GOLDMAN SACHS TRUST, 497, 1999-02-12

GOLDMAN SACHS TRUST
497, 1999-02-12

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<PAGE>

- -----------------------------------------------------------------------------
PROSPECTUS GOLDMAN SACHS
February 8, 1999 ASSET ALLOCATION PORTFOLIOS
INSTITUTIONAL SHARES

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

GOLDMAN SACHS CONSERVATIVE STRATEGY PORTFOLIO
Seeks current income, consistent with the preservation of capital and sec-
ondarily also considers the potential for capital appreciation.

GOLDMAN SACHS BALANCED STRATEGY PORTFOLIO (FORMERLY, THE GOLDMAN SACHS INCOME
STRATEGY PORTFOLIO)
Seeks current income and long-term capital appreciation.

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

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

GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
Seeks long-term capital appreciation.

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

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

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

This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Portfolios that a prospective investor should understand before
investing. This Prospectus should be retained for future reference. A Statement
of Additional Information (the "Additional Statement"), dated February 8, 1999,
containing further information about the Trust and the Portfolios which may be
of interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Additional Statement and other information regarding the Trust.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Portfolio Highlights................ 2
Fees and Expenses................... 6
Financial Highlights................ 8
Investment Objectives and Policies.. 10
Risk Factors and Special
Considerations..................... 12
Description of Underlying Funds..... 13
Management.......................... 20
Expenses............................ 23
Net Asset Value..................... 25
Performance Information............. 25
Shares of the Trust................. 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Taxation............................ 26
Additional Information.............. 27
Reports to Shareholders............. 28
Dividends........................... 28
Purchase of Institutional Shares.... 28
Exchange Privilege.................. 31
Redemption of Institutional Shares.. 31
Appendix A.......................... A-1
Appendix B.......................... B-1
Account Application
</TABLE>
<PAGE>

PORTFOLIO HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

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

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?

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

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
---------------- ------------------------ -------------------------------------------
<S> <C> <C>
GOLDMAN SACHS Current income, Under normal conditions, approximately 80%
CONSERVATIVE consistent with the of the Portfolio's assets will be allocated
STRATEGY preservation of capital among Underlying Fixed-Income Funds, with a
PORTFOLIO and secondarily also focus on short-term investments including
considers the potential money market funds. Allocation to
for capital Underlying Equity Funds is intended to add
appreciation. diversification and enhance returns, but
will also add some volatility.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Current income and long- Under normal conditions, approximately 60%
BALANCED term capital of the Portfolio's total assets will be
STRATEGY appreciation. allocated among Underlying Fixed-Income
PORTFOLIO Funds. Allocation to Underlying Equity
Funds is intended to add diversification
and enhance returns, but will also add some
volatility.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Long-term capital Under normal conditions, approximately 60%
GROWTH AND appreciation and current of the Portfolio's total assets will be
INCOME STRATEGY income. allocated among Underlying Equity Funds,
PORTFOLIO which are intended to provide the capital
appreciation component. Allocation to
Underlying Fixed-Income Funds is intended
to provide the income component.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Long-term capital Under normal conditions, approximately 80%
GROWTH STRATEGY appreciation and of the Portfolio's total assets will be
PORTFOLIO secondarily current allocated among Underlying Equity Funds,
income. with a blend of domestic large cap, small
cap and international exposure to seek
capital intended appreciation. Allocation
to Underlying Fixed-Income Funds is to
provide diversification.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Long-term capital Under normal conditions, substantially all
AGGRESSIVE appreciation. of the Portfolio's total assets will be
GROWTH STRATEGY allocated among Underlying Equity Funds,
PORTFOLIO with a greater focus on small cap and
international investments.
</TABLE>

2
<PAGE>

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

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

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

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

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

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

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

3
<PAGE>

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

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

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

WHO MANAGES THE PORTFOLIOS?

Goldman Sachs Asset Management serves as Investment Adviser to the Portfolios
and, except as noted, to each Underlying Fund. Goldman Sachs Funds Management,
L.P. serves as investment adviser to the CORE U.S. Equity, Capital Growth,
Adjustable Rate Government and Short Duration Government Funds. Goldman Sachs
Asset Management International serves as investment adviser to the
International Equity, Japanese Equity, European Equity, International Small
Cap, Emerging Markets Equity, Asia Growth and Global Income Funds. As of
November 30, 1998, the Investment Adviser, together with its affiliates, acted
as investment adviser or distributor for assets in excess of $191 billion.

WHO DISTRIBUTES THE PORTFOLIOS' SHARES?

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

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment is $1,000,000 or $10,000,000 (depending upon
an investor's eligibility) in Institutional Shares of a Portfolio alone or in
combination with Institutional Shares (or the corresponding class) of any other
mutual fund sponsored by Goldman Sachs and designated as an eligible Fund for
this purpose.

HOW DO I PURCHASE INSTITUTIONAL SHARES?

You may purchase Institutional Shares of the Portfolios through Goldman
Sachs. Institutional Shares are purchased at the current NAV without any sales
load. See "Purchase of Institutional Shares."

HOW DO I SELL MY INSTITUTIONAL SHARES?

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

4
<PAGE>

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

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

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

5
<PAGE>

FEES AND EXPENSES
(INSTITUTIONAL SHARES)

<TABLE>
<CAPTION>
GROWTH AND AGGRESSIVE
CONSERVATIVE BALANCED INCOME GROWTH GROWTH
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.. None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends............. None None None None None
Redemption Fees........ None None None None None
Exchange Fees.......... None None None None None
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of av-
erage daily net as-
sets)/1/
Management Fees (for
asset allocation)
(after applicable
limitations)/2/ ...... 0.15% 0.15% 0.15% 0.15% 0.15%
Distribution Fees...... None None None None None
Other Expenses:
Other Expenses (after
fee and expense
limitations)/3/ ...... 0.04% 0.04% 0.04% 0.04% 0.04%
Underlying Fund Ex-
penses/1/ ............. 0.55% 0.69% 0.79% 0.84% 0.90%
---- ---- ---- ---- ----
TOTAL OTHER EXPENSES.... 0.59% 0.73% 0.83% 0.88% 0.94%
---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (after expense
limitations)/4/ ....... 0.74% 0.88% 0.98% 1.03% 1.09%
==== ==== ==== ==== ====
</TABLE>
- --------
/1/ The Portfolios' annual operating expenses have been restated to reflect
fees and expenses in effect as of September 1, 1998, except for the
Conservative Strategy Portfolio whose expenses are based on estimated
amounts for the current fiscal year. Underlying Fund expenses for each
Portfolio are based upon the strategic allocation of each Portfolio's
investment in the Underlying Funds and upon the total operating expenses
of the Underlying Funds in effect as of September 1, 1998. Actual
Underlying Fund expenses incurred by each Portfolio may vary with changes
in the allocation of each Portfolio's assets among the Underlying Funds
and with other events that directly affect the expenses of the Underlying
Funds. For additional information on the total operating expenses of each
Underlying Fund, please refer to "Expenses."
/2/ The Investment Adviser has voluntarily agreed that a portion of the
management fees would not be imposed on the Portfolios equal to 0.20%.
Without such limitation, management fees would be 0.35% of each
Portfolio's average daily net assets.
/3/ The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, transfer agency fees (equal to
0.04% of the average daily net assets of each Portfolio's Institutional
Shares), taxes, interest, brokerage fees, and litigation, indemnification
and other extraordinary expenses) for each Portfolio to the extent such
expenses exceed 0.00% of the Portfolio's average daily net assets.
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Institutional Shares of the Portfolios would be
as set forth below:

<TABLE>
<CAPTION>
CONSERVATIVE GROWTH AND AGGRESSIVE
STRATEGY BALANCED STRATEGY INCOME STRATEGY GROWTH STRATEGY GROWTH STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Other Expenses.......... 0.40% 0.40% 0.17% 0.20% 0.33%
Total Operating Ex-
penses................. 1.30% 1.44% 1.31% 1.39% 1.58%
</TABLE>

6
<PAGE>

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

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Conservative Strategy Portfolio.................................. $ 8 $24
Balanced Strategy Portfolio...................................... $ 9 $28
Growth and Income Strategy Portfolio............................. $10 $31
Growth Strategy Portfolio........................................ $11 $33
Aggressive Growth Strategy Portfolio............................. $11 $35
</TABLE>

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

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

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

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

7
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD

The following information with respect to a Share (of the Class specified)
of the Portfolios outstanding for the period ended June 30, 1998 is unaudited.
This information has been obtained from the Semi-Annual Report to shareholders
of the Portfolios for the period ended June 30, 1998 (the "Semi-Annual
Report"), and should be read in conjunction with the financial statements and
related notes incorporated by reference into the Additional Statement. The
Semi-Annual Report also contains performance information and is available upon
request and without charge by calling the telephone number or writing to one
of the addresses on the back cover of this Prospectus. During the period
shown, the Trust did not offer the Goldman Sachs Conservative Strategy
Portfolio. Accordingly, there are no financial highlights for this Portfolio.

<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT DISTRIBUTIONS TO
OPERATIONS(E) SHAREHOLDERS
---------------------- -----------------------
NET
REALIZED FROM NET NET NET NET
NET ASSET AND REALIZED INCREASE ASSET ASSETS AT
VALUE, NET UNREALIZED FROM NET GAIN ON IN NET VALUE, PORTFOLIO END OF
BEGINNING INVESTMENT GAIN ON INVESTMENT INVESTMENT ASSET END OF TOTAL TURNOVER PERIOD
OF PERIOD INCOME INVESTMENTS INCOME TRANSACTIONS VALUE PERIOD RETURN(A)(D) RATE(D) (IN 000S)
--------- ---------- ----------- ---------- ------------ -------- ------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOLDMAN SACHS BALANCED STRATEGY PORTFOLIO(F)
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30 (UNAUDITED),
- -----------------------------------------
1998 - Class A
Shares(b)....... $10.00 $0.10 $0.44 $(0.10) $-- $0.44 $10.44 5.43% 11.50% $28,413
1998 - Class B
Shares(b)....... 10.00 0.08 0.44 (0.08) -- 0.44 10.44 5.16 11.50 16,692
1998 - Class C
Shares(b)....... 10.00 0.07 0.44 (0.07) -- 0.44 10.44 5.14 11.50 13,635
1998 - Institu-
tional
Shares(b)....... 10.00 0.12 0.44 (0.12) -- 0.44 10.44 5.73 11.50 68
1998 - Service
Shares(b)....... 10.00 0.10 0.44 (0.10) -- 0.44 10.44 5.41 11.50 392
- --------------------------------------------------------------------------------------------------------------------------
GOLDMAN SACHS GROWTH AND INCOME STRATEGY PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30 (UNAUDITED),
- -----------------------------------------
1998 - Class A
Shares(b)....... $10.00 $0.06 $0.71 $(0.06) $-- $0.71 $10.71 7.70% 14.58% $123,007
1998 - Class B
Shares(b)....... 10.00 0.04 0.70 (0.04) -- 0.70 10.70 7.41 14.58 85,316
1998 - Class C
Shares(b)....... 10.00 0.04 0.69 (0.04) -- 0.69 10.69 7.30 14.58 67,306
1998 - Institu-
tional
Shares(b)....... 10.00 0.07 0.71 (0.07) -- 0.71 10.71 7.81 14.58 642
1998 - Service
Shares(b)....... 10.00 0.05 0.70 (0.05) -- 0.70 10.70 7.55 14.58 979
- --------------------------------------------------------------------------------------------------------------------------
GOLDMAN SACHS GROWTH STRATEGY PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30 (UNAUDITED),
- -----------------------------------------
1998 - Class A
Shares(b)....... $10.00 $0.03 $0.78 $(0.03) $-- $0.78 $10.78 8.05% 6.49% $86,268
1998 - Class B
Shares(b)....... 10.00 -- 0.77 -- -- 0.77 10.77 7.75 6.49 68,569
1998 - Class C
Shares(b)....... 10.00 -- 0.78 -- -- 0.78 10.78 7.84 6.49 43,467
1998 - Institu-
tional
Shares(b)....... 10.00 0.04 0.78 (0.04) -- 0.78 10.78 8.16 6.49 379
1998 - Service
Shares(b)....... 10.00 0.01 0.78 (0.01) -- 0.78 10.78 7.93 6.49 149
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY
WAIVER OF FEES OR
EXPENSE LIMITATIONS
--------------------
RATIO OF RATIO OF RATIO OF
NET NET RATIO OF NET
EXPENSES INVESTMENT EXPENSES INVESTMENT
TO INCOME TO INCOME TO
AVERAGE TO AVERAGE AVERAGE AVERAGE
NET NET NET NET
ASSETS(C) ASSETS(C) ASSETS(C) ASSETS(C)
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30 (UNAUDITED),
- -----------------------------------------
1998 - Class A
Shares(b)....... 0.60% 2.91% 2.10% 1.41%
1998 - Class B
Shares(b)....... 1.25 2.29 2.60 0.94
1998 - Class C
Shares(b)....... 1.25 2.09 2.60 0.74
1998 - Institu-
tional
Shares(b)....... 0.25 3.20 1.60 1.85
1998 - Service
Shares(b)....... 0.75 2.86 2.10 1.51
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30 (UNAUDITED),
- -----------------------------------------
1998 - Class A
Shares(b)....... 0.60% 1.92% 1.28% 1.24%
1998 - Class B
Shares(b)....... 1.25 1.30 1.78 0.77
1998 - Class C
Shares(b)....... 1.25 1.29 1.78 0.76
1998 - Institu-
tional
Shares(b)....... 0.25 2.18 0.78 1.65
1998 - Service
Shares(b)....... 0.75 1.88 1.28 1.35
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30 (UNAUDITED),
- -----------------------------------------
1998 - Class A
Shares(b)....... 0.60% 0.81% 1.41% -- %
1998 - Class B
Shares(b)....... 1.25 0.16 1.91 (0.50)
1998 - Class C
Shares(b)....... 1.25 0.15 1.91 (0.51)
1998 - Institu-
tional
Shares(b)....... 0.25 1.05 0.91 0.39
1998 - Service
Shares(b)....... 0.75 0.59 1.41 (0.07)
</TABLE>

8
<PAGE>

9
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

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

The Conservative Strategy Portfolio's investment objective is to seek
current income, consistent with the preservation of capital and secondarily
also considers the potential for capital appreciation. The Balanced Strategy
Portfolio's investment objective is to seek current income and long-term
capital appreciation. The Growth and Income Strategy Portfolio's investment
objective is to seek long-term capital appreciation and current income. The
Growth Strategy Portfolio's investment objective is to seek long-term capital
appreciation and secondarily current income. The Aggressive Growth Strategy
Portfolio's investment objective is to seek long-term capital appreciation.
There can be no assurance that any Portfolio's investment objective will be
achieved.

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

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

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

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

10
<PAGE>

Each Portfolio is authorized to invest in any or all of the Underlying
Funds. However, it is expected that a Portfolio will normally be invested in
only some of the Underlying Funds at any particular time. A Portfolio's
investment in any of the Underlying Funds may and, in some cases is expected
to, exceed 25% of its total assets. For example, it is expected that the
Conservative Strategy and Balanced Strategy Portfolios will invest more than
25% of their assets in the Short Duration Government Fund. The Investment
Adviser also expects that each Portfolio (except the Conservative Strategy
Portfolio) will invest a relatively significant percentage (which may exceed
25%) of its equity allocation in one or more of the CORE Large Cap Growth,
CORE Large Cap Value and CORE International Equity Funds; that the Growth and
Income Strategy Portfolio will invest a relatively significant percentage of
its assets in the Core Fixed Income and Global Income Funds; that the Balanced
Strategy Portfolio will invest a relatively significant percentage of its
assets in the Global Income Fund; and that the Conservative Strategy Portfolio
will invest a relatively significant percentage of its assets in the Global
Income Fund, Financial Square Prime Obligations Fund and CORE Large Cap Value
Fund. The Conservative Strategy Portfolio may not invest in international
equity funds. THE PARTICULAR UNDERLYING FUNDS IN WHICH EACH PORTFOLIO MAY
INVEST, THE EQUITY/FIXED-INCOME FUND TARGETS AND RANGES AND THE INVESTMENTS IN
EACH UNDERLYING FUND MAY BE CHANGED FROM TIME TO TIME WITHOUT SEEKING THE
APPROVAL OF THE PORTFOLIO'S SHAREHOLDERS.

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

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

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

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

11
<PAGE>

RISK FACTORS AND SPECIAL CONSIDERATIONS

INVESTING IN UNDERLYING FUNDS

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

INVESTMENTS OF THE UNDERLYING FUNDS

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

AFFILIATED PERSONS

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

EXPENSES

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

12
<PAGE>

DESCRIPTION OF UNDERLYING FUNDS

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

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

(continued)

13
<PAGE>

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

14
<PAGE>

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

15
<PAGE>

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

16
<PAGE>

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

UNDERLYING EQUITY FUNDS

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

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

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

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

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

17
<PAGE>

QUANTITATIVE INVESTMENT PROCESS. The Funds' investment advisers begin with a
broad universe of U.S. equity securities for the CORE U.S. Equity, CORE Large
Cap Growth, CORE Large Cap Value and CORE Small Cap Equity Funds (the "CORE
U.S. Equity Funds"), and a broad universe of foreign equity securities for the
CORE International Equity Fund. The investment advisers use proprietary
multifactor models (each a "Multifactor Model") to forecast the returns of
different markets, currencies and individual securities. An investment adviser
may rely on research from both the Goldman Sachs Global Investment Research
Department (the "Research Department") and other industry sources.

