GOLDMAN SACHS TRUST, 497, 1998-11-09

GOLDMAN SACHS TRUST
497, 1998-11-09

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<PAGE>

PART B
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
INCOME STRATEGY PORTFOLIO
GROWTH AND INCOME STRATEGY PORTFOLIO
GROWTH STRATEGY PORTFOLIO
AGGRESSIVE GROWTH STRATEGY PORTFOLIO
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)

One New York Plaza
New York, New York 10004

This Statement of Additional Information (the "Additional Statement") is not a
prospectus. This Additional Statement should be read in conjunction with the
prospectus for the Class A, Class B and Class C Shares of Goldman Sachs Income
Strategy Portfolio, Growth and Income Strategy Portfolio, Growth Strategy
Portfolio and Aggressive Growth Strategy Portfolio dated January 1, 1998, as
revised September 1, 1998, and as may be further amended and/or supplemented
from time to time (the "Prospectus"), which may be obtained without charge from
Goldman, Sachs & Co. by calling the telephone number, or writing to one of the
addresses, listed below.

TABLE OF CONTENTS

Page
----
<S> <C>
Introduction......................................... B-4
Investment Objectives and Policies................... B-4
Investment Restrictions.............................. B-69
Management........................................... B-71
Portfolio Transactions and Brokerage................. B-85
Net Asset Value...................................... B-87
Performance Information.............................. B-90
Shares of the Trust.................................. B-94
Taxation............................................. B-98
Other Information.................................... B-106
Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends............................. B-108
Distribution and Service Plans....................... B-112
Appendix A........................................... 1-A
Appendix B........................................... 1-B
</TABLE>
The date of this Additional Statement is January 1, 1998, as revised
September 1, 1998.
<PAGE>

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

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

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

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

INTRODUCTION

Goldman Sachs Trust (the "Trust") is an open-end management investment
company. The Trust is a successor to a Massachusetts business trust that was
merged with the Trust on April 30, 1997. The Trust assumed its current name on
March 22, 1991. The Trustees of the Trust have authority under the Declaration
of Trust to create and classify shares into separate series and to classify and
reclassify any series of shares into one or more classes without further action
by shareholders. Pursuant thereto, the Trustees have created the following
series, among others: Income Strategy Portfolio, Growth and Income Strategy
Portfolio, Growth Strategy Portfolio and Aggressive Growth Strategy Portfolio
and 42 other series of shares. Income Strategy Portfolio, Growth and Income
Strategy Portfolio, Growth Strategy Portfolio and Aggressive Growth Strategy
Portfolio are each sometimes referred to herein as a "Portfolio" and
collectively as the "Portfolios." Each Portfolio is each authorized to issue
five classes of shares: Institutional Shares, Service Shares, Class A Shares,
Class B Shares and Class C Shares. Additional series and classes may be added
in the future from time to time.

Each Portfolio is a separately managed, diversified mutual fund with its
own investment objectives and policies. Each Portfolio has been constructed as
a "fund of funds," which means that it pursues its investment objective
primarily by allocating its investments among other investment portfolios of the
Trust (the "Underlying Funds").

Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to each
Portfolio. GSAM is sometimes referred to herein as the "Adviser." Goldman
Sachs serves as each Portfolio's distributor and transfer agent. Each
Portfolio's custodian is State Street Bank and Trust Company ("State Street").

INVESTMENT OBJECTIVES AND POLICIES

Normally, each of the Portfolios will be predominantly invested in shares
of the Underlying Funds. The value of the Underlying Funds' investments, and
the net asset value of the shares of both the Underlying Funds and the
Portfolios will fluctuate with market, economic and, to the extent applicable,
foreign exchange conditions, so that an investment in any of the Portfolios may
be worth more or less when redeemed than when purchased. The following
description provides additional information regarding the Underlying Funds and
the types of investments that the Underlying Funds may make. As stated in the
Portfolios' Prospectus, the Portfolios may invest a portion of their assets in
high quality, short-term debt obligations. These obligations are also described
below in this section. Further information about the Underlying Funds and their
respective investment objectives and policies is included in their Prospectuses
and Additional Statements. There is no assurance that any Portfolio or
Underlying Fund will achieve its objective.

B-4
<PAGE>

A. DESCRIPTION OF UNDERLYING FUNDS

ADJUSTABLE RATE GOVERNMENT FUND

Objective. This Fund seeks 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. This 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 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. This Fund invests in U.S. Government Securities and
--------------
repurchase agreements collateralized by such securities.

Other. This 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.

SHORT DURATION GOVERNMENT FUND

Objective. This Fund seeks 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.

B-5
<PAGE>

Investment Sector. This 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. This Fund invests in U.S. Government Securities and
--------------
repurchase agreements collateralized by such securities.

GOVERNMENT INCOME FUND

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

Credit Quality. This Fund's non-U.S. Government Securities will be rated,
--------------
at the time of investment, AAA or Aaa by a Nationally Recognized Statistical
Rating Organization (an "NRSRO") or, if unrated, will be determined by the
Fund's investment adviser to be of comparable quality.

B-6
<PAGE>

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.

CORE FIXED INCOME FUND

Objective. This Fund seeks 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. This 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,

B-7
<PAGE>

will be determined to be of comparable quality by the Fund's investment adviser.
Fixed-income securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal.

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

GLOBAL INCOME FUND

Objective. This Fund seeks 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,

B-8
<PAGE>

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. 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 to be of
comparable quality by the Fund's investment adviser. 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.

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

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.

B-9
<PAGE>

HIGH YIELD FUND

Objective. This Fund seeks to provide investors with a high level of
---------
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.

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

Investment Sector. This 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 Fund's investment
adviser will attempt to take advantage of pricing inefficiencies in the fixed-
income markets.

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

Other. This 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

B-10
<PAGE>

foreign currency exchange contracts, currency options and futures, currency,
mortgage 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.

GROWTH AND INCOME FUND

Objectives. This Fund seeks to provide investors with long-term growth of
----------
capital and growth of income.

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

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

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

Objective. This Fund seeks 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. This Fund invests, under normal circumstances,
------------------------
at least 90% of its total assets in equity securities of U.S. issuers. The Fund
may invest in equity securities of 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.

B-11
<PAGE>

CORE LARGE CAP GROWTH FUND

Objective. This Fund seeks 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. This Fund invests, under normal circumstances,
------------------------
at least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States. The Fund's 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.

CORE SMALL CAP EQUITY FUND

Objective. This Fund seeks 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. This Fund invests, under normal circumstances,
------------------------
at least 90% of its total assets in equity securities of U.S. issuers, including
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 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 Fund's 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. 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.

Other. The Fund may employ certain currency techniques to seek to hedge
-----
against currency exchange rate fluctuations or to seek to increase total return.
When used

B-12
<PAGE>

to seek to enhance return, these management techniques are considered
speculative. Such currency management techniques involve risks different from
those associated with investing solely in securities of U.S. issuers quoted in
U.S. dollars. To the extent that the Fund is fully invested in foreign
securities while also maintaining currency positions, it may be exposed to
greater combined risk. The Fund's net currency positions may expose it to risks
independent of its securities positions. See "Description of Securities,"
"Investment Techniques" and "Risk Factors."

Capital Growth Fund

Objective. This Fund seeks to provide investors with long-term growth of
---------
capital.

Primary Investment Focus. This 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 its investment adviser to have long-
term capital appreciation potential.

Other. Although this 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. This Fund seeks to provide investors with long-term capital
---------
appreciation.

Primary Investment Focus. This 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. This 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. This Fund seeks to provide investors with long-term capital
---------
growth.

Primary Investment Focus. This Fund invests, under normal circumstances,
------------------------
at least 65% of its total assets in equity securities of companies with public
stock market

B-13
<PAGE>

capitalizations of $1 billion or less at the time of investment. Under normal
circumstances, the Fund's investment horizon for ownership of stocks will be two
to three years. Dividend income, if any, is an incidental consideration. 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. This Fund invests in companies which its
------------------------------
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 Fund's 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.

Other. This 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.

CORE INTERNATIONAL EQUITY FUND

Objective. This Fund seeks 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.

Primary Investment Focus. This 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 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 comprised of
companies with attractive valuations and stronger momentum characteristics than
the EAFE Index.

The Fund may allocate its assets among countries as determined by its
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

B-14
<PAGE>

involve certain risks. The Fund may invest only in fixed-income securities that
are considered to be cash equivalents.

Other. The Fund may employ certain currency techniques to seek to hedge
-----
against currency exchange rate fluctuations or to seek to increase total return.
When used to seek to enhance return, these management techniques are considered
speculative. Such currency management techniques involve risks different from
those associated with investing solely in securities of U.S. issuers quoted in
U.S. dollars. To the extent that the Fund is fully invested in foreign
securities while also maintaining currency positions, it may be exposed to
greater combined risk. The Fund's net currency positions may expose it to risks
independent of its securities positions. See "Description of Securities,"
"Investment Techniques" and "Risk Factors."

INTERNATIONAL EQUITY FUND

Objective. This Fund seeks to provide investors with long-term capital
---------
appreciation.

Primary Investment Focus. This 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 its 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
that are not present in investments in more developed countries.

Other. This Fund may employ certain currency techniques to seek to hedge
-----
against currency exchange rate fluctuations or to seek to increase total return.
When used to seek to enhance return, these management techniques are considered
speculative. Such currency management techniques involve risks different from
those associated with investing solely in securities of U.S. issuers quoted in
U.S. dollars. To the extent that the Fund is fully invested in foreign
securities while also maintaining currency positions, it may be exposed to
greater combined risk. The Fund's net currency positions may expose it to risks
independent of its securities positions. Up to 35% of the Fund's total assets
may be invested in fixed-income securities.

EMERGING MARKETS EQUITY FUND

Objective. This Fund seeks to provide investors with long-term capital
---------
appreciation.

B-15
<PAGE>

Primary Investment Focus. This 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 Fund's 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 Fund's 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.

Investments in Emerging Countries involve certain risks 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. This Fund may employ certain currency management techniques to seek
-----
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions.

Under normal circumstances, this 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

B-16
<PAGE>

Fund to greater risks than if the Fund's assets were not geographically
concentrated. 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. This Fund seeks to provide investors with long-term capital
---------
appreciation.

Primary Investment Focus. This 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
Fund's 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 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.

This Fund may allocate its assets among the Asian countries as determined
from time to time by its 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 relative
attractiveness of the Asian markets and particular issuers. Concentration of
the Fund's assets in one or a few of the Asian countries and Asian currencies
will subject the Fund to greater risks than if the Fund's assets were not
geographically concentrated. The Fund may invest in the aggregate up to 35% of
its total

B-17
<PAGE>

assets in equity securities of issuers in other countries, including Japan, and
in fixed-income securities.

JAPANESE EQUITY FUND

Objective. This Fund seeks 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.

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. This Fund seeks 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 its 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 economics which involve certain risks,
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.

B-18
<PAGE>

REAL ESTATE SECURITIES FUND

Objective. This Fund seeks to provide investors with total return
---------
comprised of long-term growth of capital and dividend income.

Primary Investment Focus. This Fund will invest, under normal
------------------------
circumstances, substantially all, and at least 80%, of its total assets in
issuers that are primarily engaged in or related to the real estate industry.
The Fund seeks to achieve its investment objective by investing in a diversified
portfolio of equity securities of REITs and other real estate industry
companies. A "real estate industry company" is a company that derives at least
50% of its gross revenues or net profits from the ownership, development,
construction, financing, management or sale of commercial, industrial or
residential real estate or interests therein.

Shares of REITs. The Fund may invest without limitation in shares of
---------------
REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Similar to investment companies such as the Fund, REITs are not taxed
on income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The
Fund will indirectly bear its proportionate share of expenses incurred by REITs
in which the Fund invests in addition to the expenses directly by the Fund.

Other. Under normal circumstances, this Fund may invest up to 20% of its
-----
total assets in fixed-income securities that, in the opinion of its 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 15% of its net assets in foreign securities.

FINANCIAL SQUARE PRIME OBLIGATIONS FUND

Objective. This Fund seeks to maximize current income to the extent
---------
consistent with the preservation of capital and the maintenance of liquidity by
investing exclusively in high quality money market instruments.

Primary Investment Focus. This Fund invests in securities of the U.S.
------------------------
Government, its agencies, authorities and instrumentalities, obligations of U.S.
banks, commercial paper, and other short-term obligations of U.S. companies,
states, municipalities and other entities and repurchase agreements. Securities
purchased by the Fund will be determined by its investment adviser to present
minimal credit risks, and will have remaining maturities (as determined in
accordance with regulatory

B-19
<PAGE>

requirements) of 13 months or less at the time of purchase. The dollar-weighted
average maturity of the Fund will not exceed 90 days.

Other. The investments of this Fund are limited by 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. Although this Fund attempts to maintain a stable net asset
value of $1.00 per share, there is no assurance that it will be able to do so on
a continuous basis. Like investments in the other Underlying Funds, an
investment in this Fund is neither insured nor guaranteed by the U.S. Government
or any governmental authority.

B. DESCRIPTION OF INVESTMENT SECURITIES AND PRACTICES

CORPORATE DEBT OBLIGATIONS

Each Underlying Fund (other than the Adjustable Rate Government and Short
Duration Government Funds) may, under normal market conditions, invest in
corporate debt obligations, including obligations of industrial, utility and
financial issuers. CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap
Equity and CORE International Equity Funds may only invest in debt securities
that are cash equivalents. Corporate debt obligations are subject to the risk of
an issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.

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. Medium to lower rated and comparable non-rated securities tend
to offer higher yields than higher rated securities with the same maturities
because the historical financial condition of the issuers of such securities may
not have been as strong as that of other issuers. Since medium to lower rated
securities generally involve greater risks of loss of income and principal than
higher rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Underlying Funds'
investment advisers will attempt to reduce these risks through portfolio
diversification and by analysis of each issuer and its ability to make timely
payments of income and principal, as well as broad economic trends and corporate
developments.

High Yield Securities. Bonds rated BB or below by Standard & Poor's
---------------------
Ratings Group (Standard & Poor's) or Ba or below by Moody's Investors Service,
Inc. ("Moody's") (or comparable rated and unrated securities) are commonly
referred to as "junk bonds" and are considered speculative; the ability of their
issuers to make principal and interest payments may be questionable. In some
cases, such bonds may be highly speculative, have poor prospects for reaching
investment grade standing and be in

B-20
<PAGE>

default. As a result, investment in such bonds will entail greater risks than
those associated with investment grade bonds (i.e., bonds rated AAA, AA, A or
BBB by Standard and Poor's or Aaa, Aa, A or Baa by Moody's). Analysis of the
creditworthiness of issuers of high yield securities may be more complex than
for issuers of higher quality debt securities, and the ability of an Underlying
Fund to achieve its investment objective may, to the extent of its investments
in high yield securities, be more dependent upon such creditworthiness analysis
than would be the case if the Underlying Fund were investing in higher quality
securities. See Appendix A to this Additional Statement for a description of the
corporate bond and preferred stock ratings by Standard & Poor's, Moody's, Fitch
IBCA, Inc. and Duff & Phelps.

The amount of high yield, fixed-income securities proliferated in the 1980s
and early 1990s as a result of increased merger and acquisition and leveraged
buyout activity. Such securities are also issued by less-established
corporations desiring to expand. Risks associated with acquiring the securities
of such issuers generally are greater than is the case with higher rated
securities because such issuers are often less creditworthy companies or are
highly leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest.

The market values of high yield, fixed-income securities tends to reflect
those individual corporate developments to a greater extent than do those of
higher rated securities, which react primarily to fluctuations in the general
level of interest rates. Issuers of such high yield securities may not be able
to make use of more traditional methods of financing and their ability to
service debt obligations may be more adversely affected than issuers of higher
rated securities by economic downturns, specific corporate developments or the
issuers' inability to meet specific projected business forecasts. These non-
investment grade securities also tend to be more sensitive to economic
conditions than higher-rated securities. 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.

Since investors generally perceive that there are greater risks associated
with non-investment grade securities of the type in which the Underlying Funds
may invest, the yields and prices of such securities may tend to fluctuate more
than those for higher-rated securities. In the lower quality segments of the
fixed-income securities market, changes in perceptions of issuers'
creditworthiness tend to occur more frequently and in a more pronounced manner
than do changes in higher quality segments of the fixed-income securities
market, resulting in greater yield and price volatility.

Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in an Underlying Fund's net asset value.

B-21
<PAGE>

The risk of loss from default for the holders of high yield, fixed-income
securities is significantly greater than is the case for holders of other debt
securities because such high yield, fixed-income securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by an Underlying Fund in already
defaulted securities poses an 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 an Underlying Fund of its initial
investment and any anticipated income or appreciation is uncertain. An
Underlying Fund may be required to liquidate other portfolio securities to
satisfy the Underlying Fund's annual distribution obligations in respect of
accrued interest income on securities which are subsequently written off, even
though the Underlying Fund has not received any cash payments of such interest.

The secondary market for high yield, fixed-income securities is
concentrated in relatively few markets 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, the trading volume for high-yield, fixed-income
securities is generally lower than that of higher rated securities and the
secondary market for high yield, fixed-income 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 an Underlying Fund's ability to dispose of particular
portfolio investments. Prices realized upon the sale of such lower rated or
unrated securities, under these circumstances, may be less than the prices used
in calculating an Underlying Fund's net asset value. A less liquid secondary
market also may make it more difficult for an Underlying Fund to obtain precise
valuations of the high yield securities in its portfolio.

Certain proposed and recently enacted federal laws could adversely affect
the secondary market for high yield securities and the financial condition of
issuers of these securities. The form of proposed legislation and the
probability of such legislation being enacted is uncertain.

Non-investment grade or high-yield, fixed-income securities also present
risks based on payment expectations. High yield, fixed-income securities
frequently contain "call" or buy-back features which permit the issuer to call
or repurchase the security from its holder. If an issuer exercises such a "call
option" and redeems the security, an Underlying Fund may have to replace such
security with a lower-yielding security, resulting in a decreased return for
investors. In addition, if an Underlying Fund experiences unexpected net
redemptions of its shares, it may be forced to sell its higher-rated securities,
resulting in a decline in the overall credit quality of the Underlying Fund's
portfolio and increasing the exposure of the Underlying Fund to the risks of
high yield securities. An Underlying Fund may also incur additional expenses to
the extent that it is required to seek recovery upon a default in the payment of
principal or interest on a portfolio security.

B-22
<PAGE>

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 credit
analysis of an Underlying Fund's investment adviser than would be the case with
investments in investment-grade debt obligations. An Underlying Fund's
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 monitors the
investments in an Underlying 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.

Loan Participations. The High Yield Fund may invest in loan
-------------------
participations. Such loans must be to issuers in whose obligations the High
Yield Fund may invest. A loan participation is an interest in a loan to a U.S.
or foreign company or other borrower which is administered and sold by a
financial intermediary. In a typical corporate loan 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 Underlying 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.

B-23
<PAGE>

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.

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

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

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

The Underlying Funds may also invest in separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury if
such components are traded independently under the separate trading of
registered interest and principal of securities program ("STRIPS").

B-24
<PAGE>

BANK OBLIGATIONS

Certain of the Underlying Funds may invest in debt obligations issued or
guaranteed by United States and foreign banks. Bank obligations, including
without limitation time deposits, bankers' acceptances and certificates of
deposit, may be general obligations of the parent bank or may be obligations
only of the issuing branch pursuant to the terms of the specific obligations or
government regulation.

Banks are subject to extensive governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. Foreign banks are subject to different regulations and are
generally permitted to engage in a wider variety of activities than U.S. banks.
In addition, the profitability of the banking industry is largely dependent upon
the availability and cost of funds for the purpose of financing lending
operations under prevailing money market conditions. General economic
conditions as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of this
industry.

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

Certain of the Underlying Funds expect to invest in deferred interest and
capital appreciation bonds and pay-in-kind ("PIK") securities. Deferred
interest and capital appreciation bonds are debt securities issued or sold at a
discount from their face value and which do not entitle the holder to any
periodic payment of interest prior to maturity or a specified date. The
original issue discount varies depending on the time remaining until maturity or
cash payment date, prevailing interest rates, the liquidity of the security and
the perceived credit quality of the issuer. These securities also may take the
form of debt securities that have been stripped of their unmatured interest
coupons, the coupons themselves or receipts or certificates representing
interests in such stripped debt obligations or coupons. The market prices of
deferred interest, capital appreciation bonds and PIK securities generally are
more volatile than the market prices of interest bearing securities and are
likely to respond to a greater degree to changes in interest rates than interest
bearing securities having similar maturities and credit quality.

