GOLDMAN SACHS TRUST, 497, 1998-09-03

GOLDMAN SACHS TRUST
497, 1998-09-03

Previous: INFINITY INC, DEF 14A, 1998-09-03

Next: HT INSIGHT FUNDS INC, N-30D, 1998-09-03

<PAGE>

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

PROSPECTUS GOLDMAN SACHS
January 1, 1998, as revised
ASSET ALLOCATION PORTFOLIOS
September 1, 1998 CLASS A, B AND C SHARES

The Goldman Sachs Asset Allocation Portfolios (the "Portfolios") are
professionally-managed portfolios designed to take advantage of the benefits of
asset allocation. Each Portfolio has a separate objective, which it seeks to
achieve by investing in a number of other Goldman Sachs mutual funds (the
"Underlying Funds").

GOLDMAN SACHS INCOME STRATEGY PORTFOLIO
Seeks a high level of current income with greater stability of principal
than an investment in equity securities alone.

GOLDMAN SACHS GROWTH AND INCOME STRATEGY PORTFOLIO
Seeks long-term capital appreciation and current income.

GOLDMAN SACHS GROWTH STRATEGY PORTFOLIO
Seeks capital appreciation and secondarily current income.

GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
Seeks capital appreciation.

Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to each Portfolio. GSAM and its affiliates also provide
advisory services to the Underlying Funds. GSAM is also referred to in this
Prospectus as the "Investment Adviser." Goldman Sachs serves as the Portfolios'
distributor and transfer agent.

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

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.

This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Portfolios 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 January 1, 1998,
as revised September 1, 1998, containing further information about the Trust
and the Portfolios which may be of interest to investors, has been filed with
the Securities and Exchange Commission ("SEC"), is incorporated herein by
reference in its entirety, and may be obtained without charge from Goldman
Sachs by calling the telephone number, or writing to one of the addresses,
listed on the back cover of this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Portfolio Highlights................ 2
Fees and Expenses................... 6
Investment Objectives and Policies.. 9
Risk Factors and Special
Considerations..................... 10
Description of Underlying Funds..... 11
Management.......................... 19
Expenses............................ 22
Reports to Shareholders............. 23
How to Invest....................... 24
Services Available to Shareholders.. 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Distribution and Service Plans........ 33
How to Sell Shares of the Portfolios.. 34
Dividends............................. 35
Net Asset Value....................... 36
Performance Information............... 36
Shares of the Trust................... 37
Taxation.............................. 38
Additional Information................ 39
Appendix A............................ A-1
Appendix B............................ B-1
Account Application
</TABLE>
<PAGE>

PORTFOLIO HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

The Goldman Sachs Trust is an open-end management investment company
that offers its shares ("Shares") in several investment portfolios
(commonly known as mutual funds). Each Portfolio 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 Portfolio's stated
investment objectives.

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?

Each Portfolio has distinct investment objectives and policies. Each
Portfolio seeks to achieve its objectives by investing in a combination
of Underlying Funds for which Goldman Sachs now or in the future acts as
investment adviser or principal underwriter. Some of these Funds invest
primarily in fixed-income or money market securities (the "Underlying
Fixed-Income Funds"); other Funds invest primarily in equity securities
(the "Underlying Equity Funds"). Investors may choose to invest in one or
more of the Portfolios based on their personal investment goals, risk
tolerances and financial circumstances. For a further description of the
Portfolios' investment objectives and policies, see "Investment
Objectives and Policies."

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
<S> <C> <C>
---------------- ------------------------ -------------------------------------------
GOLDMAN SACHS High level of current Under normal conditions, approximately 60%
INCOME STRATEGY income with greater of the Portfolio's total assets will be
PORTFOLIO stability of principal allocated among Underlying Fixed-Income
than an investment in Funds. Allocation to Underlying Equity
equity securities alone. Funds is intended to add diversification
and enhance returns, but will also add some
volatility.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Long-term capital Under normal conditions, approximately 60%
GROWTH AND appreciation and current of the Portfolio's total assets will be
INCOME STRATEGY income. allocated among Underlying Equity Funds,
PORTFOLIO which are intended to provide the capital
appreciation component. Allocation to
Underlying Fixed-Income Funds is intended
to provide the income component.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Capital appreciation and Under normal conditions, approximately 80%
GROWTH STRATEGY secondarily current of the Portfolio's total assets will be
PORTFOLIO income. allocated among Underlying Equity Funds,
with a blend of domestic large cap, small
cap and international exposure to seek
capital appreciation. Allocation to
Underlying Fixed-Income Funds is to provide
diversification.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Capital appreciation. Under normal conditions, substantially all
AGGRESSIVE of the Portfolio's total assets will be
GROWTH STRATEGY allocated among Underlying Equity Funds,
PORTFOLIO with a greater focus on small cap and
international investments.
</TABLE>

2
<PAGE>

WHAT IS GOLDMAN SACHS ASSET MANAGEMENT'S GLOBAL ASSET ALLOCATION
PROCESS?

The Quantitative Research Group at GSAM uses disciplined quantitative
models to determine the relative attractiveness of the world's stock,
bond and currency markets. GSAM's models use financial and economic
variables to capture fundamental relationships that it believes make
sense. While GSAM's process is rigorous and quantitative, it also
incorporates clear economic reasoning behind each recommendation.

Each Portfolio starts with a "base-line" or strategic allocation among
the various asset classes. GSAM will then tactically deviate from the
strategic allocations based on forecasts provided by the models. The
tactical process seeks to add value by overweighting attractive markets
and underweighting unattractive markets. Greater deviations from the
strategic allocations of a given portfolio result in higher risk that the
tactical allocation will underperform the strategic allocation. However,
GSAM's risk control process balances the amount any asset class can be
overweighted or underweighted in seeking to achieve higher expected
returns against the amount of risk imposed by that deviation from the
strategic allocation. GSAM employs Goldman, Sachs & Co.'s proprietary
Black-Litterman asset allocation technique in an effort to optimally
balance these two goals. This technique combines the Quantitative
Research Group's market forecasts with economic equilibrium in seeking to
construct risk-controlled portfolios.

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

The Portfolios are intended as an efficient and cost-effective method
of giving investors access to four different portfolio mixes. The
risk/return balance of each Portfolio is varied by the proportion of
assets allocated to the different kinds of investments. For example, the
Aggressive Growth Strategy Portfolio intends to invest substantially all
of its assets in Underlying Funds that invest in equity securities. An
investor seeking capital appreciation potential, with a longer time
horizon and a tolerance for volatility, might choose this Portfolio.
Conversely, an investor seeking a balance of income and growth, with a
shorter time horizon and less tolerance for volatility, might choose the
Income Strategy Portfolio or Growth and Income Strategy Portfolio, which
invest a larger portion of their assets in Underlying Funds that invest
in fixed income securities.

Because the assets of each Portfolio are invested in Underlying Funds,
each Portfolio's investment performance is directly related to the
investment performance of the Underlying Funds held by it. The ability of
a Portfolio to meet its investment objective is, therefore, also directly
related to the ability of the Underlying Funds held to meet their
objectives, as well as the allocation among those Underlying Funds by the
Investment Adviser.

The value of the Underlying Funds' investments, and the net asset
values ("NAV") of the Shares of both the Underlying Funds and the
Portfolios, will fluctuate in response to changes in market and economic
conditions, as well as the financial condition and prospects of issuers
in which the Underlying Funds invest. An Underlying Fund's use of certain
investment techniques, including derivatives, forward contracts, options
and futures, will subject the Fund to greater risk than funds that do not
employ such techniques. In addition, investments by certain Underlying
Funds in foreign issuers, currencies, real estate investment trusts and
small market capitalization companies will expose those Funds to a higher
degree of risk and price volatility. These investments include securities
of issuers located in countries in Asia, Latin America, Eastern Europe
and Africa whose economies or securities markets are considered not to be
fully developed ("Emerging Countries"). Some Underlying Funds may also
invest in non-investment grade fixed-income securities

3
<PAGE>

(commonly referred to as "junk bonds"), which are considered to be speculative
by traditional investment standards.

An investor in the Portfolios should realize that investments in the
Underlying Funds can be made directly. By investing in the Underlying Funds
indirectly through the Portfolios, an investor will incur not only a
proportionate share of the expenses of the Underlying Funds (including
operating costs and investment management fees), but also expenses of the
Portfolios. While the Portfolios offer a greater level of diversification than
many other types of mutual funds, a single Portfolio may not provide a complete
investment program for an investor.

For a further description of the risks involved in an investment in the
Portfolios and the Underlying Funds, see "Risk Factors and Special
Considerations" and Appendix A to this Prospectus.

WHO MANAGES THE PORTFOLIOS?

Goldman Sachs Asset Management serves as Investment Adviser to the Portfolios
and, except as noted, to each Underlying Fund. Goldman Sachs Funds Management,
L.P. serves as investment adviser to the CORE U.S. Equity, Capital Growth,
Adjustable Rate Government and Short Duration Government Funds. Goldman Sachs
Asset Management International serves as investment adviser to the
International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity, Asia Growth and Global Income Funds. As of July 24, 1998, the
Investment Adviser, together with its affiliates, acted as investment adviser
or distributor for assets in excess of $168 billion.

WHO DISTRIBUTES THE PORTFOLIOS' SHARES?

Goldman Sachs acts as distributor of each Portfolio's Shares (the
"Distributor").

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 (excluding SIMPLE IRAs and
Education IRAs) and UGMA/UTMA Purchases.................. $ 250 $50
SIMPLE IRAs and Education IRAs............................ $ 50 $50
Automatic Investment Plan................................. $ 50 $50
403(b) Plans.............................................. $ 200 $50
</TABLE>

For further information, see "How to Invest--How to Buy Shares of the
Portfolios" on page 25.

HOW DO I PURCHASE SHARES?

You may purchase Shares of the Portfolios 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 agreements with Goldman Sachs relating to the sale of Shares
("Authorized Dealers"). See "How to Invest" on page 24.

4
<PAGE>

WHAT ARE MY PURCHASE ALTERNATIVES?

The Portfolios offer three classes of Shares through this Prospectus. These
shares may be purchased at the investor's choice, at a price equal to their
next determined NAV (i) plus an initial sales charge imposed at the time of
purchase ("Class A Shares"), (ii) with a contingent deferred sales charge
("CDSC") imposed on redemptions within six years of purchase ("Class B Shares")
or (iii) without any initial sales charge or CDSC, as long as Shares are held
for one year or more ("Class C Shares"). Direct purchases of $1 million or more
of Class A Shares will be sold without an initial sales charge and may be
subject to a CDSC at the time of certain redemptions.

<TABLE>
<CAPTION>
MAXIMUM INITIAL MAXIMUM CONTINGENT
ALL FUNDS SALES CHARGE DEFERRED SALES CHARGE
--------- --------------- ---------------------
<S> <C> <C>
Class A................. 5.5% (See above)
Class B................. N/A 5% declining to 0% after six years
Class C................. N/A 1% if shares are redeemed within 12 months of purchase
</TABLE>

Over time, the CDSC and distribution and service fees attributable to Class B
or Class C Shares will exceed the initial sales charge and the distribution and
service fees attributable to Class A Shares. Class B Shares convert to Class A
Shares, which are subject to lower distribution and service fees, eight years
after initial purchase. Class C Shares, which are subject to the same
distribution and service fees as Class B Shares, do not convert to Class A
Shares and are subject to the higher distribution and service fees
indefinitely. See "How to Invest--Alternative Purchase Arrangements" on page
24.

HOW DO I SELL MY SHARES?

You may redeem Shares upon request on any Business Day, as defined under
"Additional Information," at the NAV next determined after receipt of such
request in proper form, subject to any applicable CDSC sales charge. See "How
to Sell Shares of the Portfolios."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
PORTFOLIO DECLARED AND PAID DISTRIBUTIONS
- --------- --------------------------- -------------
<S> <C> <C>
Income Strategy....................... Monthly Annually
Growth and Income Strategy............ Quarterly Annually
Growth Strategy....................... Quarterly Annually
Aggressive Growth Strategy............ Annually Annually
</TABLE>

You may receive dividends and distributions in additional Shares of the same
Class of the Portfolio in which you have invested or you may elect to receive
them in 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 Portfolio, or ILA Class B or Class C Units of the Prime
Obligations Portfolio, if you hold Class B or Class C Shares of a Portfolio
(the "ILA Portfolios"). For further information concerning dividends and
distributions, see "Dividends."

5
<PAGE>

FEES AND EXPENSES
(CLASS A, B AND C SHARES)

<TABLE>
<CAPTION>
GROWTH AND
INCOME STRATEGY INCOME STRATEGY GROWTH STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------- ----------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge
Imposed on
Purchases.......... 5.5%/1/ None None 5.5%/1/ None None 5.5%/1/ None None
Maximum Sales Charge
Imposed on
Reinvested
Dividends.......... None None None None None None None None None
Maximum Deferred
Sales Charge....... None/1/ 5.0%/2/ 1.0%/3/ None/1/ 5.0%/2/ 1.0%/3/ None/1/ 5.0%/2/ 1.0%/3/
Redemption Fees/4/.. None None None None None None None None None
Exchange Fees/4/.... None None None None None None None None None
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of
average daily net
assets)/5/
Management Fees (for
asset allocation)
(after applicable
limitations)/6/.... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Distribution and
Service Fees....... 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.25% 1.00% 1.00%
---- ---- ---- ---- ---- ---- ---- ---- ----
Other Expenses:
Other Expenses
(after applicable
limitations)/7/.... 0.19% 0.19% 0.19% 0.19% 0.19% 0.19% 0.19% 0.19% 0.19%
Underlying Fund
Expenses/5/......... 0.69% 0.69% 0.69% 0.79% 0.79% 0.79% 0.84% 0.84% 0.84%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES............ 1.28% 2.03% 2.03% 1.38% 2.13% 2.13% 1.43% 2.18% 2.18%
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
AGGRESSIVE
GROWTH STRATEGY
PORTFOLIO
--------------------------------
CLASS A CLASS B CLASS C
---------- ---------- ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge
Imposed on
Purchases.......... 5.5%/1/ None None
Maximum Sales Charge
Imposed on
Reinvested
Dividends.......... None None None
Maximum Deferred
Sales Charge....... None/1/ 5.0%/2/ 1.0%/3/
Redemption Fees/4/.. None None None
Exchange Fees/4/.... None None None
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of
average daily net
assets)/5/
Management Fees (for
asset allocation)
(after applicable
limitations)/6/.... 0.15% 0.15% 0.15%
Distribution and
Service Fees....... 0.25% 1.00% 1.00%
---------- ---------- ----------
Other Expenses:
Other Expenses
(after applicable
limitations)/7/.... 0.19% 0.19% 0.19%
Underlying Fund
Expenses/5/......... 0.90% 0.90% 0.90%
---------- ---------- ----------
TOTAL FUND OPERATING
EXPENSES............ 1.49% 2.24% 2.24%
========== ========== ==========
</TABLE>
- ------
/1/As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. A CDSC 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--Class A Shares."
/2/A CDSC is imposed upon shares redeemed within six years of purchase at a
rate of 5% in the first year, declining to 1% in the sixth year, and
eliminated thereafter. See "How to Invest--Offering Price--Class B Shares."
/3/A CDSC of 1.00% is imposed on shares redeemed within 12 months of purchase.
See "How to Invest--Offering Price--Class C Shares."
/4/A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or units of the ILA Portfolios and free
automatic exchanges pursuant to the Automatic Exchange Program, six free
exchanges are permitted in each twelve month period. A fee of $12.50 may be
charged for each subsequent exchange during such period. See "How to
Invest--Exchange Privilege."
/5/The Portfolio's annual operating expenses have been restated to reflect fees
and expenses in effect as of September 1, 1998. Underlying Fund expenses for
each Portfolio are based upon the strategic allocation of each Portfolio's
investment in the Underlying Funds and upon the total operating expenses of
the Underlying Funds as in effect on September 1, 1998. Actual Underlying
Fund expenses incurred by each Portfolio may vary with changes in the
allocation of each Portfolio's assets among the Underlying Funds and with
other events that directly affect the expenses of the Underlying Funds. For
additional information on the total operating expenses of each Underlying
Fund, please refer to "Expenses."
/6/The Investment Adviser has voluntarily agreed that a portion of the
management fees would not be imposed on the Portfolios equal to 0.20%.
Without such limitation, management fees would be 0.35% of each Portfolio's
average daily net assets.
/7/The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding asset allocation, distribution and service fees,
transfer agency fees (equal to 0.19% of the average daily net assets of each
Fund's Class A, B and C Shares), taxes, interest, brokerage fees,
litigation, indemnification and other extraordinary expenses) for each
Portfolio to the extent such expenses exceed 0.00% of the Portfolio's
average daily net assets.
/8/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Portfolios would be as set forth below:

<TABLE>
<CAPTION>
GROWTH AND AGGRESSIVE
INCOME STRATEGY INCOME STRATEGY GROWTH STRATEGY GROWTH STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------- ----------------------- ----------------------- -----------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other Expenses... 0.55% 0.55% 0.55% 0.32% 0.32% 0.32% 0.35% 0.35% 0.35% 0.48% 0.48% 0.48%
Total Operating
Expenses........ 1.84% 2.59% 2.59% 1.71% 2.46% 2.46% 1.79% 2.54% 2.54% 1.98% 2.73% 2.73%
</TABLE>

6
<PAGE>

The Portfolios will invest only in Institutional Shares of the Underlying
Funds and, accordingly, will not pay any sales load or distribution or service
fees in connection with their investments in Shares of the Underlying Funds.
The Portfolios will, however, indirectly bear their pro rata share of the fees
and expenses incurred by the Underlying Funds that are applicable to
Institutional Shareholders. The following example assumes the payment by each
Portfolio of operating expenses at the levels set forth in the table above and
of its pro rata share of the Institutional Share expenses of the Underlying
Funds (also as set forth above) in which a Portfolio is invested.

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Income Strategy Portfolio
Class A Shares................................................. $67 $ 93
Class B Shares
--Assuming complete redemption at end of period................ $71 $ 94
--Assuming no redemption....................................... $21 $ 64
Class C Shares
--Assuming complete redemption at end of period................ $31 $ 64
--Assuming no redemption....................................... $21 $ 64
Growth and Income Strategy Portfolio
Class A Shares................................................. $68 $ 96
Class B Shares
--Assuming complete redemption at end of period................ $72 $ 97
--Assuming no redemption....................................... $22 $ 67
Class C Shares
--Assuming complete redemption at end of period................ $32 $ 67
--Assuming no redemption....................................... $22 $ 67
Growth Strategy Portfolio
Class A Shares................................................. $69 $ 98
Class B Shares
--Assuming complete redemption at end of period................ $72 $ 98
--Assuming no redemption....................................... $22 $ 68
Class C Shares
--Assuming complete redemption at end of period................ $32 $ 68
--Assuming no redemption....................................... $22 $ 68
Aggressive Growth Strategy Portfolio
Class A Shares................................................. $69 $100
Class B Shares
--Assuming complete redemption at end of period................ $73 $100
--Assuming no redemption....................................... $23 $ 70
Class C Shares
--Assuming complete redemption at end of period................ $33 $ 70
--Assuming no redemption....................................... $23 $ 70
</TABLE>

The hypothetical example above assumes that a CDSC will not apply to
redemptions of Class A Shares within the first 18 months.

The Investment Adviser and Goldman Sachs may modify or discontinue any of
the limitations set forth above in the future at their discretion. The
information set forth in the foregoing table and hypothetical example relates
only to Class A, B and C Shares. Each Portfolio also offers Institutional and
Service Shares, which are

7
<PAGE>

subject to different fees and expenses (which affect performance), have
different minimum investment requirements and are entitled to different
services than Class A, B and C Shares. Information regarding Institutional and
Service Shares of the Portfolios may be obtained from your sales
representative or from Goldman Sachs by calling the number on the back cover
page of this Prospectus. Because of the Distribution and Service Plans, long-
term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the NASD's rules regarding investment
companies.

In addition to the compensation itemized above, certain institutions that
sell Portfolio Shares and/or their salespersons may receive other compensation
in connection with the sale and distribution of Class A, Class B and Class C
Shares of the Portfolios or for services to their customers' accounts and/or
the Portfolios. For additional information regarding such compensation, see
"Management" and "Services Available to Shareholders" in this Prospectus and
"Other Information Regarding Purchases, Redemptions, Exchanges and Dividends"
in the Additional Statement.

The purpose of the foregoing tables is to assist investors in understanding
the various fees and expenses of a Portfolio that an investor will bear
directly or indirectly. As stated, the information on the fees and expenses
included in the tables and hypothetical example above is based on each
Portfolio's fees and estimated expenses and allocation among the Underlying
Funds, and should not be considered as representative of past or future
expenses. Actual fees and expenses may be more or less than those indicated.
Moreover, while the example assumes a 5% annual return, a Portfolio's actual
performance will vary and may result in an actual return more or less than 5%.
See "Management--Investment Adviser."

8
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The four Portfolios described in this Prospectus are intended for investors
who prefer to have their asset allocation decisions made by professional money
managers. Each Portfolio seeks to achieve its investment objective by
investing within specified equity and fixed-income ranges among Underlying
Funds having different combinations of investments and different degrees of
potential investment risk and reward. An investor should choose a Portfolio
based on personal objectives, investment time horizon, tolerance for risk and
personal financial circumstances.

The Income Strategy Portfolio's investment objective is to seek a high level
of current income with greater stability of principal than an investment in
equity securities alone. The Growth and Income Strategy Portfolio's investment
objective is to seek long-term capital appreciation and current income. The
Growth Strategy Portfolio's investment objective is to seek capital
appreciation and secondarily current income. The Aggressive Growth Strategy
Portfolio's investment objective is to seek capital appreciation. There can be
no assurance that any Portfolio's investment objective will be achieved.

In managing the Portfolios, the Investment Adviser will seek to maintain
different allocations among the Underlying Equity Funds and the Underlying
Fixed-Income Funds depending on a Portfolio's investment objective. The tables
below illustrate the initial Underlying Equity/Fixed-Income Fund allocation
targets and ranges for each Portfolio:

EQUITY/FIXED-INCOME RANGE (PERCENTAGE OF EACH PORTFOLIO'S NET ASSETS)

<TABLE>
<CAPTION>
NAME OF PORTFOLIO TARGET RANGE
----------------- ------ --------
<S> <C> <C>
Income Strategy Portfolio
Equity........................................................ 40% 20%-60%
Fixed-Income.................................................. 60% 40%-80%
Growth and Income Strategy Portfolio
Equity........................................................ 60% 40%-80%
Fixed-Income.................................................. 40% 20%-60%
Growth Strategy Portfolio
Equity........................................................ 80% 60%-100%
Fixed-Income.................................................. 20% 0%-40%
Aggressive Growth Strategy Portfolio
Equity........................................................ 100% 75%-100%
Fixed-Income.................................................. 0% 0%-25%
</TABLE>

The Investment Adviser will invest in particular Underlying Funds based on
various criteria. Among other things, the Investment Adviser will analyze the
Underlying Funds' respective investment objectives, policies and investment
strategies in order to determine which Underlying Funds, in combination with
other Underlying Funds, are appropriate in light of a Portfolio's investment
objectives.

Each Portfolio is authorized to invest in any or all of the Underlying
Funds. However, it is expected that a Portfolio will normally be invested in
only some of the Underlying Funds at any particular time. A Portfolio's
investment in any of the Underlying Funds may and, in some cases is expected
to, exceed 25% of its total assets.

9
<PAGE>

For example, the Growth Strategy and Aggressive Growth Strategy Portfolios are
each expected to invest initially more than 25% of their assets in the Growth
& Income Fund described below. Similarly, it is expected that the Aggressive
Growth Strategy and Income Strategy Portfolios will invest more than 25% of
their assets in the CORE International and Short Duration Government Funds,
respectively. The Investment Adviser also expects that each Portfolio (in
addition to those listed above) will initially invest a relatively significant
percentage of its equity allocation in the Growth & Income, CORE Large Cap
Growth and CORE International Equity Funds; that the Growth and Income
Strategy Portfolio will invest a relatively significant percentage of its
assets in the Core Fixed Income and Global Income Funds; and that the Income
Strategy Portfolio will invest a relatively significant percentage of its
assets in the Global Income Fund. THE PARTICULAR UNDERLYING FUNDS IN WHICH
EACH PORTFOLIO MAY INVEST, THE EQUITY/FIXED-INCOME FUND TARGETS AND RANGES AND
THE INVESTMENTS IN EACH UNDERLYING FUND MAY BE CHANGED FROM TIME TO TIME
WITHOUT SEEKING THE APPROVAL OF THE PORTFOLIO'S SHAREHOLDERS.

Changes in the NAVs of the Underlying Funds will affect a Portfolio's NAV.
Because each Portfolio invests primarily in other mutual funds, which
fluctuate in value, the Portfolios' Shares will correspondingly fluctuate in
value. Although the Portfolios normally seek to remain substantially invested
in the Underlying Funds, a Portfolio may invest a portion of its assets in
high quality, short-term debt obligations to maintain liquidity in order to
meet shareholder redemptions and other short-term cash needs. These
obligations may include commercial paper, certificates of deposit, bankers'
acceptances, repurchase agreements, debt obligations backed by the full faith
and credit of the U.S. Government and demand and time deposits of domestic and
foreign banks and savings and loan associations. There may be times when, in
the opinion of the Investment Adviser, abnormal market or economic conditions
warrant that, for temporary defensive purposes, a Portfolio invest without
limitation in short-term obligations. A Portfolio may also borrow money for
temporary or emergency purposes.

Each Portfolio's turnover rate is expected not to exceed 50% annually. A
Portfolio may purchase or sell securities to: (a) accommodate purchases and
sales of its Shares; (b) change the percentages of its assets invested in each
of the Underlying Funds in response to economic or market conditions; and (c)
maintain or modify the allocation of its assets among the Underlying Funds
within the percentage ranges described above.

Each Portfolio is subject to certain investment restrictions that are
described in detail under "Investment Restrictions" in the Additional
Statement. Fundamental investment restrictions of a Portfolio cannot be
changed without approval of a majority of the outstanding Shares of that
Portfolio. Each Portfolio'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 Portfolio's investment
objective, shareholders should consider whether that Portfolio remains an
appropriate investment in light of their then current financial positions and
needs.

For information about the investment objectives of the Underlying Funds and
their investment securities, techniques and risks, see "Description of the
Underlying Funds" and Appendix A in this Prospectus, the Additional Statement
and the prospectus for each of the Underlying Funds.

RISK FACTORS AND SPECIAL CONSIDERATIONS

INVESTING IN UNDERLYING FUNDS

10
<PAGE>

each Portfolio to meet its investment objectives is directly related to the
ability of the Underlying Funds to meet their objectives as well as the
allocation among those Underlying Funds by the Investment Adviser. The share
prices and yields of both the Portfolios and the Underlying Funds will
fluctuate in response to various market and economic factors related to the
equity and fixed-income markets. There can be no assurance that the investment
objectives of any Portfolio or any Underlying Fund will be achieved.

INVESTMENTS OF THE UNDERLYING FUNDS

Because each Portfolio invests in the Underlying Funds, shareholders of each
Portfolio will be affected by the investment policies of the Underlying Funds
in direct proportion to the amount of assets each Portfolio allocates to those
Funds. Each Portfolio may invest in Underlying Funds that in turn invest in
small capitalization companies and foreign issuers and thus are subject to
additional risks, including changes in foreign currency exchange rates and
political risk. Foreign investments may include securities of issuers located
in Emerging Countries in Asia, Latin America, Eastern Europe and Africa. Each
Portfolio may also invest in Underlying Funds that in turn invest in non-
investment grade fixed-income securities ("junk bonds"), which are considered
speculative by traditional standards. In addition, the Underlying Funds may
purchase derivative securities; enter into forward currency transactions; lend
their portfolio securities; enter into futures contracts and options
transactions; purchase zero coupon bonds and payment-in-kind bonds; purchase
securities issued by real estate investment trusts and other issuers in the
real estate industry; purchase restricted and illiquid securities; enter into
forward roll transactions; purchase securities on a when-issued or delayed
delivery basis; enter into repurchase agreements; borrow money; and engage in
various other investment practices. The risks presented by these investment
practices are discussed in Appendix A to this Prospectus, the Additional
Statement and the prospectus for each of the Underlying Funds.

AFFILIATED PERSONS

In managing the Portfolios, the Investment Adviser will have the authority
to select and substitute Underlying Funds. The Investment Adviser is subject
to conflicts of interest in allocating Portfolio assets among the various
Underlying Funds both because the fees payable to it and/or its affiliates by
some Underlying Funds are higher than the fees payable by other Underlying
Funds and because the Investment Adviser and its affiliates are also
responsible for managing the Underlying Funds. The Trustees and officers of
the Trust may also have conflicting interests in fulfilling their fiduciary
duties to both the Portfolios and the Underlying Funds.

EXPENSES

An investor in a Portfolio should realize that investments in the Underlying
Funds can be made directly. By investing in the Underlying Funds indirectly
through a Portfolio, an investor will incur not only a proportionate share of
the expenses of the Underlying Funds held by the Portfolio (including
operating costs and investment management fees), but also expenses of the
Portfolio.

DESCRIPTION OF UNDERLYING FUNDS

11
<PAGE>

Investment Adviser without shareholder approval. There can be no assurance that
the investment objectives of the Underlying Funds will be met. Additional
information regarding the investment practices of the Underlying Funds is
located in Appendix A to this Prospectus, in the Additional Statement and in
the prospectus of each of the Underlying Funds. No offer is made in this
Prospectus of any of the Underlying Funds.

<TABLE>
<CAPTION>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
---------------- ------------------------ ----------------------------------
<C> <C> <S>
GROWTH AND IN- Long-term growth of At least 65% of total assets in
COME FUND capital and growth of equity securities that are
income. considered to have favorable
prospects for capital appreciation
and/or dividend-paying ability.
- -------------------------------------------------------------------------------
CORE U.S. EQUITY Long-term growth of At least 90% of total assets in
FUND capital and dividend equity securities of U.S. issuers,
income. including certain foreign issuers
traded in the U.S. The Fund seeks
to achieve its objective through a
broadly diversified portfolio of
large cap and blue chip equity
securities representing all major
sectors of the U.S. economy. The
Fund's investments are selected
using both a variety of
quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the S&P
500 Index.
- -------------------------------------------------------------------------------
CORE LARGE CAP Long-term growth of At least 90% of total assets in
GROWTH FUND capital. Dividend income equity securities of U.S issuers,
is a secondary including certain foreign issuers
consideration. traded in the U.S. The Fund seeks
to achieve its objective through a
broadly diversified portfolio of
equity securities of large cap
U.S. issuers that are expected to
have better prospects for earnings
growth than the growth rate of the
general domestic economy. The
Fund's investments are selected
using both a variety of
quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the
Russell 1000 Growth Index.
- -------------------------------------------------------------------------------
CORE SMALL CAP Long-term growth of At least 90% of total assets in
EQUITY FUND capital. equity securities of U.S. issuers,
including certain foreign issuers
traded in the U.S. The Fund seeks
to achieve its investment
objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which
are included in the Russell 2000
Index at the time of investment.
The Fund's investments are
selected using both a variety of
quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the
Russell 2000 Index.
- -------------------------------------------------------------------------------
CORE INTERNA- Long-term growth of At least 90% of total assets in
TIONAL EQUITY capital. equity securities of companies
FUND organized outside the United
States or whose securities are
principally traded outside the
United States. The Fund seeks
broad representation of large cap
issuers across major countries and
sectors of the international
economy. The Fund's investments
are selected using both a variety
of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the
unhedged Morgan Stanley Capital
International (MSCI) Europe,
Australasia and Far East Index
(the "EAFE Index"). The Fund may
employ certain currency management
techniques.
</TABLE>
(continued)

12
<PAGE>

<TABLE>
<CAPTION>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
---------------- ------------------------ ----------------------------------
<C> <C> <S>
CAPITAL GROWTH Long-term capital At least 90% of total assets in a
FUND growth. diversified portfolio of equity
securities. Long-term capital
appreciation potential is
considered in selecting
investments.
- -------------------------------------------------------------------------------
MID CAP EQUITY Long-term capital Substantially all, and at least
FUND appreciation. 65% of total assets in equity
securities of companies with
public stock market
capitalizations within the range
of the market capitalization of
companies constituting the Russell
Midcap Index at the time of the
investment (currently between $400
million and $16 billion).
- -------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at least
EQUITY FUND appreciation. 65%, of total assets in equity
securities of companies organized
outside the United States or whose
securities are principally traded
outside the United States. The
Fund may employ certain currency
management techniques.
- -------------------------------------------------------------------------------
SMALL CAP VALUE Long-term capital At least 65% of total assets in
FUND growth. equity securities of companies
with public stock market
capitalizations of $1 billion or
less at the time of investment.
- -------------------------------------------------------------------------------
EMERGING MARKETS Long-term capital Substantially all, and at least
EQUITY FUND appreciation. 65%, of total assets in equity
securities of emerging country
issuers. The Fund may employ
certain currency management
techniques.
- -------------------------------------------------------------------------------
ASIA GROWTH FUND Long-term capital Substantially all, and at least
appreciation. 65%, of total assets in equity
securities of companies in China,
Hong Kong, India, Indonesia,
Malaysia, Pakistan, the
Philippines, Singapore, South
Korea, Sri Lanka, Taiwan and
Thailand. The Fund may employ
certain currency management
techniques.
- -------------------------------------------------------------------------------
REAL ESTATE SE- Total return comprised Substantially all, and at least
CURITIES FUND of long-term growth of 80%, of total assets in a
capital and dividend diversified portfolio of equity
income. securities of issuers that are
primarily engaged in or related to
the real estate industry. The Fund
expects that a substantial portion
of its total assets will be
invested in real estate investment
trusts ("REITS").
- -------------------------------------------------------------------------------
JAPANESE EQUITY Long-term capital Substantially all, and at least
FUND appreciation. 65%, of total assets in equity
securities of Japanese companies.
The Fund may employ certain
currency management techniques.
- -------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at least
SMALL CAP FUND appreciation. 65%, of total assets in equity
securities of companies with
public stock market
capitalizations of $1 billion or
less at the time of investment
that are organized outside the
United States or whose securities
are principally traded outside the
United States. The Fund may employ
certain currency management
techniques.
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT DURATION OR RATE CREDIT OTHER
FUND NAMES OBJECTIVES MATURITY SENSITIVITY INVESTMENT SECTOR QUALITY INVESTMENTS
- ---------------------- -------------- ------------------- ----------- ----------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL SQUARE PRIME Maximize Maximum Maturity of 3-month Money market High Quality N/A
OBLIGATIONS FUND current income Individual bill instruments (short-term
to the extent Investments = including U.S. ratings of
consistent 13 months at time Government A-1, P-1 or
with the of purchase Securities, U.S. comparable
maintenance of Maximum Dollar- bank obligations, quality).
liquidity. Weighted Average commercial paper
Portfolio and other short-
Maturity = term obligations
90 days of U.S.
corporations,
governmental and
other entities,
and related
repurchase
agreements.
- -----------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE A high level Target Duration = 9-month At least 65% of U.S. Fixed-rate
GOVERNMENT FUND of current 6-month to 1-year note total assets in Government mortgage pass-
income, U.S. Treasury securities issued Securities through
consistent Security or guaranteed by securities and
with low Maximum Duration*= the U.S. repurchase
volatility of 2 years government, its agreements
principal. agencies, collateralized
instrumentalities by U.S.
or sponsored Government
enterprises Securities.
("U.S. Government
Securities") that
are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
- -----------------------------------------------------------------------------------------------------------------------
SHORT DURATION A high level Target Duration = 2-year At least 65% of U.S. Mortgage pass-
GOVERNMENT FUND of current 2-year U.S. bond total assets in Government through
income and Treasury Security U.S. Government Securities securities and
secondarily, plus or minus .5 Securities and other
in seeking years Maximum repurchase securities
current Duration*= 3 years agreements representing an
income, may collateralized by interest in or
also consider such securities. collateralized
the potential by mortgage
for capital loans.
appreciation.
- -----------------------------------------------------------------------------------------------------------------------
GOVERNMENT INCOME FUND A high level Target Duration = 5-year At least 65% of U.S. Non-government
of current Lehman Brothers bond assets in U.S. Government mortgage pass-
income, Mutual Fund Government Securities through
consistent Government/Mortgage Securities, and non-U.S. securities,
with safety of Index plus or minus including Government asset-backed
principal. 1 year mortgage-backed Securities = securities and
Maximum U.S. Government AAA/Aaa corporate
Duration*= 6 years Securities and fixed-income
repurchase securities.
agreements
collateralized by
such securities.
</TABLE>

14
<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT DURATION OR RATE CREDIT OTHER
FUND NAMES OBJECTIVES MATURITY SENSITIVITY INVESTMENT SECTOR QUALITY INVESTMENTS
- ---------------------- -------------- -------------- ----------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CORE FIXED INCOME FUND Total return Target 5-year At least 65% of Minimum = Foreign fixed-
consisting of Duration = bond assets in fixed- BBB/Baa income,
capital Lehman income Minimum for municipal and
appreciation Brothers securities, non-dollar convertible
and income Aggregate Bond including U.S. securities = securities,
that exceeds Index plus or Government AA/Aa foreign
the total minus Securities, currencies and
return of the 1 year corporate, repurchase
Lehman Maximum mortgage-backed agreements
Brothers Duration*= 6 and asset-backed collateralized
Aggregate Bond years securities. by U.S.
Index. Government
Securities.
- ------------------------------------------------------------------------------------------------------------------
GLOBAL INCOME FUND A high total Target 6-year Securities of Minimum = Mortgage and
return, Duration = bond U.S. and foreign BBB/Baa asset-backed
emphasizing J.P. Morgan governments and At least securities,
current Global corporations. 50% = AAA/Aaa foreign
income, and, Government currencies and
to a lesser Bond Index repurchase
extent, (hedged) plus agreements
providing or minus 2.5 collateralized
opportunities years Maximum by U.S.
for capital Duration*= 7.5 Government
appreciation. years Securities or
certain foreign
government
securities.
- ------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND A high level Target 6-year Except for At least Mortgage-backed
of current Duration = bond temporary 65% = BB/Ba and asset-
income and Lehman defensive or below backed
capital Brothers High purposes, at securities,
appreciation. Yield Bond least 65% of U.S. Government
Index plus or assets in fixed- Securities,
minus 2.5 income investment
years securities rated grade corporate
Maximum below investment fixed-income
Duration*= 7.5 grade, including securities,
years U.S. and non- structured
U.S. dollar securities,
corporate debt, foreign
foreign currencies and
government repurchase
securities, agreements
convertible collateralized
securities and by U.S.
preferred stock. Government
Securities.
</TABLE>
- -----
* Under normal interest rate conditions.

15
<PAGE>

In pursuing their investment objectives and programs, each of the Underlying
Funds is permitted to engage in a wide range of investment policies. The risks
of the Underlying Funds are determined by the nature of the securities held
and the investment strategies used by the Funds' investment advisers. Certain
of these policies are described below and further information about the
investment policies, strategies and risks of the Underlying Funds is contained
in Appendix A to this Prospectus and in the Additional Statement as well as
the prospectuses of the Underlying Funds.

UNDERLYING EQUITY FUNDS
The Underlying Equity Funds may purchase common stocks, preferred stocks,
interests in real estate investment trusts, convertible debt obligations,
convertible preferred stocks, equity interests in trusts, partnerships, joint
ventures, limited liability companies and similar enterprises, warrants and
stock purchase rights ("equity securities"). In choosing securities, a Fund's
investment adviser utilizes first-hand fundamental research, including
visiting company facilities to assess operations and to meet decision-makers.
An investment adviser may also use macro analysis of numerous economic and
valuation variables to anticipate changes in company earnings and the overall
investment climate. The investment advisers are able to draw on the research
and market expertise of the Goldman Sachs Global Investment Research
Department and other affiliates, as well as information provided by other
securities dealers. Equity securities held by an Underlying Fund will
generally be sold when an investment adviser believes that the market price
fully reflects or exceeds the securities' fundamental valuation or when other
more attractive investments are identified.

DOMESTIC VALUE STYLE FUNDS. The Growth and Income, Mid Cap Equity and Small
Cap Value Funds are managed using a value oriented approach. The Funds'
investment adviser evaluates securities using fundamental analysis and intends
to purchase equity securities that are, in its view, underpriced relative to a
combination of such companies' long-term earnings prospects, growth rate, free
cash flow and/or dividend-paying ability.

Consideration will be given to the business quality of the issuer. Factors
positively affecting the investment adviser's view of that quality include the
competitiveness and degree of regulation in the markets in which the company
operates, the existence of a management team with a record of success, the
position of the company in the markets in which it operates, the level of the
company's financial leverage and the sustainable return on capital invested in
the business. The Funds may also purchase securities of companies that have
experienced difficulties and that, in the opinion of the investment adviser,
are available at attractive prices.

DOMESTIC GROWTH STYLE FUND. The Capital Growth Fund is managed using a
growth oriented approach. Equity securities for the Fund are selected based on
their prospects for above average growth. The Fund's investment adviser will
select securities of growth companies trading, in the investment adviser's
opinion, at a reasonable price relative to other industries, competitors and
historical price/earnings multiples. The Fund will generally invest in
companies whose earnings are believed to be in a relatively strong growth
trend, or, to a lesser extent, in companies in which significant further
growth is not anticipated but whose market value per share is thought to be
undervalued.

QUANTITATIVE STYLE FUNDS. The CORE U.S. Equity, CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds (the "CORE Equity Funds")
are managed using both quantitative and fundamental techniques. CORE is an
acronym for "Computer-Optimized, Research-Enhanced," which reflects the Funds'
investment process. This investment process and the proprietary multifactor
model used to implement it are discussed below.

16
<PAGE>

Quantitative Investment Process. The Funds' investment advisers begin with a
broad universe of U.S. equity securities for the CORE U.S. Equity, CORE Large
Cap Growth and CORE Small Cap Equity Funds (the "CORE U.S. Equity Funds"), and
a broad universe of foreign equity securities for the CORE International
Equity Fund. The investment advisers use proprietary multifactor models (each
a "Multifactor Model") to forecast the returns of different markets,
currencies and individual securities. In the case of a U.S. equity security
followed by the Goldman Sachs Global Investment Research Department (the
"Research Department"), a rating is assigned based upon the Research
Department's evaluation. In the discretion of the investment adviser, ratings
may also be assigned to U.S. equity securities based on research ratings
obtained from other industry sources. In the case of a foreign equity
security, an investment adviser may rely on research from both the Research
Department and other industry sources.

In building a diversified portfolio for each CORE Equity Fund, an investment
adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily composed of securities rated highest by
the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.

Quantitative Multifactor Models. The Multifactor Models are rigorous
computerized rating systems for forecasting the returns of different equity
markets, currencies, and individual equity securities according to fundamental
investment characteristics. The CORE U.S. Equity Funds use one Multifactor
Model to forecast the returns of securities held in each Fund's portfolio. The
CORE International Equity Fund uses multiple Multifactor Models to forecast
returns. Currently, the CORE International Equity Fund uses one model to
forecast equity market returns, one model to forecast currency returns and 22
separate models to forecast individual equity security returns in 22 different
countries. Despite this variety, all Multifactor Models incorporate common
variables covering measures of value, growth, momentum and risk (e.g.,
book/price ratio, earnings/price ratio, price momentum, price volatility,
consensus growth forecasts, earnings estimate revisions, earnings stability,
and, in the case of models for the CORE International Equity Fund, currency
momentum and country political risk ratings). All of the factors used in the
Multifactor Models have been shown to significantly impact the performance of
the securities, currencies and markets they were designed to forecast.

The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Equity Funds are derived using a statistical formulation that
considers each factor's historical performance in different market
environments. As such, the U.S. Multifactor Model is designed to evaluate each
security using only the factors that are statistically related to returns in
the anticipated market environment. Because they include many disparate
factors, the Funds' investment advisers believe that all the Multifactor
Models are broader in scope and provide a more thorough evaluation than most
conventional, quantitative models. Securities and markets ranked highest by
the relevant Multifactor Model do not have one dominant investment
characteristic; rather, they possess an attractive combination of investment
characteristics.

Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to under perform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.

By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, each
CORE Fund seeks to capitalize on the strengths of each discipline.

ACTIVELY MANAGED INTERNATIONAL FUNDS. The International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
are managed using an active international approach, which utilizes a
consistent process of stock selection undertaken by portfolio management teams
located within

17
<PAGE>

each of the major investment regions, including Europe, Japan, Asia and the
United States. In selecting securities, the investment adviser uses a long-
term, bottom-up strategy based on first-hand fundamental research that is
designed to give broad exposure to the available opportunities while seeking
to add return primarily through stock selection. Equity securities for these
Funds are evaluated based on three key factors--the business, the management
and the valuation. The investment adviser ordinarily seeks securities that
have, in the investment adviser's opinion, superior earnings growth potential,
sustainable franchise value with management attuned to creating shareholder
value and relatively discounted valuations. In addition, the investment
adviser uses a multi-factor risk model which seeks to assure that deviations
from the benchmark are justifiable.

REAL ESTATE SECURITIES FUND. The investment strategy of the Real Estate
Securities Fund is based on the premise that property market fundamentals are
the primary determinant of growth underlying the success of companies in the
real estate industry. The Fund's research and investment process is designed
to identify those companies with strong property fundamentals and strong
management teams. This process is comprised of real estate market research and
securities analysis. The Fund's investment adviser will take into account
fundamental trends in underlying property markets as determined by proprietary
models, research of local real estate markets, earnings, cash flow growth and
stability, the relationship between asset values and market prices of the
securities and dividend payment history. The investment adviser will attempt
to purchase securities so that its underlying portfolio will be diversified
geographically and by property type.

UNDERLYING FIXED-INCOME FUNDS

The investment advisers of the Underlying Fixed-Income Funds may, in
accordance with the respective Funds' investment objectives and policies,
purchase all types of fixed-income securities, including senior and
subordinated corporate debt obligations (such as bonds, debentures, notes and
commercial paper), convertible and non-convertible corporate debt obligations,
loan participations and preferred stock.

As stated above, each Underlying Fixed-Income Fund has policies relating to
its duration (or maturity in the case of the Financial Square Prime
Obligations Fund). 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, an Underlying 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.

Except for the Financial Square Prime Obligations Fund (which is subject to
more restrictive SEC regulations applicable to money market funds), an
Underlying Fixed-Income 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 Fund's 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 Fund's
investment adviser will consider what action, including the sale of such
security, is in the best interest of the Fund and its shareholders.

18
<PAGE>

The Underlying Funds may employ certain active management techniques to
manage their duration and term structure, to seek to hedge exposure to foreign
currencies and to seek to enhance returns. These techniques include (with
respect to one or more of the Funds), 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, credit 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. Certain of the Funds may
invest in custodial receipts, municipal securities and convertible securities.
The Funds may also employ other investment techniques to seek to enhance
returns, such as lending portfolio securities and entering into mortgage
dollar rolls, repurchase agreements, reverse repurchase agreements and other
investment practices, as described in Appendix A to this Prospectus.

MANAGEMENT

TRUSTEES AND OFFICERS

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

INVESTMENT ADVISER

INVESTMENT ADVISER. 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 each Portfolio and, except as noted, to each
Underlying Fund. Goldman Sachs registered as an investment adviser in 1981.
Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New York
10004, a Delaware limited partnership which is an affiliate of Goldman Sachs,
serves as the investment adviser to the CORE U.S. Equity, Capital Growth,
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 International, 133 Peterborough Court, London EC4A 2BB,
England, an affiliate of Goldman Sachs, serves as the investment adviser to
the International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity, Asia Growth and Global Income Funds. 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. The Goldman Sachs Group, L.P., which controls the Investment
Adviser, has announced that it will pursue an initial public offering of the
firm during the fourth quarter of 1998; if the public offering is consummated,
The Goldman Sachs Group, L.P. will merge into the new public company, which
will be called The Goldman Sachs Group, Inc. As of July 24, 1998, GSAM,
together with its affiliates, acted as investment adviser or distributor for
assets in excess of $168 billion.

Under an Asset Allocation Management Agreement ("Management Agreement") with
each Portfolio, the Investment Adviser, subject to the general supervision of
the Trustees, provides day-to-day advice as to each Portfolio's investment
transactions, including determinations concerning changes to (a) the
Underlying Funds in which the Portfolios may invest and (b) the percentage
range of assets of any Portfolio that may be invested in the Underlying Equity
Funds and the Underlying Fixed-Income Funds as separate groups. Goldman Sachs
has agreed to permit the Portfolios to use the name "Goldman Sachs" or a
derivative thereof as part of each Portfolio's name for as long as a
Portfolio's Management Agreement is in effect.

19
<PAGE>

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

FUND MANAGERS

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ------------------------ --------------- -------------------------------------------
<S> <C> <C>
Mark M. Carhart, Ph.D., Since 1998 Mr. Carhart joined the Investment Adviser
CFA in 1997 as a member of the Quantitative
Vice President, Co-Head Research and Risk Management team. From
Quantitative August 1995 to September 1997, he was
Research and Senior Assistant Professor of Finance at the
Portfolio Manager Marshall School of Business at USC and a
Senior Fellow of the Wharton Financial
Institutions Center.
- -------------------------------------------------------------------------------------
Raymond J. Iwanowski Since 1998 Mr. Iwanowski joined the Investment Adviser
Vice President, Co-Head in 1998. Prior to joining the Investment
Quantitative Adviser, he spent three years at Salomon
Research and Senior Brothers, where he was a Vice President and
Portfolio Manager head of the Fixed Derivatives Client
Research group.
- -------------------------------------------------------------------------------------
Neil Chriss, Ph.D. Since 1998 Mr. Chriss joined the Investment Adviser in
Vice President and 1998. From 1996 to 1998, he worked in the
Portfolio Manager equity division of Morgan Stanley Dean
Witter. From 1994 to 1996, he was a post-
doctoral fellow in the Mathematics
Department of Harvard University.
- -------------------------------------------------------------------------------------
Georgio DeSantis, Ph.D. Since 1998 Mr. DeSantis joined the Investment Adviser
Vice President and in 1998. From 1992 to 1998, he was
Portfolio Manager Assistant Professor of Finance and Business
Economics at the Marshall School of
Business at USC.
- -------------------------------------------------------------------------------------
William J. Fallon, Since 1998 Mr. Fallon joined the Investment Adviser in
Ph.D. 1998. From 1996 to 1998, he worked in the
Vice President and Firmwide Risk Group of Goldman, Sachs & Co.
Portfolio Manager From 1991 to 1996, he attended Columbia
University, where he earned a Ph.D. in
Finance.
- -------------------------------------------------------------------------------------
Guang-Liang He, Ph.D. Since 1998 Mr. He joined the Investment Adviser in
Vice President and 1998. In 1997, he worked in the Firmwide
Portfolio Manager Risk Group of Goldman, Sachs & Co. From
1992 to 1997, he worked at Quantitative
Financial Strategies, Inc.
</TABLE>

It is the responsibility of the investment adviser of each Underlying Fund
to make the investment decisions for that Fund and to place the purchase and
sale orders for the Fund's portfolio transactions in U.S. and foreign markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates. In
effecting purchases and sales of portfolio securities for a Fund, its
investment adviser will seek the best price and execution of the Fund's
orders. In doing so, where two or more brokers or dealers offer comparable
prices and execution for a particular trade, consideration may be given to
whether the broker or dealer provides investment research or brokerage
services or sells Shares of any Underlying Fund. See the Additional Statement
for a further description of the investment adviser's brokerage allocation
practices.

As compensation for its services and assumption of certain expenses pursuant
to the Management Agreement, GSAM is entitled to a fee, computed daily and
payable monthly, at the annual rate equal to 0.35% of each Portfolio's average
daily net assets. The Investment Adviser has voluntarily agreed to waive 0.20%
of this fee. The Investment Adviser may discontinue or modify its voluntary
waiver in the future in its discretion.

20
<PAGE>

The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Portfolios (excluding management, distribution and
service fees, transfer agency fees, taxes, interest, brokerage fees,
litigation, indemnification and other extraordinary expenses) to the extent
such expenses exceed 0.00% per annum of a Portfolio's average daily net
assets. Such reductions or limits, if any, may be discontinued or modified by
the Investment Adviser in its discretion at any time.

In addition, each Portfolio, as a shareholder in the Underlying Funds, will
indirectly bear its proportionate share of any investment management fees and
other expenses paid by the Underlying Funds. The contractual management fee
payable to GSAM and/or its affiliates by each of the Underlying Funds in which
the Portfolios may invest is set forth below under "Expenses."

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

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Funds' 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 an Underlying Fund or limit the investment activities
of an Underlying Fund. Goldman Sachs and its affiliates engage in proprietary
trading and advise accounts and funds which have investment objectives similar
to those of the Underlying Funds and/or which engage in and compete for
transactions in the same type of securities, currencies and instruments.
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 Underlying Funds. The results
of the investment activities of an Underlying Fund, therefore, may differ from
those of Goldman Sachs and its affiliates and it is possible that the
Portfolios and the Underlying Funds could sustain losses during periods in
which Goldman Sachs and its affiliates and other accounts achieve significant
profits on their trading for proprietary or other accounts. In addition, the
Underlying Funds may, from time to time, enter into transactions in which
other clients of Goldman Sachs have an adverse interest. From time to time,
the activities of an Underlying Fund 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 Portfolio'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 Portfolio's transfer agent (the "Transfer Agent") and as such performs
various shareholder servicing functions. As compensation for the services
rendered to each Portfolio by Goldman Sachs (as Transfer Agent), Goldman Sachs
is entitled to

21
<PAGE>

a fee with respect to each Portfolio's Class A, Class B and Class C Shares,
equal, on an annual basis, to 0.19% of average daily net assets. Shareholders
with inquiries regarding a Portfolio should contact Goldman Sachs (as Transfer
Agent) at the address or the telephone number set forth on the back cover page
of this Prospectus.

From time to time, Goldman Sachs or any of its affiliates may purchase and
hold Shares of the Underlying Funds or Portfolios. Goldman Sachs reserves the
right to redeem at any time some or all of the Shares acquired for its own
account.

YEAR 2000

Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Portfolios could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the Investment
Adviser or other Portfolio service providers do not adequately address this
problem in a timely manner. The Investment Adviser has established a dedicated
group to analyze these issues and to implement the systems modifications
necessary to prepare for the Year 2000 Problem. Currently, the Investment
Adviser does not anticipate that the transition to the 21st Century will have
any material impact on its ability to continue to service the Portfolios at
current levels. In addition, the Investment Adviser has sought assurances from
the Portfolios' other service providers that they are taking the steps
necessary so that they do not experience Year 2000 Problems, and the
Investment Adviser will continue to monitor the situation. At this time,
however, no assurance can be given that the actions taken by the Investment
Adviser and the Portfolios' other service providers will be sufficient to
avoid any adverse effect on the Portfolios due to the Year 2000 Problem.

EXPENSES

The Portfolios are responsible for the payment of their expenses. The
expenses include, without limitation, asset allocation; distribution and
service fees; custodial and transfer agency fees; brokerage fees and
commissions; filing fees for the registration or qualification of the
Portfolios' Shares under federal or state securities laws; organizational
expenses; fees and expenses incurred 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 Portfolios for violation of any law; legal and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of the Investment Adviser and its affiliates with respect to the
Portfolios); expenses of preparing and setting in type prospectuses,
Additional Statements, proxy material, financial reports and notices and the
printing and distributing of the same to shareholders and regulatory
authorities, compensation and expenses of the Trust's "non-interested"
Trustees and extraordinary expenses, if any, incurred by the Trust.

The expenses associated with investing in a "fund of funds," such as the
Portfolios, are generally higher than those of investment companies that do
not invest in other mutual funds. These increased expenses stem from the fact
that investors must indirectly pay a portion of the operating costs of the
Underlying Funds. The structure of the Portfolios will, however, reduce any
layering of costs in the following manner: (a) any fees charged to the
Portfolios under the Management Agreement are for services that are in
addition to, and not duplicative of, services provided under any Underlying
Fund's management agreement; (b) the Portfolios pay no front-end or CDSCs in
connection with the purchase or redemption of Shares of the Underlying Funds;
(c) the

22
<PAGE>

Portfolios do not pay any sales charges, distribution-related or service fees
related to the Shares of the Underlying Funds; (d) custodial and other fees
charged by both the Portfolios and the Underlying Funds are not redundant
inasmuch as distinct services are being provided at each level; and (e) any
additional incremental cost incurred by investing in the Portfolios is in
return for a substantial investment management service, namely the initial and
ongoing asset allocation of investments made in the Underlying Funds, and
provision of meaningful additional diversification benefits.

The following chart shows the total operating expense ratios (management fee
plus other operating expenses) of Institutional Shares of each Underlying Fund
for the Fund's most recent fiscal year (except as indicated). In addition, the
following chart shows the contractual investment management fees payable to
GSAM and its affiliates by the Underlying Funds (in each case as an annualized
percentage of the Fund's average net assets). Absent voluntary fee waivers
and/or expense reimbursements, which may be discontinued at any time, the
total operating expense ratios of certain Underlying Funds would be higher.

<TABLE>
<CAPTION>
TOTAL
CONTRACTUAL OPERATING
MANAGEMENT EXPENSE
UNDERLYING FUNDS FEE RATIO*
---------------- ----------- ---------
<S> <C> <C>
Short Duration Government Fund............................ 0.50% 0.54%
Adjustable Rate Government Fund........................... 0.40% 0.49%
Core Fixed-Income Fund.................................... 0.40% 0.54%
Government Income Fund.................................... 0.65% 0.58%
Global Income Fund........................................ 0.90% 0.69%
High Yield Fund........................................... 0.70% 0.76%
Growth and Income Fund.................................... 0.70% 0.79%
CORE U.S. Equity Fund..................................... 0.75% 0.74%
CORE Large Cap Growth Fund................................ 0.75% 0.64%
CORE Small Cap Equity Fund................................ 0.85% 0.93%
Capital Growth Fund....................................... 1.00% 1.04%
CORE International Equity Fund............................ 0.85% 1.01%
Mid Cap Equity Fund....................................... 0.75% 0.89%
Small Cap Value Fund...................................... 1.00% 1.10%
International Equity Fund................................. 1.00% 1.14%
Japanese Equity Fund...................................... 1.00% 1.05%
International Small Cap Fund.............................. 1.20% 1.40%
Emerging Markets Equity Fund.............................. 1.20% 1.39%
Asia Growth Fund.......................................... 1.00% 1.20%
Real Estate Securities Fund............................... 1.00% 1.04%
Financial Square Prime Obligations Money Market Fund...... 0.205% 0.18%
</TABLE>
- --------
* Operating expenses of Institutional Shares for the underlying Funds have
been restated to reflect fees and expenses in effect as of September 1,
1998.

REPORTS TO SHAREHOLDERS

Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. To eliminate unnecessary duplication,
only one copy of the annual and semiannual reports may be sent to shareholders
with the same mailing address. Shareholders who desire a duplicate copy of
such reports to be

23
<PAGE>

mailed to their residence should contact Goldman Sachs at 800-526-7384. Each
shareholder will also be provided with a printed confirmation for each
transaction in the shareholder's account and a quarterly account statement. A
year-to-date statement for any account will be provided upon request made to
Goldman Sachs. The Portfolios generally do not provide sub-accounting
services.

HOW TO INVEST

ALTERNATIVE PURCHASE ARRANGEMENTS

Each Portfolio continuously offers through this Prospectus Class A, Class B
and Class C Shares, as described more fully in "How to Buy Shares of the
Portfolios." If you do not specify in your instructions to the Portfolios
which class of Shares you wish to purchase, the Portfolios will assume that
your instructions apply to Class A Shares.

CLASS A SHARES. If you invest less than $1 million in Class A Shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A Shares of a
Portfolio, no sales charge will be imposed at the time of purchase, but you
may incur a CDSC equal to 1.00% if you redeem your Shares within 18 months of
purchase. Class A Shares are subject to distribution and service fees of 0.25%
per annum of each Portfolio'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 CDSC of up to 5% if redeemed within six years of purchase.
Class B Shares are subject to distribution and service fees of 1.00% per annum
of each Portfolio'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 NAVs, 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 and service 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.

CLASS C SHARES. Class C Shares are sold without an initial sales charge, but
are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class C
Shares are subject to distribution and service fees of 1.00% per annum of each
Portfolio's average daily net assets attributable to Class C Shares. See
"Distribution and Service Plans." Class C Shares have no conversion feature,
and accordingly, an investor that purchases Class C Shares will be subject to
the distribution and service fee imposed on Class C Shares for an indefinite
period, subject to annual approval by the Trust's Board of Trustees and
certain regulatory limitations. Your entire investment in Class C Shares is
available to work for you from the time you make your initial investment, but
the distribution and service fee paid by Class C Shares will cause your Class
C Shares to have a higher expense ratio and to pay lower dividends, to the
extent dividends are paid, than Class A Shares (or Class B Shares after
conversion to Class A Shares).

24
<PAGE>

consider purchasing Class B Shares. If you prefer not to pay an initial sales
charge and are unsure of the length of your investment or plan to hold your
investment for less than eight years, you may prefer Class C Shares. A maximum
purchase limitation of $250,000 and $1,000,000 in the aggregate normally
applies to purchases of Class B Shares and Class C Shares, respectively.
Although Class C Shares are subject to a CDSC for only 12 months and at a
lower rate than Class B Shares, Class C Shares do not have the conversion
feature applicable to Class B Shares, making them subject to higher
distribution and service fees for an indefinite period. Authorized Dealers may
receive different compensation for selling Class A, Class B or Class C Shares.

HOW TO BUY SHARES OF THE PORTFOLIOS--CLASS A, CLASS B AND CLASS C SHARES

You may purchase Shares of the Portfolios through any Authorized Dealer
(including Goldman Sachs) or directly from a Portfolio, 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 NAV next
determined after receipt of an order as described below under "Other Purchase
Information," plus, in the case of Class A Shares, any applicable sales
charge. Currently, each Portfolio's NAV is determined as of the close of
regular trading on the New York Stock Exchange (which is normally, but not
always, 4:00 p.m. New York time).

The minimum initial investment in each Portfolio is $1,000. An initial
investment minimum of $250 applies to purchases in connection with Individual
Retirement Account Plans (excluding SIMPLE IRAs and Education IRAs) or
accounts established under the Uniform Gift to Minors Act ("UGMA"), tax-
sheltered retirement plans, and an initial investment minimum of $200 applies
to purchases in connection with 403(b) plans. The minimum initial investment
for purchases in connection with SIMPLE and Education IRAs, as well as
purchases through the Automatic Investment Plan, is $50. The minimum
subsequent investment is $50. These requirements may be waived at the
discretion of the Trust's officers.

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

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

The Portfolios 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 Portfolio 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 Portfolio to avoid such redemption. In
addition, the Portfolios 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.

25
<PAGE>

OFFERING PRICE--CLASS A SHARES

The offering price of Class A Shares of each Portfolio is the next
determined NAV 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
AMOUNT OF PURCHASE SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
(INCLUDING SALES CHARGE, IF PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
ANY) OFFERING PRICE INVESTED OFFERING PRICE***
--------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $50,000.............. 5.50% 5.82% 5.00%
$ 50,000 up to (but less than)
$100,000...................... 4.75 4.99 4.00
$100,000 up to (but less than)
$250,000...................... 3.75 3.90 3.00
$250,000 up to (but less than)
$500,000...................... 2.75 2.83 2.25
$500,000 up to (but less than)
$1 million.................... 2.00 2.04 1.75
$1 million or more............. 0.00* 0.00* **
</TABLE>
- --------
* No sales charge is payable at the time of purchase of Class A Shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 18 months of purchase.

** Goldman Sachs pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of Shares
of the Portfolios equal to 1.00% of the amount under $3 million, 0.50% of
the next $2 million, and 0.25% thereafter. Goldman Sachs may also pay,
with respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate
or are responsible for plans investing in the Portfolios which satisfy the
criteria set forth in (h) below or "wrap" accounts purchasing $1 million
or more which satisfy the criteria set forth in (i) below. Purchases by
such plans will be made at NAV 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 CDSC, as described
below, of 1.00% will be imposed upon the plan sponsor or the third party
administrator. In addition, Authorized Dealers shall remit to Goldman
Sachs such payments received in connection with "wrap" accounts in the
event that Shares are redeemed within 18 months after the end of the
calendar month in which the purchase was made.

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

Purchases of $1 million or more of Class A Shares will be made at NAV with
no initial sales charge, but if the Shares are redeemed within 18 months after
the end of the calendar month in which the purchase was made, excluding any
period of time in which the Shares were exchanged into and remained invested
in an ILA Portfolio (the "CDSC period"), a CDSC of 1.00% may be imposed
unless, in certain cases, the investor's Authorized Dealer enters into an
agreement with Goldman Sachs to return all or an applicable prorated portion
of its commission to Goldman Sachs. 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 dividend or capital gains distributions which have been
reinvested in additional Class A Shares. Upon redemption of Shares subject to
a CDSC, shareholders will receive that portion of the appreciation in account
value attributable to the Shares actually redeemed. In determining whether a
CDSC applies to a redemption, 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 on
Reduction of Contingent Deferred Sales Charges" below.

26
<PAGE>

Class A Shares of the Portfolios may be sold at NAV without payment of any
sales charge to (a) Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any Trustee or officer of the Trust and designated family members of any of
the above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor; (d) any employee or registered representative of
any Authorized Dealer or their respective spouses and children; (e) banks,
trust companies or other types of depository institutions investing for their
own account or investing for accounts for which they have investment
discretion; (f) banks, trust companies or other types of depository
institutions investing for accounts for which they do not have investment
discretion; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
Shares of a Portfolio; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buy Shares worth $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 certain third-party
administrators that have entered into a special service agreement with Goldman
Sachs relating to such plan; (i) "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; (j) registered investment
advisers investing for accounts for which they receive asset-based fees; (k)
accounts over which GSAM or its advisory affiliates have investment
discretion; and (l) 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 Portfolios at NAV 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 a Portfolio
at NAV, as described under "Cross-Reinvestment of Dividends and Distributions
and Automatic Exchange Program."

RIGHT OF ACCUMULATION--CLASS A SHARES

Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (Shares at current offering price), plus new
purchases, reaches $50,000 or more. Class A Shares of the Goldman Sachs
Portfolios may be combined under the Right of Accumulation. See the Additional
Statement for more information about the Right of Accumulation.

STATEMENT OF INTENTION--CLASS A SHARES

Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Class A Shares of the Goldman Sachs Portfolios may be
combined under the Statement of Intention. See the Additional Statement for
more information about the Statement of Intention.

OFFERING PRICE--CLASS B SHARES

Investors may purchase Class B Shares of the Portfolios at the next
determined NAV without the imposition of an initial sales charge. However,
Class B Shares redeemed within six years of purchase will be subject to a CDSC
at the rates shown in the table below. 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. Upon redemption of Shares subject to a CDSC,

27
<PAGE>

shareholders will receive that portion of the appreciation in account value
attributable to the Shares actually redeemed.

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
Portfolios will first redeem Shares not subject to any CDSC, and then Shares
held longest during the six-year period.

<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
YEAR SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CDSC
---------- ---------------
<S> <C>
First........................................................ 5.0%
Second....................................................... 4.0%
Third........................................................ 3.0%
Fourth....................................................... 3.0%
Fifth........................................................ 2.0%
Sixth........................................................ 1.0%
Seventh and thereafter....................................... none
</TABLE>

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 Portfolios in connection with the sale of
Class B Shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.00% of the amount invested is paid to Authorized
Dealers.

Class B Shares of a Portfolio will automatically convert into Class A Shares
of the same Portfolio at the end of the calendar quarter that is eight years
after the purchase date, except as noted below. Class B Shares of a Portfolio
acquired by exchange from Class B Shares of another Portfolio will convert
into Class A Shares of such Portfolio 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 Portfolios are advised that such
conversions may constitute taxable events for federal tax purposes, which the
Portfolios 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.

OFFERING PRICE--CLASS C SHARES

Investors may purchase Class C Shares of the Portfolios at the next
determined NAV without the imposition of an initial sales charge. However, if
Class C shares are redeemed within 12 months of purchase a CDSC of 1% will be
deducted from the redemption proceeds. 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. Upon redemption of Shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
Shares actually redeemed.

28
<PAGE>

For the purpose of determining the number of months 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 C
Shares, the Portfolios will first redeem Shares held for longer than 12
months, and then Shares held for the longest period during the 12 month
period. Proceeds from the CDSC are payable to the Distributor and may be used
in whole or in part to defray the Distributor's expenses related to providing
distribution-related services to the Portfolios in connection with the sale of
Class C Shares, including the payment of compensation to Authorized Dealers. A
commission equal to 1.00% of the amount invested is paid to Authorized
Dealers.

REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A, CLASS B AND CLASS C SHARES

A shareholder who redeems Class A or Class B Shares of a Portfolio may
reinvest at NAV any portion or all of the redemption proceeds (plus that
amount necessary to acquire a fractional share to round off the purchase to
the nearest full share) in Class A Shares of the same Portfolio or any other
Goldman Sachs Fund. A shareholder who redeems Class C Shares of a Portfolio
may reinvest at NAV any portion or all of the redemption proceeds (plus that
amount necessary to acquire a fractional share to round off the purchase to
the nearest full share) in Class C Shares of the same Portfolio or 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 redeemed
Class A or Class C Shares, paid a CDSC upon a redemption and reinvest in Class
A or Class C Shares subject to the conditions set forth above, your account
will be credited with the amount of the CDSC previously charged, and the
reinvested Shares will continue to be subject to a CDSC. In this case, the
holding period of the Class A or Class C Shares acquired through reinvestment
for purposes of computing the CDSC payable upon a subsequent redemption will
include the holding period of the redeemed Shares. If you redeemed Class B
Shares and paid a CDSC upon redemption, you are permitted to reinvest the
redemption proceeds in Class A Shares at NAV as described above, but the
amount of the CDSC paid upon redemption will not be credited to your account.

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

WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS A, B AND C
SHARES

The CDSC on Class B , Class C 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(m)(7)
of the Code) of a participant or beneficiary in a Plan; (c) hardship

29
<PAGE>

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)(2) 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(m)(7) of the Code)
of a shareholder if the redemption is made within one year of such event; (h)
excess contributions distributed from a Plan; (i) distributions from a
qualified retirement plan invested in the Goldman Sachs Funds which are being
rolled over to 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, Class B
and Class C 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% each of the value of your Class B and
Class C Shares and 10% of the value of your Class A Shares.

SERVICES AVAILABLE TO SHAREHOLDERS

AUTOMATIC INVESTMENT PLAN

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

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM

A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Portfolio in Shares of the same class or an equivalent
class of other Goldman Sachs Funds or ILA Portfolios. See "Portfolio
Highlights." A shareholder may also elect to exchange automatically a
specified dollar amount of Shares of a Portfolio for Shares of the same Class
or an equivalent Class of any other Goldman Sachs Fund or ILA Portfolio.
Shares acquired through cross-reinvestment of dividends or the automatic
exchange program will be purchased at NAV and will not be subject to any
initial sales charge or CDSC as a result of the cross-reinvestment or
exchange, but Shares subject to a CDSC acquired under the automatic exchange
program may be subject to a CDSC at the time of redemption from the Fund into
which the exchange is made determined on the basis of the date and value of
the investor's initial purchase of the Fund from which the exchange (or any
prior exchange) is made. Automatic exchanges are made monthly on the fifteenth
day of each month or the first Business Day thereafter. The minimum dollar
amount for automatic exchanges must be at least $50 per month. Cross-
reinvestments and automatic exchanges are subject to the following conditions:
(a) the value of the shareholder's account(s) in the Fund which is paying the
dividend or from which the automatic exchange is being made must equal or
exceed $5,000; and (b) 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 Portfolio 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 Portfolio shareholder should obtain and read the prospectus of
the Fund into which dividends are invested or automatic exchanges are made.

30
<PAGE>

TAX-SHELTERED RETIREMENT PLANS

The Portfolios offer their Shares for purchase by retirement plans,
including traditional and Roth IRAs for individuals and their spouses, IRA
plans for employees in connection with employer sponsored SEP, SAR-SEP and
SIMPLE IRA plans, 403(b) plans and defined contribution plans such as 401(k)
Salary Reduction Plans. Detailed information concerning these plans may be
obtained from the Transfer Agent. The information sets forth the service fee
charged for retirement plans and describes the federal income tax consequences
of establishing a plan. This information should be read carefully, and
consultation with an attorney or tax adviser may be advisable.

EXCHANGE PRIVILEGE

Shares of a Portfolio may be exchanged at NAV 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 Portfolio, Goldman Sachs Fund or ILA
Portfolio. A shareholder needs to obtain and read the prospectus of the Fund
into which the exchange is made. The Shares of these other Funds acquired by
an exchange may later be exchanged for Shares of the same Class (or an
equivalent class) of the original Portfolio at the next determined NAV without
the imposition of an initial sales charge or CDSC if the dollar amount in the
Portfolio resulting from such exchanges is below the shareholder's all-time
highest dollar amount on which it has previously paid the applicable sales
charge. Shares of these other Funds purchased through dividends and/or capital
gains reinvestment may be exchanged for shares of the Portfolios without a
sales charge. In addition to free automatic exchanges pursuant to the
Automatic Exchange Program, six free exchanges are permitted in each 12 month
period. A fee of $12.50 may be charged for each subsequent exchange during
such period. The exchange privilege may be materially modified or withdrawn at
any time upon 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 has 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 Portfolio and Class of
Shares and either writing to Goldman Sachs, Attention: Goldman Sachs Asset
Allocation Portfolios, Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas
City, MO 64141-6711 or, unless the investor has specifically declined
telephone exchange privileges on the Account Application or elected in writing
not to utilize telephone exchanges, by a telephone request to the Transfer
Agent at 800-526-7384 (7:00 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 Portfolios." Under the
telephone exchange privilege, Shares may be exchanged among accounts with
different names, addresses and social security or other taxpayer
identification numbers only if the exchange instructions are in writing and
received in accordance with the procedures set forth under "How to Sell Shares
of the Portfolio." In times of drastic economic or market changes the
telephone exchange privilege may be difficult to implement.

31
<PAGE>

the sales charge paid on such purchase of Class A Shares cannot be taken into
account by the exchanging shareholder for purposes of determining gain or
loss, if any, realized on such redemption for federal income tax purposes, but
instead will be added to the tax basis of the Shares received in the exchange.
Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange.

Eligible investors may exchange certain Classes of Shares for another class
of Shares of the same Portfolio. For further information, call Goldman Sachs
at the number set forth on the back of the Prospectus.

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

OTHER PURCHASE INFORMATION

Authorized Dealers and other financial intermediaries may be authorized to
accept, on the Trust's behalf, purchase, exchange and redemption orders placed
by or on behalf of their customers and, if approved by the Trust, to designate
other intermediaries to accept such orders. In these cases, a Portfolio will
be deemed to have received an order that is in proper form when the order is
accepted by an Authorized Dealer or intermediary on a Business Day, and the
order will be priced at a Portfolio's NAV per Share (adjusted for any
applicable sales charge) next determined after such acceptance. Otherwise, a
Portfolio or Goldman Sachs must receive an order in proper form before it is
effective. Authorized Dealers and intermediaries will be responsible for
transmitting accepted orders to the Portfolios within the period agreed upon
by them. Customers should contact their Authorized Dealers or intermediaries
to learn whether they are authorized to accept orders for the Trust.

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

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

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

The Investment Adviser, Distributor, and/or their affiliates also pay
additional compensation from time to time, out of their assets and not as an
additional charge to the Portfolios, to selected Authorized Dealers and other
persons in connection with the sale, distribution and/or servicing of Shares
of the Portfolios, the Underlying

32
<PAGE>

Funds and other investment portfolios of the Trust (such as additional
payments based on new sales, amounts exceeding pre-established thresholds, or
the length of time their customers' assets have remained in a Portfolio) and,
subject to applicable NASD regulations, contribute to various non-cash and
cash incentive arrangements to promote the sale of Shares, as well as sponsor
various educational programs, sales contests and/or promotions in which
participants may receive reimbursement of expenses, entertainment and prizes
such as travel awards, merchandise, cash, investment research and educational
information and related support materials. This additional compensation can
vary among Authorized Dealers depending upon such factors as the amounts their
customers have invested (or may invest) in particular investment portfolios of
the Trust, the particular program involved, or the amount of reimbursable
expenses. Additional compensation based on sales may, but is currently not
expected to, exceed 0.50% (annualized) of the amount invested. For further
information, see "Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends" in the Additional Statement.

DISTRIBUTION AND SERVICE PLANS

The Trust has adopted distribution and service plans on behalf of each
Portfolio's Class A, Class B and Class C Shares (each a "Plan"). Under the
Plans, Goldman Sachs is entitled to a monthly fee from each Portfolio for
distribution services equal, on an annual basis, to 0.25%, 0.75% and 0.75%,
respectively, of each Portfolio's average daily net assets attributable to
Class A, Class B and Class C Shares, respectively.

Goldman Sachs may use this distribution fee for its expenses of distributing
Class A, Class B and Class C Shares of each Portfolio. The types of expenses
for which Goldman Sachs may be compensated for distribution services under the
Plans 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; interest expenses and other costs associated
with the financing of such compensation and expenses; the printing of
prospectuses for prospective shareholders; preparation and distribution of
sales literature and advertising of any type; and all other expenses incurred
in connection with activities primarily intended to result in the sale of
Class A, Class B and Class C Shares. Goldman Sachs may also use payments under
the Class A Plan for personal and account maintenance services as described
below. The aggregate compensation that may be received under the Plans for
distribution services may not exceed the limitations imposed by the NASD's
Conduct Rules. Payments for distribution services are also subject to the
requirements of Rule 12b-1 under the Act.

Under the Plans for Class B and Class C Shares, Goldman Sachs is also
entitled to receive a separate fee equal on an annual basis to 0.25% of each
Portfolio's average daily net assets attributable to Class B or Class C
Shares. This fee is for personal and account maintenance services, and 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
Portfolios. If the distribution or service fees received by Goldman Sachs
pursuant to the Plans exceed its expenses, Goldman Sachs may realize a profit
from these arrangements. The Plans will be reviewed and are subject to
approval annually by the Trustees.

In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.75% distribution fee as an ongoing commission, and the 0.25% ongoing
service fee, to Authorized Dealers after the Shares have been held for one
year. All fees are paid by Goldman Sachs on a quarterly basis.

33
<PAGE>

HOW TO SELL SHARES OF THE PORTFOLIOS

The Portfolios will redeem their shares upon request of a shareholder on any
Business Day at the NAV 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 the Shares to be redeemed
were recently purchased by check, a Portfolio 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 of this Prospectus or an Authorized Dealer.

The Trust accepts telephone requests for redemption of Shares for amounts up
to $50,000 within any seven (7) calendar day period, except for investors who
have specifically declined telephone redemption privileges on the Account
Application or elected in writing not to utilize telephone redemptions
(proceeds which are sent to a Goldman Sachs brokerage account are not subject
to the $50,000 limit). It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes. By completing an
Account Application, an investor agrees that the Trust, the Distributor and
the Transfer Agent shall not be liable for any loss incurred by the investor
by reason of the Trust accepting unauthorized telephone redemption requests if
the Trust reasonably believes the instructions to be genuine. Thus,
shareholders risk possible losses in the event of a telephone redemption not
authorized by them. The Trust may accept telephone redemption instructions
from any person identifying himself as the owner of an account or the owner's
broker where the owner has not declined in writing to utilize this service.

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

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.

34
<PAGE>

The Portfolios 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 of 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 Portfolio, the Trust, Goldman Sachs
nor any Authorized Dealer assumes any further responsibility for the
performance of intermediaries or the shareholder's bank in the transfer
process. If a problem with such performance arises, the shareholder should
deal directly with such intermediaries or bank.

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

SYSTEMATIC WITHDRAWAL PLAN

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

DIVIDENDS

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

The election to reinvest dividends and distributions paid by a Portfolio in
additional Shares or units of the Portfolio or another Goldman Sachs Fund or
ILA Portfolio will not affect the tax treatment of such dividends

35
<PAGE>

and distributions, which will be treated as received by the shareholder and
then used to purchase Shares or units of a Portfolio of another Goldman Sachs
Fund or an ILA Portfolio.

Each Portfolio intends that all or substantially all its net investment
income and net realized capital gains, after reduction by available capital
losses, including any capital losses carried forward from prior years, will be
declared as dividends for each taxable year. The Income Strategy Portfolio
will pay dividends from net investment income monthly. The Growth and Income
Strategy Portfolio and Growth Strategy Portfolio will each pay dividends from
net investment income quarterly. The Aggressive Growth Strategy Portfolio will
pay dividends from net investment income annually. Each Portfolio will pay
dividends from net realized capital gains, reduced by available capital
losses, at least annually. From time to time, a portion of a Portfolio's
dividends may constitute a return of capital.

