration
Units of each Portfolio bear the cost of administration fees at the annual
rate of up to .15 of 1% of the average daily net assets of such Units. ILA
Service Units may be purchased for accounts held in the name of an institution
that provides certain account administration and unitholder liaison services
to its customers, including maintenance of account records, processing orders
to purchase, redeem and exchange ILA Service Units, responding to customer
inquiries and assisting customers with investment procedures. ILA Service
Units bear the cost of service fees at the annual rate of up to .40 of 1% of
the average daily net assets of such Units. (Institutions, such as Harris
Associates, that provide services to holders of ILA Administration or Service
Units are referred to in this Prospectus as "Service Organizations.")

It is possible that an institution or its affiliate may offer different
classes of units to its customers and thus receive different compensation with
respect to different classes of units of the same Portfolio. In the event a
Portfolio is distributed by salespersons or any other persons, they may
receive different compensation with respect to different classes of units of
the same Portfolio. ILA Service Units and ILA Administration Units each have
certain exclusive voting rights on matters relating to their respective plans.
Except as described above, the three classes of units are identical. Certain
aspects of the units may be altered, after advance notice to unitholders, if
it is deemed necessary in order to satisfy certain tax regulatory
requirements.

When issued, units are fully paid and nonassessable by the Trust. In the
event of liquidation, unitholders are entitled to share pro rata in the net
assets of the applicable Portfolio available for distribution to unitholders.
Units entitle their holders to one vote per unit, are freely transferable and
have no preemptive, subscription or conversion rights.

Units of a Portfolio will be voted separately by Portfolio with respect to
matters pertaining to that Portfolio except for the election of Trustees and
ratification of independent accountants. For example, unitholders of each
Portfolio are required to approve the adoption of any investment advisory
agreement relating to that Portfolio and any changes in fundamental investment
restrictions or policies of such Portfolio. Approval by the unitholders of one
Portfolio is effective only as to that Portfolio.

The Trust does not intend to hold annual unitholder meetings, although
special meetings may be called for such purposes as electing or removing
Trustees, complying with a requirement of the Investment Company Act, or such
other purposes as are set forth above. The Trust will facilitate unitholder
communication as required and in the manner prescribed by Section 16(c) of the
Investment Company Act.

DISTRIBUTIONS AND TAXES

DISTRIBUTIONS

All or substantially all of each Portfolio's net investment income will be
declared daily (as of 4:00 p.m. New York time) as a dividend and paid to
Harris Associates for distribution to holders of Oakmark

16
<PAGE>

Units monthly. Distributions will be made in additional Oakmark Units of the
same Portfolio or, at the election of the Service Organization, in cash. The
election to reinvest dividends and distributions in Oakmark Units or receive
them in cash may be changed by providing written notice to Oakmark. If no
election is made, all dividends and capital gain distributions will be
reinvested. Dividends will be reinvested as of the last calendar day of each
month. Cash distributions will be paid on or about the first business day of
each month. Net short-term capital gains, if any, will be distributed in
accordance with the requirements of the Internal Revenue Code of 1986 (the
"Code") and may be reflected in a Portfolio's distributions. Each Portfolio
may distribute at least annually its long-term capital gains, if any, after
reduction by available capital losses. In order to avoid excessive
fluctuations in the amount of monthly capital gains distributions, a portion
of any net capital gains realized on the disposition of securities during the
months of November and December may be distributed during the subsequent
calendar year. Although realized gains and losses on the assets of a Portfolio
are reflected in the net asset value of the Portfolio, they are not expected
to be of an amount which would affect the Portfolio's net asset value of $1.00
per unit.

A Portfolio's net investment income consists of the excess of (i) accrued
interest or discount (including both original issue and market discount on
taxable securities) on portfolio securities, and (ii) any income of the
Portfolio from sources other than capital gains over (iii) the amortization of
market premium on all portfolio securities and (iv) the estimated expenses of
the Portfolio, including a proportionate share of the general expenses of the
Trust.