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

Zero coupon, deferred interest, capital appreciation and PIK securities
involve the additional risk that, unlike securities that periodically pay
interest to maturity, an Underlying Fund will realize no cash until a specified
future payment date unless a

B-25
<PAGE>

portion of such securities is sold and, if the issuer of such securities
defaults, an Underlying Fund may obtain no return at all on its investment. In
addition, even though such securities do not provide for the payment of current
interest in cash, the Underlying Funds are nonetheless required to accrue income
on such investments for each taxable year and generally are required to
distribute such accrued amounts (net of deductible expenses, if any) to avoid
being subject to tax. Because no cash is generally received at the time of the
accrual, an Underlying Fund may be required to liquidate other portfolio
securities to obtain sufficient cash to satisfy federal tax distribution
requirements applicable to the Underlying Fund.

ZERO COUPON BONDS

An Underlying Fund's investments in fixed-income securities may include
zero coupon bonds, which are debt obligations issued or purchased at a
significant discount from face value. The discount approximates the total
amount of interest the bonds would have accrued and compounded over the period
until maturity. Zero coupon bonds do not require the periodic payment of
interest. Such investments benefit the issuer by mitigating its need for cash
to meet debt service but also require a higher rate of return to attract
investors who are willing to defer receipt of such cash. Such investments may
experience greater volatility in market value than debt obligations which
provide for regular payments of interest. In addition, if an issuer of zero
coupon bonds held by an Underlying Fund defaults, the Underlying Fund may
obtain no return at all on its investment. Each Fund will accrue income on such
investments for each taxable year which (net of deductible expenses, if any) is
distributable to shareholders and which, because no cash is generally received
at the time of accrual, may require the liquidation of other portfolio
securities to obtain sufficient cash to satisfy the Underlying Fund's
distribution obligations.

VARIABLE AND FLOATING RATE SECURITIES

The interest rates payable on certain fixed-income securities in which an
Underlying Fund may invest are not fixed and may fluctuate based upon changes in
market rates. A variable rate obligation has an interest rate which is adjusted
at predesignated periods in response to changes in the market rate of interest
on which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.

Permissible investments for the Underlying Funds include "leveraged"
inverse floating rate debt instruments ("inverse floaters"), including
"leveraged inverse floaters." The interest rate on inverse floaters resets in
the opposite direction from the market rate of interest to which the inverse
floater is indexed. An inverse floater may be considered to be leveraged to the
extent that its interest rate varies by a magnitude that exceeds the magnitude
of the change in the index rate of interest. The higher the degree of leverage
of an inverse floater, the greater the volatility of its market value.
Accordingly, the

B-26
<PAGE>

duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of each
Fund's limitation on illiquid investments.

CUSTODIAL RECEIPTS

Each Fund may invest up to 5% of its net assets in custodial receipts in
respect of securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. These custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investors Growth Receipts" ("TIGRs"), and
"Certificates of Accrual on Treasury Securities" ("CATs"). For certain
securities law purposes, custodial receipts are not considered U.S. Government
securities.

MUNICIPAL SECURITIES

Certain of the Underlying Funds may invest in bonds, notes and other
instruments issued by or on behalf of states, territories and possessions of the
United States (including the District of Columbia) and their political
subdivisions, agencies or instrumentalities ("Municipal Securities").

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

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

B-27
<PAGE>

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

An entire issue of Municipal Securities may be purchased by one or a small
number of institutional investors such as the High Yield and Core Fixed Income
Fund. Thus, the issue may not be said to be publicly offered. Unlike some
securities that are not publicly offered, a secondary market exists for many
Municipal Securities that were not publicly offered initially and such
securities may be readily marketable.

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

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

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

B-28
<PAGE>

made by the state or political subdivision under such leases or installment
purchase agreements.

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

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

Auction Rate Securities. Municipal Securities also include auction rate
-----------------------
Municipal Securities and auction rate preferred securities issued by closed-end
investment companies that invest primarily in Municipal Securities
(collectively, "auction rate securities"). Provided that the auction mechanism
is successful, auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals. The dividend is
reset by "Dutch" auction in which bids are made by broker-dealers and other
institutions for a certain amount of securities at a specified minimum yield.
The dividend rate set by the auction is the lowest interest or dividend rate
that covers all securities offered for sale. While this process is designed to
permit auction rate securities to be traded at par value, there is some risk
that an auction will fail due to insufficient demand for the securities.

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

B-29
<PAGE>

Other Types of Municipal Securities. Other types of Municipal Securities
-----------------------------------
in which certain of the Underlying Funds may invest include municipal notes,
tax-exempt commercial paper, pre-refunded municipal bonds, industrial
development bonds and insured municipal obligations.

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

MORTGAGE LOANS AND MORTGAGE-BACKED SECURITIES

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

The investment characteristics of adjustable and fixed rate Mortgage-Backed
Securities differ from those of traditional fixed-income securities. The major
differences include the payment of interest and principal on Mortgage-Backed
Securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed-
income securities. As a result, if an Underlying Fund purchases Mortgage-Backed
Securities at a premium, a faster than expected prepayment rate will reduce both
the market value and the yield to maturity from those which were anticipated. A
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity and market value. Conversely, if an Underlying
Fund purchases Mortgage-Backed Securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce
yield to maturity and market values. To the extent that an Underlying Fund
invests in Mortgage-Backed Securities, its investment adviser may seek to manage
these potential risks by investing in a variety of Mortgage-Backed Securities
and by using certain hedging techniques.

B-30
<PAGE>

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

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

There are two main categories of indices which provide the basis for rate
adjustments on ARMs: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year, three-year and
five-year constant maturity Treasury rates, the three-month Treasury bill rate,
the 180-day Treasury bill rate, rates on longer-term Treasury securities, the
11th District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year London Interbank
Offered Rate, the prime rate of a specific bank or commercial paper rates. Some
indices, such as the one-year constant maturity Treasury rate, closely mirror
changes in market interest rate levels. Others, such as the 11th District
Federal Home Loan Bank Cost of Funds index, tend to lag behind changes in market
rate levels and tend to be somewhat less volatile. The degree of volatility in
the market value of an Underlying Fund's portfolio and therefore in the net
asset value of an Underlying Fund's

B-31
<PAGE>

shares will be a function of the length of the interest rate reset periods and
the degree of volatility in the applicable indices.

Fixed-Rate Mortgage Loans. Generally, fixed-rate mortgage loans included
-------------------------
in a mortgage pool (the "Fixed-Rate Mortgage Loans") will bear simple interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed-Rate Mortgage Loans generally provide for monthly payments of
principal and interest in substantially equal installments for the term of the
mortgage note in sufficient amounts to fully amortize principal by maturity,
although certain Fixed-Rate Mortgage Loans provide for a large final "balloon"
payment upon maturity.

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

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

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

2. Rights of Redemption. In some states, after foreclosure of a mortgage
--------------------
loan, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property, which right may diminish the
mortgagee's ability to sell the property.

3. Legislative Limitations. In addition to anti-deficiency and related
-----------------------
legislation, numerous other federal and state statutory provisions,
including the federal bankruptcy laws and state laws affording relief to
debtors, may interfere with or affect the ability of a secured mortgage
lender to enforce its security interest. For example, a bankruptcy court
may grant the debtor a reasonable time to cure a default on a mortgage
loan, including a payment default. The court in certain instances may
also reduce the monthly payments due under such mortgage loan, change the
rate of interest, reduce the principal balance of the loan to the then-

B-32
<PAGE>

current appraised value of the related mortgaged property, alter the
mortgage loan repayment schedule and grant priority of certain liens over
the lien of the mortgage loan. If a court relieves a borrower's obligation
to repay amounts otherwise due on a mortgage loan, the mortgage loan
servicer will not be required to advance such amounts, and any loss may be
borne by the holders of securities backed by such loans. In addition,
numerous federal and state consumer protection laws impose penalties for
failure to comply with specific requirements in connection with origination
and servicing of mortgage loans.

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

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

Government Guaranteed Mortgage-Backed Securities. There are several types
------------------------------------------------
of guaranteed mortgage-backed securities currently available, including
guaranteed mortgage pass-through certificates and multiple class securities,
which include guaranteed Real Estate Mortgage Investment Conduit Certificates
("REMIC Certificates"), collateralized mortgage obligations and stripped
mortgage-backed securities. An Underlying Fund is permitted to invest in other
types of mortgage-backed securities that may be available in the future to the
extent consistent with its investment policies and objective.

An Underlying Fund's investments in mortgage-backed securities may include
securities issued or guaranteed by the U.S. Government or one of its agencies,
authorities, instrumentalities or sponsored enterprises, such as the Government
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac").

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

B-33
<PAGE>

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

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

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

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

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

B-34
<PAGE>

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

Mortgage Pass-Through Securities. As described in the Prospectus, the
--------------------------------
Underlying Funds may invest in both government guaranteed and privately issued
mortgage pass-through securities ("Mortgage Pass-Throughs"); that is, fixed or
adjustable rate mortgage-backed securities which provide for monthly payments
that are a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans.

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

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

Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index.

Generally, each registered holder of a certificate will be entitled to
receive its pro rata share of monthly distributions of all or a portion of
principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate, or
both. The difference between the mortgage interest rate and the related
mortgage pass-through rate (less the amount, if any, of retained yield) with
respect to each mortgage loan will generally be paid to the servicer as a
servicing fee. Since certain adjustable rate mortgage loans included in a
mortgage pool may provide for deferred interest (i.e., negative amortization),
the amount of interest

B-35
<PAGE>

actually paid by a mortgagor in any month may be less than the amount of
interest accrued on the outstanding principal balance of the related mortgage
loan during the relevant period at the applicable mortgage interest rate. In
such event, the amount of interest that is treated as deferred interest will be
added to the principal balance of the related mortgage loan and will be
distributed pro rata to certificate-holders as principal of such mortgage loan
when paid by the mortgagor in subsequent monthly payments or at maturity.

Ratings. The ratings assigned by a rating organization to Mortgage Pass-
-------
Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make payments required by such
certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.

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

Subordination; Shifting of Interest; Reserve Fund. In order to achieve
-------------------------------------------------
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior certificate-
holders on certain distribution dates, as payment of principal, a specified
percentage (which generally declines over time) of all principal payments
received during the preceding prepayment period ("shifting interest credit
enhancement"). This will have the effect of accelerating the amortization of
the senior certificates while increasing the interest in the trust fund
evidenced by the subordinate certificates. Increasing the interest of the
subordinate certificates relative to that of the

B-36
<PAGE>

senior certificates is intended to preserve the availability of the
subordination provided by the subordinate certificates. In addition, because the
senior certificate-holders in a shifting interest credit enhancement structure
are entitled to receive a percentage of principal prepayments which is greater
than their proportionate interest in the trust fund, the rate of principal
prepayments on the mortgage loans will have an even greater effect on the rate
of principal payments and the amount of interest payments on, and the yield to
maturity of, the senior certificates.

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

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

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

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

B-37
<PAGE>

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

Multiple Class Mortgage-Backed Securities and Collateralized Mortgage
---------------------------------------------------------------------
Obligations. An Underlying Fund may invest in multiple class securities
- -----------
including collateralized mortgage obligations ("CMOs") and REMIC Certificates.
These securities may be issued by U.S. Government agencies and instrumentalities
such as Fannie Mae or Freddie Mac or by trusts formed by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. In general, CMOs are debt
obligations of a legal entity that are collateralized by, and multiple class
mortgage-backed securities represent direct ownership interests in, a pool of
mortgage loans or mortgage-backed securities the payments on which are used to
make payments on the CMOs or multiple class mortgage-backed securities.

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

Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.

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

CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution

B-38
<PAGE>

date. Principal prepayments on the Mortgage Loans or the Mortgage Assets
underlying the CMOs or REMIC Certificates may cause some or all of the classes
of CMOs or REMIC Certificates to be retired substantially earlier than their
final distribution dates. Generally, interest is paid or accrues on all classes
of CMOs or REMIC Certificates on a monthly basis.

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

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

A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying mortgage assets. These tranches tend to have market prices and
yields that are much more volatile than other PAC classes.

Stripped Mortgage-Backed Securities. Certain of the Underlying Funds may
-----------------------------------
invest in stripped mortgage-backed securities ("SMBS"), which are derivative
multiclass mortgage securities, issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or by private issuers. Although the market for
such securities is increasingly liquid, privately issued SMBS may not be readily
marketable and will be considered illiquid for purposes of an Underlying Fund's
limitation on investments in

B-39
<PAGE>

illiquid securities. An Underlying Fund's investment adviser may determine that
SMBS which are U.S. Government Securities are liquid for purposes of each Fund's
limitation on investments in illiquid securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from Mortgage Assets are generally higher
than prevailing market yields on other Mortgage-Backed Securities because their
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped.

ASSET-BACKED SECURITIES

Asset-backed securities represent participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.

Like Mortgage-Backed Securities, asset-backed securities are often subject
to more rapid repayment than their stated maturity date would indicate as a
result of the pass-through of prepayments of principal on the underlying loans.
During periods of declining interest rates, prepayment of loans underlying
asset-backed securities can be expected to accelerate. Accordingly, an
Underlying Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that an Underlying Fund invests in asset-backed securities, the values of
such Fund's portfolio securities will vary with changes in market interest rates
generally and the differentials in yields among various kinds of asset-backed
securities.

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

B-40
<PAGE>

Therefore, there is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

Each Underlying Fund (other than Financial Square Prime Obligations Fund)
may purchase and sell futures contracts and may also purchase and write options
on futures contracts. CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds may only enter into such transactions with respect to the S&P
500 Index, for the CORE U.S. Equity Fund and a representative index in the case
of the CORE Large Cap Growth and CORE Small Cap Equity Funds. The other Funds
may purchase and sell futures contracts based on various securities (such as
U.S. Government securities), securities indices, foreign currencies and other
financial instruments and indices. An Underlying Fund will engage in futures
and related options transactions, only for bona fide hedging purposes as defined
below or for purposes of seeking to increase total return to the extent
permitted by regulations of the Commodity Futures Trading Commission ("CFTC").
Futures contracts entered into by an Underlying Fund are traded on U.S.
exchanges or boards of trade that are licensed and regulated by the CFTC or on
foreign exchanges. Neither the CFTC, National Futures Association nor any
domestic exchange regulates activities of any foreign exchange or boards of
trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign exchange or board of
trade or any applicable foreign law. This is true even if the exchange is
formally linked to a domestic market so that a position taken on the market may
be liquidated by a transaction on another market. Moreover, such laws or
regulations will vary depending on the foreign country in which the foreign
futures or foreign options transaction occurs. For these reasons, persons who
trade foreign futures or foreign options contracts may not be afforded certain
of the protective measures provided by the Commodity Exchange Act, the CFTC's
regulations and the rules of the National Futures Association and any domestic
exchange, including the right to use reparations proceedings before the CFTC and
arbitration proceedings provided by the National Futures Association or any
domestic futures exchange. In particular, an Underlying Fund's investments in
foreign futures or foreign options transactions may not be provided the same
protections in respect of transactions on United States futures exchanges.

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

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

B-41
<PAGE>

Underlying Fund may sell futures contracts on a specified currency to protect
against a decline in the value of such currency and its portfolio securities
which are quoted or denominated in such currency, or purchase futures contracts
on foreign currency to establish the price in U.S. dollars of a security quoted
or denominated in such currency that such Fund has acquired or expects to
acquire.

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

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

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

B-42
<PAGE>

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

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

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

Other Considerations. An Underlying Fund will engage in futures
--------------------
transactions and will engage in related options transactions only for bona fide
hedging as defined in the regulations of the CFTC or to seek to increase total
return to the extent permitted by such regulations. An Underlying Fund will
determine that the price fluctuations in the futures contracts and options on
futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Underlying Fund or securities or
instruments which it expects to purchase. Except as stated below, an Underlying
Fund's futures transactions will be entered into for traditional hedging
purposes -- i.e., futures contracts will be sold to protect against a decline in
the price of securities (or the currency in which they are quoted or
denominated) that the Underlying Fund owns, or futures contracts will be
purchased to protect the Underlying Fund against an increase in the price of
securities (or the currency in which they are quoted or denominated) it intends
to purchase.

In addition to bona fide hedging, a CFTC regulation permits an Underlying
Fund to engage in other futures transactions if the aggregate initial margin and
premiums required to establish such positions in futures contracts and options
on futures do not exceed 5% of the net asset value of such Fund's portfolio,
after taking into account

B-43
<PAGE>

unrealized profits and losses on any such positions and excluding the amount by
which such options were in-the-money at the time of purchase. To the extent such
transactions are consistent with the requirements of the Code for maintaining
its qualification as a regulated investment company for federal income tax
purposes, an Underlying Fund may engage in transactions in currency forward
contracts futures contracts and related options transactions.

Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in certain cases, require the Underlying
Fund to segregate with its custodian cash or liquid assets in an amount equal to
the underlying value of such contracts and options.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for an Underlying Fund than if
it had not entered into any futures contracts or options transactions. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and an Underlying Fund may be exposed to risk of loss.

Perfect correlation between an Underlying Fund's futures positions and
portfolio positions will be difficult to achieve because no futures contracts
based on individual equity or corporate fixed-income securities are currently
available. The only futures contracts available to hedge an Underlying Fund's
portfolio are various futures on U.S. Government securities, securities indices
and foreign currencies. In addition, it is not possible for an Underlying Fund
to hedge fully or perfectly against currency fluctuations affecting the value of
securities quoted or denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.

OPTIONS ON SECURITIES AND SECURITIES INDICES

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

B-44
<PAGE>

A put option written by an Underlying Fund would obligate such Fund to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. All put options
written by an Underlying Fund would be covered, which means that such Fund would
have deposited with its custodian cash or liquid assets with a value at least
equal to the exercise price of the put option. The purpose of writing such
options is to generate additional income for the Underlying Fund. However, in
return for the option premium, each Fund accepts the risk that it may be
required to purchase the underlying securities at a price in excess of the
securities' market value at the time of purchase.

Call and put options written by an Underlying Fund will also be considered
to be covered to the extent that the Underlying Fund's liabilities under such
options are wholly or partially offset by its rights under call and put options
purchased by the Underlying Fund.

In addition, a written call option or put option may be covered by
maintaining cash or liquid assets (either of which may be quoted or denominated
in any currency), by entering into an offsetting forward contract and/or by
purchasing an offsetting option which, by virtue of its exercise price or
otherwise, reduces an Underlying Fund's net exposure on its written option
position.

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

An Underlying Fund may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index, or by having an absolute and immediate right to acquire such
securities without additional cash consideration (or for additional cash
consideration which has been segregated by the Underlying Fund) upon conversion
or exchange of other securities in its portfolio. An Underlying Fund may cover
call and put options on a securities index by maintaining cash or liquid assets
with a value equal to the exercise price.

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

Purchasing Options. Each Underlying Fund (other than CORE U.S. Equity,
------------------
CORE Large Cap Growth and Financial Square Prime Obligations Funds) may purchase
put and call options on any securities in which it may invest or options on any
securities

B-45
<PAGE>

index composed of securities in which it may invest. An Underlying Fund would
also be able to enter into closing sale transactions in order to realize gains
or minimize losses on options it had purchased.

An Underlying Fund would normally purchase call options in anticipation of
an increase in the market value of securities of the type in which it may
invest. The purchase of a call option would entitle an Underlying Fund, in
return for the premium paid, to purchase specified securities at a specified
price during the option period. An Underlying Fund would ordinarily realize a
gain if, during the option period, the value of such
securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such an Underlying Fund would realize either no
gain or a loss on the purchase of the call option.

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

An Underlying Fund would purchase put and call options on securities
indices for the same purposes as it would purchase options on individual
securities. For a description of options on securities indices, see "Writing
Covered Options" above.

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

An Underlying Fund may purchase or write yield curve options for the same
purposes as other options on securities. For example, an Underlying Fund may
purchase a call option on the yield spread between two securities if the
Underlying Fund owns one of the securities and anticipates purchasing the other
security and wants to hedge against an adverse change in the yield spread
between the two securities. An Underlying Fund

B-46
<PAGE>

may also purchase or write yield curve options in an effort to increase current
income if, in the judgment of its investment adviser, the Underlying Fund will
be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, or if the spread moves in a direction or
to an extent which was not anticipated.

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

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

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

B-47
<PAGE>

An Underlying Fund may purchase and sell both options that are traded on
U.S. and foreign exchanges and options traded over-the-counter with broker-
dealers who make markets in these options. The ability to terminate over-the-
counter options is more limited than with exchange-traded options and may
involve the risk that broker-dealers participating in such transactions will not
fulfill their obligations.

Transactions by an Underlying Fund in options on securities and indices
will be subject to limitations established by each of the exchanges, boards of
trade or other trading facilities governing the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert. Thus, the number of options which an Underlying
Fund may write or purchase may be affected by options written or purchased by
other investment advisory clients of the Underlying Funds' investment advisers.
An exchange, board of trade or other trading facility may order the liquidation
of positions found to be in excess of these limits, and it may impose certain
other sanctions.

The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the ability of an Underlying Fund's
investment adviser to predict future price fluctuations and the degree of
correlation between the options and securities markets.