At the time of an investor's purchase of Shares of a Portfolio a portion of
the NAV per Share may be represented by undistributed income of the Portfolio
or realized or unrealized appreciation of the Portfolio's investments.
Therefore, subsequent distributions on such Shares from such income or
realized appreciation may be taxable to the investor even if the NAV 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 NAV per Share of each Class of a Portfolio is calculated by the
Portfolio's custodian as of the close of regular trading on the New York Stock
Exchange (which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m.
New York time), on each Business Day (as such term is defined under
"Additional Information"). NAV per Share of each Class is calculated by
determining the net assets attributed to each Class and dividing by the number
of outstanding Shares of that Class. Portfolio securities are valued based on
market quotations or, if accurate quotations are not readily available, at
fair value as determined in good faith under procedures established by the
Trustees.

PERFORMANCE INFORMATION

From time to time each Portfolio may publish average annual total return,
yield and distribution rates in advertisements and communications to
shareholders or prospective investors. Average annual total return is
determined by computing the average annual percentage change in value of
$1,000 invested at the maximum public offering price for specified periods
ending with the most recent calendar quarter, assuming reinvestment of all
dividends and distributions at NAV. 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 and Class
C Shares reflect deduction of the applicable CDSC imposed upon redemption of
Class B and Class C Shares held for the applicable period. Each Portfolio 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 Portfolio may furnish total
return calculations based on investments at various sales charge levels or at
NAV. Any performance information which

36
<PAGE>

is based on a Portfolio's NAV per Share would be reduced if a sales charge
were taken into account. In addition to the above, each Portfolio may from
time to time advertise its performance relative to certain averages,
performance rankings, indices, other information prepared by recognized mutual
fund statistical services and investments for which reliable performance
information is available.

The Portfolios compute their yield by dividing net investment income earned
during a recent thirty-day period by the product of the average daily number
of Shares outstanding and entitled to receive dividends during the period and
the maximum offering price per share on the last day of the relevant period.
The results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes. The Portfolios'
quotations of distribution rate are calculated by annualizing the most recent
distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the NAV per Share or maximum
public offering price on the last day of the period for which the distribution
rate is being calculated.

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

Each Portfolios' performance quotations do not reflect any fees charged by
an Authorized Dealer to its customer accounts in connection with investments
in the Portfolios. The investment results of a Portfolio 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
Portfolio's performance may be in any future period. In addition to
information provided in shareholder reports, the Portfolios may, in their
discretion, from time to time make a list of their holdings available to
investors upon request.

SHARES OF THE TRUST

Each Portfolio is classified as "diversified" under the Investment Company
Act of 1940, as amended (the "1940 Act"). Each Portfolio is a series of
Goldman Sachs Trust, which was formed under the laws of the State of Delaware
on January 28, 1997. The Trustees have authority under the Trust's Declaration
of Trust to create and classify Shares of beneficial interests in separate
series, without further action by shareholders. Additional series may be added
in the future. The Trustees also have authority to classify and reclassify any
series or portfolio of Shares into one or more classes. Information about the
Trust's other series and classes is contained in separate prospectuses.

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

37
<PAGE>

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

In the interest of economy and convenience, the Trust does not issue
certificates representing the Portfolios' 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.
Portfolio Shares and any dividends and distributions paid by a Portfolio are
reflected in account statements from the Transfer Agent.

TAXATION

FEDERAL TAXES

Each Portfolio is treated as a separate entity for tax purposes. Each
Portfolio intends to elect to be treated as a regulated investment company and
qualify for such treatment for each taxable year under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To qualify as such, a
Portfolio 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 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 shareholders in accordance
with certain timing requirements of the Code.

Dividends paid by a Portfolio from net investment income, certain net
realized foreign exchange gains, the excess of net short-term capital gain
over net long-term capital loss and original issue discount or market discount
income will be taxable to its shareholders as ordinary income. Distributions
out of the net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, of a Portfolio will be taxed to shareholders
as long-term capital gains, regardless of the length of time a shareholder has
held his or her Shares or whether such gain was not reflected in the price
paid for the Shares. These tax consequences will apply whether distributions
are received in cash or reinvested in Shares. A Portfolio's dividends that are
paid to its corporate shareholders and are attributable to qualifying
dividends such Portfolio or an underlying Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. A portion of each
Portfolio's dividends may generally qualify, in the hands of corporate
shareholders, for the corporate dividends-received deduction. Certain
distributions paid by a Portfolio 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 Portfolios for federal income tax purposes.

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

Redemptions and exchanges of Shares are taxable events.

38
<PAGE>

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, if any) on
amounts treated as ordinary dividends from the Portfolios.

Each Portfolio may be subject to foreign withholding or other foreign taxes
on income or gain from certain foreign securities. In general, the Portfolios
do not anticipate that they will be eligible to pass any foreign tax credits
through to their shareholders; however, the Portfolios may deduct these taxes
in computing their 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 Portfolios. A state income (and
possibly local income and/or intangible property) tax exemption may be
available to the extent (if any) a Portfolio's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, 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 Portfolios, 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

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

39
<PAGE>

APPENDIX A

This Appendix describes various investments and investment techniques that
may be used by the Underlying Funds. This Appendix also describes certain
risks associated with these investments and techniques. Further information is
provided in the Additional Statement and in the prospectuses of the Underlying
Funds.

As noted above, the Underlying Equity Funds invest primarily in common
stocks and other equity securities (including real estate investment trusts),
and the Underlying Fixed-Income Funds invest primarily in fixed income
securities. The Short Duration Government and Adjustable Rate Government Funds
invest in U.S. Government securities and related repurchase agreements, and
neither of these Funds, the Government Income Fund nor the Financial Square
Prime Obligations Fund makes foreign investments. The investments of the
Financial Square Prime Obligations Fund are limited by SEC regulations
applicable to money market funds as described in its prospectus, and do not
include many of the types of investments discussed below that are permitted
for the other Underlying Funds. With these exceptions, and the further
exceptions noted below, the following description applies generally to the
Underlying Funds.

(1) DESCRIPTION OF INVESTMENTS AND
INVESTMENT TECHNIQUES OF THE UNDERLYING FUNDS

CONVERTIBLE SECURITIES

The Underlying Funds may invest in convertible securities, including debt
obligations and preferred stock of the issuer convertible at a stated exchange
rate into common stock of the issuer. Convertible securities generally offer
lower interest or dividend yields than non-convertible securities of similar
quality. As with all fixed-income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the investment adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which certain of the Underlying Funds invest are not subject to
any minimum rating criteria. Convertible debt securities are equity
investments for purposes of each Underlying Funds's investment policies.

PREFERRED STOCK, WARRANTS AND RIGHTS

The Underlying Funds may invest in preferred stock, warrants and rights.
Preferred stocks are securities that represent an ownership interest providing
the holder with claims on the issuer's earnings and assets before common stock
owners but after bond owners. Unlike debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment obligations,
may not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default (such as a covenant default or filing of a
bankruptcy petition) or other non-compliance by the issuer with the terms of
the preferred stock.

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

A-1
<PAGE>

REAL ESTATE INVESTMENT TRUSTS ("REITS")

The Real Estate Securities Fund expects to invest a substantial portion of
its total assets in REITs, which are pooled investment vehicles that invest
primarily in either real estate or real estate related loans. In addition, the
other Underlying Equity Funds may invest in REITs from time to time. REITs are
dependent upon the ability of the REITs' managers, and are subject to heavy
cash flow dependency, default by borrowers and the qualification of the REITs
under applicable regulatory requirements for favorable federal income tax
treatment. REITs are also subject to risks generally associated with
investments in real estate including possible declines in the value of real
estate, general and local economic conditions, environmental problems and
changes in interest rates. To the extent that assets underlying a REIT are
concentrated geographically, by property type or in certain other respects,
these risks may be heightened. Each Underlying Fund will indirectly bear its
proportionate share of any expenses, including management fees, paid by a REIT
in which it invests.

FOREIGN INVESTMENTS

Foreign Securities. Certain of the Underlying Funds may invest in foreign
securities in accordance with their investment objectives and policies.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in 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. The expected introduction of a single currency, the euro,
on January 1, 1999 for participating European nations in the Economic and
Monetary Union ("EU") presents unique uncertainties, including whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; the creation of suitable clearing and
settlement payment systems for the new currency; the legal treatment of
certain outstanding financial contracts after January 1, 1999 that refer to
existing currencies rather than the euro; the establishment and maintenance of
exchange rates for currencies being converted into the euro and the euro; the
fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; whether the
interest rate, tax and labor regimes of European countries participating in
the euro will converge over time; and whether the conversion of the currencies
of the other EU countries such as the United Kingdom, Denmark and Greece into
the euro and the admission of other non-EU countries such as Poland, Latvia
and Lithuania as members of the EU may have an impact on the euro. These or
other factors, including political and economic risks, could cause market
disruptions before or after the introduction of the euro, and could adversely
affect the value of securities and foreign currencies held by the Underlying
Funds. Commissions on transactions in foreign securities may be higher than
those for similar transactions on domestic stock markets. In addition,
clearance and settlement procedures may be different in foreign countries and,
in certain markets, such procedures have been unable to keep pace with the
volume of securities transactions, thus making it difficult to conduct such
transactions.

Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on

A-2
<PAGE>

dividend or interest payments (or, in some cases, capital gains), limitations
on the removal of funds or other assets of the Underlying Funds, political or
social instability or diplomatic developments which could affect investments
in those countries.

Investments in ADRs, EDRs, and GDRs. Investments in foreign securities may
take the form of sponsored and unsponsored American Depository Receipts
("ADRs"), Global Depository Receipts ("GDRs"), European Depository Receipts
("EDRs") or other similar instruments representing securities of foreign
issuers (together, "Depository Receipts"). ADRs represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the
United States on exchanges or over-the-counter and are sponsored and issued by
domestic banks. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and GDRs are not necessarily quoted in the same currency
as the underlying security. To the extent a Fund acquires Depository Receipts
through banks which do not have a contractual relationship with the foreign
issuer of the security underlying the Depository Receipts to issue and service
such Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Underlying Fund would not become aware of and
be able to respond to corporate actions, such as stock splits or rights
offerings involving the foreign issuer, in a timely manner. In addition, the
lack of information may result in inefficiencies in the valuation of such
instruments. Investment in Depository Receipts does not eliminate all the
risks inherent in investing in securities of non-U.S. issuers. The market
value of Depository Receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Depository Receipts and the underlying securities are quoted.
However, by investing in Depository Receipts, such as ADRs, that are quoted in
U.S. dollars, the Underlying Funds may avoid currency risks during the
settlement period for purchases and sales.

Foreign Currency Transactions. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because certain
Underlying Funds may have currency exposure independent of their securities
positions, the value of the assets of the Underlying Fund as measured in U.S.
dollars will be affected by changes in foreign currency exchange rates. The
Underlying Fund may, to the extent it invests in foreign securities, purchase
or sell foreign currencies on a spot basis and may also purchase or sell
forward foreign currency exchange contracts for hedging purposes and to seek
to protect against anticipated changes in future foreign currency exchange
rates. In addition, the Core Fixed Income, Global Income, High Yield, CORE
International Equity, International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds may enter into such
contracts to seek to increase total return when the Underlying Fund's
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
Underlying Fund's portfolio. When entered into to seek to enhance return,
forward foreign currency exchange contracts are considered speculative.
Certain Underlying 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 Underlying Fund's investment adviser determines
that there is a pattern of correlation between the two currencies.

An Underlying Fund will incur costs in connection with conversions between
various currencies. An Underlying Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of its
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
rates.

Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, an Underlying 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

A-3
<PAGE>

different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by the intervention of U.S. or
foreign governments or central banks or the failure to intervene or by
currency controls or political developments in the U.S. or abroad.

Certain of the Underlying Funds may enter into currency swaps, which involve
the exchange by the Underlying Fund with another party for 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.

FIXED-INCOME SECURITIES

U.S. Government Securities. The Underlying Funds may invest in U.S.
Government securities. Generally, these securities include U.S. Treasury
obligations and obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently.

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

A-4
<PAGE>

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 the Underlying
Fund from taking advantage of such higher yields.

Adjustable Rate Mortgage-Backed Securities ("ARMS"). 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 the Underlying 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 the Underlying 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.

The Underlying Funds may invest in Mortgage-Backed Securities issued or
sponsored by both government and non-governmental entities. Privately issued
Mortgage-Backed Securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. In order to
receive a high quality rating from the rating organizations (e.g, S&P or
Moody's), privately issued Mortgaged-Backed Securities normally are structured
with one or more types of "credit enhancement."

The Underlying 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 Code, and invests in
certain mortgages principally secured by interests in real property and other
permitted investments.

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

A-5
<PAGE>

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.

Asset-Backed Securities. The Underlying Funds (other than the four CORE
Equity Funds, the Adjustable Rate Government Fund and the Short Duration
Government Fund) may also invest in asset-backed securities ("Asset-Backed
Securities"). The principal and interest payments on Asset-Backed Securities
are collateralized by pools of assets such as auto loans, credit card
receivables, leases, installment contracts and personal property. Such asset
pools are securitized through the use of special purpose trusts or
corporations. Principal and interest payments may be credit enhanced by a
letter of credit, a pool insurance policy or a senior/subordinated structure.

Corporate and Bank Obligations. The Underlying Funds may invest in
obligations issued or guaranteed by U.S. or foreign corporations and banks.
Banks are subject to extensive but different governmental regulations which
may limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operation of this industry.

Structured Securities. The Underlying 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 the
Underlying 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.

Municipal Securities. The Core Fixed Income and High Yield Funds may make
limited investments in instruments issued by state and local governmental
issuers. These securities may include private activity bonds, municipal
leases, certificates of participation and "auction rate" securities.

Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation
Bonds. Each Underlying 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. These securities also may take the form of debt securities that have
been stripped of their interest payments. Each Underlying Fund may also invest
in pay-in-kind securities which are securities that have interest payable by
the delivery of additional securities. 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-6
<PAGE>

Rating Criteria. The rating requirements for each of the Underlying Fixed-
Income Funds are stated above. Except as noted below, the Underlying Equity
Funds (other than the four CORE Equity Funds, which only invest in debt
instruments that are cash equivalents) may invest in debt securities rated at
least investment grade at the time of investment. Investment grade debt
securities are securities rated BBB or higher by Standard & Poor's or Baa or
higher by Moody's. The Growth and Income, Capital Growth, Small Cap Value,
International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity, Asia Growth and Real Estate Securities Funds may invest up to
10%, 10%, 35%, 35%, 35%, 35%, 35%, 35% and 20%, respectively, of their total
assets in debt securities which are rated in the lowest rating categories by
Standard & Poor's or Moody's (i.e., BB or lower by Standard & Poor's or Ba or
lower by Moody's), including securities rated D by Moody's or Standard &
Poor's. The Mid Cap Equity Fund may invest up to 10% of its total assets in
below investment grade debt securities rated B or higher by Standard & Poor's
or Moody's. Fixed-income securities rated BB or Ba or below (or comparable
unrated securities) are commonly referred to as "junk bonds," are considered
predominately speculative and may be questionable as to principal and interest
payments as described further below under "Risks of Investing in Non-
Investment Grade Fixed-Income Securities." See Appendix A to the Additional
Statement for a description of the corporate bond ratings assigned by Standard
& Poor's and Moody's.

OPTIONS ON SECURITIES AND SECURITIES INDICES

The Underlying Funds (other than the CORE U.S. Equity and CORE Large Cap
Growth Funds) may write (sell) covered call and put options and purchase call
and put options on any securities in which it may invest or on any securities
index comprised 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 Underlying Fund's investment adviser is
incorrect in its expectation of fluctuations in securities prices or interest
rates. The successful use of options for hedging purposes also depends in part
on the ability of the investment adviser to manage future price fluctuations
and the degree of correlation between the options and securities markets. If
the investment adviser is incorrect in its expectation of changes in
securities prices or determination of the correlation between the securities
indices on which options are written and purchased and the securities in the
Underlying Fund's investment portfolio, the investment performance of the
Underlying Fund will be less favorable than it would have been in the absence
of such options transactions. The writing of options could significantly
increase the Underlying Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.

OPTIONS ON FOREIGN CURRENCIES

An Underlying Fund may, to the extent it invests in foreign securities,
purchase and sell (write) call and put options on foreign currencies for the
purpose of protecting against declines in the U.S. dollar value of foreign
portfolio securities and anticipated dividends on such securities and against
increases in the U.S. dollar cost of foreign securities to be acquired. In
addition, certain Underlying 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 options
transactions, however, the writing of an option on a foreign currency will
constitute only a partial hedge, up to the amount of the premium received. If
an option that the Underlying Fund has written is exercised, the Underlying
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 Underlying Fund's position, the Underlying Fund may forfeit the entire
amount of the premium plus related transaction costs. In

A-7
<PAGE>

addition to purchasing call and put options for hedging purposes, the Core
Fixed Income, Global Income, High Yield, CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds may purchase call or put options on
currency to seek to increase total return when the Underlying Fund's
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 Underlying
Fund's portfolio. When purchased or sold to seek to increase total return,
options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Underlying Funds are traded on U.S. and
foreign exchanges or over-the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, an Underlying 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 Underlying Fund
may also enter into closing purchase and sale transactions with respect to any
such contracts and options.

The futures contracts may be based on various securities (such as U.S.
Government securities), foreign currencies, securities indices and other
financial instruments and indices, whether domestic or foreign. An Underlying
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. The Underlying 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 Underlying
Fund's outstanding positions in futures and related options entered into for
the purpose of seeking to increase total return would exceed 5% of the market
value of the Underlying Fund's net assets. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating the Underlying Fund to purchase securities or currencies,
require the Underlying Fund to segregate and maintain cash or liquid assets
with a value equal to the amount of the Underlying Fund's obligations or to
otherwise cover the obligations in a manner permitted by the SEC.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while the Underlying Fund may
benefit from the use of futures and options on futures, unanticipated changes
in interest rates, securities prices or currency exchange rates may result in
poorer overall performance than if the Underlying 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 the Underlying Fund may be exposed to risk of loss. The loss incurred by
the Underlying Fund in entering into futures contracts and in writing call
options on futures is potentially unlimited and may exceed the amount of the
premium received. Futures markets are highly volatile and the use of futures
may increase the volatility of the Underlying Fund's NAV. The profitability of
the Underlying Fund's trading in futures to seek to increase total return
depends upon the ability of the investment adviser to analyze correctly the
futures markets. In addition, because of the low margin deposits normally
required in futures trading, a relatively small price movement in a futures
contract may result in substantial losses to the Underlying Fund. Further,
futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day. The
Underlying Funds may engage in futures transactions on both U.S. and foreign
exchanges. Foreign exchanges may not provide the same protections as U.S.
exchanges.

A-8
<PAGE>

STANDARD AND POOR'S DEPOSITORY RECEIPTS

Each Underlying Equity Fund may, consistent with its objectives, purchase
Standard & Poor's Depository Receipts ("SPDRs"). SPDRs are American Stock
Exchange-traded securities that represent ownership in the SPDR Trust, a trust
which has been established to accumulate and hold a portfolio of common stocks
that is intended to track the price performance and dividend yield of the S&P
500. This trust is sponsored by a subsidiary of the American Stock Exchange.
SPDRs may be used for several reasons, including but not limited to:
facilitating the handling of cash flows or trading, or reducing transaction
costs. The use of SPDRs would introduce additional risks to the portfolio as
the price movement of the instrument does not perfectly correlate with the
price action of the underlying index.

EQUITY SWAPS

Each Underlying Equity Fund may invest up to 10% of its total assets in
equity swaps. Equity swaps allow the parties to a swap agreement to exchange
the dividend income or other components of return on an equity investment
(e.g., a group of equity securities or an index) for a component of return on
another non-equity or equity investment. An equity swap may be used by a Fund
to invest in a market without owning or taking physical custody of securities
in circumstances in which direct investment may be restricted for legal
reasons or is otherwise impractical. Equity swaps are derivatives and their
value can be very volatile. To the extent that its Investment Advisor does not
accurately analyze and predict the potential relative fluctuation of the
components swapped with another party, a Fund may suffer a loss. The value of
some components of an equity swap (such as the dividends on a common stock)
may also be sensitive to changes in interest rates. Furthermore, during the
period a swap is outstanding, a Fund may suffer a loss if the counterparty
defaults. In connection with its investments in equity swaps, a Fund will
either segregate cash or liquid assets or otherwise cover its obligations in a
manner required by the SEC.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

The Underlying Funds may purchase when-issued securities. When-issued
transactions arise when securities are purchased by the Underlying 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 Underlying Fund at the
time of entering into the transaction. Each Underlying Fund may also purchase
or sell securities on a forward commitment basis; that is, make contracts to
purchase or sell securities for a fixed price at a future date beyond the
customary three-day settlement period. 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. Conversely,
securities sold on a forward commitment basis involve the risk that the value
of the securities to be sold may increase prior to the settlement date.
Although the Underlying Fund would generally purchase securities on a when-
issued or forward commitment basis with the intention of acquiring securities
for its portfolio, the Underlying Fund may dispose of when-issued securities
or forward commitments prior to settlement if its investment adviser deems it
appropriate to do so. The Underlying Fund will segregate cash or liquid assets
in an amount sufficient to meet the purchase price until three days prior to
the settlement date. Alternatively, each Underlying Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.

ILLIQUID AND RESTRICTED SECURITIES

A-9
<PAGE>

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. Investing in restricted securities eligible for resale pursuant to
Rule 144A may decrease the liquidity of an Underlying Fund's portfolio to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities. The purchase price and subsequent
valuation of restricted and illiquid securities normally reflect a discount,
which may be significant, from the market price of comparable securities for
which a market exists.

REPURCHASE AGREEMENTS

The Underlying Funds may enter into repurchase agreements with dealers in
U.S. Government securities and member banks of the Federal Reserve System
which furnish collateral at least equal in value or market price to the amount
of their repurchase obligation. The Core Fixed Income, Global Income, High
Yield, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may
also enter into repurchase agreements involving certain foreign government
securities. If the other party or "seller" defaults, the Underlying Fund might
suffer a loss to the extent that the proceeds from the sale of the underlying
securities and other collateral are less than the repurchase price. In
addition, in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, the Underlying 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. Each
Underlying Fund, together with other registered investment companies having
management agreements with GSAM or 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.

LENDING OF PORTFOLIO SECURITIES

The Underlying Funds may also seek to increase its income by lending
portfolio securities. Under present regulatory policies, such loans may be
made to institutions, such as certain broker-dealers, and are required to be
secured continuously by collateral in cash, cash equivalents, or U.S.
Government securities maintained on a current basis in an amount at least
equal to the market value of the securities loaned. Cash collateral may be
invested in cash equivalents. The value of the securities loaned may not
exceed 33 1/3% of the value of the total assets of an Underlying Fund
(including the loan collateral). A loss or delay in the recovery of securities
could result if the institution which borrows securities breaches its
agreement with the Underlying Fund.

SHORT SALES AGAINST-THE-BOX

Certain Underlying Funds may make short sales of securities or maintain a
short position, provided that at all times when a short position is open the
Underlying Fund owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of the
Underlying Fund's net assets (determined at the time of the short sale) may be
subject to such short sales.

MORTGAGE DOLLAR ROLLS

A-10
<PAGE>

purchase or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date for the forward purchase. Unless
such benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Underlying Fund.

TEMPORARY INVESTMENTS

Each Underlying Fund may, for temporary defensive purposes, invest 100% of
its total assets (except that the CORE Equity Funds and Emerging Markets
Equity Fund may only hold up to 35% of their respective total assets) in high
quality fixed income securities. When assets are invested in such instruments,
an Underlying Fund may not be achieving its investment objective.

PORTFOLIO TURNOVER

The turnover rates of the Underlying Funds have ranged from 41% to 396%
during their most recent fiscal years. There can be no assurance that the
turnover rates of these Underlying Funds will remain with this range during
subsequent fiscal years. Higher turnover rates may result in higher brokerage
costs and higher expenses being incurred by the Underlying Funds. In addition,
higher turnover rates may result in higher taxable realized gains being
incurred by shareholders.

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each
Underlying Fund may engage in the following techniques and investments: (i)
mortgage swaps, credit swaps, index swaps and interest rate swaps, caps,
floors and collars (Underlying Fixed-Income Funds and Real Estate Securities
Fund only), (ii) yield curve options and inverse floating rate securities
(Underlying Fixed-Income Funds and Real Estate Securities Fund only), (iii)
loan participations (High Yield Fund only), (iv) other investment companies,
(v) unseasoned companies, (vi) custodial receipts, and (vii) reverse
repurchase agreements for investment purposes (Underlying Fixed-Income Funds
only).

In addition, each Underlying Fund may borrow up to 33 1/3% of its total
assets from banks for temporary or emergency purposes. An Underlying Fund may
not make additional investments if borrowings (excluding covered mortgage
dollar rolls) exceed 5% of its total assets.

(2) RELATED ADDITIONAL RISK FACTORS

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES AND REITS

Investing in the securities of small capitalization companies and REITs
involves greater risk and the possibility of greater portfolio price
volatility. Among the reasons for the greater price volatility of these
securities are the less certain growth prospects of smaller firms and the
lower degree of liquidity in the markets for such securities. Small
capitalization companies and REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more
abrupt or erratic price movements than larger capitalization companies. An
Underlying Fund may invest in securities of small capitalization companies and
REITs that have experienced financial difficulties or are in an early
development stage. Other risks associated with REITs are discussed in this
Appendix A under "Real Estate Investment Trust ("REITs')."

SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING MARKETS

A-11
<PAGE>

Markets Equity and Asia Growth Funds may each invest without limit in the
securities of issuers in Emerging Countries. Up to 35% of the total assets of
the Emerging Markets Equity Fund may be invested in securities of issuers in
any one Emerging Country. The Growth and Income, Small Cap Value, Mid Cap
Equity, High Yield and CORE International Equity Funds may each invest up to
25%, and the Core Fixed Income, Global Income and Capital Growth Funds may
each invest up to 10%, of their respective total assets in securities of
issuers in Emerging Countries.

Many Emerging Countries are 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. The governments of
some Emerging Countries are authoritarian in nature or have been installed or
removed as a result of military coups, while governments in other Emerging
Countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian and other Emerging Countries.
Investing in Emerging Countries involves the risk of loss due to
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and on repatriation of
capital invested. Many Emerging Countries have experienced currency
devaluations and substantial and, in some cases, extremely high rates of
inflation, which have a negative effect on the economies and securities
markets of such Emerging Countries. Economies in Emerging Countries generally
are dependent heavily upon commodity prices and international trade and,
accordingly, have been and may continue to be affected adversely by the
economies of their trading partners, trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist
measures imposed or negotiated by the countries with which they trade.

The securities markets of Emerging Countries are marked by a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of
investors. The Underlying Fund's purchase and sale of portfolio securities in
certain Emerging Countries may be constrained by limitations as to daily
changes in the prices of listed securities, periodic trading or settlement
volume and/or limitations on aggregate holdings of foreign investors. In
addition, settlement procedures in Emerging Countries are frequently less
developed and reliable than those in the United States and may involve the
Underlying Fund's delivery of securities before receipt of payment for their
sale. Significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for the Underlying Fund to value its portfolio securities and could
cause the Underlying 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 Underlying Fund has delivered or the
Underlying Fund's inability to complete its contractual obligations.

RISKS OF INVESTING IN FIXED-INCOME SECURITIES

The Financial Square Prime Obligations Fund attempts to maintain a stable
NAV of $1.00 per Share and values its assets using the amortized cost method
in accordance with SEC regulations. There is no assurance, however, that the
Financial Square Prime Obligations Fund will be successful in maintaining its
per share value at $1.00 on a continuous basis. The per share NAVs of the
other Underlying Funds are expected to fluctuate on a daily basis.

A-12
<PAGE>

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

The Underlying Funds may invest in various types of derivative debt
securities that present more complex types of interest rate risks. These risks
include 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 an Underlying Fund will suffer from
having to reinvest in lower yielding securities. Extension risk (i.e., where
the issuer exercises its right to pay principal on an obligation later than
scheduled) causes cash flows to be returned later than expected. This
typically results when interest rates have increased, and the Underlying Fund
may be unable to recoup all of its initial investment and will also suffer
from the inability to invest in higher yielding securities.

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.

RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES

Non-investment grade fixed-income securities are considered predominantly
speculative by traditional investment standards. In some cases, these
obligations may be highly speculative and have poor prospects for reaching
investment grade standing. Non-investment grade fixed-income securities and
unrated securities of comparable credit quality (commonly known as "junk
bonds") are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities, also referred to as high
yield securities, may be subject to greater price volatility due to such
factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less secondary
market liquidity. Non-investment grade securities are generally unsecured and
are often subordinated to the rights of other creditors of the issuers of such
securities. Investment by the Underlying Fund in defaulted securities poses
additional risk of loss should nonpayment of principal and interest continue
in respect of such securities. Even if such securities are held to maturity,
recovery by the Underlying Fund of its initial investment and any anticipated
income or appreciation is uncertain.

RISKS OF OTHER DERIVATIVE TRANSACTIONS

An Underlying Fund's transactions, if any, in options, futures, options on
futures, swaps, structured securities and currency forward contracts involve
certain risks, including a possible lack of correlation between changes in the
value of hedging instruments and the portfolio assets (if any) being hedged,
the potential illiquidity of the markets for derivative instruments, the risks
arising from 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.

NON-DIVERSIFICATION

The Global Income Fund is registered as a "non-diversified" Fund under the
1940 Act and is, therefore, more susceptible to adverse developments affecting
any single issuer. In addition, the Global Income Fund, and certain other
Underlying Funds, may invest more than 25% of their total assets in the
securities of corporate and governmental issuers located in a single foreign
country. Concentration of a 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.

A-13
<PAGE>

APPENDIX B

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

If a shareholder anticipates purchasing $50,000 or more of Class A Shares of
a Portfolio alone or in combination with Class A Shares of another Portfolio
or another Goldman Sachs Fund within a 13-month period, the shareholder may
obtain Shares of the Portfolio at the same reduced sales charge as though the
total quantity were invested in one lump sum by filing this Statement of
Intention incorporated by reference in the Account Application. Income
dividends and capital gain distributions taken in additional Shares will not
apply toward the completion of this Statement of Intention.

To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that this Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional Shares, but if the
investor's purchases within 13 months plus the value of Shares credited toward
completion do not total the sum specified, the investor 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 13th month), the
investor 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 or her attorney to surrender for redemption any or all
escrowed Shares with full power of substitution in the premises.

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

B-1
<PAGE>

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

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

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

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

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

ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110

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

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

GOLDMAN SACHS

ASSET ALLOCATION PORTFOLIOS

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

PROSPECTUS

CLASS A, B AND C SHARES

LOGO GOLDMAN
SACHS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AAPRO
501423
<PAGE>

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

PROSPECTUS GOLDMAN SACHS
January 1, 1998, as revised
ASSET ALLOCATION PORTFOLIOS
September 1, 1998 SERVICE SHARES

GOLDMAN SACHS INCOME STRATEGY PORTFOLIO
Seeks a high level of current income with greater stability of principal
than an investment in equity securities alone.

GOLDMAN SACHS GROWTH AND INCOME STRATEGY PORTFOLIO
Seeks long-term capital appreciation and current income.

GOLDMAN SACHS GROWTH STRATEGY PORTFOLIO
Seeks capital appreciation and secondarily current income.

GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
Seeks capital appreciation.

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

This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Portfolios 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 January 1, 1998,
as revised September 1, 1998, containing further information about the Trust
and the Portfolios which may be of interest to investors, has been filed with
the Securities and Exchange Commission ("SEC"), is incorporated herein by
reference in its entirety, and may be obtained without charge from Service
Organizations (as defined herein) or Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Additional Statement and other information regarding the Trust.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Portfolio Highlights................ 2
Fees and Expenses................... 6
Investment Objectives and Policies.. 8
Risk Factors and Special
Considerations..................... 10
Description of Underlying Funds..... 11
Management.......................... 18
Expenses............................ 21
Net Asset Value..................... 23
Performance Information............. 23
Shares of the Trust................. 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Taxation.............................. 24
Additional Information................ 25
Additional Services................... 26
Reports to Shareholders............... 26
Dividends............................. 27
Purchase of Service Shares............ 27
Exchange Privilege.................... 29
Redemption of Service Shares.......... 29
Appendix A............................ A-1
Appendix B............................ B-1
</TABLE>
<PAGE>

PORTFOLIO HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
---------------- ------------------------ -------------------------------------------
<S> <C> <C>
GOLDMAN SACHS High level of current Under normal conditions, approximately 60%
INCOME STRATEGY income with greater of the Portfolio's total assets will be
PORTFOLIO stability of principal allocated among Underlying Fixed-Income
than an investment in Funds. Allocation to Underlying Equity
equity securities alone. Funds is intended to add diversification
and enhance returns, but will also add some
volatility.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Long-term capital Under normal conditions, approximately 60%
GROWTH AND appreciation and current of the Portfolio's total assets will be
INCOME STRATEGY income. allocated among Underlying Equity Funds,
PORTFOLIO which are intended to provide the capital
appreciation component. Allocation to
Underlying Fixed-Income Funds is intended
to provide the income component.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Capital appreciation and Under normal conditions, approximately 80%
GROWTH STRATEGY secondarily current of the Portfolio's total assets will be
PORTFOLIO income. allocated among Underlying Equity Funds,
with a blend of domestic large cap, small
cap and international exposure to seek
capital appreciation. Allocation to
Underlying Fixed-Income Funds is to provide
diversification.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Capital appreciation. Under normal conditions, substantially all
AGGRESSIVE of the Portfolio's total assets will be
GROWTH STRATEGY allocated among Underlying Equity Funds,
PORTFOLIO with a greater focus on small cap and
international investments.
</TABLE>

2
<PAGE>

WHAT IS GOLDMAN SACHS ASSET MANAGEMENT'S GLOBAL ASSET ALLOCATION PROCESS?

The Quantitative Research Group at GSAM uses disciplined quantitative models
to determine the relative attractiveness of the world's stock, bond and
currency markets. GSAM's models use financial and economic variables to capture
fundamental relationships that it believes make sense. While GSAM's process is
rigorous and quantitative, it also incorporates clear economic reasoning behind
each recommendation.

Each Portfolio starts with a "base-line" or strategic allocation among the
various asset classes. GSAM will then tactically deviate from the strategic
allocations based on forecasts provided by the models. The tactical process
seeks to add value by overweighting attractive markets and underweighting
unattractive markets. Greater deviations from the strategic allocation of a
given Portfolio result in higher risk that the tactical allocation will
underperform the strategic allocation. However, GSAM's risk control process
balances the amount any asset class can be overweighted or underweighted in
seeking to achieve higher expected returns against the amount of risk imposed
by that deviation from the strategic allocation. GSAM employs Goldman, Sachs &
Co.'s proprietary Black-Litterman asset allocation technique in an effort to
optimally balance these two goals. This technique combines the Quantitative
Research Group's market forecasts with economic equilibrium in seeking to
construct risk-controlled portfolios.

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

The Portfolios are intended as an efficient and cost-effective method of
giving investors access to four different portfolio mixes. The risk/return
balance of each Portfolio is varied by the proportion of assets allocated to
the different kinds of investments. For example, the Aggressive Growth Strategy
Portfolio intends to invest substantially all of its assets in Underlying Funds
that invest in equity securities. An investor seeking capital appreciation
potential, with a longer time horizon and a tolerance for volatility, might
choose this Portfolio. Conversely, an investor seeking a balance of income and
growth, with a shorter time horizon and less tolerance for volatility, might
choose the Income Strategy Portfolio or Growth and Income Strategy Portfolio,
which invest a larger portion of their assets in Underlying Funds that invest
in fixed income securities.

Because the assets of each Portfolio are invested in Underlying Funds, each
Portfolio's investment performance is directly related to the investment
performance of the Underlying Funds held by it. The ability of a Portfolio to
meet its investment objective is, therefore, also directly related to the
ability of the Underlying Funds held to meet their objectives, as well as the
allocation among those Underlying Funds by the Investment Adviser.

The value of the Underlying Funds' investments, and the net asset values
("NAV") of the Shares of both the Underlying Funds and the Portfolios, will
fluctuate in response to changes in market and economic conditions, as well as
the financial condition and prospects of issuers in which the Underlying Funds
invest. An Underlying Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund to
greater risk than funds that do not employ such techniques. In addition,
investments by certain Underlying Funds in foreign issuers, currencies, real
estate investment trusts and small market capitalization companies will expose
those Funds to a higher degree of risk and price volatility. These investments
include securities of issuers located in countries in Asia, Latin America,
Eastern Europe and Africa whose economies or securities markets are considered
not to be fully developed ("Emerging Countries"). Some

3
<PAGE>

Underlying Funds may also invest in non-investment grade fixed-income
securities (commonly referred to as "junk bonds"), which are considered to be
speculative by traditional investment standards.

For a further description of the risks involved in an investment in the
Portfolios and the Underlying Funds, see "Risk Factors and Special
Considerations" and Appendix A to this Prospectus.

WHO MANAGES THE PORTFOLIOS?

WHO DISTRIBUTES THE PORTFOLIOS' SHARES?

Goldman Sachs acts as distributor of each Portfolio's Shares (the
"Distributor").

WHAT IS THE MINIMUM INVESTMENT?

HOW DO I PURCHASE SERVICE SHARES?

Customers of Service Organizations may invest in Service Shares only through
their Service Organizations. Service Shares of a Portfolio are purchased at the
current NAV without any sales load. See "Purchase of Service Shares."

ADDITIONAL SERVICES. The Trust, on behalf of the Portfolios, has adopted a
Service Plan with respect to the Service Shares which authorizes a Portfolio 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 Portfolios, 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

4
<PAGE>

average daily net assets of the Service Shares of the Portfolios attributable
to or held in the name of the Service Organization for its customers. This
compensation is in addition to any other compensation, if any, a Service
Organization may receive from its customers, the Trust or Goldman Sachs. 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 NAV next determined after receipt of
such request in proper form. See "Redemption of Service Shares."

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
CAPITAL
INVESTMENT INCOME DIVIDENDS GAINS
PORTFOLIO DECLARED AND PAID DISTRIBUTIONS
- --------- --------------------------- -------------
<S> <C> <C>
Income Strategy....................... Monthly Annually
Growth and Income Strategy............ Quarterly Annually
Growth Strategy....................... Quarterly Annually
Aggressive Growth Strategy............ Annually Annually
</TABLE>

Recordholders of Service Shares may receive dividends and distributions in
additional Service Shares of the Portfolio in which they have invested or may
elect to receive them in cash. For further information concerning dividends and
distributions, see "Dividends."

5
<PAGE>

FEES AND EXPENSES
(SERVICE SHARES)

<TABLE>
<CAPTION>
GROWTH AND AGGRESSIVE
INCOME INCOME GROWTH GROWTH
STRATEGY STRATEGY STRATEGY STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Pur-
chases............................. None None None None
Maximum Sales Charge Imposed on Re-
invested 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)/1/
Management Fees (for asset
allocation) (after applicable
limitations)/2/.................... 0.15% 0.15% 0.15% 0.15%
Service Fees/3/..................... 0.50% 0.50% 0.50% 0.50%
Other Expenses:
Other Expenses (after applicable
limitations)/4/.................... 0.04% 0.04% 0.04% 0.04%
Underlying Fund Expenses/1/.......... 0.69% 0.79% 0.84% 0.90%
---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES (after
fee and expense limitations)/5/..... 1.38% 1.48% 1.53% 1.59%
==== ==== ==== ====
</TABLE>
- --------
/1/The Portfolios' operating expenses have been restated to reflect the fees
and expenses in effect as of September 1, 1998. Underlying Fund expenses for
each Portfolio are based upon the strategic allocation of each Portfolio's
investment in the Underlying Funds and upon the total operating expenses of
the Underlying Funds as in effect on September 1, 1998. Actual Underlying
Fund expenses incurred by each Portfolio may vary with changes in the
allocation of each Portfolio's assets among the Underlying Funds and with
other events that directly affect the expenses of the Underlying Funds. For
additional information on the total operating expenses of each Underlying
Fund, please refer to "Expenses."
/2/The Investment Adviser has voluntarily agreed that a portion of the
management fees would not be imposed on the Portfolios equal to 0.20%.
Without such limitation, management fees would be 0.35% of each Portfolio's
average daily net assets.
/3/Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts.
/4/The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management and service fees, transfer agency fees
(equal to 0.04% of the average daily net assets of each Portfolio's Service
Shares), taxes, interest, brokerage fees, and litigation, indemnification
and other extraordinary expenses) for each Portfolio to the extent such
expenses exceed 0.00% of the Portfolio's average daily net assets.
/5/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Service Shares of the Portfolios would be as set
forth below:

<TABLE>
<CAPTION>
GROWTH AND AGGRESSIVE
INCOME STRATEGY INCOME STRATEGY GROWTH STRATEGY GROWTH STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Other Expenses.......... 0.40% 0.17% 0.20% 0.33%
Total Operating Ex-
penses................. 1.94% 1.81% 1.89% 2.08%
</TABLE>

6
<PAGE>

The Portfolios will invest only in Institutional Shares of the Underlying
Funds and, accordingly, will not pay any sales load or distribution and
service fees in connection with their investments in Shares of the Underlying
Funds. The Portfolios will, however, indirectly bear their pro rata share of
the fees and expenses incurred by the Underlying Funds that are applicable to
Institutional Shareholders. The following example assumes the payment by each
Portfolio of operating expenses at the levels set forth in the table above and
of its pro rata share of the Institutional Share expenses of the Underlying
Funds (also as set forth above) in which a Portfolio is invested.

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Income Strategy Portfolio........................................ $14 $44
Growth and Income Strategy Portfolio............................. $15 $47
Growth Strategy Portfolio........................................ $16 $48
Aggressive Growth Strategy Portfolio............................. $16 $50
</TABLE>

The Investment Adviser and Goldman Sachs may modify or discontinue any of
the limitations set forth above in the future at their discretion. The
information set forth in the foregoing table and hypothetical example relates
only to Service Shares of the Portfolios. Each Portfolio also offers Class A,
B, C and Institutional Shares, which are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services. Information regarding
Class A, B, C and Institutional Shares of the Portfolios may be obtained from
an investor's sales representative or from Goldman Sachs by calling the number
on the back of this Prospectus.

In addition to the compensation itemized above, certain Service
Organizations may also receive other compensation in connection with the sale
and distribution of Service Shares or for services to their customers'
accounts and/or the Portfolios. For additional information regarding such
compensation, see "Purchase of Service Shares" in this Prospectus and the
Additional Statement.

7
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

EQUITY/FIXED-INCOME RANGE (PERCENTAGE OF EACH PORTFOLIO'S NET ASSETS)

8
<PAGE>

9
<PAGE>

RISK FACTORS AND SPECIAL CONSIDERATIONS

INVESTING IN UNDERLYING FUNDS

The investments of each Portfolio are concentrated in the Underlying Funds,
and each Portfolio's investment performance is directly related to the
investment performance of the Underlying Funds held by it. The ability of each
Portfolio to meet its investment objectives is directly related to the ability
of the Underlying Funds to meet their objectives as well as the allocation
among those Underlying Funds by the Investment Adviser. The share prices and
yields of both the Portfolios and the Underlying Funds will fluctuate in
response to various market and economic factors related to the equity and
fixed-income markets. There can be no assurance that the investment objectives
of any Portfolio or any Underlying Fund will be achieved.

INVESTMENTS OF THE UNDERLYING FUNDS

AFFILIATED PERSONS

EXPENSES

10
<PAGE>

DESCRIPTION OF UNDERLYING FUNDS

The following is a concise description of the investment objectives and
practices for each of the Underlying Funds that are available for investment
by the Portfolios as of the date of the Prospectus. A Portfolio may also
invest in other Underlying Funds that may become available for investment in
the future at the discretion of the Investment Adviser without shareholder
approval. There can be no assurance that the investment objectives of the
Underlying Funds will be met. Additional information regarding the investment
practices of the Underlying Funds is located in Appendix A to this Prospectus,
in the Additional Statement and in the prospectus of each of the Underlying
Funds. No offer is made in this Prospectus of any of the Underlying Funds.

<TABLE>
<CAPTION>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
---------------- ------------------------ ----------------------------------
<C> <C> <S>
GROWTH AND IN- Long-term growth of At least 65% of total assets in
COME FUND capital and growth of equity securities that are
income. considered to have favorable
prospects for capital appreciation
and/or dividend paying ability.
- -------------------------------------------------------------------------------
CORE U.S. EQUITY Long-term growth of At least 90% of total assets in
FUND capital and dividend equity securities of U.S. issuers,
income. including certain foreign issuers
traded in the U.S. The Fund seeks
to achieve its objective through a
broadly diversified portfolio of
large cap and blue chip equity
securities representing all major
sectors of the U.S. economy. The
Fund's investments are selected
using both a variety of
quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the S&P
500 Index.
- -------------------------------------------------------------------------------
CORE LARGE CAP Long-term growth of At least 90% of total assets in
GROWTH FUND capital. Dividend income equity securities of U.S issuers,
is a secondary including certain foreign issuers
consideration. traded in the U.S. The Fund seeks
to achieve its objective through a
broadly diversified portfolio of
equity securities of large cap
U.S. issuers that are expected to
have better prospects for earnings
growth than the growth rate of the
general domestic economy. The
Fund's investments are selected
using both a variety of
quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the
Russell 1000 Growth Index.
- -------------------------------------------------------------------------------
CORE SMALL CAP Long-term growth of At least 90% of total assets in
EQUITY FUND capital. equity securities of U.S. issuers,
including certain foreign issuers
traded in the U.S. The Fund seeks
to achieve its investment
objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which
are included in the Russell 2000
Index at the time of investment.
The Fund's investments are
selected using both a variety of
quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the
Russell 2000 Index.
</TABLE>

(continued)

11
<PAGE>

<TABLE>
<CAPTION>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
---------------- ------------------------ ----------------------------------
<C> <C> <S>
CORE INTERNA- Long-term growth of At least 90% of total assets in
TIONAL EQUITY capital. equity securities of companies
FUND organized outside the United
States or whose securities are
principally traded outside the
United States. The Fund seeks
broad representation of large cap
issuers across major countries and
sectors of the international
economy. The Fund's investments
are selected using both a variety
of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the
unhedged Morgan Stanley Capital
International (MSCI) Europe,
Australasia and Far East Index
(the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- -------------------------------------------------------------------------------
CAPITAL GROWTH Long-term capital At least 90% of total assets in a
FUND growth. diversified portfolio of equity
securities. Long-term capital
appreciation potential is
considered in selecting
investments.
- -------------------------------------------------------------------------------
MID CAP EQUITY Long-term capital At least 65% of total assets in
FUND appreciation. equity securities of companies
with public stock market
capitalizations within the range
of the market capitalization of
companies constituting the Russell
Midcap Index at the time of the
investment (currently between $400
million and $16 billion).
- -------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at least
EQUITY FUND appreciation. 65%, of total assets in equity
securities of companies organized
outside the United States or whose
securities are principally traded
outside the United States. The
Fund may employ certain currency
management techniques.
- -------------------------------------------------------------------------------
SMALL CAP VALUE Long-term capital At least 65% of total assets in
FUND growth. equity securities of companies
with public stock market
capitalizations of $1 billion or
less at the time of investment.
- -------------------------------------------------------------------------------
EMERGING MARKETS Long-term capital Substantially all, and at least
EQUITY FUND appreciation. 65%, of total assets in equity
securities of emerging country
issuers. The Fund may employ
certain currency management
techniques.
- -------------------------------------------------------------------------------
ASIA GROWTH FUND Long-term capital Substantially all, and at least
appreciation. 65%, of total assets in equity
securities of companies in China,
Hong Kong, India, Indonesia,
Malaysia, Pakistan, the
Philippines, Singapore, South
Korea, Sri Lanka, Taiwan and
Thailand. The Fund may employ
certain currency management
techniques.
- -------------------------------------------------------------------------------
REAL ESTATE SE- Total return comprised Substantially all, and at least
CURITIES FUND of long-term growth of 80%, of total assets in a
capital and dividend diversified portfolio of equity
income. securities of issuers that are
primarily engaged in or related to
the real estate industry. The Fund
expects that a substantial portion
of its total assets will be
invested in real estate investment
trusts ("REITS").
- -------------------------------------------------------------------------------
JAPANESE EQUITY Long-term capital Substantially all, and at least
FUND appreciation. 65%, of total assets in equity
securities of Japanese companies.
The Fund may employ certain
currency management techniques.
- -------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at least
SMALL CAP FUND appreciation. 65%, of total assets in equity
securities of companies with
public stock market
capitalizations of $1 billion or
less at the time of investment
that are organized outside the
United States or whose securities
are principally traded outside the
United States. The Fund may employ
certain currency management
techniques.
</TABLE>

12
<PAGE>

13
<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT DURATION OR RATE CREDIT OTHER
FUND NAMES OBJECTIVES MATURITY SENSITIVITY INVESTMENT SECTOR QUALITY INVESTMENTS
- ---------------------- -------------- -------------- ----------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CORE FIXED INCOME FUND Total return Target 5-year At least 65% of Minimum = Foreign fixed-
consisting of Duration = bond assets in fixed- BBB/Baa income,
capital Lehman income Minimum for municipal and
appreciation Brothers securities, non-dollar convertible
and income Aggregate Bond including U.S. securities = securities,
that exceeds Index plus or Government AA/Aa foreign
the total minus Securities, currencies and
return of the 1 year corporate, repurchase
Lehman Maximum mortgage-backed agreements
Brothers Duration*= 6 and asset-backed collateralized
Aggregate Bond years securities. by U.S.
Index. Government
Securities.
- ------------------------------------------------------------------------------------------------------------------
GLOBAL INCOME FUND A high total Target 6-year Securities of Minimum = Mortgage and
return, Duration = bond U.S. and foreign BBB/Baa asset-backed
emphasizing J.P. Morgan governments and At least securities,
current Global corporations. 50% = AAA/Aaa foreign
income, and, Government currencies and
to a lesser Bond Index repurchase
extent, (hedged) plus agreements
providing or minus 2.5 collateralized
opportunities years Maximum by U.S.
for capital Duration*= 7.5 Government
appreciation. years Securities or
certain foreign
government
securities.
- ------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND A high level Target 6-year Except for At least Mortgage-backed
of current Duration = bond temporary 65% = BB/Ba and asset-
income and Lehman defensive or below backed
capital Brothers High purposes, at securities,
appreciation. Yield Bond least 65% of U.S. Government
Index plus or assets in fixed- Securities,
minus 2.5 income investment
years securities rated grade corporate
Maximum below investment fixed-income
Duration*= 7.5 grade, including securities,
years U.S. and non- structured
U.S. dollar securities,
corporate debt, foreign
foreign currencies and
government repurchase
securities, agreements
convertible collateralized
securities and by U.S.
preferred stock. Government
Securities.
</TABLE>
- -----
* Under normal interest rate conditions.

14
<PAGE>

UNDERLYING EQUITY FUNDS

The Underlying Equity Funds may purchase common stocks, preferred stocks,
interests in real estate investment trusts, convertible debt obligations,
convertible preferred stocks, equity interests in trusts, partnerships, joint
ventures, limited liability companies and similar enterprises, warrants and
stock purchase rights ("equity securities"). In choosing securities, a Fund's
investment adviser utilizes first-hand fundamental research, including
visiting company facilities to assess operations and to meet decision-makers.
An investment adviser may also use macro analysis of numerous economic and
valuation variables to anticipate changes in company earnings and the overall
investment climate. The investment advisers are able to draw on the research
and market expertise of the Goldman Sachs Global Investment Research
Department and other affiliates, as well as information provided by other
securities dealers. Equity securities held by an Underlying Fund will
generally be sold when an investment adviser believes that the market price
fully reflects or exceeds the securities' fundamental valuation or when other
more attractive investments are identified.

15
<PAGE>

16
<PAGE>

which utilizes a consistent process of stock selection undertaken by portfolio
management teams located within each of the major investment regions,
including Europe, Japan, Asia and the United States. In selecting securities,
the investment adviser uses a long-term, bottom-up strategy based on first-
hand fundamental research that is designed to give broad exposure to the
available opportunities while seeking to add return primarily through stock
selection. Equity securities for these Funds are evaluated based on three key
factors--the business, the management and the valuation. The investment
adviser ordinarily seeks securities that have, in the investment adviser's
opinion, superior earnings growth potential, sustainable franchise value with
management attuned to creating shareholder value and relatively discounted
valuations. In addition, the investment adviser uses a multi-factor risk model
which seeks to assure that deviations from the benchmark are justifiable.

UNDERLYING FIXED-INCOME FUNDS

17
<PAGE>

MANAGEMENT

TRUSTEES AND OFFICERS

INVESTMENT ADVISER

INVESTMENT ADVISER. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as investment adviser to each Portfolio and, except as noted, to each
Underlying Fund. Goldman Sachs registered as an investment adviser in 1981.
Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New York
10004, a Delaware limited partnership which is an affiliate of Goldman Sachs,
serves as the investment adviser to the CORE U.S. Equity, Capital Growth,
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 International, 133 Peterborough Court, London EC4A 2BB,
England, an affiliate of Goldman Sachs, serves as the investment adviser to
the International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity, Asia Growth and Global Income Funds. 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. The Goldman Sachs Group, L.P., which controls the Investment
Adviser, has announced that it will pursue an initial public offering of the
firm during the fourth quarter of 1998; if the public offering is consummated,
The Goldman Sachs Group, L.P. will merge into the new public company, which
will be called The Goldman Sachs Group, Inc. As of July 24, 1998, GSAM,
together with its affiliates, acted as investment adviser or distributor for
assets in excess of $168 billion.

18
<PAGE>

agreed to permit the Portfolios to use the name "Goldman Sachs" or a
derivative thereof as part of each Portfolio's name for as long as a
Portfolio's Management Agreement is in effect.

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

FUND MANAGERS

- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
YEARS PRIMARILY
NAME AND TITLE RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
<CAPTION>
- ------------------------ --------------- -------------------------------------------
<S> <C> <C>
Mark M. Carhart, Ph.D., Since 1998 Mr. Carhart joined the Investment Adviser
CFA in 1997 as a member of the Quantitative
Vice President, Co-Head Research and Risk Management team. From
Quantitative Research August 1995 to September 1997, he was
and Senior Portfolio Assistant Professor of Finance at the
Manager Marshall School of Business at USC and a
Senior Fellow of the Wharton Financial
Institutions Center.
- ------------------------------------------------------------------------------------
Raymond J. Iwanowski Since 1998 Mr. Iwanowski joined the Investment Adviser
Vice President, Co-Head in 1998. Prior to joining the Investment
Quantitative Research Adviser, he spent three years at Salomon
and Senior Portfolio Brothers, where he was a Vice President and
Manager head of the Fixed Derivatives Client
Research group.
- ------------------------------------------------------------------------------------
Neil Chriss, Ph.D. Since 1998 Mr. Chriss joined the Investment Adviser in
Vice President and 1998. From 1996 to 1998, he worked in the
Portfolio Manager equity division of Morgan Stanley Dean
Witter. From 1994 to 1996, he was a post-
doctoral fellow in the Mathematics
Department of Harvard University.
- ------------------------------------------------------------------------------------
Georgio DeSantis, Ph.D. Since 1998 Mr. DeSantis joined the Investment Adviser
Vice President and in 1998. From 1992 to 1998, he was
Portfolio Manager Assistant Professor of Finance and Business
Economics at the Marshall School of
Business at USC.
- ------------------------------------------------------------------------------------
William J. Fallon, Since 1998 Mr. Fallon joined the Investment Adviser in
Ph.D. 1998. From 1996 to 1998, he worked in the
Vice President and Firmwide Risk Group of Goldman, Sachs & Co.
Portfolio Manager From 1991 to 1996, he attended Columbia
University, where he earned a Ph.D. in
Finance.
- ------------------------------------------------------------------------------------
Guang-Liang He, Ph.D. Since 1998 Mr. He joined the Investment Adviser in
Vice President and 1998. In 1997, he worked in the Firmwide
Portfolio Manager Risk Group of Goldman, Sachs & Co. From
1992 to 1997, he worked at Quantitative
Financial Strategies, Inc.
</TABLE>

19
<PAGE>

The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Portfolios (excluding management and service fees,
transfer agency fees, taxes, interest, brokerage fees, and litigation,
indemnification and other extraordinary expenses) to the extent such expenses
exceed 0.00% per annum of a Portfolio's average daily net assets. Such
reductions or limits, if any, may be discontinued or modified by the
Investment Adviser in its discretion at any time.

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Funds' 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 an Underlying Fund or limit the investment activities
of an Underlying Fund. Goldman Sachs and its affiliates engage in proprietary
trading and advise accounts and funds which have investment objectives similar
to those of the Underlying Funds and/or which engage in and compete for
transactions in the same type of securities, currencies and instruments.
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 Underlying Funds.The results of
the investment activities of an Underlying Fund, therefore, may differ from
those of Goldman Sachs and its affiliates and it is possible that the
Portfolios and the Underlying Funds could sustain losses during periods in
which Goldman Sachs and its affiliates and other accounts achieve significant
profits on their trading for proprietary or other accounts. In addition, the
Underlying Funds may, from time to time, enter into transactions in which
other clients of Goldman Sachs have an adverse interest. From time to time,
the activities of an Underlying Fund 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

20
<PAGE>

is entitled to receive a transfer agency fee with respect to each Portfolio's
Service Shares equal, on an annual basis, to 0.04% of average daily net
assets. Shareholders with inquiries regarding a Portfolio should contact
Goldman Sachs (as Transfer Agent) at the address or the telephone number set
forth on the back cover page of this Prospectus.

YEAR 2000

Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Portfolios could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the computer
systems used by the Investment Adviser or other Portfolio service providers do
not adequately address this problem in a timely manner. The Investment Adviser
has established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st Century will have any material impact on its ability to continue to
service the Portfolios at current levels. In addition, the Investment Adviser
has sought assurances from the Portfolios' other service providers that they
are taking the steps necessary so that they do not experience Year 2000
Problems, and the Investment Adviser will continue to monitor the situation.
At this time, however, no assurance can be given that the actions taken by the
Investment Adviser and the Portfolios' other service providers will be
sufficient to avoid any adverse effect on the Portfolios due to the Year 2000
Problem.

EXPENSES

The Portfolios are responsible for the payment of their expenses. The
expenses include, without limitation, asset allocation; custodial and transfer
agency fees; service fees paid to Service Organizations; brokerage fees and
commissions; filing fees for the registration or qualification of the
Portfolios' Shares under federal or state securities laws: organizational
expenses; fees and expenses incurred 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 Portfolios for violation of any law; legal and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of the Investment Adviser and its affiliates with respect to the
Portfolios); expenses of preparing and setting in type prospectuses,
Additional Statements, proxy material, financial reports and notices and the
printing and distributing of the same to shareholders and regulatory
authorities, compensation and expenses of the Trust's "non-interested"
Trustees and extraordinary expenses, if any, incurred by the Trust.

21
<PAGE>

charged to the Portfolios under the Management Agreement are for services that
are in addition to, and not duplicative of, services provided under any
Underlying Fund's management agreement; (b) the Portfolios pay no front-end or
contingent deferred sales charges in connection with the purchase or
redemption of Shares of the Underlying Funds; (c) the Portfolios do not pay
any sales charges, distribution-related fees or service fees related to the
Shares of the Underlying Funds; (d) custodial and other fees charged by both
the Portfolios and the Underlying Funds are not redundant inasmuch as distinct
services are being provided at each level; and (e) any additional incremental
cost incurred by investing in the Portfolios is in return for a substantial
investment management service, namely the initial and ongoing asset allocation
of investments made in the Underlying Funds, and provision of meaningful
additional diversification benefits.

<TABLE>
<CAPTION>
CONTRACTUAL TOTAL OPERATING
UNDERLYING FUNDS MANAGEMENT FEE EXPENSE RATIO*
---------------- -------------- ---------------
<S> <C> <C>
Short Duration Government Fund.................. 0.50% 0.54%
Adjustable Rate Government Fund................. 0.40% 0.49%
Core Fixed-Income Fund.......................... 0.40% 0.54%
Government Income Fund.......................... 0.65% 0.58%
Global Income Fund.............................. 0.90% 0.69%
High Yield Fund................................. 0.70% 0.76%
Growth & Income Fund............................ 0.70% 0.79%
CORE U.S. Equity Fund........................... 0.75% 0.74%
CORE Large Cap Growth Fund...................... 0.75% 0.64%
CORE Small Cap Equity Fund...................... 0.85% 0.93%
Capital Growth Fund............................. 1.00% 1.04%
CORE International Equity Fund.................. 0.85% 1.01%
Mid Cap Equity Fund............................. 0.75% 0.89%
Small Cap Value Fund............................ 1.00% 1.10%
International Equity Fund....................... 1.00% 1.14%
Japanese Equity Fund............................ 1.00% 1.05%
International Small Cap Fund.................... 1.20% 1.40%
Emerging Markets Equity Fund.................... 1.20% 1.39%
Asia Growth Fund................................ 1.00% 1.20%
Real Estate Securities Fund..................... 1.00% 1.04%
Financial Square Prime Obligations Money Market
Fund........................................... 0.205% 0.18%
</TABLE>
- --------
* Operating expenses of Institutional Shares for the Underlying Funds have
been restated to reflect fees and expenses in effect as of September 1,
1998.

22
<PAGE>

NET ASSET VALUE

The NAV per Share of each class of a Portfolio is calculated by the
Portfolio's custodian as of the close of regular trading on the New York Stock
Exchange (which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m.
New York time), on each Business Day (as such term is defined under
"Additional Information"). NAV per Share of each class is calculated by
determining the net assets attributed to each class and dividing by the number
of outstanding Shares of that class. Portfolio securities are valued based on
market quotations or, if accurate quotations are not readily available, at
fair value as determined in good faith under procedures established by the
Trustees.

PERFORMANCE INFORMATION

From time to time each Portfolio may publish average annual total return,
yield and distribution rates in advertisements and communications to
shareholders or prospective investors. Average annual total return is
determined by computing the average annual percentage change in value of
$1,000 invested at the maximum public offering price for specified periods
ending with the most recent calendar quarter, assuming reinvestment of all
dividends and distributions at NAV. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. Each
Portfolio 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
Portfolio may from time to time advertise its performance relative to certain
averages, performance rankings, indices, other information prepared by
recognized mutual fund statistical services and investments for which reliable
performance information is available.

The Portfolios compute their yield by dividing net investment income earned
during a recent thirty-day period by the product of the average daily number
of Shares outstanding and entitled to receive dividends during the period and
the maximum offering price per share on the last day of the relevant period.
The results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes. The Portfolios'
quotations of distribution rate are calculated by annualizing the most recent
distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the NAV per Share on the last day
of the period for which the distribution rate is being calculated.

Each Portfolio's total return, yield and distribution rate will be
calculated separately for each class of Shares in existence. Because each
class of Shares may be subject to different expenses, the total return, yield
and distribution rate calculations with respect to each class of Shares for
the same period will differ. See "Shares of the Trust."

Each Portfolio's performance quotations do not reflect any fees charged by a
Service Organization to its customer accounts in connection with investments
in the Portfolios. The investment results of a Portfolio 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
Portfolio's performance may be in any future period. In addition to
information provided in shareholder reports, the Portfolios may, in their
discretion, from time to time make a list of their holdings available to
investors upon request.

23
<PAGE>

SHARES OF THE TRUST

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

The Trust does not intend to hold annual meetings of shareholders. However,
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.

TAXATION

FEDERAL TAXES

24
<PAGE>

are received in cash or reinvested in Shares. A Portfolio's dividends that are
paid to its corporate shareholders and are attributable to qualifying
dividends such Portfolio or an Underlying Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. A portion of each
Portfolio's dividends may generally qualify, in the hands of corporate
shareholders, for the corporate dividends-received deduction. Certain
distributions paid by a Portfolio 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 Portfolios for federal income tax purposes.

Redemptions and exchanges of Shares are taxable events.

Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, 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, if any) on
amounts treated as ordinary dividends from the Portfolios.

OTHER TAXES

In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Portfolios. A state income (and
possibly local income and/or intangible property) tax exemption may be
generally available to the extent (if any) a Portfolio's distributions are
derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
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
Portfolios, 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

25
<PAGE>

ADDITIONAL SERVICES

The Trust, on behalf of the Portfolios, has adopted a Service Plan with
respect to the Service Shares which authorizes a Portfolio 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 Portfolios, 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 Portfolios 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.

The Trust may authorize certain Service Organizations to accept on the
Trust's behalf orders placed by their customers and, if approved by the Trust,
to designate other intermediaries to accept such orders. In these cases, a
Portfolio will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on a
Business Day, and the order will be priced at a Portfolio's net asset value
per share next determined after such acceptance. The Service Organization or
intermediary will be responsible for transmitting accepted orders to the Trust
within the period agreed upon by them. A customer may contact its Service
Organization to learn whether the Service Organization is authorized to accept
orders. Service Organizations that are authorized to accept orders for the
Trust may receive payments from the Portfolios or Goldman Sachs that are in
addition to the payments payable by the Trust under the Service Plan.

Holders of Service Shares of a Portfolio bear the expenses and fees paid to
Service Organizations under the Service Plan as well as any other expenses
which are directly attributable to such Shares.

Service Organizations may charge other fees to their customers who are the
beneficial owners of Service Shares in connection with their customer
accounts. These fees would be in addition to any amounts received by the
Service Organization under a Service Agreement and may affect the return
earned on an investment in a Portfolio. The Trust, on behalf of the
Portfolios, accrues payments made pursuant to a Service Agreement daily. All
inquiries of beneficial owners of Service Shares should be directed to such
owners' Service Organizations.

REPORTS TO SHAREHOLDERS

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

26
<PAGE>

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.

DIVIDENDS

Each dividend from net investment income and capital gain distributions, if
any, declared by a Portfolio on its outstanding Service Shares will, at the
election of each shareholder, be paid (i) in cash or (ii) in additional
Service Shares of such Portfolio. This election should initially be made on a
shareholder's Account Information Form and may be changed upon written notice
to Goldman Sachs at any time prior to the record date for a particular
dividend or distribution. If no election is made, all dividends from net
investment income and capital gain distributions will be reinvested in Service
Shares of the applicable Portfolio.

The election to reinvest dividends and distributions paid by a Portfolio in
additional Service Shares of the 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 Service Shares of a Portfolio.

Each Portfolio intends that all or substantially all of its net investment
income and net capital gains, after reduction by available capital losses,
including any capital losses carried forward from prior years, will be
declared as dividends for each taxable year. The Income Strategy Portfolio
will pay dividends from net investment income monthly. The Growth and Income
Strategy Portfolio and Growth Strategy Portfolio will each pay dividends from
net investment income quarterly. The Aggressive Growth Strategy Portfolio will
pay dividends from net investment income annually. Each Portfolio will pay
dividends from net realized capital gains, reduced by available capital
losses, at least annually. From time to time, a portion of a Portfolio's
dividends may constitute a return of capital.

PURCHASE OF SERVICE SHARES

Customers of Service Organizations may invest in Service Shares only through
their Service Organizations. Service Shares may be purchased on any Business
Day at the NAV per Share next determined after receipt of an order by Goldman
Sachs from a Service Organization. (See "Additional Services" for a
description of limited situations where a Service Organization or another
intermediary may be authorized to accept orders for the Portfolios.) No sales
load will be charged. Currently, each Portfolio's NAV is determined as of the
close of regular trading on the New York Stock Exchange (which is normally,
but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York time), as described
under "Net Asset Value." Purchases of Service Shares of the Portfolio 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."

27
<PAGE>

The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to State Street Bank and Trust
Company ("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

Purchases of Service 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 a Service
Organization by check (except that the Trust will not accept a check drawn on
a foreign bank or a third party check) or Federal Reserve draft made payable
to "Goldman Sachs Asset Allocation Portfolios--Name of Portfolio and Class of
Shares" and should be directed to "Goldman Sachs Asset Allocation Portfolios--
Name of Portfolio and Class of Shares," c/o National Financial Data Services,
Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711.

OTHER PURCHASE INFORMATION

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

The Investment Adviser, Distributor, and/or their affiliates also pay
additional compensation from time to time, out of their assets and not as an
additional charge to the Portfolios, to selected Service Organizations and
other persons in connection with the sale of Shares of the Portfolios, the
Underlying Funds and other investment portfolios of the Trust (such as
additional payments based on new sales, amounts exceeding pre-established
thresholds, or the length of time customers' assets have remained in the
Trust) and, subject to applicable NASD regulations, contribute to various non-
cash and cash incentive arrangements to promote the sale of Shares, as well as
sponsor various educational programs, sales contests and/or promotions in
which participants may receive reimbursement of expenses, entertainment and
prizes such as travel awards, merchandise, cash, investment research and
educational information and related support materials. This additional
compensation can vary among Service Organizations depending upon such factors
as the amounts their customers have invested (or may invest) in particular
investment portfolios of the Trust, the particular program involved, or the
amount of reimbursable expenses. Additional compensation based on sales may,
but is currently not expected to, exceed 0.50% (annualized) of the amount
invested. For further information, see the Additional Statement.

The Portfolios and Goldman Sachs each reserve the right to redeem the
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 a recordholder'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 of a Portfolio to avoid such redemption.

28
<PAGE>

exchanges of Service Shares of a Portfolio is evident, or if purchases, sales
or exchanges are, or a subsequent abrupt redemption might be, of a size that
would disrupt management of a Portfolio.

EXCHANGE PRIVILEGE

Service Shares of a Portfolio may be exchanged by a Service Organization for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and
designated as an eligible fund for this purpose and (ii) the corresponding
class of any Goldman Sachs Money Market Fund at the NAV next determined either
by writing to Goldman Sachs, Attention: Goldman Sachs Asset Allocation
Portfolios--Name of Portfolio and Class of Shares, c/o GSAM Shareholder
Services, 4900 Sears Tower, Chicago, Illinois 60606 or, if previously elected
in the Portfolio's Account Information Form, by telephone at 800-621-2550
(7:00 a.m. to 5:30 p.m. Chicago time). A shareholder should obtain and read
the prospectus relating to any other Fund and its Shares and consider its
investment objective, policies and applicable fees before making an exchange.
Service Shares acquired by telephone exchange must be registered in the same
name(s) and have the same address as Service Shares of the Fund for which the
exchange is being made.

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

REDEMPTION OF SERVICE SHARES

The Portfolios will redeem their Service Shares upon request of a
recordholder of such Shares on any Business Day at the NAV next determined
after receipt of a request in proper form by Goldman Sachs. (See "Additional
Services" for a description of limited situations where a Service Organization
or another intermediary may be authorized to accept requests for the
Portfolios.) If Service Shares to be redeemed were recently purchased by
check, a Portfolio 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 a Service Organization by writing to or
calling the Transfer Agent at the address or telephone number set forth on the
back cover of this Prospectus. A Service Organization may request redemptions
by telephone if the optional telephone redemption 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.

29
<PAGE>

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 concerning telephone
redemptions and exchanges. 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 Portfolios, the Trust nor
Goldman Sachs will be responsible for the authenticity of redemption or
exchange instructions received by telephone.

The Portfolios will arrange for the proceeds of redemptions effected by any
means to be wired as federal funds 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) Business Days
after receipt of a properly executed redemption request. Wiring of redemption
proceeds may be delayed one additional Business Day if the Federal Reserve
Bank is closed on the day redemption proceeds would originally be wired.
Redemption proceeds paid by check will normally be mailed to the address of
record within three (3) Business Days of receipt of a properly executed
redemption request. Once wire transfer instructions have been given by Goldman
Sachs, neither the Portfolios, 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.

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 submitted to the Transfer
Agent by the recordholder of Service Shares.

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.

30
<PAGE>

APPENDIX A

(1) DESCRIPTION OF INVESTMENTS AND INVESTMENT TECHNIQUES OF THE UNDERLYING
FUNDS

CONVERTIBLE SECURITIES

PREFERRED STOCK, WARRANTS AND RIGHTS

A-1
<PAGE>

REAL ESTATE INVESTMENT TRUSTS ("REITS")

FOREIGN INVESTMENTS

Foreign Securities. Certain of the Underlying Funds may invest in foreign
securities in accordance with their investment objectives and policies.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in 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. The expected introduction of a single currency, the euro,
on January 1, 1999 for participating European nations in the Economic and
Monetary Union ("EU") presents unique uncertainties, including whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; the creation of suitable clearing and
settlement payment systems for the new currency; the legal treatment of
certain outstanding financial contracts after January 1, 1999 that refer to
existing currencies rather than the euro; the establishment and maintenance of
exchange rates for currencies being converted into the euro and the euro; the
fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; whether the
interest rate, tax and labor regimes of European countries participating in
the euro will converge over time; and whether the conversion of the currencies
of other EU countries such as the United Kingdom, Denmark and Greece into the
euro and the admission of other non-EU countries such as Poland, Latvia and
Lithuania as members of the EU may have an impact on the euro. These or other
factors, including political and economic risks, could cause market
disruptions before or after the introduction of the euro, and could adversely
affect the value of securities and foreign currencies held by the Underlying
Funds. Commissions on transactions in foreign securities may be higher than
those for similar transactions on domestic stock markets. In addition,
clearance and settlement procedures may be different in foreign countries and,
in certain markets, such procedures have been unable to keep pace with the
volume of securities transactions, thus making it difficult to conduct such
transactions.

A-2
<PAGE>

assets of the Underlying Funds, political or social instability or diplomatic
developments which could affect investments in those countries.

A-3
<PAGE>

international perspective. Currency exchange rates also can be affected
unpredictably by the intervention of U.S. or foreign governments or central
banks or the failure to intervene or by currency controls or political
developments in the U.S. or abroad.

FIXED-INCOME SECURITIES

Mortgage-Backed Securities. The Underlying Funds (other than the four CORE
Equity Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
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 the
Underlying Fund's ability to reinvest the returns

A-4
<PAGE>

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 the Underlying Fund from taking
advantage of such higher yields.

Adjustable Rate Mortgage-Backed Securities ("ARMS"). ARMS allow the
Underlying 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 the Underlying 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 the Underlying
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.

The Underlying Funds may invest in Mortgage-Backed Securities issued or
sponsored by both government and non-governmental entities. Privately issued
Mortgage-Backed Securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. In order to
receive a high quality rating from the rating organizations (e.g., S&P or
Moody's), privately issued Mortgaged-Backed Securities normally are structured
with one or more types of "credit enhancement."

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

A-5
<PAGE>

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.

A-6
<PAGE>

time of investment. Investment grade debt securities are securities rated BBB
or higher by Standard & Poor's or Baa or higher by Moody's. The Growth and
Income, Capital Growth, Small Cap Value, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity, Asia Growth and Real
Estate Securities Funds may invest up to 10%, 10%, 35%, 35%, 35%, 35%, 35%,
35% and 20%, respectively, of their total assets in debt securities which are
rated in the lowest rating categories by Standard & Poor's or Moody's (i.e.,
BB or lower by Standard & Poor's or Ba or lower by Moody's), including
securities rated D by Moody's or Standard & Poor's. The Mid Cap Equity Fund
may invest up to 10% of its total assets in below investment grade debt
securities rated B or higher by Standard & Poor's or Moody's. Fixed-income
securities rated BB or Ba or below (or comparable unrated securities) are
commonly referred to as "junk bonds," are considered predominately speculative
and may be questionable as to principal and interest payments as described
further below under "Risks of Investing in Non-Investment Grade Fixed-Income
Securities." See Appendix A to the Additional Statement for a description of
the corporate bond ratings assigned by Standard & Poor's and Moody's.

OPTIONS ON SECURITIES AND SECURITIES INDICES

An Underlying Fund (other than the CORE U.S. Equity and CORE Large Cap
Growth Funds) may write (sell) covered call and put options and purchase call
and put options on any securities in which it may invest or on any securities
index composed of securities in which it may invest. The writing and purchase
of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The use of options to seek to increase total return
involves the risk of loss if the Underlying Fund's investment adviser is
incorrect in its expectation of fluctuations in securities prices or interest
rates. The successful use of options for hedging purposes also depends in part
on the ability of the investment adviser to manage future price fluctuations
and the degree of correlation between the options and securities markets. If
the investment adviser is incorrect in its expectation of changes in
securities prices or determination of the correlation between the securities
indices on which options are written and purchased and the securities in the
Underlying Fund's investment portfolio, the investment performance of the
Underlying Fund will be less favorable than it would have been in the absence
of such options transactions. The writing of options could significantly
increase the Underlying Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.

OPTIONS ON FOREIGN CURRENCIES

A-7
<PAGE>

in value, but the securities quoted or denominated in that currency do not
present attractive investment opportunities and are not held in the Underlying
Fund's portfolio. When purchased or sold to seek to increase total return,
options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Underlying Funds are traded on U.S. and
foreign exchanges or over-the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

STANDARD AND POOR'S DEPOSITORY RECEIPTS

A-8
<PAGE>

SPDR Trust, a trust which has been established to accumulate and hold a
portfolio of common stocks that is intended to track the price performance and
dividend yield of the S&P 500. This trust is sponsored by a subsidiary of the
American Stock Exchange. SPDRs may be used for several reasons, including but
not limited to: facilitating the handling of cash flows or trading, or
reducing transaction costs. The use of SPDRs would introduce additional risks
to the portfolio as the price movement of the instrument does not perfectly
correlate with the price action of the underlying index.

EQUITY SWAPS

Each Underlying Equity Fund may invest up to 10% of its total assets in
equity swaps. Equity swaps allow the parties to a swap agreement to exchange
the dividend income or other components of return on an equity investment
(e.g., a group of equity securities or an index) for a component of return on
another non-equity or equity investment. An equity swap may be used by a Fund
to invest in a market without owning or taking physical custody of securities
in circumstances in which direct investment may be restricted for legal
reasons or is otherwise impractical. Equity swaps are derivatives and their
value can be very volatile. To the extent that its Investment Adviser does not
accurately analyze and predict the potential relative fluctuation of the
components swapped with another party, a Fund may suffer a loss. The value of
some components of an equity swap (such as the dividends on a common stock)
may also be sensitive to changes in interest rates. Furthermore, during the
period a swap is outstanding, a Fund may suffer a loss if the counterparty
defaults. In connection with its investments in equity swaps, a Fund will
either segregate cash or liquid assets or otherwise cover its obligations in a
manner required by the SEC.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

ILLIQUID AND RESTRICTED SECURITIES

A-9
<PAGE>

Securities Act of 1933 and, therefore, is liquid. Investing in restricted
securities eligible for resale pursuant to Rule 144A may decrease the
liquidity of an Underlying Fund's portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. The purchase price and subsequent valuation of
restricted and illiquid securities normally reflect a discount, which may be
significant, from the market price of comparable securities for which a market
exists.

REPURCHASE AGREEMENTS

LENDING OF PORTFOLIO SECURITIES

The Underlying Funds may also seek to increase their income by lending
portfolio securities. Under present regulatory policies, such loans may be
made to institutions, such as certain broker-dealers, and are required to be
secured continuously by collateral in cash, cash equivalents, or U.S.
Government securities maintained on a current basis in an amount at least
equal to the market value of the securities loaned. Cash collateral may be
invested in cash equivalents. The value of the securities loaned may not
exceed 33 1/3% of the value of the total assets of an Underlying Fund
(including the loan collateral). A loss or delay in the recovery of securities
could result if the institution which borrows securities breaches its
agreement with the Underlying Fund.

SHORT SALES AGAINST-THE-BOX

MORTGAGE DOLLAR ROLLS

The Underlying Fixed-Income Funds (except the High Yield Fund) and the Real
Estate Securities Fund may enter into mortgage "dollar rolls" in which the
Underlying Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase
substantially similar but not identical securities on a specified future date.
During the roll period, the Underlying Fund loses the right to receive
principal and interest paid on the securities sold. However, the Underlying
Fund would benefit to the extent of any difference between the price received
for the securities sold and the lower forward price for the future purchase or
fee income plus the interest earned on the cash proceeds of the securities
sold until the settlement

A-10
<PAGE>

date for the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use
of this technique will diminish the investment performance of the Underlying
Fund.

TEMPORARY INVESTMENTS

PORTFOLIO TURNOVER

The turnover rates of the Underlying Funds have ranged from 41% to 396%
during their most recent fiscal years. There can be no assurance that the
turnover rates of these Underlying Funds will remain within this range during
subsequent fiscal years. Higher turnover rates may result in higher brokerage
costs and higher expenses being incurred by the Underlying Funds. In addition,
higher turnover rates may result in higher taxable realized gains being
incurred by shareholders.