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

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

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

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

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

ACTIVELY MANAGED INTERNATIONAL FUNDS. The International Equity, Japanese
Equity, European Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds are managed using an active international approach, which
utilizes a consistent process of stock selection undertaken by portfolio
management teams located within each of the major investment regions,
including Europe, Japan, Asia and the United States.

18
<PAGE>

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

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

UNDERLYING FIXED-INCOME FUNDS

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

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

Except for the Financial Square Prime Obligations Fund (which is subject to
more restrictive SEC regulations applicable to money market funds), an
Underlying Fixed-Income Fund will deem a security to have met its minimum
credit rating requirement if the security receives the minimum required long-
term rating (or the equivalent short-term credit rating) at the time of
purchase from at least one rating organization (including, but not limited to,
Standard & Poor's Ratings Group ("S&P") and Moody's Investors Service, Inc.
("Moody's")) even though it has been rated below the minimum rating by one or
more other rating organizations, or, if unrated by a rating organization, is
determined by the Fund's investment adviser to be of comparable quality. If a
security satisfies a Fund's minimum rating criteria at the time of purchase
and is subsequently downgraded below such rating, the Fund will not be
required to dispose of such security. If a downgrade occurs, the Fund's
investment adviser will consider what action, including the sale of such
security, is in the best interest of the Fund and its shareholders.

19
<PAGE>

The Underlying Funds may employ certain active management techniques to
manage their duration and term structure, to seek to hedge exposure to foreign
currencies and to seek to enhance returns. These techniques include (with
respect to one or more of the Funds), but are not limited to, the use of
financial futures contracts, option contracts (including options on futures),
forward foreign currency exchange contracts, currency options and futures,
currency, mortgage, credit and interest rate swaps and interest rate floors,
caps and collars. Currency and interest rate management techniques involve
risks different from those associated with investing solely in U.S. dollar-
denominated fixed-income securities of U.S. issuers. Certain of the Funds may
invest in custodial receipts, municipal securities and convertible securities.
The Funds may also employ other investment techniques to seek to enhance
returns, such as lending portfolio securities and entering into mortgage
dollar rolls, repurchase agreements, reverse repurchase agreements and other
investment practices, as described in Appendix A to this Prospectus.

MANAGEMENT

TRUSTEES AND OFFICERS

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

INVESTMENT ADVISER

INVESTMENT ADVISER. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as investment adviser to each Portfolio and, except as noted below, to each
Underlying Fund. Goldman Sachs registered as an investment adviser in 1981.
Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New York
10004, a Delaware limited partnership which is an affiliate of Goldman Sachs,
serves as the investment adviser to the CORE U.S. Equity, Capital Growth,
Adjustable Rate Government and Short Duration Government Funds. Goldman Sachs
Funds Management, L.P. registered as an investment adviser in 1990. Goldman
Sachs Asset Management International, 133 Peterborough Court, London EC4A 2BB,
England, an affiliate of Goldman Sachs, serves as the investment adviser to
the International Equity, Japanese Equity, European Equity, International
Small Cap, Emerging Markets Equity, Asia Growth and Global Income Funds.
Goldman Sachs Asset Management International became a member of the Investment
Management Regulatory Organization Limited in 1990 and registered as an
investment adviser in 1991. As of November 30, 1998, GSAM, together with its
affiliates, acted as investment adviser or distributor for assets in excess of
$191 billion.

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

20
<PAGE>

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

FUND MANAGERS

<TABLE>
<S> <C> <C>
YEARS PRIMARILY
NAME AND TITLE RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
----------------------- --------------- -------------------------------------------
Mark M. Carhart, Ph.D., Since 1998 Mr. Carhart joined the Investment Adviser
CFA in 1997 as a member of the Quantitative
Vice President, Co- Research and Risk Management team. From
Head Quantitative August 1995 to September 1997, he was
Research and Senior Assistant Professor of Finance at the
Portfolio Manager Marshall School of Business at USC and a
Senior Fellow of the Wharton Financial
Institutions Center. From 1993 to 1995, he
was a lecturer and graduate student at the
University of Chicago Graduate School of
Business.
- ------------------------------------------------------------------------------------
Raymond J. Iwanowski Since 1998 Mr. Iwanowski joined the Investment Adviser
Vice President, Co- in 1997. Prior to joining the Investment
Head Quantitative Adviser, he spent three years at Salomon
Research and Senior Brothers, where he was a Vice President and
Portfolio Manager head of the Fixed Derivatives Client
Research group.
- ------------------------------------------------------------------------------------
Neil Chriss, Ph.D. Since 1998 Mr. Chriss joined the Investment Adviser in
Vice President and 1998. From 1996 to 1998, he worked in the
Portfolio Manager equity division of Morgan Stanley Dean
Witter. From 1994 to 1996, he was a post-
doctoral fellow in the Mathematics
Department of Harvard University.
- ------------------------------------------------------------------------------------
Giorgio DeSantis, Ph.D. Since 1998 Mr. DeSantis joined the Investment Adviser
Vice President and in 1998. From 1992 to 1998, he was
Portfolio Manager Assistant Professor of Finance and Business
Economics at the Marshall School of
Business at USC.
- ------------------------------------------------------------------------------------
William J. Fallon, Since 1998 Mr. Fallon joined the Investment Adviser in
Ph.D. 1998. From 1996 to 1998, he worked in the
Vice President and Firmwide Risk Group of Goldman, Sachs & Co.
Portfolio Manager From 1991 to 1996, he attended Columbia
University, where he earned a Ph.D. in
Finance.
- ------------------------------------------------------------------------------------
Guang-Liang He, Ph.D. Since 1998 Mr. He joined the Investment Adviser in
Vice President and 1998. In 1997, he worked in the Firmwide
Portfolio Manager Risk Group of Goldman, Sachs & Co. From
1992 to 1997, he worked at Quantitative
Financial Strategies, Inc.
</TABLE>

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

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

21
<PAGE>

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

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

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

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Underlying Funds' investment advisers,
Goldman Sachs and their affiliates in the management of, or their interest in,
other accounts and other activities of Goldman Sachs may present conflicts of
interest with respect to an Underlying Fund or limit the investment activities
of an Underlying Fund. Goldman Sachs and its affiliates engage in proprietary
trading and advise accounts and funds which have investment objectives similar
to those of the Underlying Funds and/or which engage in and compete for
transactions in the same type of securities, currencies and instruments.
Goldman Sachs and its affiliates will not have any obligation to make
available any information regarding their proprietary activities or
strategies, or the activities or strategies used for other accounts managed by
them, for the benefit of the management of the Underlying Funds. The results
of the investment activities of an Underlying Fund, therefore, may differ from
those of Goldman Sachs and its affiliates and it is possible that the
Portfolios and the Underlying Funds could sustain losses during periods in
which Goldman Sachs and its affiliates and other accounts achieve significant
profits on their trading for proprietary or other accounts. In addition, the
Underlying Funds may, from time to time, enter into transactions in which
other clients of Goldman Sachs have an adverse interest. From time to time,
the activities of an Underlying Fund may be limited because of regulatory
restrictions applicable to Goldman Sachs and its affiliates, and/or their
internal policies designed to comply with such restrictions. See "Management--
Activities of Goldman Sachs and its Affiliates and Other Accounts Managed by
Goldman Sachs" in the Additional Statement for further information.

DISTRIBUTOR AND TRANSFER AGENT

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

22
<PAGE>

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

YEAR 2000

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

EXPENSES

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

23
<PAGE>

case may be. The Portfolios will not pay the Investment Adviser at a later
time for any amounts which may be waived, nor will the Portfolios reimburse
the Investment Adviser for any amounts which may be assumed.

The expenses associated with investing in a "fund of funds," such as the
Portfolios, are generally higher than those of investment companies that do
not invest in other mutual funds. These increased expenses stem from the fact
that investors must indirectly pay a portion of the operating costs of the
Underlying Funds. The structure of the Portfolios will, however, reduce any
layering of costs in the following manner: (a) any fees charged to the
Portfolios under the Management Agreement are for services that are in
addition to, and not duplicative of, services provided under any Underlying
Fund's management agreement; (b) the Portfolios do not pay any sales charges,
distribution-related fees or service fees related to the Shares of the
Underlying Funds; (c) custodial and other fees charged by both the Portfolios
and the Underlying Funds are not redundant inasmuch as distinct services are
being provided at each level; and (d) any additional incremental cost incurred
by investing in the Portfolios is in return for a substantial investment
management service, namely the initial and ongoing asset allocation of
investments made in the Underlying Funds, and provision of meaningful
additional diversification benefits.

The following chart shows the total operating expense ratios (management fee
plus other operating expenses) of Institutional Shares of each Underlying Fund
in effect as of September 1, 1998 . In addition, the following chart shows the
contractual investment management fees payable to GSAM and its affiliates by
the Underlying Funds (in each case as an annualized percentage of the Fund's
average net assets). Absent voluntary fee waivers and/or expense
reimbursements, which may be discontinued at any time, the total operating
expense ratios of certain Underlying Funds would be higher.

<TABLE>
<CAPTION>
CONTRACTUAL TOTAL OPERATING
UNDERLYING FUNDS MANAGEMENT FEE EXPENSE RATIO
---------------- -------------- ---------------
<S> <C> <C>
Financial Square Prime Obligations Money Market
Fund........................................... 0.205% 0.18%
Short Duration Government Fund.................. 0.50% 0.54%
Adjustable Rate Government Fund................. 0.40% 0.49%
Core Fixed Income Fund.......................... 0.40% 0.54%
Government Income Fund.......................... 0.65% 0.58%
Global Income Fund.............................. 0.90% 0.69%
High Yield Fund................................. 0.70% 0.76%
Growth & Income Fund............................ 0.70% 0.79%
CORE U.S. Equity Fund........................... 0.75% 0.74%
CORE Large Cap Growth Fund...................... 0.75% 0.64%
CORE Large Cap Value Fund....................... 0.60% 0.64%
CORE Small Cap Equity Fund...................... 0.85% 0.93%
Capital Growth Fund............................. 1.00% 1.04%
CORE International Equity Fund.................. 0.85% 1.01%
Mid Cap Equity Fund............................. 0.75% 0.89%
Small Cap Value Fund............................ 1.00% 1.10%
International Equity Fund....................... 1.00% 1.14%
Japanese Equity Fund............................ 1.00% 1.05%
European Equity Fund............................ 1.00% 1.14%
International Small Cap Fund.................... 1.20% 1.40%
Emerging Markets Equity Fund.................... 1.20% 1.39%
Asia Growth Fund................................ 1.00% 1.20%
Real Estate Securities Fund..................... 1.00% 1.04%
</TABLE>

24
<PAGE>

NET ASSET VALUE

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

PERFORMANCE INFORMATION

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

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

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

Each Portfolio's performance quotations do not reflect any fees charged by a
financial institution to its customer accounts in connection with investments
in the Portfolios. The investment results of a Portfolio will fluctuate over
time and any presentation of investment results for any prior period should
not be considered a representation of what an investment may earn or what the
Portfolio's performance may be in any future period. In addition to
information provided in shareholder reports, the Portfolios may, in their
discretion, from time to time make a list of their holdings available to
investors upon request.

25
<PAGE>

SHARES OF THE TRUST

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

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

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

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

TAXATION

FEDERAL TAXES

Each Portfolio is treated as a separate entity for tax purposes. Each
Portfolio intends to elect to be treated as a regulated investment company and
qualify for such treatment for each taxable year under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To qualify as such, a
Portfolio must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Portfolio will not be
subject to federal income or excise tax on any net investment income and net
realized capital gains that are distributed to its shareholders in accordance
with certain timing requirements of the Code.

26
<PAGE>

are received in cash or reinvested in Shares. A Portfolio's dividends that are
paid to its corporate shareholders and are attributable to qualifying
dividends such Portfolio or an Underlying Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. A portion of each
Portfolio's dividends may generally qualify, in the hands of corporate
shareholders, for the corporate dividends-received deduction. Certain
distributions paid by a Portfolio in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Portfolios for federal income tax purposes.

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

REDEMPTIONS AND EXCHANGES OF SHARES ARE TAXABLE EVENTS.

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

Each Portfolio may be subject to foreign withholding or other foreign taxes
on income or gain from certain foreign securities. In general, the Portfolios
do not anticipate that they will be eligible to pass any foreign tax credits
through to their shareholders; however, the Portfolios may deduct these taxes
in computing their taxable income, if any.

OTHER TAXES

In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Portfolios. A state income (and
possibly local income and/or intangible property) tax exemption may be
available to the extent (if any) a Portfolio's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in Shares of the Portfolios, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.

ADDITIONAL INFORMATION

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

27
<PAGE>

REPORTS TO SHAREHOLDERS

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

DIVIDENDS

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

The election to reinvest dividends and distributions paid by a Portfolio in
additional Institutional Shares of the Portfolio will not affect the tax
treatment of such dividends and distributions, which will be treated as
received by the shareholder and then used to purchase Institutional Shares of
a Portfolio.

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

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

PURCHASE OF INSTITUTIONAL SHARES

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

28
<PAGE>

4:00 p.m. New York time), as described under "Net Asset Value." Purchases of
Institutional Shares of the Funds must be settled within three (3) Business
Days of the receipt of a complete purchase order. Payment of the proceeds of
redemption of Shares purchased by check may be delayed for a period of time as
described under "Redemption of Institutional Shares."

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

PURCHASE PROCEDURES

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

MINIMUM INITIAL INVESTMENTS

Institutional Shares of the Portfolio are offered to: (a) banks, trust
companies or other types of depository institutions investing for their own
account or on behalf of their clients; (b) pension and profit sharing plans,
pension funds and other company-sponsored benefit plans; (c) any state,
county, city or any instrumentality, department, authority or agency thereof;
(d) corporations and other for-profit business organizations with assets of at
least $100 million or publicly traded securities outstanding; (e) "wrap"
accounts for the benefit of clients of broker-dealers, financial institutions
or financial planners, provided that they have entered into an agreement with
GSAM specifying aggregate minimums and certain operating policies and
standards; and (f) registered investing for accounts for which they receive
asset-based fees. With respect to these investors, the minimum initial
investment is $1,000,000 in Institutional Shares of a Portfolio alone or in
combination with other assets under the management of GSAM and its affiliates.

The minimum initial investment in Institutional Shares for (a) individual
investors; (b) qualified non-profit organizations, charitable trusts,
foundations and endowments; and (c) accounts over which GSAM or its advisory
affiliates have investment discretion is $10,000,000.

The foregoing minimum investment requirements may be waived at the
discretion of the Trust's officers. In addition, the minimum investment
requirement may be waived for current and former officers, partners, directors
or employees of Goldman Sachs or any of its affiliates or for other investors
at the discretion of the Trust's officers. No minimum amount is required for
subsequent investments.

OTHER PURCHASE INFORMATION

The Trust may authorize certain institutions (including banks, trust
companies, brokers and investment advisers) that provide recordkeeping,
reporting and processing services to their customers to accept on the Trust's
behalf orders placed by or on behalf of such customers and, if approved by the
Trust, to designate other

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

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

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

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

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

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EXCHANGE PRIVILEGE

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

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

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

REDEMPTION OF INSTITUTIONAL SHARES

The Portfolios will redeem their Institutional Shares upon request of a
recordholder of such Shares on any Business Day at the NAV next determined
after receipt of a request in proper form by Goldman Sachs from the
recordholder. (See "Purchase of Institutional Shares--Other Purchase
Information" for a description of limited situations where an institution or
other intermediary may be authorized to accept requests for the Trust.) If
Institutional Shares to be redeemed were recently purchased by check, a
Portfolio may delay transmittal of redemption proceeds until such time as it
has assured itself that good funds have been collected for the purchase of
such Institutional Shares. This may take up to fifteen (15) days. Redemption
requests may be made by a shareholder of record by writing to or calling the
Transfer Agent at the address or telephone number set forth on the back cover
of this Prospectus. A shareholder of record may request redemptions by
telephone if the optional telephone redemption privilege is elected on the
Account Information Form accompanying this Prospectus. It may be difficult to
implement redemptions by telephone in times of drastic economic or market
changes.