WARRANTS AND STOCK PURCHASE RIGHTS

Certain of the Underlying Funds may invest a portion of their assets in
warrants or rights (including those acquired in units or attached to other
securities) which entitle the holder to buy equity securities at a specific
price for a specific period of time. An Underlying Fund will invest in warrants
and rights only if such securities are deemed appropriate by its investment
adviser for investment by the Underlying Fund. Warrants and rights have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.

FOREIGN INVESTMENTS

Investments in foreign securities may offer potential benefits not
available from investments solely in U.S. dollar-denominated or quoted
securities of domestic issuers. Such benefits may include the opportunity to
invest in foreign issuers that appear, in the opinion of an Underlying Fund's
investment adviser, to offer better opportunity for long-term growth of capital
and income than investments in U.S. securities, the opportunity to invest in
foreign countries with economic policies or business cycles different from those
of the United States and the opportunity to reduce fluctuations in portfolio
value by taking advantage of foreign securities markets that do not necessarily
move in a manner parallel to U.S. markets.

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Investing in foreign securities involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. dollar-denominated or quoted securities of U.S. issuers.
Investments in foreign securities usually involve currencies of foreign
countries. Accordingly, any Underlying Fund that invests in foreign securities
may be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations and may incur costs in connection with conversions
between various currencies. An Underlying Fund may be subject to currency
exposure independent of its securities positions.

Currency exchange rates may fluctuate significantly over short periods of
time. They 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 intervention by U.S. or foreign
governments or central banks or the failure to intervene or by currency controls
or political developments in the United States or abroad. To the extent that a
substantial portion of an Underlying Fund's total assets, adjusted to reflect
the Underlying Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Underlying
Fund will be more susceptible to the risk of adverse economic and political
developments within those countries. An Underlying Fund's net currency
positions may expose it to risks independent of its securities positions. In
addition, if the currency in which an Underlying Fund receives dividends,
interest or other payment declines in value against the U.S. dollar before such
income is distributed as dividends to shareholders or converted to U.S. dollars,
the Underlying Fund may have to sell portfolio securities to obtain sufficient
cash to pay such dividends.

Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Underlying Fund endeavors to achieve the most
favorable net results on its portfolio transactions. There is generally less
government supervision and regulation of foreign securities exchanges, brokers,
dealers and listed and unlisted companies than in the United States.

Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of an Underlying Fund's assets are uninvested and no return is
earned on such assets. The inability of an Underlying Fund to make intended
security purchases due to settlement problems could cause the Underlying Fund to
miss attractive investment opportunities.

B-49
<PAGE>

Inability to dispose of portfolio securities due to settlement problems could
result either in losses to an Underlying Fund due to subsequent declines in
value of the portfolio securities or, if the Underlying Fund has entered into a
contract to sell the securities, could result in possible liability to the
purchaser. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect an Underlying Fund's
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.

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. ADRs are traded on domestic
exchanges or in the U.S. over-the-counter market and, generally, are in
registered form. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank similar to that for ADRs and are designed for use in the non-U.S.
securities markets. EDRs and GDRs are not necessarily quoted in the same
currency as the underlying security.

To the extent an Underlying 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), 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.

Certain of the Underlying Funds may invest in countries with emerging
economies or securities markets. Political and economic structures in many of
such countries may be undergoing significant evolution and rapid development,
and such countries may lack the social, political and economic stability
characteristic of more developed countries. Certain of such countries may have
in the past failed to recognize private property rights and have at times
nationalized or expropriated the assets of private companies. As a result, the
risks described above, including the risks of nationalization or expropriation
of assets, may be heightened. See "Investing in Emerging Markets" below.

Certain of the Underlying Funds may invest in securities of issuers
domiciled in a country other than the country in whose currency the instrument
is denominated or quoted. The Underlying Funds may also invest in securities
quoted or denominated in the European Currency Unit ("ECU"), which is a "basket"
consisting of specified amounts of the currencies of certain of the member
states of the European Community.

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<PAGE>

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
Underlying Funds may invest in securities quoted or denominated in other
currency "baskets."

Investing in Emerging Markets. CORE International Equity, International
-----------------------------
Equity, International Small Cap, Asia Growth and Emerging Markets Equity Funds
are intended for long-term investors who can accept the risks associated with
investing primarily in equity and equity-related securities of foreign issuers,
including Emerging Countries issuers, as well as the risks associated with
investments quoted or denominated in foreign currencies. Growth and Income,
Small Cap Value, Mid Cap Equity and Capital Growth Funds may invest, to a lesser
extent, in equity and equity-related securities of foreign issuers, including
Emerging Countries issuers. The Core Fixed Income, Global Income and High Yield
Bond Funds may invest in debt securities of foreign issuers, including Emerging
Markets. In addition, certain of the potential investment and management
techniques of these Funds entail special risks.

The pace of change in many Emerging Countries, and in particular those in
Asia, over the last 10 years has been rapid, marked by substantial economic
change. Accelerating economic growth in the region has combined with capital
market development, high government expenditure, increased consumer wealth and
taxation policies favoring company expansion.

Each of the securities markets of the Emerging Countries is less liquid and
subject to greater price volatility and has a smaller market capitalization than
the U.S. securities markets. Issuers and securities markets in such countries
are not subject to as extensive and frequent accounting, financial and other
reporting requirements or as comprehensive government regulations as are issuers
and securities markets in the U.S. In particular, the assets and profits
appearing on the financial statements of Emerging Country issuers may not
reflect their financial position or results of operations in the same manner as
financial statements for U.S. issuers. Substantially less information may be
publicly available about Emerging Country issuers than is available about
issuers in the United States.

Certain of the Emerging Country securities markets 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 markets for securities in certain Emerging Countries are in the earliest
stages of their development. Even the markets for relatively widely traded
securities in Emerging Countries may not be able to absorb, without price
disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the securities markets of
developed countries. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. The limited liquidity of
Emerging Country Securities may also affect an Underlying Fund's ability to
accurately value its portfolio securities or to acquire or dispose of such
securities at the price and times it wishes to do so. The risks

B-51
<PAGE>

associated with reduced liquidity may be particularly acute to the extent that
an Underlying Fund needs cash to meet redemption requests, to pay dividends and
other distributions or to pay its expenses.

Transaction costs, including brokerage commissions or dealer mark-ups, in
Emerging Countries may be higher than in the United States and other developed
securities markets. In addition, existing laws and regulations are often
inconsistently applied. As legal systems in Emerging Countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.

Foreign investment in the securities markets of several of the Asian
countries is restricted or controlled to varying degrees. These restrictions
may limit an Underlying Fund's investment in certain of the Asian countries and
may increase the expenses of the Underlying Fund. Certain Emerging 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 company available
for purchase by nationals. In addition, the repatriation of both investment
income and capital from several of the Emerging Countries is subject to
restrictions such as the need for certain governmental consents. Even where
there is no outright restriction on repatriation of capital, the mechanics of
repatriation may affect certain aspects of the operation of an Underlying Fund.
An Underlying Fund may be required to establish special custodial or other
arrangements before investing in certain emerging countries.

Each of the Emerging Countries may be subject to a greater degree of
economic, political and social instability than is the case in the United
States, Japan and most Western European countries. Such instability may result
from, among other things, the following: (i) authoritarian governments or
military involvement in political and economic decision making, including
changes or attempted changes in governments through extra-constitutional means;
(ii) popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection or
conflict. Such economic, political and social instability could disrupt the
principal financial markets in which the Underlying Funds may invest and
adversely affect the value of the Underlying Funds' assets.

The economies of Emerging Countries may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments. Many
Emerging Countries have experienced in the past, and continue to experience,
high rates of inflation. In certain countries inflation has at times
accelerated rapidly to hyperinflationary levels, creating a negative interest
rate environment and sharply eroding the value of outstanding financial assets
in those countries. The economies of many Emerging Countries are heavily
dependent upon international trade and are

B-52
<PAGE>

accordingly affected by protective trade barriers and the economic conditions of
their trading partners. In addition, the economies of some Emerging Countries
are vulnerable to weakness in world prices for their commodity exports.

An Underlying Fund's income and, in some cases, capital gains from foreign
stocks and securities will be subject to applicable taxation in certain of the
countries in which it invests, and treaties between the U.S. and such countries
may not be available in some cases to reduce the otherwise applicable tax rates.

Foreign markets may also have different clearance and settlement procedures
and in certain U.S. markets, there have been times when settlements have been
unable to keep pace with the volume of securities transactions making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of an Underlying Fund's assets is uninvested
and no return is earned thereon. The inability of an Underlying Fund to make
intended security purchases or sales due to settlement problems could result
either in losses to the Underlying Fund due to subsequent declines in value of
the portfolio securities or, if the Underlying Fund has entered into a contract
to sell the securities, could result in possible liability of the Underlying
Fund to the purchaser.

Investing in Japan. The Japanese Equity Fund invests in the equity
------------------
securities of Japanese companies. Japan's economy, the second-largest in the
world, has grown substantially over the last three decades. The boom in Japan's
equity and property markets during the expansion of the late 1980's supported
high rates of investment and consumer spending on durable goods, but both of
these components of demand have now retreated sharply following the decline in
asset prices. Profits have fallen sharply, unemployment has reached a
historical high and consumer confidence is low. The banking sector continues to
suffer from non-performing loans and this economy is subject to deflationary
pressures. Numerous discount-rate cuts since its peak in 1991, a succession of
fiscal stimulus packages, support plans for the debt-burdened financial system
and spending for reconstruction following the Kobe earthquake may help to
contain the recessionary forces, but substantial uncertainties remain.

In addition to the cyclical downturn, Japan is suffering through structural
adjustments. Like the Europeans, the Japanese have seen a deterioration of
their competitiveness due to high wages, a strong currency and structural
rigidities. Finally, Japan is reforming its political process and deregulating
its economy. This has brought about turmoil, uncertainty and a crisis of
confidence.

While the Japanese governmental system itself seems stable, the dynamics of
the country's politics have been unpredictable in recent years. The economic
crisis of 1990-92 brought the downfall of the conservative Liberal Democratic
Party, which had ruled since 1955. Since then, the country has seen a series of
unstable multi-party coalitions and several prime ministers come and go, because
of politics as well as personal scandals. While there appears to be no reason
for anticipating civic unrest, it is impossible to know

B-53
<PAGE>

when the political instability will end and what trade and fiscal policies might
be pursued by the government that emerges.

Japan's heavy dependence on international trade has been adversely affected
by trade tariffs and other protectionist measures as well as the economic
condition of its trading partners. While Japan subsidizes its agricultural
industry, only 19% of its land is suitable for cultivation and it is only 50%
self-sufficient in food production. Accordingly, it is highly dependent on
large imports of wheat, sorghum and soybeans. In addition, industry, its most
important economic sector, depends on imported raw materials and fuels,
including iron ore, copper, oil and many forest products. Japan's high volume
of exports, such as automobiles, machine tools and semiconductors, have caused
trade tensions, particularly with the United States. Some trade agreements,
however, have been implemented to reduce these tensions. The relaxing of
official and de facto barriers to imports, or hardships created by any pressures
brought by trading partners, could adversely affect Japan's economy. A
substantial rise in world oil or commodity prices could also have a negative
affect. The strength of the yen itself may prove an impediment to strong
continued exports and economic recovery, because it makes Japanese goods sold in
other countries more expensive and reduces the value of foreign earnings
repatriated to Japan. Because the Japanese economy is so dependent on exports,
any fall-off in exports may be seen as a sign of economic weakness, which may
adversely affect the market.

Geologically, Japan is located in a volatile area of the world, and has
historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, in which
5,000 people were killed and billions of dollars of damage was sustained, these
natural disasters can be significant enough to affect the country's economy.

SOVEREIGN DEBT OBLIGATIONS. Investments in sovereign debt obligations
involves special risks not present in corporate debt obligations. The issuer of
the sovereign debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal or interest when due, and
an Underlying Fund may have limited recourse in the event of a default. During
periods of economic uncertainty, the market prices of sovereign debt, and an
Underlying Fund's net asset value, may be more volatile than prices of debt
obligations of U.S. issuers. In the past, the governments of certain emerging
markets have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debts.

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, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multinational agencies and other
entities to reduce principal and interest arrearages on their debt. The failure
of

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<PAGE>

a sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of the third parties' commitments to lend funds to the sovereign
debtor, which may further impair such debtor's ability or willingness to timely
service its debts.

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

At the maturity of a forward contract an Underlying Fund may either accept
or make delivery of the currency specified in the contract or, at or prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
often, but not always, effected with the currency trader who is a party to the
original forward contract.

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

Additionally, when an Underlying Fund's investment adviser believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract to sell, for a
fixed amount of U.S. dollars, the amount of foreign currency approximating the
value of some or all of an Underlying Fund's portfolio securities quoted or
denominated in such foreign currency. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities

B-55
<PAGE>

between the date on which the contract is entered into and the date it matures.
Using forward contracts to protect the value of an Underlying Fund's portfolio
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes a
rate of exchange which an Underlying Fund can achieve at some future point in
time. The precise projection of short-term currency market movements is not
possible, and short-term hedging provides a means of fixing the U.S. dollar
value of only a portion of an Underlying Fund's foreign assets.

The CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity, Asia Growth, Core Fixed
Income, Global Income and High Yield Funds may engage in cross-hedging by using
forward contracts in one currency to hedge against fluctuations in the value of
securities quoted or denominated in a different currency if an Underlying Fund's
investment adviser determines that there is a pattern of correlation between the
two currencies. These Funds may also purchase and sell forward contracts to
seek to increase total return when an Underlying Fund's investment adviser
anticipates that the foreign currency will appreciate or depreciate in value,
but securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in the Underlying Fund's portfolio.

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

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

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<PAGE>

Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Since a forward foreign currency exchange contract
is not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive an Underlying Fund of unrealized profits or force the Underlying
Fund to cover its commitments for purchase or resale, if any, at the current
market price.

Forward contracts are subject to the risk that the counterparty to such
contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive an Underlying Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Underlying
Fund to cover its purchase or sale commitments, if any, at the current market
price. An Underlying Fund will not enter into such transactions unless the
credit quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by its investment adviser.

WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Certain of the
Underlying Funds may write covered put and call options and purchase put and
call options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of portfolio securities and against increases
in the U.S. dollar cost of securities to be acquired. 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
and when an Underlying Fund seeks to close out an option, 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 an Underlying Fund's
position, the Underlying Fund may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies to be written or
purchased by an Underlying Fund will be traded on U.S. and foreign exchanges or
over-the-counter.

CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity, Asia Growth, 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 with a pattern of
correlation. In addition, certain Underlying Funds may purchase call or put
options on currency to seek to increase total return when its 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 included in the Underlying Fund's
portfolio.

A call option written by an Underlying Fund obligates an Underlying Fund to
sell specified currency to the holder of the option at a specified price if the
option is exercised before the expiration date. A put option written by an
Underlying Fund would obligate an Underlying Fund to purchase specified currency
from the option holder at a specified price if the option is exercised at any
time before the expiration date. The writing of

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<PAGE>

currency options involves a risk that an Underlying Fund will, upon exercise of
the option, be required to sell currency subject to a call at a price that is
less than the currency's market value or be required to purchase currency
subject to a put at a price that exceeds the currency's market value. For a
description of how to cover written put and call options, see "Writing Covered
Options" above.

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

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

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

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

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

SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. There is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time. In such event, it might not be possible to effect
closing transactions in particular options, with the result that an Underlying
Fund would have to exercise its options in order to realize any profit and would
incur transaction costs upon the sale of underlying securities pursuant to the
exercise of put options. If an Underlying Fund as a covered call option writer
is unable to effect a closing purchase transaction in a secondary market, it
will not be able to sell the underlying currency (or security quoted or
denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.

There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.

An Underlying Fund may purchase and write over-the-counter options to the
extent consistent with its limitation on investments in illiquid securities.
Trading in over-the-counter options is subject to the risk that the other party
will be unable or unwilling to close out options purchased or written by an
Underlying Fund.

The amount of the premiums which an Underlying Fund may pay or receive may
be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option purchasing and writing
activities.

MORTGAGE DOLLAR ROLLS

The Underlying Fixed-Income Funds may enter into mortgage "dollar rolls" in
which an Underlying Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity), but not identical securities on a specified future
date. During the roll period, an Underlying Fund loses the right to receive
principal and interest paid on the securities sold. However, an Underlying Fund
would benefit to the extent of any

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difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of an Underlying Fund compared with what such performance would have been
without the use of mortgage dollar rolls. All cash proceeds will be invested in
instruments that are permissible investments for the applicable Fund. An
Underlying Fund will hold and maintain in a segregated account until the
settlement date cash or liquid assets, as permitted by applicable law, in an
amount equal to its forward purchase price.

For financial reporting and tax purposes, the Underlying Funds treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Underlying Funds
do not currently intend to enter into mortgage dollar rolls that are accounted
for as a financing.

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

CONVERTIBLE SECURITIES

Convertible securities include corporate notes or preferred stock but are
ordinarily long-term debt obligation of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all debt securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. Convertible
securities generally offer lower interest or dividend yields than non-
convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion price,
the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock.

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

The CORE International Equity, International Equity, Emerging Markets
Equity, Japanese Equity, Asia Growth, International Small Cap, Core Fixed
Income, Global Income and High Yield Funds may enter into currency swaps for
both hedging purposes and to seek to increase total return. In addition, the
Underlying Fixed Income Funds and Real Estate Securities Fund may enter into
mortgage, credit, index and interest rate swaps and other interest rate swap
arrangements such as rate caps, floors and collars, for hedging purposes or to
seek to increase total return. Currency swaps involve the exchange by an
Underlying Fund with another party of their respective rights to make or receive
payments in specified currencies. Interest rate swaps involve the exchange by
an Underlying Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments. Mortgage swaps are similar to interest rate swaps in that they
represent commitments to pay and receive interest. The notional principal
amount, however, is tied to a reference pool or pools of mortgages. Index swaps
involve the exchange by an Underlying Fund with another party of the respective
amounts payable with respect to a notional principal amount at interest rates
equal to two specified indices. The purchase of an interest rate cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payment of interest on a notional principal amount
from the party selling such interest rate cap. Credit swaps involve the receipt
of floating or fixed rate payments in exchange for assuming potential credit
losses of an underlying security. Credit swaps give one party to a transactions
the right to dispose of or acquire an asset (or group of assets), or the right
to receive or make a payment from the other party, upon the occurrence of
specified credit events. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling the interest rate floor. An interest rate collar is the
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates. Since interest rate, mortgage and
currency swaps and interest rate caps, floors and collars are individually
negotiated, each Fund expects to achieve an acceptable degree of correlation
between its portfolio investments and its swap, cap, floor and collar positions.

An Underlying Fund will enter into interest rate, mortgage and index swaps
only on a net basis, which means that the two payment streams are netted out,
with the Underlying Fund receiving or paying, as the case may be, only the net
amount of the two payments. Interest rate, index and mortgage swaps do not
involve the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate, index and mortgage
swaps is limited to the net amount of interest payments that the Underlying Fund
is contractually obligated to make. If the other party to an interest rate,
index or mortgage swap defaults, the Underlying Fund's risk of loss
consists of the net amount of interest payments that the Underlying Fund is
contractually entitled to receive, if any. In contrast, currency swaps usually
involve the delivery of the entire principal amount of one designated currency
in exchange for the other designated currency. Therefore, the entire principal
value of a currency swap is subject to the risk

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that the other party to the swap will default on its contractual delivery
obligations. To the extent that the net amount payable under an interest rate,
index or mortgage swap and the entire amount of the payment stream payable by an
Underlying Fund under a currency swap or an interest rate floor, cap or collar
is held in a segregated account consisting of cash or liquid assets the
Underlying Funds and their investment advisers believe that transactions do not
constitute senior securities under the Act and, accordingly, will not treat them
as being subject to an Underlying Fund's borrowing restrictions.

An Underlying Equity Fund will not enter into swap transactions unless the
unsecured commercial paper, senior debt or claims paying ability of the other
party thereto is considered to be investment grade by its investment adviser.
The Underlying Fixed-Income Funds will not enter into any swap transactions
unless the unsecured commercial paper, senior debt or claims-paying ability of
the other party is rated either AA or A-1 or better by Standard & Poor's or Aa
or P-1 or better by Moody's or their equivalent ratings. If there is a default
by the other party to such a transaction, an Underlying Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the interbank market. The investment advisers,
under the supervision of the Board of Trustees, are responsible for determining
and monitoring the liquidity of the Underlying Funds' transactions in swaps,
caps, floors and collars.

The use of interest rate, mortgage, credit, index and currency swaps, as
well as interest rate caps, floors and collars, is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If an Underlying Fund's
investment adviser is incorrect in its forecasts of market values, interest
rates and currency exchange rates, the investment performance of an Underlying
Fund would be less favorable than it would have been if this investment
technique were not used.