MISCELLANEOUS TECHNIQUES

(2) RELATED ADDITIONAL RISK FACTORS

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES AND REITS

SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING MARKETS

A-11
<PAGE>

issuers in any one Emerging Country. The Growth and Income, Small Cap Value,
Mid Cap Equity, High Yield and CORE International Equity Funds may each invest
up to 25%, and the Core Fixed Income, Global Income and Capital Growth Funds
may each invest up to 10%, of their respective total assets in securities of
issuers in Emerging Countries.

RISKS OF INVESTING IN FIXED-INCOME SECURITIES

When interest rates decline, the market value of fixed-income securities
tends to increase. Conversely, when interest rates increase, the market value
of fixed-income securities tends to decline. Volatility of a security's market
value will differ depending upon the security's duration, the issuer and the
type of instrument. Investments in fixed-income securities are subject to the
risk that the issuer could default on its obligations and an Underlying Fund
could sustain losses on such investments. A default could impact both interest
and principal payments.

A-12
<PAGE>

RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES

RISKS OF OTHER DERIVATIVE TRANSACTIONS

NON-DIVERSIFICATION

A-13
<PAGE>

APPENDIX B

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM

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

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

If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to the Portfolio's receipt of your TIN. Special
rules apply for certain entities. For example, for an account established
under a Uniform Gifts or Transfers to Minors Act, the TIN of the minor should
be furnished.

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

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 IRAs, 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 Portfolio 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 Code and consult your tax adviser.

B-1
<PAGE>

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

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

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

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

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

ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110

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

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

GOLDMAN SACHS

ASSET ALLOCATION PORTFOLIOS

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

PROSPECTUS

SERVICE SHARES

LOGO GOLDMAN
SACHS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AAPROSVC
501425
<PAGE>

- --------------------------------------------------------------------------------
PROSPECTUS
January 1, 1998, as revised GOLDMAN SACHS
September 1, 1998 ASSET ALLOCATION PORTFOLIOS
INSTITUTIONAL SHARES

GOLDMAN SACHS INCOME STRATEGY PORTFOLIO
Seeks a high level of current income with greater stability of principal
than an investment in equity securities alone.

GOLDMAN SACHS GROWTH AND INCOME STRATEGY PORTFOLIO
Seeks long-term capital appreciation and current income.

GOLDMAN SACHS GROWTH STRATEGY PORTFOLIO
Seeks capital appreciation and secondarily current income.

GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
Seeks capital appreciation.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Portfolio Highlights................ 2
Fees and Expenses................... 6
Investment Objectives and Policies.. 8
Risk Factors and Special
Considerations..................... 10
Description of Underlying Funds..... 11
Management.......................... 18
Expenses............................ 21
Net Asset Value..................... 23
Performance Information............. 23
Shares of the Trust................. 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Taxation............................ 24
Additional Information.............. 25
Reports to Shareholders............. 26
Dividends........................... 26
Purchase of Institutional Shares.... 26
Exchange Privilege.................. 29
Redemption of Institutional Shares.. 29
Appendix A.......................... A-1
Appendix B.......................... B-1
Account Application
</TABLE>
<PAGE>

PORTFOLIO HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?

2
<PAGE>

WHAT IS GOLDMAN SACHS ASSET MANAGEMENT'S GLOBAL ASSET ALLOCATION PROCESS?

The Quantitative Research Group at GSAM uses disciplined quantitative models
to determine the relative attractiveness of the world's stock, bond and
currency markets. GSAM's models use financial and economic variables to capture
fundamental relationships that it believes make sense. While GSAM's process is
rigorous and quantitative, it also incorporates clear economic reasoning behind
each recommendation.

Each Portfolio starts with a "base-line" or strategic allocation among the
various asset classes. GSAM will then tactically deviate from the strategic
allocations based on forecasts provided by the models. The tactical process
seeks to add value by overweighting attractive markets and underweighting
unattractive markets. Greater deviations from the strategic allocation of a
given Portfolio result in higher risk that the tactical allocation will
underperform the strategic allocation. However, GSAM's risk control process
balances the amount any asset class can be overweighted or underweighted in
seeking to achieve higher expected returns against the amount of risk imposed
by that deviation from the strategic allocation. GSAM employs Goldman, Sachs &
Co.'s proprietary Black-Litterman asset allocation technique in an effort to
optimally balance these two goals. This technique combines the Quantitative
Research Group's market forecasts with economic equilibrium in seeking to
construct risk-controlled portfolios.

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

The Portfolios are intended as an efficient and cost-effective method of
giving investors access to four different portfolio mixes. The risk/return
balance of each Portfolio is varied by the proportion of assets allocated to
the different kinds of investments. For example, the Aggressive Growth Strategy
Portfolio intends to invest substantially all of its assets in Underlying Funds
that invest in equity securities. An investor seeking capital appreciation
potential, with a longer time horizon and a tolerance for volatility, might
choose this Portfolio. Conversely, an investor seeking a balance of income and
growth, with a shorter time horizon and less tolerance for volatility, might
choose the Income Strategy Portfolio or Growth and Income Strategy Portfolio,
which invest a larger portion of their assets in Underlying Funds that invest
in fixed income securities.

Because the assets of each Portfolio are invested in Underlying Funds, each
Portfolio's investment performance is directly related to the investment
performance of the Underlying Funds held by it. The ability of a Portfolio to
meet its investment objective is, therefore, also directly related to the
ability of the Underlying Funds held to meet their objectives, as well as the
allocation among those Underlying Funds by the Investment Adviser.

The value of the Underlying Funds' investments, and the net asset values
("NAV") of the Shares of both the Underlying Funds and the Portfolios, will
fluctuate in response to changes in market and economic conditions, as well as
the financial condition and prospects of issuers in which the Underlying Funds
invest. An Underlying Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund to
greater risk than funds that do not employ such techniques. In addition,
investments by certain Underlying Funds in foreign issuers, currencies, real
estate investment trusts and small market capitalization companies will expose
those Funds to a higher degree of risk and price volatility. These investments
include securities of issuers located in countries in Asia, Latin America,
Eastern Europe and Africa

3
<PAGE>

whose economies or securities markets are considered not to be fully developed
("Emerging Countries"). Some Underlying Funds may also invest in non-investment
grade fixed-income securities (commonly referred to as "junk bonds"), which are
considered to be speculative by traditional investment standards.

For a further description of the risks involved in an investment in the
Portfolios and the Underlying Funds, see "Risk Factors and Special
Considerations" and Appendix A to this Prospectus.

WHO MANAGES THE PORTFOLIOS?

WHO DISTRIBUTES THE PORTFOLIOS' SHARES?

Goldman Sachs acts as distributor of each Portfolio's Shares (the
"Distributor").

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000,000 or $10,000,000 (depending upon
an investor's eligibility) in Institutional Shares of a Portfolio 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 Portfolios through Goldman
Sachs. Institutional Shares are purchased at the current NAV 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 NAV next determined after
receipt of such request in proper form. See "Redemption of Institutional
Shares."

4
<PAGE>

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME CAPITAL
DIVIDENDS GAINS
PORTFOLIO DECLARED AND PAID DISTRIBUTIONS
- --------- ----------------- -------------
<S> <C> <C>
Income Strategy................................. Monthly Annually
Growth and Income Strategy...................... Quarterly Annually
Growth Strategy................................. Quarterly Annually
Aggressive Growth Strategy...................... Annually Annually
</TABLE>

Recordholders of Institutional Shares may receive dividends and distributions
in additional Institutional Shares of the Portfolio in which they have invested
or may elect to receive them in cash. For further information concerning
dividends and distributions, see "Dividends."

5
<PAGE>

FEES AND EXPENSES
(INSTITUTIONAL SHARES)

<TABLE>
<CAPTION>
GROWTH AND AGGRESSIVE
INCOME INCOME GROWTH GROWTH
STRATEGY STRATEGY STRATEGY STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Pur-
chases............................. None None None None
Maximum Sales Charge Imposed on Re-
invested 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)/1/
Management Fees (for asset
allocation) (after applicable
limitations)/2/.................... 0.15% 0.15% 0.15% 0.15%
Distribution Fees................... None None None None
Other Expenses:
Other Expenses (after fee and ex-
pense limitations)/3/.............. 0.04% 0.04% 0.04% 0.04%
Underlying Fund Expenses/1/.......... 0.69% 0.79% 0.84% 0.90%
---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES (after
expense limitations)/4/............. 0.88% 0.98% 1.03% 1.09%
==== ==== ==== ====
</TABLE>
- --------
/1/The Portfolios' annual operating expenses have been restated to reflect
fees and expenses in effect as of September 1, 1998. Underlying Fund
expenses for each Portfolio are based upon the strategic allocation of each
Portfolio's investment in the Underlying Funds and upon the total operating
expenses of the Underlying Funds as in effect on September 1, 1998. Actual
Underlying Fund expenses incurred by each Portfolio may vary with changes
in the allocation of each Portfolio's assets among the Underlying Funds and
with other events that directly affect the expenses of the Underlying
Funds. For additional information on the total operating expenses of each
Underlying Fund, please refer to "Expenses."
/2/The Investment Adviser has voluntarily agreed that a portion of the
management fees would not be imposed on the Portfolios equal to 0.20%.
Without such limitation, management fees would be 0.35% of each Portfolio's
average daily net assets.
/3/The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, transfer agency fees (equal to
0.04% of the average daily net assets of each Portfolio's Institutional
Shares), taxes, interest, brokerage fees, and litigation, indemnification
and other extraordinary expenses) for each Portfolio to the extent such
expenses exceed 0.00% of the Portfolio's average daily net assets.
/4/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Institutional Shares of the Portfolios would be
as set forth below:

<TABLE>
<CAPTION>
GROWTH AND AGGRESSIVE
INCOME STRATEGY INCOME STRATEGY GROWTH STRATEGY GROWTH STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Other Expenses.......... 0.40% 0.17% 0.20% 0.33%
Total Operating Ex-
penses................. 1.44% 1.31% 1.39% 1.58%
</TABLE>

6
<PAGE>

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Income Strategy Portfolio........................................ $ 9 $28
Growth and Income Strategy Portfolio............................. $10 $31
Growth Strategy Portfolio........................................ $11 $33
Aggressive Growth Strategy Portfolio............................. $11 $35
</TABLE>

The Investment Adviser and Goldman Sachs may modify or discontinue any of
the limitations set forth above in the future at their discretion. The
information set forth in the foregoing table and hypothetical example relates
only to Institutional Shares of the Portfolios. Each Portfolio also offers
Class A, B, C and Service Shares, which are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services. Information regarding
Class A, B, C and Service Shares of the Portfolios may be obtained from an
investor's sales representative or from Goldman Sachs by calling the number on
the back cover of this Prospectus.

Institutions that invest in Institutional Shares on behalf of their
customers may charge fees directly to their customer accounts in connection
with their investments. Such fees, if any, may affect the return such
customers realize with respect to their investments.

Certain institutions may also receive other compensation in connection with
the sale and distribution of such Shares or for services to their customers'
accounts and/or the Portfolios. For additional information regarding such
compensation, see "Purchase of Institutional Shares" in this Prospectus and
the Additional Statement.

7
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

EQUITY/FIXED-INCOME RANGE (PERCENTAGE OF EACH PORTFOLIO'S NET ASSETS)

8
<PAGE>

9
<PAGE>

RISK FACTORS AND SPECIAL CONSIDERATIONS

INVESTING IN UNDERLYING FUNDS

INVESTMENTS OF THE UNDERLYING FUNDS

AFFILIATED PERSONS

EXPENSES

10
<PAGE>

DESCRIPTION OF UNDERLYING FUNDS

<TABLE>
<CAPTION>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
---------------- ------------------------ ----------------------------------
<C> <C> <S>
GROWTH AND IN- Long-term growth of At least 65% of total assets in
COME FUND capital and growth of equity securities that are
income. considered to have favorable
prospects for capital appreciation
and/or dividend paying ability.
- -------------------------------------------------------------------------------
CORE U.S. EQUITY Long-term growth of At least 90% of total assets in
FUND capital and dividend equity securities of U.S. issuers,
income. including certain foreign issuers
traded in the U.S. The Fund seeks
to achieve its objective through a
broadly diversified portfolio of
large cap and blue chip equity
securities representing all major
sectors of the U.S. economy. The
Fund's investments are selected
using both a variety of
quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the S&P
500 Index.
- -------------------------------------------------------------------------------
CORE LARGE CAP Long-term growth of At least 90% of total assets in
GROWTH FUND capital. Dividend income equity securities of U.S issuers,
is a secondary including certain foreign issuers
consideration. traded in the U.S. The Fund seeks
to achieve its objective through a
broadly diversified portfolio of
equity securities of large cap
U.S. issuers that are expected to
have better prospects for earnings
growth than the growth rate of the
general domestic economy. The
Fund's investments are selected
using both a variety of
quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the
Russell 1000 Growth Index.
- -------------------------------------------------------------------------------
CORE SMALL CAP Long-term growth of At least 90% of total assets in
EQUITY FUND capital. equity securities of U.S. issuers,
including certain foreign issuers
traded in the U.S. The Fund seeks
to achieve its investment
objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which
are included in the Russell 2000
Index at the time of investment.
The Fund's investments are
selected using both a variety of
quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the
Russell 2000 Index.
</TABLE>

(continued)

11
<PAGE>

12
<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE
INVESTMENT DURATION OR INTEREST RATE
FUND NAMES OBJECTIVES MATURITY SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY OTHER INVESTMENTS
- ---------------------- -------------- ------------------- ------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL SQUARE PRIME Maximize Maximum Maturity of 3-month Money market High Quality N/A
OBLIGATIONS FUND current income Individual bill instruments (short-term
to the extent Investments = including U.S. ratings of
consistent 13 months at time Government A-1, P-1 or
with the of purchase Securities, U.S. comparable
maintenance of Maximum Dollar- bank obligations, quality).
liquidity. Weighted Average commercial paper
Portfolio Maturity and other short-
= 90 days term obligations
of U.S.
corporations,
governmental and
other entities,
and related
repurchase
agreements.
- -----------------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE A high level Target Duration = 9-month At least 65% of U.S. Fixed-rate
GOVERNMENT FUND of current 6-month to 1-year note total assets in Government mortgage pass-
income, U.S. Treasury securities issued Securities through
consistent Security or guaranteed by securities and
with low Maximum Duration*= the U.S. repurchase
volatility of 2 years government, its agreements
principal. agencies, collateralized
instrumentalities by U.S.
or sponsored Government
enterprises Securities.
("U.S. Government
Securities") that
are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
- -----------------------------------------------------------------------------------------------------------------------------
SHORT DURATION A high level Target Duration = 2-year At least 65% of U.S. Mortgage pass-
GOVERNMENT FUND of current 2-year U.S. bond total assets in Government through
income and Treasury Security U.S. Government Securities securities and
secondarily, plus or minus .5 Securities and other
in seeking years repurchase securities
current Maximum Duration*= agreements representing an
income, may 3 years collateralized by interest in or
also consider such securities. collateralized
the potential by mortgage
for capital loans.
appreciation.
- -----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT INCOME FUND A high level Target Duration = 5-year At least 65% of U.S. Non-government
of current Lehman Brothers bond assets in U.S. Government mortgage pass-
income, Mutual Fund Government Securities through
consistent Government/Mortgage Securities, and non-U.S. securities,
with safety of Index plus or minus including Government asset-backed
principal. 1 year mortgage-backed Securities = securities and
Maximum Duration*= U.S. Government AAA/Aaa corporate
6 years Securities and fixed-income
repurchase securities.
agreements
collateralized by
such securities.
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
APPROXIMATE
INVESTMENT DURATION OR INTEREST RATE
FUND NAMES OBJECTIVES MATURITY SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY OTHER INVESTMENTS
- ---------------------- -------------- -------------- ------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
CORE FIXED INCOME FUND Total return Target 5-year At least 65% of Minimum = Foreign fixed-
consisting of Duration = bond assets in fixed- BBB/Baa income,
capital Lehman income Minimum for municipal and
appreciation Brothers securities, non-dollar convertible
and income Aggregate Bond including U.S. securities = securities,
that exceeds Index plus or Government AA/Aa foreign
the total minus 1 year Securities, currencies and
return of the Maximum corporate, repurchase
Lehman Duration* = 6 mortgage-backed agreements
Brothers years and asset-backed collateralized
Aggregate Bond securities. by U.S.
Index. Government
Securities.
- ----------------------------------------------------------------------------------------------------------------------
GLOBAL INCOME FUND A high total Target 6-year Securities of Minimum = Mortgage and
return, Duration = bond U.S. and foreign BBB/Baa asset-backed
emphasizing J.P. Morgan governments and At least 50% securities,
current Global corporations. = AAA/Aaa foreign
income, and, Government currencies and
to a lesser Bond Index repurchase
extent, (hedged) plus agreements
providing or minus 2.5 collateralized
opportunities years by U.S.
for capital Maximum Government
appreciation. Duration* = Securities or
7.5 years certain foreign
government
securities.
- ----------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND A high level Target 6-year Except for At least 65% Mortgage-backed
of current Duration = bond temporary = BB/Ba or and asset-
income and Lehman defensive below backed
capital Brothers High purposes, at securities,
appreciation. Yield Bond least 65% of U.S. Government
Index plus or assets in fixed- Securities,
minus 2.5 income investment
years securities rated grade corporate
Maximum below investment fixed- income
Duration* = grade, including securities,
7.5 years U.S. and non- structured
U.S. dollar securities,
corporate debt, foreign
foreign currencies and
government repurchase
securities, agreements
convertible collateralized
securities and by U.S.
preferred stock. Government
Securities.
</TABLE>
- -----
* Under normal interest rate conditions.

14
<PAGE>

UNDERLYING EQUITY FUNDS

15
<PAGE>

16
<PAGE>

UNDERLYING FIXED-INCOME FUNDS

17
<PAGE>

MANAGEMENT

TRUSTEES AND OFFICERS

INVESTMENT ADVISER

INVESTMENT ADVISER. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as investment adviser to each Portfolio and, except as noted, to each
Underlying Fund. Goldman Sachs registered as an investment adviser in 1981.
Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New York
10004, a Delaware limited partnership which is an affiliate of Goldman Sachs,
serves as the investment adviser to the CORE U.S. Equity, Capital Growth,
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 International, 133 Peterborough Court, London EC4A 2BB,
England, an affiliate of Goldman Sachs, serves as the investment adviser to
the International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity, Asia Growth and Global Income Funds. 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. The Goldman Sachs Group, L.P., which controls the Investment
Adviser, has announced that it will pursue an initial public offering of the
firm during the fourth quarter of 1998; if the public offering is consummated,
The Goldman Sachs Group, L.P. will merge into the new public company, which
will be called The Goldman Sachs Group, Inc. As of July 24, 1998, GSAM,
together with its affiliates, acted as investment adviser or distributor for
assets in excess of $168 billion.

18
<PAGE>

FUND MANAGERS

<TABLE>
<S> <C> <C>
YEARS PRIMARILY
NAME AND TITLE RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
----------------------- --------------- -------------------------------------------
Mark M. Carhart, Ph.D., Since 1998 Mr. Carhart joined the Investment Adviser
CFA in 1997 as a member of the Quantitative
Vice President, Co- Research and Risk Management team. From
Head Quantitative August 1995 to September 1997, he was
Research and Senior Assistant Professor of Finance at the
Portfolio Manager Marshall School of Business at USC and a
Senior Fellow of the Wharton Financial
Institutions Center.
- ------------------------------------------------------------------------------------
Raymond J. Iwanowski Since 1998 Mr. Iwanowski joined the Investment Adviser
Vice President, Co- in 1998. Prior to joining the Investment
Head Quantitative Adviser, he spent three years at Salomon
Research and Senior Brothers, where he was a Vice President and
Portfolio Manager head of the Fixed Derivatives Client
Research group.
- ------------------------------------------------------------------------------------
Neil Chriss, Ph.D. Since 1998 Mr. Chriss joined the Investment Adviser in
Vice President and 1998. From 1996 to 1998, he worked in the
Portfolio Manager equity division of Morgan Stanley Dean
Witter. From 1994 to 1996, he was a post-
doctoral fellow in the Mathematics
Department of Harvard University.
- ------------------------------------------------------------------------------------
Georgio DeSantis, Ph.D. Since 1998 Mr. DeSantis joined the Investment Adviser
Vice President and in 1998. From 1992 to 1998, he was
Portfolio Manager Assistant Professor of Finance and Business
Economics at the Marshall School of
Business at USC.
- ------------------------------------------------------------------------------------
William J. Fallon, Since 1998 Mr. Fallon joined the Investment Adviser in
Ph.D. 1998. From 1996 to 1998, he worked in the
Vice President and Firmwide Risk Group of Goldman, Sachs & Co.
Portfolio Manager From 1991 to 1996, he attended Columbia
University, where he earned a Ph.D. in
Finance.
- ------------------------------------------------------------------------------------
Guang-Liang He, Ph.D. Since 1998 Mr. He joined the Investment Adviser in
Vice President and 1998. In 1997, he worked in the Firmwide
Portfolio Manager Risk Group of Goldman, Sachs & Co. From
1992 to 1997, he worked at Quantitative
Financial Strategies, Inc.
</TABLE>

19
<PAGE>

The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Portfolios (excluding management fees, transfer agency
fees, taxes, interest, brokerage fees, and litigation, indemnification and
other extraordinary expenses) to the extent such expenses exceed 0.00% per
annum of a Portfolio's average daily net assets. Such reductions or limits, if
any, may be discontinued or modified by the Investment Adviser in its
discretion at any time.

DISTRIBUTOR AND TRANSFER AGENT

Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive Distributor of each Portfolio's Shares. Goldman Sachs, 4900 Sears
Tower, Chicago, Illinois 60606, also serves as each Portfolio's transfer agent
(the "Transfer Agent") and as such performs various shareholder servicing
functions. As compensation for the services rendered to each Portfolio by
Goldman Sachs (as Transfer Agent), Goldman Sachs is entitled to receive a
transfer agency fee with respect to each Portfolio's Institutional Shares
equal, on an annual basis, to 0.04% of average daily net assets. Shareholders
with inquiries regarding a Portfolio should contact Goldman Sachs (as Transfer
Agent) at the address or the telephone number set forth on the back cover page
of this Prospectus.

20
<PAGE>

YEAR 2000

Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Portfolios could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the computer
systems used by the Investment Adviser or other Portfolio service providers do
not adequately address this problem in a timely manner. The Investment Adviser
has established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st Century will have any material impact on its ability to continue to
service the Portfolios at current levels. In addition, the Investment Adviser
has sought assurances from the Portfolios' other service providers that they
are taking the steps necessary so that they do not experience Year 2000
Problems, and the Investment Adviser will continue to monitor the situation.
At this time, however, no assurance can be given that the actions taken by the
Investment Adviser and the Portfolios' other service providers will be
sufficient to avoid any adverse effect on the Portfolios due to the Year 2000
Problem.

EXPENSES

The Portfolios are responsible for the payment of their expenses. The
expenses include, without limitation, asset allocation; custodial and transfer
agency fees; brokerage fees and commissions; filing fees for the registration
or qualification of the Portfolios' Shares under federal or state securities
laws; organizational expenses; fees and expenses incurred 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 Portfolios for violation of any law; legal and auditing
fees and expenses (including the cost of legal and certain accounting services
rendered by employees of the Investment Adviser and its affiliates with
respect to the Portfolios); expenses of preparing and setting in type
prospectuses, Additional Statements, proxy material, financial reports and
notices and the printing and distributing of the same to shareholders and
regulatory authorities; compensation and expenses of the Trust's "non-
interested" Trustees and extraordinary expenses, if any, incurred by the
Trust.

The expenses associated with investing in a "fund of funds," such as the
Portfolios, are generally higher than those of investment companies that do
not invest in other mutual funds. These increased expenses stem from the fact
that investors must indirectly pay a portion of the operating costs of the
Underlying Funds. The structure of the Portfolios will, however, reduce any
layering of costs in the following manner: (a) any fees charged to the
Portfolios under the Management Agreement are for services that are in
addition to, and not duplicative of, services provided under any Underlying
Fund's management agreement; (b) the Portfolios pay no front-end or contingent
deferred sales charges in connection with the purchase or redemption of Shares
of the Underlying Funds; (c) the Portfolios do not pay any sales charges,
distribution-related fees or service fees related

21
<PAGE>

to the Shares of the Underlying Funds; (d) custodial and other fees charged by
both the Portfolios and the Underlying Funds are not redundant inasmuch as
distinct services are being provided at each level; and (e) any additional
incremental cost incurred by investing in the Portfolios is in return for a
substantial investment management service, namely the initial and ongoing
asset allocation of investments made in the Underlying Funds, and provision of
meaningful additional diversification benefits.

22
<PAGE>

NET ASSET VALUE

PERFORMANCE INFORMATION

From time to time each Portfolio may publish average annual total return,
yield and distribution rates in advertisements and communications to
shareholders or prospective investors. Average annual total return is
determined by computing the average annual percentage change in value of
$1,000 invested at the maximum public offering price for specified periods
ending with the most recent calendar quarter, assuming reinvestment of all
dividends and distributions at NAV. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. Each
Portfolio 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
Portfolio may from time to time advertise its performance relative to certain
averages, performance rankings, indices, other information prepared by
recognized mutual fund statistical services and investments for which reliable
performance information is available.

The Portfolios compute their yield by dividing net investment income earned
during a recent thirty-day period by the product of the average daily number
of Shares outstanding and entitled to receive dividends during the period and
the maximum offering price per share on the last day of the relevant period.
The results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes. The Portfolios'
quotations of distribution rate are calculated by annualizing the most recent
distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the NAV per Share on the last day
of the period for which the distribution rate is being calculated.

23
<PAGE>

SHARES OF THE TRUST

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

TAXATION

FEDERAL TAXES

24
<PAGE>

Redemptions and exchanges of Shares are taxable events.

OTHER TAXES

In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Portfolios. A state income (and
possibly local income and/or intangible property) tax exemption may be
generally available to the extent (if any) a Portfolio's distributions are
derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
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
Portfolios, 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

25
<PAGE>

REPORTS TO SHAREHOLDERS

Recordholders of Institutional Shares of the Portfolios will receive an
annual report containing audited financial statements and a semiannual report.
To eliminate unnecessary duplication, only one copy of the annual and semi-
annual reports may be sent to shareholders with the same mailing address.
Shareholders who desire a duplicate copy of such reports to be mailed to their
residence should contact Goldman Sachs at 800-621-2550. Each recordholder of
Institutional Shares will also be provided with a printed confirmation for
each transaction in its account and a quarterly account statement. A year-to-
date statement for any account will be provided upon request made to Goldman
Sachs. The Portfolios generally do not provide sub-accounting services with
respect to beneficial ownership of Institutional Shares.

DIVIDENDS

Each dividend from net investment income and capital gain distributions, if
any, declared by a Portfolio on its outstanding Institutional Shares will, at
the election of each shareholder, be paid (i) in cash or (ii) in additional
Institutional Shares of such Portfolio. This election should initially be made
on a shareholder's Account Information Form and may be changed upon written
notice to Goldman Sachs at any time prior to the record date for a particular
dividend or distribution. If no election is made, all dividends from net
investment income and capital gain distributions will be reinvested in
Institutional Shares of the applicable Portfolio.

The election to reinvest dividends and distributions paid by a Portfolio in
additional Institutional Shares of the 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 Institutional Shares of
a Portfolio.

PURCHASE OF INSTITUTIONAL SHARES

Institutional Shares may be purchased on any Business Day at the NAV per
Share next determined after receipt of an order. No sales load will be
charged. Currently, each Portfolio's NAV is determined as of the close of
regular trading on the New York Stock Exchange (which is normally, but not
always, 3:00 p.m. Chicago time,

26
<PAGE>

4:00 p.m. New York time), as described under "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 Portfolio, an investor must open
an account with a Portfolio by furnishing necessary information to the
Portfolio or Goldman Sachs. An Account Information Form, a copy of which is
attached to this Prospectus, should be used to open such an account.
Subsequent purchases may be made in the manner set forth below.

PURCHASE PROCEDURES

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

MINIMUM INITIAL INVESTMENTS

Institutional Shares of the Portfolio 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) any state,
county, city or any instrumentality, department, authority or agency thereof;
(d) corporations and other for-profit business organizations with assets of at
least $100 million or publicly traded securities outstanding; (e) "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; and (f) registered investing for accounts for which they receive
asset-based fees. With respect to these investors, the minimum initial
investment is $1,000,000 in Institutional Shares of a Portfolio alone or in
combination with other assets under the management of GSAM and its affiliates.

The foregoing minimum investment requirements may be waived at the
discretion of the Trust's officers. In addition, 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.

OTHER PURCHASE INFORMATION

27
<PAGE>

intermediaries to accept such orders. In these cases, a Portfolio will be
deemed to have received an order in proper form by or on behalf of a customer
when the order is accepted by the authorized institution or intermediary on a
Business Day, and the order will be priced at a Portfolio's NAV per Share next
determined after such acceptance. The institution or intermediary will be
responsible for transmitting accepted orders to the Portfolios within the
period agreed upon by them. A customer should contact an institution to learn
whether it is authorized to accept orders for the Trust. Such institutions may
receive payments from the Portfolios or Goldman Sachs for the services
provided by them with respect to the Portfolios' Institutional Shares. These
payments may be in addition to other servicing and/or sub-transfer agency
payments borne by the Portfolios and their share classes.

The Investment Adviser, Distributor, and/or their affiliates also pay
additional compensation from time to time, out of their assets and not as an
additional charge to the Portfolios, to selected institutions (including
banks, trust companies, brokers and investment advisers) and other persons in
connection with the sale of Shares of the Portfolios, the Underlying Funds and
other investment portfolios of the Trust (such as additional payments based on
new sales, amounts exceeding pre-established thresholds, or the length of time
customers' assets have remained in the Trust) and, subject to applicable NASD
regulations, contribute to various non-cash and cash incentive arrangements to
promote the sale of Shares, as well as sponsor various educational programs,
sales contests and/or promotions in which participants may receive
reimbursement of expenses, entertainment and prizes such as travel awards,
merchandise, cash, investment research and educational information and related
support materials. This additional compensation can vary among institutions
depending upon such factors as the amounts their customers have invested (or
may invest) in particular investment portfolios of the Trust, the particular
program involved, or the amount of reimbursable expenses. Additional
compensation based on sales may, but is currently not expected to, exceed
0.50% (annualized) of the amount invested. For further information, see the
Additional Statement.

The Portfolios reserve the right to redeem the Institutional Shares of any
shareholder of record whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of
a recordholder'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 recordholders whose Institutional Shares are
being redeemed to allow them to purchase sufficient additional Institutional
Shares of a Portfolio to avoid such redemption.

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

28
<PAGE>

EXCHANGE PRIVILEGE

Institutional Shares of a Portfolio 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 NAV next determined either by writing
to Goldman Sachs, Attention: Goldman Sachs Asset Allocation Portfolios--Name
of Portfolio and Class of Shares, c/o GSAM Shareholder Services, 4900 Sears
Tower, Chicago, Illinois 60606 or, if previously elected in the Portfolio's
Account Information Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m.
Chicago time). A shareholder should obtain and read the prospectus relating to
any other Fund and its Shares and consider its investment objective, policies
and applicable fees before making an exchange. Under the telephone exchange
privilege, Institutional Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification numbers
only if the exchange request is in writing and is received in accordance with
the procedures set forth under "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 Institutional Shares surrendered in the exchange on
which an investor may realize a gain or loss, followed by a purchase of
Institutional Shares, or the corresponding class of any Goldman Sachs Money
Market Fund received in the exchange. Shareholders should consult their own
tax adviser concerning the tax consequences of an exchange.

Each exchange which represents an initial investment in a Portfolio must
satisfy the minimum investment requirements of the Portfolio into which the
Institutional Shares are being exchanged, except that this requirement may be
waived at the discretion of the officers of the Trust. Exchanges are available
only in states where exchanges may legally be made. The exchange privilege may
be materially 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 Portfolios will redeem their Institutional Shares upon request of a
recordholder of such Shares on any Business Day at the NAV next determined
after receipt of a request in proper form by Goldman Sachs from the
recordholder. (See "Purchase of Institutional Shares--Other Purchase
Information" for a description of limited situations where an institution or
other intermediary may be authorized to accept requests for the Trust.) If
Institutional Shares to be redeemed were recently purchased by check, a
Portfolio 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 a shareholder of record by writing to or calling the
Transfer Agent at the address or telephone number set forth on the back cover
of this Prospectus. A shareholder of record 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.

29
<PAGE>

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 concerning telephone
redemptions and exchanges. 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 Portfolios, the Trust nor
Goldman Sachs will be responsible for the authenticity of redemption or
exchange instructions received by telephone.

Written requests for redemptions must be signed by each recordholder 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.

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

Institutions (including banks, trust companies, brokers and investment
advisers) are responsible for the timely transmittal of redemption requests by
their customers to the Transfer Agent. In order to facilitate the timely
transmittal of redemption requests, these institutions have established times
by which redemption requests must be received by them. Additional
documentation may be required when deemed appropriate by an institution.

30
<PAGE>

APPENDIX A

(1) DESCRIPTION OF INVESTMENTS AND
INVESTMENT TECHNIQUES OF THE UNDERLYING FUNDS

CONVERTIBLE SECURITIES

PREFERRED STOCK, WARRANTS AND RIGHTS

A-1
<PAGE>

REAL ESTATE INVESTMENT TRUSTS ("REITS")

FOREIGN INVESTMENTS

Foreign Securities. Certain of the Underlying Funds may invest in foreign
securities in accordance with their investment objectives and policies.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in 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. The expected introduction of a single currency, the euro,
on January 1, 1999 for participating European nations in the Economic and
Monetary Union ("EU") presents unique uncertainties, including whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; the creation of suitable clearing and
settlement payment systems for the new currency; the legal treatment of
certain outstanding financial contracts after January 1, 1999 that refer to
existing currencies rather than the euro; the establishment and maintenance of
exchange rates for currencies being converted into the euro and the euro; the
fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; whether the
interest rate, tax and labor regimes of European countries participating in
the euro will converge over time; and whether the conversion of the currencies
of other EU countries such as the United Kingdom, Denmark and Greece into the
euro and the admission of other non-EU countries such as Poland, Latvia and
Lithuania as members of the EU may have an impact on the euro. These or other
factors, including political and economic risks, could cause market
disruptions before or after the introduction of the euro, and could adversely
affect the value of securities and foreign currencies held by the Underlying
Funds. Commissions on transactions in foreign securities may be higher than
those for similar transactions on domestic stock markets. In addition,
clearance and settlement procedures may be different in foreign countries and,
in certain markets, such procedures have been unable to keep pace with the
volume of securities transactions, thus making it difficult to conduct such
transactions.

A-2
<PAGE>

Investments in ADRs, EDRs and GDRs. Investments in foreign securities may
take the form of sponsored and unsponsored American Depository Receipts
("ADRs"), Global Depository Receipts ("GDRs"), European Depository Receipts
("EDRs") or other similar instruments representing securities of foreign
issuers (together, "Depository Receipts"). ADRs represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the
United States on exchanges or over-the-counter and are sponsored and issued by
domestic banks. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and GDRs are not necessarily quoted in the same currency
as the underlying security. To the extent a Fund acquires Depository Receipts
through banks which do not have a contractual relationship with the foreign
issuer of the security underlying the Depository Receipts to issue and service
such Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Underlying Fund would not become aware of and
be able to respond to corporate actions, such as stock splits or rights
offerings involving the foreign issuer, in a timely manner. In addition, the
lack of information may result in inefficiencies in the valuation of such
instruments. Investment in Depository Receipts does not eliminate all the
risks inherent in investing in securities of non-U.S. issuers. The market
value of Depository Receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Depository Receipts and the underlying securities are quoted.
However, by investing in Depository Receipts, such as ADRs, that are quoted in
U.S. dollars, the Underlying Funds may avoid currency risks during the
settlement period for purchases and sales.
Foreign Currency Transactions. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because certain
Underlying Funds may have currency exposure independent of their securities
positions, the value of the assets of the Underlying Fund as measured in U.S.
dollars will be affected by changes in foreign currency exchange rates. The
Underlying Fund may, to the extent it invests in foreign securities, purchase
or sell foreign currencies on a spot basis and may also purchase or sell
forward foreign currency exchange contracts for hedging purposes and to seek
to protect against anticipated changes in future foreign currency exchange
rates. In addition, the Core Fixed Income, Global Income, High Yield, CORE
International Equity, International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds may enter into such
contracts to seek to increase total return when the Underlying Fund's
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
Underlying Fund's portfolio. When entered into to seek to enhance return,
forward foreign currency exchange contracts are considered speculative.
Certain Underlying 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 Underlying Fund's investment adviser determines
that there is a pattern of correlation between the two currencies.

A-3
<PAGE>

the forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or anticipated
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by the intervention of U.S. or foreign governments or central
banks or the failure to intervene or by currency controls or political
developments in the U.S. or abroad.

FIXED-INCOME SECURITIES

A-4
<PAGE>

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 the
Underlying 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 the Underlying Fund from taking advantage of such
higher yields.

Adjustable Rate Mortgage-Backed Securities ("ARMS"). ARMs allow the
Underlying 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 the Underlying 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 the Underlying
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.

The Underlying Funds may invest in Mortgage-Backed Securities issued or
sponsored by both government and non-governmental entities. Privately issued
Mortgage-Backed Securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. In order to
receive a high quality rating from the rating organizations (e.g., S&P or
Moody's), privately issued Mortgaged-Backed Securities normally are structured
with one or more types of "credit enhancement."

A-5
<PAGE>

A-6
<PAGE>

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.

OPTIONS ON SECURITIES AND SECURITIES INDICES

OPTIONS ON FOREIGN CURRENCIES

A-7
<PAGE>

Underlying 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 Underlying Fund's position, the Underlying Fund may forfeit the entire
amount of the premium plus related transaction costs. In addition to
purchasing call and put options for hedging purposes, the Core Fixed Income,
Global Income, High Yield, CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds may purchase call or put options on currency to seek to increase
total return when the Underlying Fund's 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 Underlying Fund's portfolio. When
purchased or sold to seek to increase total return, options on currencies are
considered speculative. Options on foreign currencies written or purchased by
the Underlying Funds are traded on U.S. and foreign exchanges or over-the-
counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, an Underlying 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.

A-8
<PAGE>

may result in substantial losses to the Underlying Fund. Further, futures
contracts and options on futures may be illiquid, and exchanges may limit
fluctuations in futures contract prices during a single day. The Underlying
Funds may engage in futures transactions on both U.S. and foreign exchanges.
Foreign exchanges may not provide the same protections as U.S. exchanges.
STANDARD AND POOR'S DEPOSITORY RECEIPTS

EQUITY SWAPS

Each Underlying Equity Fund may invest up to 10% of its total assets in
equity swaps. Equity swaps allow the parties to a swap agreement to exchange
the dividend income or other components of return on an equity investment
(e.g., a group of equity securities or an index) for a component of return on
another non-equity or equity investment. An equity swap may be used by a Fund
to invest in a market without owning or taking physical custody of securities
in circumstances in which direct investment may be restricted for legal reasons
or is otherwise impractical. Equity swaps are derivatives and their value can
be very volatile. To the extent that its Investment Adviser does not accurately
analyze and predict the potential relative fluctuation of the components
swapped with another party, a Fund may suffer a loss. The value of some
components of an equity swap (such as the dividends on a common stock) may also
be sensitive to changes in interest rates. Furthermore, during the period a
swap is outstanding, a Fund may suffer a loss if the counterparty defaults. In
connection with its investments in equity swaps, a Fund will either segregate
cash or liquid assets or otherwise cover its obligations in a manner required
by the SEC.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

The Underlying Funds may purchase when-issued securities. When-issued
transactions arise when securities are purchased by the Underlying 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 Underlying Fund at the
time of entering into the transaction. Each Underlying Fund may also purchase
or sell securities on a forward commitment basis; that is, make contracts to
purchase or sell securities for a fixed price at a future date beyond the
customary three-day settlement period. 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. Conversely,
securities sold on a forward commitment basis involve the risk that the value
of the securities to be sold may increase prior to the settlement date.
Although the Underlying Fund would generally purchase securities on a when-
issued or forward commitment basis with the intention of acquiring securities
for its portfolio, the Underlying Fund may dispose of when-issued securities or
forward commitments prior to settlement if its investment adviser deems it
appropriate to do so. The Underlying Fund will segregate cash or liquid assets
in an amount sufficient to meet the purchase price until three days prior to
the settlement date. Alternately, each Underlying Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.

A-9
<PAGE>

ILLIQUID AND RESTRICTED SECURITIES

No Underlying Fund will invest more than 15% (10% in the case of the
Financial Square Prime Obligations Fund) of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, 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. Investing in restricted
securities eligible for resale pursuant to Rule 144A may decrease the
liquidity of an Underlying Fund's portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. The purchase price and subsequent valuation of
restricted and illiquid securities normally reflect a discount, which may be
significant, from the market price of comparable securities for which a market
exists.

REPURCHASE AGREEMENTS

LENDING OF PORTFOLIO SECURITIES

SHORT SALES AGAINST-THE-BOX

A-10
<PAGE>

MORTGAGE DOLLAR ROLLS

TEMPORARY INVESTMENTS

PORTFOLIO TURNOVER

The turnover rates of the Underlying Funds have ranged from 41% to 396%
during their most recent fiscal years. There can be no assurance that the
turnover rates of these Underlying Funds will remain within this range during
subsequent fiscal years. Higher turnover rates may result in higher brokerage
costs and higher expenses being incurred by the Underlying Funds. In addition,
higher turnover rates may result in higher taxable realized gains being
incurred by shareholders.

MISCELLANEOUS TECHNIQUES

(2) RELATED ADDITIONAL RISK FACTORS

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES AND REITS

A-11
<PAGE>

securities are the less certain growth prospects of smaller firms and the
lower degree of liquidity in the markets for such securities. Small
capitalization companies and REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more
abrupt or erratic price movements than larger capitalization companies. An
Underlying Fund may invest in securities of small capitalization companies and
REITs that have experienced financial difficulties or are in an early
development stage. Other risks associated with REITs are discussed in this
Appendix A under "Real Estate Investment Trusts ("REITs')."

SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING MARKETS

Investing in the securities of issuers in Emerging Countries involves risks
in addition to those discussed in this Appendix A under "Foreign Investments."
The International Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds may each invest without limit in the securities of issuers
in Emerging Countries. Up to 35% of the total assets of the Emerging Markets
Equity Fund may be invested in securities of issuers in any one Emerging
Country. The Growth and Income, Small Cap Value, Mid Cap Equity, High Yield
and CORE International Equity Funds may each invest up to 25%, and the Core
Fixed Income, Global Income and Capital Growth Funds may each invest up to
10%, of their respective total assets in securities of issuers in Emerging
Countries.

A-12
<PAGE>

RISKS OF INVESTING IN FIXED-INCOME SECURITIES

RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES

RISKS OF OTHER DERIVATIVE TRANSACTIONS

A-13
<PAGE>

changes in the value of hedging instruments and the portfolio assets (if any)
being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from 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.

NON-DIVERSIFICATION

A-14
<PAGE>

APPENDIX B

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM

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

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

B-1
<PAGE>

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

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

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

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

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

ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110

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

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

GOLDMAN SACHS

ASSET ALLOCATION
PORTFOLIOS

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

PROSPECTUS

INSTITUTIONAL SHARES

LOGO
GOLDMAN
SACHS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AAPROINST
501424
<PAGE>

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

PROSPECTUS

GOLDMAN SACHS DOMESTIC EQUITY FUNDS
May 1, 1998, as revised September 1, 1998
CLASS A, B AND C SHARES

GOLDMAN SACHS BALANCED FUND
Seeks long-term capital growth and current income through investments in eq-
uity and fixed income securities.

GOLDMAN SACHS GROWTH AND INCOME FUND
Seeks long-term growth of capital and growth of income through investments
in equity securities that are considered to have favorable prospects for
capital appreciation and/or dividend paying ability.

GOLDMAN SACHS CORE U.S. EQUITY FUND
Seeks long-term growth of capital and dividend income through a broadly di-
versified portfolio of large cap and blue chip equity securities represent-
ing all major sectors of the U.S. economy.

GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap U.S. issuers that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary consideration.

GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of U.S. issuers which are included in the Russell 2000 In-
dex at the time of investment.

GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term growth of capital through diversified investments in equity
securities of companies that are considered to have long-term capital appre-
ciation potential.

GOLDMAN SACHS MID CAP EQUITY FUND
Seeks long-term capital appreciation primarily through investments in equity
securities of companies with public stock market capitalizations within the
range of the market capitalization of companies constituting the Russell
Midcap Index at the time of investment (currentlybetween $400 million and
$16 billion).

GOLDMAN SACHS SMALL CAP VALUE FUND
Seeks long-term capital growth through investments in equity securities of
companies with public stock market capitalizations of $1 billion or less at
the time of investment.

Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, CORE Large Cap Growth,
CORE Small Cap Equity, Mid Cap Equity and Small Cap Value (formerly "Small Cap
Equity") Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New
York, an affiliate of Goldman Sachs, serves as investment adviser to the CORE
U.S. Equity (formerly the "Select Equity Fund") and Capital Growth Funds. 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.

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

(continued on next page)
<PAGE>

(cover continued)

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, 1998, as
revised September 1, 1998, containing further information about the Trust and
the Funds which may be of interest to investors, has been filed with the
Securities and Exchange Commission ("SEC"), is incorporated herein by
reference in its entirety, and may be obtained without charge from Goldman
Sachs by calling the telephone number, or writing to one of the addresses,
listed on the back cover of this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 7
Financial Highlights............... 12
Investment Objectives and Policies. 20
Description of Securities.......... 25
Investment Techniques.............. 30
Risk Factors....................... 35
Investment Restrictions............ 36
Portfolio Turnover................. 36
Management......................... 36
Expenses........................... 42
Reports to Shareholders............ 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
How to Invest...................... 42
Services Available to Shareholders. 48
Distribution and Service Plans..... 51
How to Sell Shares of the Funds.... 52
Dividends.......................... 54
Net Asset Value.................... 54
Performance Information............ 55
Shares of the Trust................ 56
Taxation........................... 56
Additional Information............. 57
Appendix .......................... A-1
Account Application
</TABLE>

2
<PAGE>

FUND HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

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

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. Each Fund is a
"diversified open-end management company" as defined in the Investment
Company Act of 1940, as amended (the "Act"). For a further description of
each Fund's investment objectives and policies, see "Investment
Objectives and Policies," "Description of Securities" and "Investment
Techniques."

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ---------- --------------------- ------------------- ---------
<S> <C> <C> <C>
BALANCED Long-term capital Between 45% and 65% of total Lehman Aggregate Bond
FUND growth and current assets in equity securities Index and the
income. and at least 25% in fixed- Standard & Poor's
income senior securities. Index of 500 Common
Stocks (the "S&P 500
Index")
- ----------------------------------------------------------------------------------------
GROWTH AND Long-term growth of At least 65% of total assets S&P 500 Index
INCOME FUND capital and growth of in equity securities that the
income. Investment Adviser considers
to have favorable prospects
for capital appreciation
and/or dividend-paying
ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth of At least 90% of total assets S&P 500 Index
EQUITY FUND capital and dividend in equity securities of U.S.
income. issuers, including certain
foreign issuers traded in the
U.S. The Fund seeks to achieve
its objective through a
broadly diversified portfolio
of large cap and blue chip
equity securities representing
all major sectors of the U.S.
economy. The Fund's
investments are selected using
both a variety of
quantitative techniques and
fundamental research in
seeking to maximize the Fund's
expected return, while
maintaining risk, style,
capitalization and
industry characteristics
similar to the S&P 500 Index.
</TABLE>

(continued)

3
<PAGE>

<TABLE>
<CAPTION>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ---------- --------------------- ------------------- ---------
<S> <C> <C> <C>
CORE LARGE Long-term growth of At least 90% of total assets in Russell 1000 Growth
CAP GROWTH capital. equity securities of U.S. Index
FUND Dividend income is a issuers, including certain
secondary foreign issuers traded in the
consideration. U.S. The Fund seeks to achieve
its objective through a broadly
diversified portfolio of equity
securities of large cap U.S.
issuers that are expected to have
better prospects for earnings
growth than the growth rate of
the general domestic economy. The
Fund's investments are selected
using both a variety of
quantitative techniques and
fundamental research in seeking
to maximize the Fund's expected
return, while maintaining risk,
style, capitalization and
industry characteristics similar
to the Russell 1000 Growth Index.
- ----------------------------------------------------------------------------------------
CORE SMALL Long-term growth of At least 90% of total assets in Russell 2000 Index
CAP EQUITY capital. equity securities of U.S.
FUND issuers, including certain
foreign issuers traded in the
U.S. The Fund seeks to achieve
its objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which
are included in the Russell 2000
Index at the time of investment.
The Fund's investments are
selected using both a variety of
quantitative techniques and
fundamental research in seeking
to maximize the Fund's expected
return, while maintaining risk,
style, capitalization and
industry characteristics similar
to the Russell 2000 Index.
- ----------------------------------------------------------------------------------------
CAPITAL Long-term capital At least 90% of total assets in a S&P 500 Index
GROWTH FUND growth. diversified portfolio of equity
securities. The Investment
Adviser considers long-term
capital appreciation potential in
selecting investments.
- ----------------------------------------------------------------------------------------
MID CAP Long-term capital At least 65% of total assets in Russell Midcap
EQUITY FUND appreciation. equity securities of companies Index
with public stock market
capitalizations within the range
of the market capitalization of
companies constituting the
Russell Midcap Index at the time
of investment (currently between
$400 million and $16 billion)
("Mid-Cap Companies").
- ----------------------------------------------------------------------------------------
SMALL CAP Long-term capital At least 65% of total assets in Russell 2000
VALUE FUND growth. equity securities of companies
with public stock market
capitalizations of $1 billion or
less at the time of investment.
</TABLE>

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

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

4
<PAGE>

Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.

Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different form those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers and
issuers. A Fund's investments in emerging markets and countries ("Emerging
Countries") involves greater risks than investments in the developed
countries of Western Europe, the United States, Canada, Australia, New
Zealand and Japan.

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

WHO MANAGES THE FUNDS?

Goldman Sachs Asset Management serves as Investment Adviser to the Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, Mid Cap Equity
and Small Cap Value Funds. Goldman Sachs Funds Management, L.P. serves as
Investment Adviser to the CORE U.S. Equity and Capital Growth Funds. As of July
24, 1998, the Investment Adviser, together with its affiliates, acted as
investment adviser or distributor for assets in excess of $168 billion.

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's Shares (the "Distributor").

WHAT IS THE MINIMUM INVESTMENT?

For further information, see "How to Invest--How to Buy Shares of the Funds"
on page 43.

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
agreements with Goldman Sachs relating to the sale of Shares ("Authorized
Dealers"). See "How to Invest" on page 42.

5
<PAGE>

WHAT ARE MY PURCHASE ALTERNATIVES?

The Funds offer three classes of Shares through this Prospectus. These Shares
may be purchased, at the investor's choice, at a price equal to their next
determined net asset value ("NAV") (i) plus an initial sales charge imposed at
the time of purchase ("Class A Shares"); (ii) with a contingent deferred sales
charge ("CDSC") imposed on redemptions within six years of purchase ("Class B
Shares"); or (iii) without any initial sales charge or CDSC, as long as Shares
are held for one year or more ("Class C Shares"). Direct purchases of $1
million or more of Class A Shares will be sold without an initial sales charge
and may be subject to a CDSC at the time of certain redemptions.

<TABLE>
<CAPTION>
MAXIMUM INITIAL MAXIMUM CONTINGENT
ALL FUNDS SALES CHARGE DEFERRED SALES CHARGE
--------- --------------- ---------------------
<S> <C> <C>
Class A................. 5.5% (See above)
Class B................. N/A 5% declining to 0% after six years
Class C................. N/A 1% if Shares are redeemed within 12 months of purchase
</TABLE>

HOW DO I SELL MY SHARES?

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- --------------------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
Small Cap Value....................... Annually Annually
</TABLE>

You may receive dividends and distributions in additional Shares of the same
class of the Fund in which you have invested or you may elect to receive them
in 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 or Class C Units of the Prime Obligations Portfolio,
if you hold Class B or Class C Shares of a Fund (the "ILA Portfolios"). For
further information concerning dividends and distributions, see "Dividends."

6
<PAGE>

FEES AND EXPENSES

<TABLE>
<CAPTION>
GROWTH
AND CORE U.S.
BALANCED INCOME EQUITY
FUND FUND FUND
----------------------------- ----------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... none none none none none none none none none
Maximum Deferred
Sales Charge... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........ none none none none none none none none none
Exchange
Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net assets)/5/
Management Fees
(after
applicable
limitations)/6/. 0.65% 0.65% 0.65% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
Distribution and
Service Fees... 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.25% 1.00% 1.00%
Other Expenses
(after
applicable
limitations)/7/. 0.20% 0.20% 0.20% 0.24% 0.24% 0.24% 0.19% 0.19% 0.19%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/8/. 1.10% 1.85% 1.85% 1.19% 1.94% 1.94% 1.14% 1.89% 1.89%
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
CORE CORE
LARGE CAP SMALL CAP
GROWTH FUND EQUITY FUND
-------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... none none none none none none
Maximum Deferred
Sales Charge... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........ none none none none none none
Exchange
Fees/4/........ none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net assets)/5/
Management Fees
(after
applicable
limitations)/6/. 0.60% 0.60% 0.60% 0.85% 0.85% 0.85%
Distribution and
Service Fees... 0.25% 1.00% 1.00% 0.25% 1.00% 1.00%
Other Expenses
(after
applicable
limitations)/7/. 0.19% 0.19% 0.19% 0.23% 0.23% 0.23%
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/8/. 1.04% 1.79% 1.79% 1.33% 2.08% 2.08%
========== ========== ========== ========== ========== ==========
</TABLE>

7
<PAGE>

FEES AND EXPENSES (CONTINUED)

<TABLE>
<CAPTION>
SMALL
CAPITAL MID CAP CAP
GROWTH EQUITY VALUE
FUND FUND FUND
----------------------------- ----------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales Charge
Imposed on Reinvested
Dividends............... none none none none none none none none none
Maximum Deferred Sales
Charge.................. none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption Fees/4/...... none none none none none none none none none
Exchange Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING
EXPENSES: (as a
percentage of average
daily net assets)/5/
Management Fees (after
applicable limitations). 1.00% 1.00% 1.00% 0.75% 0.75% 0.75% 1.00% 1.00% 1.00%
Distribution and Service
Fees.................... 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.25% 1.00% 1.00%
Other Expenses (after
applicable
limitations)/7/......... 0.19% 0.19% 0.19% 0.29% 0.29% 0.29% 0.25% 0.25% 0.25%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE LIMITATIONS)/8/.. 1.44% 2.19% 2.19% 1.29% 2.04% 2.04% 1.50% 2.25% 2.25%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- ----
/1/ As a percentage of the offering price. No sales charge is imposed on
purchases of Class A Shares by certain classes of investors. A CDSC of
1.00% is imposed on certain redemptions (within 18 months of purchase) 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--
Class A Shares."
/2/ A CDSC is imposed upon Shares redeemed within six years of purchase at a
rate of 5% in the first year, declining to 1% in the sixth year, and
eliminated thereafter. See "How to Invest--Offering Price--Class B
Shares."
/3/ A CDSC of 1.00% is imposed on Shares redeemed within 12 months of
purchase. See "How to Invest--Offering Price--Class C Shares."
/4/ A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
Shares of other Goldman Sachs Funds or units of the ILA Portfolios and
free automatic exchanges pursuant to the Automatic Exchange Program, six
free exchanges are permitted in each twelve month period. A fee of $12.50
may be charged for each subsequent exchange during such period. See "How
to Invest--Exchange Privilege."
/5/ The Funds' annual operating expenses have been restated to reflect fees
and expenses in effect as of September 1, 1998.
/6/ The Investment Adviser has voluntarily agreed not to impose a portion of
the management fee on the CORE U.S. Equity and CORE Large Cap Growth Funds
equal to 0.05% and 0.15%, respectively. Without such limitations,
management fees would be 0.75% of each Fund's average daily net assets.
/7/ The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management, distribution and service fees,
transfer agency fees (equal to 0.19% of the average daily net assets of
each Fund's Class A, B and C Shares), taxes, interest and brokerage fees
and litigation, indemnification and other extraordinary expenses) for each
Fund to the extent such expenses exceed the following percentages of
average daily net assets:

<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced......................................................... 0.01%
Growth and Income................................................ 0.05%
CORE U.S. Equity................................................. 0.00%
CORE Large Cap Growth............................................ 0.00%
CORE Small Cap Equity............................................ 0.04%
Capital Growth................................................... 0.00%
Mid Cap Equity................................................... 0.10%
Small Cap Value.................................................. 0.06%
</TABLE>

8
<PAGE>

/8/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds would be as set forth below:

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced
Class A.............................................. 0.43% 1.33%
Class B.............................................. 0.43% 2.08%
Class C.............................................. 0.43% 2.08%
Growth and Income
Class A.............................................. 0.27% 1.22%
Class B.............................................. 0.27% 1.97%
Class C.............................................. 0.27% 1.97%
CORE U.S. Equity
Class A.............................................. 0.27% 1.27%
Class B.............................................. 0.27% 2.02%
Class C.............................................. 0.27% 2.02%
CORE Large Cap Growth
Class A.............................................. 0.37% 1.37%
Class B.............................................. 0.37% 2.12%
Class C.............................................. 0.37% 2.12%
CORE Small Cap Equity
Class A.............................................. 0.63% 1.73%
Class B.............................................. 0.63% 2.48%
Class C.............................................. 0.63% 2.48%
Capital Growth
Class A.............................................. 0.25% 1.50%
Class B.............................................. 0.25% 2.25%
Class C.............................................. 0.25% 2.25%
Mid Cap Equity
Class A.............................................. 0.31% 1.31%
Class B.............................................. 0.31% 2.06%
Class C.............................................. 0.31% 2.06%
Small Cap Value
Class A.............................................. 0.28% 1.53%
Class B.............................................. 0.28% 2.28%
Class C.............................................. 0.28% 2.28%
</TABLE>

EXAMPLE

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

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund
Class A Shares................................ $66 $88 $112 $182
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 66 86 119 197
--Assuming no redemption...................... 19 58 100 197
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 28 58 100 217
--Assuming no redemption...................... 19 58 100 217
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth and Income Fund
Class A Shares................................ $66 $91 $117 $191
Class B Shares
--Assuming complete redemption at end of
period....................................... 67 89 124 207
--Assuming no redemption...................... 20 61 105 207
Class C Shares
--Assuming complete redemption at end of
period....................................... 29 61 105 226
--Assuming no redemption...................... 20 61 105 226
CORE U.S. Equity Fund
Class A Shares................................ 66 89 114 186
Class B Shares
--Assuming complete redemption at end of
period....................................... 66 87 121 201
--Assuming no redemption...................... 19 59 102 201
Class C Shares
--Assuming complete redemption at end of
period....................................... 28 59 102 221
--Assuming no redemption...................... 19 59 102 221
CORE Large Cap Growth Fund
Class A Shares................................ 65 86 109 175
Class B Shares
--Assuming complete redemption at end of
period....................................... 65 84 116 191
--Assuming no redemption...................... 18 56 97 191
Class C Shares
--Assuming complete redemption at end of
period....................................... 27 56 97 211
--Assuming no redemption...................... 18 56 97 211
CORE Small Cap Equity Fund
Class A Shares................................ 68 95 124 206
Class B Shares
--Assuming complete redemption at end of
period....................................... 68 93 131 222
--Assuming no redemption...................... 21 65 112 222
Class C Shares
--Assuming complete redemption at end of
period....................................... 30 65 112 241
--Assuming no redemption...................... 21 65 112 241
Capital Growth Fund
Class A Shares................................ 69 98 129 218
Class B Shares
--Assuming complete redemption at end of
period....................................... 69 97 136 233
--Assuming no redemption...................... 22 69 117 233
Class C Shares
--Assuming complete redemption at end of
period....................................... 31 69 117 252
--Assuming no redemption...................... 22 69 117 252
Mid Cap Equity Fund
Class A Shares................................ 68 92 129 218
Class B Shares
--Assuming complete redemption at end of
period....................................... 68 92 129 218
--Assuming no redemption...................... 21 64 110 218
Class C Shares
--Assuming complete redemption at end of
period....................................... 30 64 110 237
--Assuming no redemption...................... 21 64 110 237
Small Cap Value Fund
Class A Shares................................ 69 100 132 224
Class B Shares
--Assuming complete redemption at end of
period....................................... 70 98 139 240
--Assuming no redemption...................... 23 70 120 240
Class C Shares
--Assuming complete redemption at end of
period....................................... 32 70 120 258
--Assuming no redemption...................... 23 70 120 258
</TABLE>

10
<PAGE>

The hypothetical example assumes that a CDSC 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.

The Investment Adviser and Goldman Sachs may modify or discontinue any of
the limitations set forth above in the future at their discretion. The
information set forth in the foregoing table and hypothetical example relates
only to Class A, B and C Shares. Each Fund also offers Institutional and
Service Shares, which are subject to different fees and expenses (which affect
performance), have different minimum investment requirements and are entitled
to different services than Class A, Class B and Class C Shares. Information
regarding Institutional and Service Shares may be obtained from your sales
representative or from Goldman Sachs by calling the number on the back cover
page of this Prospectus. Because of the Distribution and Service Plans, long-
term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the NASD's rules regarding investment
companies.

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

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

11
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- ------------------------------------------------
NET REALIZED IN EXCESS OF
AND UNREALIZED FROM NET NET REALIZED NET
NET ASSET GAIN ON FROM IN EXCESS REALIZED GAIN GAIN ON INCREASE NET ASSET
VALUE, NET INVESTMENT NET OF NET ON INVESTMENT INVESTMENT (DECREASE) VALUE,
BEGINNING INVESTMENT AND FUTURES INVESTMENT INVESTMENT AND FUTURES AND FUTURES IN NET END OF
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD
--------- ---------- -------------- ---------- ---------- ------------- ------------ ----------- ---------
BALANCED FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $18.78 $0.57 $2.66 $(0.56) $ -- $(1.16) $ -- $1.51 $20.29
1998--Class B
Shares.......... 18.73 0.50 2.57 (0.42) (0.02) (1.16) -- 1.47 20.20
1998--Class C
Shares(b)....... 21.10 0.25 0.24 (0.22) (0.04) (0.64) (0.52) (0.93) 20.17
1998--Institu-
tional
Shares(b)....... 21.18 0.26 0.32 (0.23) (0.08) (0.45) (0.71) (0.89) 20.29
1998--Service
Shares(b)....... 21.18 0.22 0.32 (0.22) (0.06) (0.72) (0.44) (0.90) 20.28
- ---------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 17.31 0.66 2.47 (0.66) -- (1.00) -- 1.47 18.78
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (0.07) (1.00) -- 1.27 18.73
- ---------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) -- (0.35) -- 3.09 17.31
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 14.18 0.10 0.02 (0.08) -- -- -- 0.04 14.22
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE(G) RATE(F) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
---------- --------- ---------- ---------- ----------- ----------- ---------- -------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 17.54% 190.43% $.0590 $163,636 1.00% 2.94% 1.57% 2.37%
1998--Class B
Shares.......... 16.71 190.43 .0590 23,639 1.76 2.14 2.07 1.83
1998--Class C
Shares(b)....... 2.49(d) 190.43 .0590 8,850 1.77(c) 2.13(c) 2.08(c) 1.82(c)
1998--Institu-
tional
Shares(b)....... 2.93(d) 190.43 .0590 8,367 0.76(c) 3.13(c) 1.07(c) 2.82(c)
1998--Service
Shares(b)....... 2.66(d) 190.43 .0590 16 1.26(c) 2.58(c) 1.57(c) 2.27(c)
- ---------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 18.59 208.11 .0587 81,410 1.00 3.76 1.77 2.99
1997--Class B
Shares(b)....... 16.22(d) 208.11 .0587 2,110 1.75(c) 2.59(c) 2.27(c) 2.07(c)
- ---------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 28.10 197.10 -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 0.87(d) 14.71 -- 7,510 1.00(c) 3.39(c) 8.29(c) (3.90)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. Total return would be reduced if a sales or redemption charge
were taken into account.
(b) Class A and Class B Share activity commenced on October 12, 1994 and May
1, 1996, respectively. Class C, Institutional and Service Share activity
commenced on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the effect of mortgage dollar roll transactions.

12
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------- ------------------------------------------------
NET IN EXCESS OF
REALIZED AND FROM NET NET REALIZED
NET ASSET NET UNREALIZED FROM IN EXCESS REALIZED GAIN GAIN ON
VALUE, INVESTMENT GAIN ON NET OF NET ON INVESTMENT INVESTMENT ADDITIONAL
BEGINNING INCOME INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES PAID-IN
OF PERIOD (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS CAPITAL
--------- ------------ ------------- ---------- ---------- ------------- ------------ ----------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.18 $ 0.11 $ 5.27 $(0.11) $ -- $(2.52) $ -- $ --
1998--Class B
Shares.......... 23.10 0.04 5.14 -- (0.03) (2.45) (0.07) --
1998--Class C
Shares(b)....... 28.20 (0.01) 0.06 -- (0.03) (1.42) (1.10) --
1998--
Institutional
Shares.......... 23.19 0.27 5.23 (0.22) -- (0.24) (2.28) --
1998--Service
Shares.......... 23.17 0.14 5.23 (0.06) (0.04) (2.52) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 19.98 0.35 5.18 (0.35) (0.01) (1.97) -- --
1997--Class B
Shares(b)....... 20.82 0.17 4.31 (0.17) (0.06) (1.97) -- --
1997--Institu-
tional
Shares(b)....... 21.25 0.29 3.96 (0.30) (0.04) (1.97) -- --
1997--Service
Shares(b)....... 20.71 0.28 4.50 (0.28) (0.07) (1.97) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 15.80 0.33 4.75 (0.30) -- (0.60) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 15.79 0.20(g) 0.30(g) (0.20) (0.07) (0.33) -- 0.11(g)
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 14.18 0.15 1.68 (0.15) (0.01) (0.06) -- --
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-------------------------
RATIO
OF NET RATIO
NET NET RATIO INVESTMENT OF NET
INCREASE NET ASSET ASSETS AT OF NET INCOME (LOSS) RATIO INVESTMENT
(DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO TO AVERAGE OF EXPENSES INCOME (LOSS)
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET NET TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- ---------- --------- ---------- ---------- ----------- ------------- ----------- -----------
GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $2.75 $25.93 23.71% 61.95% $.0590 $1,216,582 1.25% 0.43% 1.42% 0.26%
1998--Class B
Shares.......... 2.63 25.73 22.87 61.95 .0590 307,815 1.94 (0.35) 1.94 (0.35)
1998--Class C
Shares(b)....... (2.50) 25.70 0.51(d) 61.95 .0590 31,686 1.99(c) (0.48)(c) 1.99(c) (0.48)(c)
1998--
Institutional
Shares.......... 2.76 25.95 24.24 61.95 .0590 36.225 0.83 0.76 0.83 0.76
1998--Service
Shares.......... 2.75 25.92 23.63 61.95 .0590 8,893 1.32 0.32 1.32 0.32
- -------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 3.20 23.18 28.42 53.03 .0586 615,103 1.22 1.60 1.43 1.39
1997--Class B
Shares(b)....... 2.28 23.10 22.23(d) 53.03 .0586 17,346 1.93(c) 0.15(c) 1.93(c) 0.15(c)
1997--Institu-
tional
Shares(b)....... 1.94 23.19 20.77(d) 53.03 .0586 193 0.82(c) 1.36(c) 0.82(c) 1.36(c)
1997--Service
Shares(b)....... 2.46 23.17 23.87(d) 53.03 .0586 3,174 1.32(c) 0.94(c) 1.32(c) 0.94(c)
- -------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 4.18 19.98 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
- -------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 0.01 15.80 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 1.61 15.79 13.08(d) 102.23 -- 41,528 1.25(c) 1.23(c) 3.24(c) (0.76)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. Total return would be reduced if a sales or redemption charge
were taken into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on February 5, 1993, May 1, 1996, August 15, 1997, June 3, 1996
and March 6, 1996, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Calculated based on the average Shares outstanding methodology.

13
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------------------------------
FROM NET IN EXCESS OF NET
NET REALIZED REALIZED NET REALIZED INCREASE/ NET
NET ASSET AND UNREALIZED IN EXCESS GAIN ON GAIN ON (DECREASE) ASSET
VALUE, NET GAIN (LOSS) ON FROM NET OF NET INVESTMENT INVESTMENT IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES ASSET END OF TOTAL
OF PERIOD INCOME AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE PERIOD RETURN(A)
--------- ---------- -------------- ---------- ---------- ------------ ------------ ---------- ------ ---------
CORE U.S. EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.32 $0.11 $5.63 $(0.12) $ -- $(2.35) $ -- $3.27 $26.59 24.96 %
1998--Class B
Shares.......... 23.18 0.11 5.44 -- (0.06) (2.00) (.35) 3.14 26.32 24.28
1998--Class C
Shares(b)....... 27.48 0.03 1.22 -- (0.14) (0.67) (1.68) (1.24) 26.24 4.85(d)
1998--Institu-
tional Shares... 23.44 0.30 5.65 (0.24) (0.01) (1.33) (1.02) 3.35 26.79 25.76
1998--Service
Shares.......... 23.27 0.19 5.57 (0.07) (0.08) (2.35) -- 3.26 26.53 25.11
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 19.66 0.16 4.46 (0.16) -- (0.80) -- 3.66 23.32 23.75
1997--Class B
Shares(b)....... 20.44 0.04 3.70 (0.04) (0.16) (0.80) -- 2.74 23.18 18.59(d)
1997--Institu-
tional Shares... 19.71 0.30 4.51 (0.28) -- (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(b)....... 21.02 0.13 3.15 (0.13) (0.10) (0.80) -- 2.25 23.27 15.92(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) -- (0.41) -- 5.05 19.66 38.63
1996--Institu-
tional
Shares(b)....... 16.97 0.16 3.23 (0.24) -- (0.41) -- 2.74 19.71 20.14(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) -- (0.94) -- (1.32) 14.61 (1.10)
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) -- (1.61) -- 0.47 15.93 15.12
- ---------------------------------------------------------------------------------------------------------------------------------
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- -- 0.41 15.46 4.30
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 14.17 0.11 0.88 (0.11) -- -- -- 0.88 15.05 7.01(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
----------------------
RATIO OF RATIO OF RATIO OF
NET NET RATIO OF NET
NET EXPENSES INVESTMENT EXPENSES INVESTMENT
ASSETS AT TO INCOME TO INCOME
PORTFOLIO AVERAGE END OF AVERAGE (LOSS) TO AVERAGE (LOSS) TO
TURNOVER COMMISSION PERIOD NET AVERAGE NET AVERAGE
RATE RATE(F) (IN 000S) ASSETS NET ASSETS ASSETS NET ASSETS
--------- ---------- --------- ---------- ------------ --------- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 65.89% $.0651 $398,393 1.28% 0.51% 1.47% 0.32%
1998--Class B
Shares.......... 65.89 .0651 59,208 1.79 (0.05) 1.96 (0.22)
1998--Class C
Shares(b)....... 65.89 .0651 6,267 1.78(c) (0.21)(c) 1.95(c) (0.38)(c)
1998--Institu-
tional Shares... 65.89 .0651 202,893 0.65 1.16 0.82 0.99
1998--Service
Shares.......... 65.89 .0651 7,841 1.15 0.62 1.32 0.45
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 37.78 .0417 225,968 1.29 0.91 1.53 0.67
1997--Class B
Shares(b)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(b)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(b)....... 39.35 -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
- ---------------------------------------------------------------------------------------------------------------------------------
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 135.02 -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on May 24, 1991, May 1, 1996, August 15, 1997, June 15, 1995 and
June 7, 1996, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

14
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------------------------------
NET FROM NET IN EXCESS OF
REALIZED AND REALIZED NET REALIZED
NET ASSET NET UNREALIZED FROM IN EXCESS GAIN ON GAIN ON NET NET ASSET
VALUE, INVESTMENT GAIN (LOSS) ON NET OF NET INVESTMENT INVESTMENT INCREASE VALUE,
BEGINNING INCOME INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES IN NET END OF
OF PERIOD (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD
--------- ---------- -------------- ---------- ---------- ------------ ------------ ----------- ---------
CORE LARGE CAP GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $10.00 $0.01 $2.35 $(0.01) -- $(0.32) $(0.06) $1.97 $11.97
1998--Class B
Shares(b)....... 10.00 (0.03) 2.33 -- -- (0.18) (0.20) 1.92 11.92
1998--Class C
Shares(b)....... 11.80 (0.02) 0.54 -- (0.01) (0.38) -- 0.13 11.93
1998--Institu-
tional
Shares(b)....... 10.00 0.01 2.35 (0.01) -- (0.19) (0.19) 1.97 11.97
1998--Service
Shares (b)...... 10.00 (0.02) 2.35 -- -- (0.08) (0.30) 1.95 11.95
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
----------------------------------------
RATIO
NET RATIO RATIO OF NET OF NET
ASSETS AT OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES INCOME TO EXPENSES TO (LOSS) TO
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE NET AVERAGE
RETURN(A) RATE RATE (IN 000'S) NET ASSETS ASSETS ASSETS NET ASSETS
----------- --------- ---------- ---------- ----------- ------------- ------------------- --------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... 23.79%(d) 74.97% $.0282 $53,786 0.91%(c) 0.12%(c) 2.40%(c) (1.37)%(c)
1998--Class B
Shares(b)....... 23.26(d) 74.97 .0282 13,857 1.67(c) (0.72)(c) 2.91(c) (1.96)(c)
1998--Class C
Shares(b)....... 4.56(d) 74.97 .0282 4,132 1.68(c) (0.76)(c) 2.92(c) (2.00(c)
1998--Institu-
tional
Shares(b)....... 23.89(d) 74.97 .0282 4,656 0.72(c) 0.42 (c) 1.96(c) (0.82)(c)
1998--Service
Shares (b)...... 23.56(d) 74.97 .0282 115 1.17(c) (0.21)(c) 2.41(c) (1.45)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. Total return would be reduced if a sales or redemption charge
were taken into account.
(b) Class A, Class B Institutional and Service Share activity commenced on May
1, 1997. Class C share activity commenced on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.

15
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------
NET
REALIZED AND FROM NET
UNREALIZED REALIZED
NET ASSET NET GAIN (LOSS) ON FROM GAIN ON NET NET ASSET
VALUE, INVESTMENT INVESTMENT AND NET INVESTMENT INCREASE VALUE, PORTFOLIO
BEGINNING INCOME FUTURES INVESTMENT AND FUTURES IN NET END OF TOTAL TURNOVER
OF PERIOD (LOSS) TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A) RATE
--------- ---------- -------------- ---------- ------------ ----------- --------- --------- ---------
CORE SMALL CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $10.00 $(0.01) $0.65 -- $(0.05) $0.59 $10.59 6.37%(d) 37.65%
1998--Class B
Shares(b)....... 10.00 (0.03) 0.64 -- (0.05) 0.56 10.56 6.07(d) 37.65
1998--Class C
Shares(b)....... 10.00 (0.02) 0.64 -- (0.05) 0.57 10.57 6.17(d) 37.65
1998--Institu-
tional
Shares(b)....... 10.00 0.01 0.65 -- (0.05) 0.61 10.61 6.57(d) 37.65
1998--Service
Shares(b)....... 10.00 0.01 0.64 -- (0.05) 0.60 10.60 6.47(d) 37.65
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
---------------------------
RATIO
NET RATIO RATIO OF NET OF NET
ASSETS AT OF NET INVESTMENT RATIO OF INVESTMENT
AVERAGE END OF EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS)
COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET TO AVERAGE
RATE (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
---------- --------- ----------- -------------- ------------ --------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $.0370 $11,118 1.25%(c) (0.36)%(c) 3.92%(c) (3.03)%(c)
1998--Class B
Shares(b)....... .0370 9,957 1.95(c) (1.04)(c) 4.37(c) (3.46)(c)
1998--Class C
Shares(b)....... .0370 2,557 1.95(c) (1.07)(c) 4.37(c) (3.49)(c)
1998--Institu-
tional
Shares(b)....... .0370 9,026 0.95(c) 0.15 (c) 3.37(c) (2.27)(c)
1998--Service
Shares(b)....... .0370 2 1.45(c) 0.40 (c) 3.87(c) (2.02)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Commenced operations on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.