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<PAGE>

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

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

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

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

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

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APPENDIX A

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

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

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

CONVERTIBLE SECURITIES

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

PREFERRED STOCK, WARRANTS AND RIGHTS

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

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

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REAL ESTATE INVESTMENT TRUSTS ("REITS")

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

FOREIGN INVESTMENTS

Foreign Securities. Certain of the Underlying Funds may invest in foreign
securities in accordance with their investment objectives and policies.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in securities of domestic issuers quoted
in U.S. dollars. Such investments may be affected by changes in currency
rates, changes in foreign or U.S. laws or restrictions applicable to such
investments and in exchange control regulations (e.g., currency blockage). A
decline in the exchange rate of the currency (i.e., weakening of the currency
against the U.S. dollar) in which a portfolio security is quoted or
denominated relative to the U.S. dollar would reduce the value of the
portfolio security. The introduction of a single currency, the euro, on
January 1, 1999 for participating European nations in the Economic and
Monetary Union presents unique uncertainties, including whether the payment
and operational systems of banks and other financial institutions will
encounter difficulties; the creation of suitable clearing and settlement
payment systems for the new currency; the legal treatment of certain
outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of exchange
rates for currencies being converted into the euro and the euro; the
fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2001 and beyond; whether the
interest rate, tax and labor regimes of European countries participating in
the euro will converge over time; and whether the conversion of the currencies
of the other countries in the European Union ("EU"), such as the United
Kingdom and Denmark into the euro and the admission of other non-EU countries
such as Poland, Latvia and Lithuania as members of the EU may have an impact
on the euro. These or other factors, including political and economic risks,
could cause market disruptions before or after the introduction of the euro,
and could adversely affect the value of securities and foreign currencies held
by the Underlying Funds. Commissions on transactions in foreign securities may
be higher than those for similar transactions on domestic stock markets. In
addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, such procedures have been unable to keep
pace with the volume of securities transactions, thus making it difficult to
conduct such transactions.

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

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

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

Foreign Currency Transactions. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because certain
Underlying Funds may have currency exposure independent of their securities
positions, the value of the assets of the Underlying Fund as measured in U.S.
dollars will be affected by changes in foreign currency exchange rates. The
Underlying Fund may, to the extent it invests in foreign securities, purchase
or sell foreign currencies on a spot basis and may also purchase or sell
forward foreign currency exchange contracts for hedging purposes and to seek
to protect against anticipated changes in future foreign currency exchange
rates. In addition, the Core Fixed Income, Global Income, High Yield, CORE
International Equity, International Equity, Japanese Equity, European Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may
enter into such contracts to seek to increase total return when the Underlying
Fund's investment adviser anticipates that the foreign currency will
appreciate or depreciate in value, but securities denominated or quoted in
that currency do not present attractive investment opportunities and are not
held in the Underlying Fund's portfolio. When entered into to seek to enhance
return, forward foreign currency exchange contracts are considered
speculative. Certain Underlying Funds may also engage in cross-hedging by
using forward contracts in a currency different from that in which the hedged
security is denominated or quoted if the Underlying Fund's investment adviser
determines that there is a pattern of correlation between the two currencies.

An Underlying Fund will incur costs in connection with conversions between
various currencies. An Underlying Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of its
investment adviser, it would be beneficial to convert such currency into U.S.
dollars at a later date, based on anticipated changes in the relevant exchange
rates.

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

Certain of the Underlying Funds may enter into currency swaps, which involve
the exchange by the Underlying Fund with another party for their respective
rights to make or receive payments in specified currencies. Currency swaps
usually involve the delivery of a gross payment stream in one designated
currency in exchange for the gross payment stream in another designated
currency. Therefore, the entire payment stream under a currency swap is
subject to the risk that the other party to the swap will default on its
contractual delivery obligations.

The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive an Underlying Fund of unrealized profits
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.

FIXED-INCOME SECURITIES

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

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

Mortgage-Backed Securities. The Underlying Funds (other than the five CORE
Equity Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Therefore, Mortgage-Backed Securities are often subject to more rapid
repayment than their stated maturity date would indicate as a

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result of principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. During periods of declining interest
rates, prepayments can be expected to accelerate, and thus impair the
Underlying Fund's ability to reinvest the returns of principal at comparable
yields. Conversely, in a rising interest rate environment, a declining
prepayment rate will extend the average life of many Mortgage-Backed
Securities and prevent the Underlying Fund from taking advantage of such
higher yields.

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

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

The Underlying Funds may also invest in multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage
Investment Conduit ("REMIC") pass-through or participation certificates. CMOs
provide an investor with a specified interest in the cash flow from a pool of
underlying mortgages or of other Mortgage-Backed Securities. CMOs are issued
in multiple classes, each with a specified fixed or floating interest rate and
a final scheduled distribution date. In most cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturities,
so that no principal payments will be made on a CMO class until all other
classes having an earlier stated maturity date are paid in full. A REMIC is a
CMO that qualifies for special tax treatment under the Code, and invests in
certain mortgages principally secured by interests in real property and other
permitted investments.

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

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

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

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

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

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

Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation
Bonds. Each Underlying Fund may invest in zero coupon, deferred interest and
capital appreciation bonds. These are securities issued at a discount from
their face value because interest payments are typically postponed until
maturity. These securities also may take the form of debt securities that have
been stripped of their interest payments. Each Underlying Fund may also invest
in pay-in-kind securities which are securities that have interest payable by
the delivery of additional securities. The market prices of zero coupon,
deferred interest, pay-in-kind and capital appreciation

A-6
<PAGE>

bonds generally are more volatile than the market prices of interest-bearing
securities and are likely to respond to a greater degree to changes in
interest rates than interest-bearing securities having similar maturities and
credit quality.

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

OPTIONS ON SECURITIES AND SECURITIES INDICES

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

OPTIONS ON FOREIGN CURRENCIES

A-7
<PAGE>

Underlying Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against exchange
rate fluctuations; however, in the event of exchange rate movements adverse to
the Underlying Fund's position, the Underlying Fund may forfeit the entire
amount of the premium plus related transaction costs. In addition to
purchasing call and put options for hedging purposes, the Core Fixed Income,
Global Income, High Yield, CORE International Equity, International Equity,
Japanese Equity, European Equity, International Small Cap, Emerging Markets
Equity and Asia Growth Funds may purchase call or put options on currency to
seek to increase total return when the Underlying Fund's investment adviser
anticipates that the currency will appreciate or depreciate in value, but the
securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in the Underlying Fund's portfolio.
When purchased or sold to seek to increase total return, options on currencies
are considered speculative. Options on foreign currencies written or purchased
by the Underlying Funds are traded on U.S. and foreign exchanges or over-the-
counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

An Underlying Fund may purchase and sell various kinds of futures contracts,
and purchase and write call and put options on any of such futures contracts
to seek to increase total return; or to hedge against changes in interest
rates, securities prices or currency exchange rates; or to otherwise manage
its term structure or duration in accordance with its investment objectives
and policies. Each Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options.

The futures contracts may be based on various securities (such as U.S.
Government Securities), foreign currencies, securities indices and other
financial instruments and indices, whether domestic or foreign. An Underlying
Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the Commodity Futures Trading
Commission or to seek to increase total return to the extent permitted by such
regulations. The Underlying Fund may not purchase or sell futures contracts or
purchase or sell related options to seek to increase total return, except for
closing purchase or sale transactions, if immediately thereafter the sum of
the amount of initial margin deposits and premiums paid on the Underlying
Fund's outstanding positions in futures and related options entered into for
the purpose of seeking to increase total return would exceed 5% of the market
value of the Underlying Fund's net assets. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating the Underlying Fund to purchase securities or currencies,
require the Underlying Fund to segregate and maintain cash or liquid assets
with a value equal to the amount of the Underlying Fund's obligations or to
otherwise cover the obligations in a manner permitted by the SEC.

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

A-8
<PAGE>

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

STANDARD AND POOR'S DEPOSITORY RECEIPTS

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

EQUITY SWAPS

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

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

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

A-9
<PAGE>

ILLIQUID AND RESTRICTED SECURITIES

No Underlying Fund will invest more than 15% (10% in the case of the
Financial Square Prime Obligations Fund) of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, certain over-the-counter options and certain
restricted securities, unless it is determined, based upon the continuing
review of the trading markets for a specific restricted security, that such
restricted security is eligible for resale under Rule 144A under the
Securities Act of 1933 and, therefore, is liquid. Investing in restricted
securities eligible for resale pursuant to Rule 144A may decrease the
liquidity of an Underlying Fund's portfolio to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. The purchase price and subsequent valuation of
restricted and illiquid securities normally reflect a discount, which may be
significant, from the market price of comparable securities for which a market
exists.

REPURCHASE AGREEMENTS

The Underlying Funds may enter into repurchase agreements with dealers in
U.S. Government Securities and member banks of the Federal Reserve System
which furnish collateral at least equal in value or market price to the amount
of their repurchase obligation. The Core Fixed Income, Global Income, High
Yield, CORE International Equity, International Equity, Japanese Equity,
European Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds may also enter into repurchase agreements involving certain
foreign government securities. If the other party or "seller" defaults, the
Underlying Fund might suffer a loss to the extent that the proceeds from the
sale of the underlying securities and other collateral are less than the
repurchase price. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, the Underlying
Fund could suffer losses, including loss of interest on or principal of the
security and costs associated with delay and enforcement of the repurchase
agreement. Each Underlying Fund, together with other registered investment
companies having management agreements with GSAM or its affiliates, may
transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.

LENDING OF PORTFOLIO SECURITIES

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

SHORT SALES AGAINST-THE-BOX

Certain Underlying Funds may make short sales of securities or maintain a
short position, provided that at all times when a short position is open the
Underlying Fund owns an equal amount of such securities or securities
convertible into or exchangeable for an equal amount of the securities of the
same issuer as the securities sold short (a short sale against-the-box). Not
more than 25% of the Underlying Fund's net assets (determined at the time of
the short sale) may be subject to such short sales.

A-10
<PAGE>

MORTGAGE DOLLAR ROLLS

The Underlying Fixed-Income Funds (except the High Yield Fund) and the Real
Estate Securities Fund may enter into mortgage "dollar rolls" in which the
Underlying Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase
substantially similar but not identical securities on a specified future date.
During the roll period, the Underlying Fund loses the right to receive
principal and interest paid on the securities sold. However, the Underlying
Fund would benefit to the extent of any difference between the price received
for the securities sold and the lower forward price for the future purchase or
fee income plus the interest earned on the cash proceeds of the securities
sold until the settlement date for the forward purchase. Unless such benefits
exceed the income, capital appreciation and gain or loss due to mortgage
prepayments that would have been realized on the securities sold as part of
the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Underlying Fund.

TEMPORARY INVESTMENTS

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

PORTFOLIO TURNOVER

The turnover rates of the Underlying Funds have ranged from 41% to 315%
during their most recent fiscal years. There can be no assurance that the
turnover rates of these Underlying Funds will remain within this range during
subsequent fiscal years. Higher turnover rates may result in higher brokerage
costs and higher expenses being incurred by the Underlying Funds. In addition,
higher turnover rates may result in higher taxable realized gains being
incurred by shareholders.

MISCELLANEOUS TECHNIQUES

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

In addition, each Underlying Fund may borrow up to 33 1/3% of its total
assets from banks for temporary or emergency purposes.

(2) RELATED ADDITIONAL RISK FACTORS

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES AND REITS

A-11
<PAGE>

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

SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING MARKETS

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

Many Emerging Countries are subject to a substantially greater degree of
economic, political and social instability than is the case in Western Europe,
the United States, Canada, Australia, New Zealand and Japan. The governments
of some Emerging Countries are authoritarian in nature or have been installed
or removed as a result of military coups, while governments in other Emerging
Countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian, Eastern European and other
Emerging Countries. Investing in Emerging Countries involves the risk of loss
due to expropriation, nationalization, confiscation of assets and property or
the imposition of restrictions on foreign investments and on repatriation of
capital invested. For example, in the past, Eastern European governments have
expropriated substantial amounts of private property, and have not settled the
claims of property owners. Similar expropriations could occur in the future.
Additionally, many Emerging Countries have experienced currency devaluations
and substantial and, in some cases, extremely high rates of inflation, which
have a negative effect on the economies and securities markets of such
Emerging Countries. Economies in Emerging Countries generally are dependent
heavily upon commodity prices and international trade and, accordingly, have
been and may continue to be affected adversely by the economies of their
trading partners, trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or
negotiated by the countries with which they trade.

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

A-12
<PAGE>

RISKS OF INVESTING IN FIXED-INCOME SECURITIES

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

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

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

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

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

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

RISKS OF OTHER DERIVATIVE TRANSACTIONS

A-13
<PAGE>

changes in the value of hedging instruments and the portfolio assets (if any)
being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the investment adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices.

NON-DIVERSIFICATION

The Global Income Fund is registered as a "non-diversified" Fund under the
1940 Act and is, therefore, more susceptible to adverse developments affecting
any single issuer. In addition, the Global Income Fund, and certain other
Underlying Funds, may invest more than 25% of their total assets in the
securities of corporate and governmental issuers located in a single foreign
country. Concentration of a Fund's investments in such issuers will subject
the Fund, to a greater extent than if investment was more limited, to the
risks of adverse securities markets, exchange rates and social, political or
economic events which may occur in those countries.

A-14
<PAGE>

APPENDIX B

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM

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

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

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

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

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

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

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

B-1
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GOLDMAN SACHS

ASSET ALLOCATION
PORTFOLIOS

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PROSPECTUS

INSTITUTIONAL SHARES

[LOGO]
Goldman
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AAPROINST
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<PAGE>

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PROSPECTUS GOLDMAN SACHS
February 8, 1999 ASSET ALLOCATION PORTFOLIOS
SERVICE SHARES

GOLDMAN SACHS CONSERVATIVE STRATEGY PORTFOLIO
Seeks current income, consistent with the preservation of capital and sec-
ondarily also considers the potential for capital appreciation.

GOLDMAN SACHS BALANCED STRATEGY PORTFOLIO (FORMERLY, THE GOLDMAN SACHS INCOME
STRATEGY PORTFOLIO)
Seeks current income and long-term capital appreciation.

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

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

GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
Seeks long-term capital appreciation.

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

This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Portfolios that a prospective investor should understand before
investing. This Prospectus should be retained for future reference. A Statement
of Additional Information (the "Additional Statement"), dated February 8, 1999,
containing further information about the Trust and the Portfolios which may be
of interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Service Organizations (as defined herein)
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus. The SEC maintains a Web
site (http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Portfolio Highlights................ 2
Fees and Expenses................... 6
Financial Highlights................ 8
Investment Objectives and Policies.. 10
Risk Factors and Special
Considerations..................... 12
Description of Underlying Funds..... 13
Management.......................... 20
Expenses............................ 23
Net Asset Value..................... 25
Performance Information............. 25
Shares of the Trust................. 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Taxation.............................. 26
Additional Information................ 27
Additional Services................... 28
Reports to Shareholders............... 28
Dividends............................. 29
Purchase of Service Shares............ 29
Exchange Privilege.................... 31
Redemption of Service Shares.......... 31
Appendix A............................ A-1
Appendix B............................ B-1
</TABLE>
<PAGE>

PORTFOLIO HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
---------------- ------------------------ -------------------------------------------
<S> <C> <C>
GOLDMAN SACHS Current income, Under normal conditions, approximately 80%
CONSERVATIVE consistent with the of the Portfolio's assets will be allocated
STRATEGY preservation of capital among Underlying Fixed-Income Funds, with a
PORTFOLIO and secondarily also focus on short-term investments including
considers the potential money market funds. Allocation to
for capital Underlying Equity Funds is intended to add
appreciation. diversification and enhance returns, but
will also add some volatility.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Current income and long- Under normal conditions, approximately 60%
BALANCED term capital of the Portfolio's total assets will be
STRATEGY appreciation. allocated among Underlying Fixed-Income
PORTFOLIO Funds. Allocation to Underlying Equity
Funds is intended to add diversification
and enhance returns, but will also add some
volatility.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Long-term capital Under normal conditions, approximately 60%
GROWTH AND appreciation and current of the Portfolio's total assets will be
INCOME STRATEGY income. allocated among Underlying Equity Funds,
PORTFOLIO which are intended to provide the capital
appreciation component. Allocation to
Underlying Fixed-Income Funds is intended
to provide the income component.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Long-term capital Under normal conditions, approximately 80%
GROWTH STRATEGY appreciation and of the Portfolio's total assets will be
PORTFOLIO secondarily current allocated among Underlying Equity Funds,
income. with a blend of domestic large cap, small
cap and international exposure to seek
capital appreciation. Allocation to
Underlying Fixed-Income Funds is intended
to provide diversification.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Long-term capital Under normal conditions, substantially all
AGGRESSIVE appreciation. of the Portfolio's total assets will be
GROWTH STRATEGY allocated among Underlying Equity Funds,
PORTFOLIO with a greater focus on small cap and
international investments.
</TABLE>

2
<PAGE>

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

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

3
<PAGE>

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

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

WHO MANAGES THE PORTFOLIOS?

WHO DISTRIBUTES THE PORTFOLIOS' SHARES?

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

WHAT IS THE MINIMUM INVESTMENT?

HOW DO I PURCHASE SERVICE SHARES?

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

ADDITIONAL SERVICES. The Trust, on behalf of the Portfolios, has adopted a
Service Plan with respect to the Service Shares which authorizes a Portfolio to
compensate Service Organizations for providing account administration and
shareholder liaison services to their customers who are the beneficial owners
of such Shares. The Trust, on behalf of the Portfolios, will enter into
agreements with each Service Organization which will provide for compensation
to the Service Organization in an amount up to 0.50% (on an annualized basis)
of the

4
<PAGE>

average daily net assets of the Service Shares of the Portfolios attributable
to or held in the name of the Service Organization for its customers. This
compensation is in addition to any other compensation, if any, a Service
Organization may receive from its customers, the Trust or Goldman Sachs. See
"Additional Services."