EQUITY SWAPS

Each Underlying Equity Fund may enter into equity swap contracts to invest
in a market without owning or taking physical custody of securities in
circumstances in which direct investment is restricted for legal reasons or is
otherwise impracticable. The counterparty to an equity swap contract will
typically be a bank, investment banking firm or broker/dealer. The counterparty
will generally agree to pay the Underlying Fund the amount, if any, by which the
notional amount of the equity swap contract would have increased in value had it
been invested in the particular stocks, plus the dividends that would have been
received on those stocks. The Underlying Fund will agree to pay to the
counterparty a floating rate of interest on the notional amount of the equity
swap contract plus the amount, if any, by which that notional amount would have
decreased in value had it been invested in such stocks. Therefore, the return to
the Underlying Fund on any

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equity swap contract should be the gain or loss on the notional amount plus
dividends on the stocks less the interest paid by the Underlying Fund on the
notional amount.

An Underlying Fund will enter into equity swaps only on a net basis, which
means that the two payment streams are netted out, with the Underlying Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Payments may be made at the conclusion of an equity swap contract or
periodically during its term. Equity swaps do not involve the delivery of
securities or other underlying assets. Accordingly, the risk of loss with
respect to equity swaps is limited to the net amount of payments that an
Underlying Fund is contractually obligated to make. If the other party to an
equity swap defaults, an Underlying Fund's risk of loss consists of the net
amount of payments that such Fund is contractually entitled to receive, if any.
The net amount of the excess, if any, of an Underlying Fund's obligations over
its entitlements with respect to each equity swap will be accrued on a daily
basis and an amount of cash or liquid assets, having an aggregate net asset
value at least equal to such accrued excess will be maintained in a segregated
account by an Underlying Fund's custodian. Inasmuch as these transactions are
entered into for hedging purposes or are offset by segregated cash or liquid
assets, as permitted by applicable law, the Underlying Funds and their
Investment Advisers believe that transactions do not constitute senior
securities under the Act and, accordingly, will not treat them as being subject
to an Underlying Fund's borrowing restrictions.

The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the over-the-counter market. The Investment
Advisers, under the supervision of the Board of Trustees, are responsible for
determining and monitoring the liquidity of the Underlying Funds' transactions
in swaps, caps, floors and collars.

The Underlying Funds will not enter into any swap transactions unless the
unsecured commercial paper, senior debt or claims-paying ability of the other
party is rated A or better by a nationally recognized statistical rating
organization. If there is a default by the other party to such a transaction,
an Underlying Fund will have contractual remedies pursuant to the agreements
related to the transaction.

The use of equity swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Investment Advisers are incorrect in
their forecasts of market values, the investment performance of an Underlying
Fund would be less favorable than it would have been if this investment
technique were not used.

REAL ESTATE INVESTMENT TRUSTS

The Underlying Equity Funds may invest in shares of REITs. REITs are
pooled investment vehicles which invest primarily in income producing real
estate or real estate

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related loans or interest. REITs are generally classified as equity REITs,
mortgage REITs or a combination of equity and mortgage REITs. Equity REITs
invest the majority of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive income
from the collection of interest payments. Like regulated investment companies
such as the Underlying Funds, REITs are not taxed on income distributed to
shareholders provided they comply with certain requirements under the Code. An
Underlying Fund will indirectly bear its proportionate share of any expenses
paid by REITs in which it invests in addition to the expenses paid by an
Underlying Fund.

Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Investment Company Act of 1940, as amended (the "Act").
REITs (especially mortgage REITs) are also subject to interest rate risks.

LENDING OF PORTFOLIO SECURITIES

The Underlying Funds may lend portfolio securities. Under present
regulatory policies, such loans may be made to institutions such as brokers or
dealers and would be required to be secured continuously by collateral in cash,
cash equivalents or U.S. Government securities maintained on a current basis at
an amount at least equal to the market value of the securities loaned. An
Underlying Fund would be required to have the right to call a loan and obtain
the securities loaned at any time on five days' notice. For the duration of a
loan, an Underlying Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and would also
receive compensation from investment of the collateral. An Underlying Fund
would not have the right to vote any securities having voting rights during the
existence of the loan, but an Underlying Fund would call the loan in
anticipation of an important vote to be taken among holders of the securities or
the giving or withholding of their consent on a material matter affecting the
investment. As with other extensions of credit there are risks of delay in
recovering, or even loss of rights in, the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by an Underlying Fund's investment adviser to be of good standing, and
when, in the judgment of an Underlying Fund's investment adviser, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If an investment adviser determines to make
securities loans, it is intended that the value of the securities loaned would
not exceed one-third of the value of the total assets of an Underlying Fund
(including the loan collateral).

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WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

Each Underlying Fund may purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment basis. These transactions
involve a commitment by an Underlying Fund to purchase or sell securities at a
future date. The price of the underlying securities (usually expressed in terms
of yield) and the date when the securities will be delivered and paid for (the
settlement date) are fixed at the time the transaction is negotiated. When-
issued purchases and forward commitment transactions are negotiated directly
with the other party, and such commitments are not traded on exchanges. An
Underlying Fund will purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis only with the intention of
completing the transaction and actually purchasing or selling the securities.
If deemed advisable as a matter of investment strategy, however, an Underlying
Fund may dispose of or negotiate a commitment after entering into it. The
Underlying Funds may also realize a capital gain or loss in connection with
these transactions. For purposes of determining an Underlying Fund's duration,
the maturity of when-issued or forward commitment securities will be calculated
from the commitment date. An Underlying Fund is required to segregate until
three days prior to the settlement date, cash and liquid assets in an amount
sufficient to meet the purchase price. Alternatively, an Underlying Fund may
enter into offsetting contracts for the forward sale of other securities that it
owns. Securities purchased or sold on a when-issued or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date or if the value of the security to be sold
increases prior to the settlement date.

INVESTMENT IN UNSEASONED COMPANIES

The Underlying Funds may invest a portion of their net assets in companies
(including predecessors) which have operated less than three years, except that
this limitation does not apply to debt securities which have been rated
investment grade or better by at least one nationally recognized statistical
rating organization. The securities of such companies may have limited
liquidity, which can result in their being priced higher or lower than might
otherwise be the case. In addition, investments in unseasoned companies are
more speculative and entail greater risk than do investments in companies with
an established operating record.

OTHER INVESTMENT COMPANIES

Each Underlying Equity Fund reserves the right to invest up to 5% and each
Underlying Fixed-Income Fund reserves the right to invest up to 10% of its net
assets in the securities of other investment companies but may not invest more
than 5% of its total assets in the security of one investment company or acquire
more than 3% of the voting securities of any other investment company. Pursuant
to an exemptive order obtained from the SEC, the Underlying Funds may invest in
money market funds for which the Adviser or any of its affiliates serves as
investment adviser. An Underlying Fund will

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indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies in which it invests in addition to the
advisory and administration fees paid by the Underlying Fund. However, to the
extent that the Underlying Fund invests in a money market fund for which the
investment adviser or any of its affiliates acts as adviser, the advisory and
administration fees payable by the Underlying Fund to the investment adviser or
its affiliates will be reduced by an amount equal to the Underlying Fund's
proportionate share of the advisory and administration fees paid by such money
market fund to the investment adviser or its affiliates.

Each Underlying Equity Fund may also invest in SPDRs. SPDRs are interests
in a unit investment trust ("UIT") that may be obtained from the UIT or
purchased in the secondary market (SPDRs are listed on the American Stock
Exchange). The UIT will issue SPDRs in aggregations known as "Creation Units"
in exchange for a "Portfolio Deposit" consisting of (a) a portfolio of
securities substantially similar to the component securities ("Index
Securities") of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
Index"), (b) a cash payment equal to a pro rata portion of the dividends accrued
on the UIT's portfolio securities since the last dividend payment by the UIT,
net of expenses and liabilities, and (c) a cash payment or credit ("Balancing
Amount") designed to equalize the net asset value of the S&P Index and the net
asset value of a Portfolio Deposit.

SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, the Portfolio must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the
Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.

The price of SPDRs is derived from and based upon the securities held by
the UIT. Accordingly, the level of risk involved in the purchase or sale of a
SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Underlying Funds could result in losses on SPDRs.
Trading in SPDRs involves risks similar to those risks, described under "Risk
Associated with Options Transactions," involved in the writing of options on
securities.

Certain Underlying Funds may also purchase shares of investment companies
investing primarily in foreign securities, including "country funds." Country
funds have portfolios consisting primarily of securities of issuers located in
one foreign country or region. Certain Underlying Funds may also invest in World
Equity Benchmark Shares ("WEB") and similar securities that invest in securities
included in foreign securities indices.

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REPURCHASE AGREEMENTS

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

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

As with any unsecured debt instrument purchased for an Underlying Fund, the
Underlying Fund's investment adviser seeks to minimize the risk of loss from
repurchase agreements by analyzing the creditworthiness of the obligor, in this
case the seller of the security. Apart from the risk of bankruptcy or
insolvency proceedings, there is also the risk that the seller may fail to
repurchase the security. However, if the market value of the security subject
to the repurchase agreement becomes less than the repurchase price (including
accrued interest), an Underlying Fund will direct the seller of the security to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement equals or exceeds the repurchase price. Certain
repurchase agreements which provide for settlement in more than seven days can
be liquidated before the nominal fixed term on seven days or less notice. Such
repurchase agreements will be regarded as liquid instruments.

In addition, an Underlying Fund, together with other registered investment
companies having advisory agreements with the 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.

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REVERSE REPURCHASE AGREEMENTS

Certain Underlying Funds may borrow money for temporary purposes by entering
into transactions called reverse repurchase agreements. Under these
arrangements, a Fund will sell portfolio securities to dealers in U.S.
Government Securities or members of the Federal Reserve System, with an
agreement to repurchase the security on an agreed date, price and interest
payment. The CORE Fixed Income, Global Income and High Yield Funds may also
enter into reverse repurchase agreements involving certain foreign government
securities. Reverse repurchase agreements involve the possible risk that the
value of portfolio securities a Fund relinquishes may decline below the price a
Fund must pay when the transaction closes. Borrowings may magnify the potential
for gain or loss on amounts invested resulting in an increase in the speculative
character of a Fund's outstanding shares.

When a Fund enters into a reverse repurchase agreement, it places in a
separate custodial account either liquid assets or other high grade debt
securities that have a value equal to or greater than the repurchase price. The
account is then continuously monitored by the Investment Adviser to make sure
that an appropriate value is maintained. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act

RESTRICTED AND ILLIQUID SECURITIES

The Underlying Funds may purchase securities that are not registered or are
offered in an exempt non-public offering ("Restricted Securities") under the
Securities Act of 1933, as amended ("1933 Act"), including securities eligible
for resale to "qualified institutional buyers" pursuant to Rule 144A under the
1933 Act. However, an Underlying Fund will not invest more than 15% (10% in the
case of Financial Square Prime Obligations Fund) of its net assets in illiquid
investments, which includes repurchase agreements maturing in more than seven
days, certain SMBS, municipal leases, certain over-the-counter options,
securities that are not readily marketable and Restricted Securities, unless the
Board of Trustees determines, based upon a continuing review of the trading
markets for the specific Restricted Securities, that such Restricted Securities
are liquid. Certain commercial paper issued in reliance on Section 4(2) of the
1933 Act is treated like Rule 144A Securities. The Trustees have adopted
guidelines and delegated to the Underlying Funds' investment advisers the daily
function of determining and monitoring the liquidity of the Underlying Funds'
portfolio securities. This investment practice could have the effect of
increasing the level of illiquidity in an Underlying Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these Restricted Securities.

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

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INVESTMENT RESTRICTIONS

The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority (as defined in the Act) of the outstanding voting
securities of the affected Portfolio. The investment objective of each
Portfolio and all other investment policies or practices of each Portfolio are
considered by the Trust not to be fundamental and accordingly may be changed
without shareholder approval. See "Investment Objectives and Policies" in the
Prospectus. For purposes of the Act, "majority" means the lesser of (a) 67% or
more of the shares of the Trust or a Portfolio present at a meeting, if the
holders of more than 50% of the outstanding shares of the Trust or a Portfolio
are present or represented by proxy, or (b) more than 50% of the shares of the
Trust or a Portfolio. For purposes of the following limitations, any limitation
which involves a maximum percentage shall not be considered violated unless an
excess over the percentage occurs immediately after, and is caused by, an
acquisition or encumbrance of securities or assets of, or borrowings by, a
Portfolio. With respect to the Portfolios' fundamental investment restriction
no. 3, asset coverage of at least 300% (as defined in the Act), inclusive of any
amounts borrowed, must be maintained at all times.

A Portfolio may not:

(1) make any investment inconsistent with the Portfolio's
classification as a diversified company under the Act;

(2) invest 25% or more of its total assets in the securities of one
or more issuers conducting their principal business activities in
the same industry (excluding investment companies and the U.S.
Government or any of its agencies or instrumentalities). (For
the purposes of this restriction, state and municipal governments
and their agencies, authorities and instrumentalities are not
deemed to be industries; telephone companies are considered to be
a separate industry from water, gas or electric utilities;
personal credit finance companies and business credit finance
companies are deemed to be separate industries; and wholly-owned
finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing
the activities of their parents.) This restriction does not apply
to investments in municipal securities which have been pre-
refunded by the use of obligations of the U.S. government or any
of its agencies or instrumentalities;

(3) borrow money, except (a) the Portfolio may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in
amounts up to 33-1/3% of its total assets (including the amount
borrowed), (b) the Portfolio may, to the extent permitted by
applicable law, borrow up to an additional 5% of its total
assets

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for temporary purposes, (c) the Portfolio may obtain such short-
term credits as may be necessary for the clearance of purchases
and sales of portfolio securities, (d) the Portfolio may
purchase securities on margin to the extent permitted by
applicable law and (e) the Portfolio may engage transactions in
mortgage dollar rolls which are accounted for as financings;

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

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

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

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

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

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

In addition to the fundamental policies mentioned above, the Trustees
have adopted the following non-fundamental policies which can be changed or
amended by action of the Trustees without approval of shareholders.

A Portfolio may not:

(a) Invest in companies for the purpose of exercising control or
management (but this does not prevent a Portfolio from purchasing
a controlling interest in one or more of the Underlying Funds
consistent with its investment objective and policies).

B-70
<PAGE>

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

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

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

The Underlying Funds in which the Portfolios may invest have adopted
certain investment restrictions which may be more or less restrictive than those
listed above, thereby allowing a Portfolio to participate in certain investment
strategies indirectly that are prohibited under the fundamental and non-
fundamental investment restrictions and policies listed above. The investment
restrictions of these Underlying Funds are set forth in their respective
Additional Statements.

MANAGEMENT

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

<TABLE>
<CAPTION>
NAME, AGE Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -------------------
<S> <C> <C>
Ashok N. Bakhru, 56 Chairman Executive Vice President-Finance and
1325 Ave. of Americas & Trustee Administration and Chief Financial
New York, NY 10019 Officer, Coty Inc. (since April 1996);
President, ABN Associates, Inc. (June
1994 through March 1996); Senior Vice
President of Scott Paper Company (until
June 1994); Director of Arkwright Mutual
Insurance Company; Trustee of
International House of Philadelphia;
Member of Cornell University Council;
Trustee of the Walnut Street Theater.
</TABLE>

B-71
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -------------------
<S> <C> <C>
*David B. Ford, 52 Trustee Managing Director, Goldman Sachs (since
One New York Plaza 1996); General Partner, Goldman Sachs
New York, NY 10004 (1986-1996); Co-Head of Goldman Sachs
Asset Management (since December 1994).

*Douglas C. Grip, 36 Trustee Vice President, Goldman Sachs (since May
One New York Plaza & President 1996); President, MFS Retirement
New York, NY 10004 Services Inc., of Massachusetts
Financial Services (prior thereto).

*John P. McNulty, 46 Trustee Managing Director, Goldman Sachs (since
One New York Plaza 1996); General Partner of Goldman Sachs
New York, NY 10004 (1990-1994 and 1995-1996); Co-Head of
Goldman Sachs Asset Management (since
November 1995); Limited Partner of
Goldman Sachs (1994 to November 1995).

Mary P. McPherson, 60 Trustee Vice President and Senior Program
140 East 62nd Street Officer, The Andrew W. Mellon Foundation
New York, NY 10021 (since October 1997); President Emeritus
of Bryn Mawr College (1978-1997);
Director of Josiah Macy, Jr., Foundation
(since 1977); Director of the
Philadelphia Con-tributionship (since
1985); Director of Amherst College
(since 1986); Director of Dayton Hudson
Corporation (since 1988); Director of
the Spenser Foundation (since 1993); and
member of PNC Advisory Board (since
1993).

*Alan A. Shuch, 49 Trustee Limited Partner, Goldman Sachs (since
One New York Plaza 1994); Director and Vice President of
New York, NY 10004 Goldman Sachs Funds Management Inc.
(from April 1990 to November 1994);
President and Chief Operating Officer,
GSAM (from September 1988 to November
1994); Limited Partner Goldman Sachs
(since December 1994).
</TABLE>

B-72
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -------------------
<S> <C> <C>
Jackson W. Smart, 68 Trustee Chairman, Executive Committee, First
One Northfield Plaza #218 Commonwealth, Inc. (a managed dental
Northfield, IL 60093 care company, since January 1996);
Chairman and Chief Executive Officer,
MSP Communications Inc. (a company
engaged in radio broadcasting ) (since
November 1988); Director, Federal
Express Corporation (since 1976),
Evanston Hospital Corporation (since
1980), First Commonwealth, Inc. (since
1988) and North American Private Equity
Group (a venture capital fund).

William H. Springer, 69 Trustee Vice Chairman and Chief Financial and
701 Morningstar Drive Administrative Officer, (February 1987
Lake Forest, IL 60045 to June 1991) of Ameritech (a
telecommunications holding company
(February 1987 to June 1991); Director,
Walgreen Co. (a retail drug store
business); Director of Baker, Fentress &
Co. (a closed-end, non-diversified
management investment company) (April
1992 to present).

Richard P. Strubel, 59 Trustee Managing Director, Tandem Partners, Inc.
737 N. Michigan Avenue (since 1990); Director of Kaynor
Ste. 1405 Technologies, Inc,. (since March 1997);
Chicago, IL 60602 President and Chief Executive Officer,
Microdot, Inc. (a diversified
manufacturer of fastening systems and
connectors) (January 1984 to October
1994).

*John M. Perlowski, 34 Treasurer Vice President, Goldman Sachs (since
One New York Plaza July 1995); Director, Investors Bank and
New York, NY 10004 Trust (November 1993 to July 1995);
Audit Manager of Arthur Andersen LLP
(prior thereto).

*Nancy L. Mucker, 49 Vice Vice President, Goldman Sachs (since
4900 Sears Tower President April 1985); Manager of Shareholder
Chicago, IL 60606 Servicing of GSAM (since November 1989).
</TABLE>

B-73
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -------------------
<S> <C> <C>
*James A. Fitzpatrick, 38 Vice Vice President of Goldman Sachs Asset
4900 Sears Tower President Management (since April 1997); Vice
Chicago, IL 60606 President and General Manager, First
Data Corporation Investor Services
Group (prior thereto).

*Michael J. Richman, 38 Secretary General Counsel of the Mutual Funds
85 Broad Street Group of Goldman Sachs Asset Management
New York, NY 10004 (since December 1997); Associate General
Counsel of Goldman Sachs Asset
Management (February 1994 to December
1997); Vice President and Assistant
General Counsel of Goldman Sachs (since
June 1992); Counsel to the Funds Group,
GSAM (since June 1992); Partner, Hale
and Dorr (September 1991 to June 1992).

*Howard B. Surloff, 33 Assistant Assistant General Counsel, Goldman Sachs
85 Broad Street Secretary Asset Management and Associate General
New York, NY 10004 Counsel to the Funds Group (since
December 1997); Assistant General
Counsel and Vice President, Goldman
Sachs (since November 1993 and May 1994
respectively); Counsel to the Funds
Group, Goldman Sachs Asset Management
(since November 1993); Associate of
Shereff Friedman, Hoffman & Goodman
(prior thereto).

*Valerie A. Zondorak, 33 Assistant Assistant General Counsel, Goldman Sachs
85 Broad Street Secretary Asset Management and Assistant General
New York, NY 10004 Counsel to the Funds Group (since
December 1997); Vice President and
Assistant General Counsel, Goldman Sachs
(since March 1997 and December 1997,
respectively); Associate of Shereff
Friedman, Hoffman & Goodman (prior
thereto).
</TABLE>

B-74
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -------------------
<S> <C> <C>
*Steven E. Hartstein, 35 Assistant Legal Products Analyst, Goldman Sachs
85 Broad Street Secretary (June 1993 to present); Funds Compliance
New York, NY 10004 Officer, Citibank Global Asset
Management (August 1991 to June 1993).

*Deborah Farrell, 27 Assistant Administrative Assistant, Goldman Sachs
85 Broad Street Secretary (January 1996 to present); Secretary,
New York, NY 10004 Goldman Sachs (January 1994 to January
1996); Secretary, Cleary Gottlieb, Steen
and Hamilton (September 1990 to January
1994).