16
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------------------------------
NET FROM NET IN EXCESS OF NET
NET ASSET NET REALIZED AND FROM IN EXCESS REALIZED NET REALIZED INCREASE NET ASSET
VALUE, INVESTMENT UNREALIZED NET OF NET GAIN ON GAIN ON (DECREASE) VALUE,
BEGINNING INCOME GAIN (LOSS) ON INVESTMENT INVESTMENT INVESTMENT INVESTMENT IN NET END OF
OF PERIOD (LOSS) INVESTMENTS INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD
--------- ---------- -------------- ---------- ---------- ------------ ------------ ----------- ---------
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $16.73 $ 0.02 $ 4.78 $(0.01) $(0.01) $(3.03) $ -- $ 1.75 $18.48
1998--Class B
Shares.......... 16.67 0.02 4.61 -- -- (1.20) (1.83) 1.60 18.27
1998--Class C
Shares(b)....... 19.73 (0.02) 1.60 -- (0.04) (0.47) (2.56) (1.49) 18.24
1998--Institu-
tional
Shares(b)....... 19.88 0.02 1.66 (0.01) (0.07) (0.41) (2.62) (1.43) 18.45
1998--Service
Shares--(b)..... 19.88 (0.01) 1.66 -- (0.04) (0.76) (2.27) (1.42) 18.46
- --------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 14.91 0.10 3.56 (0.10) (0.02) (1.72) -- 1.82 16.73
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (0.09) (1.72) -- 1.00 16.67
- --------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) -- (2.69) -- 1.24 14.91
- --------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) -- (1.62) -- (2.29) 13.67
- --------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (0.02) (1.07) -- 1.32 15.96
- --------------------------------------------------------------------------------------------------------------------------
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) -- (1.28) -- 0.99 14.64
- --------------------------------------------------------------------------------------------------------------------------
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) -- (0.32) -- 2.55 13.65
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1991--Class A
Shares(c)....... 11.34 0.34 (0.27) (0.31) -- -- -- (0.24) 11.10
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
-------------------------
RATIO
NET RATIO RATIO OF NET OF NET
ASSETS AT OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES INCOME TO EXPENSES TO INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(B) (IN 000S) NET ASSETS ASSETS ASSETS NET ASSETS
---------- --------- ---------- ---------- ---------- ------------- ----------- -------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 29.71% 61.50% $.0612 $1,256,595 1.40% 0.08% 1.65% (0.17)%
1998--Class B
Shares.......... 28.73 61.50 .0612 40,827 2.18 (0.77) 2.18 (0.77)
1998--Class C
Shares(b)....... 8.83(d) 61.50 .0612 5,395 2.21(c) (0.86)(c) 2.21(c) (0.86)(c)
1998--Institu-
tional
Shares(b)....... 9.31(d) 61.50 .0612 7,262 1.16(c) 0.18 (c) 1.16(c) 0.18 (c)
1998--Service
Shares--(b)..... 9.18(d) 61.50 .0612 2 1.50(c) (0.16)(c) 1.50(c) (0.16)(c)
- --------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 25.97 52.92 .0563 920,646 1.40 0.62 1.65 0.37
1997--Class B
Shares(b)....... 19.39(d) 52.92 .0563 3,221 2.15(c) (0.39)(c) 2.15(c) (0.39)(c)
- --------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 30.45 63.90 -- 881,056 1.36 0.65 1.61 0.40
- --------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... (4.38) 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
- --------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 16.89 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
- --------------------------------------------------------------------------------------------------------------------------
1993--Class A
Shares.......... 18.01 58.93 -- 665,976 1.41 0.42 1.66 0.17
- --------------------------------------------------------------------------------------------------------------------------
1992--Class A
Shares.......... 29.31 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1991--Class A
Shares(c)....... 0.84(d) 35.63 -- 437,533 1.27(c) 3.24(c) 1.47(c) 3.04(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. Total return would be reduced if a sales or redemption charge
were taken into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on April 20, 1990, May 1, 1996, August 15, 1997, August 15, 1997
and August 15, 1997, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

17
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ---------------------------------------------
NET REALIZED
AND UNREALIZED NET
NET REALIZED LOSS ON FROM NET INCREASE NET
NET ASSET AND UNREALIZED FOREIGN IN EXCESS REALIZED (DECREASE) ASSET
VALUE, NET GAIN ON CURRENCY FROM NET OF NET GAIN ON IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS RELATED INVESTMENT INVESTMENT INVESTMENT ASSET END OF
OF PERIOD INCOME AND OPTIONS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
MID CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... $23.63 $0.09 $0.77 $(0.01) $(0.06) $(0.04) $(2.77) $(2.02) $21.61
1998--Class B
Shares(b)....... 23.63 0.06 0.75 (0.01) (0.09) -- (2.77) (2.06) 21.57
1998--Class C
Shares(b)....... 23.63 0.06 0.77 (0.01) (0.09) -- (2.77) (2.04) 21.59
1998--Institu-
tional Shares... 18.73 0.16 5.70 (0.04) (0.13) -- (2.77) 2.92 21.65
1998--Service
Shares(b)....... 23.01 0.09 1.41 (0.01) (0.11) -- (2.77) (1.39) 21.62
- ------------------------------------------------------------------------------------------------------------------------
1997--Institu-
tional Shares... 15.91 0.24 3.77 -- (0.24) (0.93) (0.02) 2.82 18.73
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 15.00 0.13 0.90 -- (0.12) -- -- 0.91 15.91
<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
------------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
----------- ---------- ---------- ------- ---------- ------------ ---------- -------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... 3.42%(d) 62.60% $0.0540 $90,588 1.35%(c) 0.33%(c) 1.47%(c) 0.21%(c)
1998--Class B
Shares(b)....... 3.17(d) 62.60 0.0540 28,743 1.85(c) (0.20)(c) 1.97(c) (0.32)(c)
1998--Class C
Shares(b)....... 3.27(d) 62.60 0.0540 6,445 1.85(c) (0.23)(c) 1.97(c) (0.35)(c)
1998--Institu-
tional Shares... 30.86 62.60 0.0540 236,440 0.85 0.78 0.97 0.66
1998--Service
Shares(b)....... 6.30(d) 62.60 0.0540 8 1.35(c) 0.63 (c) 1.43(c) 0.51 (c)
- ------------------------------------------------------------------------------------------------------------------------
1997--Institu-
tional Shares... 25.63 74.03 0.0547 145,253 0.85 1.35 0.91 1.29
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 6.89(d) 58.77(d) -- 135,671 0.85(c) 1.67(c) 0.98(c) 1.54(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on August 15, 1997, August 15, 1997, August 15, 1997, August 1,
1995 and July 18, 1997, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

18
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET NET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET INCREASE
VALUE, INVESTMENT GAIN (LOSS) ON NET ON INVESTMENT OF NET (DECREASE) NET ASSET
BEGINNING INCOME INVESTMENT AND INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET VALUE, END TOTAL
OF PERIOD (LOSS) OPTIONS TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE OF PERIOD RETURN(A)
--------- ---------- -------------------- ---------- ------------- ---------- ------------ ---------- ---------
SMALL CAP VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $20.91 $0.14 $5.33 $ -- $(2.33) $ -- $ 3.14 $24.05 26.17%
1998--Class B
Shares.......... 20.80 (0.01) 5.27 -- (2.33) -- 2.93 23.73 25.29
1998--Class C
Shares(b)....... 24.69 (0.06) 1.43 -- (1.99) (0.34) (0.96) 23.73 5.51(d)
1998--Institu-
tional
Shares(b)....... 24.91 0.03 1.48 -- (2.05) (0.28) (0.82) 24.09 6.08(d)
1998--Service
Shares(b)....... 24.91 (0.01) 1.48 -- (2.02) (0.31) (0.86) 24.05 5.91(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 17.29 (0.21) 4.92 -- (1.09) -- 3.62 20.91 27.28
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) -- 0.01 20.80 5.39(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) -- 1.15 17.29 7.20
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24) (4.53) 16.14 (17.53)
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) -- 3.99 20.67 30.13
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 0.03 2.50 (0.03) -- -- 2.50 16.68 17.86(d)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
--------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO EXPENSES TO INCOME (LOSS)
TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE TO AVERAGE NET
RATE RATE(F) (IN 000S) NET ASSETS ASSETS NET ASSETS ASSETS
--------- ---------- ---------- ------------ ---------------- ----------- --------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 84.81% $0.0517 $370,246 1.54% (0.28)% 1.76% (0.50)%
1998--Class B
Shares.......... 84.81 0.0517 42,677 2.29 (0.92) 2.29 (0.92)
1998--Class C
Shares(b)....... 84.81 0.0517 5,604 2.09(c) (0.79)(c) 2.09(c) (0.79)(c)
1998--Institu-
tional
Shares(b)....... 84.81 0.0517 14,626 1.16(c) 0.27(c) 1.16(c) 0.27(c)
1998--Service
Shares(b)....... 84.81 0.0517 2 1.45(c) (0.07)(c) 1.45(c) (0.07)(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 99.46 .0461 212,061 1.60 (0.72) 1.85 (0.97)
1997--Class B
Shares(b)....... 99.46 .0461 3,674 2.35(c) (1.63)(c) 2.35(c) (1.63)(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 7.12 -- 59,339 1.65(c) 0.62(c) 2.70(c) (0.43)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on October 22, 1992, May 1, 1996, August 15, 1997, August 15,
1997 and August 15, 1997, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

19
<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.

The Investment Adviser may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Adviser utilizes first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Adviser may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Adviser, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.

Value Style Funds. The Growth and Income, Mid Cap Equity, Small Cap Value
Funds and the equity portion of the Balanced Fund are managed using a value
oriented approach. The Investment Adviser evaluates securities using
fundamental analysis and intends to purchase equity securities that are, in
its view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying
ability. Consideration will be given to the business quality of the issuer.
Factors positively affecting the Investment Adviser's view of that quality
include the competitiveness and degree of regulation in the markets in which
the company operates, the existence of a management team with a record of
success, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on
capital invested in the business. The Funds may also purchase securities of
companies that have experienced difficulties and that, in the opinion of the
Investment Adviser, are available at attractive prices.

Growth Style Funds. The Capital Growth Fund is managed using a growth equity
oriented approach. Equity securities for this Fund are selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. The Fund generally will invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.

20
<PAGE>

Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds (the "CORE Funds") are managed using both
quantitative and fundamental techniques. CORE is an acronym for "Computer-
Optimized, Research-Enhanced," which reflects the CORE Funds' investment
process. This investment process and the proprietary multifactor model used to
implement it are discussed below.

Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for the CORE Funds. As described more fully below, the
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to forecast the returns of different markets and individual
securities. In the case of an equity security followed by the Goldman Sachs
Global Investment Research Department (the "Research Department"), a rating is
assigned based upon the Research Department's evaluation. In the discretion of
the Investment Adviser, ratings may also be assigned to equity securities
based on research ratings obtained from other industry sources.

In building a diversified portfolio for each CORE Fund, the Investment
Adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily comprised of securities rated highest
by the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.

Multifactor Model. The Multifactor Model is a rigorous computerized rating
system for forecasting the returns of different equity markets and individual
equity securities according to fundamental investment characteristics. The
CORE Funds use the Multifactor Model to forecast the returns of securities
held in each Fund's portfolio. The Multifactor Model incorporates common
variables covering measures of value, growth, momentum and risk (e.g.,
book/price ratio, earnings/price ratio, price momentum, price volatility,
consensus growth forecasts, earnings estimate revisions and earnings
stability). All of the factors used in the Multifactor Model have been shown
to significantly impact the performance of the securities and markets they
were designed to forecast.

The weightings assigned to the factors in the Multifactor Model used by the
CORE Funds are derived using a statistical formulation that considers each
factor's historical performance in different market environments. As such, the
Multifactor Model is designed to evaluate each security using only the factors
that are statistically related to returns in the anticipated market
environment. Because it includes many disparate factors, the Investment
Adviser believes that the Multifactor Model is broader in scope and provides a
more thorough evaluation than most conventional quantitative models.
Securities and markets ranked highest by the Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.

Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.

By employing both a quantitative (i.e., the Multifactor Model) and a
qualitative (i.e., research enhanced) method of selecting securities, the CORE
Funds seek to capitalize on the strengths of each discipline.

21
<PAGE>

BALANCED FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital growth and current income. The Fund seeks capital
appreciation primarily through the equity component of its portfolio while
investing in fixed income securities primarily to provide income for regular
quarterly dividends.

Primary Investment Focus. The Fund invests, under normal circumstances,
between 45% and 65% of its total assets in equity securities. The Fund also
invests at least 25% of its total assets in fixed-income senior securities and
the remainder of its assets in other fixed income securities and cash. The
percentage of the portfolio invested in equity and fixed-income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This allocation is subject to the Fund's intention to pay regular
quarterly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.

Other. Although the Fund's equity investments consist primarily of publicly
traded U.S. securities, the Fund may invest up to 10% of its total assets in
the equity securities of foreign issuers, including issuers in Emerging
Countries and equity securities quoted in foreign currencies. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income may
include interests in real estate investment trusts, convertible securities,
preferred stocks, utility stocks and interests in limited partnerships.

The Fund's fixed-income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities and custodial receipts. The Fund may also invest in debt
obligations (U.S. dollar and non-U.S. dollar denominated) issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities and foreign corporations or other entities. Such
securities are collectively referred to herein as "fixed-income securities."
The Fund's investments in fixed-income securities that are issued by foreign
issuers, including issuers in Emerging Countries, may not exceed 10% of the
Fund's total assets. The Fund may employ certain currency techniques to seek
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. See "Description of Securities," "Investment
Techniques" and "Risk Factors."

GROWTH AND INCOME FUND

Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.

Other. The Fund may invest up to 35% of its total assets in fixed-income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in Emerging Countries and securities quoted in foreign currencies.

22
<PAGE>

CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")

Objective: The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
certain foreign issuers that are traded in the United States. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar
to the S&P 500 Index. The Fund seeks a broad representation in most major
sectors of the U.S. economy and a portfolio comprised of companies with
average long-term earnings growth expectations and dividend yields. The Fund
may invest only in fixed-income securities that are considered cash
equivalents.

For a description of the investment process of the Fund, see "Investment
Objectives And Policies--Quantitative Style Funds."

CORE LARGE CAP GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy. Dividend income is a secondary
consideration.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
certain foreign issuers that are traded in the United States. The Investment
Adviser emphasizes a company's growth prospects in analyzing equity securities
to be purchased by the Fund. The Fund's investments are selected using both a
variety of quantitative techniques and fundamental research in seeking to
maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the Russell 1000 Growth
Index. The Fund seeks a portfolio comprised of companies with above average
capitalizations and earnings growth expectations and below average dividend
yields. The Fund may invest only in fixed-income securities that are
considered cash equivalents.

For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."

CORE SMALL CAP EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
certain foreign issuers that are traded in the United States. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry

23
<PAGE>

characteristics similar to the Russell 2000 Index. The Fund seeks a portfolio
comprised of companies with small market capitalizations, strong expected
earnings growth and momentum, and better valuation and risk characteristics
than the Russell 2000 Index. The Fund may invest only in fixed-income
securities that are considered cash equivalents.

The Investment Adviser believes that the companies in which the Fund may
invest offer greater opportunity for growth of capital than larger, more
mature, better known companies. Investments in small market capitalization
issuers involve special risks. See "Description of Securities" and "Risk
Factors." If the issuer of a portfolio security held by the Fund is no longer
included in the Russell 2000 Index, the Fund may, but is not required to, sell
the security.

For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."

CAPITAL GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by the Investment Adviser to have long-term
capital appreciation potential.

Other. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.

MID CAP EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid-Cap Companies with public stock
market capitalizations (based upon shares available for trading on an
unrestricted basis) within the range of the market capitalization of companies
constituting the Russell Midcap Index at the time of investment (currently
between $400 million and $16 billion). If the capitalization of an issuer
increases above $16 billion after purchase of such issuer's securities, the
Fund may, but is not required to, sell the securities. Dividend income, if
any, is an incidental consideration.

Other. The Fund may invest up to 35% of its total assets in fixed-income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.

SMALL CAP VALUE FUND (FORMERLY, THE "SMALL CAP EQUITY FUND")

Objective. The Fund's investment objective is to provide investors with
long-term capital growth.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of

24
<PAGE>

investment. Under normal circumstances, the Fund's investment horizon for
ownership of stocks will be two to three years. Dividend income, if any, is an
incidental consideration. If the market capitalization of a company held by
the Fund increases above the amount stated above, the Fund may, consistent
with its investment objective, continue to hold the security.

Small Capitalization Companies. The Fund invests in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of
their life and that the Investment Adviser believes have significant growth
potential. The Investment Adviser believes that the companies in which the
Fund may invest offer greater opportunity for growth of capital than larger,
more mature, better known companies. However, investments in such small market
capitalization companies involve special risks. See "Description of
Securities" and "Risk Factors."

Other. The Fund may invest in the aggregate up to 35% of its total assets in
the equity securities of companies with public stock market capitalizations in
excess of $1 billion at the time of investment and in fixed- income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.

DESCRIPTION OF SECURITIES

The Funds may invest in equity and fixed income securities in accordance
with the investment policies stated above. Certain of these permitted
investments are described in more detail in this section.

CONVERTIBLE SECURITIES

Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed-income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's"), or if unrated by such
rating organizations, determined to be of comparable quality by the Investment
Adviser. The convertible securities in which the CORE Funds invest are not
subject to any minimum rating criteria. The convertible debt securities in
which the other Funds may invest are subject to the same rating criteria as a
Fund's investments in non-convertible debt securities. Convertible debt
securities are equity investments for purposes of each Fund's investment
policies.

25
<PAGE>

FOREIGN INVESTMENTS

FOREIGN SECURITIES. Each Fund may invest in the securities of foreign
issuers (provided that the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds may only invest in equity securities of foreign issuers
that are traded in the U.S.). Investments in foreign securities may offer
potential benefits that are not available from investments exclusively in
equity securities of domestic issuers quoted in U.S. dollars. Foreign
countries may have economic policies or business cycles different from those
of the U.S. and markets for foreign securities do not necessarily move in a
manner parallel to U.S. markets.

Investing in the securities of foreign issuers involves certain special
risks, including those set forth below, which are not typically associated
with investing in U.S. dollar denominated or quoted securities of U.S.
issuers. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations (e.g., currency blockage). A decline in
the exchange rate of the currency (i.e., weakening of the currency against the
U.S. dollar) in which a portfolio security is quoted or denominated relative
to the U.S. dollar would reduce the value of the portfolio security. In
addition, if the currency in which a Fund receives dividends, interest or
other payments declines in value against the U.S. dollar before such income is
distributed as dividends to shareholders or converted to U.S. dollars, the
Fund may have to sell portfolio securities to obtain sufficient cash to pay
such dividends. The expected introduction of a single currency, the euro, on
January 1, 1999 for participating European nations in the Economic and
Monetary Union ("EU") presents unique uncertainties, including whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; the creation of suitable clearing and
settlement payment systems for the new currency; the legal treatment of
certain outstanding financial contracts after January 1, 1999 that refer to
existing currencies rather than the euro; the establishment and maintenance of
exchange rates for currencies being converted into the euro and the euro; the
fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; whether the
interest rate, tax and labor regimes of European countries participating in
the euro will converge over time; and whether the conversion of the currencies
of other EU countries such as the United Kingdom, Denmark and Greece into the
euro and the admission of other non-EU countries such as Poland, Latvia and
Lithuania as members of the EU may have an impact on the euro. These or other
factors, including political and economic risks, could cause market
disruptions before or after the introduction of the euro, and could adversely
affect the value of securities and foreign currencies held by the Funds.
Commissions on transactions in foreign securities may be higher than those for
similar transactions on domestic stock markets. In addition, clearance and
settlement procedures may be different in foreign countries and, in certain
markets, such procedures have been unable to keep pace with the volume of
securities transactions, thus making it difficult to conduct such
transactions.

INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts

26
<PAGE>

("GDRs") and each Fund, other than the CORE Funds, may also invest in European
Depository Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers (together, "Depository Receipts"). ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or over-the-
counter and are sponsored and issued by domestic banks. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security. To the
extent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate
actions, such as stock splits or rights offerings involving the foreign
issuer, in a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. Investment in Depository
Receipts does not eliminate all the risks inherent in investing in securities
of non-U.S. issuers. The market value of Depository Receipts is dependent upon
the market value of the underlying securities and fluctuations in the relative
value of the currencies in which the Depository Receipt and the underlying
securities are quoted. However, by investing in Depository Receipts, such as
ADRs, that are quoted in U.S. dollars, a Fund may avoid currency risks during
the settlement period for purchases and sales.

FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced Fund
may have currency exposure independent of its 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 foreign currencies on a spot
basis and may also purchase or sell forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, the Balanced
Fund may enter into such contracts to seek to increase total return when the
Investment Adviser anticipates that the foreign currency will appreciate or
depreciate in value, but securities denominated or quoted in that currency do
not present attractive investment opportunities and are not held in the Fund's
portfolio. When entered into to seek to enhance return, forward foreign
currency exchange contracts are considered speculative. The Balanced 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 a Fund enters into a forward foreign currency
exchange contract to buy foreign currency for any purpose or the Balanced Fund
enters into forward foreign currency exchange contracts to sell foreign
currency to seek to increase total return, the Fund will segregate cash or
liquid assets in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward contract, or otherwise cover its
position in a manner permitted by the SEC. The Fund will incur costs in
connection with conversions between various currencies. A Fund may hold
foreign currency received in connection with investments in foreign securities
when, in the judgment of the Investment Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rate.

27
<PAGE>

abroad. To the extent that a substantial portion of a Fund's total assets,
adjusted to reflect the Fund's net position after giving effect to currency
transactions, is denominated or quoted in the currencies of foreign countries,
the Fund will be more susceptible to the risk of adverse economic and
political developments within those countries.

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

The Balanced Fund may also engage in a variety of foreign currency
management techniques. For a discussion of such instruments and the risks
associated with their use, see "Investment Objective and Policies" in the
Additional Statement.

FIXED-INCOME SECURITIES

U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. A Fund may also invest in zero coupon U.S. Treasury
securities and in zero coupon securities issued by financial institutions,
which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and its value consists of the difference between its face value at
maturity and its cost. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically. See "Taxation" in the Additional Statement.

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

28
<PAGE>

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

The Balanced Fund may also invest in stripped Mortgage-Backed Securities
("SMBS") (including interest only and principal only securities), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives 100% of the interest
payments and the other that receives 100% of the principal payments from a
pool of mortgage loans. If the underlying mortgage loans experience different
than anticipated prepayments of principal, the Fund may fail to recoup fully
its initial investment in these securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage loans are generally higher
than prevailing market yields on other Mortgage-Backed Securities because
their cash flow patterns are more volatile and there is a greater risk that
the initial investment will not be fully recouped. The Fund's investments in
SMBS may require the Fund to sell portfolio securities to generate sufficient
cash to satisfy certain income distribution requirements.

CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.

BANK OBLIGATIONS. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitations,
time deposits, bankers' acceptances and certificates of deposit, may be
general obligations of the parent bank or may be limited to the issuing branch
by the terms of the specific obligations or by government regulation. Banks
are subject to extensive but different governmental regulations which may
limit both the amount and types of loans which may be made and interest rates
which may be charged. In addition, the profitability of the banking industry
is largely dependent upon the availability and cost of funds for the purpose
of financing lending operations under prevailing money market conditions.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operation of this industry.

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

29
<PAGE>

minimum required rating from at least one such rating organization even though
it has been rated below the minimum rating by one or more other rating
organizations, or if unrated by such rating organizations, determined by the
Investment Adviser to be of comparable credit quality. The Balanced Fund may
invest up to 10% of its total assets in debt securities that are rated BB or B
by Standard & Poor's or Ba or B by Moody's. The Growth and Income, Capital
Growth and Small Cap Value Funds may invest up to 10%, 10% and 35%,
respectively, of their total assets in debt securities which are unrated or
rated in the lowest rating categories by Standard & Poor's or Moody's (i.e.,
BB or lower by Standard & Poor's or Ba or lower by Moody's), including
securities rated D by Moody's or Standard & Poor's. Mid Cap Equity Fund may
invest up to 10% of its total assets in below investment grade debt securities
rated B or higher by Standard & Poor's or B or higher by Moody's. Fixed-
income securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capacity to pay interest and repay
principal. Fixed-income securities rated BB or Ba or below (or comparable
unrated securities) are commonly referred to as "junk bonds" and are
considered predominantly speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in a Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.

REAL ESTATE INVESTMENT TRUSTS ("REITS")

Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.

INVESTMENT TECHNIQUES

OPTIONS ON SECURITIES AND SECURITIES INDICES

Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may write (sell) covered call and put options and purchase call and put
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. The writing and purchase of
options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.

30
<PAGE>

OPTIONS ON FOREIGN CURRENCIES

A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Balanced 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 options transactions,
however, the writing of an option on a foreign currency will constitute only a
partial hedge, up to the amount of the premium received. If an option that a
Fund has written is exercised, the Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may constitute an
effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to a Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. In addition to
purchasing put and call options for hedging purposes, the Balanced 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 written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities (such as
U.S. Government securities), foreign currencies, securities indices and other
financial instruments and indices. The CORE U.S. Equity and CORE Large Cap
Growth Funds may enter into such transactions only with respect to the S&P 500
Index in the case of the CORE U.S. Equity Fund and a representative index in
the case of the CORE Large Cap Growth Fund. A Fund will engage in futures and
related options transactions for bona fide hedging purposes as defined in
regulations of the Commodity Futures Trading Commission or to seek to increase
total return to the extent permitted by such regulations. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
to increase total return, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Fund's outstanding positions in futures and related
options entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities or currencies, require
the Fund to segregate and maintain cash or liquid assets with a value equal to
the amount of the Fund's obligations or to otherwise cover the obligations in
a manner permitted by the SEC.

31
<PAGE>

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 NAV. The profitability of a Fund's
trading in futures to seek to increase total return depends upon the ability
of the Investment Adviser to analyze correctly 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. The Funds may engage in futures
transactions on both U.S. and foreign exchanges. Foreign exchanges may not
provide the same protection as U.S. exchanges.

STANDARD AND POOR'S DEPOSITORY RECEIPTS

Each Fund may, consistent with its objectives, purchase Standard & Poor's
Depository Receipts ("SPDRs"). SPDRs are American Stock Exchange-traded
securities that represent ownership in the SPDR Trust, a trust which has been
established to accumulate and hold a portfolio of common stocks that is
intended to track the price performance and dividend yield of the S&P 500.
This trust is sponsored by a subsidiary of the American Stock Exchange. SPDRs
may be used for several reasons, including but not limited to: facilitating
the handling of cash flows or trading, or reducing transaction costs. The use
of SPDRs would introduce additional risk to the Fund as the price movement of
the instrument does not perfectly correlate with the price action of the
underlying index.

EQUITY SWAPS

Each Fund may invest up to 10% of its total assets in equity swaps. Equity
swaps allow the parties to a swap agreement to exchange the dividend income or
other components of return on an equity investment (e.g., a group of equity
securities or an index) for a component of return on another non-equity or
equity investment. An equity swap may be used by a Fund to invest in a market
without owning or taking physical custody of securities in circumstances in
which direct investment may be restricted for legal reasons or is otherwise
impractical. Equity swaps are derivatives and their value can be very
volatile. To the extent that the Investment Adviser does not accurately
analyze and predict the potential relative fluctuation of the components
swapped with another party, a Fund may suffer a loss. The value of some
components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, during the period
a swap is outstanding, a Fund may suffer a loss if the counterparty defaults.
In connection with its investments in equity swaps, a Fund will either
segregate cash or liquid assets or otherwise cover its obligations in a manner
required by the SEC.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

32
<PAGE>

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. A Fund
will segregate cash or liquid assets in an amount sufficient to meet the
purchase price until three days prior to the settlement date. Alternatively,
each Fund may enter into offsetting contracts for the forward sale of other
securities that it owns.

ILLIQUID AND RESTRICTED SECURITIES

A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain SMBS, 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 a review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 and, therefore,
is liquid. The Trustees have adopted guidelines under which the Investment
Adviser determines and monitors the liquidity of portfolio securities, subject
to the oversight of the Trustees. Investing in restricted securities eligible
for resale pursuant to Rule 144A may decrease the liquidity of a Fund's
portfolio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price and
subsequent valuation of restricted and illiquid securities normally reflect a
discount, which may be significant, from the market price of comparable
securities for which a liquid market exists.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The Balanced 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 an
Investment Adviser or 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.

LENDING OF PORTFOLIO SECURITIES

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

33
<PAGE>

MORTGAGE DOLLAR ROLLS

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

SHORT SALES AGAINST-THE-BOX

Each Fund (other than the CORE Funds) may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may not
generally be used to defer the recognition of gain for tax purposes with
respect to appreciated securities in a Fund's portfolio.

TEMPORARY INVESTMENTS

Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE Funds may only hold up to 35% of their respective
total assets) in U.S. Government securities, repurchase agreements
collateralized by U.S. Government securities, commercial paper rated at least
A-2 by Standard & Poor's or P-2 by Moody's, certificates of deposit, bankers'
acceptances, repurchase agreements, non-convertible preferred stocks and non-
convertible corporate bonds with a remaining maturity of less than one year.
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights;
(ii) currency swaps (Balanced Fund only); (iii) credit swaps, mortgage swaps,
index swaps and interest rate swaps, caps, floors and collars (Balanced Fund
only); (iv) yield curve options and inverse floating rate securities (Balanced
Fund only); (v) other investment companies including World Equity Benchmark
Shares; (vi) unseasoned companies; (vii) municipal securities (Balanced Fund
only); (viii) loan participations (Balanced Fund only); (ix) custodial
receipts; and (x) reverse repurchase agreements for investment purposes
(Balanced Fund only).

In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information, see the Additional Statement.

34
<PAGE>

RISK FACTORS

RISKS OF INVESTING IN EQUITY SECURITIES. In general, the Funds are subject
to the risks associated with investments in common stocks and other equity
securities. Stock values fluctuate in response to the activities of individual
companies and in response to general market and economic conditions and,
accordingly, the value of the stocks that a Fund holds may decline over short
or extended periods. The U.S. stock markets tend to be cyclical, with periods
when stock prices generally rise and periods when prices generally decline. As
of the date of this Prospectus, domestic stock markets were trading at or
close to record high levels and there can be no guarantee that such levels
will continue.

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger market capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.

SPECIAL RISKS OF INVESTMENTS IN EMERGING MARKETS. Investing in the
securities of issuers in Emerging Countries involves risks in addition to
those discussed under "Description of Securities-- Foreign Investments." The
Growth and Income, Mid Cap Equity and Small Cap Value Funds may each invest up
to 25%, the Balanced Fund may invest up to 20% and the Capital Growth Fund may
invest up to 10% of their respective total assets in securities of issuers in
Emerging Countries. Emerging Countries are generally located in the Asia-
Pacific region, Eastern Europe, Latin and South America and Africa.

Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments.
Certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by a Fund. The repatriation of both investment income and capital
from certain Emerging Countries is subject to restrictions such as the need
for governmental consents. Many Emerging Countries may be subject to a greater
degree of economic, political and social instability than is the case in
Western Europe, the United States, Canada, Australia, New Zealand and Japan.
Many Emerging Countries do not have fully democratic governments. For example,
governments of some Emerging Countries are authoritarian in nature or have
been installed or removed as a result of military coups, while governments in
other Emerging Countries have periodically used force to suppress civil
dissent. Many Emerging Countries have experienced currency devaluations and
substantial and, in some cases, extremely high rates of inflation, which have
a negative effect on the economies and securities markets of such Emerging
Countries. Settlement procedures in Emerging Countries are frequently less
developed and reliable than those in the United States and may involve a
Fund's delivery of securities before receipt of payment for their sale. In
addition, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to complete
its contractual obligations.

35
<PAGE>

RISKS OF INVESTING IN FIXED-INCOME SECURITIES. When interest rates decline,
the market value of fixed- income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed-income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.

RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency
transactions involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.

INVESTMENT RESTRICTIONS

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 as defined in
the Additional Statement. Each Fund's investment objectives and all policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund remains
an appropriate investment in light of their then current financial positions
and needs.

PORTFOLIO TURNOVER

A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of each Fund's historical portfolio
turnover rate. The portfolio turnover rate is calculated by dividing the
lesser of the dollar amount of sales or purchases of portfolio securities by
the average monthly value of a Fund's portfolio securities, excluding
securities having a maturity at the date of purchase of one year or less. 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.

MANAGEMENT

TRUSTEES AND OFFICERS

The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Adviser, Distributor and transfer
agent. The officers of the Trust conduct and supervise 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.

36
<PAGE>

INVESTMENT ADVISERS

INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza,
New York, New York 10004, a separate operating division of Goldman Sachs,
serves as investment adviser to the Balanced, Growth and Income, CORE Large
Cap Growth, CORE Small Cap Equity, Mid Cap Equity and Small Cap Value Funds.
Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs Funds
Management, L.P., One New York Plaza, New York, New York 10004, a Delaware
limited partnership which is an affiliate of Goldman Sachs, serves as the
investment adviser to the CORE U.S. Equity and Capital Growth Funds. Goldman
Sachs Funds Management, L.P. registered as an investment adviser in 1990. The
Goldman Sachs Group, L.P., which controls the Investment Advisers, has
announced that it will pursue an initial public offering of the firm during
the fourth quarter of 1998; if the public offering is consummated, The Goldman
Sachs Group, L.P. will merge into the new public company, which will be called
The Goldman Sachs Group, Inc. As of July 24, 1998, GSAM and GSFM, together
with their affiliates, acted as investment adviser or distributor for assets
in excess of $168 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 Funds 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 asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Adviser will have access to
the research of, and certain proprietary technical models developed by,
Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.

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

FUND MANAGERS

37
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
------------------ -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Melissa Brown Senior Portfolio Manager-- Since Ms. Brown joined the
Vice President CORE U.S. Equity 1998 Investment Adviser in
CORE Large Cap Growth 1998 1998. From 1984 to 1998,
CORE Small Cap Equity 1998 she was the director of
Quantitative Equity
Research and served on
the Investment Policy
Committee at Prudential
Securities.
- -----------------------------------------------------------------------------------------------
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1992.
CORE Small Cap Equity 1997
- -----------------------------------------------------------------------------------------------
Robert G. Collins Senior Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1991 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. His past
experiences include work
as a special situations
analyst with Raymond
James & Associates for
five years.
- -----------------------------------------------------------------------------------------------
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. From 1994 to 1997,
he was the Chief
Investment Officer and
Chairman of Liberty
Investment Management,
Inc. He was a portfolio
manager and president at
Liberty's predecessor
firm, Eagle Asset
Management, from 1984 to
1994.
- -----------------------------------------------------------------------------------------------
Gregory H. Ekizian Senior Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1990 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. and its predecessor
firm, Eagle Asset
Management.
- -----------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Mid Cap Equity 1998 Investment Adviser in
Small Cap Value 1992 1991. In 1998, he became
responsible for managing
the Investment Adviser's
Value team. During 1991,
he served as a managing
director at Plaza
Investment Managers, the
investment subsidiary of
GEICO Corp., a major
insurance company. From
1986 to 1991, he was
employed by Goldman
Sachs as a vice
president in the
investment research
department and was
responsible for the
formation of the firm's
Emerging Growth Research
Group.
- -----------------------------------------------------------------------------------------------
Greg Gigliotti Senior Portfolio Manager-- Since Mr. Gigliotti joined the
Vice President Growth and Income 1998 Investment Adviser in
Balanced (Equity) 1998 1997. From 1996 to 1997
Mid Cap Equity 1998 he was a Vice President
and senior analyst at
Franklin Mutual
Advisors, Inc., the
asset management
division of Franklin
Resources, Inc. From
1989 to 1996 he was a
Vice President and
senior analyst at Heine
Securities Corporation
which was purchased by
Franklin Resources, Inc.
- -----------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S. Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989. From 1987 to 1989,
CORE Small Cap Equity 1997 he was the senior
quantitative analyst in
the Goldman Sachs
Investment Research
Department and the
author of the monthly
Stock Selection
publication.
</TABLE>

38
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
---------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Richard C. Lucy Senior Portfolio Manager-- Since Mr. Lucy joined the
Vice President and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. From 1983 to 1992,
Fixed Income he managed fixed income
assets at Brown Brothers
Harriman & Co.
- ----------------------------------------------------------------------------------------------------
Matthew B. McLennan Senior Portfolio Manager-- Since Mr. McLennan joined the
Vice President Mid Cap Equity 1998 Investment Adviser in
Small Cap Value 1996 1995. From 1994 to 1995,
he worked in the
Investment Banking
Division of Goldman
Sachs in Australia. From
1991 to 1994, Mr.
McLennan worked at
Queensland Investment
Corporation in
Australia.
- ----------------------------------------------------------------------------------------------------
Victor H. Pinter Senior Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990. From 1985 to 1990,
CORE Small Cap Equity 1997 he was a project manager
in the Information
Technology Division of
the Investment Adviser.
- ----------------------------------------------------------------------------------------------------
Thomas S. Price Senior Portfolio Manager-- Since Mr. Price joined the
Vice President Growth and Income 1998 Investment Adviser in
Balanced (Equity) 1998 1997. From 1996 to 1997
Mid Cap Equity 1998 he was a Vice President
and senior analyst at
Franklin Mutual
Advisors, Inc., the
asset management
division of Franklin
Resources, Inc. From
1993 to 1996 he was a
Vice President and
senior analyst at Heine
Securities Corporation
which was purchased by
Franklin Resources, Inc.
- ----------------------------------------------------------------------------------------------------
David G. Shell Senior Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1987 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. and its predecessor
firm, Eagle Asset
Management.
- ----------------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Senior Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1992 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. From 1990 to 1992,
he was an equity
research analyst with
Fidelity Management &
Research Company.
- ----------------------------------------------------------------------------------------------------
Lawrence S. Sibley Senior Portfolio Manager-- Since Mr. Sibley joined the
Vice President Growth and Income 1997 Investment Adviser in
Balanced (Equity) 1997 1997. From 1994 to 1997,
Mid Cap Equity 1997 he headed Institutional
Equity Sales at J.P.
Morgan Securities and
from 1987 to 1994, he
was a principal of
Sanford C. Bernstein &
Co. in its Institutional
Sales Department.
- ----------------------------------------------------------------------------------------------------
Karma Wilson Senior Portfolio Manager-- Since Ms. Wilson joined the
Vice President Growth and Income 1998 Investment Adviser in
Balanced (Equity) 1998 1994. Prior to 1994, she
Mid Cap Equity 1998 was an investment
analyst with Bankers
Trust Australia Ltd.
Before 1992 she was
employed at Arthur
Andersen LLP.
</TABLE>

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

39
<PAGE>

<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR OR PERIOD ENDED
RATE* JANUARY 31, 1998*
----------- --------------------
<S> <C> <C>
GSAM
----
Balanced.................................. 0.65% 0.65%
Growth and Income......................... 0.70% 0.70%
CORE Large Cap Growth..................... 0.75% 0.60%
CORE Small Cap Equity..................... 0.85% 0.75%
Mid Cap Equity............................ 0.75% 0.75%
Small Cap Value........................... 1.00% 1.00%
GSFM
----
CORE U.S. Equity.......................... 0.75% 0.59%
Capital Growth............................ 1.00% 1.00%
</TABLE>
- ---------------------
* All numbers are annualized. The difference, if any, between the stated fees
and the actual fees paid by the Funds reflects that the applicable
Investment Adviser did not charge the full amount of the fees to which it
would have been entitled. Effective September 1, 1998, the management fee
for the CORE U.S. Equity and CORE Small Cap Equity Funds will equal 0.70%
and 0.85%, respectively. The Investment Adviser may discontinue or modify
any limitations in the future at its discretion.

The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management, distribution and service
fees, transfer agency fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such expenses
exceed 0.01%, 0.05%, 0.00%, 0.00%, 0.04%, 0.00%, 0.10% and 0.06% per annum of
the average daily net assets of the Balanced, Growth and Income, CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity, Capital Growth, Mid Cap
Equity and Small Cap Value Funds, respectively. Such reductions or limits, if
any, 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 Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to 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. The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affiliates
and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to time,
enter into transactions in which other clients of Goldman Sachs have an
adverse interest. 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.

40
<PAGE>

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
each Fund by Goldman Sachs (as Transfer Agent), Goldman Sachs is entitled to a
fee with respect to each Fund's Class A, Class B and Class C Shares equal, on
an annual basis, to 0.19% of average daily net assets. 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.

From time to time, Goldman Sachs or any of its affiliates may purchase and
hold Shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the Shares acquired for its own account.

YEAR 2000

Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the computer
systems used by the Investment Adviser or other Fund service providers do not
adequately address this problem in a timely manner. The Investment Adviser has
established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st Century will have any material impact on its ability to continue to
service the Funds at current levels. In addition, the Investment Adviser has
sought assurances from the Funds' other service providers that they are taking
the steps necessary so that they do not experience Year 2000 Problems, and the
Investment Adviser will continue to monitor the situation. At this time,
however, no assurance can be given that the actions taken by the Investment
Adviser and the Funds' other service providers will be sufficient to avoid any
adverse effect on the Funds due to the Year 2000 Problem.

41
<PAGE>

EXPENSES

The Funds are responsible for the payment of their expenses. The expenses
include, without limitation: fees payable to the Investment Adviser;
distribution and service fees; custodial and transfer agency fees; brokerage
fees and commissions; filing fees for the registration or qualification of the
Funds' Shares under federal or state securities laws, organizational expenses;
fees and expenses incurred 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 Funds for
violation of any law; legal and auditing fees and expenses (including the cost
of legal and certain accounting services rendered by employees of the
Investment Adviser and its affiliates with respect to the Funds); expenses of
preparing and setting in type prospectuses, Additional Statements, proxy
material, financial reports and notices and the printing and distributing of
the same to shareholders and regulatory authorities; compensation and expenses
of the Trust's "non-interested" Trustees; and extraordinary organizational
expenses, if any, incurred by the Trust.

REPORTS TO SHAREHOLDERS

Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. To eliminate unnecessary duplication,
only one copy of such reports may be sent to shareholders with the same
mailing address. Shareholders who desire a duplicate copy of such reports to
be mailed to their residence should contact Goldman Sachs at 800-526-7384.
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, Class B and
Class C Shares, as described more fully in "How to Buy Shares of the Funds."
If you do not specify in your instructions to the Funds which class of Shares
you wish to purchase, the Funds will assume that your instructions apply to
Class A Shares.

CLASS A SHARES. If you invest less than $1 million in Class A Shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A Shares of a
Fund, no sales charge will be imposed at the time of purchase, but you may
incur a deferred sales charge equal to 1.00% if you redeem your Shares within
18 months of purchase. Class A Shares are subject to distribution and service
fees of 0.25% per annum of each Fund's average daily net assets attributable
to Class A Shares.

42
<PAGE>

CLASS B SHARES. Class B Shares are sold without an initial sales charge, but
are subject to a CDSC of up to 5% if redeemed within six years of purchase.
Class B Shares are subject to distribution and service fees of 1.00% per annum
of each Fund's average daily net assets attributable to Class B Shares. See
"Distribution and Service Plans." Class B Shares will automatically convert to
Class A Shares, based on their relative NAVs, 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 and
service 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.

CLASS C SHARES. Class C Shares are sold without an initial sales charge, but
are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class C
Shares are subject to distribution and service fees of 1.00% per annum of each
Fund's average daily net assets attributable to Class C Shares. See
"Distribution and Service Plans." Class C Shares have no conversion feature,
and accordingly, an investor that purchases Class C Shares will be subject to
the distribution and service fee imposed on Class C Shares for an indefinite
period, subject to annual approval by the Fund's Board of Trustees and certain
regulatory limitations. Your entire investment in Class C Shares is available
to work for you from the time you make your initial investment, but the
distribution and service fee paid by Class C Shares will cause your Class C
Shares to have a higher expense ratio and to pay lower dividends, to the
extent dividends are paid, than Class A Shares (or Class B Shares after
conversion to Class A Shares).

FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A Shares. A brief
description of when the initial sales charge may be reduced or eliminated is
set forth below under "Right of Accumulation" and "Statement of Intention." If
you prefer not to pay an initial sales charge on an investment and plan to
hold your investment for at least six years, you might consider purchasing
Class B Shares. If you prefer not to pay an initial sales charge and are
unsure of the length of your investment or plan to hold your investment for
less than eight years, you may prefer Class C Shares. There is no size limit
on the purchase of Class A Shares. A maximum purchase limitation of $250,000
and $1,000,000 in the aggregate normally applies to purchases of Class B
Shares and Class C Shares, respectively. Although Class C Shares are subject
to a CDSC for only 12 months and at a lower rate than Class B Shares, Class C
Shares do not have the conversion feature applicable to Class B Shares, making
them subject to higher distribution and service fees for an indefinite period.
Authorized Dealers may receive different compensation for selling Class A,
Class B or Class C Shares.

HOW TO BUY SHARES OF THE FUNDS--CLASS A, CLASS B AND CLASS C 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 NAV next
determined after receipt of an order as described below under "Other Purchase
Information," plus, in the case of Class A Shares, any applicable sales
charge. Currently, each Fund's NAV is determined as of the close of regular
trading on the New York Stock Exchange (which is normally, but not always,
4:00 p.m. New York time).

43
<PAGE>

and an initial investment minimum of $200 applies to purchases in connection
with 403(b) plans. The minimum initial investment for purchases in connection
with SIMPLE and Education IRAs, as well as purchases through the Automatic
Investment Plan, is $50. The minimum subsequent investment is $50. These
requirements may be waived at the discretion of the Trust's officers.

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

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 (i) provide a social security number or other taxpayer
identification number; or (ii) 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 each Fund is the next determined NAV
per Share plus a sales charge, if any, paid to Goldman Sachs at the time of
purchase of Shares as shown in the following table:

<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $50,000.............................. 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000......... 4.75 4.99 4.00
$100,000 up to (but less than) $250,000........ 3.75 3.90 3.00
$250,000 up to (but less than) $500,000........ 2.75 2.83 2.25
$500,000 up to (but less than) $1 million...... 2.00 2.04 1.75
$1 million or more............................. 0.00* 0.00* **
</TABLE>

(footnotes on next page)

44
<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 amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate
or are responsible for plans investing in the Funds which satisfy the
criteria set forth in (h) below or "wrap" accounts purchasing $1 million
or more which satisfy the criteria set forth in (i) below. Purchases by
such plans will be made at NAV 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 CDSC, as described
below, of 1.00% may be imposed upon the plan sponsor or the third party
administrator. In addition, Authorized Dealers shall remit to Goldman
Sachs such payments received in connection with "wrap" accounts in the
event that Shares are redeemed within 18 months after the end of the
calendar month in which the purchase was made.

Purchases of $1 million or more of Class A Shares will be made at NAV with
no initial sales charge, but if the Shares are redeemed within 18 months after
the end of the calendar month in which the purchase was made, excluding any
period of time in which the Shares were exchanged into and remained invested
in an ILA Portfolio (the "CDSC period"), a CDSC of 1.00% may be imposed
unless, in certain cases, the investor's Authorized Dealer enters into an
agreement with Goldman Sachs to return all or an applicable prorated portion
of its commission to Goldman Sachs. 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 dividend or capital gains distributions which have been
reinvested in additional Class A Shares. Upon redemption of Shares subject to
a CDSC, shareholders will receive that portion of the appreciation in account
value attributable to the Shares actually redeemed. In determining whether a
CDSC applies to a redemption, 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.

45
<PAGE>

or financial planners, provided that they have entered into an agreement with
GSAM specifying aggregate minimums and certain operating policies and
standards; (j) registered investment advisers investing for accounts for which
they receive asset-based fees; (k) accounts over which GSAM or its advisory
affiliates have investment discretion; and (l) 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 NAV 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 NAV, as described under "Cross-
Reinvestment of Dividends and Distributions and Automatic Exchange Program."

RIGHT OF ACCUMULATION--CLASS A SHARES

Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (Shares at current offering price), plus new
purchases, reaches $50,000 or more. Class A Shares of the Goldman Sachs Funds
may be combined under the Right of Accumulation. See the Additional Statement
for more information about the Right of Accumulation.

STATEMENT OF INTENTION--CLASS A SHARES

Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Class A Shares of the Goldman Sachs Funds may be
combined under the Statement of Intention. See the Additional Statement for
more information about the Statement of Intention.

OFFERING PRICE--CLASS B SHARES

Investors may purchase Class B Shares of the Funds at the next determined
NAV without the imposition of an initial sales charge. However, Class B Shares
redeemed within six years of purchase will be subject to a CDSC at the rates
shown in the table below. 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.
Upon redemption of Shares subject to a CDSC, shareholders will receive that
portion of the appreciation in account value attributable to the Shares
actually redeemed.

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 applicable period.

46
<PAGE>

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% 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 Goldman Sachs 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.

OFFERING PRICE--CLASS C SHARES

Investors may purchase Class C Shares of the Funds at the next determined
NAV without the imposition of an initial sales charge. However, if Class C
Shares are redeemed within 12 months of purchase, a CDSC of 1% will be
deducted from the redemption proceeds. 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. Upon redemption of Shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
Shares actually redeemed.

For the purpose of determining the number of months 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 C
Shares, the Funds will first redeem Shares held for longer than 12 months, and
then Shares held for the longest period during the 12 month period. Proceeds
from the CDSC are payable to the Distributor and may be used in whole or in
part to defray the Distributor's expenses related to providing distribution-
related services to the Funds in connection with the sale of Class C Shares,
including the payment of compensation to Authorized Dealers. An amount equal
to 1.00% of the amount invested is paid by the Distributor to Authorized
Dealers.

REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A, CLASS B AND CLASS C SHARES

47
<PAGE>

reinvest in Class A or Class C Shares subject to the conditions set forth
above, your account will be credited with the amount of the CDSC previously
charged, and the reinvested Shares will continue to be subject to a CDSC. In
this case, the holding period of the Class A or Class C Shares acquired
through reinvestment for purposes of computing the CDSC payable upon a
subsequent redemption will include the holding period of the redeemed Shares.
If you redeemed Class B Shares and paid a CDSC upon redemption, you are
permitted to reinvest the redemption proceeds in Class A Shares at NAV as
described above, but the amount of the CDSC paid upon redemption will not be
credited to your account.

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

WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS A, B AND C
SHARES

The CDSC on Class B, Class C 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(m)(7)
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)(2) 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(m)(7) of the Code)
of a shareholder if the redemption is made within one year of such event; (h)
excess contributions distributed from a Plan; (i) distributions from a
qualified retirement plan invested in the Goldman Sachs Funds which are being
rolled over to 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, Class B
and Class C 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% each of the value of your Class B and
Class C Shares and 10% of the value of your Class A Shares.

SERVICES AVAILABLE TO SHAREHOLDERS

AUTOMATIC INVESTMENT PLAN

48
<PAGE>

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 other Goldman Sachs Funds or ILA Portfolios. See "Fund Highlights." A
shareholder may also elect to exchange automatically a specified dollar amount
of Shares of a Fund for Shares of the same Class or an equivalent class of any
other Goldman Sachs Fund or ILA Portfolio. Shares acquired through cross-
reinvestment of dividends or the automatic exchange program will be purchased
at NAV and will not be subject to any initial sales charge or CDSC as a result
of the cross-reinvestment or exchange, but Shares subject to a CDSC acquired
under the automatic exchange program may be subject to a CDSC at the time of
redemption from the fund into which the exchange is made determined on the
basis of the date and value of the investor's initial purchase of the Fund
from which the exchange (or any prior exchange) is made. Automatic exchanges
are made monthly on the 15th day of each month or the first Business Day
thereafter. The minimum dollar amount for automatic exchanges must be at least
$50 per month. Cross-reinvestments and automatic exchanges are subject to the
following conditions: (i) the value of the shareholder's account(s) in the
Fund which is paying the dividend or from which the automatic exchange is
being made must equal or exceed $5,000; and (ii) the value of the account in
the acquired fund must equal or exceed the acquired fund's minimum initial
investment requirement or the shareholder must elect to continue cross-
reinvestment or automatic exchanges until the value of acquired fund Shares in
the shareholder's account equals or exceeds the acquired fund's minimum
initial investment requirement. A Fund shareholder may elect cross-
reinvestment into an identical account or an account registered in a different
name or with a different address, social security or other taxpayer
identification number, provided that the account in the acquired fund has been
established, appropriate signatures have been obtained and the minimum initial
investment requirement has been satisfied. A Fund shareholder should obtain
and read the prospectus of the fund into which dividends are invested or
automatic exchanges are made.

TAX-SHELTERED RETIREMENT PLANS

The Funds offer their Shares for purchase by retirement plans, including
traditional and Roth IRAs for individuals and their spouses, IRA plans for
employees in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA
plans, 403(b) plans and defined contribution plans such as 401(k) Salary
Reduction Plans. Detailed information concerning these plans may be obtained
from the Transfer Agent. The information sets forth the service fee charged
for retirement plans and describes the federal income tax consequences of
establishing a plan. This information should be read carefully, and
consultation with an attorney or tax adviser may be advisable.

EXCHANGE PRIVILEGE

Shares of a Fund may be exchanged at NAV without the imposition of an
initial sales charge or CDSC at the time of exchange for Shares of the same
class or an equivalent class of any other Fund, Goldman Sachs Fund or ILA
Portfolio. A shareholder needs to obtain and read the prospectus of the fund
into which the exchange is made. The Shares of these other funds acquired by
an exchange may later be exchanged for Shares of the same class (or an
equivalent class) of the original Fund at the next determined NAV without the
imposition of an initial sales charge or CDSC if the dollar amount in the Fund
resulting from such exchanges is below the shareholder's all-time highest
dollar amount on which it has previously paid the applicable sales charge.
Shares of these other funds purchased through dividends and/or capital gains
reinvestment may be exchanged for Shares of the Funds without a sales charge.
In addition to free automatic exchanges pursuant to the Automatic Exchange
Program, six free exchanges are permitted in each 12 month period. A fee of
$12.50 may be charged for each subsequent exchange during such period. The
exchange privilege may be materially modified or withdrawn at any time upon 60
days' notice to shareholders and is subject to certain limitations.

49
<PAGE>

An exchange may be made by identifying the applicable Fund and Class of
Shares and either writing to Goldman Sachs, Attention: Goldman Sachs Domestic
Equity Funds, Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas City, MO
64141-6711 or, unless the investor has specifically declined telephone
exchange privileges on the Account Application or elected in writing not to
utilize telephone exchanges, by a telephone request to the Transfer Agent at
800-526-7384 (7:00 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 instructions are in writing and received in accordance with the
procedures set forth under "How to Sell Shares of the Funds." In times of
drastic economic or market changes the telephone exchange privilege may be
difficult to implement.

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

Eligible investors may exchange certain classes of Shares for another class
of Shares of the same Fund. For further information, call Goldman Sachs at the
number set forth on the back of the Prospectus.

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

OTHER PURCHASE INFORMATION

Authorized Dealers and other financial intermediaries may be authorized to
accept, on the Trust's behalf, purchase, redemption and exchange orders placed
by or on behalf of their customers and, if approved by the Trust, to designate
other intermediaries to accept such orders. In these cases, a Fund will be
deemed to have received an order that is in proper form when the order is
accepted by an Authorized Dealer or intermediary on a Business Day, and the
order will be priced at a Fund's NAV per Share (adjusted for any applicable
sales charge) next determined after such acceptance. Otherwise, a Fund or
Goldman Sachs must receive an order in proper form before it is effective.
Authorized Dealers and intermediaries will be responsible for transmitting
accepted orders to the Funds within the period agreed upon by them. Customers
should contact their Authorized Dealers or intermediaries to learn whether
they are authorized to accept orders for the Trust.

50
<PAGE>

reinvestment of dividends. Firms may arrange with their clients for other
investment or administrative services and may independently establish and
charge additional fees not described in this Prospectus to their clients for
such services. If Shares of a Fund are held in a "street name" account or were
purchased through an Authorized Dealer, shareholders should contact the
Authorized Dealer to purchase, redeem or exchange Shares, to make changes in
or give instructions concerning the account or to obtain information about the
account.

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

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

The Investment Adviser, Distributor, and/or their affiliates also pay
additional compensation, from time to time, out of their assets and not as an
additional charge to the Funds, to selected Authorized Dealers and other
persons in connection with the sale, distribution and/or servicing of Shares
of the Funds and other Goldman Sachs Funds (such as additional payments based
on new sales, amounts exceeding pre-established thresholds, or the length of
time their customers' assets have remained in a Fund) and, subject to
applicable NASD regulations, contribute to various non-cash and cash incentive
arrangements to promote the sale of Shares, as well as sponsor various
educational programs, sales contests and/or promotions in which participants
may receive reimbursement of expenses, entertainment and prizes such as travel
awards, merchandise, cash, investment research and educational information and
related support materials. This additional compensation can vary among
Authorized Dealers depending upon such factors as the amounts their customers
have invested (or may invest) in particular Goldman Sachs Funds, the
particular program involved, or the amount of reimbursable expenses.
Additional compensation based on sales may, but is currently not expected to,
exceed 0.50% (annualized) of the amount invested. For further information, see
"Other Information Regarding Purchases, Redemptions, Exchanges and Dividends"
in the Additional Statement.

DISTRIBUTION AND SERVICE PLANS

The Trust has adopted distribution and service plans on behalf of the Funds'
Class A, Class B and Class C Shares (each a "Plan"). Under the Plans, Goldman
Sachs is entitled to a monthly fee from each Fund for distribution services
equal, on an annual basis, to 0.25%, 0.75% and 0.75%, respectively, of a
Fund's average daily net assets attributable to Class A, Class B and Class C
Shares, respectively.

51
<PAGE>

financing of such compensation and expenses; the printing of prospectuses for
prospective shareholders; preparation and distribution of sales literature and
advertising of any type; and all other expenses incurred in connection with
activities primarily intended to result in the sale of Class A, Class B and
Class C Shares. Goldman Sachs may also use payments under the Class A Plan for
personal and account maintenance services as described below. The aggregate
compensation that may be received under the Plans for distribution services
may not exceed the limitations imposed by the NASD's Conduct Rules. Payments
for distribution services are also subject to the requirements of Rule 12b-1
under the Act.

Under the Plans for Class B and Class C Shares, Goldman Sachs is also
entitled to receive a separate fee equal on an annual basis to 0.25% of each
Fund's average daily net assets attributable to Class B or Class C Shares.
This fee is for personal and account maintenance services, and 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. If
the distribution or service fees received by Goldman Sachs pursuant to the
Plans exceed its expenses, Goldman Sachs may realize a profit from these
arrangements. The Plans will be reviewed and are subject to approval annually
by the Trustees.

In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.75% distribution fee as an ongoing commission, and the 0.25% ongoing
service fee, to Authorized Dealers after the Shares have been held for one
year. All of these fees are paid by Goldman Sachs on a quarterly basis.

HOW TO SELL SHARES OF THE FUNDS

Each Fund will redeem its Shares upon the request of a shareholder on any
Business Day at the NAV next determined after the receipt of such request in
proper form, subject to any applicable CDSC. See "Net Asset Value." Redemption
proceeds will normally be mailed by check to a shareholder within three
Business Days of receipt of a properly executed request. If the 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 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.

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

52
<PAGE>

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 concerning telephone
redemptions and exchanges. If reasonable procedures are not employed, the
Trust may be liable for any loss due to unauthorized or fraudulent
transactions. Proceeds of telephone redemptions will be mailed to the
shareholder's address of record or wired to the authorized bank account
indicated on the Account Application, unless the shareholder provides written
instructions (accompanied by a signature guarantee) indicating another
address. Telephone redemptions will not be accepted during the 30-day period
following any change in a shareholder's address of record. This redemption
option does not apply to Shares held in a "street name" account. Shareholders
whose accounts are held in "street name" should contact their broker of record
who may effect telephone redemptions on their behalf. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.

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 of 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.

SYSTEMATIC WITHDRAWAL PLAN

53
<PAGE>

applicable to Class A, Class B or Class C Shares redeemed under a systematic
withdrawal plan may be waived. See "How to Invest--Waiver or Reduction of
Contingent Deferred Sales Charge." See the Additional Statement for more
information about the Systematic Withdrawal Plan.

DIVIDENDS

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

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

At the time of an investor's purchase of Shares of a Fund a portion of the
NAV per Share may be represented by undistributed income of the Fund or
realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such Shares from such income or
realized appreciation may be taxable to the investor even if the NAV 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 NAV 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
(which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time), on each Business Day (as such term is defined under "Additional
Information"). The NAV per Share of each Class is calculated by determining
the net assets attributed to each Class and dividing by the number of
outstanding Shares of that Class. Portfolio securities are valued based on
market quotations or, if accurate quotations are not readily available, at
fair value as determined in good faith under procedures established by the
Trustees.

54
<PAGE>

PERFORMANCE INFORMATION

From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at NAV. 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 and Class C Shares reflect deduction of the
applicable CDSC imposed upon redemption of Class B and Class C 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 NAV. Any performance information which is
based on a Fund's NAV per Share would be reduced if any applicable sales
charge were taken into account. In addition to the above, each Fund may from
time to time advertise its performance relative to certain averages,
performance rankings, indices, other information prepared by recognized mutual
fund statistical services and investments for which reliable performance
information is available.

The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent 30 day period by the product of the
average daily number of Shares outstanding and entitled to receive dividends
during the period and the maximum offering price per Share on the last day of
the relevant period. The results are compounded on a bond equivalent (semi-
annual) basis and then annualized. Net investment income per Share is equal to
the dividends and interest earned during the period, reduced by accrued
expenses for the period. The calculation of net investment income for these
purposes may differ from the net investment income determined for accounting
purposes. The Balanced and Growth and Income Funds' quotations of distribution
rate are calculated by annualizing the most recent distribution of net
investment income for a monthly, quarterly or other relevant period and
dividing this amount by the NAV per Share on the last day of the period for
which the distribution rate is 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, Class B and Class C
Shares will be affected by the payment of a sales charge, distribution and
service fees and other Class specific expenses. See "Shares of the Trust."

The Funds' performance quotations do not reflect any fees charged by an
Authorized Dealer to its customer accounts in connection with investments in
the Funds. 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.

55
<PAGE>

SHARES OF THE TRUST

Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation, and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify Shares
of beneficial interest in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify and reclassify any series or portfolio of Shares
into one or more Classes. Information about the Trust's other series and
Classes is contained in separate prospectuses.

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

As of April 3, 1998, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was recordholder of 59.9% of Mid Cap Equity Fund's
outstanding Shares.

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

56
<PAGE>

income will be taxable to shareholders as ordinary income. Distributions out
of the net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, of a Fund will be taxed to shareholders as
long-term capital gains, regardless of the length of time a shareholder has
held his or her Shares or whether such gain was reflected in the price paid
for the Shares. These tax consequences will apply whether distributions are
received in cash or reinvested in Shares. A Fund's dividends that are paid to
its corporate shareholders and are attributable to qualifying dividends such
Fund receives from U.S. domestic corporations may be eligible, in the hands of
such corporate shareholders, for the corporate dividends-received deduction,
subject to certain holding period requirements and debt financing limitations
under the Code. Certain distributions paid by a Fund in January of a given
year may be taxable to shareholders as if received the prior December 31.
Shareholders will be informed annually about the amount and character of
distributions received from the Funds for federal income tax purposes.

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

Redemptions and exchanges of Shares are taxable events.

Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. In general, the Funds do not
anticipate that they will be eligible to pass any foreign tax credits through
to their shareholders; however, the Funds may deduct these taxes in computing
their 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. A state income (and
possibly local income and/or intangible property) tax exemption may be
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in Shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.

ADDITIONAL INFORMATION

57
<PAGE>

APPENDIX

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

If a shareholder anticipates purchasing $50,000 or more of Class A Shares of
a Fund alone or in combination with Class A Shares of another Fund or another
Goldman Sachs Fund within a 13-month period, the shareholder may obtain Shares
of the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by filing this Statement of Intention incorporated by
reference in the Account Application. Income dividends and capital gain
distributions taken in additional Shares will not apply toward the completion
of this Statement of Intention.

To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that this Statement of Intention is in
effect each time Shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional Shares, but if the
investor's purchases within 13 months plus the value of Shares credited toward
completion do not total the sum specified, the investor 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 or her order. When the minimum investment so
specified is completed (either prior to or by the end of the 13th month), the
investor 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 or her attorney to surrender for redemption any or all
escrowed Shares with full power of substitution in the premises.

A-1
<PAGE>

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

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

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

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

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

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

ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MA 02110

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

EQDOMPROABC
501416
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS DOMESTIC

EQUITY FUNDS

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

PROSPECTUS

CLASS A, B AND C SHARES

LOGO
Goldman
Sachs

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

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

PROSPECTUS
GOLDMAN SACHS DOMESTIC EQUITY FUNDS

May 1, 1998, as revised September 1, 1998
SERVICE SHARES

GOLDMAN SACHS BALANCED FUND GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Seeks long-term capital growth Seeks long-term growth of capital
and current income through in- through a broadly diversified portfolio
vestments in equity and fixed of equity securities of U.S. issuers
income securities. which are included in the Russell 2000
Index at the time of investment.
GOLDMAN SACHS GROWTH AND INCOME
FUND GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term growth of cap- Seeks long-term growth of capital
ital and growth of income through diversified investments in eq-
through investments in equity uity securities of companies that are
securities that are considered considered to have long-term capital ap-
to have favorable prospects preciation potential.
for capital appreciation
and/or dividend paying abili- GOLDMAN SACHS MID CAP EQUITY FUND
ty. Seeks long-term capital appreciation
primarily through investments in equity
GOLDMAN SACHS CORE U.S. EQUITY securities of companies with public
FUND stock market capitalizations within the
Seeks long-term growth of cap- range of the market capitalization of
ital and dividend income companies constituting the Russell
through a broadly diversified Midcap Index at the time of investment
portfolio of large cap and (currently between $400 million and $16
blue chip equity securities billion).
representing all major sectors
of the U.S. economy. GOLDMAN SACHS SMALL CAP VALUE FUND
Seeks long-term capital growth through
GOLDMAN SACHS CORE LARGE CAP investments in equity securities of com-
GROWTH FUND panies with public stock market capital-
Seeks long-term growth of izations of $1 billion or less at the
capital through a broadly time of investment.
diversified portfolio of
equity securities of large cap
U.S. issuers that are expected
to have better prospects for
earnings growth than the
growth rate of the general
domestic economy. Dividend
income is a secondary
consideration.

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

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)

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, 1998, as
revised September 1, 1998, containing further information about the Trust and
the Funds which may be of interest to investors, has been filed with the
Securities and Exchange Commission ("SEC"), is incorporated herein by reference
in its entirety, and may be obtained without charge from Service Organizations
(as defined herein), or Goldman Sachs by calling the telephone number, or
writing to one of the addresses, listed on the back cover of this Prospectus.
The SEC maintains a Web site (http://www.sec.gov) that contains the Additional
Statement and other information regarding the Trust.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 6
Financial Highlights............... 8
Investment Objectives and Policies. 16
Description of Securities.......... 21
Investment Techniques.............. 26
Risk Factors....................... 30
Investment Restrictions............ 32
Portfolio Turnover................. 32
Management......................... 32
Expenses........................... 37
Net Asset Value.................... 37
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information....... 38
Shares of the Trust........... 38
Taxation...................... 39
Additional Information........ 40
Additional Services........... 41
Reports to Shareholders....... 41
Dividends..................... 42
Purchase of Service Shares.... 42
Exchange Privilege............ 44
Redemption of Service Shares.. 44
Appendix...................... A-1
</TABLE>
2
<PAGE>

FUND HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ----------- ------------ ---------------------- -----------
<S> <C> <C> <C>
BALANCED Long-term Between 45% and 65% of total assets in Lehman Aggregate
FUND capital growth equity securities and at least 25% in Bond Index and
and current fixed-income senior securities. the Standard &
income. Poor's Index of
500 Common
Stocks (the "S&P
500 Index")
- ----------------------------------------------------------------------------------------
GROWTH AND Long-term growth At least 65% of total assets in equity S&P 500 Index
INCOME FUND of capital and securities that the Investment Adviser
growth of considers to have favorable prospects
income. for capital appreciation and/or
dividend-paying ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth At least 90% of total assets in equity S&P 500 Index
EQUITY FUND of capital and securities of U.S. issuers, including
dividend income. certain foreign issuers in the U.S. The
Fund seeks to achieve its objective
through a broadly diversified portfolio
of large cap and blue chip equity
securities representing all major
sectors of the U.S. economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the S&P 500
Index.
- ----------------------------------------------------------------------------------------
CORE LARGE Long-term growth At least 90% of total assets in equity Russell 1000
CAP GROWTH of capital. securities of U.S. issuers, including Growth Index
FUND Dividend income certain foreign issuers traded in the
is a secondary U.S. The Fund seeks to achieve its
consideration. objective through a broadly diversified
portfolio of equity securities of large
cap U.S. issuers that are expected to
have better prospects for earnings
growth than the growth rate of the
general domestic economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
1000 Growth Index.
</TABLE>

3
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
---------- --------------- -------------------------- --------------
<S> <C> <C> <C>
CORE SMALL Long-term growth At least 90% of total assets in equity Russell 2000
CAP EQUITY of capital. securities of U.S. issuers, including Index
FUND certain foreign issuers traded in the
U.S. The Fund seeks to achieve its
investment objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which are
included in the Russell 2000 Index at
the time of investment. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
2000 Index.
- --------------------------------------------------------------------------------------
CAPITAL Long-term At least 90% of total assets in a S&P 500 Index
GROWTH FUND capital growth. diversified portfolio of equity
securities. The Investment Adviser
considers long-term capital
appreciation potential in selecting
investments.
- --------------------------------------------------------------------------------------
MID CAP Long-term At least 65% of total assets in Russell Midcap
EQUITY FUND capital equity securities of companies with Index
appreciation. public stock market capitalizations
within the range of the market
capitalization of companies
constituting the Russell Midcap Index
at the time of investment (currently
between $400 million and $16 billion)
("Mid-Cap Companies").
- --------------------------------------------------------------------------------------
SMALL CAP Long-term At least 65% of total assets in equity Russell 2000
VALUE FUND capital growth. securities of companies with public
stock market capitalizations of $1
billion or less at the time of
investment.
</TABLE>

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

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

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

4
<PAGE>

WHO MANAGES THE FUNDS?

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's Shares (the "Distributor").

WHAT IS THE MINIMUM INVESTMENT?

HOW DO I PURCHASE SERVICE SHARES?

Customers of Service Organizations may invest in Service Shares only
through their Service Organizations. Service Shares of a Fund are purchased
at the current net asset value ("NAV") 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 Service Shares of
the Funds attributable to or held in the name of the Service Organization
for its customers. See "Additional Services."

HOW DO I SELL MY SERVICE SHARES?

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

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
Small Cap Value....................... Annually Annually
</TABLE>

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

5
<PAGE>

FEES AND EXPENSES
(SERVICE SHARES)

<TABLE>
<CAPTION>
CORE CORE
GROWTH CORE LARGE SMALL MID SMALL
AND U.S. CAP CAP CAPITAL CAP CAP
BALANCED INCOME EQUITY GROWTH EQUITY GROWTH EQUITY VALUE
FUND FUND FUND FUND FUND FUND FUND FUND
-------- ------ ------ ------ ------ ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends............. None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of
average daily net
assets)/1/
Management Fees (after
applicable
limitations)/2/....... 0.65% 0.70% 0.70% 0.60% 0.85% 1.00% 0.75% 1.00%
Service Fees/3/........ 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after
applicable limita-
tions)/4/............. 0.05% 0.09% 0.04% 0.04% 0.08% 0.04% 0.14% 0.10%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE
LIMITATIONS)/5/........ 1.20% 1.29% 1.24% 1.14% 1.43% 1.54% 1.39% 1.60%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

- ---------------------
/1/ The Funds' annual operating expenses have been restated to reflect fees
and expenses in effect as of September 1, 1998.
/2/ The Investment Adviser has voluntarily agreed not to impose a portion of
the management fee on the CORE U.S. Equity and CORE Large Cap Growth Funds
equal to 0.05% and 0.15%, respectively. Without such limitations,
management fees would be 0.75% of each Fund's average daily net assets.
/3/ Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts.
/4/ The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, service fees, transfer agency
fees (equal to 0.04% of the average daily net assets of each Fund's
Service Shares), taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) for each Fund to the
extent such expenses exceed the following percentages of average daily net
assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced......................................................... 0.01%
Growth and Income................................................ 0.05%
CORE U.S. Equity................................................. 0.00%
CORE Large Cap Growth............................................ 0.00%
CORE Small Cap Equity............................................ 0.04%
Capital Growth................................................... 0.00%
Mid Cap Equity................................................... 0.10%
Small Cap Value.................................................. 0.06%
</TABLE>

/5/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Service Shares of the Funds would be as set
forth below:

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced .............................................. 0.28% 1.43%
Growth and Income...................................... 0.12% 1.32%
CORE U.S. Equity....................................... 0.12% 1.37%
CORE Large Cap Growth.................................. 0.22% 1.47%
CORE Small Cap Equity.................................. 0.48% 1.83%
Capital Growth......................................... 0.10% 1.60%
Mid Cap Equity......................................... 0.16% 1.41%
Small Cap Value........................................ 0.13% 1.63%
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
Balanced...................................... $12 $38 $ 66 $145
Growth and Income............................. 13 41 71 156
CORE U.S. Equity.............................. 13 39 68 150
CORE Large Cap Growth......................... 12 36 63 139
CORE Small Cap Equity......................... 15 45 78 171
Capital Growth................................ 16 49 84 183
Mid Cap Equity................................ 14 44 76 167
Small Cap Value............................... 16 50 87 190
</TABLE>

The Investment Adviser and Goldman Sachs may modify or discontinue any of
the limitations set forth above in the future at their discretion. The
information set forth in the foregoing table and hypothetical example relates
only to Service Shares of the Funds. Each Fund also offers Institutional
Shares and Class A, Class B and Class C Shares, which are subject to different
fees and expenses (which affect performance), have different minimum
investment requirements and are entitled to different services. Information
regarding Institutional, Class A, Class B and Class C Shares may be obtained
from an investor's sales representative or from Goldman Sachs by calling the
number on the back of this Prospectus.

In addition to the compensation itemized above, certain Service
Organizations may receive other compensation in connection with the sale and
distribution of Service Shares or for services to their customers' accounts
and/or the Funds. For additional information regarding such compensation, see
"Purchase of Service Shares" in this Prospectus and the Additional Statement.

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

7
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

8
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS)
FROM INVESTMENT
OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------ ------------------------------------------------
NET IN EXCESS OF
REALIZED AND FROM NET NET REALIZED NET
NET ASSET NET UNREALIZED FROM IN EXCESS REALIZED GAIN GAIN ON INCREASE
VALUE, INVESTMENT GAIN ON NET OF NET ON INVESTMENT INVESTMENT ADDITIONAL (DECREASE)
BEGINNING INCOME INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES PAID-IN IN NET
OF PERIOD (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS CAPITAL ASSET VALUE
--------- ---------- ------------ ---------- ---------- ------------- ------------ ---------- -----------
GROWTH AND INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.18 $0.11 $5.27 $(0.11) $ -- $(2.52) $ -- $ -- $2.75
1998--Class B
Shares.......... 23.10 0.04 5.14 -- (0.03) (2.45) (0.07) -- 2.63
1998--Class C
Shares(b)....... 28.20 (0.01) 0.06 -- (0.03) (1.42) (1.10) -- (2.50)
1998--
Institutional
Shares.......... 23.19 0.27 5.23 (0.22) -- (0.24) (2.28) -- 2.76
1998--Service
Shares.......... 23.17 0.14 5.23 (0.06) (0.04) (2.52) -- -- 2.75
- ----------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 19.98 0.35 5.18 (0.35) (0.01) (1.97) -- -- 3.20
1997--Class B
Shares(b)....... 20.82 0.17 4.31 (0.17) (0.06) (1.97) -- -- 2.28
1997--Institu-
tional
Shares(b)....... 21.25 0.29 3.96 (0.30) (0.04) (1.97) -- -- 1.94
1997--Service
Shares(b)....... 20.71 0.28 4.50 (0.28) (0.07) (1.97) -- -- 2.46
- ----------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 15.80 0.33 4.75 (0.30) -- (0.60) -- -- 4.18
- ----------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 15.79 0.20(g) 0.30(g) (0.20) (0.07) (0.33) -- 0.11(g) 0.01
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 14.18 0.15 1.68 (0.15) (0.01) (0.06) -- -- 1.61
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-------------------------
RATIO
OF NET RATIO
NET RATIO INVESTMENT OF NET
NET ASSET ASSETS AT OF NET INCOME (LOSS) RATIO INVESTMENT
VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO TO AVERAGE OF EXPENSES INCOME (LOSS)
END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET NET TO AVERAGE TO AVERAGE
PERIOD RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- ---------- --------- ---------- ---------- ----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $25.93 23.71% 61.95% $.0590 $1,216,582 1.25% 0.43% 1.42% 0.26%
1998--Class B
Shares.......... 25.73 22.87 61.95 .0590 307,815 1.94 (0.35) 1.94 (0.35)
1998--Class C
Shares(b)....... 25.70 0.51(d) 61.95 .0590 31,686 1.99(c) (0.48)(c) 1.99(c) (0.48)(c)
1998--
Institutional
Shares.......... 25.95 24.24 61.95 .0590 36.225 0.83 0.76 0.83 0.76
1998--Service
Shares.......... 25.92 23.63 61.95 .0590 8,893 1.32 0.32 1.32 0.32
- ----------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 23.18 28.42 53.03 .0586 615,103 1.22 1.60 1.43% 1.39%
1997--Class B
Shares(b)....... 23.10 22.23(d) 53.03 .0586 17,346 1.93(c) 0.15(c) 1.93(c) 0.15(c)
1997--Institu-
tional
Shares(b)....... 23.19 20.77(d) 53.03 .0586 193 0.82(c) 1.36(c) 0.82(c) 1.36(c)
1997--Service
Shares(b)....... 23.17 23.87(d) 53.03 .0586 3,174 1.32(c) 0.94(c) 1.32(c) 0.94(c)
- ----------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 19.98 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
- ----------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 15.80 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 15.79 13.08(d) 102.23 -- 41,528 1.25(c) 1.23(c) 3.24(c) (0.76)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. Total return would be reduced if a sales or redemption charge
were taken into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on February 5, 1993, May 1, 1996, August 15, 1997, June 3, 1996
and March 6, 1996, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Calculated based on the average Shares outstanding methodology.

9
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------------------------------
FROM NET IN EXCESS OF NET
NET REALIZED REALIZED NET REALIZED INCREASE/ NET
NET ASSET AND UNREALIZED IN EXCESS GAIN ON GAIN ON (DECREASE) ASSET
VALUE, NET GAIN (LOSS) ON FROM NET OF NET INVESTMENT INVESTMENT IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES ASSET END OF TOTAL
OF PERIOD INCOME AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE PERIOD RETURN(A)
--------- ---------- -------------- ---------- ---------- ------------ ------------ ---------- ------ ---------
CORE U.S. EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.32 $0.11 $5.63 $(0.12) $ -- $(2.35) $ -- $3.27 $26.59 24.96%
1998--Class B
Shares.......... 23.18 0.11 5.44 -- (0.06) (2.00) (.35) 3.14 26.32 24.28
1998--Class C
Shares(b)....... 27.48 0.03 1.22 -- (0.14) (0.67) (1.68) (1.24) 26.24 4.85(d)
1998--Institu-
tional Shares... 23.44 0.30 5.65 (0.24) (.01) (1.33) (1.02) 3.35 26.79 25.76
1998--Service
Shares.......... 23.27 0.19 5.57 (0.07) (.08) (2.35) -- 3.26 26.53 25.11
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 19.66 0.16 4.46 (0.16) -- (0.80) -- 3.66 23.32 23.75
1997--Class B
Shares(b)....... 20.44 0.04 3.70 (0.04) (0.16) (0.80) -- 2.74 23.18 18.59(d)
1997--Institu-
tional Shares... 19.71 0.30 4.51 (0.28) -- (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(b)....... 21.02 0.13 3.15 (0.13) (0.10) (0.80) -- 2.25 23.27 15.92(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) -- (0.41) -- 5.05 19.66 38.63
1996--Institu-
tional
Shares(b)....... 16.97 0.16 3.23 (0.24) -- (0.41) -- 2.74 19.71 20.14(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) -- (0.94) -- (1.32) 14.61 (1.10)
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) -- (1.61) -- 0.47 15.93 15.12
- ---------------------------------------------------------------------------------------------------------------------------------
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- -- 0.41 15.46 4.30
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 14.17 0.11 0.88 (0.11) -- -- -- 0.88 15.05 7.01(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
----------------------
RATIO OF RATIO OF RATIO OF
NET NET RATIO OF NET
NET EXPENSES INVESTMENT EXPENSES INVESTMENT
ASSETS AT TO INCOME TO INCOME
PORTFOLIO AVERAGE END OF AVERAGE (LOSS) TO AVERAGE (LOSS) TO
TURNOVER COMMISSION PERIOD NET AVERAGE NET AVERAGE
RATE RATE(F) (IN 000S) ASSETS NET ASSETS ASSETS NET ASSETS
--------- ---------- --------- ---------- ------------ --------- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 65.89% $.0651 $398,393 1.28% 0.51% 1.47% 0.32%
1998--Class B
Shares.......... 65.89 .0651 59,208 1.79 (0.05) 1.96 (0.22)
1998--Class C
Shares(b)....... 65.89 .0651 6,267 1.78(c) (0.21)(c) 1.95(c) (0.38)(c)
1998--Institu-
tional Shares... 65.89 .0651 202,893 0.65 1.16 0.82 0.99
1998--Service
Shares.......... 65.89 .0651 7,841 1.15 0.62 1.32 0.45
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 37.78 .0417 225,968 1.29 0.91 1.53 0.67
1997--Class B
Shares(b)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) 0.11(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(b)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(b)....... 39.35 -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
- ---------------------------------------------------------------------------------------------------------------------------------
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 135.02 -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class B, Class C, Institutional and Service Share
activity commenced on May 24, 1991, May 1, 1996, August 15, 1997, June 15,
1995 and June 7, 1996, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

10
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM INVESTMENT
OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
---------------------- -----------------------------------------------
NET
REALIZED
AND FROM NET IN EXCESS OF
UNREALIZED REALIZED NET REALIZED NET NET
NET ASSET NET GAIN (LOSS) IN EXCESS GAIN ON GAIN ON INCREASE ASSET
VALUE, INVESTMENT ON FROM NET OF NET INVESTMENT INVESTMENT IN NET VALUE,
BEGINNING INCOME INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES ASSET END OF
OF PERIOD (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE PERIOD
--------- ---------- ----------- ---------- ---------- ------------ ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CORE LARGE CAP GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998 -- Class A
Shares(b)....... $10.00 $ 0.01 $2.35 $(0.01) -- $(0.32) $(0.06) $1.97 $11.97
1998 -- Class B
Shares(b)....... 10.00 (0.03) 2.33 -- -- (0.18) (0.20) 1.92 11.92
1998 -- Class C
Shares(b)....... 11.80 (0.02) 0.54 -- (.01) (0.38) -- 0.13 11.93
1998 -- Institu-
tional
Shares(b)....... 10.00 0.01 2.35 (0.01) -- (0.19) (0.19) 1.97 11.97
1998 -- Service
Shares(b)....... 10.00 (0.02) 2.35 -- -- (0.08) (0.30) 1.95 11.95
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
------------------------
NET RATIO OF
ASSETS NET RATIO OF RATIO OF RATIO OF
AT END EXPENSES NET EXPENSES NET
OF TO INVESTMENT TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE INCOME TO AVERAGE LOSS TO
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET AVERAGE
RETURN(A) RATE RATE 000S) ASSETS NET ASSETS ASSETS NET ASSETS
----------- --------- ---------- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998 -- Class A
Shares(b)....... 23.79%(d) 74.97% $.0282 $53,786 0.91%(c) 0.12%(c) 2.40%(c) (1.37)%(c)
1998 -- Class B
Shares(b)....... 23.26(d) 74.97 .0282 13,857 1.67(c) (0.72)(c) 2.91(c) (1.96)(c)
1998 -- Class C
Shares(b)....... 4.56(d) 74.97 .0282 4,132 1.68(c) (0.76)(c) 2.92(c) (2.00)(c)
1998 -- Institu-
tional
Shares(b)....... 23.89(d) 74.97 .0282 4,656 0.72(c) 0.42(c) 1.96(c) (0.82)(c)
1998 -- Service
Shares(b)....... 23.56(d) 74.97 .0282 115 1.17(c) (0.21)(c) 2.41(c) (1.45)(c)
</TABLE>
- ------------
(a) Assumes investment at the NAV at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the NAV at the end of
the period and no sales or redemption charges. Total return would be
reduced if a sales or redemption charge were taken into account.
(b) Class A, Class B, Institutional and Service Share activity commenced on
May 1, 1997. Class C Share activity commenced on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.