HOW DO I SELL MY SERVICE SHARES?

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

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

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

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

5
<PAGE>

FEES AND EXPENSES
(SERVICE SHARES)

<TABLE>
<CAPTION>
GROWTH AND AGGRESSIVE
CONSERVATIVE BALANCED INCOME GROWTH GROWTH
STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.. None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends............. None None None None None
Redemption Fees........ None None None None None
Exchange Fees.......... None None None None None
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of
average daily net
assets)/1/
Management Fees (for
asset allocation)
(after applicable
limitations)/2/ ...... 0.15% 0.15% 0.15% 0.15% 0.15%
Service Fees/3/ ....... 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses:
Other Expenses (after
applicable
limitations)/4/ ...... 0.04% 0.04% 0.04% 0.04% 0.04%
Underlying Fund
Expenses/1/ .......... 0.55% 0.69% 0.79% 0.84% 0.90%
---- ---- ---- ---- ----
TOTAL OTHER EXPENSES.... 0.59% 0.73% 0.83% 0.88% 0.94%
---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (after fee and
expense
limitations)/5/ ....... 1.24% 1.38% 1.48% 1.53% 1.59%
==== ==== ==== ==== ====
</TABLE>
- --------
/1/ The Portfolios' annual operating expenses have been restated to reflect
the fees and expenses in effect as of September 1, 1998, except for the
Conservative Strategy Portfolio whose expenses are based on estimated
amounts for the current fiscal year. Underlying Fund expenses for each
Portfolio are based upon the strategic allocation of each Portfolio's
investment in the Underlying Funds and upon the total operating expenses
of the Underlying Funds in effect as of September 1, 1998. Actual
Underlying Fund expenses incurred by each Portfolio may vary with changes
in the allocation of each Portfolio's assets among the Underlying Funds
and with other events that directly affect the expenses of the Underlying
Funds. For additional information on the total operating expenses of each
Underlying Fund, please refer to "Expenses."
/2/ The Investment Adviser has voluntarily agreed that a portion of the
management fees would not be imposed on the Portfolios equal to 0.20%.
Without such limitation, management fees would be 0.35% of each
Portfolio's average daily net assets.
/3/ Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts.
/4/ The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management and service fees, transfer agency
fees (equal to 0.04% of the average daily net assets of each Portfolio's
Service Shares), taxes, interest, brokerage fees, and litigation,
indemnification and other extraordinary expenses) for each Portfolio to
the extent such expenses exceed 0.00% of the Portfolio's average daily net
assets.
/5/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Service Shares of the Portfolios would be as
set forth below:
<TABLE>
<CAPTION>
GROWTH AND AGGRESSIVE
CONSERVATIVE STRATEGY BALANCED STRATEGY INCOME STRATEGY GROWTH STRATEGY GROWTH STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Other Expenses.......... 0.40% 0.40% 0.17% 0.20% 0.33%
Total Operating
Expenses............... 1.80% 1.94% 1.81% 1.89% 2.08%
</TABLE>

6
<PAGE>

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Conservative Strategy Portfolio.................................. $13 $39
Balanced Strategy Portfolio...................................... $14 $44
Growth and Income Strategy Portfolio............................. $15 $47
Growth Strategy Portfolio........................................ $16 $48
Aggressive Growth Strategy Portfolio............................. $16 $50
</TABLE>

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

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

7
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD

8
<PAGE>

9
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

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

10
<PAGE>

11
<PAGE>

RISK FACTORS AND SPECIAL CONSIDERATIONS

INVESTING IN UNDERLYING FUNDS

INVESTMENTS OF THE UNDERLYING FUNDS

AFFILIATED PERSONS

EXPENSES

12
<PAGE>

DESCRIPTION OF UNDERLYING FUNDS

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

13
<PAGE>

14
<PAGE>

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

15
<PAGE>

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

16
<PAGE>

UNDERLYING EQUITY FUNDS

17
<PAGE>

ACTIVELY MANAGED INTERNATIONAL FUNDS. The International Equity, Japanese
Equity, European Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds are managed using an active

18
<PAGE>

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

UNDERLYING FIXED-INCOME FUNDS

19
<PAGE>

MANAGEMENT

TRUSTEES AND OFFICERS

INVESTMENT ADVISER

20
<PAGE>

FUND MANAGERS

- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
YEARS PRIMARILY
NAME AND TITLE RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
<CAPTION>
- ------------------------ --------------- -------------------------------------------
<S> <C> <C>
Mark M. Carhart, Ph.D., Since 1998 Mr. Carhart joined the Investment Adviser
CFA in 1997 as a member of the Quantitative
Vice President, Co-Head Research and Risk Management team. From
Quantitative Research August 1995 to September 1997, he was
and Senior Portfolio Assistant Professor of Finance at the
Manager Marshall School of Business at USC and a
Senior Fellow of the Wharton Financial
Institutions Center. From 1993 to 1995, he
was a lecturer and graduate student at the
University of Chicago Graduate School of
Business.
- ------------------------------------------------------------------------------------
Raymond J. Iwanowski Since 1998 Mr. Iwanowski joined the Investment Adviser
Vice President, Co-Head in 1997. Prior to joining the Investment
Quantitative Research Adviser, he spent three years at Salomon
and Senior Portfolio Brothers, where he was a Vice President and
Manager head of the Fixed Derivatives Client
Research group.
- ------------------------------------------------------------------------------------
Neil Chriss, Ph.D. Since 1998 Mr. Chriss joined the Investment Adviser in
Vice President and 1998. From 1996 to 1998, he worked in the
Portfolio Manager equity division of Morgan Stanley Dean
Witter. From 1994 to 1996, he was a post-
doctoral fellow in the Mathematics
Department of Harvard University.
- ------------------------------------------------------------------------------------
Giorgio DeSantis, Ph.D. Since 1998 Mr. DeSantis joined the Investment Adviser
Vice President and in 1998. From 1992 to 1998, he was
Portfolio Manager Assistant Professor of Finance and Business
Economics at the Marshall School of
Business at USC.
- ------------------------------------------------------------------------------------
William J. Fallon, Since 1998 Mr. Fallon joined the Investment Adviser in
Ph.D. 1998. From 1996 to 1998, he worked in the
Vice President and Firmwide Risk Group of Goldman, Sachs & Co.
Portfolio Manager From 1991 to 1996, he attended Columbia
University, where he earned a Ph.D. in
Finance.
- ------------------------------------------------------------------------------------
Guang-Liang He, Ph.D. Since 1998 Mr. He joined the Investment Adviser in
Vice President and 1998. In 1997, he worked in the Firmwide
Portfolio Manager Risk Group of Goldman, Sachs & Co. From
1992 to 1997, he worked at Quantitative
Financial Strategies, Inc.
</TABLE>

21
<PAGE>

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

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Underlying Funds' investment advisers,
Goldman Sachs and their affiliates in the management of, or their interest in,
other accounts and other activities of Goldman Sachs may present conflicts of
interest with respect to an Underlying Fund or limit the investment activities
of an Underlying Fund. Goldman Sachs and its affiliates engage in proprietary
trading and advise accounts and funds which have investment objectives similar
to those of the Underlying Funds and/or which engage in and compete for
transactions in the same type of securities, currencies and instruments.
Goldman Sachs and its affiliates will not have any obligation to make
available any information regarding their proprietary activities or
strategies, or the activities or strategies used for other accounts managed by
them, for the benefit of the management of the Underlying Funds.The results of
the investment activities of an Underlying Fund, therefore, may differ from
those of Goldman Sachs and its affiliates and it is possible that the
Portfolios and the Underlying Funds could sustain losses during periods in
which Goldman Sachs and its affiliates and other accounts achieve significant
profits on their trading for proprietary or other accounts. In addition, the
Underlying Funds may, from time to time, enter into transactions in which
other clients of Goldman Sachs have an adverse interest. From time to time,
the activities of an Underlying Fund may be limited because of regulatory
restrictions applicable to Goldman Sachs and its affiliates, and/or their
internal policies designed to comply with such restrictions. See "Management--
Activities of Goldman Sachs and its Affiliates and Other Accounts Managed by
Goldman Sachs" in the Additional Statement for further information.

DISTRIBUTOR AND TRANSFER AGENT

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

22
<PAGE>

YEAR 2000

EXPENSES

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

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The following chart shows the total operating expense ratios (management fee
plus other operating expenses) of Institutional Shares of each Underlying Fund
in effect as of September 1, 1998. In addition, the following chart shows the
contractual investment management fees payable to GSAM and its affiliates by
the Underlying Funds (in each case as an annualized percentage of the Fund's
average net assets). Absent voluntary fee waivers and/or expense
reimbursements, which may be discontinued at any time, the total operating
expense ratios of certain Underlying Funds would be higher.

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NET ASSET VALUE

PERFORMANCE INFORMATION

Each Portfolio's performance quotations do not reflect any fees charged by a
Service Organization to its customer accounts in connection with investments
in the Portfolios. The investment results of a Portfolio will fluctuate over
time and any presentation of investment results for any prior period should
not be considered a representation of what an investment may earn or what the
Portfolio's performance may be in any future period. In addition to
information provided in shareholder reports, the Portfolios may, in their
discretion, from time to time make a list of their holdings available to
investors upon request.

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SHARES OF THE TRUST

TAXATION

FEDERAL TAXES

26
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Redemptions and exchanges of Shares are taxable events.

OTHER TAXES

ADDITIONAL INFORMATION

27
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ADDITIONAL SERVICES

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

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

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

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

REPORTS TO SHAREHOLDERS

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

Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for

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providing each customer exercising investment discretion with monthly
statements with respect to such customer's account in lieu of an immediate
confirmation of each transaction.

DIVIDENDS

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

The election to reinvest dividends and distributions paid by a Portfolio in
additional Service Shares of the Portfolio will not affect the tax treatment
of such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Service Shares of a Portfolio.

PURCHASE OF SERVICE SHARES

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

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

PURCHASE PROCEDURES

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

OTHER PURCHASE INFORMATION

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

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

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

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

EXCHANGE PRIVILEGE

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

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

REDEMPTION OF SERVICE SHARES

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

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

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

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

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APPENDIX A

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

CONVERTIBLE SECURITIES

PREFERRED STOCK, WARRANTS AND RIGHTS

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REAL ESTATE INVESTMENT TRUSTS ("REITS")

FOREIGN INVESTMENTS

FOREIGN SECURITIES. Certain of the Underlying Funds may invest in foreign
securities in accordance with their investment objectives and policies.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in securities of domestic issuers quoted
in U.S. dollars. Such investments may be affected by changes in currency
rates, changes in foreign or U.S. laws or restrictions applicable to such
investments and in exchange control regulations (e.g., currency blockage). A
decline in the exchange rate of the currency (i.e., weakening of the currency
against the U.S. dollar) in which a portfolio security is quoted or
denominated relative to the U.S. dollar would reduce the value of the
portfolio security. The introduction of a single currency, the euro, on
January 1, 1999 for participating European nations in the Economic and
Monetary Union presents unique uncertainties, including whether the payment
and operational systems of banks and other financial institutions will
encounter difficulties; the creation of suitable clearing and settlement
payment systems for the new currency; the legal treatment of certain
outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of exchange
rates for currencies being converted into the euro and the euro; the
fluctuation of the euro relative to non-euro currencies during the transition
period from January 1, 1999 to December 31, 2001 and beyond; whether the
interest rate, tax and labor regimes of European countries participating in
the euro will converge over time; and whether the conversion of the currencies
of the other countries in the European Union ("EU"), such as the United
Kingdom and Denmark into the euro and the admission of other non-EU countries
such as Poland, Latvia and Lithuania as members of the EU may have an impact
on the euro. These or other factors, including political and economic risks,
could cause market disruptions before or after the introduction of the euro,
and could adversely affect the value of securities and foreign currencies held
by the Underlying Funds. Commissions on transactions in foreign securities may
be higher than those for similar transactions on domestic stock markets. In
addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, such procedures have been unable to keep
pace with the volume of securities transactions, thus making it difficult to
conduct such transactions.

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

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

FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because certain
Underlying Funds may have currency exposure independent of their securities
positions, the value of the assets of the Underlying Fund as measured in U.S.
dollars will be affected by changes in foreign currency exchange rates. The
Underlying Fund may, to the extent it invests in foreign securities, purchase
or sell foreign currencies on a spot basis and may also purchase or sell
forward foreign currency exchange contracts for hedging purposes and to seek
to protect against anticipated changes in future foreign currency exchange
rates. In addition, the Core Fixed Income, Global Income, High Yield, CORE
International Equity, International Equity, Japanese Equity, European Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may
enter into such contracts to seek to increase total return when the Underlying
Fund's investment adviser anticipates that the foreign currency will
appreciate or depreciate in value, but securities denominated or quoted in
that currency do not present attractive investment opportunities and are not
held in the Underlying Fund's portfolio. When entered into to seek to enhance
return, forward foreign currency exchange contracts are considered
speculative. Certain Underlying Funds may also engage in cross-hedging by
using forward contracts in a currency different from that in which the hedged
security is denominated or quoted if the Underlying Fund's investment adviser
determines that there is a pattern of correlation between the two currencies.

Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, an Underlying Fund's net asset value
to fluctuate. Currency exchange rates generally are determined by the forces
of supply and demand in the foreign exchange markets and the relative merits
of investments in different countries, actual or anticipated changes in
interest rates and other complex factors, as seen from an

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

FIXED-INCOME SECURITIES

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

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

MORTGAGE-BACKED SECURITIES. The Underlying Funds (other than the five CORE
Equity Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Therefore, Mortgage-Backed Securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of
principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. During periods of declining interest
rates, prepayments can be expected to accelerate, and thus impair the
Underlying Fund's ability to reinvest the returns

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of principal at comparable yields. Conversely, in a rising interest rate
environment, a declining prepayment rate will extend the average life of many
Mortgage-Backed Securities and prevent the Underlying Fund from taking
advantage of such higher yields.

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

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MORTGAGE-BACKED SECURITIES. In addition, particular derivative securities may
be leveraged such that their exposure (i.e., price sensitivity) to interest
rate and/or prepayment risk is magnified.

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

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

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

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

ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION
BONDS. Each Underlying Fund may invest in zero coupon, deferred interest and
capital appreciation bonds. These are securities issued at a discount from
their face value because interest payments are typically postponed until
maturity. These securities also may take the form of debt securities that have
been stripped of their interest payments. Each Underlying Fund may also invest
in pay-in-kind securities which are securities that have interest payable by
the delivery of additional securities. The market prices of zero coupon,
deferred interest, pay-in-kind and capital appreciation bonds generally are
more volatile than the market prices of interest-bearing securities and are
likely to respond to a greater degree to changes in interest rates than
interest-bearing securities having similar maturities and credit quality.

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

OPTIONS ON SECURITIES AND SECURITIES INDICES

OPTIONS ON FOREIGN CURRENCIES

An Underlying Fund may, to the extent it invests in foreign securities,
purchase and sell (write) call and put options on foreign currencies for the
purpose of protecting against declines in the U.S. dollar value of foreign
portfolio securities and anticipated dividends on such securities and against
increases in the U.S. dollar cost of foreign securities to be acquired. In
addition, certain Underlying Funds may use options on currency to cross-hedge,
which involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies. As with other kinds of options
transactions, however, the writing of an option on a foreign currency will
constitute only a partial hedge, up to the amount of the premium received. If
an option that the Underlying Fund has written is exercised, the Underlying
Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against exchange
rate fluctuations; however, in the event of exchange rate movements adverse to
the Underlying Fund's position, the Underlying Fund may forfeit the entire
amount of the premium plus related transaction costs. In addition to
purchasing call and put options for hedging purposes, the Core Fixed Income,
Global Income, High Yield, CORE International Equity, International Equity,
Japanese Equity, European Equity, International Small Cap, Emerging Markets
Equity and Asia Growth Funds may purchase call or put options on currency to
seek to increase total return when the Underlying Fund's investment adviser
anticipates that the currency will appreciate or depreciate

A-7
<PAGE>

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

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

An Underlying Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on any of such futures
contracts to seek to increase total return; or to hedge against changes in
interest rates, securities prices or currency exchange rates; or to otherwise
manage its term structure or duration in accordance with its investment
objectives and policies. Each Underlying Fund may also enter into closing
purchase and sale transactions with respect to any such contracts and options.

STANDARD AND POOR'S DEPOSITORY RECEIPTS

A-8
<PAGE>

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

EQUITY SWAPS

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

ILLIQUID AND RESTRICTED SECURITIES

A-9
<PAGE>

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

REPURCHASE AGREEMENTS

LENDING OF PORTFOLIO SECURITIES

SHORT SALES AGAINST-THE-BOX

MORTGAGE DOLLAR ROLLS

A-10
<PAGE>

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

TEMPORARY INVESTMENTS

PORTFOLIO TURNOVER

MISCELLANEOUS TECHNIQUES

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

In addition, each Underlying Fund may borrow up to 33 1/3% of its total
assets from banks for temporary or emergency purposes.