TAXES

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

Dividends paid by a Portfolio from net investment income (except, in the
case of the Tax-Exempt Diversified Portfolio, tax-exempt interest), the excess
of net short-term capital gain over net long-term capital loss and taxable
original issue discount or market discount income will be taxable to
unitholders as ordinary income. Dividends paid by a Portfolio from the excess
of net long-term capital gain over net short-term capital loss will be taxable
as long-term capital gain regardless of how long the unitholders have held
their units. These tax consequences will apply to taxable distributions of a
Portfolio (including the Tax-Exempt Diversified Portfolio, which pays exempt-
interest dividends, as described below) regardless of whether distributions
are received in cash or reinvested in units. Certain distributions paid by the
Portfolios in January of a given year will be taxable to unitholders as if re-
ceived on December 31 of the year in which they are declared. Unitholders will
be informed annually about the amount and character of distributions received
from the Portfolios for federal income tax purposes, including any distribu-
tions that may constitute a return of capital or any distributions of the Tax-
Exempt Diversified Portfolio that may constitute a tax preference item under
the federal alternative minimum tax.

The Tax-Exempt Diversified Portfolio intends to satisfy certain requirements
of the Code for the payment of "exempt-interest dividends" not included in
unitholders' federal gross income. Dividends paid

17
<PAGE>

by the Portfolio from interest on tax-exempt obligations and properly
designated by the Portfolio as exempt-interest dividends, including exempt-
interest dividends received from other regulated investment companies, will
generally be exempt from federal income tax, although a portion of such
dividends may be subject to the federal alternative minimum tax. Exempt-
interest dividends will be considered in computing the "adjusted current
earnings" preference item for purposes of the corporate federal alternative
minimum tax, the corporate environmental tax, and the extent, if any, to which
social security or railroad retirement benefits are taxable. Persons who are
"substantial users" of facilities financed by certain industrial development or
private activity bonds should consult their own tax advisers before purchasing
units of the Portfolio. Interest incurred to purchase or carry units of the
Portfolio will not be deductible for federal income tax purposes to the extent
related to exempt-interest dividends paid by the Portfolio and may not be
deductible in whole or in part for state income tax purposes.

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

In addition to federal taxes, a unitholder may be subject to state and local
taxes on payments received from a Portfolio. A state income (and possibly local
income and/or intangible property) tax exemption is generally available to the
extent a Portfolio's distributions are derived from interest on (or, in the
case of intangibles taxes, the value of its assets is attributable to) certain
U.S. Government obligations and/or tax-exempt municipal obligations issued by
or on behalf of the particular state or a political subdivision thereof,
provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. Unitholders should
consult their own tax advisers concerning these matters.

ADDITIONAL SERVICES

Each Portfolio has adopted a Service Plan with respect to the ILA Service
Units which authorizes it to compensate Service Organizations, including Harris
Associates, for providing account administration and personal and account
maintenance services to their customers who are beneficial owners of such
Units. Each Portfolio will enter into agreements with Service Organizations
which purchase ILA Service Units, on behalf of their customers ("Service
Agreements"). The Service Agreements will provide for compensation to the
Service Organization in an amount up to .40 of 1% (on an annualized basis) of
the average daily net assets of the ILA Service Units of that Portfolio
attributable to or held in the name of the Service Organization for its
customers; provided, however, that the fee paid for personal and account
maintenance services shall not exceed .25% of such average daily net assets.
The services provided by a Service Organization may include acting, directly or
through an agent, as the sole unitholder of record, maintaining account records
for its customers, processing orders to purchase, redeem and exchange ILA
Service Units for its customers, responding to inquiries from prospective and
existing unitholders and assisting customers with investment procedures. In
addition, GSAM, at its own expense, may pay a Service Organization compensation
equal on an annual basis up to .10 of 1% of the average daily net assets of the
ILA Service Units held of record by such Service Organization for providing
certain

18
<PAGE>

additional services to its customers. Such compensation will not represent an
additional expense to the Portfolio or its unitholders, since it will be paid
from the assets of GSAM.

For the fiscal year ended December 31, 1994, the Trust, on behalf of each
Portfolio, paid Service Organizations fees at the annual rate of .40% of each
Portfolio's average daily net assets attributable to ILA Service Units.

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

Service Organizations (other than broker-dealers) may charge other fees to
their customers who are the beneficial owners of ILA Service Units in
connection with their customer accounts. These fees would be in addition to any
amounts received by the Service Organization under a Service Agreement and may
affect an investor's return with respect to an investment in a Portfolio.