11
<PAGE>

12
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------ -------------------------------------
IN EXCESS
NET OF NET
NET ASSET NET REALIZED AND IN EXCESS FROM NET REALIZED NET INCREASE
VALUE, INVESTMENT UNREALIZED FROM NET OF NET REALIZED GAIN GAIN ON (DECREASE) NET ASSET
BEGINNING INCOME GAIN (LOSS) ON INVESTMENT INVESTMENT ON INVESTMENT INVESTMENT IN NET ASSET VALUE, END
OF PERIOD (LOSS) INVESTMENTS INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE OF PERIOD
--------- ---------- -------------- ---------- ---------- ------------- ------------ ------------ ----------
CAPITAL GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $16.73 $0.02 $4.78 $(0.01) $(0.01) $(3.03) $ -- $1.75 $18.48
1998--Class B
Shares.......... 16.67 0.02 4.61 -- -- (1.20) (1.83) 1.60 18.27
1998--Class C
Shares(b)....... 19.73 (0.02) 1.60 -- (0.04) (0.47) (2.56) (1.49) 18.24
1998--Institu-
tional
Shares(b)....... 19.88 0.02 1.66 (0.01) (0.07) (0.41) (2.62) (1.43) 18.45
1998--Service
Shares(b)....... 19.88 (0.01) 1.66 -- (0.04) (0.76) (2.27) (1.42) 18.46
- -----------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 14.91 0.10 3.56 (0.10) (0.02) (1.72) -- 1.82 16.73
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (0.09) (1.72) -- 1.00 16.67
- -----------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) -- (2.69) -- 1.24 14.91
- -----------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) -- (1.62) -- (2.29) 13.67
- -----------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (0.02) (1.07) -- 1.32 15.96
- -----------------------------------------------------------------------------------------------------------------------------
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) -- (1.28) -- 0.99 14.64
- -----------------------------------------------------------------------------------------------------------------------------
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) -- (0.32) -- 2.55 13.65
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1991--Class A
Shares(b)....... 11.34 0.34 (0.27) (0.31) -- -- -- (0.24) 11.10
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-------------------------
RATIO OF RATIO OF NET
NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET AVERAGE
RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
---------- --------- ---------- ---------- ------------ -------------- ----------- -------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 29.71% 61.50% $.0612 $1,256,595 1.40% 0.08% 1.65% (0.17)%
1998--Class B
Shares.......... 28.73 61.50 .0612 40,827 2.18 (0.77) 2.18 (0.77)
1998--Class C
Shares(b)....... 8.83(d) 61.50 .0612 5,395 2.21(c) (0.86)(c) 2.21(c) (0.86)(c)
1998--Institu-
tional
Shares(b)....... 9.31(d) 61.50 .0612 7,262 1.16(c) 0.18 (c) 1.16(c) 0.18 (c)
1998--Service
Shares(b)....... 9.18(d) 61.50 .0612 2 1.50(c) (0.16)(c) 1.50(c) (0.16)(c)
- -----------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 25.97 52.92 .0563 920,646 1.40 0.62 1.65 0.37
1997--Class B
Shares(b)....... 19.39(d) 52.92 .0563 3,221 2.15(c) (0.39)(c) 2.15(c) (0.39)(c)
- -----------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 30.45 63.90 -- 881,056 1.36 0.65 1.61 0.40
- -----------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... (4.38) 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
- -----------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 16.89 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
- -----------------------------------------------------------------------------------------------------------------------------
1993--Class A
Shares.......... 18.01 58.93 -- 665,976 1.41 0.42 1.66 0.17
- -----------------------------------------------------------------------------------------------------------------------------
1992--Class A
Shares.......... 29.31 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1991--Class A
Shares(b)....... 0.84(d) 35.63 -- 437,533 1.27(c) 3.24(c) 1.47(c) 3.04(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. Total return would be reduced if a sales or redemption charge
were taken into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on April 20, 1990, May 1, 1996, August 15, 1997, August 15, 1997
and August 15, 1997, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

13
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ---------------------------------------------
NET REALIZED
AND UNREALIZED NET
NET REALIZED LOSS ON FROM NET INCREASE NET
NET ASSET AND UNREALIZED FOREIGN IN EXCESS REALIZED (DECREASE) ASSET
VALUE, NET GAIN ON CURRENCY FROM NET OF NET GAIN ON IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS RELATED INVESTMENT INVESTMENT INVESTMENT ASSET END OF
OF PERIOD INCOME AND OPTIONS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
MID CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... $23.63 $0.09 $0.77 $(0.01) $(0.06) $(0.04) $(2.77) $(2.02) $21.61
1998--Class B
Shares(b)....... 23.63 0.06 0.75 (0.01) (0.09) -- (2.77) (2.06) 21.57
1998--Class C
Shares(b)....... 23.63 0.06 0.77 (0.01) (0.09) -- (2.77) (2.04) 21.59
1998--Institu-
tional Shares... 18.73 0.16 5.70 (0.04) (0.13) -- (2.77) 2.92 21.65
1998--Service
Shares(b)....... 23.01 0.09 1.41 (0.01) (0.11) -- (2.77) (1.39) 21.62
- ------------------------------------------------------------------------------------------------------------------------
1997--Institu-
tional Shares... 15.91 0.24 3.77 -- (0.24) (0.93) (0.02) 2.82 18.73
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 15.00 0.13 0.90 -- (0.12) -- -- 0.91 15.91
<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
------------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
----------- ---------- ---------- ------- ---------- ------------ ---------- -------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... 3.42%(d) 62.60% $0.0540 $90,588 1.35%(c) 0.33%(c) 1.47%(c) 0.21%(c)
1998--Class B
Shares(b)....... 3.17(d) 62.60 0.0540 28,743 1.85(c) (0.20)(c) 1.97(c) (0.32)(c)
1998--Class C
Shares(b)....... 3.27(d) 62.60 0.0540 6,445 1.85(c) (0.23)(c) 1.97(c) (0.35)(c)
1998--Institu-
tional Shares... 30.86 62.60 0.0540 236,440 0.85 0.78 0.97 0.66
1998--Service
Shares(b)....... 6.30(d) 62.60 0.0540 8 1.35(c) 0.63 (c) 1.43(c) 0.51 (c)
- ------------------------------------------------------------------------------------------------------------------------
1997--Institu-
tional Shares... 25.63 74.03 0.0547 145,253 0.85 1.35 0.91 1.29
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 6.89(d) 58.77(d) -- 135,671 0.85(c) 1.67(c) 0.98(c) 1.54(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on August 15, 1997, August 15, 1997, August 15, 1997, August 1,
1995 and July 18, 1997, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

14
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET NET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET INCREASE
VALUE, INVESTMENT GAIN (LOSS) ON NET ON INVESTMENT OF NET (DECREASE) NET ASSET
BEGINNING INCOME INVESTMENT AND INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET VALUE, END TOTAL
OF PERIOD (LOSS) OPTIONS TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE OF PERIOD RETURN(A)
--------- ---------- -------------------- ---------- ------------- ---------- ------------ ---------- ---------
SMALL CAP VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $20.91 $0.14 $5.33 $ -- $(2.33) $ -- $ 3.14 $24.05 26.17%
1998--Class B
Shares.......... 20.80 (0.01) 5.27 -- (2.33) -- 2.93 23.73 25.29
1998--Class C
Shares(b)....... 24.69 (0.06) 1.43 -- (1.99) (0.34) (0.96) 23.73 5.51(d)
1998--Institu-
tional
Shares(b)....... 24.91 0.03 1.48 -- (2.05) (0.28) (0.82) 24.09 6.08(d)
1998--Service
Shares(b)....... 24.91 (0.01) 1.48 -- (2.02) (0.31) (0.86) 24.05 5.91(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 17.29 (0.21) 4.92 -- (1.09) -- 3.62 20.91 27.28
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) -- 0.01 20.80 5.39(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) -- 1.15 17.29 7.20
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24) (4.53) 16.14 (17.53)
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) -- 3.99 20.67 30.13
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 0.03 2.50 (0.03) -- -- 2.50 16.68 17.86(d)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
--------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO EXPENSES TO INCOME (LOSS)
TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE TO AVERAGE NET
RATE RATE(F) (IN 000S) NET ASSETS ASSETS NET ASSETS ASSETS
--------- ---------- ---------- ------------ ---------------- ----------- --------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 84.81% $0.0517 $370,246 1.54% (0.28)% 1.76% (0.50)%
1998--Class B
Shares.......... 84.81 0.0517 42,677 2.29 (0.92) 2.29 (0.92)
1998--Class C
Shares(b)....... 84.81 0.0517 5,604 2.09(c) (0.79)(c) 2.09(c) (0.79)(c)
1998--Institu-
tional
Shares(b)....... 84.81 0.0517 14,626 1.16(c) 0.27(c) 1.16(c) 0.27(c)
1998--Service
Shares(b)....... 84.81 0.0517 2 1.45(c) (0.07)(c) 1.45(c) (0.07)(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 99.46 .0461 212,061 1.60 (0.72) 1.85 (0.97)
1997--Class B
Shares(b)....... 99.46 .0461 3,674 2.35(c) (1.63)(c) 2.35(c) (1.63)(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 7.12 -- 59,339 1.65(c) 0.62(c) 2.70(c) (0.43)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on October 22, 1992, May 1, 1996, August 15, 1997, August 15,
1997 and August 15, 1997, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

15
<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.

Growth Style Funds. The Capital Growth Fund is managed using a growth equity
oriented approach. Equity securities for this Fund is selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. The Fund generally will invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.

16
<PAGE>

The weightings assigned to the factors in the Multifactor Model used by the
CORE Funds are derived using a statistical formulation that considers each
factor's historical performance in different market environments. As such, the
Multifactor Model is designed to evaluate each security using only the factors
that are statistically related to returns in the anticipated market
environment. Because it includes many disparate factors, the Investment
Adviser believes that the Multifactor Model is broader in scope and provides a
more thorough evaluation than most conventional, quantitative models.
Securities and markets ranked highest by the Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.

Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.

17
<PAGE>

BALANCED FUND

GROWTH AND INCOME FUND

Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.

18
<PAGE>

CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.

For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."

CORE LARGE CAP GROWTH FUND

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
certain foreign issuers that are traded in the United States. The Investment
Adviser emphasizes a company's growth prospects in analyzing equity securities
to be purchased by the Fund. The Fund's investments are selected using both a
variety of quantitative techniques and fundamental research in seeking to
maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the Russell 1000 Growth
Index. The Fund seeks a portfolio comprised of companies with above average
capitalizations and earnings growth expectations and below average dividend
yields. The Fund may invest only in fixed-income securities that are
considered cash equivalents.

For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."

CORE SMALL CAP EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
certain foreign issuers that are traded in the United States. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry

19
<PAGE>

The Investment Adviser believes that companies in which the Fund may invest
offer greater opportunity for growth of capital than larger, more mature,
better known companies. Investments in small market capitalization issuers
involve special risks. See "Description of Securities" and "Risk Factors." If
the issuer of a portfolio security held by the Fund is no longer included in
the Russell 2000 Index, the Fund may, but is not required to, sell the
security.

For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."

CAPITAL GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.

MID CAP EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

SMALL CAP VALUE FUND (FORMERLY, THE "SMALL CAP EQUITY FUND")

Objective. The Fund's investment objective is to provide investors with
long-term capital growth.

20
<PAGE>

DESCRIPTION OF SECURITIES

CONVERTIBLE SECURITIES

21
<PAGE>

FOREIGN INVESTMENTS

INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts

22
<PAGE>

FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced Fund
may have currency exposure independent of its 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 foreign currencies on a spot
basis and may also purchase or sell forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, the Balanced
Fund may enter into such contracts to seek to increase total return when the
Investment Adviser anticipates that the foreign currency will appreciate or
depreciate in value, but securities denominated or quoted in that currency do
not present attractive investment opportunities and are not held in the Fund's
portfolio. When entered into to seek to enhance return, forward foreign
currency exchange contracts are considered speculative. The Balanced 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 a Fund enters into a forward foreign currency
exchange contract to buy foreign currency for any purpose or the Balanced Fund
enter into forward foreign currency exchange contracts to sell foreign
currency to seek to increase total return, the Fund will segregate cash or
liquid assets in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward contract, or otherwise cover its
position in a manner permitted by the SEC. The Fund will incur costs in
connection with conversions between various currencies. A Fund may hold
foreign currency received in connection with investments in foreign securities
when, in the judgment of the Investment Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rate.

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

23
<PAGE>

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.

FIXED-INCOME SECURITIES

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the CORE
Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Each Fund (other than the CORE Funds) may also invest in asset-backed
securities ("Asset-Backed Securities"). The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use

24
<PAGE>

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.

RATING CRITERIA. Except as noted below, each Fund (other than the CORE
Funds, which only invest in debt instruments that are cash equivalents) may
invest in debt securities rated at least investment grade at the time of
investment. Investment grade debt securities are securities rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. The Balanced Fund may invest up to 10% of
its total assets on debt securities that are rated BB or B by Standard &
Poor's or Ba or B by Moody's. The Growth

25
<PAGE>

and Income, Capital Growth and Small Cap Value Funds may invest up to 10%, 10%
and 35%, respectively, of their total assets in debt securities which are
unrated or rated in the lowest rating categories by Standard & Poor's or
Moody's (i.e., BB or lower by Standard & Poor's or Ba or lower by Moody's),
including securities rated D by Moody's or Standard & Poor's. Mid Cap Equity
Fund may invest up to 10% of its total assets in below investment grade debt
securities rated B or higher by Standard & Poor's or B or higher by Moody's.
Fixed-income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capacity to pay interest
and repay principal. Fixed-income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in a Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.

REAL ESTATE INVESTMENT TRUSTS ("REITS")

INVESTMENT TECHNIQUES

OPTIONS ON SECURITIES AND SECURITIES INDICES

OPTIONS ON FOREIGN CURRENCIES

26
<PAGE>

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 options
transactions, however, the writing of an option on a 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 call and put options for hedging purposes, the Balanced 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 written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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

27
<PAGE>

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. The Funds may engage in futures transactions on both U.S. and foreign
exchanges. Foreign exchanges may not provide the same protection as U.S.
exchanges.

STANDARD AND POOR'S DEPOSITORY RECEIPTS

EQUITY SWAPS

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 or sell securities on a forward
commitment basis; that is, make contracts to purchase or sell securities for a
fixed price at a future date beyond the customary three-day settlement period.
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. Conversely, securities sold on a forward
commitment basis involve the risk that the value of the securities to be sold
may increase 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. A Fund will segregate cash
or liquid assets in an amount sufficient to meet the purchase price until
three days prior to the settlement date. Alternatively, each Fund may enter
into offsetting contracts for the forward sale of other securities that it
owns.

ILLIQUID AND RESTRICTED SECURITIES

28
<PAGE>

counter options and certain restricted securities, unless it is determined,
based upon a 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 under which the Investment Adviser determines and monitors the
liquidity of portfolio securities, subject to the oversight of the Trustees.
Investing in restricted securities eligible for resale pursuant to Rule 144A
may decrease the liquidity of a Fund's portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. The purchase price and subsequent valuation of
restricted and illiquid securities normally reflect a discount, which may be
significant, from the market price of comparable securities for which a liquid
market exists.

REPURCHASE AGREEMENTS

LENDING OF PORTFOLIO SECURITIES

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

MORTGAGE DOLLAR ROLLS

29
<PAGE>

will segregate cash or liquid assets in an amount equal to the forward
purchase price until the settlement date. Successful use of mortgage dollar
rolls depends upon the Investment Adviser's ability to predict correctly
interest rates and mortgage prepayments. There is no assurance that mortgage
dollar rolls can be successfully employed. For financial reporting and tax
purposes, the Fund treats mortgage dollar rolls as two separate transactions:
one involving the purchase of a security and a separate transaction involving
a sale. The Fund does not currently intend to enter into mortgage dollar rolls
that are accounted for as a financing.

SHORT SALES AGAINST-THE-BOX

TEMPORARY INVESTMENTS

MISCELLANEOUS TECHNIQUES

RISK FACTORS

Risks of Investing in Equity Securities. In general, the Funds are subject
to the risks associated with investments in common stocks and other equity
securities. Stock values fluctuate in response to the activities of individual
companies and in response to general market and economic conditions and,
accordingly, the value of the stocks that a Fund holds may decline over short
or extended periods. The U.S. stock markets tend to be cyclical, with periods
when stock prices generally rise and periods when prices generally decline. As
of the date of this Prospectus, domestic stock markets were trading at or
close to record high levels and there can be no guarantee that such levels
will continue.

30
<PAGE>

RISKS OF INVESTING IN FIXED-INCOME SECURITIES. When interest rates decline,
the market value of fixed-income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed-income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.

31
<PAGE>

INVESTMENT RESTRICTIONS

PORTFOLIO TURNOVER

MANAGEMENT

TRUSTEES AND OFFICERS

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

INVESTMENT ADVISERS

INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as investment adviser to the Balanced, Growth and Income, CORE Large Cap
Growth, CORE Small Cap Equity, Mid Cap Equity and Small Cap Value Funds.
Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs Funds
Management, L.P., One New York Plaza, New York, New York 10004, a Delaware
limited partnership which is an affiliate of Goldman Sachs, serves as the
investment adviser to the CORE U.S. Equity and Capital Growth Funds. Goldman
Sachs Funds Management, L.P. registered as an investment adviser in 1990. The
Goldman Sachs Group, L.P., which controls the Investment Advisers, has
announced that it will pursue an initial public offering of the firm during
the fourth quarter of 1998; if the public offering is consummated, The Goldman
Sachs Group, L.P. will merge into the new public company, which will be called
The Goldman Sachs Group, Inc. As of July 24, 1998, GSAM and GSFM together with
their affiliates, acted as investment adviser or distributor for assets in
excess of $168 billion.

32
<PAGE>

FUND MANAGERS

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
------------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
George D. Adler Senior Portfolio Manager-- Since Mr. Adler joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1990 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. From 1988 to 1990
he was a director of
portfolio management at
Banc One in Ohio.
- ------------------------------------------------------------------------------------------------------
Eileen A. Aptman Senior Portfolio Manager-- Since Ms. Aptman joined the
Vice President Mid Cap Equity 1996 Investment Adviser in
Small Cap Value 1997 1993. From 1990 to 1993,
she worked at Delphi
Management as an equity
analyst, focusing her
research efforts on
value stocks.
- ------------------------------------------------------------------------------------------------------
Jonathan A. Beinner Senior Portfolio Manager-- Since Mr. Beinner joined the
Managing Director and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. Fixed 1990. From 1988 to 1990,
Income he worked as a portfolio
manager at Franklin
Savings Association in
the trading and
arbitrage group.
- ------------------------------------------------------------------------------------------------------
Melissa Brown Senior Portfolio Manager-- Since Ms. Brown joined the
Vice President CORE U.S. Equity 1998 Investment Adviser in
CORE Large Cap Growth 1998 1998. From 1984 to 1998,
CORE Small Cap Equity 1998 she was the director of
Quantitative Equity
Research and served on
the Investment Policy
Committee at Prudential
Securities.
- ------------------------------------------------------------------------------------------------------
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1992.
CORE Small Cap Equity 1997
- ------------------------------------------------------------------------------------------------------
Robert G. Collins Senior Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1991 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. His past
experiences include work
as a special situations
analyst with Raymond
James & Associates for
five years.
</TABLE>

33
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. From 1994 to 1997,
he was the Chief
Investment Officer and
Chairman of Liberty
Investment Management,
Inc. He was a portfolio
manager and president at
Liberty's predecessor
firm, Eagle Asset
Management, from 1984 to
1994.
- -------------------------------------------------------------------------------------------------
Gregory H. Ekizian Senior Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1990 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. and its predecessor
firm, Eagle Asset
Management.
- -------------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Mid Cap Equity 1998 Investment Adviser in
Small Cap Value 1992 1991. In 1998, he became
responsible for managing
the Investment Adviser's
Value team. During 1991,
he served as a managing
director at Plaza
Investment Managers, the
investment subsidiary of
GEICO Corp., a major
insurance company. From
1986 to 1991, he was
employed by Goldman
Sachs as a vice
president in the
investment research
department and was
responsible for the
formation of the firm's
Emerging Growth Research
Group.
- -------------------------------------------------------------------------------------------------
Greg Gigliotti Senior Portfolio Manager-- Since Mr. Gigliotti joined the
Vice President Growth and Income 1998 Investment Adviser in
Balanced (Equity) 1998 1997. From 1996 to 1997
Mid Cap Equity 1998 he was a Vice President
and senior analyst at
Franklin Mutual
Advisors, Inc., the
asset management
division of Franklin
Resources, Inc. From
1989 to 1996 he was a
Vice President and
senior analyst at Heine
Securities Corporation
which was purchased by
Franklin Resources, Inc.
- -------------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S. Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989. From 1987 to 1989,
CORE Small Cap Equity 1997 he was the senior
quantitative analyst in
the Goldman Sachs
Investment Research
Department and the
author of the monthly
Stock Selection
publication.
- -------------------------------------------------------------------------------------------------
Richard C. Lucy Senior Portfolio Manager-- Since Mr. Lucy joined the
Vice President and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. From 1983 to 1992,
Fixed Income he managed fixed income
assets at Brown Brothers
Harriman & Co.
- -------------------------------------------------------------------------------------------------
Matthew B. McLennan Senior Portfolio Manager-- Since Mr. McLennan joined the
Vice President Mid Cap Equity 1998 Investment Adviser in
Small Cap Value 1996 1995. From 1994 to 1995,
he worked in the
Investment Banking
Division of Goldman
Sachs in Australia. From
1991 to 1994, Mr.
McLennan worked at
Queensland Investment
Corporation in
Australia.
- -------------------------------------------------------------------------------------------------
Victor H. Pinter Senior Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990. From 1985 to 1990,
CORE Small Cap Equity 1997 he was a project manager
in the Information
Technology Division of
the Investment Adviser.
</TABLE>

34
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
---------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Thomas S. Price Senior Portfolio Manager-- Since Mr. Price joined the
Vice President Growth and Income 1998 Investment Adviser in
Balanced (Equity) 1998 1997. From 1996 to 1997
Mid Cap Equity 1998 he was a Vice President
and senior analyst at
Franklin Mutual
Advisors, Inc., the
asset management
division of Franklin
Resources, Inc. From
1993 to 1996 he was a
Vice President and
senior analyst at Heine
Securities Corporation
which was purchased by
Franklin Resources, Inc.
- ----------------------------------------------------------------------------------------------------
David G. Shell Senior Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1987 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. and its predecessor
firm, Eagle Asset
Management.
- ----------------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Senior Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1992 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. From 1990 to 1992,
he was an equity
research analyst with
Fidelity Management &
Research Company.
- ----------------------------------------------------------------------------------------------------
Lawrence S. Sibley Senior Portfolio Manager-- Since Mr. Sibley joined the
Vice President Growth and Income 1997 Investment Adviser in
Balanced (Equity) 1997 1997. From 1994 to 1997,
Mid Cap Equity 1997 he headed Institutional
Equity Sales at J.P.
Morgan Securities and
from 1987 to 1994, he
was a principal of
Sanford C. Bernstein &
Co. in its Institutional
Sales Department.
- ----------------------------------------------------------------------------------------------------
Karma Wilson Senior Portfolio Manager-- Since Ms. Wilson joined the
Vice President Growth and Income 1998 Investment Adviser in
Balanced (Equity) 1998 1994. Prior to 1994, she
Mid Cap Equity 1998 was an investment
analyst with Bankers
Trust Australia Ltd.
Before 1992 she was
employed at Arthur
Andersen LLP.
</TABLE>
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign markets. Such orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Goldman Sachs or its affiliates. In effecting purchases and
sales of portfolio securities for the Funds, the Investment Adviser will seek
the best price and execution of a Fund's orders. In doing so, where two or
more brokers or dealers offer comparable prices and execution for a particular
trade, consideration may be given to whether the broker or dealer provides
investment research or brokerage services or sells Shares of any Goldman Sachs
Fund. See the Additional Statement for a further description of the Investment
Adviser's brokerage allocation practices.

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 OR PERIOD ENDED
RATE* JANUARY 31, 1998*
----------- --------------------
<S> <C> <C>
GSAM
----
Balanced.................................. 0.65% 0.65%
Growth and Income......................... 0.70% 0.70%
CORE Large Cap Growth..................... 0.75% 0.60%
CORE Small Cap Equity..................... 0.85% 0.75%
Mid Cap Equity............................ 0.75% 0.75%
Small Cap Value........................... 1.00% 1.00%
GSFM
----
CORE U.S. Equity.......................... 0.75% 0.59%
Capital Growth............................ 1.00% 1.00%
</TABLE>
(footnotes on next page)

35
<PAGE>

- ---------------------
*All numbers are annualized. The difference, if any, between the stated fees
and the actual fees paid by the Funds reflects that the applicable Investment
Adviser did not charge the full amount of the fees to which it would have been
entitled. Effective September 1, 1998, the management fee for the CORE U.S.
Equity and CORE Small Cap Equity Funds will equal 0.70% and 0.85%,
respectively. The Investment Adviser may discontinue or modify any limitations
in the future at its discretion.

The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management fees, service fees,
transfer agency fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such expenses
exceed 0.01%, 0.05%, 0.00%, 0.00%, 0.04%, 0.00%, 0.10% and 0.06% per annum of
the average daily net assets of the Balanced, Growth and Income, CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity, Capital Growth, Mid Cap
Equity and Small Cap Value Funds, respectively. Such reductions or limits, if
any, 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 Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds. The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affiliates
and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to time,
enter into transactions in which other clients of
Goldman Sachs have an adverse interest. 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 a Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
entitled to receive a transfer agency fee with respect to each Fund's
Institutional and Service Shares equal, on an annual basis, to 0.04% of
average daily net assets.

YEAR 2000

36
<PAGE>

as the year "1900" rather than the year "2000," leading to computer shutdowns
or errors (commonly known as the "Year 2000 Problem"). To the extent these
systems conduct forward-looking calculations, these computer problems may
occur prior to January 1, 2000. Like other investment companies and financial
and business organizations, the Funds could be adversely affected in their
ability to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
computer systems used by the Investment Adviser or other Fund service
providers do not adequately address this problem in a timely manner. The
Investment Adviser has established a dedicated group to analyze these issues
and to implement the systems modifications necessary to prepare for the Year
2000 Problem. Currently, the Investment Adviser does not anticipate that the
transition to the 21st Century will have any material impact on its ability to
continue to service the Funds at current levels. In addition, the Investment
Adviser has sought assurances from the Funds' other service providers that
they are taking the steps necessary so that they do not experience Year 2000
Problems, and the Investment Adviser will continue to monitor the situation.
At this time, however, no assurance can be given that the actions taken by the
Investment Adviser and the Funds' other service providers will be sufficient
to avoid any adverse effect on the Funds due to the Year 2000 Problem.

EXPENSES

The Funds are responsible for the payment of their expenses. The expenses
include, without limitation; fees payable to the Investment Adviser; custodial
and transfer agency fees; service fees paid to Service Organizations;
brokerage fees and commissions; filing fees for the registration or
qualification of the Funds' Shares under federal or state securities laws,
organizational expenses; fees and expenses incurred 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 Funds for violation of any law; legal and auditing fees
and expenses (including the cost of legal and certain accounting services
rendered by employees of the Investment Adviser and its affiliates with
respect to the Funds); expenses of preparing and setting in type prospectuses,
Additional Statements, proxy material, financial reports and notices and the
printing and distributing of the same to shareholders and regulatory
authorities; compensation and expenses of the Trust's "non-interested"
Trustees; and extraordinary organizational expenses, if any, incurred by the
Trust.

NET ASSET VALUE

The NAV 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
(which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time), on each Business Day (as such term is defined under "Additional
Information"). NAV per Share of each Class is calculated by determining the
net assets attributed to each Class and dividing by the number of outstanding
Shares of that Class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.

37
<PAGE>

PERFORMANCE INFORMATION

From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at NAV. The
total return calculation assumes a complete redemption of the investment at
the end of the relevant period. Each Fund may also from time to time advertise
total return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In
addition, each Fund may furnish total return calculations based on investments
at various sales charge levels or at NAV. Any performance information which is
based on the NAV per Share would be reduced if any applicable sales charge
were taken into account. In addition to the above, each Fund may from time to
time advertise its performance relative to certain averages, performance
rankings, indices, other information prepared by recognized mutual fund
statistical services and investments for which reliable performance
information is available.

The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of Shares outstanding and entitled to receive
dividends during the period and the maximum offering price per Share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
Share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes. The Balanced and Growth and Income Funds' quotations of
distribution rate are calculated by annualizing the most recent distribution
of net investment income for a monthly, quarterly or other relevant period and
dividing this amount by the NAV per Share on the last day of the period for
which the distribution rate is being calculated.

Each Fund's total return, yield and distribution rate will be calculated
separately for each Class of Shares in existence. Because each Class of Shares
may be subject to different expenses, the total return, yield and distribution
rate calculations with respect to each Class of Shares for the same period
will differ. See "Shares of the Trust."

The Funds' performance quotations do not reflect any fees charged by a
Service Organization to its customer accounts in connection with investments
in the Funds. 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

38
<PAGE>

action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of Shares into one or more Classes. Information about the Trust's
other series and Classes is contained in separate prospectuses.

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

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

TAXATION

FEDERAL TAXES

39
<PAGE>

hands of such corporate shareholders, for the corporate dividends-received
deduction, subject to certain holding period requirements and debt financing
limitations under the Code. Certain distributions paid by a Fund in January of
a given year may be taxable to shareholders as if received the prior December
31. Shareholders will be informed annually about the amount and character of
distributions received from the Funds for federal income tax purposes.

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

Redemptions and exchanges of Shares are taxable events.

OTHER TAXES

ADDITIONAL INFORMATION

40
<PAGE>

ADDITIONAL SERVICES

The Trust, on behalf of the Funds, has adopted a Service Plan with respect to
the Service Shares which authorizes a Fund to compensate certain institutions
("Service Organizations") for providing account administration and personal and
account maintenance services to their customers who are beneficial owners of
such Shares. The Trust, on behalf of the Funds, enters into agreements with
Service Organizations which purchase Service Shares on behalf of their custom-
ers ("Service Agreements"). The Service Agreements provide for compensation to
the Service Organizations in an amount up to 0.50% (on an annualized basis) of
the average daily net assets of the Service Shares of the Fund attributable to
or held in the name of the Service Organization for its customers; provided,
however, that the fee paid for personal and account maintenance services may
not exceed 0.25% of such average daily net assets. The services provided by the
Service Organizations may include acting, directly or through an agent, as the
sole shareholder of record, maintaining account records for customers, process-
ing orders to purchase, redeem or exchange Service Shares for customers, re-
sponding to inquiries from prospective and existing shareholders and assisting
customers with investment procedures.

The Trust may authorize certain Service Organizations to accept on the
Trust's behalf, purchase, redemption and exchange orders placed by their
customers and, if approved by the Trust, to designate other intermediaries to
accept such orders. In these cases, a Fund will be deemed to have received an
order in proper form when the order is accepted by the authorized Service
Organization or intermediary on a Business Day, and the order will be priced at
a Fund's NAV per Share next determined after such acceptance. The Service
Organization or intermediary will be responsible for transmitting accepted
orders to the Trust within the period agreed upon by them. A customer may
contact its Service Organization to learn whether the Service Organization is
authorized to accept orders. Service Organizations that are authorized to
accept orders for the Trust may receive payments from the Funds or Goldman
Sachs that are in addition to the payments payable by the Trust under the
Service Plan.

Holders of Service Shares of a Fund bear all expenses and fees paid to Serv-
ice Organizations under the Service Plan as well as any other expenses which
are directly attributable to such Shares.

Service Organizations may charge fees directly to their customers who are the
beneficial owners of Service Shares in connection with their customer accounts.
These fees would be in addition to any amounts received by the Service Organi-
zation under a Service Agreement and may affect the return earned on an invest-
ment in a Fund. The Trust, on behalf of the Funds, accrues payments made pursu-
ant to a Service Agreement daily. All inquiries of beneficial owners of Service
Shares should be directed to such owners' Service Organization.

For the fiscal year ended January 31, 1998, the Trust paid the Service
Organizations fees at the annual rate of 0.50% of each Fund's average daily net
assets attributable to Service Shares.

REPORTS TO SHAREHOLDERS

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

41
<PAGE>

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 quarterly statements with re-
spect to such customer's account in lieu of an immediate confirmation of each
transaction.

DIVIDENDS

Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Service Shares will, at the election
of each shareholder, be paid: (i) in cash; or (ii) in additional Service Shares
of such Fund. This election should initially be made on a shareholder's Account
Information Form and may be changed upon written notice to Goldman Sachs at any
time prior to the record date for a particular dividend or distribution. If no
election is made, all dividends from net investment income and capital gain
distributions will be reinvested in Service Shares of the applicable Fund.

The election to reinvest dividends and distributions paid by a Fund in addi-
tional Service Shares of the Fund will not affect the tax treatment of such
dividends and distributions, which will be treated as received by the share-
holder and then used to purchase Service Shares of a Fund.

Each Fund intends that all or substantially all its net investment income and
net capital gains, after reduction by available capital losses, including any
capital losses carried forward from prior years, will be declared as dividends
for each taxable year. The Balanced and Growth and Income Funds will pay
dividends from net investment income quarterly. Each other Fund will pay
dividends from net investment income, and dividends from net realized capital
gains, reduced by available capital losses, at least annually. From time to
time, a portion of a Fund's dividends may constitute a return of capital.

At the time of an investor's purchase of Shares of a Fund a portion of the
NAV per Share may be represented by undistributed income of the Fund or real-
ized or unrealized appreciation of the Fund's portfolio securities. Therefore,
subsequent distributions on such Shares from such income or realized apprecia-
tion may be taxable to the investor even if the NAV of the investor's Shares
is, as a result of the distributions, reduced below the cost of such Shares and
the distributions (or portions thereof) represent a return of a portion of the
purchase price.

PURCHASE OF SERVICE SHARES

Customers of Service Organizations may invest in Service Shares only through
their Service Organizations. Service Shares may be purchased on any Business
Day at the NAV per Share next determined after receipt of an order by Goldman
Sachs from a Service Organization. (See "Additional Services" for a description
of limited situations where a Service Organization or other intermediary may be
authorized to accept orders for the Funds.) No sales load will be charged. Cur-
rently, the NAV is determined as of the close of regular trading on the New
York Stock Exchange (which is normally, but not always, 3:00 p.m. Chicago time,
4:00 p.m. New York time), as described under "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."

42
<PAGE>

PURCHASE PROCEDURES

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

OTHER PURCHASE INFORMATION

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

The Investment Adviser, Distributor, and/or their affiliates also pay
additional compensation, from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale of Shares of the Funds and other investment
portfolios of the Trust (such as additional payments based on new sales amounts
exceeding pre-established thresholds, or the length of time customer assets
have remained in the Trust) and, subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of Shares, as well as sponsor various educational programs, sales contests
and/or promotions in which participants may receive reimbursement of expenses,
entertainment and prizes such as travel awards, merchandise, cash, investment
research and educational information and related support materials. This
additional compensation can vary among Service Organizations depending upon
such factors as the amounts their customers have invested (or may invest) in
particular investment portfolios of the Trust, the particular program involved,
or the amount of reimbursable expenses. Additional compensation based on sales
may, but is currently not expected to, exceed 0.50% (annualized) of the amount
invested. For further information, see the Additional Statement.

The Funds reserve the right to redeem Service Shares of any Service Organiza-
tion whose account balance is less than $50 as a result of earlier redemptions.
Such redemptions will not be implemented if the value of a recordholder's ac-
count falls below the minimum account balance solely as a result of market con-
ditions. The Trust will give 60 days' prior written notice to Service Organiza-
tions whose Service Shares are being redeemed to allow them to purchase suffi-
cient additional Service Shares to avoid such redemption.

43
<PAGE>

may occur, for example, when a purchaser or group of purchaser's pattern of
frequent purchases, sales or exchanges of Service Shares of a Fund is evident,
or if purchases, sales, or exchanges are, or a subsequent abrupt redemption
might be, of a size that would disrupt management of a Fund.

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

EXCHANGE PRIVILEGE

Service Shares of the Funds may be exchanged by a Service Organization for:
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and des-
ignated as an eligible fund for this purpose; and (ii) the corresponding class
of any Goldman Sachs Money Market Fund at the NAV next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs Domestic Equity Funds--Name
of Fund and Class of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account Infor-
mation Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its Shares and consider its investment objective, policies and
applicable fees before making an exchange. Service Shares acquired by telephone
exchange must be registered in the same name(s) and have the same address as
Service Shares of the Fund for which the exchange is being made.

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

REDEMPTION OF SERVICE SHARES

The Funds will redeem their Service Shares upon request of a recordholder of
such Shares on any Business Day at the NAV next determined after the receipt of
a request in proper form by Goldman Sachs. (See "Additional Services" for a de-
scription of limited situations where a Service Organization or other interme-
diary may be authorized to accept requests for the Funds.) 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 15 days. Redemption

44
<PAGE>

requests may be made by a Service Organization by writing to or calling the
Transfer Agent at the address or telephone number set forth on the back cover
of this Prospectus. A Service Organization may request redemptions by telephone
if the optional telephone redemption privilege is elected on the Account Infor-
mation 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 concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the Funds,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.

The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Service Shares or, if the recordholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three 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 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.

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

45
<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.

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 are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to a 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 Code and consult your tax adviser.

A-1
<PAGE>

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

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

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

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

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

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

ARTHUR ANDERSEN, LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110

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

EQDOMPROSVC
501418
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS
DOMESTIC
EQUITY FUNDS

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

PROSPECTUS

SERVICE SHARES

LOGO
Goldman
Sachs

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

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

GOLDMAN SACHS DOMESTIC EQUITY FUNDS
May 1, 1998, as revised INSTITUTIONAL SHARES
September 1, 1998

GOLDMAN SACHS BALANCED FUND GOLDMAN SACHS CORE SMALL CAP
Seeks long-term capital growth EQUITY FUND
and current income through in- Seeks long-term growth of capital
vestments in equity and fixed through a broadly diversified portfolio
income securities. of equity securities of U.S. issuers
which are included in the Russell 2000
GOLDMAN SACHS GROWTH AND INCOME Index at the time of investment.
FUND
Seeks long-term growth of cap- GOLDMAN SACHS CAPITAL GROWTH FUND
ital and growth of income Seeks long-term growth of capital
through investments in equity through diversified investments in eq-
securities that are considered uity securities of companies that are
to have favorable prospects considered to have long-term capital ap-
for capital appreciation preciation potential.
and/or dividend paying abili-
ty. GOLDMAN SACHS MID CAP EQUITY FUND
Seeks long-term capital appreciation
GOLDMAN SACHS CORE U.S. EQUITY primarily through investments in equity
FUND securities of companies with public
Seeks long-term growth of cap- stock market capitalizations within the
ital and dividend income range of the market capitalization of
through a broadly diversified companies constituting the Russell
portfolio of large cap and Midcap Index at the time of investment
blue chip equity securities (currently between $400 million and $16
representing all major sectors billion).
of the U.S. economy.
GOLDMAN SACHS SMALL CAP VALUE FUND
GOLDMAN SACHS CORE LARGE CAP Seeks long-term capital growth through
GROWTH FUND investments in equity securities of com-
Seeks long-term growth of cap- panies with public stock market capital-
ital through a broadly diver- izations of $1 billion or less at the
sified portfolio of equity se- time of investment.
curities of large cap U.S. is-
suers that are expected to
have better prospects for
earnings growth than the
growth rate of the general do-
mestic economy. Dividend in-
come is a secondary considera-
tion.

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

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.

(continued on next page)
<PAGE>

(cover continued)

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 6
Financial Highlights............... 8
Investment Objectives and Policies. 16
Description of Securities.......... 21
Investment Techniques.............. 26
Risk Factors....................... 30
Investment Restrictions............ 32
Portfolio Turnover................. 32
Management......................... 32
Expenses........................... 37
Net Asset Value.................... 37
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information............ 38
Shares of the Trust................ 38
Taxation........................... 39
Additional Information............. 40
Reports to Shareholders............ 41
Dividends.......................... 41
Purchase of Institutional Shares... 41
Exchange Privilege................. 44
Redemption of Institutional Shares. 44
Appendix .......................... A-1
Account Information Form
</TABLE>

2
<PAGE>

FUND HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

- --------------------------------------------------------------------------------
<TABLE>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
---------- ---------------- --------------------------------------- -------------
<S> <C> <C> <C>
BALANCED Long-term Between 45% and 65% of total assets in Lehman Aggregate
FUND capital growth equity securities and at least 25% in Bond Index and
and current fixed-income senior securities. the Standard &
income. Poor's Index of
500 Common
Stocks (the "S&P
500 Index")
- ----------------------------------------------------------------------------------------
GROWTH AND Long-term growth At least 65% of total assets in equity S&P 500 Index
INCOME FUND of capital and securities that the Investment Adviser
growth of considers to have favorable prospects
income. for capital appreciation and/or
dividend-paying ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth At least 90% of total assets in equity S&P 500 Index
EQUITY FUND of capital and securities of U.S. issuers, including
dividend income. certain foreign issuers traded in the
U.S. The Fund seeks to achieve its
objective through a broadly diversified
portfolio of large cap and blue chip
equity securities representing all
major sectors of the U.S. economy. The
Fund's investments are selected using
both a variety of quantitative
techniques and fundamental research in
seeking to maximize the Fund's
expected return, while maintaining
risk, style, capitalization and
industry characteristics similar to the
S&P 500 Index.
- ----------------------------------------------------------------------------------------
CORE LARGE Long-term growth At least 90% of total assets in equity Russell 1000
CAP GROWTH of capital. securities of U.S. issuers, including Growth Index
FUND Dividend income certain foreign issuers traded in the
is a secondary U.S. The Fund seeks to achieve its
consideration. objective through a broadly diversified
portfolio of equity securities of large
cap U.S. issuers that are expected to
have better prospects for earnings
growth than the growth rate of the
general domestic economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected returns,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
1000 Growth Index.
- ----------------------------------------------------------------------------------------
</TABLE>
(continued)

3
<PAGE>

<TABLE>

INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ----------- ---------------- --------------------------------------- ------------
<S> <C> <C> <C>
CORE SMALL Long-term growth At least 90% of total assets in equity Russell 2000
CAP EQUITY of capital. securities of U.S. issuers, including Index
FUND certain foreign issuers traded in the
U.S. The Fund seeks to achieve its
investment objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which are
included in the Russell 2000 Index at
the time of investment. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
2000 Index.
- --------------------------------------------------------------------------------------
CAPITAL Long-term At least 90% of total assets in a S&P 500 Index
GROWTH FUND capital growth. diversified portfolio of equity
securities. The Investment Adviser
considers long-term capital
appreciation potential in selecting
investments.
- --------------------------------------------------------------------------------------
MID CAP Long-term At least 65% of total assets in Russell Midcap
EQUITY FUND capital equity securities of companies with Index
appreciation. public stock market capitalizations
within the range of the market
capitalization of companies
constituting the Russell Midcap Index
at the time of investment (currently
between $400 million and $16 billion)
("Mid-Cap Companies").
- --------------------------------------------------------------------------------------
SMALL CAP Long-term At least 65% of total assets in equity Russell 2000
VALUE FUND capital growth. securities of companies with public
stock market capitalizations of $1
billion or less at the time of
investment.
</TABLE>

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

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

4
<PAGE>

WHO MANAGES THE FUNDS?

Goldman Sachs Asset Management serves as Investment Adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap
Equity, Mid Cap Equity and Small Cap Value Funds. Goldman Sachs Funds
Management, L.P. serves as Investment Adviser to the CORE U.S. Equity and
Capital Growth Funds. As of July 24, 1998, the Investment Adviser,
together with its affiliates, acted as investment adviser or distributor
for assets in excess of $168 billion.

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's Shares (the
"Distributor").

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000,000 or $10,000,000 (depending
upon an investor's eligibility) in Institutional Shares of a 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 ("NAV")
without any sales load. See "Purchase of Institutional Shares."

HOW DO I SELL MY INSTITUTIONAL SHARES?

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS
--------------------------- CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
Small Cap Value....................... Annually Annually
</TABLE>

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

5
<PAGE>

FEES AND EXPENSES
(INSTITUTIONAL SHARES)

<TABLE>
<CAPTION>
CORE CORE
GROWTH LARGE SMALL MID SMALL
AND CORE U.S. CAP CAP CAPITAL CAP CAP
BALANCED INCOME EQUITY GROWTH EQUITY GROWTH EQUITY VALUE
FUND FUND FUND FUND FUND FUND FUND FUND
-------- ------ --------- ------ ------ ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends............. None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of
average daily net
assets)/1/
Management Fees (after
applicable
limitations)/2/....... 0.65% 0.70% 0.70% 0.60% 0.85% 1.00% 0.75% 1.00%
Distribution Fees...... None None None None None None None None
Other Expenses (after
applicable
limitations)/3/....... 0.05% 0.09% 0.04% 0.04% 0.08% 0.04% 0.14% 0.10%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE
LIMITATIONS)/4/........ 0.70% 0.79% 0.74% 0.64% 0.93% 1.04% 0.89% 1.10%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- --------------------
/1/ The Funds' annual operating expenses have been restated to reflect fees and
expenses in effect as of September 1, 1998.
/2/ The Investment Adviser has voluntarily agreed not to impose a portion of
the management fee on the CORE U.S. Equity and CORE Large Cap Growth Funds
equal to 0.05% and 0.15%, respectively. Without such limitations,
management fees would be 0.75% of each Fund's average daily net assets.
/3/ The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, transfer agency fees (equal to
0.04% of the average daily net assets of each Fund's Institutional Shares),
taxes, interest and brokerage fees and litigation, indemnification and
other extraordinary expenses) for each Fund to the extent such expenses
exceed the following percentages of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced......................................................... 0.01%
Growth and Income................................................ 0.05%
CORE U.S. Equity................................................. 0.00%
CORE Large Cap Growth............................................ 0.00%
CORE Small Cap Equity............................................ 0.04%
Capital Growth................................................... 0.00%
Mid Cap Equity................................................... 0.10%
Small Cap Value.................................................. 0.06%
</TABLE>

/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Institutional Shares of the Funds would be as
set forth below:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced............................................... 0.28% 0.93%
Growth and Income...................................... 0.12% 0.82%
CORE U.S. Equity....................................... 0.12% 0.87%
CORE Large Cap Growth.................................. 0.22% 0.97%
CORE Small Cap Equity.................................. 0.48% 1.33%
Capital Growth......................................... 0.10% 1.10%
Mid Cap Equity......................................... 0.16% 0.91%
Small Cap Value........................................ 0.13% 1.13%
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
Balanced...................................... $ 7 $22 $39 $87
Growth and Income............................. 8 25 44 98
CORE U.S. Equity.............................. 8 24 41 92
CORE Large Cap Growth......................... 7 20 36 80
CORE Small Cap Equity......................... 9 30 51 114
Capital Growth................................ 11 33 57 127
Mid Cap Equity................................ 9 28 49 110
Small Cap Value............................... 11 35 61 134
</TABLE>

The Investment Adviser and Goldman Sachs may modify or discontinue any of
the limitations set forth above in the future at their discretion. The
information set forth in the foregoing table and hypothetical example relates
only to Institutional Shares of the Funds. Each Fund also offers Service
Shares and Class A, Class B and Class C Shares, which are subject to different
fees and expenses (which affect performance), have different minimum
investment requirements and are entitled to different services. Information
regarding Service, Class A, Class B and Class C Shares may be obtained from an
investor's sales representative or from Goldman Sachs by calling the number on
the back cover of this Prospectus.

Certain institutions may also receive other compensation in connection with
the sales and distribution of Institutional Shares or for services to their
customer's accounts and/or the Funds. For additional information regarding
such compensation, see "Purchase of Institutional Shares" in the Prospectus
and the Additional Statement.

7
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

8
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS)
FROM INVESTMENT
OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------ ------------------------------------------------
NET IN EXCESS OF
REALIZED AND FROM NET NET REALIZED NET
NET ASSET NET UNREALIZED FROM IN EXCESS REALIZED GAIN GAIN ON INCREASE
VALUE, INVESTMENT GAIN ON NET OF NET ON INVESTMENT INVESTMENT ADDITIONAL (DECREASE)
BEGINNING INCOME INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES PAID-IN IN NET
OF PERIOD (LOSS) AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS CAPITAL ASSET VALUE
--------- ---------- ------------ ---------- ---------- ------------- ------------ ---------- -----------
GROWTH AND INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.18 $0.11 $5.27 $(0.11) $ -- $(2.52) $ -- $ -- $2.75
1998--Class B
Shares.......... 23.10 0.04 5.14 -- (0.03) (2.45) (0.07) -- 2.63
1998--Class C
Shares(b)....... 28.20 (0.01) 0.06 -- (0.03) (1.42) (1.10) -- (2.50)
1998--
Institutional
Shares.......... 23.19 0.27 5.23 (0.22) -- (0.24) (2.28) -- 2.76
1998--Service
Shares.......... 23.17 0.14 5.23 (0.06) (0.04) (2.52) -- -- 2.75
- ----------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 19.98 0.35 5.18 (0.35) (0.01) (1.97) -- -- 3.20
1997--Class B
Shares(b)....... 20.82 0.17 4.31 (0.17) (0.06) (1.97) -- -- 2.28
1997--Institu-
tional
Shares(b)....... 21.25 0.29 3.96 (0.30) (0.04) (1.97) -- -- 1.94
1997--Service
Shares(b)....... 20.71 0.28 4.50 (0.28) (0.07) (1.97) -- -- 2.46
- ----------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 15.80 0.33 4.75 (0.30) -- (0.60) -- -- 4.18
- ----------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 15.79 0.20(g) 0.30(g) (0.20) (0.07) (0.33) -- 0.11(g) 0.01
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 14.18 0.15 1.68 (0.15) (0.01) (0.06) -- -- 1.61
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-------------------------
RATIO
OF NET RATIO
NET RATIO INVESTMENT OF NET
NET ASSET ASSETS AT OF NET INCOME (LOSS) RATIO INVESTMENT
VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO TO AVERAGE OF EXPENSES INCOME (LOSS)
END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET NET TO AVERAGE TO AVERAGE
PERIOD RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- ---------- --------- ---------- ---------- ----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $25.93 23.71% 61.95% $.0590 $1,216,582 1.25% 0.43% 1.42% 0.26%
1998--Class B
Shares.......... 25.73 22.87 61.95 .0590 307,815 1.94 (0.35) 1.94 (0.35)
1998--Class C
Shares(b)....... 25.70 0.51(d) 61.95 .0590 31,686 1.99(c) (0.48)(c) 1.99(c) (0.48)(c)
1998--
Institutional
Shares.......... 25.95 24.24 61.95 .0590 36.225 0.83 0.76 0.83 0.76
1998--Service
Shares.......... 25.92 23.63 61.95 .0590 8,893 1.32 0.32 1.32 0.32
- ----------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 23.18 28.42 53.03 .0586 615,103 1.22 1.60 1.43% 1.39%
1997--Class B
Shares(b)....... 23.10 22.23(d) 53.03 .0586 17,346 1.93(c) 0.15(c) 1.93(c) 0.15(c)
1997--Institu-
tional
Shares(b)....... 23.19 20.77(d) 53.03 .0586 193 0.82(c) 1.36(c) 0.82(c) 1.36(c)
1997--Service
Shares(b)....... 23.17 23.87(d) 53.03 .0586 3,174 1.32(c) 0.94(c) 1.32(c) 0.94(c)
- ----------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 19.98 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
- ----------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 15.80 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994--Class A
Shares(b)....... 15.79 13.08(d) 102.23 -- 41,528 1.25(c) 1.23(c) 3.24(c) (0.76)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the
investment at the NAV at the end of the period and no sales or redemption
charges. Total return would be reduced if a sales or redemption charge
were taken into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on February 5, 1993, May 1, 1996, August 15, 1997, June 3, 1996
and March 6, 1996, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Calculated based on the average Shares outstanding methodology.

9
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- -----------------------------------------------
FROM NET IN EXCESS OF NET
NET REALIZED REALIZED NET REALIZED INCREASE/ NET
NET ASSET AND UNREALIZED IN EXCESS GAIN ON GAIN ON (DECREASE) ASSET
VALUE, NET GAIN (LOSS) ON FROM NET OF NET INVESTMENT INVESTMENT IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT AND FUTURES AND FUTURES ASSET END OF TOTAL
OF PERIOD INCOME AND FUTURES INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE PERIOD RETURN(A)
--------- ---------- -------------- ---------- ---------- ------------ ------------ ---------- ------ ---------
CORE U.S. EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $23.32 $0.11 $5.63 $(0.12) $ -- $(2.35) $ -- $3.27 $26.59 24.96%
1998--Class B
Shares.......... 23.18 0.11 5.44 -- (0.06) (2.00) (.35) 3.14 26.32 24.28
1998--Class C
Shares(b)....... 27.48 0.03 1.22 -- (0.14) (0.67) (1.68) (1.24) 26.24 4.85(d)
1998--Institu-
tional Shares... 23.44 0.30 5.65 (0.24) (.01) (1.33) (1.02) 3.35 26.79 25.76
1998--Service
Shares.......... 23.27 0.19 5.57 (0.07) (.08) (2.35) -- 3.26 26.53 25.11
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 19.66 0.16 4.46 (0.16) -- (0.80) -- 3.66 23.32 23.75
1997--Class B
Shares(b)....... 20.44 0.04 3.70 (0.04) (0.16) (0.80) -- 2.74 23.18 18.59(d)
1997--Institu-
tional Shares... 19.71 0.30 4.51 (0.28) -- (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(b)....... 21.02 0.13 3.15 (0.13) (0.10) (0.80) -- 2.25 23.27 15.92(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) -- (0.41) -- 5.05 19.66 38.63
1996--Institu-
tional
Shares(b)....... 16.97 0.16 3.23 (0.24) -- (0.41) -- 2.74 19.71 20.14(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) -- (0.94) -- (1.32) 14.61 (1.10)
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) -- (1.61) -- 0.47 15.93 15.12
- ---------------------------------------------------------------------------------------------------------------------------------
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- -- 0.41 15.46 4.30
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 14.17 0.11 0.88 (0.11) -- -- -- 0.88 15.05 7.01(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
----------------------
RATIO OF RATIO OF RATIO OF
NET NET RATIO OF NET
NET EXPENSES INVESTMENT EXPENSES INVESTMENT
ASSETS AT TO INCOME TO INCOME
PORTFOLIO AVERAGE END OF AVERAGE (LOSS) TO AVERAGE (LOSS) TO
TURNOVER COMMISSION PERIOD NET AVERAGE NET AVERAGE
RATE RATE(F) (IN 000S) ASSETS NET ASSETS ASSETS NET ASSETS
--------- ---------- --------- ---------- ------------ --------- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 65.89% $.0651 $398,393 1.28% 0.51% 1.47% 0.32%
1998--Class B
Shares.......... 65.89 .0651 59,208 1.79 (0.05) 1.96 (0.22)
1998--Class C
Shares(b)....... 65.89 .0651 6,267 1.78(c) (0.21)(c) 1.95(c) (0.38)(c)
1998--Institu-
tional Shares... 65.89 .0651 202,893 0.65 1.16 0.82 0.99
1998--Service
Shares.......... 65.89 .0651 7,841 1.15 0.62 1.32 0.45
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 37.78 .0417 225,968 1.29 0.91 1.53 0.67
1997--Class B
Shares(b)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) 0.11(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(b)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(b)....... 39.35 -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
- ---------------------------------------------------------------------------------------------------------------------------------
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1992--Class A
Shares(b)....... 135.02 -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class B, Class C, Institutional and Service Share
activity commenced on May 24, 1991, May 1, 1996, August 15, 1997, June 15,
1995 and June 7, 1996, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

10
<PAGE>

11
<PAGE>

12
<PAGE>

13
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ---------------------------------------------
NET REALIZED
AND UNREALIZED NET
NET REALIZED LOSS ON FROM NET INCREASE NET
NET ASSET AND UNREALIZED FOREIGN IN EXCESS REALIZED (DECREASE) ASSET
VALUE, NET GAIN ON CURRENCY FROM NET OF NET GAIN ON IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS RELATED INVESTMENT INVESTMENT INVESTMENT ASSET END OF
OF PERIOD INCOME AND OPTIONS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
MID CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... $23.63 $0.09 $0.77 $(0.01) $(0.06) $(0.04) $(2.77) $(2.02) $21.61
1998--Class B
Shares(b)....... 23.63 0.06 0.75 (0.01) (0.09) -- (2.77) (2.06) 21.57
1998--Class C
Shares(b)....... 23.63 0.06 0.77 (0.01) (0.09) -- (2.77) (2.04) 21.59
1998--Institu-
tional Shares... 18.73 0.16 5.70 (0.04) (0.13) -- (2.77) 2.92 21.65
1998--Service
Shares(b)....... 23.01 0.09 1.41 (0.01) (0.11) -- (2.77) (1.39) 21.62
- ------------------------------------------------------------------------------------------------------------------------
1997--Institu-
tional Shares... 15.91 0.24 3.77 -- (0.24) (0.93) (0.02) 2.82 18.73
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 15.00 0.13 0.90 -- (0.12) -- -- 0.91 15.91
<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
------------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
----------- ---------- ---------- ------- ---------- ------------ ---------- -------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares(b)....... 3.42%(d) 62.60% $0.0540 $90,588 1.35%(c) 0.33%(c) 1.47%(c) 0.21%(c)
1998--Class B
Shares(b)....... 3.17(d) 62.60 0.0540 28,743 1.85(c) (0.20)(c) 1.97(c) (0.32)(c)
1998--Class C
Shares(b)....... 3.27(d) 62.60 0.0540 6,445 1.85(c) (0.23)(c) 1.97(c) (0.35)(c)
1998--Institu-
tional Shares... 30.86 62.60 0.0540 236,440 0.85 0.78 0.97 0.66
1998--Service
Shares(b)....... 6.30(d) 62.60 0.0540 8 1.35(c) 0.63 (c) 1.43(c) 0.51 (c)
- ------------------------------------------------------------------------------------------------------------------------
1997--Institu-
tional Shares... 25.63 74.03 0.0547 145,253 0.85 1.35 0.91 1.29
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1996--Institu-
tional
Shares(b)....... 6.89(d) 58.77(d) -- 135,671 0.85(c) 1.67(c) 0.98(c) 1.54(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on August 15, 1997, August 15, 1997, August 15, 1997, August 1,
1995 and July 18, 1997, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

14
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET NET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET INCREASE
VALUE, INVESTMENT GAIN (LOSS) ON NET ON INVESTMENT OF NET (DECREASE) NET ASSET
BEGINNING INCOME INVESTMENT AND INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET VALUE, END TOTAL
OF PERIOD (LOSS) OPTIONS TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE OF PERIOD RETURN(A)
--------- ---------- -------------------- ---------- ------------- ---------- ------------ ---------- ---------
SMALL CAP VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $20.91 $0.14 $5.33 $ -- $(2.33) $ -- $ 3.14 $24.05 26.17%
1998--Class B
Shares.......... 20.80 (0.01) 5.27 -- (2.33) -- 2.93 23.73 25.29
1998--Class C
Shares(b)....... 24.69 (0.06) 1.43 -- (1.99) (0.34) (0.96) 23.73 5.51(d)
1998--Institu-
tional
Shares(b)....... 24.91 0.03 1.48 -- (2.05) (0.28) (0.82) 24.09 6.08(d)
1998--Service
Shares(b)....... 24.91 (0.01) 1.48 -- (2.02) (0.31) (0.86) 24.05 5.91(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 17.29 (0.21) 4.92 -- (1.09) -- 3.62 20.91 27.28
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) -- 0.01 20.80 5.39(d)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) -- 1.15 17.29 7.20
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24) (4.53) 16.14 (17.53)
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) -- 3.99 20.67 30.13
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 0.03 2.50 (0.03) -- -- 2.50 16.68 17.86(d)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
--------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO EXPENSES TO INCOME (LOSS)
TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET AVERAGE TO AVERAGE NET
RATE RATE(F) (IN 000S) NET ASSETS ASSETS NET ASSETS ASSETS
--------- ---------- ---------- ------------ ---------------- ----------- --------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... 84.81% $0.0517 $370,246 1.54% (0.28)% 1.76% (0.50)%
1998--Class B
Shares.......... 84.81 0.0517 42,677 2.29 (0.92) 2.29 (0.92)
1998--Class C
Shares(b)....... 84.81 0.0517 5,604 2.09(c) (0.79)(c) 2.09(c) (0.79)(c)
1998--Institu-
tional
Shares(b)....... 84.81 0.0517 14,626 1.16(c) 0.27(c) 1.16(c) 0.27(c)
1998--Service
Shares(b)....... 84.81 0.0517 2 1.45(c) (0.07)(c) 1.45(c) (0.07)(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 99.46 .0461 212,061 1.60 (0.72) 1.85 (0.97)
1997--Class B
Shares(b)....... 99.46 .0461 3,674 2.35(c) (1.63)(c) 2.35(c) (1.63)(c)
- ---------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
- ---------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
- ---------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 7.12 -- 59,339 1.65(c) 0.62(c) 2.70(c) (0.43)(c)
</TABLE>
- -----------
(a) Assumes investment at the NAV at the beginning of the period, reinvestment
of all dividends and distributions, a complete redemption of the investment
at the NAV at the end of the period and no sales or redemption charges.
Total return would be reduced if a sales or redemption charge were taken
into account.
(b) Class A, Class B, Class C, Institutional and Service Share activity
commenced on October 22, 1992, May 1, 1996, August 15, 1997, August 15,
1997 and August 15, 1997, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per Share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a Fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

15
<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.

16
<PAGE>

The weightings assigned to the factors in the Multifactor Model used by the
CORE Funds are derived using a statistical formulation that considers each
factor's historical performance in different market environments. As such, the
Multifactor Model is designed to evaluate each security using only the factors
that are statistically related to returns in the anticipated market
environment. Because it includes many disparate factors, the Investment
Adviser believes that the Multifactor Model is broader in scope and provides a
more thorough evaluation than most conventional, quantitative models.
Securities and markets ranked highest by the Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.

Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.

17
<PAGE>

BALANCED FUND

GROWTH AND INCOME FUND

Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.

18
<PAGE>

CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")

For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."

CORE LARGE CAP GROWTH FUND

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
certain foreign issuers that are traded in the United States. The Investment
Adviser emphasizes a company's growth prospects in analyzing equity securities
to be purchased by the Fund. The Fund's investments are selected using both a
variety of quantitative techniques and fundamental research in seeking to
maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the Russell 1000 Growth
Index. The Fund seeks a portfolio comprised of companies with above average
capitalizations and earnings growth expectations and below average dividend
yields. The Fund may invest only in fixed-income securities that are
considered cash equivalents.

For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."

CORE SMALL CAP EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
certain foreign issuers that are traded in the United States. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry

19
<PAGE>

For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."

CAPITAL GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.

MID CAP EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

SMALL CAP VALUE FUND (FORMERLY, THE "SMALL CAP EQUITY FUND")

Objective. The Fund's investment objective is to provide investors with
long-term capital growth.

20
<PAGE>

DESCRIPTION OF SECURITIES

CONVERTIBLE SECURITIES

21
<PAGE>

FOREIGN INVESTMENTS

INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts

22
<PAGE>

FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced Fund
may have currency exposure independent of its 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 foreign currencies on a spot
basis and may also purchase or sell forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, the Balanced
Fund may enter into such contracts to seek to increase total return when the
Investment Adviser anticipates that the foreign currency will appreciate or
depreciate in value, but securities denominated or quoted in that currency do
not present attractive investment opportunities and are not held in the Fund's
portfolio. When entered into to seek to enhance return, forward foreign
currency exchange contracts are considered speculative. The Balanced 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 a Fund enters into a forward foreign currency
exchange contract to buy foreign currency for any purpose or the Balanced Fund
enter into forward foreign currency exchange contracts to sell foreign
currency to seek to increase total return, the Fund will segregate cash or
liquid assets in an amount equal to the value of the Fund's total assets
committed to the consummation of the forward contract, or otherwise cover its
position in a manner permitted by the SEC. The Fund will incur costs in
connection with conversions between various currencies. A Fund may hold
foreign currency received in connection with investments in foreign securities
when, in the judgment of the Investment Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rate.

23
<PAGE>

FIXED-INCOME SECURITIES

24
<PAGE>

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.

25
<PAGE>

REAL ESTATE INVESTMENT TRUSTS ("REITS")

INVESTMENT TECHNIQUES

OPTIONS ON SECURITIES AND SECURITIES INDICES

OPTIONS ON FOREIGN CURRENCIES

26
<PAGE>

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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

27
<PAGE>

STANDARD AND POOR'S DEPOSITORY RECEIPTS

EQUITY SWAPS

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

ILLIQUID AND RESTRICTED SECURITIES

28
<PAGE>

REPURCHASE AGREEMENTS

LENDING OF PORTFOLIO SECURITIES

MORTGAGE DOLLAR ROLLS

29
<PAGE>

SHORT SALES AGAINST-THE-BOX

TEMPORARY INVESTMENTS

MISCELLANEOUS TECHNIQUES

RISK FACTORS

30
<PAGE>

RISKS OF INVESTING IN FIXED-INCOME SECURITIES. When interest rates decline,
the market value of fixed-income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed-income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.

31
<PAGE>

INVESTMENT RESTRICTIONS

PORTFOLIO TURNOVER

MANAGEMENT

TRUSTEES AND OFFICERS

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

INVESTMENT ADVISERS

INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as investment adviser to the Balanced, Growth and Income, CORE Large Cap
Growth, CORE Small Cap Equity, Mid Cap Equity and Small Cap Value Funds.
Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs Funds
Management, L.P., One New York Plaza, New York, New York 10004, a Delaware
limited partnership which is an affiliate of Goldman Sachs, serves as the
investment adviser to the CORE U.S. Equity and Capital Growth Funds. Goldman
Sachs Funds Management, L.P. registered as an investment adviser in 1990. The
Goldman Sachs Group, L.P., which controls the Investment Advisers, has
announced that it will pursue an initial public offering of the firm during
the fourth quarter of 1998; if the public offering is consummated, The Goldman
Sachs Group, L.P. will merge into the new public company, which will be called
The Goldman Sachs Group, Inc. As of July 24, 1998, GSAM and GSFM together with
their affiliates, acted as investment adviser or distributor for assets in
excess of $168 billion.

32
<PAGE>

FUND MANAGERS

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
------------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
George D. Adler Senior Portfolio Manager-- Since Mr. Adler joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1990 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. From 1988 to 1990
he was a director of
portfolio management at
Banc One in Ohio.
- ------------------------------------------------------------------------------------------------------
Eileen A. Aptman Senior Portfolio Manager-- Since Ms. Aptman joined the
Vice President Mid Cap Equity 1996 Investment Adviser in
Small Cap Value 1997 1993. From 1990 to 1993,
she worked at Delphi
Management as an equity
analyst, focusing her
research efforts on
value stocks.
- ------------------------------------------------------------------------------------------------------
Jonathan A. Beinner Senior Portfolio Manager-- Since Mr. Beinner joined the
Managing Director and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. Fixed 1990. From 1988 to 1990,
Income he worked as a portfolio
manager at Franklin
Savings Association in
the trading and
arbitrage group.
- ------------------------------------------------------------------------------------------------------
Melissa Brown Senior Portfolio Manager-- Since Ms. Brown joined the
Vice President CORE U.S. Equity 1998 Investment Adviser in
CORE Large Cap Growth 1998 1998. From 1984 to 1998,
CORE Small Cap Equity 1998 she was the director of
Quantitative Equity
Research and served on
the Investment Policy
Committee at Prudential
Securities.
- ------------------------------------------------------------------------------------------------------
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1992.
CORE Small Cap Equity 1997
- ------------------------------------------------------------------------------------------------------
Robert G. Collins Senior Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1991 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. His past
experiences include work
as a special situations
analyst with Raymond
James & Associates for
five years.
</TABLE>

33
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. From 1994 to 1997,
he was the Chief
Investment Officer and
Chairman of Liberty
Investment Management,
Inc. He was a portfolio
manager and president at
Liberty's predecessor
firm, Eagle Asset
Management, from 1984 to
1994.
- -------------------------------------------------------------------------------------------------
Gregory H. Ekizian Senior Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1990 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. and its predecessor
firm, Eagle Asset
Management.
- -------------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Mid Cap Equity 1998 Investment Adviser in
Small Cap Value 1992 1991. In 1998, he became
responsible for managing
the Investment Adviser's
Value team. During 1991,
he served as a managing
director at Plaza
Investment Managers, the
investment subsidiary of
GEICO Corp., a major
insurance company. From
1986 to 1991, he was
employed by Goldman
Sachs as a vice
president in the
investment research
department and was
responsible for the
formation of the firm's
Emerging Growth Research
Group.
- -------------------------------------------------------------------------------------------------
Greg Gigliotti Senior Portfolio Manager-- Since Mr. Gigliotti joined the
Vice President Growth and Income 1998 Investment Adviser in
Balanced (Equity) 1998 1997. From 1996 to 1997
Mid Cap Equity 1998 he was a Vice President
and senior analyst at
Franklin Mutual
Advisors, Inc., the
asset management
division of Franklin
Resources, Inc. From
1989 to 1996 he was a
Vice President and
senior analyst at Heine
Securities Corporation
which was purchased by
Franklin Resources, Inc.
- -------------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S. Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989. From 1987 to 1989,
CORE Small Cap Equity 1997 he was the senior
quantitative analyst in
the Goldman Sachs
Investment Research
Department and the
author of the monthly
Stock Selection
publication.
- -------------------------------------------------------------------------------------------------
Richard C. Lucy Senior Portfolio Manager-- Since Mr. Lucy joined the
Vice President and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. From 1983 to 1992,
Fixed Income he managed fixed income
assets at Brown Brothers
Harriman & Co.
- -------------------------------------------------------------------------------------------------
Matthew B. McLennan Senior Portfolio Manager-- Since Mr. McLennan joined the
Vice President Mid Cap Equity 1998 Investment Adviser in
Small Cap Value 1996 1995. From 1994 to 1995,
he worked in the
Investment Banking
Division of Goldman
Sachs in Australia. From
1991 to 1994, Mr.
McLennan worked at
Queensland Investment
Corporation in
Australia.
- -------------------------------------------------------------------------------------------------
Victor H. Pinter Senior Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990. From 1985 to 1990,
CORE Small Cap Equity 1997 he was a project manager
in the Information
Technology Division of
the Investment Adviser.
</TABLE>

34
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
---------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Thomas S. Price Senior Portfolio Manager-- Since Mr. Price joined the
Vice President Growth and Income 1998 Investment Adviser in
Balanced (Equity) 1998 1997. From 1996 to 1997
Mid Cap Equity 1998 he was a Vice President
and senior analyst at
Franklin Mutual
Advisors, Inc., the
asset management
division of Franklin
Resources, Inc. From
1993 to 1996 he was a
Vice President and
senior analyst at Heine
Securities Corporation
which was purchased by
Franklin Resources, Inc.
- ----------------------------------------------------------------------------------------------------
David G. Shell Senior Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1987 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. and its predecessor
firm, Eagle Asset
Management.
- ----------------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Senior Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. From 1992 to 1997,
he was a portfolio
manager at Liberty
Investment Management,
Inc. From 1990 to 1992,
he was an equity
research analyst with
Fidelity Management &
Research Company.
- ----------------------------------------------------------------------------------------------------
Lawrence S. Sibley Senior Portfolio Manager-- Since Mr. Sibley joined the
Vice President Growth and Income 1997 Investment Adviser in
Balanced (Equity) 1997 1997. From 1994 to 1997,
Mid Cap Equity 1997 he headed Institutional
Equity Sales at J.P.
Morgan Securities and
from 1987 to 1994, he
was a principal of
Sanford C. Bernstein &
Co. in its Institutional
Sales Department.
- ----------------------------------------------------------------------------------------------------
Karma Wilson Senior Portfolio Manager-- Since Ms. Wilson joined the
Vice President Growth and Income 1998 Investment Adviser in
Balanced (Equity) 1998 1994. Prior to 1994, she
Mid Cap Equity 1998 was an investment
analyst with Bankers
Trust Australia Ltd.
Before 1992 she was
employed at Arthur
Andersen LLP.
</TABLE>
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign markets. Such orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Goldman Sachs or its affiliates. In effecting purchases and
sales of portfolio securities for the Funds, the Investment Adviser will seek
the best price and execution of a Fund's orders. In doing so, where two or
more brokers or dealers offer comparable prices and execution for a particular
trade, consideration may be given to whether the broker or dealer provides
investment research or brokerage services or sells Shares of any Goldman Sachs
Fund. See the Additional Statement for a further description of the Investment
Adviser's brokerage allocation practices.

35
<PAGE>

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds. The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affiliates
and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to time,
enter into transactions in which other clients of
Goldman Sachs have an adverse interest. 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

YEAR 2000

36
<PAGE>

EXPENSES

NET ASSET VALUE

The NAV 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
(which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time), on each Business Day (as such term is defined under "Additional
Information"). NAV per Share of each Class is calculated by determining the
net assets attributed to each Class and dividing by the number of outstanding
Shares of that Class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.

37
<PAGE>

PERFORMANCE INFORMATION

From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at NAV. The
total return calculation assumes a complete redemption of the investment at
the end of the relevant period. Each Fund may also from time to time advertise
total return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In
addition, each Fund may furnish total return calculations based on investments
at various sales charge levels or at NAV. Any performance information which is
based on the NAV per Share would be reduced if any applicable sales charge
were taken into account. In addition to the above, each Fund may from time to
time advertise its performance relative to certain averages, performance
rankings, indices, other information prepared by recognized mutual fund
statistical services and investments for which reliable performance
information is available.

SHARES OF THE TRUST

38
<PAGE>

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

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

TAXATION

FEDERAL TAXES

39
<PAGE>

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

Redemptions and exchanges of Shares are taxable events.

OTHER TAXES

ADDITIONAL INFORMATION

40
<PAGE>

REPORTS TO SHAREHOLDERS

Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. To
eliminate unnecessary duplication, only one copy of such reports may be sent to
recordholders with the same mailing address. Recordholders who desire a
duplicate copy of such reports to be mailed to their residence should contact
Goldman Sachs at 800-621-2550. Each recordholder of Institutional Shares will
also be provided with a printed confirmation for each transaction in its
account and a quarterly account statement. A year-to-date statement for any
account will be provided upon request made to Goldman Sachs. The Funds do not
generally provide subaccounting services with respect to beneficial ownership
of Institutional Shares.

DIVIDENDS

Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Institutional Shares will, at the
election of each shareholder, be paid: (i) in cash; or (ii) in additional
Institutional Shares of such Fund. This election should initially be made on a
shareholder's Account Information Form and may be changed upon written notice
to Goldman Sachs at any time prior to the record date for a particular dividend
or distribution. If no election is made, all dividends from net investment
income and capital gain distributions will be reinvested in Institutional
Shares of the applicable Fund.

The election to reinvest dividends and distributions paid by a Fund in
additional Institutional Shares of the Fund will not affect the tax treatment
of such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Institutional Shares of a Fund.

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

PURCHASE OF INSTITUTIONAL SHARES

Institutional Shares may be purchased on any Business Day at the NAV per
Share next determined after receipt of an order. No sales load will be charged.
Currently, the NAV is determined as of the close of regular trading on the New
York Stock Exchange (which is normally, but not always, 3:00 p.m. Chicago time,
4:00 p.m. New York time), as described under "Net Asset Value." Purchases of
Institutional Shares of the Funds must be

41
<PAGE>

settled within three (3) Business Days of the receipt of a complete purchase
order. Payment of the proceeds of redemption of Shares purchased by check may
be delayed for a period of time as described under "Redemption of Institutional
Shares."

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

PURCHASE PROCEDURES

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

MINIMUM INITIAL INVESTMENTS

Institutional Shares of the Fund are offered to: (a) banks, trust companies
or other types of depository institutions investing for their own account or on
behalf of their clients; (b) pension and profit sharing plans, pension funds
and other company-sponsored benefit plans; (c) any state, county, city or any
instrumentality, department, authority or agency thereof; (d) corporations and
other for-profit business organizations with assets of at least $100 million or
publicly traded securities outstanding; (e) "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; and (f)
registered investment advisers investing for accounts for which they receive
asset-based fees. With respect to these investors, the minimum initial
investment is $1,000,000 in Institutional Shares of a Fund alone or in
combination with other assets under the management of GSAM and its affiliates.

The foregoing minimum investment requirements may be waived at the discretion
of the Trust's officers. In addition, 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.

OTHER PURCHASE INFORMATION

42
<PAGE>

behalf purchase, redemption and exchange orders placed by or on behalf of such
customers and, if approved by the Trust, to designate other intermediaries to
accept such orders. In these cases, a Fund will be deemed to have received an
order in proper form by or on behalf of a customer when the order is accepted
by the authorized institution or intermediary on a Business Day, and the order
will be priced at a Fund's NAV per Share next determined after such acceptance.
The institution or intermediary will be responsible for transmitting accepted
orders to the Trust within the period agreed upon by them. A customer should
contact an institution to learn whether it is authorized to accept orders for
the Trust. Such institutions may receive payments from the Funds or Goldman
Sachs for the services provided by them with respect to the Funds'
Institutional Shares. These payments may be in addition to other servicing
and/or sub-transfer agency payments borne by the Funds and their Share classes.

The Investment Adviser, Distributor, and/or their affiliates also pay
additional compensation, from time to time, out of their assets and not as an
additional charge to the Funds, to selected institutions (including banks,
trust companies, brokers and investment advisers) and other persons in
connection with the sale and/or servicing of Shares of the Funds and other
investment portfolios of the Trust (such as additional payments based on new
sales, amounts exceeding pre-established thresholds, or the length of time
clients' assets have remained in the Trust), and subject to applicable NASD
regulations, contribute to various non-cash and cash incentive arrangements to
promote the sale of Shares, as well as sponsor various educational programs,
sales contests and/or promotions in which participants may receive
reimbursement of expenses, entertainment and prizes such as travel awards,
merchandise, cash, investment research and educational information and related
support materials. This additional compensation may vary among institutions
depending upon such factors as the amounts their clients have invested (or may
invest) in particular portfolios of the Trust, the particular program involved,
or the amount of reimbursable expenses. Additional compensation based on sales
may, but is currently not expected to, exceed 0.50% (annualized) of the amount
invested. For further information, see the Additional Statement.

The Funds reserve the right to redeem the Institutional Shares of any
shareholder of record whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of a
recordholder's account falls below the minimum account balance solely as a
result of market conditions. The Trust will give 60 days' prior written notice
to recordholders 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 reserve the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of Institutional Shares of a Fund is evident, or
if purchases, sales or exchanges are, or a subsequent abrupt redemption might
be, of a size that would disrupt management of a Fund.

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

43
<PAGE>

EXCHANGE PRIVILEGE

Institutional Shares of the Fund may be exchanged for: (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose; and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the NAV next determined either by writing to Goldman
Sachs, Attention: Goldman Sachs Domestic Equity Funds--Name of Fund and Class
of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago, Illinois
60606 or, if previously elected in the Fund's Account Information Form, by
telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago time). A shareholder
should obtain and read the prospectus relating to any other fund and its Shares
and consider its investment objective, policies and applicable fees before
making an exchange. Under the telephone exchange privilege, Institutional
Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the exchange
request is in writing and is received in accordance with the procedures set
forth under "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 Institutional Shares surrendered in the exchange on which an
investor may realize a gain or loss, followed by a purchase of Institutional
Shares, or the corresponding class of any Goldman Sachs Money Market Fund
received in the exchange. Shareholders should consult their own tax adviser
concerning the tax consequences of an exchange.

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

REDEMPTION OF INSTITUTIONAL SHARES

The Funds will redeem Institutional Shares upon request of a recordholder of
such Shares on any Business Day at the NAV next determined after receipt of a
request in proper form by Goldman Sachs from the recordholder. (See "Purchase
of Institutional Shares--Other Purchase Information" for a description of
limited situations where an institution or other intermediary may be authorized
to accept requests for the Funds.) 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 15
days. Redemption requests may be made by a shareholder of record by writing to
or calling the Transfer Agent at the address or telephone number set forth on
the back cover of this Prospectus. A shareholder of record 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.

44
<PAGE>

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 concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the Funds,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.

Written requests for redemptions must be signed by each recordholder 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.