(2) RELATED ADDITIONAL RISK FACTORS

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES AND REITS

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

SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING MARKETS

A-11
<PAGE>

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

RISKS OF INVESTING IN FIXED-INCOME SECURITIES

A-12
<PAGE>

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

RISKS OF OTHER DERIVATIVE TRANSACTIONS

An Underlying Fund's transactions, if any, in options, futures, options on
futures, swaps, structured securities and currency forward contracts involve
certain risks, including a possible lack of correlation between changes in the
value of hedging instruments and the portfolio assets (if any) being hedged,
the potential illiquidity of the markets for derivative instruments, the risks
arising from margin requirements and related leverage factors associated with
such transactions. The use of these management techniques to seek to increase
total return may be regarded as a speculative practice and involves the risk
of loss if the investment adviser is incorrect in its expectation of
fluctuations in securities prices, interest rates or currency prices.

NON-DIVERSIFICATION

A-13
<PAGE>

APPENDIX B

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM

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

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

B-1
<PAGE>

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

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

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

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

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

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

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

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

GOLDMAN SACHS

ASSET ALLOCATION
PORTFOLIOS

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

PROSPECTUS

SERVICE SHARES

[LOGO]
Goldman
Sachs

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AAPROSVC
505277
<PAGE>

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

PROSPECTUS GOLDMAN SACHS
February 8, 1999 ASSET ALLOCATION PORTFOLIOS
CLASS A, B AND C SHARES

GOLDMAN SACHS CONSERVATIVE STRATEGY PORTFOLIO
Seeks current income, consistent with the preservation of capital and sec-
ondarily also considers the potential for capital appreciation.

GOLDMAN SACHS BALANCED STRATEGY PORTFOLIO (FORMERLY, THE GOLDMAN SACHS INCOME
STRATEGY PORTFOLIO)
Seeks current income and long-term capital appreciation.

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

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

GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
Seeks long-term capital appreciation.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Portfolio Highlights................ 2
Fees and Expenses................... 6
Financial Highlights................ 9
Investment Objectives and Policies.. 11
Risk Factors and Special
Considerations..................... 13
Description of Underlying Funds..... 14
Management.......................... 22
Expenses............................ 25
Reports to Shareholders............. 27
How to Invest....................... 27
Services Available to Shareholders.. 33
Distribution and Service Plans...... 36
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
How to Sell Shares of the Portfolios.. 37
Dividends............................. 38
Net Asset Value....................... 39
Performance Information............... 39
Shares of the Trust................... 40
Taxation.............................. 41
Additional Information................ 42
Appendix A............................ A-1
Appendix B............................ B-1
Account Application
</TABLE>
<PAGE>

PORTFOLIO HIGHLIGHTS

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

WHAT IS THE GOLDMAN SACHS TRUST?

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
<S> <C> <C>
---------------- ------------------------ -------------------------------------------
GOLDMAN SACHS Current income, Under normal conditions, approximately 80%
CONSERVATIVE consistent with the of the Portfolio's assets will be allocated
STRATEGY preservation of capital among Underlying Fixed-Income Funds, with a
PORTFOLIO and secondarily also focus on short-term investments including
considers the potential money market funds. Allocation to
for capital Underlying Equity Funds is intended to add
appreciation. diversification and enhance returns, but
will also add some volatility.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Current income and long- Under normal conditions, approximately 60%
BALANCED term capital of the Portfolio's total assets will be
STRATEGY appreciation. allocated among Underlying Fixed-Income
PORTFOLIO Funds. Allocation to Underlying Equity
Funds is intended to add diversification
and enhance returns, but will also add some
volatility.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Long-term capital Under normal conditions, approximately 60%
GROWTH AND appreciation and current of the Portfolio's total assets will be
INCOME STRATEGY income. allocated among Underlying Equity Funds,
PORTFOLIO which are intended to provide the capital
appreciation component. Allocation to
Underlying Fixed-Income Funds is intended
to provide the income component.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Long-term capital Under normal conditions, approximately 80%
GROWTH STRATEGY appreciation and of the Portfolio's total assets will be
PORTFOLIO secondarily current allocated among Underlying Equity Funds,
income. with a blend of domestic large cap, small
cap and international exposure to seek
capital appreciation. Allocation to
Underlying Fixed-Income Funds is intended
to provide diversification.
- ----------------------------------------------------------------------------------------
GOLDMAN SACHS Long-term capital Under normal conditions, substantially all
AGGRESSIVE appreciation. of the Portfolio's total assets will be
GROWTH STRATEGY allocated among Underlying Equity Funds,
PORTFOLIO with a greater focus on small cap and
international investments.
</TABLE>

2
<PAGE>

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

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

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

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

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

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

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

3
<PAGE>

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

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

WHO MANAGES THE PORTFOLIOS?

WHO DISTRIBUTES THE PORTFOLIOS' SHARES?

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

WHAT IS THE MINIMUM INVESTMENT?

<TABLE>
<CAPTION>
MINIMUM
--------------------
INITIAL
PURCHASE ADDITIONAL
TYPE OF PURCHASE AMOUNT INVESTMENTS
- ---------------- -------- -----------
<S> <C> <C>
Regular Purchases......................................... $1,000 $50
Tax-Sheltered Retirement Plans (excluding SIMPLE IRAs and
Education IRAs) and UGMA/UTMA Purchases.................. $ 250 $50
SIMPLE IRAs and Education IRAs............................ $ 50 $50
Automatic Investment Plan................................. $ 50 $50
403(b) Plans.............................................. $ 200 $50
</TABLE>

For further information, see "How to Invest--How to Buy Shares of the
Portfolios" on page 28.

HOW DO I PURCHASE SHARES?

You may purchase Shares of the Portfolios through Goldman Sachs and
certain investment dealers, including members of the National Association of
Securities Dealers, Inc. (the "NASD") and certain other financial service
firms that have agreements with Goldman Sachs relating to the sale of Shares
("Authorized Dealers"). See "How to Invest" on page 27.

4
<PAGE>

WHAT ARE MY PURCHASE ALTERNATIVES?

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

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

Over time, the CDSC and distribution and service fees attributable to Class B
or Class C Shares will exceed the initial sales charge and the distribution and
service fees attributable to Class A Shares. Class B Shares convert to Class A
Shares, which are subject to lower distribution and service fees, eight years
after initial purchase. Class C Shares, which are subject to the same
distribution and service fees as Class B Shares, do not convert to Class A
Shares and are subject to the higher distribution and service fees
indefinitely. See "How to Invest--Alternative Purchase Arrangements" on page
27.

HOW DO I SELL MY SHARES?

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

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

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

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

5
<PAGE>

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

<TABLE>
<CAPTION>
GROWTH AND
CONSERVATIVE STRATEGY BALANCED STRATEGY INCOME STRATEGY
PORTFOLIO.............. PORTFOLIO PORTFOLIO
----------------------------- ----------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales
Charge Imposed
on Purchases.... 5.5%/1/ None None 5.5%/1/ None None 5.5%/1/ None None
Maximum Sales
Charge Imposed
on Reinvested
Dividends....... None None None None None None None None None
Maximum Deferred
Sales Charge.... None/1/ 5.0%/2/ 1.0%/3/ None/1/ 5.0%/2/ 1.0%/3/ None/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/ ........ None None None None None None None None None
Exchange
Fees/4/ ....... None None None None None None None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage
of average daily
net assets)/5/
Management Fees
(for asset
allocation)
(after
applicable
limitations)/6/ . 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Distribution and
Service Fees.... 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.25% 1.00% 1.00%
---- ---- ---- ---- ---- ---- ---- ---- ----
Other Expenses:
Other Expenses
(after
applicable
limitations)/7/
................ 0.19% 0.19% 0.19% 0.19% 0.19% 0.19% 0.19% 0.19% 0.19%
Underlying Fund
Expenses/5/ ..... 0.55% 0.55% 0.55% 0.69% 0.69% 0.69% 0.79% 0.79% 0.79%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL OTHER
EXPENSES......... 0.74% 0.74% 0.74% 0.88% 0.88% 0.88% 0.98% 0.98% 0.98%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES......... 1.14% 1.89% 1.89% 1.28% 2.03% 2.03% 1.38% 2.13% 2.13%
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
AGGRESSIVE
GROWTH STRATEGY GROWTH STRATEGY
PORTFOLIO PORTFOLIO
-------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales
Charge Imposed
on Purchases.... 5.5%/1/ None None 5.5%/1/ None None
Maximum Sales
Charge Imposed
on Reinvested
Dividends....... None None None None None None
Maximum Deferred
Sales Charge.... None/1/ 5.0%/2/ 1.0%/3/ None/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/ ........ None None None None None None
Exchange
Fees/4/ ....... None None None None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage
of average daily
net assets)/5/
Management Fees
(for asset
allocation)
(after
applicable
limitations)/6/ . 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Distribution and
Service Fees.... 0.25% 1.00% 1.00% 0.25% 1.00% 1.00%
---------- ---------- ---------- ---------- ---------- ----------
Other Expenses:
Other Expenses
(after
applicable
limitations)/7/
................ 0.19% 0.19% 0.19% 0.19% 0.19% 0.19%
Underlying Fund
Expenses/5/ ..... 0.84% 0.84% 0.84% 0.90% 0.90% 0.90%
---------- ---------- ---------- ---------- ---------- ----------
TOTAL OTHER
EXPENSES......... 1.03% 1.03% 1.03% 1.09% 1.09% 1.09%
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FUND
OPERATING
EXPENSES......... 1.43% 2.18% 2.18% 1.49% 2.24% 2.24%
========== ========== ========== ========== ========== ==========
</TABLE>
- ----
/1/ As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. A CDSC of
1.00% is imposed on certain redemptions of Class A shares sold without an
initial sales charge as part of an investment of $1 million or more. See
"How to Invest--Offering Price--Class A Shares."
/2/ A CDSC is imposed upon shares redeemed within six years of purchase at a
rate of 5% in the first year, declining to 1% in the sixth year, and
eliminated thereafter. See "How to Invest--Offering Price--Class B
Shares."
/3/ A CDSC of 1.00% is imposed on shares redeemed within 12 months of
purchase. See "How to Invest--Offering Price--Class C Shares."
/4/ A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or units of the ILA Portfolios and
free automatic exchanges pursuant to the Automatic Exchange Program, six
free exchanges are permitted in each twelve month period. A fee of $12.50
may be charged for each subsequent exchange during such period. See "How
to Invest--Exchange Privilege."
/5/ The Portfolio's annual operating expenses have been restated to reflect
fees and expenses in effect as of September 1, 1998, except for the
Conservative Strategy Portfolio whose expenses are based on estimated
amounts for the current fiscal year. Underlying Fund expenses for each
Portfolio are based upon the strategic allocation of each Portfolio's
investment in the Underlying Funds and upon the total operating expenses
of the Underlying Funds in effect as of September 1, 1998. Actual
Underlying Fund expenses incurred by each Portfolio may vary with changes
in the allocation of each Portfolio's assets among the Underlying Funds
and with other events that directly affect the expenses of the Underlying
Funds. For additional information on the total operating expenses of each
Underlying Fund, please refer to "Expenses."
/6/ The Investment Adviser has voluntarily agreed that a portion of the
management fees would not be imposed on the Portfolios equal to 0.20%.
Without such limitation, management fees would be 0.35% of each
Portfolio's average daily net assets.
/7/ The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding asset allocation, distribution and service fees,
transfer agency fees (equal to 0.19% of the average daily net assets of
each Portfolio's Class A, B and C Shares), taxes, interest, brokerage
fees, litigation, indemnification and other extraordinary expenses) for
each Portfolio to the extent such expenses exceed 0.00% of the Portfolio's
average daily net assets.
/8/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Portfolios would be as set forth below:

<TABLE>
<CAPTION>
GROWTH AND
CONSERVATIVE STRATEGY BALANCED STRATEGY INCOME STRATEGY GROWTH STRATEGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------- ----------------------- ----------------------- -----------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other Expenses.. 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.32% 0.32% 0.32% 0.35% 0.35% 0.35%
Total Operating
Expenses........ 1.70% 2.45% 2.45% 1.84% 2.59% 2.59% 1.71% 2.46% 2.46% 1.79% 2.54% 2.54%
<CAPTION>
AGGRESSIVE
GROWTH STRATEGY
PORTFOLIO
-----------------------
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Other Expenses.. 0.48% 0.48% 0.48%
Total Operating
Expenses........ 1.98% 2.73% 2.73%
</TABLE>

6
<PAGE>

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

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Conservative Strategy Portfolio
Class A Shares................................................. $66 $ 89
Class B Shares
--Assuming complete redemption at end of period................ $69 $ 89
--Assuming no redemption....................................... $19 $ 59
Class C Shares
--Assuming complete redemption at end of period................ $29 $ 59
--Assuming no redemption....................................... $19 $ 59
Balanced Strategy Portfolio
Class A Shares................................................. $67 $ 93
Class B Shares
--Assuming complete redemption at end of period................ $71 $ 94
--Assuming no redemption....................................... $21 $ 64
Class C Shares
--Assuming complete redemption at end of period................ $31 $ 64
--Assuming no redemption....................................... $21 $ 64
Growth and Income Strategy Portfolio
Class A Shares................................................. $68 $ 96
Class B Shares
--Assuming complete redemption at end of period................ $72 $ 97
--Assuming no redemption....................................... $22 $ 67
Class C Shares
--Assuming complete redemption at end of period................ $32 $ 67
--Assuming no redemption....................................... $22 $ 67
Growth Strategy Portfolio
Class A Shares................................................. $69 $ 98
Class B Shares
--Assuming complete redemption at end of period................ $72 $ 98
--Assuming no redemption....................................... $22 $ 68
Class C Shares
--Assuming complete redemption at end of period................ $32 $ 68
--Assuming no redemption....................................... $22 $ 68
Aggressive Growth Strategy Portfolio
Class A Shares................................................. $69 $100
Class B Shares
--Assuming complete redemption at end of period................ $73 $100
--Assuming no redemption....................................... $23 $ 70
Class C Shares
--Assuming complete redemption at end of period................ $33 $ 70
--Assuming no redemption....................................... $23 $ 70
</TABLE>

7
<PAGE>

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

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

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

8
<PAGE>

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD

9
<PAGE>

10
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

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

11
<PAGE>

12
<PAGE>

RISK FACTORS AND SPECIAL CONSIDERATIONS

INVESTING IN UNDERLYING FUNDS

INVESTMENTS OF THE UNDERLYING FUNDS

AFFILIATED PERSONS

EXPENSES

13
<PAGE>

DESCRIPTION OF UNDERLYING FUNDS

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

14
<PAGE>

<TABLE>
<CAPTION>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
---------------- ------------------------ ----------------------------------
<C> <C> <S>
CORE SMALL CAP Long-term growth of At least 90% of total assets in
EQUITY FUND capital. equity securities of U.S. issuers,
including certain foreign issuers
traded in the U.S. The Fund seeks
to achieve its investment
objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which
are included in the Russell 2000
Index at the time of investment.
The Fund's investments are
selected using both a variety of
quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the
Russell 2000 Index.
- -------------------------------------------------------------------------------
CORE INTERNA- Long-term growth of At least 90% of total assets in
TIONAL EQUITY capital. equity securities of companies
FUND organized outside the United
States or whose securities are
principally traded outside the
United States. The Fund seeks
broad representation of large cap
issuers across major countries and
sectors of the international
economy. The Fund's investments
are selected using both a variety
of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected
return, while maintaining risk,
style, capitalization and industry
characteristics similar to the
unhedged Morgan Stanley Capital
International (MSCI) Europe,
Australasia and Far East Index
(the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- -------------------------------------------------------------------------------
CAPITAL GROWTH Long-term capital At least 90% of total assets in a
FUND growth. diversified portfolio of equity
securities. Long-term capital
appreciation potential is
considered in selecting
investments.
- -------------------------------------------------------------------------------
MID CAP EQUITY Long-term capital At least 65% of total assets in
FUND appreciation. equity securities of companies
with public stock market
capitalizations within the range
of the market capitalization of
companies constituting the Russell
Midcap Index at the time of the
investment (currently between $400
million and $16 billion).
- -------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at least
EQUITY FUND appreciation. 65%, of total assets in equity
securities of companies organized
outside the United States or whose
securities are principally traded
outside the United States. The
Fund may employ certain currency
management techniques.
- -------------------------------------------------------------------------------
SMALL CAP VALUE Long-term capital At least 65% of total assets in
FUND growth. equity securities of companies
with public stock market
capitalizations of $1 billion or
less at the time of investment.
- -------------------------------------------------------------------------------
EMERGING MARKETS Long-term capital Substantially all, and at least
EQUITY FUND appreciation. 65%, of total assets in equity
securities of emerging country
issuers. The Fund may employ
certain currency management
techniques.
- -------------------------------------------------------------------------------
ASIA GROWTH FUND Long-term capital Substantially all, and at least
appreciation. 65%, of total assets in equity
securities of companies in China,
Hong Kong, India, Indonesia,
Malaysia, Pakistan, the
Philippines, Singapore, South
Korea, Sri Lanka, Taiwan and
Thailand. The Fund may employ
certain currency management
techniques.
- -------------------------------------------------------------------------------
REAL ESTATE SE- Total return comprised Substantially all, and at least
CURITIES FUND of long-term growth of 80%, of total assets in a
capital and dividend diversified portfolio of equity
income. securities of issuers that are
primarily engaged in or related to
the real estate industry. The Fund
expects that a substantial portion
of its total assets will be
invested in real estate investment
trusts ("REITS").
</TABLE>
(continued)