*Kaysie P. Uniacke, 37 Assistant Managing Director (since November 1997);
One New York Plaza Secretary Vice President and Senior Portfolio
New York, NY 10004 Manager, Goldman Sachs Asset Management
(since 1988).

*Elizabeth D. Anderson, 29 Assistant Portfolio Manager, GSAM (April 1996 to
One New York Plaza Secretary present); Junior Portfolio Manager,
New York, NY 10004 Goldman Sachs Asset Management (1995 to
April 1996); Funds Trading Assistant,
GSAM (1993 to 1995); Compliance Analyst,
Prudential Insurance (1991 through 1993).
</TABLE>

Each interested Trustee and officer holds comparable positions with
certain other companies of which Goldman Sachs, Goldman Sachs Asset Management
or an affiliate thereof is the investment adviser, administrator and/or
distributor. As of September 1, 1998, the Trustees and officers of the Trust as
a group owned less than 1% of the outstanding shares of beneficial interest of
each Fund.

The Trust pays each Trustee, other than those who are "interested
persons" of Goldman Sachs, a fee for each Trustee meeting attended and an annual
fee. Such Trustees are also reimbursed for travel expenses incurred in
connection with attending such meetings.

B-75
<PAGE>

The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust (or its predecessors) for the one-year
period ended January 31, 1997:

<TABLE>
<CAPTION>
Pension or Total
RETIREMENT COMPENSATION
BENEFITS FROM GOLDMAN SACHS
AGGREGATE ACCRUED AS MUTUAL FUNDS
COMPENSATION PART OF (INCLUDING THE
NAME OF TRUSTEE from the Portfolios Portfolios' Expenses Portfolios)**
- --------------- ------------------- -------------------- ------------------
<S> <C> <C> <C>
Ashok N. Bakhru* $0 $0 $93,750
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
John P. McNulty 0 0 0
Mary P. McPherson* 0 0 70,500
Alan A. Shuch 0 0 0
Jackson W. Smart* 0 0 70,500
William H. Springer* 0 0 70,500
Richard P. Strubel* 0 0 70,500
</TABLE>

* Includes compensation as Chairman of the Board of Trustees.
** The Goldman Sachs Funds consisted of 43 mutual funds on January 31,
1998.

B-76
<PAGE>

MANAGEMENT SERVICES

As stated in the Portfolios' Prospectus, Goldman Sachs Asset
Management serves as 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
("GSAMI") serves as investment adviser to the International Equity, Emerging
Markets Equity, Asia Growth, Global Income, Japanese Equity and International
Small Cap Funds. As a company with unlimited liability under the laws of
England, GSAMI is regulated by the Investment Management Regulatory Organization
Limited, a United Kingdom self-regulatory organization, in the conduct of its
investment advisory business. See "Management" in the Portfolios' Prospectus
for a description of the Adviser's duties to the Portfolios.

Founded in 1869, Goldman Sachs is among the oldest and largest
investment banking firms in the United States. Goldman Sachs is a leader in
developing portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the United States and in
Beijing, Brazil, Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City,
Milan, Montreal, Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney,
Taipei, Tokyo, Toronto, Vancouver and Zurich. It has trading professionals
throughout the United States, as well as in London, Tokyo, Hong Kong and
Singapore. The active participation of Goldman Sachs in the world's financial
markets enhances its ability to identify attractive investments.

The Underlying Funds' investment advisers have access to the
substantial research and market expertise of Goldman Sachs whose investment
research effort is one of the largest in the industry. The Goldman Sachs Global
Investment Research Department covers approximately 2,000 companies, including
approximately 1,000 U.S. corporations in 60 industries. The in-depth
information and analyses generated by Goldman Sachs' research analysts are
available to the investment advisers. For more than a decade, Goldman Sachs has
been among the top-ranked firms in Institutional Investor's annual "All-America
Research Team" survey. In addition, many of Goldman Sachs' economists,
securities analysts, portfolio strategists and credit analysts have consistently
been highly ranked in respected industry surveys conducted in the U.S. and
abroad. Goldman Sachs is also among the leading investment firms using
quantitative

B-77
<PAGE>

analytics (now used by a growing number of investors) to structure and evaluate
portfolios.

In managing the Underlying Funds, the Underlying Funds' investment
advisers have access to Goldman Sachs' economics research. The Economics
Research Department conducts economic, financial and currency markets research
which analyzes economic trends and interest and exchange rate movement
worldwide. The Economics Research Department tracks factors such as inflation
and money supply figures, balance of trade figures, economic growth, commodity
prices, monetary and fiscal policies, and political events that can influence
interest rates and currency trends. The success of Goldman Sachs' international
research team has brought wide recognition to its members. The team has earned
top rankings in the Institutional Investor's annual "All British Research Team
Survey" in the following categories: Economics (U.K.) 1986-1993;
Economics/International 1989-1993; and Currency Forecasting 1986-1993. In
addition, the team has also earned top rankings in the annual "Extel Financial
Survey" of U.K. investment managers in the following categories: U.K. Economy
1989-1995; International Government Bond Market 1993-1995; International
Economies 1986, 1988-1995; and Currency Movements 1986-1993.

In structuring Adjustable Rate Government Fund's and Short Duration
Government Fund's respective securities portfolios, their investment adviser
will review the existing overall economic and mortgage market trends. The
investment adviser will then study yield spreads, the implied volatility and the
shape of the yield curve. The investment adviser will then apply this analysis
to a list of eligible securities that meet the respective Fund's investment
guidelines. With respect to Adjustable Rate Government Fund, this analysis is
used to plan a two-part portfolio, which will consist of a "core" portfolio of
ARMs and a "relative value" portfolio of other mortgage assets that can enhance
portfolio returns and lower risk (such as investments in CMO floating-rate
tranches and interest only SMBS).

With respect to the Adjustable Rate Government Fund, Government Income
Fund, Short Duration Government Fund, High Yield Fund and Core Fixed Income
Fund, the Funds' investment advisers expect to utilize Goldman Sachs'
sophisticated option-adjusted analytics to help make strategic asset allocations
within the markets for U.S. government, Mortgage-Backed and other securities and
to employ this technology periodically to re-evaluate the Funds' investments as
market conditions change. Goldman Sachs has also developed a prepayment model
designed to estimate mortgage prepayments and cash flows under different
interest rate scenarios. Because a Mortgage-Backed Security incorporates the
borrower's right to prepay the mortgage, the investment advisers use a
sophisticated option-adjusted spread (OAS) model to measure expected returns. A
security's OAS is a function of the level and shape of the yield curve,
volatility and the particular investment adviser's expectation of how a change
in interest rates will affect prepayment levels. Since the OAS model assumes a
relationship between prepayments and interest rates, the investment advisers
consider it a better way to measure a security's expected return and absolute
and relative values than yield to maturity. In using OAS technology, the
investment advisers will first evaluate the

B-78
<PAGE>

absolute level of a security's OAS considering its liquidity and its interest
rate, volatility and prepayment sensitivity. The investment advisers will then
analyze its value relative to alternative investments and to its own
investments. The investment advisers will also measure a security's interest
rate risk by computing an option adjusted duration (OAD). The investment
advisers believe a security's OAD is a better measurement of its price
sensitivity than cash flow duration, which systematically misstates portfolio
duration. The investment advisers also evaluate returns for different mortgage
market sectors and evaluate the credit risk of individual securities. This
sophisticated technical analysis allows the investment advisers to develop
portfolio and trading strategies using Mortgage-Backed Securities that are
believed to be superior investments on a risk-adjusted basis and which provide
the flexibility to meet the respective Funds' duration targets and cash flow
pattern requirements.

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

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

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

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

B-79
<PAGE>

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

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

The management agreements for the Portfolios and the Underlying Funds
provide that the Adviser (and its affiliates) may render similar services to
others as long as the services provided by them thereunder are not impaired
thereby.

The Portfolios' management agreement was approved by the Trustees,
including a majority of the Trustees who are not parties to the management
agreement or "interested persons" (as such term is defined in the Act) of any
party thereto (the "non-interested Trustees"), on October 21, 1997. These
arrangements were approved by the sole shareholder of each Portfolio on January
9, 1998 by consent action to satisfy conditions imposed by the SEC in connection
with the registration of shares of the Portfolio under the Securities Act of
1933. The management agreement will remain in effect until June 30, 1999 and
from year to year thereafter provided such continuance is specifically approved
at least annually by (a) the vote of a majority of the outstanding voting
securities of such Portfolio or a majority of the Trustees, and (b) the vote of
a majority of the non-interested Trustees, cast in person at a meeting called
for the purpose of voting on such approval. The management agreement will
terminate automatically with respect to a Portfolio if assigned (as defined in
the Act) and is terminable at any time without penalty by the Trustees or by
vote of a majority of the outstanding voting securities of the affected
Portfolio on 60 days' written notice to the Adviser and by the Adviser on 60
days' written notice to the Trust.

B-80
<PAGE>

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

Pursuant to the management agreement, the Advisers are entitled to
receive the contractual fees listed below, payable monthly of such Portfolio's
average daily net assets.

Portfolio Asset Allocation Fee
- --------- --------------------

Income Strategy .35%
Growth and Income Strategy .35%
Growth Strategy .35%
Aggressive Growth Strategy .35%

Activities of Goldman Sachs and Its Affiliates and Other Accounts
-----------------------------------------------------------------
Managed by Goldman Sachs. The involvement of the Adviser and Goldman Sachs and
- ------------------------
their affiliates in the management of, or their interest in, other accounts and
other activities of Goldman Sachs may present conflicts of interest with respect
to the Portfolios and the Underlying Funds or impede their investment
activities.

Goldman Sachs and its affiliates, including, without limitation, the
Adviser and its advisory affiliates, have proprietary interests in, and may
manage or advise with respect to, accounts or funds (including separate accounts
and other funds and collective investment vehicles) which have investment
objectives similar to those of the Portfolios and the Underlying Funds and/or
which engage in transactions in the same types of securities, currencies and
instruments. Goldman Sachs and its affiliates are major participants in the
global currency, equities, swap and fixed-income markets, in each case both on a
proprietary basis and for the accounts of customers. As such, Goldman Sachs and
its affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Underlying Funds invest. Such
activities could affect the prices and availability of the securities,
currencies and instruments in which the Underlying Funds will invest, which
could have an adverse impact on each Fund's (and, consequently, each
Portfolio's) performance. Such transactions, particularly in respect of
proprietary accounts or customer accounts other than those included in the
Adviser's and its advisory affiliates' asset management activities, will be
executed independently of the Underlying Funds' transactions and thus at prices
or rates that may be more or less favorable. When the Adviser and its advisory
affiliates seek to purchase or sell the same

B-81
<PAGE>

assets for their managed accounts, including the Underlying Funds, the assets
actually purchased or sold may be allocated among the accounts on a basis
determined in its good faith discretion to be equitable. In some cases, this
system may adversely affect the size or the price of the assets purchased or
sold for the Underlying Funds.

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

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

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

The investment activities of Goldman Sachs and its affiliates for
their proprietary accounts and accounts under their management may also limit
the investment opportunities for the Underlying Funds in certain emerging
markets in which limitations are imposed upon the aggregate amount of
investment, in the aggregate or individual issuers, by affiliated foreign
investors.

An investment policy committee which may include partners of Goldman
Sachs and its affiliates may develop general policies regarding an Underlying
Fund's activities but will not be involved in the day-to-day management of such
Fund. In such instances,

B-82
<PAGE>

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

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

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

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

From time to time, Goldman Sachs or any of its affiliates may, but is
not required to, purchase and hold shares of an Underlying Fund in order to
increase the assets of the Underlying Fund. Increasing an Underlying Fund's
assets may enhance investment flexibility and diversification and may contribute
to economies of scale that tend to reduce the Underlying Fund's expense ratio.
Goldman Sachs reserves the right to redeem at any time some or all of the shares
of an Underlying Fund acquired for its own account. A large redemption of
shares of an Underlying Fund by Goldman Sachs could

B-83
<PAGE>

significantly reduce the asset size of the Underlying Fund, which might have an
adverse effect on the Underlying Fund's investment flexibility, portfolio
diversification and expense ratio. Goldman Sachs will consider the effect of
redemptions on an Underlying Fund and other shareholders in deciding whether to
redeem its shares.

It is possible that an Underlying Fund's holdings will include
securities of entities for which Goldman Sachs performs investment banking
services as well as securities of entities in which Goldman Sachs makes a
market. From time to time, Goldman Sachs' activities may limit the Underlying
Funds' flexibility in purchases and sales of securities. When Goldman Sachs is
engaged in an underwriting or other distribution of securities of an entity, the
Underlying Funds' investment advisers may be prohibited from purchasing or
recommending the purchase of certain securities of that entity for the
Underlying Funds.

DISTRIBUTOR AND TRANSFER AGENT

Goldman Sachs serves as the exclusive Distributor of shares of the
Portfolios pursuant to a "best efforts" arrangement as provided by a
distribution agreement with the Trust on behalf of each Portfolio. Pursuant to
the distribution agreement, after the Portfolios' Prospectus and periodic
reports have been prepared, set in type and mailed to shareholders, Goldman
Sachs will pay for the printing and distribution of copies thereof used in
connection with the offering to prospective investors. Goldman Sachs will also
pay for other supplementary sales literature and advertising costs. Goldman
Sachs has entered into sales agreements with certain investment dealers and
financial service firms (the "Authorized Dealers") to solicit subscriptions for
Class A, Class B and Class C Shares of each of the Portfolios that offer such
classes of shares. Goldman Sachs receives a portion of the sales load imposed
on the sale, in the case of Class A Shares, or redemption in the case of Class B
and Class C Shares, of such Portfolio shares.

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

As compensation for the services rendered to the Portfolios' by
Goldman Sachs as transfer and dividend disbursing agent and the assumption by
Goldman Sachs of the expenses related thereto, Goldman Sachs is entitled to
receive fees from each Portfolio as stated in the Prospectus.

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

CUSTODIAN AND SUB-CUSTODIANS

State Street, 1717 Heritage Drive, North Quincy, Massachusetts 02171,
is the custodian of the Trust's portfolio securities and cash. State Street
also maintains the Trust's accounting records. State Street may appoint sub-
custodians from time to time to hold certain securities purchased by the Trust
in domestic and foreign and to hold cash for the Trust.

INDEPENDENT PUBLIC ACCOUNTANTS

Arthur Andersen, LLP, independent public accountants, 225 Franklin
Street, Boston, Massachusetts 02110, have been selected as auditors of the
Trust. In addition to audit services, Arthur Andersen, LLP prepares the Trust's
federal and state tax returns, and provides consultation and assistance on
accounting, internal control and related matters.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The particular investment adviser for an Underlying Fund is
responsible for decisions to buy and sell securities for the Underlying Fund,
the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a securities exchange are effected through brokers who charge a commission
for their services. Orders may be directed to any broker including, to the
extent and in the manner permitted by applicable law, Goldman Sachs.

In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of a security usually includes a profit to
the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which case
no commissions or discounts are paid.

The portfolio transactions for the Underlying Fixed-Income Funds are
generally effected at a net price without a broker's commission (i.e., a dealer
is dealing with an Underlying Fund as principal and receives compensation equal
to the spread between the dealer's cost for a given security and the resale
price of such security). In certain foreign countries, debt securities are
traded on exchanges at fixed commission rates.

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In placing orders for portfolio securities of an Underlying Fund, the
Underlying Fund's investment advisers are generally required to give primary
consideration to obtaining the most favorable price and efficient execution
under the circumstances. This means that an investment adviser will seek to
execute each transaction at a price and commission, if any, which provides the
most favorable total cost or proceeds reasonably attainable in the
circumstances. As permitted by Section 28(e) of the Securities Exchange Act of
1934, the Underlying Fund may pay a broker which provides brokerage and research
services an amount of disclosed commission in excess of the commission which
another broker would have charged for effecting that transaction. Such practice
is subject to a good faith determination by the Trustees that such commission is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. While the Underlying Funds' investment
advisers generally seek reasonably competitive spreads or commissions, an
Underlying Fund will not necessarily be paying the lowest spread or commission
available. Within the framework of this policy, the investment advisers will
consider research and investment services provided by brokers or dealers who
effect or are parties to portfolio transactions of an Underlying Fund, the
investment advisers and their affiliates, or their other clients. Such research
and investment services are those which brokerage houses customarily provide to
institutional investors and include research reports on particular industries
and companies, economic surveys and analyses, recommendations as to specific
securities and other products or services (e.g., quotation equipment and
computer related costs and expenses), advice concerning the value of securities,
the advisability of investing in, purchasing or selling securities, the
availability of securities or the purchasers or sellers of securities,
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and performance of accounts,
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement) and providing lawful and appropriate
assistance to the investment advisers in the performance of their decision-
making responsibilities. Such services are used by the investment advisers in
connection with all of their investment activities, and some of such services
obtained in connection with the execution of transactions for an Underlying Fund
may be used in managing other investment accounts. Conversely, brokers
furnishing such services may be selected for the execution of transactions of
such other accounts, whose aggregate assets are far larger than those of an
Underlying Fund, and the services furnished by such brokers may be used by the
investment advisers in providing management services for the Trust.

In circumstances where two or more broker-dealers offer comparable
prices and execution capability, preference may be given to a broker-dealer
which has sold shares of an Underlying Fund as well as shares of other
investment companies or accounts managed by the Underlying Funds' investment
advisers. This policy does not imply a commitment to execute all portfolio
transactions through all broker-dealers that sell shares of the Underlying Fund.

On occasions when an Underlying Fund's investment adviser deems the
purchase or sale of a security to be in the best interest of an Underlying Fund
as well as its other customers (including any other fund or other investment
company or advisory account for which such investment adviser acts as investment
adviser or subadviser), the investment

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adviser, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be sold or purchased for the Underlying Fund with
those to be sold or purchased for such other customers in order to obtain the
best net price and most favorable execution under the circumstances. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the particular investment
adviser in the manner it considers to be equitable and consistent with its
fiduciary obligations to such Fund and such other customers. In some instances,
this procedure may adversely affect the price and size of the position
obtainable for an Underlying Fund.

Commission rates in the U.S. are established pursuant to negotiations
with the broker based on the quality and quantity of execution services provided
by the broker in the light of generally prevailing rates. The allocation of
orders among brokers and the commission rates paid are reviewed periodically by
the Trustees.

Subject to the above considerations, the Underlying Funds' investment
advisers may use Goldman Sachs as a broker for an Underlying Fund. In order for
Goldman Sachs to effect any portfolio transactions for an Underlying Fund, the
commissions, fees or other remuneration received by Goldman Sachs must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time. This standard would allow Goldman Sachs to receive no more than
the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction. Furthermore, the Trustees,
including a majority of the Trustees who are not "interested" Trustees, have
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to Goldman Sachs are consistent
with the foregoing standard. Brokerage transactions with Goldman Sachs are also
subject to such fiduciary standards as may be imposed upon Goldman Sachs by
applicable law.

NET ASSET VALUE

Under the Act, the Trustees are responsible for determining in good
faith the fair value of securities of each Portfolio. In accordance with
procedures adopted by the Trustees, the net asset value per share of each class
of each Portfolio is calculated by determining the value of the net assets
attributed to each class of that Portfolio and dividing by the number of
outstanding shares of that class. All securities are valued as of the close of
regular trading on the New York Stock Exchange (which is normally, but not
always, 3:00 p.m. Chicago time or 4:00 p.m. New York time) on each Business Day
(as defined in the Prospectus).

In the event that the New York Stock Exchange or the national
securities exchange on which stock options are traded adopt different trading
hours on either a permanent or temporary basis, the Trustees will reconsider the
time at which net asset

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value is computed. In addition, each Portfolio may compute its net asset value
as of any time permitted pursuant to any exemption, order or statement of the
SEC or its staff.