The Funds will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the
recordholder's Account Information Form 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 Business Days after receipt of a properly executed
redemption request. Wiring of redemption proceeds may be delayed one additional
Business Day if the Federal Reserve Bank is closed on the day redemption
proceeds would originally be wired. Redemption proceeds paid by check will
normally be mailed to the address of record within three 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
recordholder's bank in the transfer process. If a problem with such performance
arises, the recordholder 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.

Institutions (including banks, trust companies, brokers and investment
advisers) are responsible for the timely transmittal of redemption requests by
their customers to the Transfer Agent. In order to facilitate the timely
transmittal of redemption requests, these institutions have established times
by which redemption requests must be received by them. Additional documentation
may be required when deemed appropriate by an institution.

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

45
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM

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

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

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

A-1
<PAGE>

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

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

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

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

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

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

ARTHUR ANDERSEN, LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110

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

EQDOMPROINST
501417
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS DOMESTIC
EQUITY FUNDS

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

PROSPECTUS

INSTITUTIONAL SHARES

LOGO
Goldman
Sachs

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

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

PROSPECTUS GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS
May 1, 1998, as revised CLASS A, B AND C SHARES
September 1, 1998

GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap companies that are organized outside the U.S.
or whose securities are principally traded outside the U.S.

GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies that are organized outside the U.S. or whose securities
are principally traded outside the U.S.

GOLDMAN SACHS JAPANESE EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of Japanese companies.

GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies with public stock market capitalizations of $1 billion or
less at the time of investment that are organized outside the U.S. or whose
securities are principally traded outside the U.S.

GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of emerging country issuers.

GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies related (in the manner described herein) to Asian coun-
tries.

Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the CORE International Equity Fund. Goldman Sachs Asset
Management International ("GSAMI"), London, England, an affiliate of Goldman
Sachs, serves as investment adviser to each other Fund. GSAM 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, 1998, as
revised September 1, 1998, containing further information about the Trust and
the Funds which may be of interest to investors, has been filed with the
Securities and Exchange Commission ("SEC"), is incorporated herein by reference
in its entirety, and may be obtained without charge from Goldman Sachs by
calling the telephone number, or writing to one of the addresses, listed on the
back cover of this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.

(continued on next page)
<PAGE>

A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES
OF U.S. ISSUERS QUOTED IN U.S. DOLLARS, INCLUDING RISKS RELATING TO CHANGES IN
RELATIVE CURRENCY EXCHANGE RATES OR (AS IN THE CASE OF THE EXPECTED
INTRODUCTION OF THE EURO) THE CREATION OF NEW CURRENCIES. THE SECURITIES
MARKETS OF ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING
COUNTRIES IN WHICH THE CORE INTERNATIONAL EQUITY FUND CAN INVEST A PORTION OF
ITS ASSETS AND THE INTERNATIONAL SMALL CAP, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND ASIA GROWTH FUNDS MAY INVEST WITHOUT LIMIT, ARE LESS
LIQUID, ARE ESPECIALLY SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER
MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO
AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. FURTHER,
INVESTMENT IN EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND CERTAIN OTHER
EMERGING COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS IN SHARE
REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH
INVESTMENT IN MORE DEVELOPED COUNTRIES. FUNDS THAT INVEST IN FOREIGN
SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE
RISKS ASSOCIATED WITH THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL
INVESTORS. THE JAPANESE EQUITY AND ASIA GROWTH FUNDS WILL BE PARTICULARLY
SUBJECT TO EVENTS AFFECTING THE MARKETS IN WHICH THESE FUNDS CONCENTRATE THEIR
INVESTMENTS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 7
Financial Highlights............... 11
Investment Objectives and Policies. 15
Description of Securities.......... 20
Investment Techniques.............. 24
Risk Factors....................... 28
Investment Restrictions............ 31
Portfolio Turnover................. 31
Management......................... 31
Expenses .......................... 37
Reports to Shareholders............ 37
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
How to Invest...................... 38
Services Available to Shareholders. 44
Distribution and Service Plans..... 47
How to Sell Shares of the Funds.... 48
Dividends.......................... 49
Net Asset Value.................... 50
Performance Information............ 50
Shares of the Trust................ 51
Taxation........................... 52
Additional Information............. 53
Appendix .......................... A-1
Account Application
</TABLE>
<PAGE>

FUND HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

<TABLE>
<S> <C> <C> <C>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- -------------- --------------------- ------------------------------ ---------------------
CORE Long-term growth of At least 90% of total assets EAFE Index (unhedged)
INTERNATIONAL capital. in equity securities of
EQUITY FUND companies organized outside
the United States or whose
securities are principally
traded outside the United
States. The Fund seeks broad
representation of large cap
issuers across major countries
and sectors of the
international economy. The
Fund's investments are
selected using both a variety
of quantitative techniques and
fundamental research in
seeking to maximize the Fund's
expected return, while
maintaining risk, style,
capitalization and industry
characteristics similar to the
unhedged Morgan Stanley
Capital International (MSCI)
Europe, Australasia and Far
East Index (the "EAFE Index").
The Fund may employ certain
currency management
techniques.
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at FT/S&P Actuaries
EQUITY FUND appreciation. least 65%, of total assets in Europe & Pacific
equity securities of companies Index (unhedged)
organized outside the United
States or whose securities are
principally traded outside the
United States. The Fund may
employ currency management
techniques.
- -------------------------------------------------------------------------------------------
</TABLE>

3
<PAGE>

<TABLE>
<S> <C> <C> <C>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- -------------- --------------------- ------------------------------ ---------------------
JAPANESE Long-term capital Substantially all, and at Tokyo Price Index
EQUITY FUND appreciation. least 65%, of total assets in ("TOPIX")
equity securities of Japanese
companies. The Fund may employ
currency management
techniques.
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at Morgan Stanley
SMALL CAP appreciation. least 65%, of total assets in Capital International
FUND equity securities of companies EAFE Small Cap Index
with public stock market
capitalizations of $1 billion
or less at the time of
investment that are organized
outside the United States or
whose securities are
principally traded outside the
United States. The Fund may
employ currency management
techniques.
- -------------------------------------------------------------------------------------------
EMERGING Long-term capital Substantially all, and at Morgan Stanley
MARKETS appreciation. least 65%, of total assets in Capital International
EQUITY FUND equity securities of emerging Emerging Markets Free
country issuers. The Fund may Index
employ certain currency
management techniques.
- -------------------------------------------------------------------------------------------
ASIA GROWTH Long-term capital Substantially all, and at Morgan Stanley
FUND appreciation. least 65%, of total assets in Capital International
equity securities of companies All Country Asia Free
in China, Hong Kong, India, ex-Japan Index
Indonesia, Malaysia, Pakistan,
the Philippines,
Singapore, South Korea, Sri
Lanka, Taiwan, Thailand and
other Asian countries. The
Fund may employ certain
currency management
techniques.
</TABLE>

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

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

Risks of Investing in Small Capitalization Companies. To the extent
that a Fund invests in the securities of small market capitalization
companies, the Fund may be exposed to a higher degree of risk and price
volatility. Securities of such issuers may lack sufficient market
liquidity to enable a Fund to effect sales at an advantageous time or
without a substantial drop in price.

Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates (or, as in the case of the expected introduction of the euro next
year, the creation of new currencies), political and economic
developments, the imposition of exchange controls, confiscation and other
governmental restrictions. Generally, there is less availability of data
on foreign companies and securities markets as well as less regulation of
foreign stock exchanges, brokers and issuers. A Fund's investments in
emerging markets and countries ("Emerging Countries") involves greater
risks than investments in the developed countries of Western Europe, the
United States, Canada, Australia, New Zealand and Japan. In addition,
because the Funds invest primarily outside the United States, they may
involve greater risks, since the securities markets of foreign countries
are

4
<PAGE>

generally less liquid and subject to greater price volatility. The securities
markets of Emerging Countries, including those in Asia, Latin America, Eastern
Europe and Africa are marked by a high concentration of market capitalization
and trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such securities
by a limited number of investors.

Risks of Investing in Japanese Markets. The Japanese Equity Fund will
concentrate in Japanese securities and therefore, will be particularly subject
to the risk of adverse social, political and economic events which occur in
Japan or affect the Japanese markets.

WHO MANAGES THE FUNDS?

Goldman Sachs Asset Management serves as Investment Adviser to the CORE
International Equity Fund. Goldman Sachs Asset Management International serves
as Investment Adviser to each other Fund. As of July 24, 1998, the Investment
Advisers, together with their affiliates, acted as investment adviser or
distributor for assets in excess of $168 billion.

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's Shares (the "Distributor").

WHAT IS THE MINIMUM INVESTMENT?

For further information, see "How to Invest--How to Buy Shares of the Funds"
on page 39.

HOW DO I PURCHASE SHARES?

WHAT ARE MY PURCHASE ALTERNATIVES?

The Funds offer three classes of Shares through this Prospectus. These Shares
may be purchased, at the investor's choice, at a price equal to their next
determined net asset value ("NAV") (i) plus an initial sales charge imposed at
the time of purchase ("Class A Shares"); (ii) with a contingent deferred sales
charge (CDSC) imposed on redemptions within six years of purchase ("Class B
Shares"); or (iii) without any initial sales charge or CDSC, as long as Shares
are held for one year or more ("Class C Shares"). Direct purchases of $1
million or more of Class A Shares will be sold without an initial sales charge
and may be subject to a CDSC at the time of certain redemptions.

5
<PAGE>

<TABLE>
<CAPTION>
MAXIMUM INITIAL MAXIMUM CONTINGENT
ALL FUNDS SALES CHARGE DEFERRED SALES CHARGE
--------- --------------- ---------------------
<S> <C> <C>
Class A................. 5.5% (See above)
Class B................. N/A 5% declining to 0% after six years
Class C................. N/A 1% if Shares are redeemed within 12 months of purchase
</TABLE>

HOW DO I SELL MY SHARES?

You may redeem Shares upon request on any Business Day, as defined under
"Additional Information," at the NAV next determined after receipt of such
request in proper form, subject to any applicable CDSC. See "How to Sell Shares
of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
DECLARED AND PAID DISTRIBUTIONS
--------------------------- -------------
<S> <C>
Annually Annually
</TABLE>

You may receive dividends and distributions in additional Shares of the same
Class of the Fund in which you have invested or you may elect to receive them
in 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 or Class C Units of the Prime Obligations Portfolio,
if you hold Class B or Class C Shares of a Fund (the "ILA Portfolios"). For
further information concerning dividends and distributions, see "Dividends."

6
<PAGE>

FEES AND EXPENSES

<TABLE>
<CAPTION>
CORE INT'L JAPANESE
INT'L EQUITY EQUITY
EQUITY FUND FUND FUND
----------------------------- ----------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge
Imposed on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales Charge
Imposed on Reinvested
Dividends.............. none none none none none none none none none
Maximum Deferred Sales
Charge................. none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption Fees/4/...... none none none none none none none none none
Exchange Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING EXPENSES: (as a percentage of
average daily net assets)/5/
Management Fees......... 0.85% 0.85% 0.85% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Distribution and Service
Fees................... 0.50% 1.00% 1.00% 0.50% 1.00% 1.00% 0.50% 1.00% 1.00%
Other Expenses (after
applicable
limitations)/6/........ 0.31% 0.31% 0.31% 0.29% 0.29% 0.29% 0.20% 0.20% 0.20%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER EXPENSE
LIMITATIONS)/7/......... 1.66% 2.16% 2.16% 1.79% 2.29% 2.29% 1.70% 2.20% 2.20%
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
INT'L EMERGING ASIA
SMALL CAP MARKETS GROWTH
FUND EQUITY FUND FUND
----------------------------- ----------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales Charge
Imposed on Reinvested
Dividends.............. none none none none none none none none none
Maximum Deferred Sales
Charge................. none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption Fees/4/...... none none none none none none none none none
Exchange Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING EXPENSES: (as a percentage of
average net assets)/5/
Management Fees......... 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.00% 1.00% 1.00%
Distribution and Service
Fees................... 0.50% 1.00% 1.00% 0.50% 1.00% 1.00% 0.50% 1.00% 1.00%
Other Expenses (after
applicable
limitations)/6/........ 0.35% 0.35% 0.35% 0.34% 0.34% 0.34% 0.35% 0.35% 0.35%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER EXPENSE
LIMITATIONS)/7/......... 2.05% 2.55% 2.55% 2.04% 2.54% 2.54% 1.85% 2.35% 2.35%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

7
<PAGE>

- --------
/1/ As a percentage of the offering price. No sales charge is imposed on
purchases of Class A Shares by certain classes of investors. A CDSC of
1.00% is imposed on certain redemptions (within 18 months of purchase) 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--
Class A Shares."
/2/ A CDSC is imposed upon Shares redeemed within six years of purchase at a
rate of 5% in the first year, declining to 1% in the sixth year, and
eliminated thereafter. See "How to Invest--Offering Price--Class B
Shares."
/3/ A CDSC of 1.00% is imposed on Shares redeemed within 12 months of
purchase. See "How to Invest--Offering Price--Class C Shares."
/4/ A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or units of the ILA Portfolios and
free automatic exchanges pursuant to the Automatic Exchange Program, six
free exchanges are permitted in each twelve month period. A fee of $12.50
may be charged for each subsequent exchange during such period. See "How
to Invest--Exchange Privilege."
/5/ The Funds' annual operating expenses have been restated to reflect fees
and expenses in effect as of September 1, 1998.
/6/ The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management, distribution and service fees,
transfer agency fees (equal to 0.19% of the average daily net assets of
each Fund's Class A, B and C Shares), taxes, interest and brokerage fees
and litigation, indemnification and other extraordinary expenses) for each
Fund to the extent such expenses exceed the following percentages of
average daily net assets:

<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
CORE International Equity........................................ 0.12%
International Equity............................................. 0.10%
Japanese Equity.................................................. 0.01%
International Small Cap.......................................... 0.16%
Emerging Markets Equity.......................................... 0.15%
Asia Growth...................................................... 0.16%
</TABLE>

/7/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds would be as set forth below:

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
CORE International Equity
Class A............................................. 0.59% 1.94%
Class B............................................. 0.59% 2.44%
Class C............................................. 0.59% 2.44%
International Equity
Class A............................................. 0.37% 1.87%
Class B............................................. 0.37% 2.37%
Class C............................................. 0.37% 2.37%
Japanese Equity
Class A............................................. 2.22% 3.72%
Class B............................................. 2.22% 4.22%
Class C............................................. 2.22% 4.22%
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
International Small Cap
Class A.............................................. 3.50% 5.20%
Class B.............................................. 3.50% 5.70%
Class C.............................................. 3.50% 5.70%
Emerging Markets Equity
Class A.............................................. 0.65% 2.35%
Class B.............................................. 0.65% 2.85%
Class C.............................................. 0.65% 2.85%
Asia Growth
Class A.............................................. 0.50% 2.00%
Class B.............................................. 0.50% 2.50%
Class C.............................................. 0.50% 2.50%
</TABLE>

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>
CORE International Equity
Class A Shares................................ $71 $104 $140 $241
Class B Shares
--Assuming complete redemption at end of
period....................................... 69 96 135 237
--Assuming no redemption...................... 22 68 116 237
Class C Shares
--Assuming complete redemption at end of
period....................................... 31 68 116 249
--Assuming no redemption...................... 22 68 116 249
International Equity
Class A Shares................................ 72 108 147 254
Class B Shares
--Assuming complete redemption at end of
period....................................... 70 100 142 250
--Assuming no redemption...................... 23 72 123 250
Class C Shares
--Assuming complete redemption at end of
period....................................... 32 72 123 263
--Assuming no redemption...................... 23 72 123 263
Japanese Equity
Class A Shares................................ 71 106 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 69 97 N/A N/A
--Assuming no redemption...................... 22 69 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 31 69 N/A N/A
--Assuming no redemption...................... 22 69 N/A N/A
International Small Cap
Class A Shares................................ 75 116 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 73 107 N/A N/A
--Assuming no redemption...................... 26 79 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 35 79 N/A N/A
--Assuming no redemption...................... 26 79 N/A N/A
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Markets Equity
Class A Shares................................ $75 $115 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 73 107 N/A N/A
--Assuming no redemption...................... 26 79 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 35 79 N/A N/A
--Assuming no redemption...................... 26 79 N/A N/A
Asia Growth
Class A Shares................................ 73 110 $150 $260
Class B Shares
--Assuming complete redemption at end of
period....................................... 71 101 145 256
--Assuming no redemption...................... 24 73 126 256
Class C Shares
--Assuming complete redemption at end of
period....................................... 33 73 126 269
--Assuming no redemption...................... 24 73 126 269
</TABLE>

The Investment Adviser and Goldman Sachs may modify or discontinue any of
the limitations set forth above in the future at their discretion. The
information set forth in the foregoing table and hypothetical example relates
only to Class A, B and C Shares. Each Fund also offers Institutional and
Service Shares, which are subject to different fees and expenses (which affect
performance), have different minimum investment requirements and are entitled
to different services than Class A, Class B and Class C Shares. Information
regarding Institutional and Service Shares may be obtained from your sales
representative or from Goldman Sachs by calling the number on the back cover
page of this Prospectus. Because of the Distribution and Service 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.

10
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- -----------------------
FROM NET
NET REALIZED NET REALIZED REALIZED
AND UNREALIZED AND UNREALIZED GAIN ON
NET ASSET GAIN (LOSS) ON GAIN (LOSS) ON FROM INVESTMENT NET NET ASSET
VALUE, NET INVESTMENTS CURRENCY NET AND DECREASE VALUE,
BEGINNING INVESTMENT AND FUTURES RELATED INVESTMENT FUTURES IN NET END OF TOTAL
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- -------------- ---------- ------------ ----------- --------- ---------
CORE INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $10.00 $ -- $0.13 $(0.91) $ -- -- $(0.78) $9.22 (7.66)%(d)
1998--Class B
Shares(b)....... 10.00 (0.02) 0.13 (0.90) -- -- (0.79) 9.21 (7.90)(d)
1998--Class C
Shares(b)....... 10.00 (0.02) 0.13 (0.89) -- -- (0.78) 9.22 (7.80)(d)
1998--Institu-
tional
Shares(b)....... 10.00 0.02 0.13 (0.89) (0.02) -- (0.76) 9.24 (7.45)(d)
1998--Service
Shares(b)....... 10.00 0.01 0.13 (0.91) -- -- (0.77) 9.23 (7.70)(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
--------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- ---------- ---------- ------------ ------------- ----------- --------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... 25.16% $.0069 $ 7,087 1.50%(c) (0.27)%(c) 4.87%(c) (3.90)%(c)
1998--Class B
Shares(b)....... 25.16 .0069 2,721 2.00(c) (0.72)(c) 5.12(c) (3.84)(c)
1998--Class C
Shares(b)....... 25.16 .0069 1,608 2.00(c) (0.73)(c) 5.12(c) (3.85)(c)
1998--Institu-
tional
Shares(b)....... 25.16 .0069 17,719 1.00(c) 0.59(c) 4.12(c) (2.53)(c)
1998--Service
Shares(b)....... 25.16 .0069 1 1.50(c) 0.26(c) 4.62(c) (2.86)(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Commenced operations on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.

11
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- -----------------------------------------------
FROM NET IN EXCESS OF
NET REALIZED NET REALIZED
REALIZED GAIN ON GAIN ON
NET AND UNREALIZED INVESTMENT INVESTMENT NET
NET ASSET NET REALIZED GAIN (LOSS) IN EXCESS AND FOREIGN AND FOREIGN INCREASE
VALUE, INVESTMENT AND UNREALIZED ON CURRENCY FROM NET OF NET CURRENCY CURRENCY (DECREASE)
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT RELATED RELATED IN NET
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE
--------- ---------- -------------- -------------- ---------- ---------- ------------ ------------ -----------
INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.32 $0.03 $2.99 $(0.95) $-- $(0.30) $(0.88) $(0.36) $0.53
1998--Class B
Shares.......... 19.24 (0.08) 2.96 (0.94) -- (0.25) (0.47) (0.76) 0.46
1998--Class C
Shares(b)....... 22.60 (0.04) (2.03) 0.65 -- (0.38) -- (1.24) (3.04)
1998--
Institutional
Shares.......... 19.40 0.10 3.09 (0.98) (0.07) (0.33) (0.97) (0.27) 0.57
1998--Service
Shares.......... 19.34 0.02 3.02 (0.96) -- (0.35) (0.18) (1.05) 0.50
- -------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 17.20 0.10 3.51 (1.28) -- -- (0.21) -- 2.12
1997--Class B
Shares(b)....... 18.91 (0.06) 0.94 (0.34) -- -- (0.21) -- 0.33
1997--
Institutional
Shares(b)....... 17.45 0.04 3.39 (1.24) (0.03) -- (0.21) -- 1.95
1997--Service
Shares(b)....... 17.70 (0.02) 2.95 (1.08) -- -- (0.21) -- 1.64
- -------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42 (0.58) -- (0.87) -- 2.68
- -------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01) -- -- (0.59) -- (3.58)
- -------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38) -- -- -- -- 3.75
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11) -- -- -- -- 0.17
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF
NET
INVESTMENT RATIO
NET RATIO INCOME OF NET
NET ASSET ASSETS AT OF NET (LOSS) TO RATIO OF INVESTMENT
VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO AVERAGE EXPENSES INCOME (LOSS)
END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE
PERIOD RETURN(A) RATE RATE(F) IN (000S) NET ASSETS ASSETS NET ASSETS NET ASSETS
--------- ------------ --------- ---------- --------- ----------- ------------ ---------- -------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.85 11.12% 40.82% $.0207 $697.590 1.67% (.027)% 1.80% (0.40)%
1998--Class B
Shares.......... 19.70 10.51 40.82 .0207 55,324 2.20 (0.90) 2.30 (1.00)
1998--Class C
Shares(b)....... 19.56 (5.92)(d) 40.82 .0207 3,369 2.27(c) (1.43)(c) 2.37(c) (1.53)(c)
1998--
Institutional
Shares.......... 19.97 11.82 40.82 .0207 56,263 1.08 0.30 1.18 0.20
1998--Service
Shares.......... 19.84 11.25 40.82 .0207 3,035 1.55 (0.36) 1.65 (0.46)
- -------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 19.32 13.48 38.01 .0318 536,283 1.69 (0.07) 1.88 (0.26)
1997--Class B
Shares(b)....... 19.24 2.83 (d) 38.01 .0318 19,198 2.23(c) (0.97)(c) 2.38(c) (1.12)(c)
1997--
Institutional
Shares(b)....... 19.40 12.53 (d) 38.01 .0318 68,374 1.10(c) 0.43 (c) 1.25(c) 0.28 (c)
1997--Service
Shares(b)....... 19.34 10.42 (d) 38.01 .0318 674 1.60(c) (0.40)(c) 1.75(c) (0.55)(c)
- -------------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 17.20 28.68 68.48 -- 330,860 1.52 0.26 1.77 0.01
- -------------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 14.52 (16.65) 84.54 -- 275,086 1.73 0.40 1.98 0.15
- -------------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 18.10 26.13 60.04 -- 269,091 1.76 0.51 2.01 0.26
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.35 1.23 (d) 0.00 -- 66,063 1.80(c) (0.42)(c) 2.58(c) (1.20)(c)
</TABLE>
- -----------

(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C, Institutional and Service share activity
commenced on December 1, 1992, May 1, 1996, August 15, 1997, February 7,
1996 and March 6, 1996, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

12
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET NET REALIZED AND UNREALIZED REALIZED GAIN IN EXCESS
VALUE, NET AND UNREALIZED LOSS ON FOREIGN FROM NET ON INVESTMENT OF NET NET DECREASE NET ASSET
BEGINNING INVESTMENT GAIN (LOSS) ON CURRENCY RELATED INVESTMENT AND OPTIONS INVESTMENT IN NET VALUE, END
OF PERIOD INCOME INVESTMENTS TRANSACTIONS INCOME TRANSACTIONS INCOME ASSET VALUE OF PERIOD
--------- ---------- -------------- ---------------- ---------- ------------- ---------- ------------ ----------
EMERGING MARKETS EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998--Class A
Shares(b)....... $10.00 $-- $(0.11) $(0.20) -- -- -- $(0.31) $9.69
1998--Class B
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
1998--Class C
Shares(b)....... 10.00 -- (0.10) (0.20) -- -- -- (0.30) 9.70
1998--Institu-
tional
Shares(b)....... 10.00 0.01 (0.11) (0.20) -- -- -- (0.30) 9.70
1998--Service
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
---------------------------
RATIO OF RATIO OF NET
NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO LOSS TO
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET AVERAGE
RETURN(A) RATE RATE (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ---------- ------------ -------------- ------------ --------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998--Class A
Shares(b)....... (3.10)%(d) 3.35% $0.0005 $17,681 1.90%(c) 0.55%(c) 5.88%(c) (3,43)%(c)
1998--Class B
Shares(b)....... (3.10)(d) 3.35 0.0005 64 2.41(c) 0.05(c) 6.39(c) (3.93)(c)
1998--Class C
Shares(b)....... (3.00)(d) 3.35 0.0005 73 2.48(c) (0.27)(c) 6.46(c) (4.25)(c)
1998--Institu-
tional
Shares(b)....... (3.00)(d) 3.35 0.0005 19,120 1.30(c) 0.80(c) 5.28c) (3.18)(c)
1998--Service
Shares(b)....... (3.10)(d) 3.35 0.0005 2 2.72(c) (0.05)(c) 6.70(c) (4.03)(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C, Institutional and Service share activity
commenced on December 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.

13
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ----------------------------------
NET REALIZED
AND UNREALIZED FROM NET NET
LOSS ON REALIZED INCREASE NET
NET ASSET NET NET REALIZED FOREIGN IN EXCESS GAIN ON (DECREASE) ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY FROM NET OF NET INVESTMENT IN NET VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT AND FUTURES ASSET END OF
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $16.31 $ -- $(5.78) $(2.12) $ -- $(0.03) $ -- $(7.93) $8.38
1998--Class B
Shares.......... 16.24 0.01 (5.79) (2.12) -- (0.03) -- (7.93) 8.31
1998--Class C
Shares(b)....... 15.73 0.01 (5.43) (1.99) -- (0.03) -- (7.44) 8.29
1998--Institu-
tional Shares... 16.33 0.10 (5.83) (2.13) (0.03) -- -- (7.89) 8.44
- ------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 16.49 0.06 (0.11) -- (0.12) -- (0.01) (0.18) 16.31
1997--Class B
Shares(b)....... 17.31 (0.05) (0.48) -- (0.51) (0.03) -- (1.07) 16.24
1997--Institu-
tional
Shares(b)....... 16.61 0.04 (0.11) -- (0.11) (0.06) (0.04) (0.28) 16.33
- ------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares 13.31 0.17 3.44 -- (0.12) (0.14) (0.17) 3.18 16.49
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) -- 0.01 -- (0.10) (0.87) 13.31
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ------- --------- ------------ --------- -------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... (48.49)% 105.16% $.0070 $87,437 1.75% 0.31% 1.99% 0.07%
1998--Class B
Shares.......... (48.70) 105.16 .0070 3,359 2.30 (0.29) 2.50 (0.49)
1998--Class C
Shares(b)....... (47.17)(d) 105.16 .0070 436 2.35(c) (0.26)(c) 2.55(c) (0.46)(c)
1998--Institu-
tional Shares... (48.19) 105.16 .0070 874 1.11 0.87 1.31 0.67
- ------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... (1.01) 48.40 .0151 263,014 1.67 0.20 1.87 0.00
1997--Class B
Shares(b)....... (6.02)(d) 48.40 .0151 3,354 2.21(c) (0.56)(c) 2.37(c) (0.72)(c)
1997--Institu-
tional
Shares(b)....... (1.09)(d) 48.40 .0151 13,322 1.10(c) 0.54 (c) 1.26(c) 0.38 (c)
- ------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares 26.49 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... (5.46)(d) 36.08 -- 124,298 1.90(c) 1.83(c) 2.38(c) 1.35(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C and Institutional share activity commenced on
July 8, 1994, May 1, 1996, August 15, 1997 and February 2, 1996,
respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

14
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The investment objectives and principal investment policies of each Fund are
described below. In particular, each Fund may employ certain currency
techniques to seek to hedge against currency exchange rate fluctuations or to
seek to increase total return. When used to seek to enhance return, these
management techniques are considered speculative. Such currency management
techniques involve risks different from those associated with investing solely
in securities of U.S. issuers quoted in U.S. dollars. To the extent that a
Fund is fully invested in foreign securities while also maintaining currency
positions, it may be exposed to greater combined risk. A Fund's net currency
positions may expose it to risks independent of its securities positions.
There can be no assurance that a Fund's investment objectives will be
achieved.

The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, bonds with attached warrants,
equity-related transferable securities, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Advisers utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Advisers may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Advisers are able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Advisers, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified. Other investment practices and management
techniques, which involve certain risks, are described below under
"Description of Securities," "Risk Factors" and "Investment Techniques."

Actively Managed Funds. The International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds are
managed using an active international approach, which utilizes a consistent
process of stock selection undertaken by portfolio management teams located
within each of the major investment regions, including Europe, Japan, Asia and
the United States. In selecting securities, the Investment Adviser uses a
long-term, bottom-up strategy based on first-hand fundamental research that is
designed to give broad exposure to the available opportunities while seeking
to add return primarily through stock selection. Equity securities for these
Funds are evaluated based on three key factors--the business, the management
and the valuation. The Investment Adviser ordinarily seeks securities that
have, in the Investment Adviser's opinion, superior earnings growth potential,
sustainable franchise value with management attuned to creating shareholder
value and relatively discounted valuations. In addition, the Investment
Adviser uses a multi-factor risk model which seeks to assure that deviations
from the benchmark are justifiable.

Quantitative Style Fund. The CORE International Equity Fund is managed using
both quantitative and fundamental techniques. CORE is an acronym for
"Computer-Optimized, Research-Enhanced," which reflects the CORE International
Equity Fund's investment process. This investment process and the proprietary
multifactor models used to implement it are discussed below.

15
<PAGE>

Investment Process. The Investment Adviser begins with a broad universe of
foreign equity securities for the CORE International Equity Fund. As described
more fully below, the Investment Adviser uses proprietary multifactor models
(each a "Multifactor Model") to forecast the returns of different markets,
currencies and individual securities. The Investment Adviser may rely on
research from both the Goldman Sachs Global Investment Research Department
(the "Research Department") and other industry sources.

In building a diversified portfolio for the CORE International Equity Fund,
the Investment Adviser utilizes optimization techniques to seek to maximize
the Fund's expected return, while maintaining a risk profile similar to the
Fund's benchmark. The Fund's portfolio is primarily composed of securities
rated highest by the foregoing investment process and has risk characteristics
and industry weightings similar to the Fund's benchmark.

Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE International Equity Fund uses multiple Multifactor
Models to forecast returns. Currently, the CORE International Equity Fund uses
one model to forecast equity market returns, one model to forecast currency
returns and 22 separate models to forecast individual equity security returns
in 22 different countries. Despite this variety, all Multifactor Models
incorporate common variables covering measures of value, growth, momentum and
risk (e.g., book/price ratio, earnings/price ratio, price momentum, price
volatility, consensus growth forecasts, earnings estimate revisions, earnings
stability, currency momentum and country political risk ratings). All of the
factors used in the Multifactor Models have been shown to significantly impact
the performance of the securities, currencies and markets they were designed
to forecast.

Because they include many disparate factors, the Investment Adviser believes
that all the Multifactor Models are broader in scope and provide a more
thorough evaluation than most conventional quantitative models. Securities and
markets ranked highest by the relevant Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.

Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.

By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, the CORE
International Equity Fund seeks to capitalize on the strengths of each
discipline.

CORE INTERNATIONAL EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are principally
traded outside the United States.

Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries

16
<PAGE>

and sectors of the international economy. The Fund's investments are selected
using both a variety of quantitative techniques and fundamental research in
seeking to maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the EAFE Index. In
addition, the Fund seeks a portfolio composed of companies with attractive
valuations and stronger momentum characteristics than the EAFE Index.

The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries.

For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Fund."

Other. The Fund may invest only in fixed-income securities that are
considered to be cash equivalents.

INTERNATIONAL EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries. The Fund intends to invest in companies with public
stock market capitalizations that are larger than those in which the
International Small Cap Fund primarily intends to invest.

Other. Up to 35% of the Fund's total assets may be invested in fixed-income
securities.

JAPANESE EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of Japanese companies. Japanese companies include those organized under the
laws of Japan or whose shares are traded primarily on a Japanese stock
exchange as well as those whose shares are registered with the Japan
Securities Dealers Association for trading primarily on Japan's over-the-
counter market. The Fund's concentration in Japanese companies will expose it
to the risk of adverse social, political and economic events which occur in
Japan or affect the Japanese markets as described under "Risk Factors--Special
Risks of Investment in the Japanese Markets."

17
<PAGE>

Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed-income securities.

INTERNATIONAL SMALL CAP FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies with public stock market capitalizations of $1
billion or less at the time of investment that are organized outside the U.S.
or whose securities are principally traded outside the U.S. The Fund may
allocate its assets among countries as determined by the Investment Adviser
from time to time provided that the Fund's assets are invested in at least
three foreign countries. The Fund expects to invest a substantial portion of
its assets in small cap securities of companies in the developed countries of
Western Europe, Japan and Asia. However, the Fund may also invest in the
securities of issuers located in Australia, Canada, New Zealand and the
Emerging Countries in which the Emerging Markets Equity Fund may invest. Many
of the countries in which the Fund may invest have emerging markets or
economies which involve certain risks, as described below under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries. If
the market capitalization of a company held by the Fund increases above $1
billion, the Fund may, consistent with its investment objective, continue to
hold the security.

Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of larger cap companies with public stock market
capitalizations of more than $1 billion at the time of investment and in
fixed-income securities.

EMERGING MARKETS EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.

An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries;
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country; (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries; or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.

18
<PAGE>

Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.

Other. Under normal circumstances, the Fund maintains investments in at
least six Emerging Countries, and will not invest more than 35% of its total
assets in securities of issuers in any one Emerging Country. Allocation of the
Fund's investments will depend upon the relative attractiveness of the
Emerging Country markets and particular issuers. In addition, macro-economic
factors and the portfolio managers' and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Investments" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed-income securities of private and governmental Emerging Country
issuers; and (ii) equity and fixed-income securities of issuers in developed
countries.

ASIA GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries; (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries; (iii) they maintain 50% or more of their assets
in one or more of the Asian countries; or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase equity securities of issuers that have not paid
dividends on a timely basis, securities of companies that have experienced
difficulties, and securities of companies without performance records.

Other. The Fund may allocate its assets among the Asian countries as
determined from time to time by the Investment Adviser. For purposes of the
Fund's investment policies, Asian countries are China, Hong Kong, India,
Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri
Lanka, Taiwan and Thailand, as well as any other country in Asia (other than
Japan) to the extent that foreign investors are permitted by applicable law to
make such investments. Allocation of the Fund's investments will depend upon
the Investment Adviser's views of the relative attractiveness of the Asian
markets and particular issuers. For example, on January 31, 1998 (the end of
the Fund's last fiscal year), more than 35% of the Fund's assets were invested
in securities traded in Hong Kong. Concentration of the Fund's assets in one
or a few of the Asian countries and Asian currencies will subject the Fund to
greater risks than if the Fund's assets were not geographically

19
<PAGE>

concentrated. See "Description of Securities--Foreign Investments." The Fund
may invest in the aggregate up to 35% of its total assets in equity securities
of issuers in other countries, including Japan, and in fixed-income
securities.

DESCRIPTION OF SECURITIES

CONVERTIBLE SECURITIES

Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed-income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which the Funds invest are not subject to any minimum rating
criteria. Convertible debt securities are equity investments for purposes of
each Fund's investment policies.

FOREIGN INVESTMENTS

FOREIGN SECURITIES. Each Fund will invest in the securities of foreign
issuers. Investments in foreign securities may offer potential benefits that
are not available from investments exclusively in equity securities of
domestic issuers quoted in U.S. dollars. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign securities do not necessarily move in a manner parallel to U.S.
markets.

20
<PAGE>

outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of exchange
rates for currencies being converted into the euro; the fluctuation of the
euro relative to non-euro currencies during the transition period from January
1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax and
labor regimes of European countries participating in the Fund will converge
over time; and whether the conversion of the currencies of other EU countries
such as the United Kingdom, Denmark and Greece into the euro and the admission
of other non-EU countries such as Poland, Latvia and Lithuania as members of
the EU may have an impact on the euro. These or other factors, including
political and economic risks, could cause market disruptions before or after
the introduction of the euro, and could adversely affect the value of
securities and foreign currencies held by the Funds. Commissions on
transactions in foreign securities may be higher than those for similar
transactions on domestic stock markets. In addition, clearance and settlement
procedures may be different in foreign countries and, in certain markets, such
procedures have been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.

Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not
geographically concentrated.

INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), European
Depository Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers (together, "Depository Receipts"). ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or over-the-
counter and are sponsored and issued by domestic banks. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security. To the
extent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate
actions, such as stock splits or rights offerings involving the foreign
issuer, in a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. Investment in Depository
Receipts does not eliminate all the risks inherent in investing in securities
of non-U.S. issuers. The market value of Depository Receipts is dependent upon
the market value of the underlying securities and fluctuations in the relative
value of the currencies in which the Depository Receipt and the underlying
securities are quoted. However, by investing in Depository Receipts, such as
ADRs, that are quoted in U.S. dollars, a Fund may avoid currency risks during
the settlement period for purchases and sales.

21
<PAGE>

FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because each Fund may
have currency exposure independent of its 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 foreign currencies on a spot basis and
may also purchase or sell forward foreign currency exchange contracts for
hedging purposes and to seek to protect against anticipated changes in future
foreign currency exchange rates. In addition, each Fund may enter into such
contracts to seek to increase total return when the Investment Adviser
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated or quoted in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When entered into to seek to enhance return, forward foreign currency exchange
contracts are considered speculative. Each 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 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 segregate cash or liquid assets in an
amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract, or otherwise cover its position in a
manner permitted by the SEC. The Fund will incur costs in connection with
conversions between various currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rate.

Each Fund may also engage in a variety of foreign currency management
techniques. However, due to the limited market for these instruments with
respect to the currencies of many Emerging Countries, including certain Asian
countries, the Investment Advisers do not currently anticipate that a
significant portion of International Equity, International Small Cap, Emerging
Markets Equity or Asia Growth Fund's currency exposure will be covered by such
instruments. For a discussion of such instruments and the risks associated
with their use, see "Investment Objective and Policies" in the Additional
Statement.

22
<PAGE>

FIXED-INCOME SECURITIES

Each Fund may invest in fixed-income securities, including U.S. Government
securities, corporate debt obligations, obligations issued by U.S. or foreign
banks (including without limitation, time deposits, bankers' acceptances and
certificates of deposit), mortgage-backed securities (including stripped
mortgage-backed securities) and asset-backed securities.

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

Fixed-income investments may also include investments 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 price accurately than less complex securities.

Each Fund (other than the CORE International Equity Fund, which only invests
in debt instruments that are cash equivalents) may invest up to 35% of its
total assets in debt securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's") (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Fixed-income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds" and
are considered predominantly speculative and may be questionable as to
principal and interest payments. In some cases, such bonds may be highly
speculative, have poor prospects for reaching investment grade standing and be
in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investment in investment grade
bonds. Also, to the extent that the rating assigned to a security in a Fund's
portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by Standard & Poor's and Moody's.

23
<PAGE>

REAL ESTATE INVESTMENT TRUSTS ("REITS")

Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' managers. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.

INVESTMENT TECHNIQUES

OPTIONS ON SECURITIES AND SECURITIES INDICES

Each Fund may write (sell) covered call and put options and purchase call
and put options on any securities in which it may invest or on any securities
index composed of securities in which it may invest. The writing and purchase
of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The use of options to seek to increase total return
involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates. The
successful use of options for hedging purposes also depends in part on the
ability of the Investment Adviser to manage future price fluctuations and the
degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in a Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could significantly increase a Fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads.

OPTIONS ON FOREIGN CURRENCIES

A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition,
each 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 options transactions, however, the
writing of an option on a 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, each 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 written or purchased
by the Funds are traded on U.S. and foreign exchanges or over-the-counter.

24
<PAGE>

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities, foreign
currencies, securities indices and other financial instruments and indices,
whether domestic or foreign. A Fund will engage in futures and related options
transactions for bona fide hedging purposes as defined in regulations of the
Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid
on the Fund's outstanding positions in futures and related options entered
into for the purpose of seeking to increase total return would exceed 5% of
the market value of the Fund's net assets. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require the
Fund to segregate and maintain cash or liquid assets with a value equal to the
amount of the Fund's obligations or to otherwise cover the obligations in a
manner permitted by the SEC.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Futures
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's NAV. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly 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. The Funds may engage in futures transactions on both U.S. and foreign
exchanges. Foreign exchanges may not provide the same protections as U.S.
exchanges.

EQUITY SWAPS

25
<PAGE>

outstanding, a Fund may suffer a loss if the counterparty defaults. In
connection with its investments in equity swaps, a Fund will either segregate
cash or liquid assets or otherwise cover its obligations in a manner required
by the SEC.

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 or sell securities on a forward
commitment basis; that is, make contracts to purchase or sell securities for a
fixed price at a future date beyond the customary settlement period. 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. Conversely, securities sold on a forward commitment basis
involve the risk that the value of the securities to be sold may increase
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. A Fund will segregate cash or liquid
assets in an amount sufficient to meet the purchase price until three days
prior to the settlement date. Alternatively, each Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.

ILLIQUID AND RESTRICTED SECURITIES

A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain stripped mortgage-backed securities, 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 a review of
the trading markets for a specific restricted security, that such restricted
security is eligible for resale pursuant to Rule 144A under the Securities Act
of 1933 and, therefore, is liquid. The Trustees have adopted guidelines under
which the Investment Adviser determines and monitors the liquidity of
portfolio securities, subject to the oversight of the Trustees. Investing in
restricted securities eligible for resale pursuant to Rule 144A may decrease
the liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. Each 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 an
Investment Adviser or 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.

26
<PAGE>

LENDING OF PORTFOLIO SECURITIES

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

SHORT SALES AGAINST-THE-BOX

Each Fund (other than the CORE International Equity Fund) may make short
sales of securities or maintain a short position, provided that at all times
when a short position is open the Fund owns an equal amount of such securities
or securities convertible into or exchangeable for, without payment of any
further consideration, for an equal amount of the securities of the same
issuer as the securities sold short (a short sale against-the-box). Not more
than 25% of a Fund's net assets (determined at the time of the short sale) may
be subject to such short sales. As a result of recent tax legislation, short
sales may not generally be used to defer the recognition of gain for tax
purposes with respect to appreciated securities in a Fund's portfolio.

TEMPORARY INVESTMENTS

Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE International Equity Fund and Emerging Markets
Equity Fund may only hold up to 35% of their respective total assets) in U.S.
Government securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year. When a Fund's assets are invested in
such instruments, the Fund may not be achieving its investment objective.

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights;
(ii) currency swaps; (iii) other investment companies including World Equity
Benchmark Shares and Standard & Poor's Depository Receipts; (iv) unseasoned
companies; and (v) custodial receipts.

In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its total assets. For more information,
see the Additional Statement.

27
<PAGE>

RISK FACTORS

RISKS OF INVESTING IN EQUITY SECURITIES. In general, the Funds are subject
to the risks associated with investments in common stocks and other equity
securities. Stock values fluctuate in response to the activities of individual
companies and in response to general market and economic conditions and,
accordingly, the value of the stocks that a Fund holds may decline over short
or extended periods. Stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of
the date of this Prospectus, certain foreign stock markets were trading at or
close to record high levels and there can be no guarantee that such levels
will continue.

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than larger market capitalization stocks included in the S&P 500 Index.
Among the reasons for the greater price volatility of these small company and
unseasoned stocks are the less certain growth prospects of smaller firms, less
institutional investor interest and the lower degree of liquidity in the
markets for such stocks.

SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--Foreign
Investments." The International Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds may each invest without limit in the
securities of issuers in Emerging Countries. The CORE International Equity
Fund may invest up to 25% of its total assets in securities of issuers in
Emerging Countries. Emerging Countries are generally located in the Asia-
Pacific region, Eastern Europe, Latin and South America and Africa. A Fund's
purchase and sale of portfolio securities in certain Emerging Countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed
based on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.

Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such Countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.

28
<PAGE>

Emerging Countries do not have fully democratic governments. For example,
governments of some Emerging Countries are authoritarian in nature or have
been installed or removed as a result of military coups, while governments in
other Emerging Countries have periodically used force to suppress civil
dissent. Disparities of wealth, the pace and success of democratization, and
ethnic, religious and racial disaffection, among other factors, have also led
to social unrest, violence and/or labor unrest in some Asian and other
Emerging Countries. Unanticipated political or social developments may affect
the values of a Fund's investments. Investing in Emerging Countries involves
the risk of loss due to expropriation, nationalization, confiscation of assets
and property or the imposition of restrictions on foreign investments and on
repatriation of capital invested. Starting in mid-1997 some Pacific region
countries began to experience currency devaluations that resulted in high
interest rate levels and sharp reductions in economic activity. This situation
resulted in a significant drop in the securities prices of companies located
in the region. Some countries have experienced government intervention, have
sought assistance from the International Monetary Fund and are undergoing
substantial domestic unrest. Although some countries are taking steps to
restructure their financial sectors in a manner that may facilitate a return
to long-term economic growth, there can be no assurance that these efforts
will be successful or that their current problems will not persist. At the end
of its last fiscal year, a substantial portion of the assets of the Asia
Growth Fund were invested in securities traded in the Hong Kong market. In
1997, the sovereignty of Hong Kong reverted from the United Kingdom to China.
Although Hong Kong is, by law, to maintain a high degree of autonomy, there
can also be no assurance that the general economic position of Hong Kong will
not be adversely affected as a result of the exercise of Chinese sovereignty
over Hong Kong. In particular, business confidence in Hong Kong can be
significantly affected by political developments and statements by public
figures in China, which can in turn affect the performance of the securities
markets. In addition, the reversion of Hong Kong to China has created
uncertainty as to future currency valuations relative to the U.S. dollar. Any
future valuation changes could be adverse from the perspective of U.S.
investors.

Economies in individual Emerging Countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rates of inflation, currency valuation, capital reinvestment,
resource self-sufficiency and balance of payments positions. Many Emerging
Countries have experienced currency devaluations and substantial and, in some
cases, extremely high rates of inflation, which have a negative effect on the
economies and securities markets of such Emerging Countries. Economies in
Emerging Countries generally are dependent heavily upon commodity prices and
international trade and, accordingly, have been and may continue to be
affected adversely by the economies of their trading partners, trade barriers,
exchange controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade.

Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.

29
<PAGE>

can be no assurance that suitable instruments for hedging currency and market-
related risks will be available at the times when a Fund wishes to use them.

SPECIAL RISKS OF INVESTMENTS IN THE JAPANESE MARKETS. The Japanese Equity
Fund invests primarily in equity securities of Japanese companies.
Accordingly, the Japanese Equity Fund's performance will be closely tied to
economic and market conditions in Japan, and may be more volatile than more
geographically diversified funds. Changes in regulatory, as well as tax or
economic, policy in Japan could significantly affect the Japanese securities
markets and, therefore, the Japanese Equity Fund's performance.

Japan's economy, the second largest in the world, has grown substantially
over the last three decades. Since 1990, however, Japan's economic growth has
declined significantly, and is currently subject to deflationary pressures. In
addition to this economic downturn, Japan is undergoing structural adjustments
related to high wages and taxes, currency valuations and structural
rigidities. Japan has also been experiencing notable uncertainty and loss of
public confidence in connection with the reform of its political process and
the deregulation of its economy. These conditions present risks to the
Japanese Equity Fund and its ability to attain its investment objective.

Japan's economy is heavily dependent upon international trade, and is
especially sensitive to trade barriers and disputes. In particular, Japan
relies on large imports of agricultural products, raw materials and fuels. A
substantial rise in world oil or commodity prices, or a fall-off in Japan's
manufactured exports, could be expected to adversely affect Japan's economy.
In addition, Japan is vulnerable to earthquakes, volcanoes and other natural
disasters. As of the date of this Prospectus, Japan's banking industry
continued to suffer from non-performing loans, declining real estate values
and lower valuations of securities holdings.

The Japanese securities markets are less regulated than the U.S. markets.
Evidence has emerged from time to time of distortion of market prices to serve
political or other purposes. Shareholders' rights are also not always equally
enforced.

The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those of U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies, and
Japanese interest rates have generally been lower than U.S. interest rates.
These factors have contributed to lower discount rates and higher price-
earnings ratios in Japan than in the U.S.

During the recent past, the average stock market prices of Japanese
companies, as measured by major indices such as the NIKKEI 225 Average, have
experienced a substantial decline. It is not possible to determine whether
this general decline will continue.

30
<PAGE>

INVESTMENT RESTRICTIONS

PORTFOLIO TURNOVER

A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of the historical portfolio turnover
rate of each Fund (other than the Japanese Equity and International Small Cap
Funds). It is anticipated that the annual portfolio turnover rates of the
Japanese Equity and International Small Cap Funds will generally not exceed
75%. The portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. 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.

MANAGEMENT

TRUSTEES AND OFFICERS

The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Adviser, distributor and transfer
agent. The officers of the Trust conduct and supervise 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.

31
<PAGE>

INVESTMENT ADVISERS

INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza,
New York, New York 10004, a separate operating division of Goldman Sachs,
serves as the investment adviser to the CORE International Equity Fund.
Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs Asset
Management International, 133 Peterborough Court, London EC4A 2BB, England, an
affiliate of Goldman Sachs, serves as the investment adviser to the
International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds. Goldman Sachs Asset Management
International became a member of the Investment Management Regulatory
Organisation Limited in 1990 and registered as an investment adviser in 1991.
The Goldman Sachs Group, L.P., which controls the Investment Advisers, has
announced that it will pursue an initial public offering of the firm during
the fourth quarter of 1998; if the public offering is consummated, The Goldman
Sachs Group, L.P. will merge into the new public company, which will be called
The Goldman Sachs Group, Inc. As of July 24, 1998, GSAM and GSAMI, together
with their affiliates, acted as investment adviser or distributor for assets
in excess of $168 billion.

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

FUND MANAGERS

32
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Guy P. de C. Bennett Portfolio Manager-- Since Mr. Bennett joined the
Vice President International Equity 1997 Investment Adviser in
Senior Portfolio Manager-- 1996 and is also co-head
Japanese Equity 1998 of GSAM's Japanese
Equity Group in Tokyo.
From 1984 to 1996, he
was a portfolio manager
and an Executive
Director at CIN
Management.
- ------------------------------------------------------------------------------------------
Melissa Brown Senior Portfolio Manager-- Since Ms. Brown joined the
Vice President CORE International Equity 1998 Investment Adviser in
1998. From 1984 to 1998,
she was the director of
Quantitative Equity
Research and served on
the Investment Policy
Committee at Prudential
Securities.
- ------------------------------------------------------------------------------------------
Mark M. Carhart Senior Portfolio Manager-- Since Mr. Carhart joined the
Vice President CORE International Equity 1998 Investment Adviser in
1997, as a member of the
Quantative Research and
Risk Management team.
From August 1995 to
September 1997, he was
Assistant Professor of
Finance at the Marshall
School of Business at
USC and a Senior Fellow
of the Wharton Financial
Institutions Center.
- ------------------------------------------------------------------------------------------
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE International Equity 1997 Investment Adviser in
1992.
- ------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. From 1995 to 1996,
he was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
From 1994 to 1995 he was
engaged in French equity
research and marketing
at Banque Nationale de
Paris and Schroders in
London.
- ------------------------------------------------------------------------------------------
Paul Greener Portfolio Manager-- Since Mr. Greener joined the
Associate CORE International Equity 1998 Investment Adviser in
1996 as a member of the
U.K. and European Equity
Team responsible for
European general
retailers, business
services and technology
sectors. Prior to
joining GSAM, he was an
equity analyst for two
years at CIN Management.
- ------------------------------------------------------------------------------------------
James P. Hordern Portfolio Manager-- Since Mr. Hordern joined the
Executive Director International Small Cap 1998 Investment Adviser in
1997. From 1991 to 1997,
he was an Assistant
Director and portfolio
manager at Mercury Asset
Management on the
European Specialist
Team.
- ------------------------------------------------------------------------------------------
Raymond J. Iwanowski Portfolio Manager-- Since Mr. Iwanowski joined the
Vice President CORE International Equity 1988 Investment Adviser in
1998. Prior to joining
the Investment Adviser,
he spent three years at
Salomon Brothers, where
he was a Vice President
and head of the Fixed
Derivatives Client
Research group.
- ------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE International Equity 1997 Investment Adviser in
1989. From 1987 to 1989,
he was the senior
quantitative analyst in
the Goldman, Sachs & Co.
Investment Research
Department.
- ------------------------------------------------------------------------------------------
Shigeka Kouda Portfolio Manager-- Since Mr. Kouda joined the
Vice President Japanese Equity 1998 Investment Adviser in
1997. From 1992 to 1997,
he was at the Fixed
Income Division of
Goldman Sachs (Japan)
Limited, where he was
extensively involved in
emerging markets trading
as well as International
Fixed Income
institutional sales.
</TABLE>

33
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Ralf Laier Portfolio Manager-- Since Mr. Laier joined the
Vice President Emerging Markets 1998 Investment Adviser in
1997 and is a portfolio
manager with a focus on
Central/Eastern European
(CEE) and the
Commonwealth of
Independent States
(CIS). Prior to joining
the Investment Adviser,
from 1995 to 1997, he
was Vice President of
Soros Global Research,
where he analyzed
investment opportunities
in CEE/CIS. From 1994 to
1995, he achieved a
Ph.D. from the Academy
of Economics in Pozan,
Poland, and from 1992 to
1994 he worked for the
Polish Ministry of
Privatization as a
Project Director
developing privatization
strategies for several
industry sectors.
- ---------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser
in 1990. Prior to 1990,
she was a management
consultant with Andersen
Consulting in Hong Kong.
- ---------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Managing Director International Equity 1994 Investment Adviser in
International Small Cap 1998 1994. From 1987 to 1994,
Senior Portfolio Manager-- he worked at Nomura
Japanese Equity 1998 Investment Management
Incorporated as a Senior
Portfolio Manager.
- ---------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director and Asia Growth 1994 Investment Adviser in
Co-Head Emerging Portfolio Manager-- 1994. From 1987 to 1994,
Market International Equity 1994 he was a Vice President
Equities Emerging Markets Equity 1997 of Bankers Trust
International Small Cap 1998 Australia Ltd where he
was the Chief Investment
Officer of their
Southeast Asian
investment team. He is
also a member of Goldman
Sachs Asset Management's
global asset allocation
committee.
- ---------------------------------------------------------------------------------------------
Susan Noble Senior Portfolio Manager-- Since Ms. Noble joined the
Executive Director International Equity 1998 Investment Adviser in
October 1997 as Senior
Portfolio Manager and
head of the European
Equity team. From 1986
to 1997, she worked at
Fleming Investment
Management in London,
where she most recently
was Portfolio Management
Director for the
European equity
investment strategy and
process.
- ---------------------------------------------------------------------------------------------
Ebru Ozsezgin Portfolio Manager-- Since Ms. Ozsezgin joined the
Vice President Emerging Markets 1998 Investment Adviser in
1997 and is a portfolio
manager with a focus on
the Mediterranean and
Middle East region. From
1996 to 1997, she was a
portfolio manager at
Foreign & Colonial,
responsible for Middle
East investments. From
1994 to 1996, she was a
fund manager with
Framlington Investment
Management. From 1990 to
1994, she was a manager
at Global Securities
Ltd.
- ---------------------------------------------------------------------------------------------
Victor H. Pinter Senior Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE International Equity 1997 Investment Adviser in
1990. From 1985 to 1990,
he was a project manager
in the Information
Technology Division of
the Investment Adviser.
- ---------------------------------------------------------------------------------------------
Ramakrishna Shankar Portfolio Manager-- Since Mr. Shankar joined the
Vice President Asia Growth 1997 Investment Adviser in
Emerging Markets Equity 1998 1997. From July 1996 to
1997, he worked for
Goldman, Sachs & Co. in
Singapore as a strategic
advisor for transactions
involving infrastructure
industries in Asia. From
1988 to 1996, he worked
for Goldman, Sachs & Co.
as an investment banker
in the Investment
Banking Division.
</TABLE>

34
<PAGE>

<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR OR PERIOD ENDED
RATE* JANUARY 31, 1998*
----------- --------------------
<S> <C> <C>
GSAM
CORE International Equity................. 0.85% 0.75%
GSAMI
International Equity...................... 1.00% 0.90%
Japanese Equity........................... 1.00% N/A
International Small Cap................... 1.20% N/A
Emerging Markets Equity................... 1.20% 1.10%
Asia Growth............................... 1.00% 0.86%
</TABLE>
- --------
*All numbers are annualized. The difference, if any, between the stated fees
and the actual fees paid by the Funds reflects that the applicable Investment
Adviser did not charge the full amount of the fees to which it would have been
entitled. Effective September 1, 1998, the management fee for the CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds will equal 0.85%, 1.00%, 1.20% and 1.00%, respectively.

35
<PAGE>

The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management, distribution and service
fees, transfer agency fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such expenses
exceed 0.12%, 0.10%, 0.01%, 0.16%, 0.15% and 0.16% per annum of the average
daily net assets of the CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds, respectively. Such reductions or limits, if any, may be
discontinued or modified by the applicable Investment Adviser in its
discretion at any time.

DISTRIBUTOR AND TRANSFER AGENT

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
each Fund by Goldman Sachs (as Transfer Agent), Goldman Sachs is entitled to a
fee with respect to each Fund's Class A, Class B and Class C Shares equal, on
an annual basis, to 0.19% of the average daily net assets. 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.

36
<PAGE>

YEAR 2000

Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the computer
systems used by the Investment Adviser or other Fund service providers do not
adequately address this problem in a timely manner. The Investment Adviser has
established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st Century will have any material impact on its ability to
continue to service the Funds at current levels. In addition, the Investment
Adviser has sought assurances from the Funds' other service providers that
they are taking the steps necessary so that they do not experience Year 2000
Problems, and the Investment Adviser will continue to monitor the situation.
At this time, however, no assurance can be given that the actions taken by the
Investment Adviser and the Funds' other service providers will be sufficient
to avoid any adverse effect on the Funds due to the Year 2000 Problem.

EXPENSES

The Funds are responsible for the payment of their expenses. The expenses
include, without limitation: the fees payable to the Investment Adviser;
distribution and service fees; custodial and transfer agency fees; brokerage
fees and commissions; filing fees for the registration or qualification of the
Fund's Shares under federal or state securities laws; organizational expenses;
fees and expenses incurred 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 Funds for
violation of any law; legal and auditing fees and expenses (including the cost
of legal and certain accounting services rendered by employees of the
Investment Adviser and its affiliates with respect to the Funds); expenses of
preparing and setting in type prospectuses, Additional Statements, proxy
material, financial reports and notices and the printing and distributing of
the same to shareholders and regulatory authorities; compensation and expenses
of the Trust's "non-interested" Trustees; and extraordinary organizational
expenses, if any, incurred by the Trust.

REPORTS TO SHAREHOLDERS

37
<PAGE>

HOW TO INVEST

ALTERNATIVE PURCHASE ARRANGEMENTS

Each Fund continuously offers through this Prospectus Class A, Class B and
Class C Shares, as described more fully in "How to Buy Shares of the Funds."
If you do not specify in your instructions to the Funds which Class of Shares
you wish to purchase, the Funds will assume that your instructions apply to
Class A Shares.

CLASS A SHARES. If you invest less than $1 million in Class A Shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A Shares of a
Fund, no sales charge will be imposed at the time of purchase, but you may
incur a deferred sales charge equal to 1.00% if you redeem your Shares within
18 months of purchase. Class A Shares are subject to distribution and service
fees of 0.50% per annum 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 CDSC of up to 5% if redeemed within six years of purchase.
Class B Shares are subject to distribution and service fees of 1.00% per annum
of each Fund's average daily net assets attributable to Class B Shares. See
"Distribution and Service Plans." Class B Shares will automatically convert to
Class A Shares, based on their relative NAVs, 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 and
service 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.

CLASS C SHARES. Class C Shares are sold without an initial sales charge, but
are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class C
Shares are subject to distribution and service fees of 1.00% per annum of each
Fund's average daily net assets attributable to Class C Shares. See
"Distribution and Service Plans." Class C Shares have no conversion feature,
and accordingly, an investor that purchases Class C Shares will be subject to
the distribution and service fee imposed on Class C Shares for an indefinite
period, subject to annual approval by the Fund's Board of Trustees and certain
regulatory limitations. Your entire investment in Class C Shares is available
to work for you from the time you make your initial investment, but the
distribution and service fee paid by Class C Shares will cause your Class C
Shares to have a higher expense ratio and to pay lower dividends, to the
extent dividends are paid, than Class A Shares (or Class B Shares after
conversion to Class A Shares).

FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which Class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A Shares. A brief
description of when the initial sales charge may be reduced or eliminated is
set forth below under "Right of Accumulation" and "Statement of Intention." If
you prefer not to pay an initial sales charge on an investment and plan to
hold your investment for at least six years, you might consider purchasing
Class B Shares. If you prefer not to pay an initial sales charge and are
unsure of the length of your investment or plan to hold your investment for
less than eight years, you may prefer Class C Shares. There is no size limit
on the purchase of Class A Shares. A maximum purchase limitation of $250,000
and

38
<PAGE>

$1,000,000 in the aggregate normally applies to purchases of Class B Shares
and Class C Shares, respectively. Although Class C Shares are subject to a
CDSC for only 12 months and at a lower rate than Class B Shares, Class C
Shares do not have the conversion feature applicable to Class B Shares, making
them subject to higher distribution and service fees for an indefinite period.
Authorized Dealers may receive different compensation for selling Class A,
Class B or Class C Shares.

HOW TO BUY SHARES OF THE FUNDS--CLASS A, CLASS B AND CLASS C 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 NAV next
determined after receipt of an order as described below under "Other Purchase
Information," plus, in the case of Class A Shares, any applicable sales charge.
Currently, each Fund's NAV is determined as of the close of regular trading on
the New York Stock Exchange (which is normally, but not always, 4:00 p.m. New
York time).

The minimum initial investment in each Fund is $1,000. An initial investment
minimum of $250 applies to purchases in connection with tax-sheltered
retirement plans, Individual Retirement Account Plans (excluding SIMPLE IRAs
and Education IRAs) or accounts established under the Uniform Gift to Minors
Act ("UGMA"), and an initial investment minimum of $200 applies to purchases
in connection with 403(b) plans. The minimum initial investment for purchases
in connection with SIMPLE and Education IRAs, as well as purchases through the
Automatic Investment Plan, is $50. The minimum subsequent investment is $50.
These requirements may be waived at the discretion of the Trust's officers.

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

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 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.

39
<PAGE>

OFFERING PRICE--CLASS A SHARES

<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
INCLUDING SALES CHARGE, IF ANY)( OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $50,000.............................. 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000......... 4.75 4.99 4.00
$100,000 up to (but less than) $250,000........ 3.75 3.90 3.00
$250,000 up to (but less than) $500,000........ 2.75 2.83 2.25
$500,000 up to (but less than) $1 million...... 2.00 2.04 1.75
$1 million or more............................. 0.00* 0.00* **
</TABLE>
- --------
* No sales charge is payable at the time of purchase of Class A Shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 18 months of purchase.

Purchases of $1 million or more of Class A Shares will be made at NAV with
no initial sales charge, but if the Shares are redeemed within 18 months after
the end of the calendar month in which the purchase was made, excluding any
period of time in which the Shares were exchanged into and remained invested
in an ILA Portfolio (the "CDSC period"), a CDSC of 1.00% may be imposed
unless, in certain cases, the investor's Authorized Dealer enters into an
agreement with Goldman Sachs to return all or an applicable prorated portion
of its commission to Goldman Sachs. 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 dividend or capital gains distributions which have been
reinvested in additional Class A Shares. Upon redemption of shares subject to
a CDSC, shareholders will receive that portion of the appreciation in account
value attributable to the Shares actually redeemed. In determining whether a
CDSC applies to a redemption, 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.

40
<PAGE>

Class A Shares of the Funds may be sold at NAV 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, children and parents; (e)
banks, trust companies or other types of depository institutions investing for
their own account or investing for accounts for which they have investment
discretion; (f) banks, trust companies or other types of depository
institutions investing for accounts for which they do not have investment
discretion; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
Shares of a Fund; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buys 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 certain third-party
administrators that have entered into a special service arrangement with
Goldman Sachs relating to such plan; (i) "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; (j)
registered investment advisers investing for accounts for which they receive
asset-based fees; (k) accounts over which GSAM or its advisory affiliates have
investment discretion; and (l) 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 NAV 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 NAV, as
described under "Cross-Reinvestment of Dividends and Distributions and
Automatic Exchange Program."

RIGHT OF ACCUMULATION--CLASS A SHARES

Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (Shares at current offering price), plus new
purchases, reaches $50,000 or more. Class A Shares of the Goldman Sachs Funds
may be combined under the Right of Accumulation. See the Additional Statement
for more information about the Right of Accumulation.

STATEMENT OF INTENTION--CLASS A SHARES

OFFERING PRICE--CLASS B SHARES

Investors may purchase Class B Shares of a Fund at the next determined NAV
without the imposition of an initial sales charge. However, Class B Shares
redeemed within six years of purchase will be subject to a CDSC at the rates
shown in the table that follows. At redemption, the charge will be assessed on
the amount equal to the lesser of the current market value or the original
purchase cost of the Shares being redeemed. No CDSC will

41
<PAGE>

be imposed on increases in account value above the initial purchase price,
including Shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of Shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
Shares actually redeemed.

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 applicable period.

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% of the amount invested is paid to Authorized
Dealers.

OFFERING PRICE--CLASS C SHARES

Investors may purchase Class C Shares of a Fund at the next determined NAV
without the imposition of an initial sales charge. However, if Class C Shares
are redeemed within 12 months of purchase, a CDSC of 1% will be deducted from
the redemption proceeds. 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.
Upon redemption of Shares subject to a CDSC, shareholders will receive that
portion of the appreciation in account value attributable to the Shares
actually redeemed.

42
<PAGE>

For the purpose of determining the number of months 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 C
Shares, the Funds will first redeem Shares held for longer than 12 months, and
then Shares held for the longest period during the 12 month period. Proceeds
from the CDSC are payable to the Distributor and may be used in whole or in
part to defray the Distributor's expenses related to providing distribution-
related services to the Funds in connection with the sale of Class C Shares,
including the payment of compensation to Authorized Dealers. An amount equal
to 1.00% of the amount invested is paid by the Distributor to Authorized
Dealers.

REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A, CLASS B AND CLASS C SHARES

A shareholder who redeems Class A or Class B Shares of a Fund may reinvest
at NAV any portion or all of the redemption proceeds (plus that amount
necessary to acquire a fractional Share to round off the purchase to the
nearest full Share) in Class A Shares of the same Fund or any other Goldman
Sachs Fund. A shareholder who redeems Class C Shares of a Fund may reinvest at
NAV any portion or all of the redemption proceeds (plus that amount necessary
to acquire a fractional Share to round off the purchase to the nearest full
Share) in Class C Shares of the same Fund or 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 30 days before
the redemption and that the reinvestment is effected within 90 days after such
redemption. If you redeemed Class A or Class C Shares, paid a CDSC upon a
redemption and reinvest in Class A or Class C Shares subject to the conditions
set forth above, your account will be credited with the amount of the CDSC
previously charged, and the reinvested Shares will continue to be subject to a
CDSC. In this case, the holding period of the Class A or Class C Shares
acquired through reinvestment for purposes of computing the CDSC payable upon
a subsequent redemption will include the holding period of the redeemed
Shares. If you redeemed Class B Shares and paid a CDSC upon redemption, you
are permitted to reinvest the redemption proceeds in Class A Shares at NAV as
described above, but the amount of the CDSC paid upon redemption will not be
credited to your account.

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

WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS A, B AND C
SHARES

The CDSC on Class B Shares, Class C 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(m)(7) of the Code) of a participant or beneficiary

43
<PAGE>

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)(2) 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(m)(7) of the Code) of a shareholder if the redemption is made within one
year of such event; (h) excess contributions being distributed from a Plan;
(i) distributions from a qualified retirement plan invested in the Goldman
Sachs Funds which are being rolled over to 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, Class B and Class C 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%
each of the value of your Class B and Class C Shares and 10% of the value of
your Class A Shares.

SERVICES AVAILABLE TO SHAREHOLDERS

AUTOMATIC INVESTMENT PLAN

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM

A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund in Shares of the same Class or an equivalent
class of other Goldman Sachs Funds or ILA Portfolios. See "Fund Highlights." A
shareholder may also elect to exchange automatically a specified dollar amount
of Shares of a Fund for Shares of the same Class or an equivalent class of any
other Goldman Sachs Fund or ILA Portfolio. Shares acquired through cross-
reinvestment of dividends or the automatic exchange program will be purchased
at NAV and will not be subject to any initial sales charge or CDSC as a result
of the cross-reinvestment or exchange, but Shares subject to a CDSC acquired
under the automatic exchange program may be subject to a CDSC at the time of
redemption from the fund into which the exchange is made determined on the
basis of the date and value of the investor's initial purchase of the fund
from which the exchange (or any prior exchange) is made. Automatic exchanges
are made monthly on the 15th day of each month or the first Business Day
thereafter. The minimum dollar amount for automatic exchanges must be at least
$50 per month. Cross-reinvestments and automatic exchanges are subject to the
following conditions: (i) the value of the shareholder's account(s) in the
fund which is paying the dividend or from which the automatic exchange is
being made must equal or exceed $5,000; and (ii) the value of the account in
the acquired fund must equal or exceed the acquired fund's minimum initial
investment requirement or the shareholder must elect to continue cross-
reinvestment or automatic exchanges until the value of acquired Fund Shares in
the shareholder's account equals or exceeds the acquired fund's minimum
initial investment requirement. A Fund shareholder may elect cross-
reinvestment into an identical account or an account registered in a different
name or with a different address, social security or other taxpayer
identification number, provided that the account in the acquired fund has been
established, appropriate signatures have been obtained and the minimum initial
investment requirement has been satisfied. A Fund shareholder should obtain
and read the prospectus of the fund into which dividends are invested or
automatic exchanges are made.

44
<PAGE>

TAX-SHELTERED RETIREMENT PLANS

The Funds offer their Shares for purchase by retirement plans, including
traditional and Roth IRAs for individuals and their spouses, IRA plans for
employees in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA
plans, 403(b) plans and defined contribution plans such as 401(k) Salary
Reduction Plans. Detailed information concerning these plans may be obtained
from the Transfer Agent. This information should be read carefully, and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
federal income tax consequences of establishing a plan.

EXCHANGE PRIVILEGE

Shares of a Fund may be exchanged at NAV without the imposition of an
initial sales charge or CDSC at the time of exchange for Shares of the same
Class or an equivalent class of any other Fund, Goldman Sachs Fund or ILA
Portfolio. A shareholder needs to obtain and read the prospectus of the fund
into which the exchange is made. The Shares of these other funds acquired by
an exchange may later be exchanged for Shares of the same Class (or an
equivalent Class) of the original Fund at the next determined NAV without the
imposition of an initial sales charge or CDSC if the dollar amount in the Fund
resulting from such exchanges is below the shareholder's all-time highest
dollar amount on which it has previously paid the applicable sales charge.
Shares of these other funds purchased through dividends and/or capital gains
reinvestment may be exchanged for Shares of the Funds without a sales charge.
In addition to free automatic exchanges pursuant to the Automatic Exchange
Program, six free exchanges are permitted in each 12 month period. A fee of
$12.50 may be charged for each subsequent exchange during such period. The
exchange privilege may be materially modified or withdrawn at any time upon 60
days' notice to shareholders and is subject to certain limitations.

An exchange may be made by identifying the applicable Fund and Class of
Shares and either writing to Goldman Sachs, Attention: Goldman Sachs
International Equity Funds, Shareholder Services, c/o NFDS, P.O. Box 419711,
Kansas City, MO 64141-6711 or, unless the investor has specifically declined
telephone exchange privileges on the Account Application or elected in writing
not to utilize telephone exchanges, by a telephone request to the Transfer
Agent at 800-526-7384 (7:00 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 instructions are in writing and
received in accordance with the procedures set forth under "How to Sell Shares
of the Funds." In times of drastic economic or market changes the telephone
exchange privilege may be difficult to implement.

45
<PAGE>

shareholder for purposes of determining gain or loss, if any, realized on such
redemption for federal income tax purposes, but instead will be added to the
tax basis of the Shares received in the exchange. Shareholders should consult
their own tax advisers concerning the tax consequences of an exchange.

Eligible investors may exchange certain classes of shares for another class
of shares of the same Fund. For further information contact Goldman Sachs at
the number set forth on the back of the Prospectus.

OTHER PURCHASE INFORMATION

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

46
<PAGE>

the length of time their customers' assets have remained in a Fund) and,
subject to applicable NASD regulations, contribute to various non-cash and
cash incentive arrangements to promote the sale of Shares, as well as sponsor
various educational programs, sales contests and/or promotions in which
participants may receive reimbursement of expenses, entertainment and prizes
such as travel awards, merchandise, cash, investment research and educational
information and related support materials. This additional compensation can
vary among Authorized Dealers depending upon such factors as the amounts their
customers have invested (or may invest) in particular Goldman Sachs Funds, the
particular program involved, or the amount of reimbursable expenses.
Additional compensation based on sales may, but is currently not expected to,
exceed 0.50% (annualized) of the amount invested. For further information, see
"Other Information Regarding Purchases, Redemptions, Exchanges and Dividends"
in the Additional Statement.

DISTRIBUTION AND SERVICE PLANS

Goldman Sachs may use this distribution fee for its expenses of distributing
Class A, Class B and Class C Shares of the Funds. The types of expenses for
which Goldman Sachs may be compensated for distribution services under the
Plans 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; interest expenses and other costs associated
with the financing of such compensation and expenses; the printing of
prospectuses for prospective shareholders; preparation and distribution of
sales literature and advertising of any type; and all other expenses incurred
in connection with activities primarily intended to result in the sale of
Class A, Class B and Class C Shares. The aggregate compensation that may be
received under the Plans for distribution services may not exceed the
limitations imposed by the NASD's Conduct Rules. Payments for distribution
services are also subject to the requirements of Rule 12b-1 under the Act.

Under the Plans, Goldman Sachs is also entitled to receive a separate fee
equal on an annual basis to 0.25% of each Fund's average daily net assets
attributable to Class A, Class B or Class C Shares. This fee is for personal
and account maintenance services, and may be used to make payments to Goldman
Sachs, Authorized Dealers and their officers, sales representatives and
employees for responding to inquires 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. If the fees received
by Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may
realize a profit from these arrangements. The Plans will be reviewed and are
subject to approval annually by the Trustees.

In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.75% distribution fee as an ongoing commission, and the 0.25% ongoing
service fee, to Authorized Dealers after the Shares have been held for one
year. All of these fees are paid by Goldman Sachs on a quarterly basis.

47
<PAGE>

HOW TO SELL SHARES OF THE FUNDS

Each Fund will redeem its Shares upon request of a shareholder on any
Business Day at the NAV next determined after the receipt of such request in
proper form, subject to any applicable CDSC. See "Net Asset Value." Redemption
proceeds will normally be mailed by check to a shareholder within three
Business Days of receipt of a properly executed request. If the 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 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.

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 concerning telephone
redemptions and exchanges. If reasonable procedures are not employed, the
Trust may be liable for any loss due to unauthorized or fraudulent
transactions. Proceeds of telephone redemptions will be mailed to the
shareholder's address of record or wired to the authorized bank account
indicated on the Account Application, unless the shareholder provides written
instructions (accompanied by a signature guarantee) indicating another
address. Telephone redemptions will not be accepted during the 30-day period
following any change in a shareholder's address of record. This redemption
option does not apply to shares held in a "street name" account. Shareholders
whose accounts are held in "street name" should contact their broker of record
who may effect telephone redemptions on their behalf. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.

48
<PAGE>

SYSTEMATIC WITHDRAWAL PLAN

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

DIVIDENDS

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

49
<PAGE>

At the time of an investor's purchase of Shares of a Fund, a portion of the
NAV per Share may be represented by undistributed income of the Fund or
realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such Shares from such income or
realized appreciation may be taxable to the investor even if the NAV 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

PERFORMANCE INFORMATION

From time to time each Fund may publish average annual total return 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 NAV. 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 and Class C Shares reflect deduction of the
applicable CDSC imposed upon redemption of Class B and Class C 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 NAV. Any performance information which is
based on a Fund's NAV per Share would be reduced if any applicable sales
charge were taken into account. In addition to the above, each Fund may from
time to time advertise its performance relative to certain averages,
performance rankings, indices, other information prepared by recognized mutual
fund statistical services and investments for which reliable performance
information is available.

50
<PAGE>

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

SHARES OF THE TRUST

Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. Each Fund (except the
Japanese Equity, International Small Cap and CORE International Equity Funds)
was formerly a series of Goldman Sachs Equity Portfolios, Inc., a Maryland
corporation, and was reorganized into the Trust as of April 30, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify Shares of beneficial interest in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of Shares into one or more Classes. Information about the Trust's
other series and classes is contained in separate prospectuses.

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

As of April 3, 1998, Goldman Sachs CORE International Equity Omnibus A/C-
Growth and Income Strategy, 4900 Sears Tower, Chicago, IL 60606 was
recordholder of 29.1% of CORE International Equity Fund's outstanding Shares.

51
<PAGE>

TAXATION

FEDERAL TAXES

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

Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Distributions out of the
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), if any, of a Fund will be taxed as long-term capital gains,
regardless of the length of time a shareholder has held Shares or whether such
gain was reflected in the price paid for the Shares. These tax consequences
will apply whether distributions are received in cash or reinvested in Shares.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
the Funds are not generally expected to qualify, in the hands of corporate
shareholders, for the corporate dividends-received deduction. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.

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

Redemptions and exchanges of Shares are taxable events.

Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds may elect to pass
such foreign taxes through to their shareholders, who would then take such
taxes into account on their own tax returns. Alternatively, the Funds may
simply deduct such taxes in determining the amounts available for distribution
to shareholders. Generally, the Funds have taken the latter approach and
anticipate that they may continue to do so.

52
<PAGE>

OTHER TAXES

ADDITIONAL INFORMATION

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, Dr. Martin Luther King, Jr. Day, Presidents' Day (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

53
<PAGE>

APPENDIX

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

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

ESCROW AGREEMENT

A-1
<PAGE>

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

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

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

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

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

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

ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110

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

EQINTLPROABC
501413
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS
INTERNATIONAL

EQUITY FUNDS

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

PROSPECTUS

CLASS A, B AND C SHARES

LOGO
Goldman
Sachs

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

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

PROSPECTUS GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS
May 1, 1998, as revised SERVICE SHARES
September 1, 1998

GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
GOLDMAN SACHS CORE INTERNATIONAL Seeks long-term capital appreciation
EQUITY FUND through investments in equity securities
Seeks long term growth of cap- of companies with public stock market
ital through a broadly diver- capitalizations of $1 billion or less at
sified portfolio of equity se- the time of investment that are orga-
curities of large cap compa- nized outside the U.S. or whose securi-
nies that are organized out- ties are principally traded outside the
side the U.S. or whose securi- U.S.
ties are principally traded
outside the U.S. GOLDMAN SACHS EMERGING MARKETS
EQUITY FUND
GOLDMAN SACHS INTERNATIONAL Seeks long-term capital appreciation
EQUITY FUND through investments in equity securities
Seeks long-term capital appre- of emerging country issuers.
ciation through investments in
equity securities of companies GOLDMAN SACHS ASIA GROWTH FUND
that are organized outside the Seeks long-term capital appreciation
U.S. or whose securities are through investments in equity securities
principally traded outside the of companies related (in the manner de-
U.S. scribed herein) to Asian countries.

GOLDMAN SACHS JAPANESE EQUITY
FUND
Seeks long-term capital appre-
ciation through investments in
equity securities of Japanese
companies.

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

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, 1998, as
revised September 1, 1998, containing further information about the Trust and
the Funds which may be of interest to investors, has been filed with the
Securities and Exchange Commission ("SEC"), is incorporated herein by reference
in its entirety, and may be obtained without charge from Service Organizations
(as defined herein), or Goldman Sachs by calling the telephone number, or
writing to one of the addresses, listed on the back cover of this Prospectus.
The SEC maintains a Web site (http://www.sec.gov) that contains the Additional
Statement and other information regarding the Trust.