15
<PAGE>

<TABLE>
<CAPTION>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA
---------------- ------------------------ ----------------------------------
<C> <C> <S>
JAPANESE EQUITY Long-term capital Substantially all, and at least
FUND appreciation. 65%, of total assets in equity
securities of Japanese companies.
The Fund may employ certain
currency management techniques.
- -------------------------------------------------------------------------------
EUROPEAN EQUITY Long-term capital Substantially all, and at least
FUND appreciation. 65%, of total assets in equity
securities of European companies.
The Fund may employ certain
currency management techniques.
- -------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at least
SMALL CAP FUND appreciation. 65%, of total assets in equity
securities of companies with
public stock market
capitalizations of $1 billion or
less at the time of investment
that are organized outside the
United States or whose securities
are principally traded outside the
United States. The Fund may employ
certain currency management
techniques.
</TABLE>

16
<PAGE>

17
<PAGE>

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

18
<PAGE>

UNDERLYING EQUITY FUNDS

19
<PAGE>

20
<PAGE>

UNDERLYING FIXED-INCOME FUNDS

21
<PAGE>

MANAGEMENT

TRUSTEES AND OFFICERS

INVESTMENT ADVISER

22
<PAGE>

FUND MANAGERS

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ------------------------ --------------- -------------------------------------------
<S> <C> <C>
Mark M. Carhart, Ph.D., Since 1998 Mr. Carhart joined the Investment Adviser
CFA in 1997 as a member of the Quantitative
Vice President, Co-Head Research and Risk Management team. From
Quantitative August 1995 to September 1997, he was
Research and Senior Assistant Professor of Finance at the
Portfolio Manager Marshall School of Business at USC and a
Senior Fellow of the Wharton Financial
Institutions Center. From 1993 to 1995, he
was a lecturer and graduate student at the
University of Chicago Graduate School of
Business.
- -------------------------------------------------------------------------------------
Raymond J. Iwanowski Since 1998 Mr. Iwanowski joined the Investment Adviser
Vice President, Co-Head in 1997. Prior to joining the Investment
Quantitative Adviser, he spent three years at Salomon
Research and Senior Brothers, where he was a Vice President and
Portfolio Manager head of the Fixed Derivatives Client
Research group.
- -------------------------------------------------------------------------------------
Neil Chriss, Ph.D. Since 1998 Mr. Chriss joined the Investment Adviser in
Vice President and 1998. From 1996 to 1998, he worked in the
Portfolio Manager equity division of Morgan Stanley Dean
Witter. From 1994 to 1996, he was a post-
doctoral fellow in the Mathematics
Department of Harvard University.
- -------------------------------------------------------------------------------------
Giorgio DeSantis, Ph.D. Since 1998 Mr. DeSantis joined the Investment Adviser
Vice President and in 1998. From 1992 to 1998, he was
Portfolio Manager Assistant Professor of Finance and Business
Economics at the Marshall School of
Business at USC.
- -------------------------------------------------------------------------------------
William J. Fallon, Since 1998 Mr. Fallon joined the Investment Adviser in
Ph.D. 1998. From 1996 to 1998, he worked in the
Vice President and Firmwide Risk Group of Goldman, Sachs & Co.
Portfolio Manager From 1991 to 1996, he attended Columbia
University, where he earned a Ph.D. in
Finance.
- -------------------------------------------------------------------------------------
Guang-Liang He, Ph.D. Since 1998 Mr. He joined the Investment Adviser in
Vice President and 1998. In 1997, he worked in the Firmwide
Portfolio Manager Risk Group of Goldman, Sachs & Co. From
1992 to 1997, he worked at Quantitative
Financial Strategies, Inc.
</TABLE>

23
<PAGE>

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

DISTRIBUTOR AND TRANSFER AGENT

Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Portfolio's Shares. Shares
may also be sold by Authorized Dealers. Authorized Dealers include investment
dealers that are members of the NASD and certain other financial service
firms. To become an Authorized Dealer, a dealer or financial service firm must
enter into a sales agreement with Goldman Sachs. The minimum investment
requirements, services, programs and purchase and redemption options for
Shares purchased through a particular Authorized Dealer may be different from
those available to investors purchasing through other Authorized Dealers.

Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as
each Portfolio's transfer agent (the "Transfer Agent") and as such performs
various shareholder servicing functions. As compensation for the services
rendered to each Portfolio by Goldman Sachs (as Transfer Agent), Goldman Sachs
is entitled to a fee

24
<PAGE>

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

YEAR 2000

EXPENSES

The Portfolios are responsible for the payment of their expenses. The
expenses include, without limitation, asset allocation, distribution and
service fees; custodial and transfer agency fees; brokerage fees and
commissions; filing fees for the registration or qualification of the
Portfolios' Shares under federal or state securities laws; organizational
expenses; fees and expenses incurred in connection with membership in
investment company organizations; taxes; interest; costs of liability
insurance, fidelity bonds or indemnification: any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against, the Portfolios for violation of any law; legal and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of the Investment Adviser and its affiliates with respect to the
Portfolios); expenses of preparing and setting in type prospectuses,
Additional Statements, proxy material, financial reports and notices and the
printing and distributing of the same to shareholders and regulatory
authorities; compensation and expenses of the Trust's "non-interested"
Trustees; and extraordinary expenses, if any, incurred by the Trust.

25
<PAGE>

The imposition of the Investment Adviser's fee, as well as other operating
expenses, will have the effect of reducing the total return to investors. From
time to time, the Investment Adviser may waive receipt of its fees and/or
voluntarily assume certain expenses of the Portfolios, which would have the
effect of lowering that Portfolios' overall expense ratio and increasing total
return to investors at the time such amounts are waived or assumed, as the
case may be. The Portfolios will not pay the Investment Adviser at a later
time for any amounts which may be waived, nor will the Portfolios reimburse
the Investment Adviser for any amounts which may be assumed.

The following chart shows the total operating expense ratios (management fee
plus other operating expenses) of Institutional Shares of each Underlying Fund
in effect as of September 1, 1998. In addition, the following chart shows the
contractual investment management fees payable to GSAM and its affiliates by
the Underlying Funds (in each case as an annualized percentage of the Fund's
average net assets). Absent voluntary fee waivers and/or expense
reimbursements, which may be discontinued at any time, the total operating
expense ratios of certain Underlying Funds would be higher.

<TABLE>
<CAPTION>
TOTAL
CONTRACTUAL OPERATING
MANAGEMENT EXPENSE
UNDERLYING FUNDS FEE RATIO
---------------- ----------- ---------
<S> <C> <C>
Financial Square Prime Obligations Money Market Fund...... 0.205% 0.18%
Short Duration Government Fund............................ 0.50% 0.54%
Adjustable Rate Government Fund........................... 0.40% 0.49%
Core Fixed Income Fund.................................... 0.40% 0.54%
Government Income Fund.................................... 0.65% 0.58%
Global Income Fund........................................ 0.90% 0.69%
High Yield Fund........................................... 0.70% 0.76%
Growth and Income Fund.................................... 0.70% 0.79%
CORE U.S. Equity Fund..................................... 0.75% 0.74%
CORE Large Cap Growth Fund................................ 0.75% 0.64%
CORE Large Cap Value Fund................................. 0.60% 0.64%
CORE Small Cap Equity Fund................................ 0.85% 0.93%
Capital Growth Fund....................................... 1.00% 1.04%
CORE International Equity Fund............................ 0.85% 1.01%
Mid Cap Equity Fund....................................... 0.75% 0.89%
Small Cap Value Fund...................................... 1.00% 1.10%
International Equity Fund................................. 1.00% 1.14%
Japanese Equity Fund...................................... 1.00% 1.05%
European Equity Fund...................................... 1.00% 1.14%
International Small Cap Fund.............................. 1.20% 1.40%
Emerging Markets Equity Fund.............................. 1.20% 1.39%
Asia Growth Fund.......................................... 1.00% 1.20%
Real Estate Securities Fund............................... 1.00% 1.04%
</TABLE>

26
<PAGE>

REPORTS TO SHAREHOLDERS

Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. To eliminate unnecessary duplication,
only one copy of the annual and semi-annual reports may be sent to
shareholders with the same mailing address. Shareholders who desire a
duplicate copy of such reports to be mailed to their residence should contact
Goldman Sachs at 800-526-7384. Each shareholder will also be provided with a
printed confirmation for each transaction in the shareholder's account and a
quarterly account statement. A year-to-date statement for any account will be
provided upon request made to Goldman Sachs. The Portfolios generally do not
provide sub-accounting services.

HOW TO INVEST

ALTERNATIVE PURCHASE ARRANGEMENTS

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

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

CLASS B SHARES. Class B Shares are sold without an initial sales charge, but
are subject to a CDSC of up to 5% if redeemed within six years of purchase.
Class B Shares are subject to distribution and service fees of 1.00% per annum
of each Portfolio's average daily net assets attributable to Class B Shares.
See "Distribution and Authorized Dealer Service Plans." Class B Shares will
automatically convert to Class A Shares, based on their relative NAVs, eight
years after the initial purchase. Your entire investment in Class B Shares is
available to work for you from the time you make your initial investment, but
the distribution and service fee paid by Class B Shares will cause your Class
B Shares (until conversion to Class A Shares) to have a higher expense ratio
and to pay lower dividends, to the extent dividends are paid, than Class A
Shares.

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

27
<PAGE>

FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A Shares. A brief
description of when the initial sales charge may be reduced or eliminated is
set forth below under "Right of Accumulation" and "Statement of Intention." If
you prefer not to pay an initial sales charge on an investment and plan to
hold your investment for at least six years, you might consider purchasing
Class B Shares. If you prefer not to pay an initial sales charge and are
unsure of the length of your investment or plan to hold your investment for
less than eight years, you may prefer Class C Shares. A maximum purchase
limitation of $250,000 and $1,000,000 in the aggregate normally applies to
purchases of Class B Shares and Class C Shares, respectively. Although Class C
Shares are subject to a CDSC for only 12 months and at a lower rate than Class
B Shares, Class C Shares do not have the conversion feature applicable to
Class B Shares, making them subject to higher distribution and service fees
for an indefinite period. Authorized Dealers may receive different
compensation for selling Class A, Class B or Class C Shares.

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

You may purchase Shares of the Portfolios through any Authorized Dealer
(including Goldman Sachs) or directly from a Portfolio, c/o National Financial
Data Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on
any Business Day (as defined under "Additional Information") at the NAV next
determined after receipt of an order as described below under "Other Purchase
Information," plus, in the case of Class A Shares, any applicable sales
charge. Currently, each Portfolio's NAV is determined as of the close of
regular trading on the New York Stock Exchange (which is normally, but not
always, 4:00 p.m. New York time).

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

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

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

The Portfolios reserve the right to redeem Shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's

28
<PAGE>

account falls below the minimum account balance solely as a result of market
conditions. A Portfolio will give sixty (60) days' prior written notice to
shareholders whose Shares are being redeemed to allow them to purchase
sufficient additional Shares of the Portfolio to avoid such redemption. In
addition, the Portfolios and Goldman Sachs reserve the right to modify the
minimum investment, the manner in which Shares are offered and the sales
charge rates applicable to future purchases of Shares.

OFFERING PRICE--CLASS A SHARES

The offering price of Class A Shares of each Portfolio is the next
determined NAV per Share plus a sales charge, if any, paid to Goldman Sachs at
the time of purchase of Shares as shown in the following table:

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

** Goldman Sachs pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of Shares
of the Portfolios equal to 1.00% of the amount under $3 million, 0.50% of
the next $2 million, and 0.25% thereafter. Goldman Sachs may also pay,
with respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate
or are responsible for plans investing in the Portfolios which satisfy the
criteria set forth in (h) below or "wrap" accounts purchasing $1 million
or more which satisfy the criteria set forth in (i) below. Purchases by
such plans will be made at NAV with no initial sales charge, but if all of
the Shares held are redeemed within 18 months after the end of the
calendar month in which such purchase was made, a CDSC, as described
below, of 1.00% will be imposed upon the plan sponsor or the third party
administrator. In addition, Authorized Dealers shall remit to Goldman
Sachs such payments received in connection with "wrap" accounts in the
event that Shares are redeemed within 18 months after the end of the
calendar month in which the purchase was made.

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

Purchases of $1 million or more of Class A Shares will be made at NAV with
no initial sales charge, but if the Shares are redeemed within 18 months after
the end of the calendar month in which the purchase was made, excluding any
period of time in which the Shares were exchanged into and remained invested
in an ILA Portfolio (the "CDSC period"), a CDSC of 1.00% may be imposed
unless, in certain cases, the investor's Authorized Dealer enters into an
agreement with Goldman Sachs to return all or an applicable prorated portion
of its commission to Goldman Sachs. Any applicable CDSC will be assessed on an
amount equal to the lesser of the current market value or the original
purchase cost of the redeemed Class A Shares. Accordingly, no CDSC will

29
<PAGE>

be imposed on increases in account value above the initial purchase price,
including any dividend or capital gains distributions which have been
reinvested in additional Class A Shares. Upon redemption of Shares subject to
a CDSC, shareholders will receive that portion of the appreciation in account
value attributable to the Shares actually redeemed. In determining whether a
CDSC applies to a redemption, it will be assumed that the redemption is first
made from any Class A Shares in your account that are not subject to the CDSC.
The CDSC is waived on redemptions in certain circumstances. See "Waiver on
Reduction of Contingent Deferred Sales Charges" below.

Class A Shares of the Portfolios may be sold at NAV without payment of any
sales charge to (a) Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any Trustee or officer of the Trust and designated family members of any of
the above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor; (d) any employee or registered representative of
any Authorized Dealer or their respective spouses and children; (e) banks,
trust companies or other types of depository institutions investing for their
own account or investing for accounts for which they have investment
discretion; (f) banks, trust companies or other types of depository
institutions investing for accounts for which they do not have investment
discretion; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
Shares of a Portfolio; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buy Shares worth $500,000 or
more, or (2) have at the time of purchase, 100 or more eligible participants,
or (3) certify that they project to have annual plan purchases of $200,000 or
more, or (4) are provided administrative services by certain third-party
administrators that have entered into a special service agreement with Goldman
Sachs relating to such plan; (i) "wrap" accounts for the benefit of clients of
broker-dealers, financial institutions or financial planners, provided that
they have entered into an agreement with GSAM specifying aggregate minimums
and certain operating policies and standards; (j) registered investment
advisers investing for accounts for which they receive asset-based fees; (k)
accounts over which GSAM or its advisory affiliates have investment
discretion; and (l) shareholders receiving distributions from a qualified
retirement plan invested in the Goldman Sachs Funds and reinvesting such
proceeds in a Goldman Sachs IRA. Purchasers must certify eligibility for an
exemption on the Account Application and notify Goldman Sachs if the
shareholder is no longer eligible for an exemption. Exemptions will be granted
subject to confirmation of a purchaser's entitlement. Investors purchasing
Shares of the Portfolios at NAV without payment of any initial sales charge
may be charged a fee if they effect transactions in Shares through a broker or
agent. In addition, under certain circumstances, dividends and distributions
from any of the Goldman Sachs Funds may be reinvested in Shares of a Portfolio
at NAV, as described under "Cross-Reinvestment of Dividends and Distributions
and Automatic Exchange Program."

RIGHT OF ACCUMULATION--CLASS A SHARES

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

STATEMENT OF INTENTION--CLASS A SHARES

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

30
<PAGE>

OFFERING PRICE--CLASS B SHARES

Investors may purchase Class B Shares of the Portfolios at the next
determined NAV without the imposition of an initial sales charge. However,
Class B Shares redeemed within six years of purchase will be subject to a CDSC
at the rates shown in the table below. At redemption, the charge will be
assessed on the amount equal to the lesser of the current market value or the
original purchase cost of the Shares being redeemed. No CDSC will be imposed
on increases in account value above the initial purchase price, including
Shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of Shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
Shares actually redeemed.

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

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

Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing
distribution-related services to the Portfolios in connection with the sale of
Class B Shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.00% of the amount invested is paid to Authorized
Dealers.

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

OFFERING PRICE--CLASS C SHARES

Investors may purchase Class C Shares of the Portfolios at the next
determined NAV without the imposition of an initial sales charge. However, if
Class C shares are redeemed within 12 months of purchase a CDSC of 1% will be
deducted from the redemption proceeds. At redemption, the charge will be
assessed on the amount equal

31
<PAGE>

to the lesser of the current market value or the original purchase cost of the
shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase price, including shares derived from the
reinvestment of dividends or capital gains distributions. Upon redemption of
Shares subject to a CDSC, shareholders will receive that portion of the
appreciation in account value attributable to the Shares actually redeemed.