In determining the net asset value of a Portfolio, the net asset value
of the Underlying Funds' shares held by the Portfolio will be their net asset
value at the time of computation. Financial Square Prime Obligations Fund
values all of its portfolio securities using the amortized cost valuation method
pursuant to Rule 2a-7 under the Act. Other portfolio securities for which
accurate market quotations are available are valued by a Portfolio or Underlying
Fund as follows: (a) securities listed on any U.S. or foreign stock exchange or
on the National Association of Securities Dealers Automated Quotations System
("NASDAQ") will be valued at the last sale price on the exchange or system in
which they are principally traded, on the valuation date. If there is no sale
on the valuation day, securities traded will be valued at the mean between the
closing bid and asked prices, or if closing bid and asked prices are not
available, at the exchange defined close price on the exchange or system in
which such securities are principally traded. If the relevant exchange or
system has not closed by the above-mentioned time for determining the Underlying
Fund's net asset value, the securities will be valued at the mean between the
bid and the asked prices at the time the net asset value is determined; (b)
over-the-counter securities not quoted on NASDAQ will be valued at the last sale
price on the valuation day or, if no sale occurs, at the mean between the last
bid and asked price; (c) equity securities for which no prices are obtained
under sections (a) or (b) hereof, including those for which a pricing service
supplies no exchange quotation or a quotation that is believed by the portfolio
manager/trader to be inaccurate, will be valued at their fair value in
accordance with procedures approved by the Board of Trustees; (d) fixed-income
securities with a remaining maturity of 60 days or more for which accurate
market quotations are readily available will be valued according to dealer-
supplied bid quotations or bid quotations from a recognized pricing service
(e.g., Merrill Lynch, J.J. Kenny, Muller Data Corp., Bloonberg, EJV, Reuters or
Standard & Poor's); (e) fixed-income securities for which quotations are not
readily available are valued by the investment adviser based on valuation models
that take into account spread and daily yield changes on government securities
in the appropriate market (i.e. matrix pricing); (f) debt securities with a
remaining maturity of 60 days or less are valued by the particular investment
adviser at amortized cost, which the Trustees have determined to approximate
fair value; and (g) all other instruments, including those for which a pricing
service supplies no exchange quotation or a quotation that is believed by the
portfolio manager/trader to be inaccurate, will be valued at fair value in
accordance with the valuation procedures approved by the Board of Trustees.

In addition, portfolio securities of the Global Income Fund for which
accurate market quotations are available are valued as follows: (a) securities
listed on any U.S. or foreign stock exchange or on the National Association of
Securities Dealers Automated Quotations System ("NASDAQ") will be valued at the
last sale price on the exchange or system in which they are principally traded,
on the valuation date. If there is no sale on the valuation day, securities
traded will be valued at the mean between the closing bid and asked prices or if
closing bid and asked prices are not available, at the exchange defined close
price on the exchange or system in which such securities are principally

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traded. If the relevant exchange or system has not closed by the time for
determining the Underlying Fund's net asset value, the securities will be valued
at the mean between the bid and asked prices at the time the net asset value is
determined, and (ii) on a foreign exchange will be valued at the official bid
price. The last sale price and official bid price for securities traded
principally on a foreign exchange will be determined as of the close of the
London Foreign Exchange; (b) over-the-counter securities not quoted on NASDAQ
will be valued at the last sale price on the valuation day or, if no sale
occurs, at the mean between the last bid and asked prices; (c) options and
futures contracts will be valued at the last sale price in the market where such
contract is principally traded; and (d) forward foreign currency exchange
contracts will be valued at the mean between the last bid and asked quotations
supplied by a dealer in such contracts.

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

Generally, trading in securities on European and Far Eastern
securities exchanges and on over-the-counter markets is substantially completed
at various times prior to the close of business on each Business Day in New York
(i.e., a day on which the New York Stock Exchange is open for trading). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all Business Days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not Business Days in New York and days on which the Underlying Funds' net
asset values are not calculated. Such calculation does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. Events affecting the values of
portfolio securities that occur between the time their prices are determined and
the close of regular trading on the New York Stock Exchange will not be
reflected in an Underlying Fund's calculation of net asset values unless the
Trustees deem that the particular event would materially affect net asset value,
in which case an adjustment will be made.

The proceeds received by each Portfolio and each other series of the
Trust from the issue or sale of its shares, and all net investment income,
realized and unrealized gain and proceeds thereof, subject only to the rights of
creditors, will be specifically allocated to such Portfolio and constitute the
underlying assets of that Portfolio or series. The underlying assets of each
Portfolio will be segregated on the books of account, and will be charged with
the liabilities in respect of such Portfolio and with a share of the general
liabilities of the Trust. Expenses of the Trust with respect to the Portfolios
and the other series of the Trust are generally allocated in proportion to the
net asset values of the respective Portfolios or series except where allocations
of direct expenses can otherwise be fairly made.

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PERFORMANCE INFORMATION

A Portfolio may from time to time quote or otherwise use total return,
yield and/or distribution rate information in advertisements, shareholder
reports or sales literature. Average annual total return and yield are computed
pursuant to formulas specified by the SEC.

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
public 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 distribution rate for a specified period is calculated by
annualizing distributions of net investment income for such period and dividing
this amount by the net asset value per share or maximum public offering price on
the last day of the period.

Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price applicable to the relevant
class (i.e., net asset value in the case of each class other than Class A) at
the beginning of the period, and then calculating the annual compounded rate of
return which would produce that amount, assuming a redemption (and payment of
any contingent deferred sales charge) at the end of the period. This
calculation assumes a complete redemption of the investment. It also assumes
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.

Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period.

Thirty-day yield, distribution rate and average annual total return
are calculated separately for each class of shares of each Portfolio. Each
class of shares of each Portfolio is subject to different fees and expenses and
may have different returns for the same period. Any performance data for Class
A, Class B or Class C Shares which is based upon a Portfolio's net asset value
per share would be reduced if a sales charge were taken into account.

Occasionally, statistics may be used to specify Portfolio volatility
or risk. Measures of volatility or risk are generally used to compare a
Portfolio's net asset value or performance relative to a market index. One
measure of volatility is beta. Beta is

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the volatility of an Underlying Fund relative to the total market. A beta of
more than 1.00 indicates volatility greater than the market, and a beta of less
than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.

From time to time the Trust may publish an indication of a Portfolio's
past performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Consumer's Digest, Consumer's Report, Investors Business Daily,
The New York Times, Kiplinger's Personal Finance Magazine, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Trust may also advertise
information which has been provided to the NASD for publication in regional and
local newspapers. In addition, the Trust may from time to time advertise a
Portfolio's performance relative to certain indices and benchmark investments,
including: (a) the Lipper Analytical Services, Inc. Mutual Fund Performance
Analysis, Fixed-Income Analysis and Mutual Fund Indices (which measure total
return and average current yield for the mutual fund industry and rank mutual
fund performance); (b) the CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. (which analyzes price, risk and various measures of return
for the mutual fund industry); (c) the Consumer Price Index published by the
U.S. Bureau of Labor Statistics (which measures changes in the price of goods
and services); (d) Stocks, Bonds, Bills and Inflation published by Ibbotson
Associates (which provides historical performance figures for stocks, government
securities and inflation); (e) the Salomon Brothers' World Bond Index (which
measures the total return in U.S. dollar terms of government bonds, Eurobonds
and foreign bonds of ten countries, with all such bonds having a minimum
maturity of five years); (f) the Lehman Brothers Aggregate Bond Index or its
component indices; (g) the Standard & Poor's Bond Indices (which measure yield
and price of corporate, municipal and U.S. Government bonds); (h) the J.P.
Morgan Global Government Bond Index; (i) other taxable investments including
certificates of deposit (CDs), money market deposit accounts (MMDAs), checking
accounts, savings accounts, money market mutual funds, commercial paper and
repurchase agreements; (j) Donoghues' Money Fund Report (which provides industry
averages for 7-day annualized and compounded yields of taxable, tax-free and
U.S. Government money funds); (k) the Hambrecht & Quist Growth Stock Index; (l)
the NASDAQ OTC Composite Prime Return; (m) the Russell Midcap Index; (n) the
Russell 2000 Index - Total Return; (o) Russell 1000 Growth Index-Total Return;
(p) the Value-Line Composite-Price Return; (q) the Wilshire 4500 Index; (r) the
FT-Actuaries Europe and Pacific Index; (s) historical investment data supplied
by the research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley including the EAFE Indices, and the Morgan Stanley
Capital International Combined Asia ex Japan Free Index, the Morgan Stanley
Capital International Emerging Markets Free Index, Salomon Brothers, Merrill
Lynch, Donaldson Lufkin and Jenrette or other providers of such data; (t) the
FT-Actuaries Europe and Pacific Index; (u) CDA/Wiesenberger

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Investment Companies Services or Wiesenberger Investment Companies Service; (v)
The Goldman Sachs Commodities Index; (w) information produced by Micropal, Inc.;
(x) the Shearson Lehman Government/Corporate (Total) Index; (y) Shearson Lehman
Government Index; (z) Merrill Lynch 1-3 Year Treasury Index; (aa) Merrill Lynch
2-Year Treasury Curve Index; (bb) the Salomon Brothers Treasury Yield Curve Rate
of Return Index; (cc) the Payden & Rygel 2-Year Treasury Note Index; (dd) 1
through 3 year U.S. Treasury Notes; (ee) constant maturity U.S. Treasury yield
indices; (ff) the London Interbank Offered Rate; (gg) historical data concerning
the performance of adjustable and fixed-rate mortgage loans; and (hh) the Tokyo
Price Index. The composition of the investments in such indices and the
characteristics of such benchmark investments are not identical to, and in some
cases are very different from, those of the Portfolios and the Underlying Funds.
These indices and averages are generally unmanaged and the items included in the
calculations of such indices and averages may not be identical to the formulas
used by a Portfolio to calculate its performance figures.

Information used in advertisements and materials furnished to present
and prospective investors may include statements or illustrations relating to
the appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:

. cost associated with aging parents;

. funding a college education (including its actual and estimated
cost);

. health care expenses (including actual and projected expenses);

. long-term disabilities (including the availability of, and coverage
provided by, disability insurance);

. retirement (including the availability of social security benefits, the
tax treatment of such benefits and statistics and other information
relating to maintaining a particular standard of living and outliving
existing assets);

. asset allocation strategies and the benefits of diversifying among asset
classes;

. the benefits of international and emerging market investments;

. the effects of inflation on investing and saving;

. the benefits of establishing and maintaining a regular pattern of
investing and the benefits of dollar-cost averaging; and

. measures of portfolio risk, including but not limited to, alpha, beta
and standard deviation.

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The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:

. the performance of various types of securities (for example, common
stocks, small company stocks, taxable money market funds, U.S. Treasury
securities, adjustable rate mortgage securities, government securities
and municipal bonds) over time. However, the characteristics of these
securities are not identical to, and may be very different from, those
of a Portfolio;

. the dollar and non-dollar based returns of various market indices
(i.e., Morgan Stanley Capital International EAFE Index, FT-Actuaries
Europe & Pacific Index and the Standard & Poor's Index of 500 Common
Stocks) over varying periods of time;

. total stock market capitalizations of specific countries and
regions on a global basis;

. performance of securities markets of specific countries and regions;

. value of a dollar amount invested in a particular market or type of
security over different periods of time;

. volatility of total return of various market indices (i.e. Lehman
Government Bond Index, S&P 500, IBC/Donoghue's Money Fund Average/ All
Taxable Index) over varying periods of time;

. credit ratings of domestic government bonds in various countries;

. price volatility comparisons of types of securities over different
periods of time; and

. price and yield comparisons of a particular security over different
periods of time.

In addition, the Trust may from time to time include rankings of
Goldman, Sachs & Co.'s research department by publications such as the
Institutional Investor and the Wall Street Journal in advertisements.

From time to time, advertisements or information may include a
discussion of certain attributes or benefits to be derived by an investment in a
Portfolio. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail in the communication.

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The Trust may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the adviser's
views as to markets, the rationale for a Portfolio's investments and discussions
of a Portfolio's current asset allocation.

In addition, from time to time, advertisements or information may
include a discussion of asset allocation models developed by the Adviser and/or
its affiliates, certain attributes or benefits to be derived from asset
allocation strategies and the Goldman Sachs mutual funds that may be offered as
investment options for the strategic asset allocations. Such advertisements and
information may also include the Adviser's current economic outlook and domestic
and international market views to suggest periodic tactical modifications to
current asset allocation strategies. Such advertisements and information may
include other materials which highlight or summarize the services provided in
support of an asset allocation program.

A Portfolio's performance data will be based on historical results and
will not be intended to indicate future performance. A Portfolio's total
return, yield and distribution rate will vary based on market conditions,
portfolio expenses, portfolio investments and other factors. The value of a
Portfolio's shares will fluctuate and an investor's shares may be worth more or
less than their original cost upon redemption.

The Trust may, at its discretion, from time to time make a list of a
Portfolio's holdings available to investors upon request.

SHARES OF THE TRUST

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 to classify and reclassify the shares of the Portfolios into one or
more classes of shares. As of the date of this Additional Statement, the
Trustees have authorized the issuance of five classes of shares in each
Portfolio: Institutional Shares, Service Shares, Class A Shares, Class B Shares
and Class C Shares.

Each Institutional Share, Service Share, Class A Share, Class B Share
and Class C Share of a Portfolio represents a proportionate interest in the
assets belonging to the applicable class of the Portfolio. All expenses of a
Portfolio are borne at the same rate by each class of shares, except that fees
under Service Plan are borne exclusively by Service Shares, fees under the
Distribution and Service Plan are borne exclusively by Class A Shares, Class B
Shares or Class C Shares, and transfer agency fees may be borne at different
rates by different share classes. The Trustees may determine in the future that
it is appropriate to allocate other expenses differently between classes of
shares and may do so to the extent consistent with the rules of the SEC and
positions of the Internal Revenue Service. Each class of shares may have
different minimum investment requirements and be entitled to different
shareholder services. With limited exceptions, shares of a class

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may only be exchanged for shares of the same or an equivalent class of another
series. See "Exchange Privilege" in the Prospectus.

Institutional Shares may be purchased at net asset value without a
sales charge for accounts in the name of an investor or institution that is not
compensated by a Portfolio under a Plan for services provided to the
institution's customers.

Service Shares may be purchased at net asset value without a sales
charge for accounts held in the name of an institution that, directly or
indirectly, provides certain account administration and shareholder liaison
services to its customers, including maintenance of account records and
processing orders to purchase, redeem and exchange Service Shares. Service
Shares bear the cost of account administration fees at the annual rate of up to
0.50% of the average daily net assets of the Portfolio attributable to Service
Shares.

Class A Shares are sold, with an initial sales charge of up to 5.5%,
through brokers and dealers who are members of the National Association of
Securities Dealers, Inc. and certain other financial service firms that have
sales agreements with Goldman Sachs. Class A Shares of the Portfolios bear the
cost of distribution (Rule 12b-1) fees at the aggregate rate of up to 0.25% of
the average daily net assets of such Class A Shares.

Class B Shares and Class C Shares of the Portfolios are sold subject
to a contingent deferred sales charge of up to 5.0% through brokers and dealers
who are members of the National Association of Securities Dealers, Inc. and
certain other financial services firms that have sales arrangements with Goldman
Sachs. Class B Shares and Class C Shares bear the cost of distribution (Rule
12b-1) fees at the aggregate rate of up to 0.75% of the average daily net assets
attributed to Class B Shares and Class C Shares. Class B Shares and Class C
Shares also bear the cost of a service fee at an annual rate of up to 0.25% of
the average daily net assets attributed to Class B Shares and Class C Shares.

It is possible that an institution or its affiliate may offer
different classes of shares (i.e., Institutional, Service, Class A, Class B and
Class C Shares) to its customers and thus receive different compensation with
respect to different classes of shares of each Portfolio. Dividends paid by
each Portfolio, if any, with respect to each class of shares will be calculated
in the same manner, at the same time on the same day and will be in the same
amount, except for differences caused by the differences in expenses discussed
above. Similarly, the net asset value per share may differ depending upon the
class of shares purchased.

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

When issued, 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 class of the

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relevant Portfolio available for distribution to such shareholders. All shares
are freely transferable and have no preemptive, subscription or conversion
rights.

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

The Trust is not required to hold annual meetings of shareholders and
does not intend to hold such meetings. In the event that a meeting of
shareholders is held, each share of the Trust will be entitled, as determined by
the Trustees, either to one vote for each share or to one vote for each dollar
of net asset value represented by such shares on all matters presented to
shareholders including the elections of Trustees (this method of voting being
referred to as "dollar based voting"). However, to the extent required by the
Act or otherwise determined by the Trustees, series and classes of the Trust
will vote separately from each other. Shareholders of the Trust do not have
cumulative voting rights in the election of Trustees. Meetings of shareholders
of the Trust, or any series or class thereof, may be called by the Trustees,
certain officers or upon the written request of holders of 10% or more of the
shares entitled to vote at such meetings. The shareholders of the Trust will
have voting rights only with respect to the limited number of matters specified
in the Declaration of Trust and such other matters as the Trustees may determine
or may be required by law.

The Declaration of Trust provides for indemnification of Trustees,
officers, employees and agents of the Trust unless the recipient is adjudicated
(i) to be liable by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of such person's
office or (ii) not to have acted in good faith in the reasonable belief that
such person's actions were in the best interest of the Trust. The Declaration
of Trust provides that, if any shareholder or former shareholder of any series
is held personally liable solely by reason of being or having been a shareholder
and not because of the shareholder's acts or omissions or for some other reason,
the shareholder or former shareholder (or heirs, executors, administrators,
legal representatives or general successors) shall be held harmless from and
indemnified against all loss and expense arising from such liability. The
Trust, acting on behalf of any affected series, must, upon request by such
shareholder, assume the defense of any claim made against such shareholder for
any act or obligation of the series and satisfy any judgment thereon from the
assets of the series.

The Declaration of Trust permits the termination of the Trust or of
any series or class of the Trust (i) by a majority of the affected shareholders
at a meeting of

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shareholders of the Trust, series or class; or (ii) by a majority of the
Trustees without shareholder approval if the Trustees determine that such action
is in the best interest of the Trust, series or its respective shareholders. The
factors and events that the Trustees may take into account in making such
determination include (i) the inability of the Trust or any successor series or
class to maintain its assets at an appropriate size; (ii) changes in laws or
regulations governing the Trust, series or class or affecting assets of the type
in which it invests; or (iii) economic developments or trends having a
significant adverse impact on their business or operations.

The Declaration of Trust authorizes the Trustees without shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or other organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series
of the Trust in the securities of another open-end investment company with
substantially the same investment objective, restrictions and policies.

The Declaration of Trust permits the Trustees to amend the Declaration
of Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would adversely affect the voting rights
of shareholders; (ii) that is required by law to be approved by shareholders;
(iii) that would amend the provisions of the Declaration of Trust regarding
amendments and supplements thereto; or (iv) that the Trustees determine to
submit to shareholders.

The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). Series Trustees
may, but are not required to, serve as Trustees of the Trust or any other series
or class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Trust Instrument with respect to any other series or class.

SHAREHOLDER AND TRUSTEE LIABILITY

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

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shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the series and satisfy any judgment
thereon. In view of the above, the risk of personal liability of shareholders of
a Delaware business trust is remote.

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

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

TAXATION

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

GENERAL

Each Portfolio is a separate taxable entity. Each of the Portfolios
intends to qualify for each taxable year as a regulated investment company under
Subchapter M of the Internal Revenue Code, as amended (the "Code").

Qualification as a regulated investment company under the Code
requires, among other things, that (a) a Portfolio derive at least 90% of its
gross income for its taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stocks or securities or foreign currencies, or other income (including but not
limited to gains from options, futures, and forward contracts) derived

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with respect to its business of investing in such stock, securities or
currencies (the "90% gross income test"); and (b) such Portfolio diversify its
holdings so that, at the close of each quarter of its taxable year, (i) at least
50% of the market value of such Portfolio's total (gross) assets is comprised of
cash, cash items, U.S. Government securities, securities of other regulated
investment companies and other securities limited in respect of any one issuer
to an amount not greater in value than 5% of the value of such Portfolio's total
assets and to not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total (gross) assets is
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies) or two or
more issuers controlled by the Portfolio and engaged in the same, similar or
related trades or businesses. For purposes of the 90% gross income test, income
that a Fund earns from equity interests in certain entities that are not treated
as corporations (e.g., partnerships or trusts) for U.S. tax purposes will
generally have the same character for such Fund as in the hands of such an
entity; consequently, an Underlying Fund may be required to limit its equity
investments in such entities that earn fee income, rental income, or other
nonqualifying income. In addition, future Treasury regulations could provide
that qualifying income under the 90% gross income test will not include gains
from foreign currency transactions that are not directly related to an
Underlying Fund's principal business of investing in stock or securities or
options and futures with respect to stock or securities. Using foreign currency
positions or entering into foreign currency options, futures and forward or swap
contracts for purposes other than hedging currency risk with respect to
securities in an Underlying Fund's portfolio or anticipated to be acquired may
not qualify as "directly-related" under these tests.

If a Portfolio complies with such provisions, then in any taxable year
in which such Portfolio distributes, in compliance with the Code's timing and
other requirements, at least 90% of its "investment company taxable income"
(which includes dividends, taxable interest, taxable accrued original issue
discount and market discount income, income from securities lending, any net
short-term capital gain in excess of net long-term capital loss, certain net
realized foreign exchange gains and any other taxable income other than "net
capital gain," as defined below, and is reduced by deductible expenses), and at
least 90% of the excess of its gross tax-exempt interest income (if any) over
certain disallowed deductions, such Portfolio (but not its shareholders) will be
relieved of federal income tax on any income of the Portfolio, including long-
term capital gains, distributed to shareholders. In this connection, dividends
received by a Portfolio from an Underlying Fund, other than capital gain
distributions, are treated as ordinary income to the Portfolio. Distributions
from an Underlying Fund designated as capital gain distributions are treated as
long-term capital gains. Such long-term capital gain will be 20% rate gain. In
addition, upon the sale or other disposition by a Portfolio of shares of an
Underlying Fund or other investment, the Portfolio will generally realize a
capital gain or loss which will be long-term or short-term, generally depending
upon the Portfolio's holding period.