Goldman Sachs may, at its own expense, provide compensation to certain
dealers whose customers purchase significant amounts of units of the
Portfolios. The amount of such compensation may be made on a one-time and/or
periodic basis, and may be up to 25% of the annual fees that are earned by GSAM
as investment adviser to the Portfolio (after adjustments) and are attributable
to units held by such customers. Such compensation will not represent an
additional expense to the Portfolio or its unitholders, since it will be paid
from assets of Goldman Sachs or its affiliates.

UNITHOLDER SERVICES

REPORTING TO UNITHOLDERS

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

IRA PLAN

Harris Associates Investment Trust has a master individual retirement account
(IRA) plan that allows you to invest on a tax-sheltered basis in the Government
Portfolio and the Funds. The plan also permits you to "roll over" or transfer
to your Oakmark IRA a lump sum distribution from a qualified pension or profit-
sharing plan, thereby postponing federal income tax on the distribution. If
your employer has a Simplified Employee Pension Plan (SEP), you may establish
an IRA with the Government Portfolio and the Funds to which your employer may
contribute annually up to the lesser of 15% of your earned income or $30,000,
subject to special rules designed to avoid discrimination. Because the Trust
has determined that the Tax-Exempt Diversified Portfolio is not a suitable
investment for IRA accounts, the Portfolio is not available for IRA
investments.

SPECIAL WAYS TO INVEST OR REDEEM

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

19
<PAGE>

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

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

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

HOW TO PURCHASE UNITS

You may purchase Oakmark Units of either Portfolio by check, by wire, by
electronic transfer or by exchange through State Street Bank and Trust Company
as agent for Harris Associates ("Oakmark"). There are no sales commissions or
underwriting discounts. The minimum initial investment is $2,500, except that
the minimum initial investment in an Oakmark IRA account is $1,000. Minimum
subsequent investments are $100, except for reinvestments of dividends and
capital gain distributions.

BY CHECK

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

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

BY WIRE

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

BY ELECTRONIC TRANSFER

If you have an established Portfolio account you may make subsequent
investments by an electronic transfer of funds from your bank account.
Electronic transfer allows you to make purchases at your request by calling 1-
800-626-9392 or at pre-scheduled intervals. (See "Unitholder Services.")
Electronic transfer purchases are subject to a $100 minimum and a $50,000
maximum. You may not open a new account through electronic transfer.

20
<PAGE>

BY EXCHANGE

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

PURCHASE PRICE AND DIVIDENDS

Oakmark Units of each Portfolio may be purchased on any business day at the
net asset value next determined after receipt by Oakmark of both the purchase
order and the purchase price in Federal Funds.

Purchases of Oakmark Units may be made by check or wire transfer. PURCHASES
ARE EFFECTIVE AS SOON AS A CHECK IS CONVERTED TO FEDERAL FUNDS. Purchases by
wire transfer will be effected the day the wire transfer is received if the
wire transfer is received prior to the respective Portfolio's cut-off time as
noted below. It is expected that checks will ordinarily be converted to Federal
Funds within two business days after receipt. A purchase by check is deemed to
be effective prior to the Portfolio's cut-off time noted below on the date such
purchase proceeds convert to Federal Funds. Oakmark Units purchased by check
may not be redeemed until the check has cleared, as described under "How to
Redeem Units."

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

Oakmark Units of the Government Portfolio are deemed to have been purchased
when an order becomes effective and are entitled to dividends as follows:

<TABLE>
<CAPTION>
IF ORDER IS RECEIVED BY
OAKMARK DIVIDENDS BEGIN
----------------------- -----------------
<S> <C>
By: 3:00 p.m.--eastern time Same Business Day
After: 3:00 p.m.--eastern time Next Business Day
</TABLE>

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

Oakmark Units of the Tax-Exempt Diversified Portfolio are deemed to have been
purchased when an order becomes effective and are entitled to dividends as
follows:

<TABLE>
<CAPTION>
IF ORDER IS RECEIVED BY
OAKMARK DIVIDENDS BEGIN
----------------------- -----------------
<S> <C>
By: 1:00 p.m.--eastern time Same Business Day
After: 1:00 p.m.--eastern time Next Business Day
</TABLE>

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

GENERAL

Each purchase order for Oakmark Units must be accepted by Oakmark. Once your
purchase order has been accepted, you may not cancel or revoke it; however, you
may redeem the Oakmark Units. Oakmark reserves the right not to accept any
purchase order that it determines not to be in the best interest of the Trust
or of a Portfolio's unitholders. Oakmark uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's

21
<PAGE>

identity and sending written confirmation of telephone transactions. If Oakmark
does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. Oakmark will not be liable
for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.