For the purpose of determining the number of months from the time of any
purchase, all payments during a month will be aggregated and deemed to have
been made on the first day of that month. In processing redemptions of Class C
Shares, the Portfolios will first redeem Shares held for longer than 12
months, and then Shares held for the longest period during the 12 month
period. Proceeds from the CDSC are payable to the Distributor and may be used
in whole or in part to defray the Distributor's expenses related to providing
distribution-related services to the Portfolios in connection with the sale of
Class C Shares, including the payment of compensation to Authorized Dealers. A
commission equal to 1.00% of the amount invested is paid to Authorized
Dealers.

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

A shareholder who redeems Class A or Class B Shares of a Portfolio may
reinvest at NAV any portion or all of the redemption proceeds (plus that
amount necessary to acquire a fractional share to round off the purchase to
the nearest full share) in Class A Shares of the same Portfolio or any other
Goldman Sachs Fund. A shareholder who redeems Class C Shares of a Portfolio
may reinvest at NAV any portion or all of the redemption proceeds (plus that
amount necessary to acquire a fractional share to round off the purchase to
the nearest full share) in Class C Shares of the same Portfolio or any other
Goldman Sachs Fund. Shareholders should obtain and read the applicable
prospectuses of such other funds and consider their objectives, policies and
applicable fees before investing in any of such funds. This reinvestment
privilege is subject to the condition that the Shares redeemed have been held
for at least thirty (30) days before the redemption and that the reinvestment
is effected within ninety (90) days after such redemption. If you redeemed
Class A or Class C Shares, paid a CDSC upon a redemption and reinvest in Class
A or Class C Shares subject to the conditions set forth above, your account
will be credited with the amount of the CDSC previously charged, and the
reinvested Shares will continue to be subject to a CDSC. In this case, the
holding period of the Class A or Class C Shares acquired through reinvestment
for purposes of computing the CDSC payable upon a subsequent redemption will
include the holding period of the redeemed Shares. If you redeemed Class B
Shares and paid a CDSC upon redemption, you are permitted to reinvest the
redemption proceeds in Class A Shares at NAV as described above, but the
amount of the CDSC paid upon redemption will not be credited to your account.

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

32
<PAGE>

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

The CDSC on Class B , Class C and Class A Shares that are subject to a CDSC
may be waived or reduced if the redemption relates to (a) retirement
distributions or loans to participants or beneficiaries from pension and
profit sharing plans, pension funds and other company-sponsored benefit plans
(each a "Plan"); (b) the death or disability (as defined in Section 72(m)(7)
of the Code) of a participant or beneficiary in a Plan; (c) hardship
withdrawals by a participant or beneficiary in a Plan; (d) satisfying the
minimum distribution requirements of the Code; (e) the establishment of
"substantially equal periodic payments" as described in Section 72(t)(2) of
the Code; (f) the separation from service by a participant or beneficiary in a
Plan; (g) the death or disability (as defined in Section 72(m)(7) of the Code)
of a shareholder if the redemption is made within one year of such event; (h)
excess contributions distributed from a Plan; (i) distributions from a
qualified retirement plan invested in the Goldman Sachs Funds which are being
rolled over to a Goldman Sachs IRA; and (j) redemption proceeds which are to
be reinvested in accounts or non-registered products over which GSAM or its
advisory affiliates have investment discretion. In addition, Class A, Class B
and Class C Shares subject to a Systematic Withdrawal Plan may be redeemed
without a CDSC. However, Goldman Sachs reserves the right to limit such
redemptions, on an annual basis, to 12% each of the value of your Class B and
Class C Shares and 10% of the value of your Class A Shares.

SERVICES AVAILABLE TO SHAREHOLDERS

AUTOMATIC INVESTMENT PLAN

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

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM

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

33
<PAGE>

or other taxpayer identification number, provided that the account in the
acquired Fund has been established, appropriate signatures have been obtained
and the minimum initial investment requirement has been satisfied. A Portfolio
shareholder should obtain and read the prospectus of the Fund into which
dividends are invested or automatic exchanges are made.

TAX-SHELTERED RETIREMENT PLANS

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

EXCHANGE PRIVILEGE

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

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

An exchange may be made by identifying the applicable Portfolio and Class of
Shares and either writing to Goldman Sachs, Attention: Goldman Sachs Asset
Allocation Portfolios, Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas
City, MO 64141-6711 or, unless the investor has specifically declined
telephone exchange privileges on the Account Application or elected in writing
not to utilize telephone exchanges, by a telephone request to the Transfer
Agent at 800-526-7384 (7:00 a.m. to 3:00 p.m. Chicago time). Certain
procedures are employed to prevent unauthorized or fraudulent exchange
requests as set forth under "How to Sell Shares of the Portfolios." Under the
telephone exchange privilege, Shares may be exchanged among accounts with
different names, addresses and social security or other taxpayer
identification numbers only if the exchange instructions are in writing and
received in accordance with the procedures set forth under "How to Sell Shares
of the Portfolio." In times of drastic economic or market changes the
telephone exchange privilege may be difficult to implement.

34
<PAGE>

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

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

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

OTHER PURCHASE INFORMATION

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

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

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

35
<PAGE>

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

DISTRIBUTION AND SERVICE PLANS

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

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

Under the Plans for Class B and Class C Shares, Goldman Sachs is also
entitled to receive a separate fee equal on an annual basis to 0.25% of each
Portfolio's average daily net assets attributable to Class B or Class C
Shares. This fee is for personal and account maintenance services, and may be
used to make payments to Goldman Sachs, Authorized Dealers and their officers,
sales representatives and employees for responding to inquiries of, and
furnishing assistance to, shareholders regarding ownership of their Shares or
their accounts or similar services not otherwise provided on behalf of the
Portfolios. If the distribution or service fees received by Goldman Sachs
pursuant to the Plans exceed its expenses, Goldman Sachs may realize a profit
from these arrangements. The Plans will be reviewed and are subject to
approval annually by the Trustees.

36
<PAGE>

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

HOW TO SELL SHARES OF THE PORTFOLIOS

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

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

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

Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and

37
<PAGE>

loan association, a building and loan association, a cooperative bank, a
federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such
institution satisfies the standards established by the Transfer Agent.

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

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

SYSTEMATIC WITHDRAWAL PLAN

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

DIVIDENDS

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

38
<PAGE>

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

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

NET ASSET VALUE

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

PERFORMANCE INFORMATION

From time to time each Portfolio may publish average annual total return,
yield and distribution rates in advertisements and communications to
shareholders or prospective investors. Average annual total return is
determined by computing the average annual percentage change in value of
$1,000 invested at the maximum public offering price for specified periods
ending with the most recent calendar quarter, assuming reinvestment of all
dividends and distributions at NAV. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. Total
return calculations for Class A Shares reflect the effect of paying the
maximum initial sales charge. Investment at a lower sales charge would result
in higher performance figures. Total return calculations for Class B and Class
C Shares reflect deduction of the applicable CDSC imposed upon redemption of
Class B and Class C Shares held for the applicable period. Each Portfolio may
also from time to time advertise total return on a cumulative, average, year-
by-year or other basis for various specified

39
<PAGE>

periods by means of quotations, charts, graphs or schedules. In addition, each
Portfolio may furnish total return calculations based on investments at
various sales charge levels or at NAV. Any performance information which is
based on a Portfolio's NAV per Share would be reduced if a sales charge were
taken into account. In addition to the above, each Portfolio may from time to
time advertise its performance relative to certain averages, performance
rankings, indices, other information prepared by recognized mutual fund
statistical services and investments for which reliable performance
information is available.

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

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

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

SHARES OF THE TRUST

40
<PAGE>

rights. Shareholders are entitled to one vote per Share, provided that, at the
option of the Trustees, shareholders will be entitled to a number of votes
based upon the NAVs represented by their Shares.

TAXATION

FEDERAL TAXES

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

41
<PAGE>

Redemptions and exchanges of Shares are taxable events.

OTHER TAXES

ADDITIONAL INFORMATION

42
<PAGE>

APPENDIX A

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

CONVERTIBLE SECURITIES

PREFERRED STOCK, WARRANTS AND RIGHTS

A-1
<PAGE>

REAL ESTATE INVESTMENT TRUSTS ("REITS")

FOREIGN INVESTMENTS

A-2
<PAGE>

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

A-3
<PAGE>

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

FIXED-INCOME SECURITIES

A-4
<PAGE>

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

A-5
<PAGE>

risk. Small changes in prepayments can significantly impact the cash flow and
the market value of these securities. The risk of faster than anticipated
prepayments generally adversely affects IOs, super floaters and premium priced
Mortgage-Backed Securities. The risk of slower than anticipated prepayments
generally adversely affects POs, floating-rate securities subject to interest
rate caps, support tranches and discount priced Mortgage-Backed Securities. In
addition, particular derivative securities may be leveraged such that their
exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is
magnified.

A-6
<PAGE>

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

OPTIONS ON SECURITIES AND SECURITIES INDICES

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

OPTIONS ON FOREIGN CURRENCIES

A-7
<PAGE>

addition to purchasing call and put options for hedging purposes, the Core
Fixed Income, Global Income, High Yield, CORE International Equity,
International Equity, Japanese Equity, European Equity, International Small
Cap, Emerging Markets Equity and Asia Growth Funds may purchase call or put
options on currency to seek to increase total return when the Underlying
Fund's investment adviser anticipates that the currency will appreciate or
depreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not held in the
Underlying Fund's portfolio. When purchased or sold to seek to increase total
return, options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Underlying Funds are traded on U.S. and
foreign exchanges or over-the-counter.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

An Underlying Fund may purchase and sell various kinds of futures contracts,
and purchase and write call and put options on any of such futures contracts
to seek to increase total return; or to hedge against changes in interest
rates, securities prices or currency exchange rates; or to otherwise manage
its term structure or duration in accordance with its investment objectives
and policies. Each Underlying Fund may also enter into closing purchase and
sale transactions with respect to any such contracts and options.

A-8
<PAGE>

STANDARD AND POOR'S DEPOSITORY RECEIPTS

EQUITY SWAPS

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

ILLIQUID AND RESTRICTED SECURITIES

A-9
<PAGE>

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

REPURCHASE AGREEMENTS

LENDING OF PORTFOLIO SECURITIES

SHORT SALES AGAINST-THE-BOX

MORTGAGE DOLLAR ROLLS

A-10
<PAGE>

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

TEMPORARY INVESTMENTS

PORTFOLIO TURNOVER

The turnover rates of the Underlying Funds have ranged from 41% to 315%
during their most recent fiscal years. There can be no assurance that the
turnover rates of these Underlying Funds will remain with this range during
subsequent fiscal years. Higher turnover rates may result in higher brokerage
costs and higher expenses being incurred by the Underlying Funds. In addition,
higher turnover rates may result in higher taxable realized gains being
incurred by shareholders.

MISCELLANEOUS TECHNIQUES

In addition, each Underlying Fund may borrow up to 33 1/3% of its total
assets from banks for temporary or emergency purposes.

(2) RELATED ADDITIONAL RISK FACTORS

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES AND REITS

SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING MARKETS

A-11
<PAGE>

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

Many Emerging Countries are subject to a substantially greater degree of
economic, political and social instability than is the case in Western Europe,
the United States, Canada, Australia, New Zealand and Japan. The governments
of some Emerging Countries are authoritarian in nature or have been installed
or removed as a result of military coups, while governments in other Emerging
Countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian, Eastern Europe and other Emerging
Countries. Investing in Emerging Countries involves the risk of loss due to
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and on repatriation of
capital invested. For example, in the past, Eastern European governments have
expropriated substantial amounts of private property, and have not settled the
claims of property owners. Similar expropriations could occur in the future.
Additionally, many Emerging Countries have experienced currency devaluations
and substantial and, in some cases, extremely high rates of inflation, which
have a negative effect on the economies and securities markets of such
Emerging Countries. Economies in Emerging Countries generally are dependent
heavily upon commodity prices and international trade and, accordingly, have
been and may continue to be affected adversely by the economies of their
trading partners, trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or
negotiated by the countries with which they trade.

RISKS OF INVESTING IN FIXED-INCOME SECURITIES

A-12
<PAGE>

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

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

RISKS OF OTHER DERIVATIVE TRANSACTIONS

NON-DIVERSIFICATION

A-13
<PAGE>

APPENDIX B

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

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

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

ESCROW AGREEMENT

Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Application shall be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will
be paid to the investor or to his order. When the minimum investment so
specified is completed (either prior to or by the end of the 13th month), the
investor will be notified and the escrowed Shares will be released. In signing
the Account Application, the investor irrevocably constitutes and appoints the
Transfer Agent his or her attorney to surrender for redemption any or all
escrowed Shares with full power of substitution in the premises.

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

B-1
<PAGE>

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

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

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

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

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

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

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

GOLDMAN SACHS

ASSET ALLOCATION
PORTFOLIOS

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

PROSPECTUS

CLASS A, B AND C SHARES

[LOGO]
GOLDMAN
SACHS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AAPRO
505276
<PAGE>

PART B
STATEMENT OF ADDITIONAL INFORMATION
Class A Shares
Class B Shares
Class C Shares
Service Shares
Institutional Shares
GOLDMAN SACHS CONSERVATIVE STRATEGY PORTFOLIO
GOLDMAN SACHS BALANCED STRATEGY PORTFOLIO (FORMERLY, THE
"INCOME STRATEGY PORTFOLIO")
GOLDMAN SACHS GROWTH AND INCOME STRATEGY PORTFOLIO
GOLDMAN SACHS GROWTH STRATEGY PORTFOLIO
GOLDMAN SACHS 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
prospectuses for the Class A, Class B, Class C, Service Shares and Institutional
Shares of Goldman Sachs Conservative Strategy Portfolio, Goldman Sachs Balanced
Strategy Portfolio, Goldman Sachs Growth and Income Strategy Portfolio, Goldman
Sachs Growth Strategy Portfolio and Goldman Sachs Aggressive Growth Strategy
Portfolio dated February 8, 1999, 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
----

INTRODUCTION............................ B-3
INVESTMENT OBJECTIVES AND POLICIES...... B-3
INVESTMENT RESTRICTIONS................. B-60
MANAGEMENT.............................. B-62
PORTFOLIO TRANSACTIONS AND BROKERAGE.... B-80
NET ASSET VALUE......................... B-82
PERFORMANCE INFORMATION................. B-83
SHARES OF THE TRUST..................... B-90
TAXATION................................ B-94
FINANCIAL STATEMENTS.................... B-101
OTHER INFORMATION....................... B-101
OTHER INFORMATION REGARDING PURCHASES,.. B-103
REDEMPTIONS, EXCHANGES AND DIVIDENDS.... B-103
DISTRIBUTION AND SERVICE PLANS.......... B-106
SERVICE PLAN............................ B-109
APPENDIX A.............................. 1-A
APPENDIX B.............................. 1-B

The date of this Additional Statement is February 8, 1999
<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 following series of the Trust are described in this Additional
Statement: Goldman Sachs Conservative Strategy Portfolio ("Conservative Strategy
Portfolio"), Goldman Sachs Balanced Strategy Portfolio ("Balanced Strategy
Portfolio"), Goldman Sachs Growth and Income Strategy Portfolio ("Growth and
Income Strategy Portfolio"), Goldman Sachs Growth Strategy Portfolio ("Growth
Strategy Portfolio") and Goldman Sachs Aggressive Growth Strategy Portfolio
("Aggressive Growth Strategy Portfolio") (each referred to herein as a
"Portfolio" and collectively referred to as the "Portfolios"). 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 Portfolios and
other series. 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. These Underlying Funds consist of the
Adjustable Rate Government Fund, Short Duration Government Fund, Government
Income Fund, Core Fixed Income Fund, Global Income Fund, High Yield Fund and
Growth and Income Fund (the "Underlying Fixed-Income Funds"); the CORE U.S.
Equity Fund, CORE Large Cap Growth Fund, CORE Large Cap Value Fund, CORE Small
Cap Equity Fund, Capital Growth Fund, Mid Cap Equity Fund, Small Cap Value Fund,
CORE International Equity Fund, International Equity Fund, Emerging Markets
Equity Fund, Asia Growth Fund, European Equity Fund, Japanese Equity Fund,
International Small Cap Fund and Real Estate Securities Fund (the "Underlying
Equity Funds") and the Financial Square Prime Obligations Fund. 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

B-3
<PAGE>

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.

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-4
<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-5
<PAGE>

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

B-6
<PAGE>

contracts, option contracts (including options on futures), forward foreign
currency exchange contracts, currency options and futures, currency, credit,
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, instrumentalities or by supranational
entities (i.e., international organizations designated or supported by
governmental entities to promote economic reconstruction or development, such as
the World Bank); (iii) corporate debt securities; (iv) certificates of deposit
and bankers' acceptances issued or guaranteed by, or time deposits maintained
at, U.S. or foreign banks (and their branches wherever located) having total
assets of more than $1 billion; (v) commercial paper; and (vi) Mortgage-Backed
and Asset-Backed Securities.

Credit Quality. All securities purchased by the Fund will be rated,
--------------
at the time of investment, at least BBB or Baa by an NRSRO. However, the Fund
will invest at least 50% of its total assets in securities rated, at the time of
investment, AAA or Aaa by an NRSRO. Unrated securities will be determined by
the Fund's investment adviser to be of comparable quality. Fixed-income
securities rated BBB or Baa are considered medium-grade obligations with
speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capacity to pay interest and repay
principal.