(continued on next page)
<PAGE>

(cover continued)

A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS, INCLUDING RISKS RELATING TO CHANGES IN
RELATIVE CURRENCY EXCHANGE RATES OR (AS IN THE CASE OF THE EXPECTED
INTRODUCTION OF THE EURO) THE CREATION OF NEW CURRENCIES. THE SECURITIES
MARKETS OF ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING
COUNTRIES IN WHICH THE CORE INTERNATIONAL EQUITY FUND CAN INVEST A PORTION OF
ITS ASSETS AND THE INTERNATIONAL SMALL CAP, INTERNATIONAL EQUITY, EMERGING
MARKETS AND ASIA GROWTH FUNDS MAY INVEST WITHOUT LIMIT, ARE LESS LIQUID, ARE
ESPECIALLY SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET
CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO AS
EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS
AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. FURTHER, INVESTMENT IN
EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND CERTAIN OTHER EMERGING
COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS IN SHARE REGISTRATION
AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH INVESTMENT IN MORE
DEVELOPED COUNTRIES. FUNDS THAT INVEST IN FOREIGN SECURITIES AND EMERGING
MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH
THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. THE JAPANESE
EQUITY AND ASIA GROWTH FUNDS WILL BE PARTICULARLY SUBJECT TO EVENTS AFFECTING
THE MARKETS IN WHICH THESE FUNDS CONCENTRATE THEIR INVESTMENTS. SEE
"DESCRIPTION OF SECURITIES" AND "RISK FACTORS."

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 6
Financial Highlights............... 8
Investment Objectives and Policies. 12
Description of Securities.......... 17
Investment Techniques.............. 21
Risk Factors....................... 24
Investment Restrictions............ 28
Portfolio Turnover................. 28
Management......................... 28
Expenses........................... 34
Net Asset Value.................... 34
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information....... 34
Shares of the Trust........... 35
Taxation...................... 36
Additional Information........ 37
Additional Services........... 38
Reports to Shareholders....... 38
Dividends..................... 39
Purchase of Service Shares.... 39
Exchange Privilege............ 41
Redemption of Service Shares.. 41
Appendix...................... A-1
</TABLE>

2
<PAGE>

FUND HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- -------------- ---------------- --------------------------------------- ----------------
<S> <C> <C> <C>
CORE Long-term growth At least 90% of total assets in equity EAFE Index
INTERNATIONAL of capital. securities of companies organized (unhedged)
EQUITY FUND outside the United States or whose
securities are principally traded
outside the United States. The Fund
seeks broad representation of large cap
issuers across major countries and
sectors of the international economy.
The Fund's investments are selected
using both a variety of quantitative
techniques and fundamental research in
seeking to maximize the Fund's expected
return, while maintaining risk, style,
capitalization and industry
characteristics similar to the unhedged
Morgan Stanley Capital International
(MSCI) Europe, Australasia and Far East
Index (the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of FT/Actuaries
EQUITY FUND capital total assets in equity securities Europe and
appreciation. of companies organized outside Pacific Index
the United States or whose securities (unhedged)
are principally traded outside the
United States. The Fund may employ
currency management techniques.
- -------------------------------------------------------------------------------------------
JAPANESE Long-term Substantially all, and at least 65%, of Tokyo Price
EQUITY FUND capital total assets in equity securities of Index ("TOPIX")
appreciation. Japanese companies. The Fund may employ
currency management techniques.
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of Morgan Stanley
SMALL CAP capital total assets in equity securities of Capital
FUND appreciation. companies with public stock market International
capitalizations of $1 billion or less EAFE Small Cap
at the time of investment that are Index
organized outside the United States or
whose securities are principally traded
outside the United States. The Fund may
employ currency management techniques.
</TABLE>

(continued)

3
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ------------ ---------------- --------------------------------------- ----------------
<S> <C> <C> <C>
EMERGING Long-term Substantially all, and at least 65%, of Morgan Stanley
MARKETS capital its total assets in equity securities Capital
EQUITY FUND appreciation. of emerging country issuers. The Fund International
may employ certain currency management Emerging Markets
techniques. Free Index
- ----------------------------------------------------------------------------------------
ASIA GROWTH Long-term Substantially all, and at least 65%, of Morgan Stanley
FUND capital total assets in equity securities Capital
appreciation. of companies in China, Hong International
Kong, India, Indonesia, Malaysia, All Country Asia
Pakistan, the Philippines, Singapore, Free ex-Japan
South Korea, Sri Lanka, Taiwan, Index
Thailand and other Asian countries.
The Fund may employ certain currency
management techniques.
</TABLE>

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

Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates (or, as in the case of the expected introduction of the euro next
year, the creation of new currencies), political and economic developments,
the imposition of exchange controls, confiscation and other governmental
restrictions. Generally, there is less availability of data on foreign
companies and securities markets as well as less regulation of foreign
stock exchanges, brokers and issuers. A Fund's investments in emerging
markets and countries ("Emerging Countries") involves greater risks than
investments in the developed countries of Western Europe, the United
States, Canada, Australia, New Zealand and Japan. In addition, because the
Funds invest primarily outside the United States, they may involve greater
risks, since the securities markets of foreign countries are generally less
liquid and subject to greater price volatility. The securities markets of
Emerging Countries, including those in Asia, Latin America, Eastern Europe
and Africa are marked by a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such
securities by a limited number of investors.

Risks of Investing in Japanese Markets. The Japanese Equity Fund will
concentrate in Japanese securities and, therefore, will be particularly
subject to the risk of adverse social, political and economic events which
occur in Japan or affect the Japanese markets.

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

WHO MANAGES THE FUNDS?

Goldman Sachs Asset Management serves as Investment Adviser to the CORE
International Equity Fund. Goldman Sachs Asset Management International
serves as Investment Adviser to each other Fund. As of

4
<PAGE>

July 24, 1998, the Investment Advisers, together with their affiliates,
acted as investment adviser or distributor for assets in excess of $168
billion.

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's Shares (the
"Distributor").

WHAT IS THE MINIMUM INVESTMENT?

HOW DO I PURCHASE SERVICE SHARES?

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 NAV next determined after
receipt of such request in proper form. See "Redemption of Service Shares."

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
DECLARED AND PAID DISTRIBUTIONS
--------------------------- -------------
<S> <C>
Annually Annually
</TABLE>

5
<PAGE>

FEES AND EXPENSES
(SERVICE SHARES)

<TABLE>
<CAPTION>
CORE INT'L EMERGING
INT'L INT'L JAPANESE SMALL MARKETS ASIA
EQUITY EQUITY EQUITY CAP EQUITY GROWTH
FUND FUND FUND FUND FUND FUND/5/
------ ------ -------- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge Imposed
on Purchases................. None None None None None None
Maximum Sales Charge Imposed
on Reinvested Dividends...... None None None None None None
Redemption Fees............... None None None None None None
Exchange Fees................. None None None None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average
daily net assets)/1/
Management Fees............... 0.85% 1.00% 1.00% 1.20% 1.20% 1.00%
Service Fees/2/............... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after applica-
ble limitations)/3/.......... 0.16% 0.14% 0.05% 0.20% 0.19% 0.20%
---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES
(AFTER EXPENSE
LIMITATIONS)/4/............... 1.51% 1.64% 1.55% 1.90% 1.89% 1.70%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------------
/1/ The Funds' annual operating expenses have been restated to reflect fees
and expenses in effect as of September 1, 1998.
/2/ Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts.
/3/The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, service fees, transfer agency
fees (equal to 0.04% of the average daily net assets of each Funds' Service
Shares), taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses) for each Fund to the extent such expenses
exceed the following percentages of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C> <C>
CORE International Equity.............................. 0.12%
International Equity................................... 0.10%
Japanese Equity........................................ 0.01%
International Small Cap................................ 0.16%
Emerging Markets Equity................................ 0.15%
Asia Growth............................................ 0.16%

/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Service Shares of the Funds would be as set
forth below:
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
CORE International Equity.............................. 0.44% 1.79%
International Equity................................... 0.22% 1.72%
Japanese Equity........................................ 2.07% 3.57%
International Small Cap................................ 3.35% 5.05%
Emerging Markets Equity................................ 0.50% 2.20%
Asia Growth............................................ 0.35% 1.85%
</TABLE>

/5/ Service Shares had not commenced operations as of the date of this
Prospectus.

6
<PAGE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
hypothetical $1,000 investment, assuming (1)
a 5% annual return and (2) redemption at the
end of each time period:
CORE International Equity..................... $15 $48 $ 82 $180
International Equity.......................... 17 52 89 194
Japanese Equity............................... 16 49 N/A N/A
International Small Cap....................... 19 60 N/A N/A
Emerging Markets Equity....................... 19 59 N/A N/A
Asia Growth................................... 17 54 92 201
</TABLE>

The Investment Adviser and Goldman Sachs may modify or discontinue any of
the limitations set forth above in the future at their discretion. The
information set forth in the foregoing table and hypothetical example relates
only to Service Shares of the Funds. Each Fund also offers Institutional
Shares and Class A, Class B and Class C Shares, which are subject to different
fees and expenses (which affect performance), have different minimum
investment requirements and are entitled to different services. Information
regarding Institutional, Class A, Class B and Class C Shares may be obtained
from an investor's sales representative or from Goldman Sachs by calling the
number on the back of this Prospectus.

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

7
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- -----------------------
FROM NET
NET REALIZED NET REALIZED REALIZED
AND UNREALIZED AND UNREALIZED GAIN ON
NET ASSET GAIN (LOSS) ON GAIN (LOSS) ON FROM INVESTMENT NET NET ASSET
VALUE, NET INVESTMENTS CURRENCY NET AND DECREASE VALUE,
BEGINNING INVESTMENT AND FUTURES RELATED INVESTMENT FUTURES IN NET END OF TOTAL
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- -------------- ---------- ------------ ----------- --------- ---------
CORE INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... $10.00 $ -- $0.13 $(0.91) $ -- -- $(0.78) $9.22 (7.66)%(d)
1998--Class B
Shares(b)....... 10.00 (0.02) 0.13 (0.90) -- -- (0.79) 9.21 (7.90)(d)
1998--Class C
Shares(b)....... 10.00 (0.02) 0.13 (0.89) -- -- (0.78) 9.22 (7.80)(d)
1998--Institu-
tional
Shares(b)....... 10.00 0.02 0.13 (0.89) (0.02) -- (0.76) 9.24 (7.45)(d)
1998--Service
Shares(b)....... 10.00 0.01 0.13 (0.91) -- -- (0.77) 9.23 (7.70)(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
--------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- ---------- ---------- ------------ ------------- ----------- --------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1998--Class A
Shares(b)....... 25.16% $.0069 $ 7,087 1.50%(c) (0.27)%(c) 4.87%(c) (3.90)%(c)
1998--Class B
Shares(b)....... 25.16 .0069 2,721 2.00(c) (0.72)(c) 5.12(c) (3.84)(c)
1998--Class C
Shares(b)....... 25.16 .0069 1,608 2.00(c) (0.73)(c) 5.12(c) (3.85)(c)
1998--Institu-
tional
Shares(b)....... 25.16 .0069 17,719 1.00(c) 0.59(c) 4.12(c) (2.53)(c)
1998--Service
Shares(b)....... 25.16 .0069 1 1.50(c) 0.26(c) 4.62(c) (2.86)(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Commenced operations on August 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.

8
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
-------------------------------------- -----------------------------------------------
FROM NET IN EXCESS OF
NET REALIZED REALIZED NET REALIZED
AND GAIN ON GAIN ON NET
UNREALIZED INVESTMENT INVESTMENT INCREASE
NET ASSET NET NET REALIZED GAIN (LOSS) IN EXCESS AND FOREIGN AND FOREIGN (DECREASE)
VALUE, INVESTMENT AND UNREALIZED ON CURRENCY FROM NET OF NET CURRENCY CURRENCY IN NET
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT RELATED RELATED ASSET
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE
--------- ---------- -------------- ------------ ---------- ---------- ------------ ------------ ----------
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.32 $0.03 $2.99 $(0.95) $ -- $(0.30) $(0.88) $(0.36) $0.53
1998--Class B
Shares.......... 19.24 (0.08) 2.96 (0.94) -- (0.25) (0.47) (0.76) 0.46
1998--Class C
Shares(b)....... 22.60 (0.04) (2.03) 0.65 -- (0.38) -- (1.24) (3.04)
1998--Institu-
tional Shares... 19.40 0.10 3.09 (0.98) (0.07) (0.33) (0.97) (0.27) 0.57
1998--Service
Shares.......... 19.34 0.02 3.02 (0.96) -- (0.35) (0.18) (1.05) 0.50
- ----------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 17.20 0.10 3.51 (1.28) -- -- (0.21) -- 2.12
1997--Class B
Shares(b)....... 18.91 (0.06) 0.94 (0.34) -- -- (0.21) -- 0.33
1997--Institu-
tional
Shares(b)....... 17.45 0.04 3.39 (1.24) (0.03) -- (0.21) -- 1.95
1997--Service
Shares(b)....... 17.70 (0.02) 2.95 (1.08) -- -- (0.21) -- 1.64
- ----------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42 (0.58) -- (0.87) -- 2.68
- ----------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01) -- -- (0.59) -- (3.58)
- ----------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38) -- -- -- -- 3.75
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11) -- -- -- -- 0.17
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
NET AT END EXPENSES INVESTMENT EXPENSES NET
ASSET OF TO INCOME TO INVESTMENT
VALUE, PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
END OF TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
PERIOD RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
------ ------------ --------- ---------- -------- --------- ------------ --------- -------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.85 11.12% 40.82% $.0207 $697,590 1.67% (0.27)% 1.80% (0.40)%
1998--Class B
Shares.......... 19.70 10.51 40.82 .0207 55,324 2.20 (0.90) 2.30 (1.00)
1998--Class C
Shares(b)....... 19.56 (5.92)(d) 40.82 .0207 3,369 2.27(c) (1.43)(c) 2.37(c) (1.53)(c)
1998--Institu-
tional Shares... 19.97 11.82 40.82 .0207 56,263 1.08 0.30 1.18 0.20
1998--Service
Shares.......... 19.84 11.25 40.82 .0207 3,035 1.55 (0.36) 1.65 (0.46)
- ----------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 19.32 13.48 38.01 .0318 536,283 1.69 (0.07) 1.88 (0.26)
1997--Class B
Shares(b)....... 19.24 2.83(d) 38.01 .0318 19,198 2.23(c) (0.97)(c) 2.38(c) (1.12)(c)
1997--Institu-
tional
Shares(b)....... 19.40 12.53(d) 38.01 .0318 68,374 1.10(c) 0.43(c) 1.25(c) 0.28(c)
1997--Service
Shares(b)....... 19.34 10.42(d) 38.01 .0318 674 1.60(c) (0.40)(c) 1.75(c) (0.55)(c)
- ----------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 17.20 28.68 68.48 -- 330,860 1.52 0.26 1.77 0.01
- ----------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 14.52 (16.65) 84.54 -- 275,086 1.73 0.40 1.98 0.15
- ----------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 18.10 26.13 60.04 -- 269,091 1.76 0.51 2.01 0.26
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.35 1.23(d) 0.00 -- 66,063 1.80(c) (0.42)(c) 2.58(c) (1.20)(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C, Institutional and Service share activity
commenced on December 1, 1992, May 1, 1996, August 15, 1997, February 7,
1996 and March 6, 1996, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

9
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET NET REALIZED AND UNREALIZED REALIZED GAIN IN EXCESS
VALUE, NET AND UNREALIZED LOSS ON FOREIGN FROM NET ON INVESTMENT OF NET NET DECREASE NET ASSET
BEGINNING INVESTMENT GAIN (LOSS) ON CURRENCY RELATED INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET VALUE, END
OF PERIOD INCOME INVESTMENTS TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE OF PERIOD
--------- ---------- -------------- ---------------- ---------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EMERGING MARKETS EQUITY FUND
---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998 -- Class A
Shares(b)....... $10.00 $ -- $(0.11) $(0.20) -- -- -- $(0.31) $9.69
1998 -- Class B
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
1998 -- Class C
Shares(b)....... 10.00 -- (0.10) (0.20) -- -- -- (0.30) 9.70
1998 -- Institu-
tional
Shares(b)....... 10.00 0.01 (0.11) (0.20) -- -- -- (0.30) 9.70
1998 -- Service
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
OR EXPENSE LIMITATIONS
---------------------------
RATIO OF RATIO OF NET
NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO LOSS TO
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET AVERAGE
RETURN(A) RATE RATE (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ---------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998 -- Class A
Shares(b)....... (3.10)%(d) 3.35% $0.0005 $17,681 1.90%(c) 0.55%(c) 5.88%(c) (3.43)%(c)
1998 -- Class B
Shares(b)....... (3.10)(d) 3.35 0.0005 64 2.41(c) 0.05(c) 6.39(c) (3.93)(c)
1998 -- Class C
Shares(b)....... (3.00)(d) 3.35 0.0005 73 2.48(c) (0.27)(c) 6.46(c) (4.25)(c)
1998 -- Institu-
tional
Shares(b)....... (3.00)(d) 3.35 0.0005 19,120 1.30(c) 0.80(c) 5.28(c) (3.18)(c)
1998 -- Service
Shares(b)....... (3.10)(d) 3.35 0.0005 2 2.72(c) (0.05)(c) 6.70(c) (4.03)(c)
</TABLE>
------------

10
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ----------------------------------
NET REALIZED FROM NET NET
AND UNREALIZED REALIZED INCREASE NET
NET ASSET NET NET REALIZED ON FOREIGN IN EXCESS GAIN ON (DECREASE) ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY FROM NET OF NET INVESTMENT IN NET VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT AND FUTURES ASSET END OF
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
- ------------------------------
1998--Class A
Shares.......... $16.31 $ -- $(5.78) $(2.12) $ -- $(0.03) $ -- $(7.93) $8.38
1998--Class B
Shares.......... 16.24 0.01 (5.79) (2.12) -- (0.03) -- (7.93) 8.31
1998--Class C
Shares(b)....... 15.73 0.01 (5.43) (1.99) -- (0.03) -- (7.44) 8.29
1998--Institu-
tional Shares... 16.33 0.10 (5.83) (2.13) (0.03) -- -- (7.89) 8.44
- ------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 16.49 0.06 (0.11) -- (0.12) -- (0.01) (0.18) 16.31
1997--Class B
Shares(b)....... 17.31 (0.05) (0.48) -- (0.51) (0.03) -- (1.07) 16.24
1997--Institu-
tional
Shares(b)....... 16.61 0.04 (0.11) -- (0.11) (0.06) (0.04) (0.28) 16.33
- ------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares 13.31 0.17 3.44 -- (0.12) (0.14) (0.17) 3.18 16.49
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) -- 0.01 -- (0.10) (0.87) 13.31
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ------- --------- ------------ --------- -------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
- ------------------------------
1998--Class A
Shares.......... (48.49)% 105.16% $.0070 $87,437 1.75% 0.31% 1.99% 0.07%
1998--Class B
Shares.......... (48.70) 105.16 .0070 3,359 2.30 (0.29) 2.50 (0.49)
1998--Class C
Shares(b)....... (47.17)(d) 105.16 .0070 436 2.35(c) (0.26)(c) 2.55(c) (0.46)(c)
1998--Institu-
tional Shares... (48.19) 105.16 .0070 874 1.11 0.87 1.31 0.67
- ------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... (1.01) 48.40 .0151 263,014 1.67 0.20 1.87 0.00
1997--Class B
Shares(b)....... (6.02)(d) 48.40 .0151 3,354 2.21(c) (0.56)(c) 2.37(c) (0.72)(c)
1997--Institu-
tional
Shares(b)....... (1.09)(d) 48.40 .0151 13,322 1.10(c) 0.54(c) 1.26(c) 0.38 (c)
- ------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares 26.49 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... (5.46)(d) 36.08 -- 124,298 1.90(c) 1.83(c) 2.38(c) 1.35(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C and Institutional share activity commenced on
July 8, 1994, May 1, 1996, August 15, 1997 and February 2, 1996,
respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

11
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Investment Adviser may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, bonds with attached warrants,
equity-related transferable securities, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Adviser utilizes first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Adviser may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Adviser, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified. Other investment practices and management
techniques, which involve certain risks are described under "Description of
Securities," "Risk Factors" and "Investment Techniques."

12
<PAGE>

multifactor models (each a "Multifactor Model") to forecast the returns of
different markets, currencies and individual securities. The Investment
Adviser may rely on research from both the Goldman Sachs Global Investment
Research Department (the "Research Department") and other industry sources.

Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.

CORE INTERNATIONAL EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are primarily
traded outside the United States.

13
<PAGE>

techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the EAFE Index. In addition, the Fund seeks a
portfolio composed of companies with attractive valuations and stronger
momentum characteristics than the EAFE Index.

For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Fund."

Other. The Fund may invest only in fixed-income securities that are
considered to be cash equivalents.

INTERNATIONAL EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Other. Up to 35% of the Fund's total assets may be invested in fixed-income
securities.

JAPANESE EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

14
<PAGE>

Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed-income securities.

INTERNATIONAL SMALL CAP FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies with public stock market capitalizations of
$1 billion or less at the time of investment that are organized outside the
U.S. or whose securities are principally traded outside the U.S. The Fund may
allocate its assets among countries as determined by the Investment Adviser
from time to time provided that the Fund's assets are invested in at least
three foreign countries. The Fund expects to invest a substantial portion of
its assets in small cap securities of companies in the developed countries of
Western Europe, Japan and Asia. However, the Fund may also invest in the
securities of issuers located in Australia, Canada, New Zealand and the
Emerging Countries in which the Emerging Markets Equity Fund may invest. Many
of the countries in which the Fund may invest have emerging markets or
economics which involve certain risks, as described below under "Risk
Factors--Special Risks of Investments in Asian and Other Emerging Markets,"
which are not present in investments in more developed countries. If the
market capitalization of a company held by the Fund increases above $1
billion, the Fund may, consistent with its investment objective, continue to
hold the security.

EMERGING MARKETS EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

15
<PAGE>

Other. Under normal circumstances, the Fund maintains investments in at
least six Emerging Countries, and will not invest more than 35% of its total
assets in securities of issuers in any one Emerging Country. Allocation of the
Fund's investments will depend upon the relative attractiveness of the
Emerging Country markets and particular issuers. In addition, macro-economic
factors and the portfolio managers' and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed-income securities of private and governmental Emerging Country
issuers; and (ii) equity and fixed-income securities of issuers in developed
countries.

ASIA GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries; (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries; (iii) they maintain 50% or more of their assets
in one or more of the Asian countries; or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed
countries. The Fund may purchase equity securities of issuers that have not
paid dividends on a timely basis, securities of companies that have
experienced difficulties, and securities of companies without performance
records.

16
<PAGE>

DESCRIPTION OF SECURITIES

CONVERTIBLE SECURITIES

Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed-income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which the Funds invest are not subject to any minimum rating
criteria. Convertible debt securities are equity investments for purposes of
each Fund's investment policies.

FOREIGN INVESTMENTS

Investing in the securities of foreign issuers involves certain special
risks, including those set forth below, which are not typically associated
with investing in U.S. dollar-denominated or quoted securities of U.S.
issuers. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations (e.g., currency blockage). A decline in
the exchange rate of the currency (i.e., weakening of the currency against the
U.S. dollar) in which a portfolio security is quoted or denominated relative
to the U.S. dollar would reduce the value of the portfolio security. In
addition, if the currency in which a Fund receives dividends, interest or
other payments declines in value against the U.S. dollar before such income is
distributed as dividends to shareholders or converted to U.S. dollars, the
Fund may have to sell portfolio securities to obtain sufficient cash to pay
such dividends. The expected introduction of a single currency, the euro, on
January 1, 1999 for participating nations in the European Economic and
Monetary Union ("EU") presents unique uncertainties, including whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; the creation of suitable clearing and
settlement payment systems for the new currency; the legal treatment of
certain outstanding financial contracts after January 1, 1999 that refer to
existing currencies rather than the euro; the establishment and maintenance of
exchange rates for currencies being converted into the euro and the euro; the
fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; whether the
interest rate, tax and labor regimes of European countries participating in
the euro will converge over time; and whether the conversion of the currencies
of other EU

17
<PAGE>

countries such as the United Kingdom, Denmark and Greece into the euro and the
admission of other non-EU countries such as Poland, Latvia and Lithuania as
members of the EU may have an impact on the euro. These or other factors,
including political and economic risks, could cause market disruptions before
or after the introduction of the euro, and could adversely affect the value of
securities held by the Funds. Commissions on transactions in foreign
securities may be higher than those for similar transactions on domestic stock
markets. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have been unable to
keep pace with the volume of securities transactions, thus making it difficult
to conduct such transactions.

Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not
geographically concentrated.

18
<PAGE>

to seek to protect against anticipated changes in future foreign currency
exchange rates. In addition, each Fund may enter into such contracts to seek
to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to enhance return, forward foreign currency exchange contracts are
considered speculative. Each 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 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 segregate cash or liquid assets in an amount equal to the value of
the Fund's total assets committed to the consummation of the forward contract,
or otherwise cover its position in a manner permitted by the SEC. The Fund
will incur costs in connection with conversions between various currencies. A
Fund may hold foreign currency received in connection with investments in
foreign securities when, in the judgment of the Investment Adviser, it would
be beneficial to convert such currency into U.S. dollars at a later date,
based on anticipated changes in the relevant exchange rate.

FIXED-INCOME SECURITIES

19
<PAGE>

Each Fund (other than the CORE International Equity Fund, which only invests
in debt instruments that are cash equivalents) may invest up to 35% of its
total assets in debt securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's") (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Fixed-income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in a Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.

REAL ESTATE INVESTMENT TRUSTS ("REITS")

Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' managers. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.

20
<PAGE>

INVESTMENT TECHNIQUES

OPTIONS ON SECURITIES AND SECURITIES INDICES

OPTIONS ON FOREIGN CURRENCIES

A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition,
each 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 options transactions, however, the
writing of an option on a 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 call
and put options for hedging purposes, each 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 written or purchased
by the Funds are traded on U.S. and foreign exchanges or over-the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

21
<PAGE>

in regulations of the Commodity Futures Trading Commission or to seek to
increase total return to the extent permitted by such regulations. A Fund may
not purchase or sell futures contracts or purchase or sell related options to
seek to increase total return, except for closing purchase or sale
transactions, if immediately thereafter the sum of the amount of initial
margin deposits and premiums paid on the Fund's outstanding positions in
futures and related options entered into for the purpose of seeking to
increase total return would exceed 5% of the market value of the Fund's net
assets. These transactions involve brokerage costs, require margin deposits
and, in the case of contracts and options obligating a Fund to purchase
securities or currencies, require the Fund to segregate and maintain cash or
liquid assets with a value equal to the amount of the Fund's obligations or to
otherwise cover the obligations in a manner permitted by the SEC.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's NAV. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly 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. The Funds may engage in futures transactions on both U.S. and foreign
exchanges. Foreign exchanges may not provide the same protections as U.S.
exchanges.

EQUITY SWAPS

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

22
<PAGE>

also purchase or sell securities on a forward commitment basis; that is, make
contracts to purchase or sell securities for a fixed price at a future date
beyond the customary settlement period. 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. Conversely,
securities sold on a forward commitment basis involve the risk that the value
of the securities to be sold may increase 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. A
Fund will segregate cash or liquid assets in an amount sufficient to meet the
purchase price until three days prior to the settlement date. Alternatively,
each Fund may enter into offsetting contracts for the forward sale of other
securities that it owns.

ILLIQUID AND RESTRICTED SECURITIES

A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain stripped mortgage-backed securities, 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 a review of
the trading markets for a specific restricted security, that such restricted
security is eligible for resale pursuant to Rule 144A under the Securities Act
of 1933 and, therefore, is liquid. The Trustees have adopted guidelines under
which the Investment Adviser determines and monitors the liquidity of
portfolio securities, subject to the oversight of the Trustees. Investing in
restricted securities eligible for resale pursuant to Rule 144A may decrease
the liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. Each 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 an
Investment Adviser or 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.

LENDING OF PORTFOLIO SECURITIES

23
<PAGE>

equivalents. If an Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund (including the loan collateral). A Fund may experience
a loss or delay in the recovery of its securities if the institution with
which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.

SHORT SALES AGAINST-THE-BOX

TEMPORARY INVESTMENTS

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights;
(ii) currency swaps; (iii) other investment companies including World Equity
Benchmark Shares and Standard & Poor's Depository Receipts; (iv) unseasoned
companies; and (v) custodial receipts.

RISK FACTORS

RISKS OF INVESTING IN EQUITY SECURITIES. In general, the Funds are subject
to the risks associated with investments in common stocks and other equity
securities. Stock values fluctuate in response to the activities of individual
companies and in response to general market and economic conditions and,
accordingly, the value of the stocks that a Fund holds may decline over short
or extended periods. Stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of
the date of this Prospectus, certain foreign stock markets were trading at or
close to record high levels and there can be no guarantee that such levels
will continue.

24
<PAGE>

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than larger market capitalization stocks included in the S&P 500 Index.
Among the reasons for the greater price volatility of these small company and
unseasoned stocks are the less certain growth prospects of smaller firms, less
institutional investor interest and the lower degree of liquidity in the
markets for such stocks.

SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--
Foreign Investments." The International Equity, International Small Cap,
Emerging Markets Equity and Asia Growth Funds may each invest without limit in
the securities of issuers in Emerging Countries. The CORE International Equity
Fund may invest up to 25% of its total assets in securities of issuers in
Emerging Countries. Emerging Countries are generally located in the Asia-
Pacific region, Eastern Europe, Latin and South America and Africa. A Fund's
purchase and sale of portfolio securities in certain Emerging Countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed
based on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.

Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, governments
of some Emerging Countries are authoritarian in nature or have been installed
or removed as a result of military coups, while governments in other Emerging
Countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian and other Emerging Countries.
Unanticipated political or social developments may affect the values of a
Fund's investments. Investing in Emerging Countries involves the risk of loss
due to expropriation, nationalization, confiscation of assets and property or
the imposition of restrictions on foreign investments and on repatriation of
capital invested. Starting in mid-1997 some Pacific region countries began to
experience currency devaluations that resulted in high interest rate levels
and sharp reductions in economic activity. This situation resulted in a
significant drop in the securities prices of companies located in the region.
Some countries have experienced government intervention,

25
<PAGE>

have sought assistance from the International Monetary Fund and are undergoing
substantial domestic unrest. Although some countries are taking steps to
restructure their financial sectors in a manner that may facilitate a return
to long-term economic growth, there can be no assurance that these efforts
will be successful or that their current problems will not persist. At the end
of its last fiscal year, a substantial portion of the assets of the Asia
Growth Fund were invested in securities traded in the Hong Kong market. In
1997, the sovereignty of Hong Kong reverted from the United Kingdom to China.
Although Hong Kong is, by law, to maintain a high degree of autonomy, there
can also be no assurance that the general economic position of Hong Kong will
not be adversely affected as a result of the exercise of Chinese sovereignty
over Hong Kong. In particular, business confidence in Hong Kong can be
significantly affected by political developments and statements by public
figures in China, which can in turn affect the performance of the securities
markets. In addition, the reversion of Hong Kong to China has created
uncertainty as to future currency valuations relative to the U.S. dollar. Any
future valuation changes could be adverse from the perspective of U.S.
investors.

Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.

26
<PAGE>

pressures. In addition to this economic downturn, Japan is undergoing
structural adjustments related to high wages and taxes, currency valuations
and structural rigidities. Japan has also been experiencing notable
uncertainty and loss of public confidence in connection with the reform of its
political process and the deregulation of its economy. These conditions
present risks to the Japanese Equity Fund and its ability to attain its
investment objective.

During the recent past the average stock market prices of Japanese
companies, as measured by major indices such as the NIKKEI 225 Average, have
experienced a substantial decline. It is not possible to determine whether
this general decline will continue.

27
<PAGE>

INVESTMENT RESTRICTIONS

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

PORTFOLIO TURNOVER

A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of the historical portfolio turnover
rate of each Fund (other than the Japanese Equity and International Small Cap
Funds). It is anticipated that the annual portfolio turnover rates of the
Japanese Equity and International Small Cap Funds will generally not exceed
75%. The portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. 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.

MANAGEMENT

TRUSTEES AND OFFICERS

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

INVESTMENT ADVISERS

INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the CORE International Equity Fund. Goldman Sachs
registered as an investment adviser in 1981. Goldman Sachs Asset Management
International, 133 Peterborough Court, London EC4A 2BB, England, an affiliate
of Goldman Sachs, serves as the investment adviser to the International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. Goldman Sachs Asset Management International became a
member of the Investment Management Regulatory Organisation Limited in 1990
and registered as an investment adviser in 1991. The Goldman Sachs Group,
L.P., which controls the Investment Advisers, has announced that it will
pursue an initial public offering of the firm during the fourth quarter of
1998; if the public offering is consummated, The Goldman Sachs Group, L.P.
will merge into the new public company, which will be called The Goldman Sachs
Group, Inc. As of July 24, 1998, GSAM and GSAMI, together with their
affiliates, acted as investment adviser or distributor for assets in excess of
$168 billion.

28
<PAGE>

FUND MANAGERS

29
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE International Equity 1997 Investment Adviser in
1992.
- ------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. From 1995 to 1996,
he was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
From 1994 to 1995, he
was engaged in French
equity research and
marketing at Banque
Nationale de Paris and
Schroders in London.
- ------------------------------------------------------------------------------------------
Paul Greener Portfolio Manager-- Since Mr. Greener joined the
Associate CORE International Equity 1998 Investment Adviser in
1996 as a member of the
U.K. and European Equity
Team responsible for
European general
retailers, business
services and technology
sectors. Prior to
joining GSAM, he was an
equity analyst for two
years at CIN Management.
- ------------------------------------------------------------------------------------------
James P. Hordern Portfolio Manager-- Since Mr. Hordern joined the
Executive Director International Small Cap 1998 Investment Adviser in
1997. From 1991 to 1997,
he was an Assistant
Director and portfolio
manager at Mercury Asset
Management on the
European Specialist
Team.
- ------------------------------------------------------------------------------------------
Raymond J. Iwanowski Portfolio Manager-- Since Mr. Iwanowski joined the
Vice President CORE International Equity 1988 Investment Adviser in
1998. Prior to joining
the Investment Adviser,
he spent three years at
Salomon Brothers, where
he was a Vice President
and head of the Fixed
Derivatives Client
Research group.
- ------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE International Equity 1997 Investment Adviser in
1989. From 1987 to 1989,
he was the senior
quantitative analyst in
the Goldman, Sachs & Co.
Investment Research
Department.
- ------------------------------------------------------------------------------------------
Shigeka Kouda Portfolio Manager-- Since Mr. Kouda joined the
Vice President Japanese Equity 1998 Investment Adviser in
1997. From 1992 to 1997,
he was at the Fixed
Income Division of
Goldman Sachs (Japan)
Limited, where he was
extensively involved in
emerging markets trading
as well as International
Fixed Income
institutional sales.
- ------------------------------------------------------------------------------------------
Ralf Laier Portfolio Manager-- Since Mr. Laier joined the
Vice President Emerging Markets 1998 Investment Adviser in
1997 and is a portfolio
manager with a focus on
Central/Eastern Europe
(CEE) and the
Commonwealth of
Independent States
(CIS). Prior to joining
the Investment Adviser,
from 1995 to 1997, he
was Vice President of
Soros Global Research
where he analyzed
investment opportunities
in CEE/CI. From 1994 to
1995, he achieved a
Ph.D. from the Academy
of Economics in Pozan,
Poland, and from 1992 to
1994 he worked for the
Polish Ministry of
Privatization as a
Project Director
developing privatization
strategies for several
industry sectors.
- ------------------------------------------------------------------------------------------
</TABLE>

30
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser
in 1990. Prior to 1990,
she was a management
consultant with Andersen
Consulting in Hong Kong.
- ---------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Managing Director International Equity 1994 Investment Adviser in
International Small Cap 1998 1994. From 1987 to 1994,
Senior Portfolio Manager-- he worked at Nomura
Japanese Equity 1998 Investment Management
Incorporated as a Senior
Portfolio Manager.
- ---------------------------------------------------------------------------------------------
Susan Noble Senior Portfolio Manager-- Since Ms. Noble joined the
Executive Director International Equity 1998 Investment Adviser in
October 1997 as Senior
Portfolio Manager and
head of the European
Equity team. From 1986
to 1997, she worked at
Fleming Investment
Management in London,
where she most recently
was Portfolio Management
Director for the
European equity
investment strategy and
process.
- ---------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director and Asia Growth 1994 Investment Adviser in
Co-Head Emerging Portfolio Manager-- 1994. From 1987 to 1994,
Market International Equity 1994 he was a Vice President
Equities Emerging Markets Equity 1997 of Bankers Trust
International Small Cap 1998 Australia Ltd where he
was the Chief Investment
Officer of their
Southeast Asian
investment team. He is
also a member of Goldman
Sachs Asset Management's
global asset allocation
committee.
- ---------------------------------------------------------------------------------------------
Ebru Ozsezgin Portfolio Manager-- Since Ms. Ozsezgin joined the
Vice President Emerging Markets 1998 Investment Adviser in
1997 and is a portfolio
manager with a focus on
the Mediterranean and
Middle East region. From
1996 to 1997, she was a
portfolio manager at
Foreign & Colonial,
responsible for Middle
East investments. From
1994 to 1996, she was a
fund manager with
Framlington Investment
Management. From 1990 to
1994, she was a manager
at Global Securities
Ltd.
- ---------------------------------------------------------------------------------------------
Victor H. Pinter Senior Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE International Equity 1997 Investment Adviser in
1990. From 1985 to 1990,
he was a project manager
in the Information
Technology Division of
the Investment Adviser.
- ---------------------------------------------------------------------------------------------
Ramakrishna Shankar Portfolio Manager-- Since Mr. Shankar joined the
Vice President Asia Growth 1997 Investment Adviser in
Emerging Markets Equity 1998 1997. From July 1996 to
1997, he worked for
Goldman, Sachs & Co. in
Singapore as a strategic
advisor for transactions
involving infrastructure
industries in Asia. From
1988 to 1996, he worked
at Goldman, Sachs & Co.
as an investment banker
in the Investment
Banking Division.
- ---------------------------------------------------------------------------------------------
Miyako Shibamoto Portfolio Manager-- Since Ms. Shibamoto joined the
Vice President Japanese Equity 1998 Japanese Equity team in
March 1998. From 1993 to
1998, she was a Vice
President at Scudder
Stevens and Clark
(Japan).
</TABLE>

31
<PAGE>

As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM 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 OR PERIOD ENDED
RATE* JANUARY 31, 1998*
----------- --------------------
<S> <C> <C>
GSAM
--------
CORE International Equity ................ 0.85% 0.75%
GSAMI
---------
International Equity...................... 1.00% 0.90%
Japanese Equity........................... 1.00% N/A
International Small Cap................... 1.20% N/A
Emerging Markets Equity................... 1.20% 1.10%
Asia Growth............................... 1.00% 0.86%
</TABLE>
- ---------------------
*All numbers are annualized. The difference, if any, between the stated fees
and the actual fees paid by the Funds reflects that the applicable Investment
Adviser did not charge the full amount of the fees to which it would have been
entitled. Effective September 1, 1998, the management fee for the CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds will equal 0.85%, 1.00%, 1.20% and 1.00%, respectively.

32
<PAGE>

The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management fees, service fees,
transfer agency fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such expenses
exceed 0.12%, 0.10%, 0.01%, 0.16%, 0.15% and 0.16% per annum of the average
daily net assets of the CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds, respectively. Such reductions or limits, if any, 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 Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds. The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affiliates
and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to time,
enter into transactions in which other clients of Goldman Sachs have an
adverse interest. 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

YEAR 2000

33
<PAGE>

used by the Investment Adviser or other Fund service providers do not
adequately address this problem in a timely manner. The Investment Adviser has
established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st Century will have any material impact on its ability to continue to
service the Funds at current levels. In addition, the Investment Adviser has
sought assurances from the Funds' other service providers that they are taking
the steps necessary so that they do not experience Year 2000 Problems, and the
Investment Adviser will continue to monitor the situation. At this time,
however, no assurance can be given that the actions taken by the Investment
Adviser and the Funds' other service providers will be sufficient to avoid any
adverse effect on the Funds due to the Year 2000 Problem.

EXPENSES

The Funds are responsible for the payment of their expenses. The expenses
include, without limitation, the fees payable to the Investment Adviser;
custodial and transfer agency fees; service fees paid to Service
Organizations; brokerage fees and commissions; filing fees for the
registration or qualification of the Fund's Shares under federal or state
securities laws; organizational expenses; fees and expenses incurred 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 Funds for violation of any law;
legal and auditing fees and expenses (including the cost of legal and certain
accounting services rendered by employees of the Investment Adviser and its
affiliates with respect to the Funds); expenses of preparing and setting in
type prospectuses, Additional Statements, proxy material, reports and notices
and the printing and distributing of the same to shareholders and regulatory
authorities; compensation and expenses of the Trust's "non-interested"
Trustees; and extraordinary organizational expenses, if any, incurred by the
Trust.

NET ASSET VALUE

The NAV 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
(which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time), on each Business Day (as such term is defined under "Additional
Information"). The NAV per share of each Class is calculated by determining
the net assets attributed to each Class and dividing by the number of
outstanding Shares of that Class. Portfolio securities are valued based on
market quotations or, if accurate quotations are not readily available, at
fair value as determined in good faith under procedures established by the
Trustees.

PERFORMANCE INFORMATION

34
<PAGE>

The total return calculation assumes a complete redemption of the investment
at the end of the relevant period. Each Fund may also from time to time
advertise total return on a cumulative, average, year-by-year or other basis
for various specified periods by means of quotations, charts, graphs or
schedules. In addition, each Fund may furnish total return calculations based
on investments at various sales charge levels or at NAV. Any performance data
which are based on the NAV per Share would be reduced if any applicable sales
charge were taken into account. In addition to the above, each Fund may from
time to time advertise its performance relative to certain averages,
performance rankings, indices, other information prepared by recognized mutual
fund statistical services and investments for which reliable performance
information is available.

SHARES OF THE TRUST

Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. Each Fund (except the
Japanese Equity, International Small Cap and CORE International Equity Funds)
was formerly a series of Goldman Sachs Equity Portfolios, Inc., a Maryland
corporation, and was reorganized into the Trust as of April 30, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify Shares of beneficial interests in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of Shares into one or more Classes. Information about the Trust's
other series and classes is contained in separate prospectuses.

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

As of April 3, 1998, Goldman Sachs CORE International Equity Fund Omnibus
A/C - Growth and Income Strategy, 4900 Sears Tower, Chicago, IL 60606, was
recordholder of 29.1% CORE International Equity Fund's outstanding shares.

35
<PAGE>

TAXATION

FEDERAL TAXES

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. Distributions out of the
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), if any, of a Fund will be taxed as long-term capital gain,
regardless of the length of time a shareholder has held Shares or whether such
gain was reflected in the price paid for the Shares. These tax consequences
will apply whether distributions are received in cash or reinvested in Shares.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
the Funds are not generally expected to qualify, in the hands of corporate
shareholders, for the corporate dividends-received deduction. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.

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

Redemptions and exchanges of Shares are taxable events.

36
<PAGE>

OTHER TAXES

ADDITIONAL INFORMATION

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, Dr. Martin Luther King, Jr. Day, Presidents' Day (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

37
<PAGE>

ADDITIONAL SERVICES

Holders of Service Shares of a Fund bear all expenses and fees paid to Serv-
ice Organizations under the Service Plan as well as any other expenses which
are directly attributable to such Shares.

For the fiscal year ended January 31, 1998, the Trust paid the Service
Organizations fees at the annual rate of 0.50% of each Fund's average daily net
assets attributable to Service Shares for those Funds that had commenced
operations.

REPORTS TO SHAREHOLDERS

38
<PAGE>

DIVIDENDS

Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Service Shares will, at the election
of each shareholder, be paid (i) in cash or (ii) in additional Service Shares
of such Fund. This election should initially be made on a shareholder's Account
Information Form and may be changed upon written notice to Goldman Sachs at any
time prior to the record date for a particular dividend or distribution. If no
election is made, all dividends from net investment income and capital gain
distributions will be reinvested in Service Shares of the applicable Fund.

Each Fund intends that all or substantially all its net investment income and
net 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. Each Fund will pay dividends from net investment income,
and dividends from net realized capital gains, reduced by available capital
losses, at least annually. From time to time, a portion of a Fund's dividends
may constitute a return of capital.

At the time of an investor's purchase of Shares of a Fund, a portion of the
NAV per Share may be represented by undistributed income of the Fund or real-
ized or unrealized appreciation of the Fund's portfolio securities. Therefore,
subsequent distributions on such Shares from such income or realized apprecia-
tion may be taxable to the investor even if the NAV of the investor's Shares
is, as a result of the distributions, reduced below the cost of such Shares and
the distributions (or portions thereof) represent a return of a portion of the
purchase price.

PURCHASE OF SERVICE SHARES

Customers of Service Organizations may invest in Service Shares only through
their Service Organizations. Service Shares may be purchased on any Business
Day at the NAV per Share next determined after receipt of an order by Goldman
Sachs from a Service Organization. (See "Additional Services" for a description
of limited situations where a Service Organization or other intermediary may be
authorized to accept orders for the Funds.) No sales load will be charged. Cur-
rently, the NAV is determined as of the close of regular trading on the New
York Stock Exchange (which is normally, but not always, 3:00 p.m. Chicago time,
4:00 p.m. New York time), as described under "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."

39
<PAGE>

PURCHASE PROCEDURES

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

OTHER PURCHASE INFORMATION

The Investment Adviser, Distributor, and/or their affiliates also pay
additional compensation, from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale of Shares of the Funds and other investment
portfolios of the Trust (such as additional payments based on new sales amounts
exceeding pre-established thresholds, or the length of time customer assets
have remained in the Trust) and, subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of Shares, as well as sponsor various educational programs, sales contests
and/or promotions in which participants may receive reimbursement of expenses,
entertainment and prizes such as travel awards, merchandise, cash, investment
research and educational information and related support materials. This
additional compensation can vary among Service Organizations depending upon
such factors as the amounts their customers have invested (or may invest) in
particular investment portfolios of the Trust, the particular program involved,
or the amount of reimbursable expenses. Additional compensation based on sales
may, but is currently not expected to, exceed 0.50% (annualized) of the amount
invested. For further information, see the Additional Statement.

40
<PAGE>

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

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

EXCHANGE PRIVILEGE

Service Shares of the Funds may be exchanged by a Service Organization for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and des-
ignated as an eligible fund for this purpose; and (ii) the corresponding class
of any Goldman Sachs Money Market Fund at the NAV next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs International Equity Funds--
Name of Fund and Class of Shares, c/o GSAM Shareholder Services, 4900 Sears
Tower, Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its Shares and consider its investment objective, policies and
applicable fees before making an exchange. Service Shares acquired by telephone
exchange must be registered in the same name(s) and have the same address as
Service Shares of the Fund for which the exchange is being made.

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

REDEMPTION OF SERVICE SHARES

41
<PAGE>

be authorized to accept requests for the Funds.) If Service Shares to be re-
deemed were recently purchased by check, a Fund may delay transmittal of re-
demption 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 15
days. Redemption requests may be made by a Service Organization by writing to
or calling the Transfer Agent at the address or telephone number set forth on
the back cover of this Prospectus. A Service Organization may request redemp-
tions 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 concerning telephone redemptions and exchanges. 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.

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

42
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM

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

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

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

A-1
<PAGE>

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

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

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

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

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

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

ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110

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

EQINTLPROSVC
501415
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS
INTERNATIONAL
EQUITY FUNDS

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

PROSPECTUS

SERVICE SHARES

LOGO
Goldman
Sachs

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

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

PROSPECTUS
GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS INSTITUTIONAL SHARES
May 1, 1998, as revised September 1, 1998

GOLDMAN SACHS CORE INTERNATIONAL GOLDMAN SACHS INTERNATIONAL
EQUITY FUND SMALL CAP FUND
Seeks long-term growth of cap- Seeks long-term capital appre-
ital through a broadly diver- ciation through investments in
sified portfolio of equity se- equity securities of companies
curities of large cap compa- with public stock market capi-
nies that are organized out- talizations of $1 billion or
side the U.S. or whose securi- less at the time of investment
ties are principally traded that are organized outside the
outside the U.S. U.S. or whose securities are
principally traded outside the
U.S.

GOLDMAN SACHS INTERNATIONAL EQ-
UITY FUND
Seeks long-term capital appre- GOLDMAN SACHS EMERGING MARKETS
ciation through investments in EQUITY FUND
equity securities of companies Seeks long-term capital appre-
that are organized outside the ciation through investments in
U.S. or whose securities are equity securities of emerging
principally traded outside the country issuers.
U.S.

GOLDMAN SACHS ASIA GROWTH FUND
GOLDMAN SACHS JAPANESE EQUITY Seeks long-term capital appre-
FUND ciation through investments in
Seeks long-term capital appre- equity securities of companies
ciation through investments in related (in the manner de-
equity securities of Japanese scribed herein) to Asian coun-
companies. tries.

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

Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Goldman Sachs CORE International Equity Fund. Goldman
Sachs Asset Management International ("GSAMI"), London, England, an affiliate
of Goldman Sachs, serves as investment adviser to each other Fund. GSAM 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, 1998, as
revised September 1, 1998, containing further information about the Trust and
the Funds which may be of interest to investors, has been filed with the
Securities and Exchange Commission ("SEC"), is incorporated herein by reference
in its entirety, and may be obtained without charge from Goldman Sachs by
calling the telephone number, or writing to one of the addresses, listed on the
back cover of this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.

(continued on next page)
<PAGE>

(cover continued)

A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS, INCLUDING RISKS RELATING TO CHANGES IN
RELATIVE CURRENCY EXCHANGE RATES OR (AS IN THE CASE OF THE EXPECTED
INTRODUCTION OF THE EURO) THE CREATION OF NEW CURRENCIES. THE SECURITIES
MARKETS OF ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING
COUNTRIES IN WHICH THE CORE INTERNATIONAL EQUITY FUND CAN INVEST A PORTION OF
ITS ASSETS AND THE INTERNATIONAL SMALL CAP, INTERNATIONAL EQUITY, EMERGING
MARKETS AND ASIA GROWTH FUNDS MAY INVEST WITHOUT LIMIT, ARE LESS LIQUID, ARE
ESPECIALLY SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET
CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO AS
EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS
AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. FURTHER, INVESTMENT IN
EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND CERTAIN OTHER EMERGING
COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS IN SHARE REGISTRATION
AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH INVESTMENT IN MORE
DEVELOPED COUNTRIES. FUNDS THAT INVEST IN FOREIGN SECURITIES AND EMERGING
MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH
THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. THE JAPANESE
EQUITY AND ASIA GROWTH FUNDS WILL BE PARTICULARLY SUBJECT TO EVENTS AFFECTING
THE MARKETS IN WHICH THESE FUNDS CONCENTRATE THEIR INVESTMENTS. SEE
"DESCRIPTION OF SECURITIES" AND "RISK FACTORS."

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 6
Financial Highlights............... 8
Investment Objectives and Policies. 12
Description of Securities.......... 17
Investment Techniques.............. 21
Risk Factors....................... 24
Investment Restrictions............ 28
Portfolio Turnover................. 28
Management......................... 28
Expenses........................... 34
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value.................... 34
Performance Information............ 34
Shares of the Trust................ 35
Taxation........................... 36
Additional Information............. 37
Reports to Shareholders............ 38
Dividends.......................... 38
Purchase of Institutional Shares... 38
Exchange Privilege................. 41
Redemption of Institutional Shares. 41
Appendix .......................... A-1
Account Information Form
</TABLE>

2
<PAGE>

FUND HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
------------- ---------------- -------------------------------------- --------------------
<S> <C> <C> <C>
CORE Long-term growth At least 90% of total assets in equity EAFE Index
INTERNATIONAL of capital. securities of companies organized (unhedged)
EQUITY FUND outside the United States or whose
securities are principally traded
outside the United States. The Fund
seeks broad representation of large cap
issuers across major countries and
sectors of the international economy.
The Fund's investments are selected
using both a variety of quantitative
techniques and fundamental research in
seeking to maximize the Fund's expected
return, while maintaining risk, style,
capitalization and industry
characteristics similar to the unhedged
Morgan Stanley Capital International
(MSCI) Europe, Australasia and Far East
Index (the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- ------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of FT/Actuaries
EQUITY FUND capital total assets in equity securities Europe and
appreciation. of companies organized outside Pacific Index
the United States or whose securities (unhedged)
are principally traded outside the
United States. The Fund may employ
currency management techniques.
- ------------------------------------------------------------------------------------------
JAPANESE Long-term Substantially all, and at least 65%, of Tokyo Price
EQUITY FUND capital total assets in equity securities of Index ("TOPIX")
appreciation. Japanese companies. The Fund may employ
currency management techniques.
- ------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of Morgan Stanley
SMALL CAP capital total assets in equity securities of Capital
FUND appreciation. companies with public stock market International
capitalizations of $1 billion or less EAFE Small Cap
at the time of investment that are Index
organized outside the United States or
whose securities are principally traded
outside the United States. The Fund may
employ currency management techniques.
</TABLE>

(continued)

<PAGE>

<TABLE>
<CAPTION>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
----------- ---------------- --------------------------------------- ----------------
<S> <C> <C> <C>
EMERGING Long-term Substantially all, and at least 65%, of Morgan Stanley
MARKETS capital total assets in equity securities Capital
EQUITY FUND appreciation. of emerging country issuers. The Fund International
may employ certain currency management Emerging Markets
techniques. Free Index
- ----------------------------------------------------------------------------------------
ASIA GROWTH Long-term Substantially all, and at least 65%, of Morgan Stanley
FUND capital total assets in equity securities Capital
appreciation. of companies in China, Hong International
Kong, India, Indonesia, Malaysia, All Country Asia
Pakistan, the Philippines, Singapore, Free ex-Japan
South Korea, Sri Lanka, Taiwan, Index
Thailand and other Asian countries.
The Fund may employ certain currency
management techniques.
</TABLE>

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

Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates (or, as in the case of the expected introduction of the euro next
year, the creation of new currencies), political and economic developments,
the imposition of exchange controls, confiscation and other governmental
restrictions. Generally, there is less availability of data on foreign
companies and securities markets as well as less regulation of foreign
stock exchanges, brokers and issuers. A Fund's investments in emerging
markets and countries ("Emerging Countries") involves greater risks than
investments in the developed countries of Western Europe, the United
States, Canada, Australia, New Zealand and Japan. In addition, because the
Funds invest primarily outside the United States, they may involve greater
risks, since the securities markets of foreign countries are generally less
liquid and subject to greater price volatility. The securities markets of
Emerging Countries, including those in Asia, Latin America, Eastern Europe
and Africa are marked by a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such
securities by a limited number of investors.

Risks of Investing in Japanese Markets. The Japanese Equity Fund will
concentrate in Japanese securities and, therefore, will be particularly subject
to the risk of adverse social, political and economic events which occur in
Japan or affect the Japanese markets.

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

4
<PAGE>

WHO MANAGES THE FUNDS?

Goldman Sachs Asset Management serves as Investment Adviser to the CORE
International Equity Fund. Goldman Sachs Asset Management International
serves as Investment Adviser to each other Fund. As of July 24, 1998, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $168 billion.

WHO DISTRIBUTES THE FUNDS' SHARES?

Goldman Sachs acts as distributor of each Fund's Shares (the
"Distributor").

WHAT IS THE MINIMUM INVESTMENT?

HOW DO I PURCHASE INSTITUTIONAL SHARES?

HOW DO I SELL MY INSTITUTIONAL SHARES?

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

<TABLE>
<S> <C>
INVESTMENT INCOME CAPITAL GAINS
DIVIDENDS DECLARED AND PAID DISTRIBUTIONS
---------------------------- -------------
Annually Annually
</TABLE>

5
<PAGE>

FEES AND EXPENSES
(INSTITUTIONAL SHARES)

<TABLE>
<CAPTION>
CORE INT'L EMERGING
INT'L INT'L JAPANESE SMALL MARKETS ASIA
EQUITY EQUITY EQUITY CAP EQUITY GROWTH
FUND FUND FUND FUND FUND FUND
------ ------ -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge Imposed on
Purchases..................... None None None None None None
Maximum Sales Charge Imposed on
Reinvested Dividends.......... None None None None None None
Redemption Fees................ None None None None None None
Exchange Fees.................. None None None None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average
daily net assets)/1/
Management Fees................ 0.85% 1.00% 1.00% 1.20% 1.20% 1.00%
Distribution Fees.............. None None None None None None
Other Expenses (after
applicable limitations)/2/.... 0.16% 0.14% 0.05% 0.20% 0.19% 0.20%
---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES
(AFTER EXPENSE LIMITATIONS)/3/. 1.01% 1.14% 1.05% 1.40% 1.39% 1.20%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------------
/1/The Funds' annual operating expenses have been restated to reflect fees and
expenses in effect as of September 1, 1998.
/2/The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, transfer agency fees (equal to
0.04% of the average daily net assets of each Fund's Institutional Shares),
taxes, interest and brokerage fees and litigation, indemnification and other
extraordinary expenses) for each Fund to the extent such expenses exceed the
following percentages of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
CORE International Equity........................................ 0.12%
International Equity............................................. 0.10%
Japanese Equity ................................................. 0.01%
International Small Cap.......................................... 0.16%
Emerging Markets Equity.......................................... 0.15%
Asia Growth...................................................... 0.16%
</TABLE>

/3/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Institutional Shares of the Funds would be as set
forth below:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
CORE International Equity.............................. 0.44% 1.29%
International Equity................................... 0.22% 1.22%
Japanese Equity........................................ 2.07% 3.07%
International Small Cap................................ 3.35% 4.55%
Emerging Markets Equity................................ 0.50% 1.70%
Asia Growth............................................ 0.35% 1.35%
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
hypothetical $1,000 investment, assuming (1)
a 5% annual return and (2) redemption at the
end of each time period:
CORE International Equity..................... $10 $32 $56 $124
International Equity.......................... 12 36 63 139
Japanese Equity............................... 11 33 N/A N/A
International Small Cap....................... 14 44 N/A N/A
Emerging Markets Equity....................... 14 44 N/A N/A
Asia Growth................................... 12 38 66 145
</TABLE>

The Investment Adviser and Goldman Sachs may modify or discontinue any of
the limitations set forth above in the future at their discretion. The
information set forth in the foregoing table and hypothetical example relates
only to Institutional Shares of the Funds. Each Fund also offers Service
Shares and Class A, Class B and Class C Shares, which are subject to different
fees and expenses (which affect performance), have different minimum
investment requirements and are entitled to different services. Information
regarding Service, Class A, Class B and Class C Shares may be obtained from an
investor's sales representative or from Goldman Sachs by calling the number on
the back cover of this Prospectus.

Certain institutions may also receive other compensation in connection with
the sale and distribution of Institutional Shares or for services to their
customers' accounts and/or the Funds. For additional information regarding
such compensation, see "Purchase of Institutional Shares" in this Prospectus
and the Additional Statement.

7
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

8
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
-------------------------------------- -----------------------------------------------
FROM NET IN EXCESS OF
NET REALIZED REALIZED NET REALIZED
AND GAIN ON GAIN ON NET
UNREALIZED INVESTMENT INVESTMENT INCREASE
NET ASSET NET NET REALIZED GAIN (LOSS) IN EXCESS AND FOREIGN AND FOREIGN (DECREASE)
VALUE, INVESTMENT AND UNREALIZED ON CURRENCY FROM NET OF NET CURRENCY CURRENCY IN NET
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT RELATED RELATED ASSET
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS VALUE
--------- ---------- -------------- ------------ ---------- ---------- ------------ ------------ ----------
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.32 $0.03 $2.99 $(0.95) $ -- $(0.30) $(0.88) $(0.36) $0.53
1998--Class B
Shares.......... 19.24 (0.08) 2.96 (0.94) -- (0.25) (0.47) (0.76) 0.46
1998--Class C
Shares(b)....... 22.60 (0.04) (2.03) 0.65 -- (0.38) -- (1.24) (3.04)
1998--Institu-
tional Shares... 19.40 0.10 3.09 (0.98) (0.07) (0.33) (0.97) (0.27) 0.57
1998--Service
Shares.......... 19.34 0.02 3.02 (0.96) -- (0.35) (0.18) (1.05) 0.50
- ----------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 17.20 0.10 3.51 (1.28) -- -- (0.21) -- 2.12
1997--Class B
Shares(b)....... 18.91 (0.06) 0.94 (0.34) -- -- (0.21) -- 0.33
1997--Institu-
tional
Shares(b)....... 17.45 0.04 3.39 (1.24) (0.03) -- (0.21) -- 1.95
1997--Service
Shares(b)....... 17.70 (0.02) 2.95 (1.08) -- -- (0.21) -- 1.64
- ----------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42 (0.58) -- (0.87) -- 2.68
- ----------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01) -- -- (0.59) -- (3.58)
- ----------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38) -- -- -- -- 3.75
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11) -- -- -- -- 0.17
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
NET AT END EXPENSES INVESTMENT EXPENSES NET
ASSET OF TO INCOME TO INVESTMENT
VALUE, PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
END OF TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
PERIOD RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
------ ------------ --------- ---------- -------- --------- ------------ --------- -------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1998--Class A
Shares.......... $19.85 11.12% 40.82% $.0207 $697,590 1.67% (0.27)% 1.80% (0.40)%
1998--Class B
Shares.......... 19.70 10.51 40.82 .0207 55,324 2.20 (0.90) 2.30 (1.00)
1998--Class C
Shares(b)....... 19.56 (5.92)(d) 40.82 .0207 3,369 2.27(c) (1.43)(c) 2.37(c) (1.53)(c)
1998--Institu-
tional Shares... 19.97 11.82 40.82 .0207 56,263 1.08 0.30 1.18 0.20
1998--Service
Shares.......... 19.84 11.25 40.82 .0207 3,035 1.55 (0.36) 1.65 (0.46)
- ----------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 19.32 13.48 38.01 .0318 536,283 1.69 (0.07) 1.88 (0.26)
1997--Class B
Shares(b)....... 19.24 2.83(d) 38.01 .0318 19,198 2.23(c) (0.97)(c) 2.38(c) (1.12)(c)
1997--Institu-
tional
Shares(b)....... 19.40 12.53(d) 38.01 .0318 68,374 1.10(c) 0.43(c) 1.25(c) 0.28(c)
1997--Service
Shares(b)....... 19.34 10.42(d) 38.01 .0318 674 1.60(c) (0.40)(c) 1.75(c) (0.55)(c)
- ----------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares.......... 17.20 28.68 68.48 -- 330,860 1.52 0.26 1.77 0.01
- ----------------------------------------------------------------------------------------------------------------------------
1995--Class A
Shares.......... 14.52 (16.65) 84.54 -- 275,086 1.73 0.40 1.98 0.15
- ----------------------------------------------------------------------------------------------------------------------------
1994--Class A
Shares.......... 18.10 26.13 60.04 -- 269,091 1.76 0.51 2.01 0.26
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1993--Class A
Shares(b)....... 14.35 1.23(d) 0.00 -- 66,063 1.80(c) (0.42)(c) 2.58(c) (1.20)(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C, Institutional and Service share activity
commenced on December 1, 1992, May 1, 1996, August 15, 1997, February 7,
1996 and March 6, 1996, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

9
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET NET REALIZED AND UNREALIZED REALIZED GAIN IN EXCESS
VALUE, NET AND UNREALIZED LOSS ON FOREIGN FROM NET ON INVESTMENT OF NET NET DECREASE NET ASSET
BEGINNING INVESTMENT GAIN (LOSS) ON CURRENCY RELATED INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET VALUE, END
OF PERIOD INCOME INVESTMENTS TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE OF PERIOD
--------- ---------- -------------- ---------------- ---------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EMERGING MARKETS EQUITY FUND
---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998 -- Class A
Shares(b)....... $10.00 $ -- $(0.11) $(0.20) -- -- -- $(0.31) $9.69
1998 -- Class B
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
1998 -- Class C
Shares(b)....... 10.00 -- (0.10) (0.20) -- -- -- (0.30) 9.70
1998 -- Institu-
tional
Shares(b)....... 10.00 0.01 (0.11) (0.20) -- -- -- (0.30) 9.70
1998 -- Service
Shares(b)....... 10.00 -- (0.11) (0.20) -- -- -- (0.31) 9.69
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
OR EXPENSE LIMITATIONS
---------------------------
RATIO OF RATIO OF NET
NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) EXPENSES TO LOSS TO
TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE TO AVERAGE AVERAGE NET AVERAGE
RETURN(A) RATE RATE (IN 000S) NET ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ---------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JANUARY 31, 1998
- -------------------------------------
1998 -- Class A
Shares(b)....... (3.10)%(d) 3.35% $0.0005 $17,681 1.90%(c) 0.55%(c) 5.88%(c) (3.43)%(c)
1998 -- Class B
Shares(b)....... (3.10)(d) 3.35 0.0005 64 2.41(c) 0.05(c) 6.39(c) (3.93)(c)
1998 -- Class C
Shares(b)....... (3.00)(d) 3.35 0.0005 73 2.48(c) (0.27)(c) 6.46(c) (4.25)(c)
1998 -- Institu-
tional
Shares(b)....... (3.00)(d) 3.35 0.0005 19,120 1.30(c) 0.80(c) 5.28(c) (3.18)(c)
1998 -- Service
Shares(b)....... (3.10)(d) 3.35 0.0005 2 2.72(c) (0.05)(c) 6.70(c) (4.03)(c)
</TABLE>
------------

10
<PAGE>

<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
---------------------------------------- ----------------------------------
NET REALIZED FROM NET NET
AND UNREALIZED REALIZED INCREASE NET
NET ASSET NET NET REALIZED ON FOREIGN IN EXCESS GAIN ON (DECREASE) ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY FROM NET OF NET INVESTMENT IN NET VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT AND FUTURES ASSET END OF
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE PERIOD
--------- ---------- -------------- -------------- ---------- ---------- ------------ ---------- ------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
- ------------------------------
1998--Class A
Shares.......... $16.31 $ -- $(5.78) $(2.12) $ -- $(0.03) $ -- $(7.93) $8.38
1998--Class B
Shares.......... 16.24 0.01 (5.79) (2.12) -- (0.03) -- (7.93) 8.31
1998--Class C
Shares(b)....... 15.73 0.01 (5.43) (1.99) -- (0.03) -- (7.44) 8.29
1998--Institu-
tional Shares... 16.33 0.10 (5.83) (2.13) (0.03) -- -- (7.89) 8.44
- ------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... 16.49 0.06 (0.11) -- (0.12) -- (0.01) (0.18) 16.31
1997--Class B
Shares(b)....... 17.31 (0.05) (0.48) -- (0.51) (0.03) -- (1.07) 16.24
1997--Institu-
tional
Shares(b)....... 16.61 0.04 (0.11) -- (0.11) (0.06) (0.04) (0.28) 16.33
- ------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares 13.31 0.17 3.44 -- (0.12) (0.14) (0.17) 3.18 16.49
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) -- 0.01 -- (0.10) (0.87) 13.31
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
NET RATIO OF RATIO OF
ASSETS NET NET RATIO OF RATIO OF
AT END EXPENSES INVESTMENT EXPENSES NET
OF TO INCOME TO INVESTMENT
PORTFOLIO AVERAGE PERIOD AVERAGE (LOSS) TO AVERAGE INCOME (LOSS)
TOTAL TURNOVER COMMISSION (IN NET AVERAGE NET TO AVERAGE
RETURN(A) RATE RATE(F) 000S) ASSETS NET ASSETS ASSETS NET ASSETS
------------ --------- ---------- ------- --------- ------------ --------- -------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
- ------------------------------
1998--Class A
Shares.......... (48.49)% 105.16% $.0070 $87,437 1.75% 0.31% 1.99% 0.07%
1998--Class B
Shares.......... (48.70) 105.16 .0070 3,359 2.30 (0.29) 2.50 (0.49)
1998--Class C
Shares(b)....... (47.17)(d) 105.16 .0070 436 2.35(c) (0.26)(c) 2.55(c) (0.46)(c)
1998--Institu-
tional Shares... (48.19) 105.16 .0070 874 1.11 0.87 1.31 0.67
- ------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... (1.01) 48.40 .0151 263,014 1.67 0.20 1.87 0.00
1997--Class B
Shares(b)....... (6.02)(d) 48.40 .0151 3,354 2.21(c) (0.56)(c) 2.37(c) (0.72)(c)
1997--Institu-
tional
Shares(b)....... (1.09)(d) 48.40 .0151 13,322 1.10(c) 0.54(c) 1.26(c) 0.38 (c)
- ------------------------------------------------------------------------------------------------------------------------
1996--Class A
Shares 26.49 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1995--Class A
Shares(b)....... (5.46)(d) 36.08 -- 124,298 1.90(c) 1.83(c) 2.38(c) 1.35(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C and Institutional share activity commenced on
July 8, 1994, May 1, 1996, August 15, 1997 and February 2, 1996,
respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.

11
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Investment Adviser may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, bonds with attached warrants,
equity-related transferable securities, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Adviser utilizes first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Adviser may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Adviser, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified. Other investment practices and management
techniques, which involve certain risks are described under "Description of
Securities," "Risk Factors" and "Investment Techniques."

12
<PAGE>

Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.

CORE INTERNATIONAL EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are primarily
traded outside the United States.

13
<PAGE>

For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Fund."

Other. The Fund may invest only in fixed-income securities that are
considered to be cash equivalents.

INTERNATIONAL EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Other. Up to 35% of the Fund's total assets may be invested in fixed-income
securities.

JAPANESE EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

14
<PAGE>

Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed-income securities.

INTERNATIONAL SMALL CAP FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies with public stock market capitalizations of
$1 billion or less at the time of investment that are organized outside the
U.S. or whose securities are principally traded outside the U.S. The Fund may
allocate its assets among countries as determined by the Investment Adviser
from time to time provided that the Fund's assets are invested in at least
three foreign countries. The Fund expects to invest a substantial portion of
its assets in small cap securities of companies in the developed countries of
Western Europe, Japan and Asia. However, the Fund may also invest in the
securities of issuers located in Australia, Canada, New Zealand and the
Emerging Countries in which the Emerging Markets Equity Fund may invest. Many
of the countries in which the Fund may invest have emerging markets or
economics which involve certain risks, as described below under "Risk
Factors--Special Risks of Investments in Asian and Other Emerging Markets,"
which are not present in investments in more developed countries. If the
market capitalization of a company held by the Fund increases above $1
billion, the Fund may, consistent with its investment objective, continue to
hold the security.

EMERGING MARKETS EQUITY FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

15
<PAGE>

Other. Under normal circumstances, the Fund maintains investments in at
least six Emerging Countries, and will not invest more than 35% of its total
assets in securities of issuers in any one Emerging Country. Allocation of the
Fund's investments will depend upon the relative attractiveness of the
Emerging Country markets and particular issuers. In addition, macro-economic
factors and the portfolio managers' and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed-income securities of private and governmental Emerging Country
issuers; and (ii) equity and fixed-income securities of issuers in developed
countries.

ASIA GROWTH FUND

Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.

Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries; (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries; (iii) they maintain 50% or more of their assets
in one or more of the Asian countries; or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed
countries. The Fund may purchase equity securities of issuers that have not
paid dividends on a timely basis, securities of companies that have
experienced difficulties, and securities of companies without performance
records.

16
<PAGE>

DESCRIPTION OF SECURITIES

CONVERTIBLE SECURITIES

Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed-income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which the Funds invest are not subject to any minimum rating
criteria. Convertible debt securities are equity investments for purposes of
each Fund's investment policies.

FOREIGN INVESTMENTS

Investing in the securities of foreign issuers involves certain special
risks, including those set forth below, which are not typically associated
with investing in U.S. dollar-denominated or quoted securities of U.S.
issuers. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations (e.g., currency blockage). A decline in
the exchange rate of the currency (i.e., weakening of the currency against the
U.S. dollar) in which a portfolio security is quoted or denominated relative
to the U.S. dollar would reduce the value of the portfolio security. In
addition, if the currency in which a Fund receives dividends, interest or
other payments declines in value against the U.S. dollar before such income is
distributed as dividends to shareholders or converted to U.S. dollars, the
Fund may have to sell portfolio securities to obtain sufficient cash to pay
such dividends. The expected introduction of a single currency, the euro, on
January 1, 1999 for participating nations in the European Economic and
Monetary Union ("EU") presents unique uncertainties, including whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; the creation of suitable clearing and
settlement payment systems for the new currency; the legal treatment of
certain outstanding financial contracts after January 1, 1999 that refer to
existing currencies rather than the euro; the establishment and maintenance of
exchange rates for currencies being converted into the euro and the euro; the
fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; whether the
interest rate, tax and labor regimes of European countries participating in
the euro will converge over time; and whether the conversion of the currencies
of other EU

17
<PAGE>

Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not
geographically concentrated.

18
<PAGE>

FIXED-INCOME SECURITIES

19
<PAGE>

Each Fund (other than the CORE International Equity Fund, which only invests
in debt instruments that are cash equivalents) may invest up to 35% of its
total assets in debt securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's") (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Fixed-income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in a Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.

REAL ESTATE INVESTMENT TRUSTS ("REITS")

Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' managers. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.

20
<PAGE>

INVESTMENT TECHNIQUES

OPTIONS ON SECURITIES AND SECURITIES INDICES

OPTIONS ON FOREIGN CURRENCIES

A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition,
each 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 options transactions, however, the
writing of an option on a 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 call
and put options for hedging purposes, each 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 written or purchased
by the Funds are traded on U.S. and foreign exchanges or over-the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

21
<PAGE>

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's NAV. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly 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. The Funds may engage in futures transactions on both U.S. and foreign
exchanges. Foreign exchanges may not provide the same protections as U.S.
exchanges.

EQUITY SWAPS

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

22
<PAGE>

ILLIQUID AND RESTRICTED SECURITIES

A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain stripped mortgage-backed securities, 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 a review of
the trading markets for a specific restricted security, that such restricted
security is eligible for resale pursuant to Rule 144A under the Securities Act
of 1933 and, therefore, is liquid. The Trustees have adopted guidelines under
which the Investment Adviser determines and monitors the liquidity of
portfolio securities, subject to the oversight of the Trustees. Investing in
restricted securities eligible for resale pursuant to Rule 144A may decrease
the liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. Each 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 an
Investment Adviser or 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.

LENDING OF PORTFOLIO SECURITIES

23
<PAGE>

SHORT SALES AGAINST-THE-BOX

TEMPORARY INVESTMENTS

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights;
(ii) currency swaps; (iii) other investment companies including World Equity
Benchmark Shares and Standard & Poor's Depository Receipts; (iv) unseasoned
companies; and (v) custodial receipts.

RISK FACTORS

RISKS OF INVESTING IN EQUITY SECURITIES. In general, the Funds are subject
to the risks associated with investments in common stocks and other equity
securities. Stock values fluctuate in response to the activities of individual
companies and in response to general market and economic conditions and,
accordingly, the value of the stocks that a Fund holds may decline over short
or extended periods. Stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of
the date of this Prospectus, certain foreign stock markets were trading at or
close to record high levels and there can be no guarantee that such levels
will continue.

24
<PAGE>

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than larger market capitalization stocks included in the S&P 500 Index.
Among the reasons for the greater price volatility of these small company and
unseasoned stocks are the less certain growth prospects of smaller firms, less
institutional investor interest and the lower degree of liquidity in the
markets for such stocks.

SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--
Foreign Investments." The International Equity, International Small Cap,
Emerging Markets Equity and Asia Growth Funds may each invest without limit in
the securities of issuers in Emerging Countries. The CORE International Equity
Fund may invest up to 25% of its total assets in securities of issuers in
Emerging Countries. Emerging Countries are generally located in the Asia-
Pacific region, Eastern Europe, Latin and South America and Africa. A Fund's
purchase and sale of portfolio securities in certain Emerging Countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed
based on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.

25
<PAGE>

26
<PAGE>

27
<PAGE>

INVESTMENT RESTRICTIONS

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

PORTFOLIO TURNOVER

A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of the historical portfolio turnover
rate of each Fund (other than the Japanese Equity and International Small Cap
Funds). It is anticipated that the annual portfolio turnover rates of the
Japanese Equity and International Small Cap Funds will generally not exceed
75%. The portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. 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.

MANAGEMENT

TRUSTEES AND OFFICERS

INVESTMENT ADVISERS

INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the CORE International Equity Fund. Goldman Sachs
registered as an investment adviser in 1981. Goldman Sachs Asset Management
International, 133 Peterborough Court, London EC4A 2BB, England, an affiliate
of Goldman Sachs, serves as the investment adviser to the International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. Goldman Sachs Asset Management International became a
member of the Investment Management Regulatory Organisation Limited in 1990
and registered as an investment adviser in 1991. The Goldman Sachs Group,
L.P., which controls the Investment Advisers, has announced that it will
pursue an initial public offering of the firm during the fourth quarter of
1998; if the public offering is consummated, The Goldman Sachs Group, L.P.
will merge into the new public company, which will be called The Goldman Sachs
Group, Inc. As of July 24, 1998, GSAM and GSAMI, together with their
affiliates, acted as investment adviser or distributor for assets in excess of
$168 billion.

28
<PAGE>

FUND MANAGERS

29
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Kent A. Clark Senior Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE International Equity 1997 Investment Adviser in
1992.
- ------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. From 1995 to 1996,
he was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
From 1994 to 1995, he
was engaged in French
equity research and
marketing at Banque
Nationale de Paris and
Schroders in London.
- ------------------------------------------------------------------------------------------
Paul Greener Portfolio Manager-- Since Mr. Greener joined the
Associate CORE International Equity 1998 Investment Adviser in
1996 as a member of the
U.K. and European Equity
Team responsible for
European general
retailers, business
services and technology
sectors. Prior to
joining GSAM, he was an
equity analyst for two
years at CIN Management.
- ------------------------------------------------------------------------------------------
James P. Hordern Portfolio Manager-- Since Mr. Hordern joined the
Executive Director International Small Cap 1998 Investment Adviser in
1997. From 1991 to 1997,
he was an Assistant
Director and portfolio
manager at Mercury Asset
Management on the
European Specialist
Team.
- ------------------------------------------------------------------------------------------
Raymond J. Iwanowski Portfolio Manager-- Since Mr. Iwanowski joined the
Vice President CORE International Equity 1988 Investment Adviser in
1998. Prior to joining
the Investment Adviser,
he spent three years at
Salomon Brothers, where
he was a Vice President
and head of the Fixed
Derivatives Client
Research group.
- ------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE International Equity 1997 Investment Adviser in
1989. From 1987 to 1989,
he was the senior
quantitative analyst in
the Goldman, Sachs & Co.
Investment Research
Department.
- ------------------------------------------------------------------------------------------
Shigeka Kouda Portfolio Manager-- Since Mr. Kouda joined the
Vice President Japanese Equity 1998 Investment Adviser in
1997. From 1992 to 1997,
he was at the Fixed
Income Division of
Goldman Sachs (Japan)
Limited, where he was
extensively involved in
emerging markets trading
as well as International
Fixed Income
institutional sales.
- ------------------------------------------------------------------------------------------
Ralf Laier Portfolio Manager-- Since Mr. Laier joined the
Vice President Emerging Markets 1998 Investment Adviser in
1997 and is a portfolio
manager with a focus on
Central/Eastern Europe
(CEE) and the
Commonwealth of
Independent States
(CIS). Prior to joining
the Investment Adviser,
from 1995 to 1997, he
was Vice President of
Soros Global Research
where he analyzed
investment opportunities
in CEE/CI. From 1994 to
1995, he achieved a
Ph.D. from the Academy
of Economics in Pozan,
Poland, and from 1992 to
1994 he worked for the
Polish Ministry of
Privatization as a
Project Director
developing privatization
strategies for several
industry sectors.
- ------------------------------------------------------------------------------------------
</TABLE>

30
<PAGE>

<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser
in 1990. Prior to 1990,
she was a management
consultant with Andersen
Consulting in Hong Kong.
- ---------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Managing Director International Equity 1994 Investment Adviser in
International Small Cap 1998 1994. From 1987 to 1994,
Senior Portfolio Manager-- he worked at Nomura
Japanese Equity 1998 Investment Management
Incorporated as a Senior
Portfolio Manager.
- ---------------------------------------------------------------------------------------------
Susan Noble Senior Portfolio Manager-- Since Ms. Noble joined the
Executive Director International Equity 1998 Investment Adviser in
October 1997 as Senior
Portfolio Manager and
head of the European
Equity team. From 1986
to 1997, she worked at
Fleming Investment
Management in London,
where she most recently
was Portfolio Management
Director for the
European equity
investment strategy and
process.
- ---------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director and Asia Growth 1994 Investment Adviser in
Co-Head Emerging Portfolio Manager-- 1994. From 1987 to 1994,
Market International Equity 1994 he was a Vice President
Equities Emerging Markets Equity 1997 of Bankers Trust
International Small Cap 1998 Australia Ltd where he
was the Chief Investment
Officer of their
Southeast Asian
investment team. He is
also a member of Goldman
Sachs Asset Management's
global asset allocation
committee.
- ---------------------------------------------------------------------------------------------
Ebru Ozsezgin Portfolio Manager-- Since Ms. Ozsezgin joined the
Vice President Emerging Markets 1998 Investment Adviser in
1997 and is a portfolio
manager with a focus on
the Mediterranean and
Middle East region. From
1996 to 1997, she was a
portfolio manager at
Foreign & Colonial,
responsible for Middle
East investments. From
1994 to 1996, she was a
fund manager with
Framlington Investment
Management. From 1990 to
1994, she was a manager
at Global Securities
Ltd.
- ---------------------------------------------------------------------------------------------
Victor H. Pinter Senior Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE International Equity 1997 Investment Adviser in
1990. From 1985 to 1990,
he was a project manager
in the Information
Technology Division of
the Investment Adviser.
- ---------------------------------------------------------------------------------------------
Ramakrishna Shankar Portfolio Manager-- Since Mr. Shankar joined the
Vice President Asia Growth 1997 Investment Adviser in
Emerging Markets Equity 1998 1997. From July 1996 to
1997, he worked for
Goldman, Sachs & Co. in
Singapore as a strategic
advisor for transactions
involving infrastructure
industries in Asia. From
1988 to 1996, he worked
at Goldman, Sachs & Co.
as an investment banker
in the Investment
Banking Division.
- ---------------------------------------------------------------------------------------------
Miyako Shibamoto Portfolio Manager-- Since Ms. Shibamoto joined the
Vice President Japanese Equity 1998 Japanese Equity team in
March 1998. From 1993 to
1998, she was a Vice
President at Scudder
Stevens and Clark
(Japan).
</TABLE>

31
<PAGE>

32
<PAGE>

The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management fees, service fees,
transfer agency fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such expenses
exceed 0.12%, 0.10%, 0.01%, 0.16%, 0.15% and 0.16% per annum of the average
daily net assets of the CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds, respectively. Such reductions or limits, if any, 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 Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds. The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affiliates
and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to time,
enter into transactions in which other clients of Goldman Sachs have an
adverse interest. 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

YEAR 2000

33
<PAGE>

EXPENSES

NET ASSET VALUE

The NAV 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
(which is normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time), on each Business Day (as such term is defined under "Additional
Information"). The NAV per share of each Class is calculated by determining
the net assets attributed to each Class and dividing by the number of
outstanding Shares of that Class. Portfolio securities are valued based on
market quotations or, if accurate quotations are not readily available, at
fair value as determined in good faith under procedures established by the
Trustees.