HOW TO REDEEM UNITS

BY MAIL

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

Your redemption request must:

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

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

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

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

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

BY EXCHANGE

You may redeem all or any portion of your Oakmark Units of a Portfolio and
use the proceeds to purchase Oakmark Units of the GS Short Duration Tax-Free
Fund or shares of The Oakmark Fund or The Oakmark International Fund (the "The
Oakmark Funds") if your signed, properly completed New Account Purchase
Application is on file. AN EXCHANGE TRANSACTION IS A SALE AND PURCHASE FOR
FEDERAL INCOME TAX PURPOSES AND MAY RESULT IN CAPITAL GAIN OR LOSS. Before
exchanging, you should obtain a prospectus from The Oakmark Funds and read it
carefully. The exchange privilege is not an offering or recommendation of
shares of The Oakmark Funds. The registration of the account to which you are
making an exchange must be exactly the same as that of the account from which
the exchange is made and the amount you exchange must meet any applicable
minimum investment of the fund being

22
<PAGE>

purchased. An exchange may be made by following the redemption procedure
described above under "By Mail" and indicating the fund to be purchased, except
that a signature guarantee normally is not required. (See also the discussion
below of the Telephone Exchange Privilege.)

SPECIAL REDEMPTION PRIVILEGES

The Telephone Exchange and Telephone Redemption Privileges will be
established automatically when you open your account unless you elect on your
New Account Purchase Application to decline these Privileges. Other Privileges
must be specifically elected. A signature guarantee may be required to
establish a Privilege after you open your account. Oakmark Units held in an IRA
account may not be redeemed by telephone.

BY CHECK

Holders of Oakmark Units of a Portfolio may elect to have checks issued to
them in order to redeem Oakmark Units from their accounts in each Portfolio.
When Oakmark receives a completed New Account Purchase Application and
signature card, Oakmark will forward to the requesting customer a supply of
checks. Checks drawn on this account may be payable to the order of any person
in any amount of $500 or more, but cannot be certified. The payee of the check
may cash or deposit it like any other check drawn on a bank. When such a check
is presented to Oakmark for payment, a sufficient number of full and fractional
Oakmark Units will be redeemed to cover the amount of the check. Cancelled
checks will be returned to the recordholder of Oakmark Units by Oakmark.

The check redemption privilege enables a unitholder to receive the dividends
declared on the Oakmark Units to be redeemed until the date the check is
processed. Because of this feature, the check redemption privilege may not be
used for complete liquidation of a unitholder's account. If the amount of a
check is greater than the value of the Oakmark Units held in the unitholder's
account, the check will be returned unpaid, and the unitholder may be subject
to extra charges.

Oakmark reserves the right to impose conditions on, limit the availability of
or terminate the check redemption privilege at any time with respect to a
particular unitholder or all unitholders in general. The Portfolios and Oakmark
reserve the right at any time to suspend the procedure permitting redemptions
by check and intend to do so in the event that federal legislation or
regulations impose reserve requirements or other restrictions deemed by the
Trustees to be adverse to the interests of other Oakmark unitholders of the
Portfolios.

TELEPHONE EXCHANGE PRIVILEGE

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

Oakmark reserves the right at any time without prior notice to suspend or
terminate the use of the Telephone Exchange Privilege by any person or class of
persons. Oakmark believes that use of the Telephone Exchange Privilege by
investors utilizing market-timing strategies adversely affects the Portfolios.
THEREFORE, OAKMARK GENERALLY WILL NOT HONOR REQUESTS FOR TELEPHONE EXCHANGES BY
UNITHOLDERS IDENTIFIED BY OAKMARK AS "MARKET-TIMERS." Moreover, Oakmark
reserves the right at any

23
<PAGE>

time without prior notice to suspend, limit, modify, or terminate the Telephone
Exchange Privilege in its entirety. Because such a step would be taken only if
it would be in the best interests of the Portfolios, Oakmark expects that it
would provide unitholders with prior written notice of any such action unless
it appears that the resulting delay in the suspension, limitation,
modification, or termination of the Telephone Exchange Privilege would
adversely affect the Portfolios. IF OAKMARK WERE TO SUSPEND, LIMIT, MODIFY, OR
TERMINATE THE TELEPHONE EXCHANGE PRIVILEGE, YOU MIGHT FIND THAT AN EXCHANGE
COULD NOT BE PROCESSED OR THAT THERE MIGHT BE A DELAY IN THE IMPLEMENTATION OF
THE EXCHANGE. See "How to Redeem Units--By Exchange."