If a Portfolio retains any investment company taxable income or "net
capital gain" (the excess of net long-term capital gain over net short-term
capital loss), it will be subject to a tax at regular corporate rates on the
amount retained. If a Portfolio retains any net capital gain, the Portfolio may
designate the retained amount as undistributed

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capital gains in a notice to its shareholders who, if subject to U.S. federal
income tax on long-term capital gains, (i) will be required to include in income
for federal income tax purposes, as long-term rate capital gain, as the case may
be, their shares of such undistributed amount, and (ii) will be entitled to
credit their proportionate shares of the tax paid by the Portfolio against their
U.S. federal income tax liabilities, if any, and to claim refunds to the extent
the credit exceeds such liabilities. For U.S. federal income tax purposes, the
tax basis of shares owned by a shareholder of the Portfolio will be increased by
an amount equal to a percentage of the amount of undistributed net capital gain
included in the shareholder's gross income. Each Portfolio intends to distribute
for each taxable year to its shareholders all or substantially all of its
investment company taxable income, net capital gain and any net tax-exempt
interest. Exchange control or other foreign laws, regulations or practices may
restrict repatriation of investment income, capital or the proceeds of
securities sales by foreign investors such as the CORE International Equity,
International Equity, International Small Cap, Emerging Markets Equity or Asia
Growth Funds and may therefore make it more difficult for such a Fund to satisfy
the distribution requirements described above, as well as the excise tax
distribution requirements described below, However, each Fund generally expects
to be able to obtain sufficient cash to satisfy such requirements from new
investors, the sale of securities or other sources. If for any taxable year a
Portfolio does not qualify as a regulated investment company, it will be taxed
on all of its investment company taxable income and net capital gain at
corporate rates, and its distributions to shareholders will be taxable as
ordinary dividends to the extent of its current and accumulated earnings and
profits.

In order to avoid a 4% federal excise tax, each Portfolio must
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its taxable ordinary income for such year, at least 98% of
the excess of its capital gains over its capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year), and all
taxable ordinary income and the excess of capital gains over capital losses for
the previous year that were not distributed for such year and on which the
Portfolio paid no federal income tax. For federal income tax purposes, dividends
declared by a Portfolio in October, November or December to shareholders of
record on a specified date in such a month and paid during January of the
following year are taxable to such shareholders as if received on December 31 of
the year declared. The Portfolios anticipate that they will generally make
timely distributions of income and capital gains in compliance with these
requirements so that they will generally not be required to pay the excise tax.
For federal income tax purposes, each Portfolio is permitted to carry forward a
net capital loss in any year to offset its own capital gains, if any, during the
eight years following the year of the loss.

Gains and losses on the sale, lapse, or other termination of options
and futures contracts, options thereon and certain forward contracts (except
certain foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by an Underlying Fund will be
required to be "marked-to-market" for federal income tax purposes, that is,
treated as having been sold at their fair market value on the last day of the
Fund's

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<PAGE>

taxable year. These provisions may require an Underlying Fund to recognize
income or gains without a concurrent receipt of cash. Any gain or loss
recognized on actual or deemed sales of these futures contracts, forward
contracts, or options will (except for certain foreign currency options, forward
contracts, and futures contracts) be treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss. As a result of certain hedging
transactions entered into by an Underlying Fund, the Fund may be required to
defer the recognition of losses on futures contracts, forward contracts, and
options or underlying securities or foreign currencies to the extent of any
unrecognized gains on related positions held by such Underlying Fund and the
characterization of gains or losses as long-term or short-term may be changed.
The tax provisions described above applicable to options, futures and forward
contracts may affect the amount, timing and character of an Underlying Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these tax rules to
certain investment practices, such as dollar rolls, or certain derivatives such
as interest rate swaps, floors, caps and collars and currency, mortgage or index
swaps may be unclear in some respects, and an Underlying Fund may therefore be
required to limit its participation in such transactions. Certain tax elections
may be available to an Underlying Fund to mitigate some of the unfavorable
consequences described in this paragraph.

Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions and instruments that may affect the
amount, timing and character of income, gain or loss recognized by an Underlying
Fund. Under these rules, foreign exchange gain or loss realized with respect to
foreign currencies and certain futures and options thereon, foreign currency-
denominated debt instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as
ordinary income or loss, although in some cases elections may be available that
would alter this treatment. If a net foreign exchange loss treated as ordinary
loss under Section 988 of the Code were to exceed an Underlying Fund's
investment company taxable income (computed without regard to such loss) for a
taxable year, the resulting loss would not be deductible by the Fund or its
shareholders in future years. Net loss, if any, from certain foregoing currency
transactions or instruments could exceed net investment income otherwise
calculated for accounting purposes with the result being either no dividends
being paid or a portion of an Underlying Fund's dividends being treated as a
return of capital for tax purposes, nontaxable to the extent of a shareholder's
tax basis in his shares and, once such basis is exhausted, generally giving rise
to capital gains.

An Underlying Fund's investment in zero coupon securities, deferred
interest securities, certain structured securities or other securities bearing
original issue discount or, if an Underlying Fund elects to include market
discount in income currently, market discount, as well as any "mark to market"
gain from certain options, futures or forward contracts, as described above,
will generally cause it to realize income or gain prior to the receipt of cash
payments with respect to these securities or contracts. In order to obtain cash
to enable it to distribute this income or gain, maintain its qualification as a
regulated investment company and avoid federal income or excise taxes, the
Underlying Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold.

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Each Underlying Fund also intends to qualify annually and elect to be
treated as a regulated investment company under Subchapter M of the Code. In
any year in which an Underlying Fund so qualifies and timely distributes all of
its taxable income, the Underlying Fund generally will not pay any federal
income or excise tax. If, as may occur for certain of the Underlying Funds,
more than 50% of an Underlying Fund's total assets at the close of any taxable
year consists of stock or securities of foreign corporations, the Underlying
Fund may file an election with the Internal Revenue Service pursuant to which
shareholders of the Underlying Fund would be required to (i) include in ordinary
gross income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Underlying Fund that are treated as
income taxes under U.S. tax regulations (which excludes, for example, stamp
taxes, securities transaction taxes, and similar taxes) even though not actually
received by such shareholders, and (ii) treat such respective pro rata portions
as foreign income taxes paid by them.

If an Underlying Fund makes this election, its shareholders may then
deduct such pro rata portions of qualified foreign taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. federal income taxes. Shareholders
who do not itemize deductions for federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by an Underlying
Fund, although such shareholders will be required to include their shares of
such taxes in gross income if the election is made.

While a Portfolio will be able to deduct the foreign taxes that it
will be treated as receiving from an Underlying Fund if the election is made,
the Portfolio will not itself be able to elect to treat its foreign taxes as
paid by its shareholders. Accordingly, the shareholders of the Portfolio will
not have an option of claiming a foreign tax credit for foreign taxes paid by
the Underlying Funds, while persons who invest directly in such Underlying Funds
may have that option.

If an Underlying Fund acquires stock (including, under proposed
regulations, an option to acquire stock such as is inherent in a convertible
bond) in certain foreign corporations that receive at least 75% of their annual
gross income from passive sources (such as interest, dividends, rents, royalties
or capital gain) or hold at least 50% of their assets in investments producing
such passive income ("passive foreign investment companies"), the Underlying
Fund could be subject to federal income tax and additional interest charges on
"excess distributions" received from such companies or gain from the sale of
stock in such companies, even if all income or gain actually received by the
Underlying Fund is timely distributed to its shareholders. The Underlying Fund
would not be able to pass through to its shareholders any credit or deduction
for such a tax. In some cases, elections may be available that would ameliorate
these adverse tax consequences, but such elections would require the Underlying
Fund to include certain amounts as income or gain (subject to the distribution
requirements described above) without a concurrent receipt of cash. Each Fund
may limit and/or manage its holdings in passive foreign investment companies to
minimize its tax liability or maximize its return from these investments.

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<PAGE>

Investments in lower-rated securities may present special tax issues
for an Underlying Fund to the extent actual or anticipated defaults may be more
likely with respect to such securities. Tax rules are not entirely clear about
issues such as when an Underlying Fund may cease to accrue interest, original
issue discount, or market discount; when and to what extent deductions may be
taken for bad debts or worthless securities; how payments received on
obligations in default should be allocated between principal and income; and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by an Underlying Fund, in the event it
invests in such securities, in order to seek to eliminate or minimize any
adverse tax consequences.

TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS

For U.S. federal income tax purposes, distributions by a Portfolio
generally will be taxable to shareholders who are subject to tax. Shareholders
receiving a distribution in the form of newly issued shares will be treated for
U.S. federal income tax purposes as receiving a distribution in an amount equal
to the amount of cash they would have received had they elected to receive cash
and will have a cost basis in each share received equal to such amount divided
by the number of shares received.

Distributions from investment company taxable income for the year will
be taxable as ordinary income. Distributions designated as derived from a
Portfolio's dividend income, if any, that would be eligible for the dividends
received deduction if such Portfolio's were not a regulated investment company
may be eligible, for the dividends-received deduction for corporate
shareholders. The dividends-received deduction, if available, is reduced to the
extent the shares with respect to which the dividends are received are treated
as debt-financed under federal income tax law and is eliminated if the shares
are deemed to have been held for less than a minimum period, generally 46 days.
The entire dividend, including the deducted amount, is considered in determining
the excess, if any, of a corporate shareholder's adjusted current earnings over
its alternative minimum taxable income, which may increase its liability for the
federal alternative minimum tax, and the dividend may, if it is treated as an
"extraordinary dividend" under the Code, reduce such shareholder's tax basis in
its shares of a Portfolio. Capital gain dividends (i.e., dividends from net
capital gain) if designated as such in a written notice to shareholders mailed
not later than 60 days after a Portfolio's taxable year closes, will be taxed to
shareholders as long-term capital gain regardless of how long shares have been
held by shareholders, but are not eligible for the dividends received deduction
for corporations. Such long-term capital gain will be 20% rate gain.
Distributions, if any, that are in excess of a Portfolio's current and
accumulated earnings and profits will first reduce a shareholder's tax basis in
his shares and, after such basis is reduced to zero, will generally constitute
capital gains to a shareholder who holds his shares as capital assets.

Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited

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<PAGE>

transactions is accorded to accounts maintained as qualified retirement plans.
Shareholders should consult their tax advisers for more information.

TAXABLE U.S. SHAREHOLDERS - SALE OF SHARES

When a shareholder's shares are sold, redeemed or otherwise disposed
of in a transaction that is treated as a sale for tax purposes, the shareholder
will generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming the shareholder holds the shares as a
capital asset at the time of such sale, such gain or loss should be capital in
character, and long-term if the shareholder has a tax holding period for the
shares of more than one year, otherwise short-term. In general, the maximum
long-term capital gain rate will be 20% for gains on assets held more than one
year. Shareholders should consult their own tax advisers with reference to
their particular circumstances to determine whether a redemption (including an
exchange) or other disposition of Portfolio shares is properly treated as a sale
for tax purposes, as is assumed in this discussion. If a shareholder receives a
capital gain dividend with respect to shares and such shares have a tax holding
period of six months or less at the time of a sale or redemption of such shares,
then any loss the shareholder realizes on the sale or redemption will be treated
as a long-term capital loss to the extent of such capital gain dividend. All or
a portion of any sales load paid upon the purchase of shares of a Portfolio will
not be taken into account in determining gain or loss on the redemption or
exchange of such shares within 90 days after their purchase to the extent the
redemption proceeds are reinvested, or the exchange is effected, without payment
of an additional sales load pursuant to the reinvestment or exchange privilege.
The loan not taken into account will be added to the tax basis of the newly-
acquired shares. Additionally, any loss realized on a sale or redemption of
shares of a Portfolio may be disallowed under "wash sale" rules to the extent
the shares disposed of are replaced with other shares of the same Portfolio
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of, such as pursuant to a dividend reinvestment in shares of
such Portfolio. If disallowed, the loss will be reflected in an adjustment to
the basis of the shares acquired.

Each Portfolio may be required to withhold, as "backup withholding,"
federal income tax at a rate of 31% from dividends (including capital gain
dividends) and share redemption and exchange proceeds to individuals and other
non-exempt shareholders who fail to furnish such Portfolio with a correct
taxpayer identification number ("TIN") certified under penalties of perjury, or
if the Internal Revenue Service or a broker notifies the Portfolio that the
payee is subject to backup withholding as a result of failing to properly report
interest or dividend income to the Internal Revenue Service or that the TIN
furnished by the payee to the Portfolio is incorrect, or if (when required to do
so) the payee fails to certify under penalties of perjury that it is not subject
to backup withholding. A Portfolio may refuse to accept an application that
does not contain any required TIN or certification that the TIN provided is
correct. If the backup withholding provisions are applicable, any such dividends
and proceeds, whether paid in cash or reinvested in additional shares, will be
reduced by the amounts required to be withheld.

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Any amounts withheld may be credited against a shareholder's U.S. federal income
tax liability.

NON-U.S. SHAREHOLDERS

The discussion above relates solely to U.S. federal income tax law as
it applies to "U.S. persons" subject to tax under such law. Shareholders who, as
to the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends will be subject to tax on a net
income basis at the graduated rates applicable to U.S. individuals or domestic
corporations. Distributions of net capital gain, including amounts retained by
a Portfolio which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. federal income or withholding tax unless
the distributions are effectively connected with the shareholder's trade or
business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met.

Any capital gain realized by a non-U.S. shareholder upon a sale or
redemption of shares of a Portfolio will not be subject to U.S. federal income
or withholding tax unless the gain is effectively connected with the
shareholder's trade or business in the U.S., or in the case of a shareholder who
is a nonresident alien individual, the shareholder is present in the U.S. for
183 days or more during the taxable year and certain other conditions are met.

Non-U.S. persons who fail to furnish a Portfolio with an IRS Form W-8
or an acceptable substitute may be subject to backup withholding at the rate of
31% on capital gain dividends and the proceeds of redemptions and exchanges.
Each shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Portfolios.

STATE AND LOCAL

Each Portfolio may be subject to state or local taxes in jurisdictions
in which such Portfolio may be deemed to be doing business. In addition, in
those states or localities which have income tax laws, the treatment of such
Portfolio and its shareholders under such laws may differ from their treatment
under federal income tax laws, and investment in such Portfolio may have tax
consequences for shareholders different from those of a direct investment in the
securities held by the Portfolio. Shareholders should consult their own tax
advisers concerning these matters.

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OTHER INFORMATION

Shares of the Portfolios are offered and sold on a continuous basis by
the Trust's Distributor, Goldman Sachs, acting as agent. As described in the
Prospectus, shares of the Portfolios are sold and redeemed at their net asset
value as next determined after receipt of the purchase or redemption order.

Each Portfolio will redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Portfolio during any 90-day period
for any one shareholder. Each Portfolio, however, reserves the right to pay
redemptions exceeding $250,000 or 1% of the net asset value of the Portfolio at
the time of redemption by a distribution in kind of securities (instead of cash)
from such Portfolio. The securities distributed in kind would be readily
marketable and would be valued for this purpose using the same method employed
in calculating the Portfolio's net asset value per share. See "Net Asset
Value." If a shareholder receives redemption proceeds in kind, the shareholder
should expect to incur transaction costs upon the disposition of the securities
received in the redemption.

The right of a shareholder to redeem shares and the date of payment by
each Portfolio may be suspended for more than seven days for any period during
which the New York Stock Exchange is closed, other than the customary weekends
or holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Portfolio to dispose of securities owned
by it or fairly to determine the value of its net assets; or for such other
period as the SEC may by order permit for the protection of shareholders of such
Portfolio. (The Trust may also suspend or postpone the recordation of the
transfer of shares upon the occurrence of any of the foregoing conditions.)

The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus and
this Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined
at the office of the SEC in Washington, D.C.

Statements contained in the Prospectus or in this Additional Statement
as to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.

As stated in the Prospectuses, the Trust may authorize Service
Organizations and other institutions that provide recordkeeping, reporting and
processing services to their customers to accept on the Trust's behalf purchase,
redemption and exchange orders placed

B-106
<PAGE>

by or on behalf of their customers and, if approved by the Trust, to designate
other intermediaries to accept such orders. These institutions may receive
payments from the Trust or Goldman Sachs for their services. In some, but not
all, cases these payments will be pursuant to a Distribution and Service Plan or
Service Plan described in the Prospectuses and the following sections. Certain
Service Organizations or institutions may enter into sub-transfer agency
agreements with the Trust or Goldman Sachs with respect to their services.

The Adviser, Distributor and/or their affiliates may pay, out of their
own assets, compensation to Authorized Dealers for the sale and distribution of
Shares of the Funds and/or for the servicing of those Shares. These payments
("Additional Payments") would be in addition to the payments by the Funds
described in the Funds' Prospectus and this Additional Statement for
distribution and shareholder servicing and processing, and would also be in
addition to the sales commissions payable to dealers as set forth in the
Prospectus. These Additional Payments may take the form of "due diligence"
payments for an Authorized Dealer's examination of the Funds and payments for
providing extra employee training and information relating to the Funds;
"listing" fees for the placement of the Funds on a dealer's list of mutual funds
available for purchase by its customers; "finders" or "referral" fees for
directing investors to the Funds; "marketing support" fees for providing
assistance in promoting the sale of the Funds' Shares; and payments for the sale
of Shares and/or the maintenance of Share balances. In addition, the Adviser,
Distributor and/or their affiliates may make Additional Payments for
subaccounting, administrative and/or shareholder processing services that are in
addition to the shareholder servicing and processing fees paid by the Funds.
The Additional Payments made by the Adviser, Distributor and their affiliates
may be a fixed dollar amount, may be based on the number of customer accounts
maintained by an Authorized Dealer, or may be based on a percentage of the value
of Shares sold to, or held by, customers of the Authorized Dealers involved, and
may be different for different Authorized Dealers. Furthermore, the Adviser,
Distributor and/or their affiliates may 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 prizes such as travel awards, merchandise and cash and/or investment
research pertaining to particular securities and other financial instruments or
to the securities and financial markets generally, educational information and
related support materials and software. The Adviser, Distributor and their
affiliates may also pay for the travel expenses, meals, lodging and
entertainment of Authorized Dealers and their salespersons and guests in
connection with educational, sales and promotional programs subject to
applicable NASD regulations.

B-107
<PAGE>

OTHER INFORMATION REGARDING PURCHASES,
REDEMPTIONS,EXCHANGES AND DIVIDENDS

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

Other Purchase Information
==========================

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

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 amounts to their clients for such services,
which charges would reduce a client's return. 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 information about the account.

The Adviser, Distributor and/or their affiliates may pay, out of their own
assets, compensation to Authorized Dealers and other persons in connection with
the sale and/or servicing of those shares. These payments ("Additional
Payments") would be in addition to the payments by the Portfolios described in
the Portfolios' Prospectus and this Statement of Additional Information for
distribution and shareholder servicing and processing, and would also be in
addition to the sales commissions payable to dealers as set forth in the
Prospectus. These Additional Payments may take the form of "due diligence"
payments for an Authorized Dealer's examination of the Portfolios and payments
for providing extra employee training and information relating to a Portfolio;
"listing" fees for the placement of the Portfolios on a dealer's list of mutual
funds available for purchase by its customers; "finders" or "referral" fees for
directing investors to the Portfolios; "marketing support" fees for providing
assistance in promoting the sale of a Portfolios' shares; and payments for the
sale of shares and/or the maintenance of share balances. In addition, the
Adviser, Distributor and/or their affiliates may make Additional Payments for
subaccounting, administrative and/or shareholder processing services that are in
addition to the shareholder servicing and processing fees paid by the
Portfolios. The Additional Payments made by the Adviser, Distributor and their
affiliates may be a fixed dollar amount, may be based on the number of customer
accounts maintained by an Authorized Dealer, or may be based on a percentage of

B-108
<PAGE>

the value of shares sold to, or held by, customers of the Authorized Dealers
involved, and may be different for different Authorized Dealers. Furthermore,
the Adviser, Distributor and/or their affiliates may 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 prizes such as travel awards, merchandise and cash
and/or investment research pertaining to particular securities and other
financial instruments or to the securities and financial markets generally,
educational information and related support materials and hardware and/or
software. The Adviser, Distributor and their affiliates may also pay for the
travel expenses, meals, lodging and entertainment of Authorized Dealers and
their salespersons and guests in connection with educational, sales and
promotional programs, subject to applicable NASD regulations. The Distributor
currently expects that such additional bonuses or incentives will not exceed
0.50% of the amount of any sales.