PERFORMANCE INFORMATION

34
<PAGE>

SHARES OF THE TRUST

Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. Each Fund (except the
Japanese Equity, International Small Cap and CORE International Equity Funds)
was formerly a series of Goldman Sachs Equity Portfolios, Inc., a Maryland
corporation, and was reorganized into the Trust as of April 30, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify Shares of beneficial interests in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of Shares into one or more Classes. Information about the Trust's
other series and classes is contained in separate prospectuses.

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

35
<PAGE>

TAXATION

FEDERAL TAXES

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. Distributions out of the
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), if any, of a Fund will be taxed as long-term capital gain,
regardless of the length of time a shareholder has held Shares or whether such
gain was reflected in the price paid for the Shares. These tax consequences
will apply whether distributions are received in cash or reinvested in Shares.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
the Funds are not generally expected to qualify, in the hands of corporate
shareholders, for the corporate dividends-received deduction. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.

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

Redemptions and exchanges of Shares are taxable events.

36
<PAGE>

OTHER TAXES

ADDITIONAL INFORMATION

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, Dr. Martin Luther King, Jr. Day, Presidents' Day (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

37
<PAGE>

REPORTS TO SHAREHOLDERS

Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. To
eliminate unnecessary duplications, only one copy of such reports may be sent
to recordholders with the same mailing address. Recordholders of Institutional
Shares who desire a duplicate copy of such reports to be mailed to their
residence should contact Goldman Sachs as provided below. Each recordholder of
Institutional Shares will also be provided with a printed confirmation for each
transaction in its account and a quarterly account statement. A year-to-date
statement for any account will be provided upon request made to Goldman Sachs.
The Funds do not generally provide subaccounting services with respect to
beneficial ownership of Institutional Shares.

DIVIDENDS

Each Fund intends that all or substantially all its net investment income and
net 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. Each Fund will pay dividends from net investment income,
and dividends from net realized capital gains, reduced by available capital
losses, at least annually. From time to time, a portion of a Fund's dividends
may constitute a return of capital.

PURCHASE OF INSTITUTIONAL SHARES

38
<PAGE>

4:00 p.m. New York time) as described under "Net Asset Value." Purchases of
Institutional Shares of the Funds must be settled within 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."

PURCHASE PROCEDURES

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

MINIMUM INITIAL INVESTMENTS

The foregoing minimum investment requirements may be waived at the discretion
of the Trust's officers. In addition, 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.

OTHER PURCHASE INFORMATION

39
<PAGE>

behalf, purchase, redemption and exchange orders placed by or on behalf of such
customers and, if approved by the Trust, to designate other intermediaries to
accept such orders. In these cases, a Fund will be deemed to have received an
order in proper form by or on behalf of a customer when the order is accepted
by the authorized institution or intermediary on a Business Day, and the order
will be priced at a Fund's NAV per Share next determined after such acceptance.
The institution or intermediary will be responsible for transmitting accepted
orders to the Trust within the period agreed upon by them. A customer should
contact an institution to learn whether it is authorized to accept orders for
the Trust. Such institutions may receive payments from the Funds or Goldman
Sachs for the services provided by them with respect to the Funds'
Institutional Shares. These payments may be in addition to other servicing
and/or sub-transfer agency payments borne by the Funds and their Share Classes.

The Investment Adviser, Distributor, and/or their affiliates also pay
additional compensation, from time to time, out of their assets and not as an
additional charge to the Funds, to selected institutions (including banks,
trust companies, brokers and investment advisers) and other persons in
connection with the sale and/or servicing of Shares of the Funds and other
investment portfolios of the Trust (such as additional payments based on new
sales, amounts exceeding pre-established thresholds, or the length of time
clients' assets have remained in the Trust), and subject to applicable NASD
regulations, contribute to various non-cash and cash incentive arrangements to
promote the sale of Shares, as well as sponsor various educational programs,
sales contests and/or promotions in which participants may receive
reimbursement of expenses, entertainment and prizes such as travel awards,
merchandise, cash, investment research and educational information and related
support materials. This additional compensation can vary among institutions
depending upon such factors as the amounts their clients have invested (or may
invest) in particular portfolios of the Trust, the particular program involved,
or the amount of reimbursable expenses. Additional compensation based on sales
may, but is currently not expected to, exceed .50% (annualized) of the amount
invested. For further information, see the Additional Statement.

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

40
<PAGE>

EXCHANGE PRIVILEGE

Institutional Shares of the Fund may be exchanged for: (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose; and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the NAV next determined either by writing to Goldman
Sachs, Attention: Goldman Sachs International Equity Funds--Name of Fund and
Class of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago,
Illinois 60606 or, if previously elected in the Fund's Account Information
Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago time). A
shareholder should obtain and read the prospectus relating to any other fund
and its Shares and consider its investment objective, policies and applicable
fees before making an exchange. Under the telephone exchange privilege,
Institutional Shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only if
the exchange request is in writing and is received in accordance with the
procedures set forth under "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 Institutional Shares surrendered in the exchange on which an
investor may realize a gain or loss, followed by a purchase of Institutional
Shares, or the corresponding class of any Goldman Sachs Money Market Fund
received in the exchange. Shareholders should consult their own tax adviser
concerning the tax consequences of an exchange.

Each exchange which represents an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of the Fund. Exchanges are available only in states
where exchanges may legally be made. The exchange privilege may be materially
modified or withdrawn at any time on 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 a
recordholder of such Shares on any Business Day at the NAV next determined
after receipt of a request in proper form by Goldman Sachs from the
recordholder. (See "Purchase of Institutional Shares--Other Purchase
Information" for a description of limited situations where an institution or
other intermediary may be authorized to accept requests for the Funds.) 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 15 days. Redemption requests may be
made by a shareholder of record by writing to or calling the Transfer Agent at
the address or telephone number set forth on the back cover of this Prospectus.
A shareholder of record 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.

41
<PAGE>

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 concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the Funds,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.

Written requests for redemptions must be signed by each recordholder 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.

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.

Institutions (including banks, trust companies, brokers and investment
advisers) are responsible for the timely transmittal of redemption requests by
their customers to the Transfer Agent. In order to facilitate the timely
transmittal of redemption requests, these institutions have established times
by which redemption requests must be received by them. Additional documentation
may be required when deemed appropriate by an institution.

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

42
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM

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

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

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

A-1
<PAGE>

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

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

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

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

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

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

ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110

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

EQINTLPROINS
501414
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GOLDMAN SACHS
INTERNATIONAL
EQUITY FUNDS

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

PROSPECTUS

INSTITUTIONAL SHARES

LOGO
Goldman
Sachs

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

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

PROSPECTUS GOLDMAN SACHS FIXED INCOME FUNDS
March 1, 1998, as revised INSTITUTIONAL SHARES

September 1, 1998

GOLDMAN SACHS ADJUSTABLE RATE GOLDMAN SACHS MUNICIPAL INCOME FUND
GOVERNMENT FUND Seeks a high level of current income
that is exempt from regular federal in-
Seeks a high level of current come tax, consistent with preservation
income, consistent with low of capital. The Fund invests primarily
volatility of principal. The in municipal securities.
Fund invests primarily in ad-
justable rate mortgage pass- GOLDMAN SACHS CORE FIXED INCOME FUND
through securities and other
mortgage securities with peri- Seeks a total return consisting of
odic interest rate resets, capital appreciation and income that
which are issued or guaranteed exceeds the total return of the Lehman
by the U.S. government, its Brothers Aggregate Bond Index. The Fund
agencies, instrumentalities or invests primarily in fixed-income
sponsored enterprises. securities, including securities issued
or guaranteed by the U.S. government,
GOLDMAN SACHS SHORT DURATION its agencies, instrumentalities or
GOVERNMENT FUND sponsored enterprises, corporate
securities, mortgage-backed securities
Seeks a high level of current and asset-backed securities.
income and secondarily, in
seeking current income, may GOLDMAN SACHS GLOBAL INCOME FUND
also consider the potential for
capital appreciation. The Fund Seeks a high total return, emphasizing
invests primarily in securities current income and, to a lesser extent,
issued or guaranteed by the providing opportunities for capital
U.S. government, its agencies, appreciation. The Fund invests
instrumentalities or sponsored primarily in a portfolio of high
enterprises. quality fixed-income securities of U.S.
and foreign issuers and foreign
GOLDMAN SACHS SHORT DURATION currencies.
TAX-FREE FUND
GOLDMAN SACHS HIGH YIELD FUND
Seeks a high level of current
income, consistent with rela- Seeks a high level of current income
tively low volatility of prin- and may also consider the potential for
cipal, that is exempt from reg- capital appreciation. The Fund invests
ular federal income tax. The primarily in fixed-income securities
Fund invests primarily in mu- rated below investment grade.
nicipal 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 securi-
ties, issued or guaranteed by
the U.S. government, its agen-
cies, instrumentalities or
sponsored enterprises.

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 March 1, 1998, as
revised September 1, 1998, containing further information about the Trust and
the Funds which may be of interest to investors, has been filed with the
Securities and Exchange Commission ("SEC"), is incorporated herein by reference
in its entirety, and may be obtained without charge from Goldman Sachs by
calling the telephone number, or writing to one of the addresses, listed on the
back cover of this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.

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

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

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

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights...................... 1
Fees and Expenses.................... 7
Financial Highlights................. 9
Investment Objectives and Policies... 15
Description of Securities............ 22
Risk Factors......................... 31
Investment Techniques................ 34
Investment Restrictions.............. 37
Portfolio Turnover................... 38
Management........................... 38
Dividends............................ 42
Expenses............................. 43
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value..................... 44
Performance Information............. 44
Shares of the Trust................. 45
Taxation............................ 46
Additional Information.............. 47
Reports to Shareholders............. 48
Purchase of Institutional Shares.... 48
Exchange Privilege.................. 51
Redemption of Institutional Shares.. 51
Appendix............................ A-1
Account Information Form
</TABLE>
<PAGE>

FUND HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

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

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

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

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, Government Income, Municipal Income, Core Fixed Income and High
Yield Funds. Goldman Sachs Asset Management International serves as
Investment Adviser to the Global Income Fund. As of July 24, 1998, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $168 billion.

WHO DISTRIBUTES THE FUNDS' SHARES?

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

1
<PAGE>

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

2
<PAGE>

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

3
<PAGE>

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

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

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

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

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

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

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

4
<PAGE>

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

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

Diversified and Non-Diversified Funds. Each Fund, other than the Global
Income Fund, is a "diversified open-end management company" as defined under
the Investment Company Act of 1940, as amended (the "Act"). The Global
Income Fund is a "non-diversified" open-end management company as defined
under 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."

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment for the Adjustable Rate Government, Short
Duration Government, Short Duration Tax-Free and Core Fixed Income Funds is
$50,000 in Institutional Shares of a 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. The minimum initial investment for the Government Income, Municipal
Income, Global Income and High Yield Funds is either $1,000,000 or
$10,000,000 depending upon an investor's eligibility.

HOW DO I PURCHASE INSTITUTIONAL SHARES?

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

HOW DO I SELL MY INSTITUTIONAL SHARES?

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

5
<PAGE>

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

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

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

6
<PAGE>

FEES AND EXPENSES (INSTITUTIONAL SHARES)

<TABLE>
<CAPTION>
ADJUSTABLE SHORT SHORT CORE
RATE DURATION DURATION GOVERNMENT MUNICIPAL FIXED GLOBAL HIGH
GOVERNMENT GOVERNMENT TAX-FREE INCOME INCOME INCOME INCOME YIELD
FUND FUND FUND FUND FUND FUND FUND FUND
---------- ---------- -------- ---------- --------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.. none none none none none none none none
Maximum Sales Charge
Imposed on Reinvested
Dividends............. none none none none none none none none
Redemption Fees........ none none none none none none none none
Exchange Fees.......... none none none none none none none none
ANNUAL FUND OPERATING EXPENSES: (as
a percentage of average daily net
assets)/1/
Management Fees (after
applicable limita-
tions)/2/............. 0.40% 0.50% 0.35% 0.54% 0.50% 0.40% 0.65% 0.70%
Distribution Fees...... none none none none none none none none
Other Expenses (after
applicable
limitations)/3/....... 0.09% 0.04% 0.04% 0.04% 0.04% 0.14% 0.04% 0.06%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (after fee and
expense
limitations)/4/........ 0.49% 0.54% 0.39% 0.58% 0.54% 0.54% 0.69% 0.76%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
EXAMPLE

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

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government...................... $ 5 $16 $27 $62
Short Duration Government....................... $ 6 $17 $30 $68
Short Duration Tax-Free......................... $ 4 $13 $22 $49
Government Income............................... $ 6 $19 $32 $73
Municipal Income................................ $ 6 $17 $30 $68
Core Fixed Income............................... $ 6 $17 $30 $68
Global Income................................... $ 7 $22 $38 $86
High Yield...................................... $ 8 $24 $42 $94
</TABLE>
- --------
/1/ The Funds' annual operating expenses have been restated to reflect fees
and expenses in effect as of September 1, 1998.
/2/ The Investment Adviser has voluntarily agreed that a portion of the
management fee would not be imposed on the Short Duration Tax-Free,
Government Income, Municipal Income and Global Income Funds equal to
0.05%, 0.11%, 0.05% and 0.25%, respectively. Without such limitations,
management fees would be 0.40%, 0.65%, 0.55% and 0.90% of each Fund's
average daily net assets, respectively.
/3/ The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, transfer agency fees (equal to
0.04% of the average daily net assets of each Fund's Institutional
Shares), taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05%, 0.00%, 0.00%, 0.00%, 0.00% 0.10%, 0.00% and 0.02%
of the average daily net assets of the Adjustable Rate Government, Short
Duration Government, Short Duration Tax-Free, Government Income, Municipal
Income, Core Fixed Income, Global Income and High Yield Funds,
respectively.

7
<PAGE>

/4/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Institutional Shares of the Funds would be as set
forth below:

<TABLE>
<CAPTION>
OTHER TOTAL OPERATING
EXPENSES EXPENSES
-------- ---------------
<S> <C> <C>
Adjustable Rate Government.......................... 0.12% 0.52%
Short Duration Government........................... 0.26% 0.76%
Short Duration Tax-Free............................. 0.63% 1.03%
Government Income................................... 0.41% 1.06%
Municipal Income.................................... 0.35% 0.90%
Core Fixed Income................................... 0.34% 0.74%
Global Income....................................... 0.18% 1.08%
High Yield.......................................... 0.37% 1.07%
</TABLE>

The Investment Adviser and Goldman Sachs may modify or discontinue any of
the limitations set forth above in the future at their discretion. The
information set forth in the foregoing table and hypothetical example relates
only to Institutional Shares of the Funds. Each Fund also offers Service and
Class A Shares and, with the exception of the Adjustable Rate Government Fund,
Class B and Class C Shares. The Adjustable Rate Government, Short Duration
Government, Short Duration Tax-Free and Core Fixed Income Funds also offer
Administration 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.

Certain institutions that invest in Institutional Shares on behalf of their
customers may receive certain compensation in connection with the sale and
distribution of such Shares or for services to their customers' accounts
and/or the Funds. For additional information regarding such compensation, see
"Purchase of Institutional Shares" in this Prospectus and the Additional
Statement.

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

8
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

The following data 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 of the
Funds for the year ended October 31, 1997 (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(N)
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------
1997-
Institutional
Shares.......... $ 9.83 $0.5914(a) $ 0.0494 (a) -- $0.6408
1997-
Administration
Shares.......... 9.83 0.5665(a) 0.0497 (a) -- 0.6162
1997-Service
Shares(m)....... 9.84 0.3298(a) 0.0400 (a) -- 0.3698
1997-Class A
Shares.......... 9.83 0.5662(a) 0.0500 (a) -- 0.6162
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(a) (0.0376)(a) -- 0.4021
1993-
Administration
Shares(e)....... 10.02 0.2146(a) (0.0173)(a) -- 0.1973
1992-
Institutional
Shares.......... 10.03 0.5599(a) (0.0029)(a) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- -------------------
1991-
Institutional
Shares.......... 10.00 0.1531(a) 0.0322(a) -- 0.1853
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED NET
GAIN ON GAIN ON INCREASE
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE)
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET
INVESTMENT FUTURES INVESTMENT FUTURES IN TO ASSET
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE
---------- ------------ ---------- ------------ ------- ------------- ----------
ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------
1997-
Institutional
Shares.......... $(0.5908) -- -- -- -- $(0.5908) $ 0.0500
1997-
Administration
Shares.......... (0.5662) -- -- -- -- (0.5662) 0.0500
1997-Service
Shares(m)....... (0.3298) -- -- -- -- (0.3298) 0.0400
1997-Class A
Shares.......... (0.5662) -- -- -- -- (0.5662) 0.0500
1996-
Institutional
Shares.......... (0.5725) -- (0.0206) -- -- (0.5931) 0.0600
1996-
Administration
Shares.......... (0.5489) -- (0.0198) -- -- (0.5687) 0.0600
1996-Class A
Shares.......... (0.5489) -- (0.0198) -- -- (0.5687) 0.0600
1995-
Institutional
Shares.......... (0.5759) -- (0.0287) -- -- (0.6046) 0.0301
1995-
Administration
Shares.......... (0.5528) -- (0.0275) -- -- (0.5803) 0.0300
1995-Class A
Shares(c)....... (0.2697) -- (0.0134) -- -- (0.2831) (0.0200)
1994-
Institutional
Shares.......... (0.4486) -- -- -- -- (0.4486) (0.2600)
1994-
Administration
Shares.......... (0.4239) -- -- -- -- (0.4239) (0.2600)
1993-
Institutional
Shares.......... (0.4397) -- (0.0024) -- -- (0.4421) (0.0400)
1993-
Administration
Shares(e)....... (0.2146) -- (0.0027) -- -- (0.2173) (0.0200)
1992-
Institutional
Shares.......... (0.5470) -- -- -- -- (0.5470) 0.0100
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- -------------------
1991-
Institutional
Shares.......... (0.1553) -- -- -- -- (0.1553) 0.0300
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------

RATIO OF
NET NET RATIO OF RATIO OF RATIO OF
ASSET EXPENSES NET NET EXPENSES NET
VALUE TO INVESTMENT ASSETS AT TO INVESTMENT
AT END AVERAGE INCOME TO PORTFOLIO END OF AVERAGE INCOME TO
OF TOTAL NET AVERAGE TURNOVER PERIOD NET AVERAGE
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>
FOR THE YEARS ENDED OCTOBER 31,
- -------------
1997-
Institutional
Shares.......... $ 9.88 6.70% 0.49% 5.99% 46.58% $ 463,511 0.52% 5.96%
1997-
Administration
Shares.......... 9.88 6.43 0.74 5.73 46.58 2,793 0.77 5.70
1997-Service
Shares(m)....... 9.88 3.81(f) 1.05(b) 5.64(b) 46.58(f) 346 1.08(b) 5.61(b)
1997-Class A
Shares.......... 9.88 6.43 0.74 5.60 46.58 43,393 1.02 5.32
1996-
Institutional
Shares.......... 9.83 6.86 0.45 5.85 52.36 613,149 0.51 5.79
1996-
Administration
Shares.......... 9.83 6.60 0.70 5.59 52.36 3,792 0.76 5.53
1996-Class A
Shares.......... 9.83 6.60 0.70 5.59 52.36 10,728 1.01 5.28
1995-
Institutional
Shares.......... 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-
Administration
Shares.......... 9.77 6.48 0.71 5.50 24.12 3,572 0.78 5.43
1995-Class A
Shares(c)....... 9.77 2.74(f) 0.69(b) 5.87(b) 24.12(f) 15,203 1.01(b) 5.55(b)
1994-
Institutional
Shares.......... 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-
Administration
Shares.......... 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-
Institutional
Shares.......... 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-
Administration
Shares(e)....... 10.00 2.01(f) 0.70(b) 3.81(b) 103.74(f) 5,326 0.73(b) 3.78(b)
1992-
Institutional
Shares.......... 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.......... 10.03 2.14(f) 0.20(b) 7.31(b) 145.67(f) 239,642 1.02(b) 6.49(b)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
SHORT DURATION GOVERNMENT FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -----------------
1997-
Institutional
Shares.......... $ 9.83 $0.6412(a) $ 0.0300(a) -- $ 0.6712 $(0.6412)
1997-
Administration
Shares.......... 9.85 0.6183(a) 0.0400(a) -- 0.6583 (0.6183)
1997-Service
Shares.......... 9.82 0.5904(a) 0.0401(a) -- 0.6305 (0.5904)
1997-Class A
Shares(o)....... 9.78 0.3121(a) 0.0883(a) -- 0.4004 (0.3004)
1997-Class B
Shares(o)....... 9.75 0.2787(a) 0.1011(a) -- 0.3798 (0.2698)
1997-Class C
Shares(p)....... 9.83 0.1185(a) 0.0225(a) -- 0.1410 (0.1110)
1996-
Institutional
Shares.......... 9.82 0.6290(a) 0.0136(a) -- 0.6426 (0.6326)
1996-
Administration
Shares(h)....... 9.86 0.3837(a) 0.0003(a) -- 0.3840 (0.3940)
1996-Service
Shares(i)....... 9.72 0.3134(a) 0.1018(a) -- 0.4152 (0.3152)
1995-
Institutional
Shares.......... 9.64 0.6652(a) 0.1666(a) -- 0.8318 (0.6518)
1995-
Administration
Shares.......... 9.64 0.2384(a) (0.0433)(a) -- 0.1951 (0.2051)
1994-
Institutional
Shares.......... 10.14 0.5628(a) (0.4592)(a) -- 0.1036 (0.5598)
1994-
Administration
Shares.......... 10.14 0.5329(a) (0.4539)(a) -- 0.0790 (0.5352)
1993-
Institutional
Shares.......... 10.16 0.5627(a) (0.0135)(a) -- 0.5492 (0.5627)
1993-
Administration
Shares(e)....... 10.23 0.2725(a) (0.0900)(a) -- 0.1825 (0.2725)
1992-
Institutional
Shares.......... 10.22 0.6703(a) (0.0600)(a) -- 0.6103 (0.6703)
1991-
Institutional
Shares.......... 10.00 0.8020(a) 0.2200(a) -- 1.0220 (0.8020)
1990-
Institutional
Shares.......... 10.07 0.8300(a) (0.0700)(a) -- 0.7600 (0.8300)
1989-
Institutional
Shares.......... 10.10 0.8800(a) -- -- 0.8800 (0.8800)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------
1988-
Institutional
Shares.......... 10.00 0.1800(a) 0.1000(a) -- 0.2800 (0.1800)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------
IN EXCESS
FROM NET OF NET RATIO OF
REALIZED REALIZED NET NET NET RATIO OF
GAIN ON GAIN ON INCREASE ASSET EXPENSES NET
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE) VALUE TO INVESTMENT
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET AT END AVERAGE INCOME TO
FUTURES INVESTMENT FUTURES IN TO ASSET OF TOTAL NET AVERAGE
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(K) ASSETS NET ASSETS
------------ ---------- ------------ -------- ------------- ---------- --------- ---------- --------- ----------
SHORT DURATION GOVERNMENT FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -----------------
1997-
Institutional
Shares.......... -- -- -- -- $(0.6412) $ 0.0300 $ 9.86 7.07% 0.45% 6.43%
1997-
Administration
Shares.......... -- -- -- -- (0.6183) 0.0400 9.89 6.91 0.70 6.19
1997-Service
Shares.......... -- -- -- -- (0.5904) 0.0401 9.86 6.63 0.95 5.92
1997-Class A
Shares(o)....... -- -- -- -- (0.3004) 0.1000 9.88 4.14(f) 0.70(b) 6.05(b)
1997-Class B
Shares(o)....... -- -- -- -- (0.2698) 0.1100 9.86 3.94(f) 1.30(b) 5.52(b)
1997-Class C
Shares(p)....... -- -- -- -- (0.1110) 0.0300 9.86 1.44(f) 1.45(b) 5.52(b)
1996-
Institutional
Shares.......... -- -- -- -- (0.6326) 0.0100 9.83 6.75 0.45 6.44
1996-
Administration
Shares(h)....... -- -- -- -- (0.3940) (0.0100) 9.85 4.00(f) 0.70(b) 5.97(b)
1996-Service
Shares(i)....... -- -- -- -- (0.3152) 0.1000 9.82 4.35(f) 0.95(b) 6.05(b)
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(b) 7.91(b)
1994-
Institutional
Shares.......... (0.0438) -- -- -- (0.6036) (0.5000) 9.64 0.99 0.45 5.69
1994-
Administration
Shares.......... (0.0438) -- -- -- (0.5790) (0.5000) 9.64 0.73 0.70 5.38
1993-
Institutional
Shares.......... -- (0.0065) -- -- (0.5692) (0.0200) 10.14 5.55 0.45 5.46
1993-
Administration
Shares(e)....... -- -- -- -- (0.2725) (0.0900) 10.14 1.74(f) 0.70(b) 4.84(b)
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(f) 0.55(b) 8.55(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------

NET
ASSETS RATIO OF RATIO OF
AT END EXPENSES NET
OF TO INVESTMENT
PORTFOLIO PERIOD AVERAGE INCOME TO
TURNOVER (IN NET AVERAGE
RATE(D) 000S) ASSETS NET ASSETS
----------- -------- --------- ----------
SHORT DURATION GOVERNMENT FUND
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -----------------
1997-
Institutional
Shares.......... 102.58% $103,729 0.82% 6.06%
1997-
Administration
Shares.......... 102.58 1,060 1.07 5.82
1997-Service
Shares.......... 102.58 3,337 1.32 5.55
1997-Class A
Shares(o)....... 102.58(f) 9,491 1.32(b) 5.43(b)
1997-Class B
Shares(o)....... 102.58(f) 747 1.82(b) 5.00(b)
1997-Class C
Shares(p)....... 102.58(f) 190 1.82(b) 5.15(b)
1996-
Institutional
Shares.......... 115.45 99,944 0.71 6.18
1996-
Administration
Shares(h)....... 115.45 252 0.96(b) 5.71(b)
1996-Service
Shares(i)....... 115.45 1,822 1.21(b) 5.79(b)
1995-
Institutional
Shares.......... 292.56 103,760 0.72 6.60
1995-
Administration
Shares.......... 292.56 -- 0.90(b) 7.71(b)
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(e)....... 411.66 16,490 0.80(b) 4.74(b)
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(f) 39,052 1.42(b) 7.68(b)
- -------------------
</TABLE>

10
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
-----------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1997-
Institutional
Shares.......... $ 9.96 $0.4181(a) $ 0.1091(a) -- $ 0.5272 $(0.4172)
1997-
Administration
Shares.......... 9.96 0.3924(a) 0.1100(a) -- 0.5024 (0.3924)
1997-Service
Shares.......... 9.97 0.3675(a) 0.1000(a) -- 0.4675 (0.3675)
1997-Class A
Shares(o)....... 9.94 0.1950(a) 0.1400(a) -- 0.3350 (0.1950)
1997-Class B
Shares(o)....... 9.94 0.1663(a) 0.1368(a) -- 0.3031 (0.1631)
1997-Class C
Shares(p)....... 10.04 0.0670(a) 0.0300(a) -- 0.0970 (0.0670)
1996-
Institutional
Shares.......... 9.94 0.4192(a) 0.0200(a) -- 0.4392 (0.4192)
1996-
Administration
Shares.......... 9.94 0.3944(a) 0.0200(a) -- 0.4144 (0.3944)
1996-Service
Shares.......... 9.95 0.3697(a) 0.0200(a) -- 0.3897 (0.3697)
1995-
Institutional
Shares.......... 9.79 0.4235(a) 0.1500(a) -- 0.5735 (0.4235)
1995-
Administration
Shares.......... 9.79 0.3989(a) 0.1500(a) -- 0.5489 (0.3989)
1995-Service
Shares.......... 9.79 0.3744(a) 0.1600(a) -- 0.5344 (0.3744)
1994-
Institutional
Shares.......... 10.23 0.3787(a) (0.3575)(a) -- 0.0212 (0.3787)
1994-
Administration
Shares.......... 10.23 0.3537(a) (0.3575)(a) -- (0.0038) (0.3537)
1994-Service
Shares(j)....... 9.86 0.0475(a) (0.0700)(a) -- (0.0225) (0.0475)
1993-
Institutional
Shares.......... 9.93 0.3834(a) 0.3000(a) -- 0.6834 (0.3834)
1993-
Administration
Shares(j)....... 10.16 0.1555(a) 0.0720(a) -- 0.2275 (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-
Institutional
Shares.......... 10.00 0.0341(a) . (0.0700)(a) -- (0.0359) (0.0341)
- --------------------------------------------------------------------------------------------
<CAPTION>

DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------
IN EXCESS
FROM NET OF NET RATIO OF
REALIZED REALIZED NET NET NET RATIO OF
GAIN ON GAIN ON INCREASE ASSET EXPENSES NET
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE) VALUE TO INVESTMENT
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET AT END AVERAGE INCOME TO
FUTURES INVESTMENT FUTURES IN TO ASSET OF TOTAL NET AVERAGE
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(K) ASSETS NET ASSETS
------------ ---------- ------------ ------- ------------- ---------- ------ ----------- --------- ----------
SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1997-
Institutional
Shares.......... -- -- -- -- $(0.4172) $ 0.1100 $10.07 5.40% 0.45% 4.18%
1997-
Administration
Shares.......... -- -- -- -- (0.3924) 0.1100 10.07 5.14 0.70 3.91
1997-Service
Shares.......... -- -- -- -- (0.3675) 0.1000 10.07 4.77 0.95 3.66
1997-Class A
Shares(o)....... -- -- -- -- (0.1950) 0.1400 10.08 3.39(f) 0.70(b) 3.81(b)
1997-Class B
Shares(o)....... -- -- -- -- (0.1631) 0.1400 10.08 3.07(f) 1.30(b) 3.31(b)
1997-Class C
Shares(p)....... -- -- -- -- (0.0670) 0.0300 10.07 0.97(f) 1.45(b) 2.60(b)
1996-
Institutional
Shares.......... -- -- -- -- (0.4192) 0.0300 9.96 4.50 0.45 4.21
1996-
Administration
Shares.......... -- -- -- -- (0.3944) 0.0300 9.96 4.24 0.70 3.96
1996-Service
Shares.......... -- -- -- -- (0.3697) 0.0200 9.97 3.98 0.95 3.74
1995-
Institutional
Shares.......... -- -- -- -- (0.4235) 0.1500 9.94 5.98 0.45 4.31
1995-
Administration
Shares.......... -- -- -- -- (0.3989) 0.1500 9.94 5.76 0.70 4.14
1995-Service
Shares.......... -- -- -- -- (0.3744) 0.1600 9.95 5.59 0.95 3.87
1994-
Institutional
Shares.......... (0.0825) -- -- -- (0.4612) (0.4400) 9.79 0.17 0.45 3.74
1994-
Administration
Shares.......... (0.0825) -- -- -- (0.4362) (0.4400) 9.79 (0.11) 0.70 3.51
1994-Service
Shares(j)....... -- -- -- -- (0.0475) (0.0700) 9.79 (0.32)(f) 0.95(b) 4.30(b)
1993-
Institutional
Shares.......... -- -- -- -- (0.3834) 0.3000 10.23 7.03 0.41 3.70
1993-
Administration
Shares(j)....... -- -- -- -- (0.1555) 0.0720 10.23 2.28(f) 0.70(b) 3.32(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-
Institutional
Shares.......... -- -- -- -- (0.0341) (0.0700) 9.93 (0.34)(f) 0.05(b) 4.58(b)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------

NET
ASSETS RATIO OF RATIO OF
AT END EXPENSES NET
OF TO INVESTMENT
PORTFOLIO PERIOD AVERAGE INCOME TO
TURNOVER (IN NET AVERAGE
RATE(D) 000S) ASSETS NET ASSETS
----------- -------- --------- ----------
SHORT DURATION TAX-FREE FUND
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1997-
Institutional
Shares.......... 194.75% $ 28,821 1.23% 3.40%
1997-
Administration
Shares.......... 194.75 77 1.48 3.13
1997-Service
Shares.......... 194.75 2,051 1.73 2.88
1997-Class A
Shares(o)....... 194.75(f) 4,023 1.73(b) 2.78(b)
1997-Class B
Shares(o)....... 194.75(f) 106 2.23(b) 2.38(b)
1997-Class C
Shares(p)....... 194.75(f) 2 2.23(b) 1.82(b)
1996-
Institutional
Shares.......... 231.65 34,814 1.01 3.65
1996-
Administration
Shares.......... 231.65 48 1.26 3.40
1996-Service
Shares.......... 231.65 695 1.51 3.18
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(j)....... 354.00 440 1.11(b) 4.14(b)
1993-
Institutional
Shares.......... 404.60 115,803 1.06 3.05
1993-
Administration
Shares(j)....... 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-
Institutional
Shares.......... 31.19(f) 14,601 2.68(b) 1.95(b)
- -------------------------------------------------------
</TABLE>

11
<PAGE>

<CAPTION>
MUNICIPAL INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-Class A
Shares $14.37 $0.67 $0.62 -- $1.29 $(0.67) -- -- -- --
1997-Class B
Shares 14.37 0.56 0.63 -- 1.19 (0.56) -- -- -- --
1997-Class C
Shares(p) 14.85 0.12 0.14 -- 0.26 (0.12) -- -- -- --
1997-
Institutional
Shares(p) 14.84 0.15 0.16 -- 0.31 (0.15) -- -- -- --
1997-Service
Shares(p) 14.84 0.14 0.15 -- 0.29 (0.14) -- -- -- --
1996-Class A
shares 14.17 0.65 0.20 -- 0.85 (0.65) -- -- -- --
1996-Class B
shares(q) 14.03 0.27 0.34 -- 0.61 (0.27) -- -- -- --
1995-Class A
shares 13.08 0.67 1.09 -- 1.76 (0.67) -- -- -- --
1994-Class A
shares 14.64 0.73 (1.51) -- (0.78) (0.73) (0.05) -- -- --
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
- ------------------------------------
1993-Class A
shares 14.32 0.22 0.32 -- 0.54 (0.22) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<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
TOTAL (DECREASE) VALUE TO INCOME OF TO INCOME
DISTRIBUTIONS IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
TO ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
SHAREHOLDERS VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
------------- ---------- ------ ---------- --------- ---------- ----------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-Class A
Shares $(0.97) $0.23 $14.59 8.72% 0.50% 6.38% 395.75% $68,859 1.82% 5.06%
1997-Class B
Shares (0.86) 0.24 14.61 7.96 1.25 5.59 395.75 8,041 2.32 4.52
1997-Class C
Shares(p) (0.17) 0.22 14.60 2.72(f) 1.25(b) 5.45(b) 395.75(f) 1,196 2.32(b) 4.38(b)
1997-
Institutional
Shares(p) (0.20) 0.22 14.59 2.94(f) 0.25(b) 7.03(b) 395.75(f) 1,894 1.32(b) 5.96(b)
1997-Service
Shares(p) (0.19) 0.22 14.59 2.85(f) 0.75(b) 6.49(b) 395.75(f) 2 1.82(b) 5.42(b)
1996-Class A
shares (0.92) (0.11) 14.36 5.80 0.75 6.42 485.09 30,603 1.89 5.03
1996-Class B
shares(q) (0.41) 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 (0.94) 1.00 14.47 14.90 0.47 6.67 449.53 29,503 2.34 4.80
1994-Class A
shares (1.00) (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 (0.56) 0.58 14.90 8.03(f) 0.00(b) 4.87(e) 725.41(f) 12,860 4.00(b)

<CAPTION>
MUNICIPAL INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-Class A
Shares $(0.67) $0.62 $14.99 9.23% 0.85% 4.60% 153.12% $64,553 1.62% 3.83%
1997-Class B
Shares (0.56) 0.63 15.00 8.48 1.60 3.74 153.12 1,750 2.12 3.22
1997-Class C
Shares(p) (0.12) 0.14 14.99 1.75(f) 1.60(b) 3.24(b) 153.12(f) 130 2.12(b) 2.72(b)
1997-
Institutional
Shares(p) (0.15) 0.16 15.00 2.10(f) 0.60(b) 4.41(b) 153.12(f) 351 1.12(b) 3.89(b)
1997-Service
Shares(p) (0.14) 0.15 14.99 1.93(f) 1.10(b) 4.24(b) 153.12(f) 2 1.62(b) 3.72(b)
1996-Class A
shares (0.65) 0.20 14.37 6.13 0.85 4.58 344.13 52,267 1.55 3.88
1996-Class B
shares(q) (0.27) 0.34 14.37 4.40(f) 1.60(b) 3.55(b) 344.13(f) 255 2.05(b) 3.10(b)
1995-Class A
shares (0.67) 1.09 14.17 13.79 0.76 4.93 335.55 53,797 1.49 4.20
1994-Class A
shares (0.78) (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 (0.22) 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>

12
<PAGE>

FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
shares $14.53 $ 0.59 $ 0.50 $ 0.27 $ 1.36 $ (0.79) -- -- -- --
1997-Class B
shares 14.53 0.72 0.36 0.20 1.28 (0.73) -- -- -- --
1997-Class C
shares(p) 14.80 0.16 0.19 0.10 0.45 (0.19) -- -- -- --
1997-
Institutional
Shares 14.52 0.88 0.37 0.19 1.44 (0.87) -- -- -- --
1997-Service
Shares(s) 14.69 0.53 0.25 0.14 0.92 (0.52) -- -- -- --
1996-Class A
shares 14.45 0.71 0.62 0.18 1.51 (1.43) -- -- -- --
1996-Class B
shares(q) 14.03 0.34 0.41 0.11 0.86 (0.36) -- -- -- --
1996-
Institutional
shares 14.45 1.15 0.32 0.10 1.57 (1.50) -- -- -- --
1995-Class A
shares 13.43 0.89 0.92 0.15 1.96 (0.94) -- -- -- --
1995-
Institutional
shares(r) 14.09 0.22 0.34 0.06 0.62 (0.26) -- -- -- --
1994-Class A
shares 15.07 0.84 (1.37) (0.12) (0.65) (0.22) (0.16) -- -- (0.61)
1993-Class A
shares 14.69 0.85 1.07 (0.42) 1.50 (0.85) (0.27) -- -- --
1992-Class A
shares 14.60 1.14 0.45 (0.36) 1.23 (1.14) -- -- -- --

FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A
shares 14.55 0.25 0.23 (0.19) 0.29 (0.24) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<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
TOTAL (DECREASE) VALUE TO INCOME OF TO INCOME
DISTRIBUTIONS IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
TO ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
SHAREHOLDERS 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> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-
Institutional
Shares $(0.6408) $ 0.2300 $10.08 9.19% 0.45% 6.53% 361.27% $79,230 0.83% 6.15%
1997-
Administration
Shares (0.6157) 0.2300 10.07 8.92 0.70 6.27 361.27 6,176 1.08 5.89
1997-Service
Shares (0.5919) 0.2300 10.09 8.65 0.95 6.00 361.27 1,868 1.33 5.62
1997-Class A
Shares(o) (0.3048) 0.3599 10.06 6.94(f) 0.70(b) 6.13(b) 361.27(f) 9,336 1.33(b) 5.50(b)
1997-Class B
Shares(o) (0.2673) 0.3700 10.09 6.63(f) 1.45(b) 5.28(b) 361.27(f) 621 1.83(b) 4.90(b)
1997-Class C
Shares(p) (0.1107) 0.1599 10.09 2.74(f) 1.45(b) 4.84(b) 361.27(f) 272 1.83(b) 4.46(b)
1996-
Institutional
Shares (0.7244) (0.1500) 9.85 5.98 0.45 6.51 414.20 72,061 0.83 6.13
1996-
Administration
Shares(/1/) (0.4080) (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(l) (0.3754) 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 (0.6433) 0.7600 10.00 15.72 0.45 6.56 382.26 55,502 0.96 6.05
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- ----------------------------------
1994-
Institutional
Shares (0.4648) (0.7617) 9.24 (3.00) 0.45(b) 6.48(b) 285.25 24,508 1.46(b) 5.47(b)

<CAPTION>
GLOBAL INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
shares $ (0.79) $ 0.57 $15.10 9.66% 1.17% 5.19% 383.72% $167,096 1.60% 4.76%
1997-Class B
shares (0.73) 0.55 15.08 9.04 1.71 4.76 383.72 3,465 2.10 4.37
1997-Class C
shares(p) (0.19) 0.26 15.06 3.03(f) 1.71(b) 4.98(b) 383.72(f) 496 2.10(b) 4.59(b)
1997-
Institutional
Shares (0.87) 0.57 15.09 10.26 0.65 5.72 383.72 60,929 1.04 5.33
1997-Service
Shares(s) (0.52) 0.40 15.09 6.42(f) 1.15(b) 5.33(b) 383.72(f) 151 1.54(b) 4.94(b)
1996-Class A
shares (1.43) 0.08 14.53 11.05 1.16 5.81 232.15 198,665 1.64 5.33
1996-Class B
shares(q) (0.36) 0.50 14.53 6.24(f) 1.70(b) 5.16(b) 232.15(f) 256 2.14(b) 4.72(b)
1996-
Institutional
shares (1.50) 0.07 14.52 11.55 0.65 6.35 232.15 54,254 1.11 5.89
1995-Class A
shares (0.94) 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995-
Institutional
shares(r) (0.26) 0.36 14.45 4.42(f) 0.65(b) 6.01(b) 265.86(f) 31,619 1.08(b) 5.58(b)
1994-Class A
shares (0.99) (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993-Class A
shares (1.12) 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992-Class A
shares (1.14) 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 (0.24) 0.05 14.60 2.00(f) 0.38(f) 1.72(f) 34.22(f) 388,744 0.44(f) 1.66(f)
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N) DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------- -------------------------------------------------------
NET REALIZED NET
AND REALIZED IN EXCESS
UNREALIZED AND FROM NET OF NET
GAIN (LOSS) UNREALIZED TOTAL REALIZED REALIZED
ON GAIN (LOSS) INCOME GAIN ON GAIN ON
NET ASSET INVESTMENT, ON FOREIGN (LOSS) INVESTMENT, IN EXCESS INVESTMENT, FROM
VALUE AT NET OPTION AND CURRENCY FROM FROM NET OPTION AND OF NET OPTION AND PAID
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT FUTURES INVESTMENT FUTURES IN
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL
--------- ---------- ------------ ------------ ---------- ---------- ------------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HIGH YIELD FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 1, 1997(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1997-Class A
Shares $10.00 $0.17 $(0.03) 0.01 $0.15 $(0.17) -- $(0.01) -- --
1997-Class B
Shares 10.00 0.15 (0.03) 0.01 0.13 (0.15) -- (0.01) -- --
1997-Class C
Shares(p) 9.97 0.14 -- 0.01 0.12 (0.14) -- (0.01) -- --
1997-
Institutional
Shares 10.00 0.18 (0.03) 0.01 0.16 (0.18) -- (0.01) -- --
1997-Service
Shares 10.00 0.17 (0.03) 0.01 0.15 (0.17) -- (0.01) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<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
TOTAL (DECREASE) VALUE TO INCOME OF TO INCOME
DISTRIBUTIONS IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
TO ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
SHAREHOLDERS VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
------------- ---------- ------ ----------- ---------- ----------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 1, 1997(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1997-Class A
Shares $(0.18) $(0.03) $9.97 1.50%(f) 0.95%(b) 7.06%(b) 44.80%(f) $325,911 1.57%(b) 6.44%(b)
1997-Class B
Shares (0.16) (0.03) 9.97 1.31(f) 1.70(b) 6.28(e) 44.80(f) 10.308 2.07(b) 5.91(b)
1997-Class C
Shares(p) (0.15) (0.03) 9.97 1.46(f) 1.70(b) 6.17(b) 44.80(f) 1,791 2.07(b) 5.80(b)
1997-
Institutional
Shares (0.19) (0.03) 9.97 1.58(f) 0.70(b) 7.16(b) 44.80(f) 2 1.07(b) 6.79(b)
1997-Service
Shares (0.18) (0.03) 9.97 1.46(f) 1.20(b) 6.69(b) 44.80(f) 2 1.57(b) 6.32(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)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. Total return would be reduced if a sales charge for Class A
shares or a contingent deferred sales charge for Class B and Class C
shares were taken into account.
(l)Administration and Service share activity commenced on February 28, 1996
and March 13, 1996, respectively.
(m)Service share activity commenced on March 27, 1997.
(n)Includes the balancing effect of calculating per share amounts.
(o)Class A and Class B share activity commenced on May 1, 1997.
(p)Commenced operations on August 15, 1997.
(q)Class B shares commenced operations on May 1, 1996.
(r)Institutional shares commenced operations on August 1, 1995.
(s)Service Class shares commenced operations on March 12, 1997.
- -------------------------------------------------------------------------------

14
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

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 nationally recognized statistical rating organization ("NRSRO") 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 NRSROs or, if unrated, 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 usually have access to the research of, and
certain 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 expected to be 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 mortgage securities with periodic
interest rate resets. The remainder of the Fund's assets (up to 35%) may be
invested in other U.S. Government Securities, including fixed rate 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

15
<PAGE>

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.

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

SHORT DURATION GOVERNMENT FUND

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

DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the 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 expected to be 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 expected
to be comparable to a three-year bond.

16
<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 or Baa by an NRSRO or, if
unrated, will be determined by the Investment Adviser to be of comparable
quality. 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 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
its duration and term structure 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
expected to be 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.

17
<PAGE>

CREDIT QUALITY. The Fund's non-U.S. Government Securities will be rated, at
the time of investment, AAA or Aaa by an NRSRO or, if unrated, will be
determined by the Investment Adviser to be of comparable quality.

OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure 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, credit
and interest rate swaps and interest rate floors, caps and collars. The Fund
may also employ other investment techniques to seek to enhance returns, such
as lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."

MUNICIPAL INCOME FUND

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

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

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

CREDIT QUALITY. Under normal market conditions, the weighted average credit
quality of the Fund's portfolio will be equivalent to that of securities rated
AA or Aa by an NRSRO. All securities purchased by the Fund will be rated, at
the time of investment, at least BBB or Baa by an NRSRO or, if unrated, will
be determined by the Investment Adviser to be of comparable quality. 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 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
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, interest rate floors, caps and collars. The Fund may also employ other
investment techniques to seek to enhance returns, such as lending portfolio
securities and entering into repurchase agreements and other investment
practices described under "Investment Techniques."

18
<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 expected to be
comparable to a five-year bond.

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

The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed-income securities rated at
least BBB or Baa by an NRSRO. 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
or Baa by an NRSRO. 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 or Aa by an NRSRO or, if unrated, will be determined by the Investment
Adviser to be of comparable quality. 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.

19
<PAGE>

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 expected
to be comparable to a six-year bond.

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

The fixed-income securities in which the Fund may invest include: (i) U.S.
Government Securities and custodial receipts therefor; (ii) securities issued
or guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, instrumentalities or by supranational entities (i.e.,
international organizations designated or supported by governmental entities
to promote economic reconstruction or development, such as the World Bank);
(iii) corporate debt securities; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, U.S. 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.

CREDIT QUALITY. All securities purchased by the Fund will be rated, at the
time of investment, at least BBB or Baa by an NRSRO. However, the Fund will
invest at least 50% of its total assets in securities rated, at the time of
investment, AAA or Aaa by an NRSRO. Unrated securities will be determined by
the Investment Adviser to be of comparable quality. 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.

20
<PAGE>

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. Not more than 25% of the Fund's
total assets will be invested in securities of issuers in any other single
foreign country.

HIGH YIELD FUND

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

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

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

21
<PAGE>

securities are, however, considered speculative and generally involve greater
price volatility and greater risk of loss of principal and interest than
higher rated securities. See "Description of Securities." A description of the
corporate bond and preferred stock ratings is contained in Appendix B to the
Additional Statement.

For your information, set forth below is the average distribution of ratings
for the portfolio securities (including commercial paper and nonconvertible
bonds) held by Fund during the most recent fiscal year:

CREDIT QUALITY

<TABLE>
<CAPTION>
PERCENTAGE OF
FUND'S ASSETS
-------------
<S> <C>
AAA/Aaa...................................................... 1.3%
AA/Aa........................................................ 0%
A............................................................ 0%
BBB/Baa...................................................... 0.3%
BB/Ba........................................................ 13.1%
Below Ba..................................................... 85.3%
Not rated.................................................... 0%
Comparable to A............................................. 0%
Comparable to BBB/Baa....................................... 0%
Comparable to BB/Ba or lower................................ 0%
Comparable to Below Ba...................................... 0%
-----
100.0%
=====
</TABLE>

OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure, 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, credit and interest rate
swaps, and interest rate floors, caps and collars. Currency management
techniques involve risks different from those associated with investing solely
in U.S. dollar-denominated fixed-income securities of U.S. issuers. It is
expected that the Fund will use certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. The Fund may also employ other investment techniques to seek to
enhance returns, such as lending portfolio securities and entering into
repurchase agreements and other investment practices described under
"Investment Techniques."

DESCRIPTION OF SECURITIES

U.S. GOVERNMENT SECURITIES

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

22
<PAGE>

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

MORTGAGE-BACKED SECURITIES

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

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

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

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

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

23
<PAGE>

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

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

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

ASSET-BACKED SECURITIES

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

LOAN PARTICIPATIONS

24
<PAGE>

syndication, a number of lenders, usually banks (co-lenders), lend a corporate
borrower a specified sum pursuant to the terms and conditions of a loan
agreement. One of the co-lenders usually agrees to act as the agent bank with
respect to the loan.

Participation interests acquired by the High Yield Fund may take the form of
a direct or co-lending relationship with the corporate borrower, an assignment
of an interest in the loan by a co-lender or another participant, or a
participation in the seller's share of the loan. When the High Yield Fund acts
as co-lender in connection with a participation interest or when the High
Yield Fund acquires certain participation interests, the High Yield Fund will
have direct recourse against the borrower if the borrower fails to pay
scheduled principal and interest. In cases where the High Yield Fund lacks
direct recourse, it will look to the agent bank to enforce appropriate credit
remedies against the borrower. In these cases, the High Yield Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower. For example, in the event of the
bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses by the borrower as a result of improper conduct
by the agent bank. Moreover, under the terms of the loan participation, the
High Yield Fund may be regarded as a creditor of the agent bank (rather than
of the underlying corporate borrower), so that the High Yield Fund may also be
subject to the risk that the agent bank may become insolvent. The secondary
market, if any, for these loan participations is limited and any loan
participations purchased by the High Yield Fund will be regarded as illiquid.

For purposes of certain investment limitations pertaining to diversification
of the High Yield Fund's portfolio investments, the issuer of a loan
participation will be the underlying borrower. However, in cases where the
High Yield Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the High Yield
Fund and the borrower will be deemed issuers of a loan participation.

MUNICIPAL SECURITIES

GENERAL. Municipal Securities in which the Short Duration Tax-Free and
Municipal Income Funds and, to a limited extent, the Core Fixed Income and
High Yield Funds invest consist of bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which, in the opinion of bond
counsel for the issuers or counsel selected by the Investment Adviser, is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes but not necessarily exempt from federal
alternative minimum tax or from state or local taxes). Such securities may pay
fixed, variable or floating rates of interest. Municipal Securities are often
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Securities may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses, and obtaining funds to lend to other public institutions and
facilities. The Core Fixed Income and High Yield Funds may also invest in
taxable Municipal Securities.

PRIVATE ACTIVITY BONDS. Municipal Securities 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'

25
<PAGE>

distributions attributable to the interest income from private activity bonds
may subject certain investors to the federal alternative minimum tax.

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

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

INSURED SECURITIES. "Insured" Municipal Securities are those for which
scheduled payments of interest and principal are guaranteed by a private (non-
governmental) insurance company. The insurance entitles a Fund to receive only
the face or par value of the securities held by the Fund. The insurance does
not guarantee the market value of the Municipal Securities or the net asset
value of a Fund's shares.

AUCTION RATE SECURITIES. Auction rate Municipal Securities permit the holder
to sell the securities in an auction at par value at specified intervals. The
dividend or interest is typically reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain amount of
securities at a specified minimum yield. The rate set by the auction is the
lowest interest or dividend rate that covers all securities offered for sale.
While this process is designed to permit auction rate securities to be traded
at par value, there is the risk that an auction will fail due to insufficient
demand for the securities. A Fund will take the time remaining until the next
scheduled auction date into account for purposes of determining the
securities' duration.

CORPORATE DEBT OBLIGATIONS

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

The Government Income, Core Fixed Income, Global Income and High Yield Funds
may also invest in trust preferred securities. A trust preferred or capital
security is a long dated bond (for example, 30 years) with preferred features.
The preferred features are that payment of interest can be deferred for a
specified period without initiating a default event. From a bondholder's
viewpoint, the securities are senior in claim to standard preferred stock but
junior to other bondholders. From the issuer's viewpoint, the securities are
attractive because their interest is deductible for tax purposes like other
types of debt instruments.

26
<PAGE>

CONVERTIBLE SECURITIES

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

PREFERRED STOCK, WARRANTS AND RIGHTS

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

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

FOREIGN INVESTMENTS

FOREIGN SECURITIES. The Global Income Fund will, and the Core Fixed Income
and High Yield Funds may, invest in fixed-income securities of foreign issuers
denominated in any currency. However, the Core Fixed Income and High Yield
Funds will limit their investments in non-U.S. dollar-denominated fixed-income
securities to 25% of their total assets. Investment in foreign securities 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.

27
<PAGE>

sufficient cash to pay such dividends. The expected introduction of a single
currency, the euro, on January 1, 1999, for participating European nations in
the Economic and Monetary Union ("EU") presents unique uncertainties,
including whether the payment and operational systems of banks and other
financial institutions will be ready by the scheduled launch date; the
creation of suitable clearing and settlement payment systems for the new
currency; the legal treatment of certain outstanding financial contracts after
January 1, 1999, that refer to existing currencies rather than the euro; the
establishment and maintenance of exchange rates for currencies being converted
into the euro and the euro; the fluctuation of the euro relative to non-euro
currencies during the transition period from January 1, 1999 to December 31,
2000 and beyond; whether the interest rate, tax and labor regimes of European
countries participating in the euro will converge over time; and whether the
conversion of the currencies of other EU countries such as the United Kingdom,
Denmark and Greece into the euro and the admission of other non-EU countries
such as Poland, Latvia and Lithuania as members of the EU may have an impact
on the euro. These or other factors, including political and economic risks,
could cause market disruptions before or after the introduction of the euro,
and could adversely affect the value of securities and foreign currencies held
by the Funds. In addition, clearance and settlement procedures may be
different in foreign countries and, in certain markets, such procedures have
been unable to keep pace with the volume of securities transactions, making it
more difficult to conduct such transactions.

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

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

28
<PAGE>

is due, the relative size of the debt service burden to the economy as a
whole, the sovereign debtor's policy toward international lenders and the
political constraints to which a sovereign debtor may be subject.

EMERGING MARKETS. The Core Fixed Income and Global Income Funds may invest
up to 10% and the High Yield Fund may invest up to 25% of their total assets
in securities of issuers located in countries with emerging economies or
securities markets ("emerging markets"). Political and economic structures in
many emerging markets may be undergoing significant evolution and rapid
development, and emerging markets may lack the social, political and economic
stability 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 a 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 a Fund's investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets (such as the
U.S., Japan and most Western European countries). See the Additional Statement
for further information regarding a Fund's investments in emerging markets.

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

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

29
<PAGE>

countries, the Fund will be more susceptible to the risk of adverse economic
and political developments within those countries.

The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on a contract would deprive a Fund of unrealized profits, transaction
costs or the benefits of a currency hedge or force 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, Global Income and High Yield Funds' 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 Funds'
currency exposure in emerging markets, if any, will be covered by such
instruments. For a discussion of such instruments and the risks associated
with their use, see "Investment Objectives and Policies" in the Additional
Statement.

STRUCTURED SECURITIES

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

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

Each Fund may invest in zero coupon, deferred interest and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. Each Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. A portion of the
discount with respect to stripped tax-exempt securities or their coupons may
be taxable. The market prices of zero coupon, deferred interest, pay-in-kind
and capital appreciation bonds generally are more volatile than the market
prices of interest-bearing securities and are likely to respond to a greater
degree to changes in interest rates than interest-bearing securities having
similar maturities and credit quality. A Fund's investments in zero coupon,
deferred interest, pay-in-kind and capital appreciation bonds 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.

30
<PAGE>

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. Call risk typically results when
interest rates have declined. Under such circumstances, a Fund may be unable
to recoup all of its initial investment and will also 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. Extension risk typically
results when interest rates have increased. Under such circumstances, 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 this 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 more slowly. 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.

31
<PAGE>

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.

RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency
transactions 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 margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code") for qualification as a regulated investment company.

TAX RISK OF MUNICIPAL SECURITIES. The yields and market values of Municipal
Securities may be more adversely impacted by changes in tax rates and policies
than taxable fixed-income securities. Because interest income from Municipal
Securities is normally not subject to regular federal income taxation, the
attractiveness of Municipal Securities in relation to other investment
alternatives is affected by changes in federal income tax rates applicable to,
or the continuing federal income tax-exempt status of, such interest income.
Any proposed or actual changes in such rates or exempt status, therefore, can
significantly affect the demand for and supply, liquidity and marketability of
Municipal Securities, which could in turn affect a Fund's ability to acquire
and dispose of Municipal Securities at desirable yield and price levels.

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

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

The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's judgment concerning the creditworthiness of issuers than funds which
invest in higher-rated securities. Issuers of non-investment grade fixed-
income securities may not be able to make use of more traditional methods of
financing and their ability to service debt obligations may be more adversely

32
<PAGE>

affected than issuers of higher-rated securities by economic downturns,
specific corporate developments or the issuer's inability to meet specific
projected business forecasts. Negative publicity about the junk bond market
and investor perceptions regarding lower rated securities, whether or not
based on fundamental analysis, may depress the prices for such securities.

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

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

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

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

33
<PAGE>

INVESTMENT TECHNIQUES

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

OPTIONS ON SECURITIES AND SECURITIES INDICES. Each Fund may write (sell)
covered call and put options and purchase put and call options on any
securities in which it may invest or on any securities index comprised 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.

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

34
<PAGE>

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, Global Income and High Yield Funds,
currency exchange rates, a Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on any of such futures
contracts. Each Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
Securities), foreign currencies, in the case of the Core Fixed Income, Global
Income and High Yield Funds, securities indices and other financial
instruments and indices. A Fund will engage in futures and related options
transactions for bona fide hedging purposes as defined in regulations of the
Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid
on a Fund's outstanding positions in futures and related options entered into
for the purpose of seeking to increase total return would exceed 5% of the
market value of a Fund's net assets. These transactions involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate and maintain cash or liquid assets with a value equal to the amount
of the Fund's obligations or to otherwise cover the obligations in a manner
permitted by the SEC.

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

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

35
<PAGE>

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 investment grade by S&P or 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.

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 or sell securities on a forward commitment basis; that is, make
contracts to purchase or sell securities for a fixed price at a future date
beyond the customary three-day settlement. 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.
Conversely, securities sold on a forward commitment basis involve the risk
that the value of the securities to be sold may increase 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. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to settlement date,
cash or liquid assets in an amount sufficient to meet the purchase price.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns.

ILLIQUID AND RESTRICTED SECURITIES. A Fund may not invest more than 15% of
its net assets in illiquid investments, which include securities (both foreign
and domestic) that are not readily marketable, 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 under
which the Investment Adviser determines and monitors the liquidity of
portfolio securities subject to the oversight of the Trustees. 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.

36
<PAGE>

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 (i) U. S. Government Securities or
(ii) repurchase agreements collateralized by U.S. Government Securities. The
Short Duration Tax-Free and Municipal Income Funds may for temporary defensive
purposes depart from their stated investment objectives and invest more than
20% of their respective net assets in taxable investments. The High Yield Fund
may for temporary defensive purposes invest in investment grade securities.

MISCELLANEOUS TECHNIQUES

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

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, as defined in
the Additional Statement. 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' policy 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-DIVERSIFIED 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

37
<PAGE>

Fund's total assets, (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer (other than the U.S. government),
and (2) the Fund may not acquire more than 10% of the outstanding voting
securities of any one issuer. These tests apply at the end of each quarter of
its taxable year and are subject to certain conditions and limitations under
the Code. Since the Global Income Fund is not diversified under the Act, it
will be more susceptible to adverse developments affecting any single issuer.
The Adjustable Rate Government, Short Duration Government, Short Duration Tax-
Free, Government Income, Municipal Income, Core Fixed Income and High Yield
Funds are, in addition to these tax diversification requirements, also subject
to the diversification requirements arising out of their diversified status
under the Act.

PORTFOLIO TURNOVER

Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed-income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of each Fund will vary from year to year. 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

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 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 the investment adviser to the
Short Duration Tax-Free, Government Income, Municipal Income, Core Fixed
Income and High Yield Funds. Goldman Sachs registered as an investment adviser
in 1981. Goldman Sachs Asset Management International, 133 Peterborough Court,
London EC4A 2BB, England, an affiliate of Goldman Sachs, serves as investment
adviser to the Global Income Fund. Goldman Sachs Asset Management
International became a member of the

38
<PAGE>

Investment Management Regulatory Organization Limited in 1990 and registered
as an investment adviser in 1991. The Goldman Sachs Group, L.P., which
controls the Investment Advisers, has announced that it will pursue an initial
public offering of the firm during the fourth quarter of 1998; if the public
offering is consummated, The Goldman Sachs Group, L.P. will merge into the new
public company, which will be called The Goldman Sachs Group, Inc. As of July
24, 1998, GSAM, GSFM and GSAMI, together with their affiliates, acted as
investment adviser or distributor for assets in excess of $168 billion.

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 asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Advisers will have access to
the research of, and certain proprietary technical models developed by,
Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.

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

ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS. The Funds'
portfolio managers are Jonathan A. Beinner, Richard C. Lucy, James B. Clark,
Peter D. Dion and James P. McCarthy. Their responsibilities include investing
in the particular types of securities the Funds may hold. Mr. Beinner is a
Managing Director of Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income
Department. Mr. Beinner joined the Investment Adviser in 1990. Mr. Lucy is a
Vice President of Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income
Department. Mr. Lucy joined the Investment Adviser in 1992. Mr. Clark joined
GSAM in 1994 after working as a senior trader at the Federal Home Loan
Mortgage Corporation. Prior to that, he was an investment manager at Travelers
Insurance Company. Mr. Dion is a Vice President of Goldman Sachs and joined
GSAM in 1992. Mr. McCarthy is a Vice President of Goldman Sachs. Mr. McCarthy
joined GSAM in 1995 after working as a bond trader at Nomura Securities.

GOVERNMENT INCOME AND CORE FIXED INCOME FUNDS. The Funds' portfolio managers
are Jonathan A. Beinner and Richard C. Lucy. See above for information about
Mr. Beinner and Mr. Lucy. Messrs. Beinner and Lucy each specialize in
investing in a particular type of security the Fund may hold. James Clark is
also a portfolio manager for the Government Income Fund. See above for
information about Mr. Clark.

SHORT DURATION TAX-FREE AND MUNICIPAL INCOME FUNDS. The Funds' 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.

39
<PAGE>

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. 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.

HIGH YIELD FUND. The Fund's portfolio managers are Andrew Jessop,
Christopher Testa, Rachel Golder and Michael L. Pasternak. Mr. Jessop is a
Vice President of Goldman Sachs and is responsible for managing high yield
assets. Mr. Jessop joined GSAM in 1997. Prior to joining GSAM, Mr. Jessop
spent six years managing high yield portfolios at Saudi International Bank in
London. Prior to that, he worked for the bank on the interest rate swap desk
and served as an investment analyst in New York. Mr. Testa is a Vice President
of Goldman Sachs and Director of Credit Research responsible for corporate
bond research. Mr. Testa is responsible for managing high yield assets. Mr.
Testa joined GSAM in 1994. Prior to joining GSAM, Mr. Testa was a credit
analyst with CS First Boston and prior to that he was an analyst for
Metropolitan Life Insurance Company investing in private placements and public
debt. Ms. Golder is a Vice President of Goldman Sachs and is responsible for
managing high yield assets. Ms. Golder joined GSAM in 1997. Prior to joining
GSAM, Ms. Golder spent six years at Saudi International Bank as a high yield
credit analyst and portfolio manager. Prior to that, Ms. Golder was with
Kleinwort Benson Ltd., where she managed investments in corporate loans. Mr.
Pasternak is a Vice President of Goldman Sachs and is the product manager for
high yield assets. Mr. Pasternak also contributes to the management of high
yield assets. Mr. Pasternak joined GSAM in 1997. Prior to joining GSAM, Mr.
Pasternak spent eight years managing high yield corporate bond and loan
portfolios at Saudi International Bank (an affiliate of JP Morgan) in London.
Prior to that, he was an officer of the bank in Eurocurrency Lending and
Syndications and served as an investment analyst in New York.

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

40
<PAGE>

As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR OR PERIOD ENDED AS OF
RATE* OCTOBER 31, 1997* SEPTEMBER 1, 1998
----------- -------------------- -----------------
<S> <C> <C> <C>
GSAM
- ----
Short Duration Tax-Free... 0.40% 0.40% 0.35%
Government Income......... 0.65% 0.25% 0.54%
Municipal Income.......... 0.55% 0.55% 0.50%
Core Fixed Income......... 0.40% 0.40% 0.40%
High Yield................ 0.70% 0.65% 0.70%
GSFM
- ----
Adjustable Rate
Government............... 0.40% 0.40% 0.40%
Short Duration
Government............... 0.50% 0.40% 0.50%
GSAMI
- -----
Global Income............. 0.90% 0.59% 0.65%
</TABLE>
- --------
* The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the applicable Investment Adviser did not charge
the full amount of the fees to which it would have been entitled for the
year ended October 31, 1997. The Investment Adviser may discontinue or
modify any limitations in the future at its discretion.

The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management fees, service fees,
transfer agency fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such expenses
exceed 0.05%, 0.00%, 0.00%, 0.00%, 0.00%, 0.10%, 0.00% and 0.02% per annum of
the average daily net assets of the Adjustable Rate Government, Short Duration
Government, Short Duration Tax-Free, Government Income, Municipal Income, Core
Fixed Income, Global Income and High Yield Funds', respectively. Such
reductions or limits, if any, 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. The results of a Fund's investment activities, therefore, may differ
from those of Goldman Sachs and its affiliates and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affiliates
and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to time,
enter into transactions in which other clients of Goldman Sachs have an
adverse interest. From time to time, a Fund's activities may be limited
because of

41
<PAGE>

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
entitled to receive a transfer agency fee with respect to each Fund's
Institutional and Service shares equal, on an annual basis, to 0.04% of
average daily net assets.

From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.

YEAR 2000

Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur prior
to January 1, 2000. Like other investment companies and financial and business
organizations, the Funds could be adversely affected in their ability to
process securities trades, price securities, provide shareholder account
services and otherwise conduct normal business operations if the computer
systems used by the Investment Adviser or other Fund service providers do not
adequately address this problem in a timely manner. The Investment Adviser has
established a dedicated group to analyze these issues and to implement the
systems modifications necessary to prepare for the Year 2000 Problem.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels. In addition, the Investment Adviser has
sought assurances from the Funds' other service providers that they are taking
the steps necessary so that they do not experience Year 2000 Problems, and the
Investment Adviser will continue to monitor the situation. At this time,
however, no assurance can be given that the actions taken by the Investment
Adviser and the Funds' other service providers will be sufficient to avoid any
adverse effect on the Funds due to the Year 2000 Problem.

DIVIDENDS

Each Fund (other than the Global Income Fund) will declare a daily dividend
which will be paid monthly. The Global Income Fund will declare and pay
dividends monthly. Over the course of the fiscal year, dividends accrued and
paid will constitute all or substantially all of the Funds' net investment
income. From time to time a portion of such dividends may constitute a return
of capital. In the case of Core Fixed Income, Global Income and High Yield
Funds, net loss, if any, from certain foreign currency transactions or
instruments that is otherwise taken into account in calculating net investment
income or net realized capital gains for accounting purposes may not be taken
into account in determining the amount of dividends to be declared and paid,
with the result

42
<PAGE>

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 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. 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.

EXPENSES

The Funds are responsible for the payment of their expenses. The expenses
include, without limitation; fees payable to the Investment Adviser; service
fees paid to Service Organizations; custodial and transfer agency fees;
brokerage fees and commissions; filing fees for the registration or
qualification of the Funds' shares under federal or state securities laws,
organizational expenses; fees and expenses incurred 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 Funds for violation of any law; legal and auditing fees
and expenses (including the cost of legal and certain accounting services
rendered by employees of the Investment Adviser and its affiliates with
respect to the Funds); expenses of preparing and setting in type prospectuses,
Additional Statements, proxy material, reports and notices and the printing
and distributing of the same to shareholders and regulatory authorities;
compensation and expenses of the Trust's "non-interested" Trustees; and
extraordinary expenses, if any, incurred by the Trust.

43
<PAGE>

NET ASSET VALUE

The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time) on each Business Day (as such term is defined under "Additional
Information") immediately after the determination, if any, of the income to be
declared as a dividend (except in the case of the Global Income Fund). Net
asset value per share of each class is calculated by determining the net
assets of each class and dividing by the number of outstanding shares of that
class.

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

PERFORMANCE INFORMATION

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 and Municipal Income Funds'
tax-free yield. Tax equivalent yield is calculated by dividing a 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.

44
<PAGE>

Each Fund's performance quotations do not reflect any fees charged by a
Service Organization to its customer accounts in connection with investments
in the Funds. The investment results of a Fund will fluctuate over time and
any presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.

SHARES OF THE TRUST

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

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

The Trust does not intend to hold annual meetings of shareholders. However,
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees, if, at any time, less than
a majority of Trustees holding office at the time were elected by
shareholders.

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

As of February 1, 1998, the shareholders listed below owned beneficially and
of record 25% or more of the outstanding shares of the following Funds: Short
Duration Government Fund--State Street Bank and Trust Company, P.O. Box 1992,
Boston, MA 02105-1992 (29.64%); Core Fixed Income Fund--Vinson and Elkins
Lawyers, Retirement Plan, Texas Commerce Bank N.A., P.O. Box 2550, Houston, TX
77252-2558 (25.48%).

45
<PAGE>

TAXATION

FEDERAL TAXES

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

The Short Duration Tax-Free 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 these distributions may be subject to the federal alternative
minimum tax and 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 Short Duration Tax-Free and Municipal Income Funds,
as described above. Distributions out of the net capital gain (the excess of
net long-term capital gain over net short-term capital loss), if any, of a
Fund, will be taxed to shareholders as long-term capital gains, regardless of
the length of time a shareholder has held his or her shares or whether such
gain was reflected in the price paid for the shares. These tax consequences
will apply 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.

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.

46
<PAGE>

Service or if they are otherwise subject to backup withholding. Individuals,
corporations and other shareholders that are not U.S. persons under the Code
are subject to different tax rules and may be subject to nonresident alien
withholding at the rate of 30% (or a lower rate provided by an applicable tax
treaty) on amounts treated as ordinary dividends from the Funds.

The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. In general, a Fund may deduct these taxes in computing its
taxable income, if any. As an alternative, if more than 50% of the value of
the total assets of the Global Income Fund is comprised of securities of
foreign corporations at the end of its taxable year and the Fund so elects,
the 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 the Fund and may be entitled under the Code to claim
foreign tax credits or deductions with respect to such taxes.

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

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

47
<PAGE>

REPORTS TO SHAREHOLDERS

Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semiannual report. To
eliminate unnecessary duplication, only one copy of such reports may be sent
to recordholders with the same mailing address. Recordholders who desire a
duplicate copy of such reports to be mailed to their residence should contact
Goldman Sachs at 800-621-2550. Each recordholder of Institutional Shares will
also be provided with a printed confirmation for each transaction in its
account and an individual monthly statement (quarterly in the case of Global
Income Fund). A year-to-date statement for any account will be provided upon
request made to Goldman Sachs. The Funds do not generally provide
subaccounting services with respect to beneficial ownership of Institutional
Shares.

PURCHASE OF INSTITUTIONAL SHARES

Institutional Shares may be purchased on any Business Day at the net asset
value per share next determined after receipt of an order. No sales load will
be charged. Currently, net asset value is determined as of the close of
regular trading on the New York Stock Exchange (normally, but not always, 3:00
p.m. Chicago time, 4:00 p.m. New York time), as described under "Net Asset
Value." Purchases of Institutional Shares of the Funds must be settled within
three (3) Business Days of receipt of a complete purchase order. Payment of
the proceeds of redemption of shares purchased by check may be delayed for a
period of time as described under "Redemption of Institutional Shares."

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

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

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

48
<PAGE>

PURCHASE PROCEDURES APPLICABLE TO THE GLOBAL INCOME FUND

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

MINIMUM INITIAL INVESTMENTS

In the case of each Fund other than the Government Income, Municipal Income,
Global Income and High Yield Funds, the minimum initial investment is $50,000
in Institutional Shares of a Fund alone or in combination with Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as
an eligible fund for this purpose and the corresponding class of any portfolio
of the Goldman Sachs Money Market Funds.

Institutional Shares of the Government Income, Municipal Income, Global
Income and High Yield Funds may be 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) any state, county, city or any
instrumentality, department, authority or agency thereof; (d) corporations and
other for-profit business organizations with assets of at least $100 million
or publicly traded securities outstanding; (e) "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; and (f)
registered investment advisers investing for accounts for which they receive
asset-based fees. With respect to these investors, the minimum initial
investment is $1,000,000 in Institutional Shares of a Fund alone or in
combination with other assets under the management of GSAM and its affiliates.

The minimum initial investment in Institutional Shares for (a) individual
investors; (b) qualified non-profit organizations, charitable trusts,
foundations and endowments; and (c) accounts over which GSAM or its advisory
affiliates have investment discretion is $10,000,000. The minimum investment
requirement may be waived at the discretion of the Trust's officers. No
minimum amount is required for subsequent investments.

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.

OTHER PURCHASE INFORMATION

The Trust may authorize certain institutions (including banks, trust
companies, brokers and investment advisers) that provide recordkeeping,
reporting and processing services to their customers to accept on the Trust's
behalf orders placed by or on behalf of such customers and, if approved by the
Trust, to designate other intermediaries to accept such orders. In these
cases, a Fund will be deemed to have received an order in proper form by or on
behalf of a customer when the order is accepted by the authorized institution
or intermediary on a Business Day, and the order will be priced at a Fund's
net asset value per share next determined after such acceptance. The
institution or intermediary will be responsible for transmitting accepted
orders to the Trust within the period agreed upon by them. A customer should
contact an institution to learn whether it is authorized to accept orders for
the Trust. Such institutions may receive payments from the Funds or Goldman
Sachs for the services provided by them with respect to the Funds'
Institutional Shares. These payments may be in addition to other servicing
and/or subtransfer agency payments borne by the Funds and their share classes.

49
<PAGE>

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 with a specified settlement date in proper form before the
determination of net asset value that day 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 of the purchase order or (ii) the day of receipt of a federal funds
wire or an ACH transfer by State Street. For purchases without a specified
settlement date, shares will be issued and dividends declared with respect
to such shares will begin to accrue on the Business Day after payment is so
received.

PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a purchase order is
received with a specified settlement date in proper form before the
determination of net asset value that day and payment is made by check or
Federal Reserve draft, shares will be issued and dividends will begin to
accrue on the purchased shares on the Business Day after the date payment
is received. For purchases without a specified settlement date, shares will
be issued and dividends declared with respect to such shares will begin to
accrue on the Business Day after payment is so 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 Investment Adviser, Distributor, and/or their affiliates also pay
additional compensation, from time to time, out of their assets and not as an
additional charge to the Funds, to selected institutions (including banks,
trust companies, brokers and investment advisers) and other persons in
connection with the sale and/or servicing of shares of the Funds and other
investment portfolios of the Trust (such as additional payments based on new
sales, amounts exceeding pre-established thresholds, or the length of time
clients' assets have remained in the Trust), and subject to applicable NASD
regulations, contribute to various non-cash and cash incentive arrangements to
promote the sale of shares, as well as sponsor various educational programs,
sales contests and/or promotions in which participants may receive
reimbursement of expenses, entertainment and prizes such as travel awards,
merchandise, cash, investment research and educational information and related
support materials. This additional compensation may vary among institutions
depending upon such factors as the amounts their clients have invested (or may
invest) in particular portfolios of the Trust, the particular program
involved, or the amount of reimbursable expenses. Additional compensation
based on sales may, but is currently not expected to, exceed 0.50%
(annualized) of the amount invested. For further information, see the
Additional Statement.

The Funds reserve the right to redeem the Institutional Shares of any
shareholder of record whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of
a recordholder'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 recordholders whose Institutional Shares are being redeemed to allow
them to purchase sufficient additional Institutional Shares of a Fund to avoid
such redemption.

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

50
<PAGE>

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

EXCHANGE PRIVILEGE

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

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

Each exchange which represents an initial investment in a Fund must satisfy
the minimum investment requirements of the fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of the Trust. Exchanges are available only in
states where exchanges may legally be made. The exchange privilege may be
materially 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 a
recordholder of such Shares on any Business Day at the net asset value next
determined after receipt of a request in proper form by Goldman Sachs from the
recordholder. (See "Purchase of Institutional Shares--Other Purchase
Information" for a description of limited situations where an institution or
other intermediary may be authorized to accept redemptions for the Funds.) 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 a shareholder of record 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 shareholder of record may request redemptions by
telephone

51
<PAGE>

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 concerning telephone
redemptions and exchanges. If reasonable procedures are not implemented, the
Trust may be liable for any loss due to unauthorized or fraudulent
transactions. In all other cases, neither the Funds, the Trust nor Goldman
Sachs will be responsible for the authenticity of redemption or exchange
instructions received by telephone.

The 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
recordholder's Account Information Form 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) 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 recordholder's bank in the transfer
process. If a problem with such performance arises, the recordholder should
deal directly with such intermediaries or bank.

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

52
<PAGE>

APPENDIX

GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM

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

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

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.

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.