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

TELEPHONE REDEMPTION PRIVILEGE

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

PAYMENT OF REDEMPTION PROCEEDS AND DIVIDENDS

Oakmark Units of each Portfolio may be redeemed without charge upon request
on any business day at the net asset value next determined after receipt by
Oakmark of the redemption request.

In accordance with the following, redemption proceeds will be sent to the
holders of Oakmark Units.

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

<TABLE>
<CAPTION>
REDEMPTION REQUEST REDEMPTION
RECEIVED BY OAKMARK PROCEEDS ORDINARILY DIVIDENDS
------------------- ------------------- ---------
<S> <C> <C> <C>
(1) Government Portfolio
By: 3:00 p.m. - eastern time (i)Wire Redemptions Sent Not Earned on the Day
Same Business Day request is received
(ii)Check Redemptions Sent
Next Business Day
After: 3:00 p.m. - eastern time (i)Wire Redemptions Sent Earned on the Day
Next Business Day request is received
(ii)Check Redemptions Sent
Within Two Business Days

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

24
<PAGE>

<TABLE>
<CAPTION>
REDEMPTION REQUEST REDEMPTION
RECEIVED BY OAKMARK PROCEEDS ORDINARILY DIVIDENDS
------------------- ------------------- ---------
<S> <C> <C> <C>
(2) Tax-Exempt Diversified Portfolio

By: 12:00 noon - eastern time (i)Wire Redemptions Sent Not Earned on the Day
Same Business Day request is received
(ii)Check Redemptions Sent
Next Business Day
After: 12:00 noon - eastern time (i)Wire Redemptions Sent Earned on the Day
Next Business Day request is received
(ii)Check Redemptions Sent
Within Two Business Days
</TABLE>

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

GENERAL REDEMPTION POLICIES

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

Oakmark will generally mail payment for Oakmark Units redeemed within seven
days after proper instructions are received. If you attempt to redeem Oakmark
Units within 15 days after they have been purchased by check or electronic
transfer, Oakmark may delay payment of the redemption proceeds to you until it
can verify that payment for the purchase of those Oakmark Units has been (or
will be) collected. To reduce such delays, Oakmark recommends that your
purchase be made by Federal Funds wire through your bank. If you so request,
the proceeds of your redemption may be paid by wire, but the cost of the wire
(currently $5) will be deducted from the redemption proceeds.

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

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

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

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

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

25
<PAGE>

ADDRESS OF HARRIS ASSOCIATES, L. P.
Two North LaSalle Street
Chicago, Illinois 60602-3790
1-800-OAKMARK
(1-800-625-6275)

THE OAKMARK FUNDS 24-HOUR NAV HOTLINE
1-800-GROWOAK
(1-800-476-9625)

OAKMARK SHAREHOLDER SERVICE
State Street Bank and Trust Company
Attention: Oakmark Funds Family
P.O. Box 8510
Boston, Massachusetts 02266-8510
1-800-626-9392

THIS COVER IS NOT PART OF THE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY
BEFORE YOU INVEST.
<PAGE>

LOGO THE OAKMARK FUNDS

PRINTED ON RECYCLED PAPER LOGO

THIS COVER IS NOT PART OF THE PROPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY
BEFORE YOU INVEST.
<PAGE>

GRAPHICS APPENDIX LIST

PAGE WHERE
GRAPHIC
APPEARS DESCRIPTION OF GRAPHIC OR CROSS REFERENCE
- --------------------------------------------------------------------------------
Front Cover of
Prospectus and
Back Cover of The Oakmark Funds logo consisting of a green tree
Prospectus with an acorn at the center.
- --------------------------------------------------------------------------------