RIGHT OF ACCUMULATION - (CLASS A)
=================================

A Class A shareholder qualifies for cumulative quantity discounts if the
current purchase price of the new investment plus the shareholder's current
holdings of existing Class A Shares (acquired by purchase or exchange) of the
Portfolios and Class A Shares of any other Goldman Sachs Fund (as defined in the
Prospectus) total the requisite amount for receiving a discount. For example,
if a shareholder owns shares with a current market value of $65,000 and
purchases additional Class A Shares of the Income Strategy Portfolio with a
purchase price of $45,000, the sales charge for the $45,000 purchase would be
3.0% (the rate applicable to a single purchase of more than $100,000). Class A
Shares purchased without the imposition of a sales charge and shares of another
class of the Portfolios may not be aggregated with Class A Shares purchased
subject to a sales charge. Class A Shares of the Portfolios and any other
Goldman Sachs Fund purchased (i) by an individual, his spouse and his children,
and (ii) by a trustee, guardian or other fiduciary of a single trust estate or a
single fiduciary account, will be combined for the purpose of determining
whether a purchase will qualify for such right of accumulation and, if
qualifying, the applicable sales charge level. For purposes of applying the
right of accumulation, shares of the Portfolios and any other Goldman Sachs Fund
purchased by an existing client of the Private Client Services Division of
Goldman Sachs will be combined with Class A Shares held by any other Private
Client Services account. In addition, Class A Shares of the Portfolios and
Class A Shares of any other Goldman Sachs Fund purchased by partners, directors,
officers or employees of the same business organization or by groups of
individuals represented by and investing on the recommendation of the same
accounting firm, certain affinity groups or other similar organizations
(collectively, "eligible persons") may be combined for the purpose of
determining whether a purchase will qualify for the right of accumulation and,
if qualifying, the applicable sales charge level. This right of accumulation is
subject to the following conditions: (i) the business organization's, group's
or firm's agreement to cooperate in the offering of the Portfolios' shares to
eligible persons; and (ii) notification to the Portfolios at the time of
purchase that the investor is eligible for this right of accumulation.

B-109
<PAGE>

STATEMENT OF INTENTION - (CLASS A)
==================================

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

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
=================================================

A Portfolio shareholder should obtain and read the prospectus relating to any
other Goldman Sachs Fund or ILA Portfolio (as defined in the Prospectus) and its
shares or units and consider its investment objective, policies and applicable
fees before electing cross-reinvestment into that Fund or Portfolio. The
election to cross-reinvest dividends and capital gain distributions will not
affect the tax treatment of such dividends and distributions, which will be
treated as received by the shareholder and then used to purchase shares of the
acquired fund. Such reinvestment of dividends and distributions in shares of
other Goldman Sachs Funds or in units of ILA Portfolios is available only in
states where such reinvestment may legally be made.

AUTOMATIC EXCHANGE PROGRAM
==========================

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

SYSTEMATIC WITHDRAWAL PLAN
==========================

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

B-110
<PAGE>

Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the applicable Portfolio at net asset value. The Transfer Agent acts
as agent for the shareholder in redeeming sufficient full and fractional shares
to provide the amount of the systematic withdrawal payment. The Systematic
Withdrawal Plan may be terminated at any time. Goldman Sachs reserves the right
to initiate a fee of up to $5 per withdrawal, upon thirty (30) days written
notice to the shareholder. Withdrawal payments should not be considered to be
dividends, yield or income. If periodic withdrawals continuously exceed new
purchases and reinvested dividends and capital gains distributions, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. The maintenance of a withdrawal plan concurrently with purchases of
additional Class A, Class B or Class C Shares would be disadvantageous because
of the sales charge imposed on purchases of Class A Shares or the imposition of
a CDSC on redemptions of Class A, Class B and Class C Shares. The CDSC
applicable to Class B and Class C Shares redeemed under a systematic withdrawal
plan may be waived. See "How to Invest--Waiver or Reduction of Contingent
Deferred Sales Charge" in the Prospectus. In addition, each withdrawal
constitutes a redemption of shares, and any gain or loss realized must be
reported for federal and state income tax purposes. A shareholder should
consult his or her own tax adviser with regard to the tax consequences of
participating in the Systematic Withdrawal Plan. For further information or to
request a Systematic Withdrawal Plan, please write or call the Transfer Agent.

OFFERING PRICE OF CLASS A SHARES
================================

Class A Shares of each Portfolio are sold at a maximum sales charge of
5.5%. An illustration of the computation of the maximum offering price (5.5% of
offering price, 5.8% of net asset value per share) of the class A shares of each
Portfolio's shares would be as follows:
<TABLE>
<CAPTION>

Offering
Net Asset Maximum Price
Value Sales Charge to Public
--------- ------------ ---------
<S> <C> <C> <C>

Income Strategy Portfolio $9.45 $0.55 $10.00

Growth and Income
Strategy Portfolio $9.45 $0.55 $10.00

Growth Strategy Portfolio $9.45 $0.55 $10.00

Aggressive Growth Strategy
Portfolio $9.45 $0.55 $10.00
</TABLE>

B-111
<PAGE>

DISTRIBUTION AND SERVICE PLANS

As described in the Prospectus, the Trust has adopted, on behalf of Class A,
Class B and Class C Shares of each Portfolio, distribution and service plans
(each a "Plan") pursuant to Rule 12b-1 under the Act. See "Distribution and
Service Plans" in the Prospectus.

The Plans for each Portfolio were most recently approved on July 22, 1998 by a
majority vote of the Trustees of the Trust, including a majority of the non-
interested Trustees of the Trust who have no direct or indirect financial
interest in the Plans, cast in person at a meeting called for the purpose of
approving the Plans.

The compensation for distribution services payable under a Plan may not exceed
0.25%, 0.75% and 0.75% per annum of a Portfolio's average daily net assets
attributable to Class A, Class B and Class C Shares, respectively, of such
Portfolio. Under the Plans for Class B and Class C Shares, Goldman Sachs is
also entitled to received a separate fee for personal and account maintenance
services equal to an annual basis of 0.25% of each Portfolio's average daily net
assets attributable to Class B or Class C Shares. With respect to Class A
Shares, the Distributor at its discretion may use compensation for distribution
services paid under the Plan for personal and account maintenance services and
expenses so long as such total compensation under the Plan does not exceed the
maximum cap on "service fees" imposed by the NASD.

Each Plan is a compensation plan which provides for the payment of a specified
fee without regard to the expenses actually incurred by Goldman Sachs. If such
fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize a profit from
these arrangements. The distribution fees received by Goldman Sachs under the
Plans and contingent deferred sales charge on Class B and Class C Shares may be
sold by Goldman Sachs as distributor to entities which provide financing for
payments to Authorized Dealers in respect of sales of Class A, Class B and Class
C Shares. To the extent such fees are not paid to such dealers, Goldman Sachs
may retain such fee as compensation for its services and expenses of
distributing the Portfolios' Class A, Class B and Class C Shares.

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

The Plans will remain in effect until May 1, 1999 and from year to year
thereafter, provided that such continuance is approved annually by a majority
vote of the Trustees of the Trust, including a majority of the non-interested
Trustees of the Trust who have no direct or indirect financial interest in the
Plans. The Plans may not be amended to increase materially the amount of
distribution compensation described therein without approval of a majority of
the outstanding Class A, Class B or Class C Shares of the affected Portfolio and
share class. All material amendments of a Plan must also be approved by the
Trustees of the Trust in the manner described above. A Plan may be terminated at
any time as to any Fund without payment of any penalty by a
vote of a

B-112
<PAGE>

majority of the non-interested Trustees of the Trust or by vote of a majority of
the outstanding Class A, Class B or Class C Shares, respectively, of the
applicable Portfolio and share class. If a Plan was terminated by the Trustees
of the Trust and no successor plan was adopted, the Portfolio would cease to
make payments to Goldman Sachs under the Plan and Goldman Sachs would be unable
to recover the amount of any of its unreimbursed expenditures. So long as a Plan
is in effect, the selection and nomination of non-interested Trustees of the
Trust will be committed to the discretion of the non-interested Trustees of the
Trust. The Trustees of the Trust have determined that in their judgment there is
a reasonable likelihood that the Plans will benefit the Portfolios and their
Class A, Class B and Class C Shareholders.

B-113
<PAGE>

APPENDIX A
DESCRIPTION OF BOND RATINGS*

MOODY'S INVESTORS SERVICE, INC.

AAA: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

BAA: Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.

BA: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

- ----------
* The rating systems described herein are believed to be the most recent rating
systems available from Moody's Investors Service, Inc. and Standard and Poor's
Ratings Group at the date of this Additional Statement for the securities
listed. Ratings are generally given to securities at the times of issuance.
While the rating agencies may from time to time revise such ratings, they
undertake no obligation to do so, and the ratings indicated do not necessarily
represent ratings which will be given to these securities on the date of the
Fund's fiscal year end.

1-A
<PAGE>

CAA: Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.

CA: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds which
may be in default, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

UNRATED: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.

NOTE: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.

Moody's also provides credit ratings for commercial paper. These are
promissory obligations (1) not having an original maturity in excess of one
year, unless explicitly noted.

Description of Ratings of State and Municipal
Commercial Paper
----------------

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity in
excess of nine months. Moody's three highest commercial paper rating categories
are as follows:

2-A
<PAGE>

PRIME 1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:

- Leading market positions in well established industries.

- High rates of return on funds employed.

- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.

- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

- Well established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalized characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

STANDARD & POOR'S RATINGS GROUP

AAA: Bonds and debt rated AAA have the highest rating assigned by Standard
& Poor's. Capacity to meet the financial commitment on the obligation is
extremely strong.

AA: Bonds and debt rated AA have a very strong capacity to meet the
financial commitment on the obligation and differ from the higher rated issues
only in small degree.

A: Bonds and debt rated A have a strong capacity to meet the financial
commitment on the obligation although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than bonds
in higher rated categories.

3-A
<PAGE>

BBB: Bonds and debt rated BBB are regarded as having an adequate capacity
to meet the financial commitment on the obligation. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor.

BB, B, CCC, CC, C: Bonds and debt rated BB, B, CCC, CC and C are regarded
as having significant speculative characteristics with respect to the capacity
to meet the financial commitment on the obligation. BB indicates the least
degree of speculation and C the highest. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties of major risk exposures to adverse conditions.

BB: Bonds and debt rated BB have less vulnerability to nonpayment than
other speculative issues. However, such securities face major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions
which could lead to the obligor's inadequate capacity to meet the financial
commitment on the obligation.

B: Bonds and debt rated B are more vulnerable to non-payment but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial or economic conditions will likely
impair capacity or willingness to meet its financial commitment on the
obligation.

CCC: Bonds and debt rated CCC are currently vulnerable to non-payment, and
are dependent upon favorable business, financial, and economic conditions to
meet their financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, such securities are not likely to
have the capacity to meet their financial commitment on the obligation.

CC: The rating CC is typically applied to bonds and debt that are
currently highly vulnerable to non-payment.

C: The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but debt service
payments on this obligation are continued.

D: Bonds and debt rated D are in payment default. The D rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

4-A
<PAGE>

R This rating is attached to highlight derivative, hybrid, and certain
other obligations that Standard & Poor's believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies, certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.

STANDARD & POOR'S RATINGS GROUP

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Standard & Poor's commercial paper rating categories are as follows:

A-1 Obligations are rated in the highest category indicating that the
obligor's capacity to meet its financial commitment is strong. Within this
category, certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.

A-2 Obligations are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations rated "A-1".
However, the obligor's capacity to meet its financial commitment on the
obligation is satisfactory.

A-3 Obligations exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.

B- Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

C- Obligations are currently vulnerable to nonpayment and are dependent on
favorable business, financial, and economic conditions for the obligor to meet
its financial obligation.

D- Obligations are in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless Standard & Poor's believes such
payments will be made during such grace period. The "D" rating will also be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.

5-A
<PAGE>

FITCH IBCA, INC.

Bond Ratings
- ------------

The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.

AAA: Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong capacity for
timely payment of financial commitments, which is unlikely to be adversely
affected by reasonably foreseeable events.

AA: Bonds rated AA are considered to be investment grade and of very high
credit quality. These ratings denote a very low expectation of investment risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.

A: Bonds rated A are considered to be investment grade and of high
credit quality. These ratings denote a low expectation of investment risk and
indicate strong capacity of timely payment of financial commitments.

BBB: Bonds rated BBB are considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse circumstances and in economic conditions are more likely
to impair this category.

BB: Bonds are considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.

B: Bonds are considered highly speculative. These ratings indicate that
significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.

CCC: Bonds have certain identifiable characteristics that, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.

6-A
<PAGE>

CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest or principal.

DDD, DD, AND D: Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or reorganization of the
obligor. DDD represents the highest potential for recovery on these bonds, and
D represents the lowest potential for recovery.

PLUS (+) AND MINUS (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. The Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
or minus sign.

Investment Grade Short-Term Ratings
- -----------------------------------

Fitch IBCA's short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations or up to three years for
U.S. public finance securities.

F 1: Highest Credit Quality. Issues assigned this rating reflect the strongest
capacity for timely payment of financial commitments; may have an added "+"
to denote any exceptionally strong credit feature.

F 2: Good Credit Quality. Issues assigned this rating have a satisfactory
capacity for timely payment of financial commitments, but the margin of
safety is not as great as for issues assigned F 1 ratings.

F 3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in
a reduction to non-investment grade.

B: Securities possess speculative credit quality. This designation indicates
minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic
conditions.

C: Securities possess high default risk. This designation indicates that the
capacity for meeting financial commitments is solely reliant upon a
sustained, favorable business and economic environment.

D: Default. Issues assigned this rating are in actual or imminent payment
default.

LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.

7-A
<PAGE>

DUFF & PHELPS
-------------

Long Term Debt and Preferred Stock
- ----------------------------------

AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA-: High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions. However, risk factors are more variable and greater in periods of
economic stress.

A+, A, A-: Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

BBB+, BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

BB+, BB, BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.

B+, B, B-: Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.

CCC: Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

D: Defaulted debt obligation.

Commercial Paper/Certificates of Deposits
- -----------------------------------------

D-1+: Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or ready access to alternative sources
of funds, is clearly outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.

D-1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.

8-A
<PAGE>

D-1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.

D-2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.

D-3: Satisfactory liquidity and other protection factors qualify issues as
investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.

D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and
market access may be subject to a high degree of variation.

D-5: Issuer failed to meet scheduled principal and/or interest payments.

NOTES: Bonds which are unrated may expose the investor to risks with respect
to capacity to pay interest or repay principal which are similar to
the risks of lower-rated bonds. The Fund is dependent on the
Investment Adviser's judgment, analysis and experience in the
evaluation of such bonds.

Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on
the issuer's ability to make interest and principal payments.

Description of Ratings of State and Municipal Notes
---------------------------------------------------

MOODY'S INVESTORS SERVICE, INC.

Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade ("MIG") and variable rate demand obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such ratings
recognize the differences between short-term credit risk and long-term risk.
Symbols used will be as follows:

MIG-1/VMIG-1: This designation denotes best quality enjoying strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing.

MIG-2/VMIG-2: This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

MIG-3/VMIG-3: This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding

9-A
<PAGE>

grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

MIG-4/VMIG-4: This designation denotes adequate quality carrying specific
risk but having protection commonly regarded as required of an investment
security and not distinctly or predominantly speculative.

SG: This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

STANDARD & POOR'S RATINGS GROUP

A Standard and Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating.

Note rating symbols are as follows:

SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus (+)
designation.

SP-2: Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term
of the notes.

SP-3: Speculative capacity to pay principal and interest.

10-A
<PAGE>

APPENDIX B

BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.

Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.

OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we
serve our clients well, our own success will follow.

OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these assets
diminish, reputation is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.

WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.

WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.

WE STRESS TEAMWORK IN EVERYTHING WE DO. While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.

INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our people
to maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.

GOLDMAN, SACHS & CO.'S INVESTMENT BANKING
AND SECURITIES ACTIVITIES

Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.

Privately owned and ranked among Wall Street's best capitalized firms, with
partners' capital of approximately $6.1 billion as of November 28, 1997.

With thirty-seven offices around the world, Goldman Sachs employs over
11,000 professionals focused on opportunities in major markets.

1-B
<PAGE>

The number one underwriter of all international equity issuers from (1993-
1996).

A research budget of $200 million for 1997.

Premier lead manager of negotiated municipal bond offerings over the past
six years (1990-1996).

The number one lead manager of U.S. common stock offerings for the past
eight years (1989-1996).

The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1996).

____________________
* Source: Securities Data Corporation. Common stock ranking excludes REITs,
------------------------------------
Investment Trusts and Rights.

2-B
<PAGE>

GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE

1865 End of Civil War

1869 Marcus Goldman opens Goldman Sachs

1890 Dow Jones Industrial Average first published

1896 Goldman Sachs joins New York Stock Exchange

1906 Goldman Sachs takes Sears Roebuck & Co. public (longest-standing client
relationship)

Dow Jones Industrial Average tops 100

1925 Goldman Sachs finances Warner Brothers, producer of the first talking
film

1956 Goldman Sachs co-manages Ford's public offering, the largest to date

1970 London office opens

1972 Dow Jones Industrial Average breaks 1000

1986 Goldman Sachs takes Microsoft public

1991 Provides advisory services for the largest privatization in the region
of the sale of Telefonos de Mexico

1995 Dow Jones Industrial Average breaks 5000

1996 Goldman Sachs takes Deutsche Telecom public

Dow Jones Industrial Average breaks 6000

1997 Dow Jones Industrial Average breaks 7000

Goldman Sachs increases assets under management by 100% over 1996

3-B
<PAGE>

PART B

STATEMENT OF ADDITIONAL INFORMATION

Service Shares

INCOME STRATEGY PORTFOLIO
GROWTH AND INCOME PORTFOLIO
GROWTH STRATEGY PORTFOLIO
AGGRESSIVE GROWTH STRATEGY PORTFOLIO
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)

One New York Plaza
New York, New York 10004

This Statement of Additional Information (the "Additional Statement") is not a
prospectus. This Additional Statement should be read in conjunction with the
prospectus for the Service Shares of each of Goldman Sachs Income Strategy
Portfolio, Growth and Income Strategy Portfolio, Growth Strategy Portfolio and
Aggressive Growth Strategy Portfolio dated January 1, 1998, as revised September
1, 1998, and as may be further amended and/or supplemented from time to time
(the "Prospectus"), which may be obtained without charge from institutions
("Service Organizations") that hold Service Shares for the benefit of their
customers, or by calling Goldman, Sachs & Co. at the telephone number, or
writing to one of the addresses, listed below.

TABLE OF CONTENTS

Page
----
<S> <C>
Introduction.......................... B-4
Investment Objectives and Policies.... B-5
Investment Restrictions............... B-69
Management............................ B-71
Portfolio Transactions and Brokerage.. B-85
Net Asset Value....................... B-87
Performance Information............... B-90
Shares of the Trust................... B-94
Taxation.............................. B-98
Other Information..................... B-106
Service Plan.......................... B-108
Appendix A............................ 1-A
Appendix B............................ 1-B
</TABLE>

The date of this Additional Statement is January 1, 1998, as revised September
1, 1998.
<PAGE>

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

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

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

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

INTRODUCTION

INVESTMENT OBJECTIVES AND POLICIES

B-4
<PAGE>

A. DESCRIPTION OF UNDERLYING FUNDS

ADJUSTABLE RATE GOVERNMENT FUND

Objective. This Fund seeks to provide investors with a high level of
---------
current income, consistent with low volatility of principal.

Credit Quality. This Fund invests in U.S. Government Securities and
--------------
repurchase agreements collateralized by such securities.

SHORT DURATION GOVERNMENT FUND

Objective. This Fund seeks to provide a high level of current income.
---------
Secondarily, the Fund may, in seeking current income, also consider the
potential for capital appreciation.

B-5
<PAGE>

Credit Quality. This Fund invests in U.S. Government Securities and
--------------
repurchase agreements collateralized by such securities.

GOVERNMENT INCOME FUND

Objective. This Fund seeks to provide investors with a high level of
---------
current income, consistent with safety of principal.

B-6
<PAGE>

CORE FIXED INCOME FUND

B-7
<PAGE>

GLOBAL INCOME FUND

Objective. This Fund seeks to provide investors with a high total return,
---------
emphasizing current income, and, to a lesser extent, providing opportunities for
capital appreciation.

B-8
<PAGE>

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

B-9
<PAGE>

HIGH YIELD FUND

B-10
<PAGE>

GROWTH AND INCOME FUND

Objectives. This Fund seeks to provide investors with long-term growth of
----------
capital and growth of income.

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

B-11
<PAGE>

CORE LARGE CAP GROWTH FUND

CORE SMALL CAP EQUITY FUND

Objective. This Fund seeks 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. This Fund invests, under normal circumstances,
------------------------
at least 90% of its total assets in equity securities of U.S. issuers, including
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 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.