B-7
<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, credit, 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.

High Yield Fund

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

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

Investment Sector. 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

B-8
<PAGE>

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 foreign currency exchange contracts,
currency options and futures, currency, credit, 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

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

B-9
<PAGE>

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, including certain foreign issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the S&P 500 Index. The Fund seeks a broad
representation in most major sectors of the U.S. economy and a portfolio
composed 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.

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 certain 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 composed 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 Large Cap Value 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 equity securities of large cap U.S. issuers
that are selling at low to modest valuations relative to general market measures
such as earnings, book value and other fundamental accounting measures, and that
are expected to have favorable prospects for capital appreciation and/or
dividend-paying ability.

Primary Investment Focus. This Fund invests, under normal circumstances, at
------------------------
least 90% of its total assets in equity securities of U.S. issuers, including
certain foreign issuers that are traded in the United States. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar to
the Russell 1000 Value Index. The Fund seeks a portfolio composed of companies
with above average capitalizations and low to moderate valuations as measured by
price/earnings ratios, book value and other fundamental accounting measures.
The Fund may invest only in fixed-income securities that are considered cash
equivalents.

B-10
<PAGE>

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
certain foreign issuers that are traded in the United States. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar to
the Russell 2000 Index. The Fund seeks a portfolio composed 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.

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.

B-11
<PAGE>

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

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 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 principally 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

B-12
<PAGE>

similar to the EAFE Index. In addition, the Fund seeks a portfolio composed of
companies with attractive valuations and stronger momentum characteristics than
the EAFE Index.

The Fund may allocate its assets among countries as determined by 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 involve certain risks which are not present in
investments in more developed countries.

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. The Fund
intends to invest in companies with public stock market capitalizations that are
larger than those in which the International Small Cap Fund primarily intends to
invest.

Other. Up to 35% of the Fund's total assets may be invested in fixed-income
-----
securities.

Emerging Markets Equity 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 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.

B-13
<PAGE>

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. 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 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.

Other. 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

B-14
<PAGE>

(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 investment adviser's view 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. For example, on January 31, 1998 (the end of the Fund's last
fiscal year), more than 35% of the Fund's assets were invested in securities
traded in Hong Kong. The Fund may invest in the aggregate up to 35% of its total
assets in equity securities of issuers in other countries, including Japan, and
in fixed-income securities.

European Equity 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 European companies. Because of its focus, the Fund will be
more susceptible to European economic, market, political and local risks than a
fund that is more geographically diversified. "European companies" are
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
European 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 European
countries; (iii) they maintain 50% or more of their assets in one or more of the
European countries; or (iv) they are organized under the laws of a European
country. The Fund may allocate its assets among different countries as
determined by its investment adviser, provided that the Fund's assets are
invested in at least three European countries. It is currently anticipated that
a majority of the Fund's assets will be invested in the equity securities of
large cap companies located in the developed countries of Western Europe.
However, the Fund may also invest, without limit, in mid cap companies and small
cap companies, as well as companies located in Emerging Countries in which the
Emerging Markets Equity Fund may invest, including Eastern European countries
and the European states that formerly comprised the Soviet Union and Yugoslavia.

Other. The Fund may invest in the aggregate up to 35% of its total assets in
-----
equity securities of non-European countries 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.

B-15
<PAGE>

Other. The Fund may invest in the aggregate up to 35% of its total assets in
-----
equity securities of non-Japanese companies and in fixed-income securities.

International Small Cap Fund

Objective. 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.

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").

B-16
<PAGE>

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 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

B-17
<PAGE>

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 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

B-18
<PAGE>

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.

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

B-19
<PAGE>

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.

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.

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

B-20
<PAGE>

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").

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.

B-21
<PAGE>

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.

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 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

B-22
<PAGE>

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 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 Underlying 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").

B-23
<PAGE>

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

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

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

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
Funds. 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

B-24
<PAGE>

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 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

B-25
<PAGE>

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.

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

B-26
<PAGE>

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.

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

B-27
<PAGE>

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-
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.

B-28
<PAGE>

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.

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.

B-29
<PAGE>

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.

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.

B-30
<PAGE>

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
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

B-31
<PAGE>

thereof, to ensure, subject to certain limitations, that scheduled payments on
the underlying pool are made in a timely fashion. Protection against losses
resulting from default ensures ultimate payment of the obligations on at least a
portion of the assets in the pool. Such credit support can be provided by, among
other things, payment guarantees, letters of credit, pool insurance,
subordination, or any combination thereof.

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

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

B-32
<PAGE>

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

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

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

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

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<PAGE>

Certificates represent beneficial ownership interests in a REMIC trust,
generally consisting of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae
guaranteed mortgage- backed securities (the "Mortgage Assets"). The obligations
of Fannie Mae or Freddie Mac under their respective guaranty of the REMIC
Certificates are obligations solely of Fannie Mae or Freddie Mac, respectively.

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

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<PAGE>

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 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. Therefore,
there is the possibility that, in some cases,

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<PAGE>

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 Large Cap Value, CORE U.S. Equity and CORE Large Cap
Growth 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 Value and CORE Large Cap Growth 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 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. Underlying
Fixed Income Funds may also use futures contracts to

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<PAGE>

manage their term structure and duration in accordance with their investment
objectives and policies.

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.

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

B-37
<PAGE>

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 for example,
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 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. Transactions in futures contracts and related options may also be
limited by certain requirements that must be met in order for an Underlying Fund
to qualify as a regulated investment company for federal income tax purposes.

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.

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<PAGE>

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. 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.

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.

B-39
<PAGE>

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 Large Cap Value,
------------------
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 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.

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<PAGE>

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 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.

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<PAGE>

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.

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

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<PAGE>

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.

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. Inability to dispose of portfolio

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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. 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."

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Investing in Emerging Markets. CORE International Equity, International
-----------------------------
Equity, European 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 Country 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 issuers in Emerging Countries. In
addition, certain of the potential investment and management techniques of these
Funds entail special risks.

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 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

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<PAGE>

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 (such as Malaysia) is subject to restrictions which require
governmental consents or prohibit repatriation entirely for a period of time.
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 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

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<PAGE>

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 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.

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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 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, European Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity, Asia Growth, Global
Income, Core Fixed Income and High Yield Funds may also enter into forward
foreign currency exchange contracts 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

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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
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, European 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.

Unless otherwise covered by applicable regulations, cash or liquid assets of
an Underlying Fund will be segregated in an amount equal to the value of the
Underlying Fund's total assets committed to the consummation of forward foreign
currency exchange contracts. 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

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<PAGE>

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.

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, European 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 an Underlying Fund's
investment adviser anticipates that the currency will appreciate or depreciate
in value, but the securities quoted or denominated in that currency do not
present attractive investment opportunities and are not 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 currency

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<PAGE>

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.

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

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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 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

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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.

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,
European 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

B-53
<PAGE>

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 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 interest rate,
mortgage or credit 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, if
unrated by such rating agencies, determined to be of comparable quality by the
applicable investment adviser. The Core Fixed Income, Global Income and High
Yield Funds will not enter into any currency swap transactions unless the
unsecured commercial paper, senior debt or claims-paying ability of the other
party thereto is rated investment grade by Standard & Poor's or Moody's or their
equivalent ratings or, if unrated by such rating agencies, determined to be of
comparable quality by the applicable investment adviser. 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

B-54
<PAGE>

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 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.

B-55
<PAGE>

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 its investment adviser is incorrect in
its 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 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 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

B-56
<PAGE>

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).

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 of the Underlying Funds may make limited investments in the securities of
other investment companies including, pursuant to an exemptive order obtained
from the SEC, money market funds for which the Adviser or any of its affiliates
serves as investment adviser. An Underlying Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by investment
companies in which it invests in addition to the advisory and administration
fees paid by the Underlying Fund. However, to the extent that the Underlying
Fund invests in a money market fund for which the 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

B-57
<PAGE>

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.

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 ("WEBS") and similar securities that invest in
securities included in foreign securities indices.

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 always clear whether a court would consider the
security purchased by an

B-58
<PAGE>

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.

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 its investment adviser to make sure
that an appropriate value is maintained. Reverse repurchase agreements are
considered to be borrowings under the Act

B-59
<PAGE>

Restricted and Illiquid Securities

The Underlying Funds may not invest more than 15% (10% in the case of
Financial Square Prime Obligations Fund) of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, repurchase agreements maturing in more than seven days,
certain SMBS, certain municipal leases and participation interests, certain
over-the-counter options, time deposits with a notice or demand period of more
than seven days, and certain restricted securities, unless it is determined,
based upon a continuing review of the trading markets for the specific
instrument, that such instrument is liquid. The Trustees have adopted
guidelines under which the Underlying Funds' investment advisers determine and
monitor 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 instruments.

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.

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,

B-60
<PAGE>

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 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.

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<PAGE>

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) 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.

B-62
<PAGE>

<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 the Americas & Trustee Administration and Chief Financial
New York, NY 10019 Officer, Coty Inc. (since April 1996);
President, ABN Associates (July 1994
-March 1996); Senior Vice President of
Scott Paper Company (until June 1994);
Director of Arkwright Mutual Insurance
Company (1994-Present); Trustee of
International House of Philadelphia
(1989-Present); Member of Cornell
University Council (1992-Present);
Trustee of the Walnut Street Theater
(1992-Present).

*David B. Ford, 52 Trustee Director, Commodities Corp. LLC (since
One New York Plaza April 1997); Managing Director, J. Aron &
New York, NY 10004 Company (since November 1996); Managing
Director,. Goldman, Sachs & Co.
Investment Banking Division (since
November 1996); Director, CIN Management
(since August 1996); Chief Executive
Officer & Managing Director and Director,
Goldman Sachs Asset Management
International (since November 1995 and
December 1994, respectively); Co-Head,
Goldman, Sachs & Co. Asset Management
Division (since November 1995); Co-Head
and Director, Goldman Sachs Funds
Management Inc. (since November 1995 and
December 1994, respectively); Chairman
and Director, Goldman Sachs Asset
Management Japan Limited (since November
1994).

*Douglas C. Grip, 36 Trustee Managing Director, Goldman, Sachs & Co.
One New York Plaza & President Asset Management Division (since November
New York, NY 10004 1997); President, Goldman Sachs Fund
Group(since April 1996); President, MFS
Retirement Services Inc., of
Massachusetts Financial Services (prior
thereto).

</TABLE>

B-63
<PAGE>

<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- ---------------------

<S> <C> <C>
*John P. McNulty, 46 Trustee Managing Director, Goldman Sachs (since
One New York Plaza 1996); General Partner, J. Aron & Company
New York, NY 10004 (since November 1995); Director and
Co-Head, Goldman Sachs Funds Management
Inc. (since November 1995); Director,
Goldman Sachs Asset Management
International (since January 1996);
Director, Global Capital Reinsurance
(since 1989); Director, Commodities Corp.
LLC (since April 1997); Limited Partner
of Goldman, Sachs & Co.(1994 - November
1995).

Mary P. McPherson, 63 Trustee Vice President and Senior Program
The Andrew W. Mellon Foundation Officer, The Andrew W. Mellon Foundation
140 East 62nd Street (since October 1997); President Emeritus
New York, NY 10021 of Bryn Mawr College (1978-1997);
Director of Josiah Macy, Jr. Foundation
(since 1977); Director of the
Philadelphia Contributionship (since
1985); Director of Amherst College (since
1986); Director of Dayton Hudson
Corporation (1988-1997); Director of the
Spenser Foundation (since 1993); and
member of PNC Advisory Board (since 1993).

*Alan A. Shuch, 49 Trustee Limited Partner, Goldman, Sachs &
One New York Plaza Co.(since 1994); Consultant to Goldman
New York, NY 10004 Sachs Asset Management (since 1994);
Director, Chief Operating Officer and
Vice President of Goldman Sachs Funds
Management, Inc. (from November 1993 -
November 1994); President and Chief
Operating Officer, GSAM Japan Limited
(November 1993 November 1994); Director,
Goldman Sachs Asset Management
International (November 1993 - November
1994); General Partner, Goldman, Sachs &
Co. Investment Banking (December 1986
November 1994).
</TABLE>

B-64
<PAGE>

<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- ---------------------

<S> <C> <C>
Jackson W. Smart, Jr. 68 Trustee Chairman, Executive Committee, First
One Northfield Plaza Suite 218 Commonwealth, Inc. (a managed dental care
Northfield, IL 60093 company) (since January 1996); Chairman
and Chief Executive Officer, MSP
Communications Inc. (a company engaged in
radio broadcasting) (November 1988
December 1997); Director, Federal Express
Corporation (NYSE) (since 1976);
Director, Evanston Hospital Corporation
(since 1980).

William H. Springer, 69 Trustee Director, Walgreen Co. (a retail drug
701 Morningside Drive store business) (since April 1998);
Lake Forest, IL 60045 Director of Baker, Fentress & Co. (a
closed-end, non-diversified management
investment company) (April 1992 -
present); Trustee, Northern Institutional
Funds (since April 1984).

Richard P. Strubel, 59 Trustee Managing Director, Tandem Partners, Inc.
737 N. Michigan Ave., Suite 1405 (since 1990); Director of Kaynar
Chicago, IL 60611 Technologies Inc. (since March 1997);
President and Chief Executive Officer,
Microdot, Inc. (a diversified
manufacturer of fastening systems and
connectors) (January 1984 October 1994);
Trustee, Northern Institutional Funds
(since December 1982).

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

*John M. Perlowski, 34 Treasurer Vice President, Goldman, Sachs & Co.
One New York Plaza Incorporated (since July 1995); Director,
New York, NY 10004 Investors Bank and Trust (November 1993 -
July 1995).

*James A. Fitzpatrick, 38 Vice President Vice President of Goldman Sachs Asset
4900 Sears Tower Management (since April 1997); Vice
Chicago, IL 60606 President and General Manager, First Data
Corporation - Investor Services Group
(prior thereto).

</TABLE>

B-65
<PAGE>

<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- ---------------------

<S> <C> <C>
Jesse Cole, 35 Vice President Vice President, Goldman Sachs Asset
4900 Sears Tower Management (June 1998 to Present); Vice
Chicago, IL 60606 President, AIM Management Group, Inc.
(April 1996-June 1998); Assistant Vice
President, The Northern Trust Company
(June 1987-April 1996).

Philip V. Giuca , Jr., 36 Assistant Treasurer Vice President, Goldman, Sachs & Co. (May
10 Hanover Square 1992-Present); Tax Accountant, Goldman,
New York, NY 10004 Sachs & Co. (December 1990-May 1992).

Anne Marcel, 40 Vice President Vice President, Goldman Sachs Asset
4900 Sears Tower Management (June 1998-Present); Vice
Chicago, IL 60606 President, Stein Roe & Farnham, Inc.
(October 1992-June 1998).

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

*Howard B. Surloff, 33 Assistant Secretary Assistant General Counsel, Goldman Sachs
85 Broad Street 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 &
Co.(since November 1993 and May 1994,
respectively); Counsel to the Funds
Group, Goldman Sachs Asset Management
(November 1993 - December 1997);
Associate of Shereff, Friedman, Hoffman &
Goodman (prior thereto).
</TABLE>

B-66
<PAGE>

<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- ---------------------

<S> <C> <C>
*Valerie A. Zondorak, 32 Assistant Secretary Assistant General Counsel, Goldman Sachs
85 Broad Street 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
& Co.(since March 1997 and December 1997,
respectively); Counsel to the Funds
Group, Goldman Sachs Asset Management
(March 1997 - December 1997); Associate
of Shereff, Friedman, Hoffman & Goodman
(prior thereto).

*Steven E. Hartstein, 35 Assistant Secretary Associate, Goldman, Sachs & Co. (since
85 Broad Street December 1998); Legal Products Analyst,
New York, NY 10004 Goldman, Sachs & Co. (June 1993 December
1998); Funds Compliance Officer, Citibank
Global Asset Management (August 1991 -
June 1993).

*Deborah A. Farrell, 27 Assistant Secretary Legal Products Analyst, Goldman, Sachs &
85 Broad Street Co. (since December 1998); Legal
New York, NY 10004 Assistant, Goldman, Sachs & Co. (January
1996 December 1998); Executive
Secretary, Goldman, Sachs & Co. (January
1994 January 1996); Legal Secretary,
Cleary, Gottlieb, Steen and Hamilton
(September 1990 January 1994).

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

*Elizabeth D. Anderson, 29 Assistant Secretary Portfolio Manager, Goldman Sachs Asset
One New York Plaza Management (since April 1996); Junior
New York, NY 10004 Portfolio Manager, Goldman Sachs Asset
Management (1995 April 1996); Funds
Trading Assistant, Goldman Sachs Asset
Management (1993 - 1995); Compliance
Analyst, Prudential Insurance (1991 -
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.

B-67
<PAGE>

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-68
<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 December 31, 1998:

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* $5,348 $0 $93,750
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
John P. McNulty 0 0 0
Mary P. McPherson 3,735 0 70,500
Alan A. Shuch 0 0 0
Jackson W. Smart 3,735 0 70,500
William H. Springer 3,735 0 70,500
Richard P. Strubel 3,735 0 70,500
</TABLE>

* Includes compensation as Chairman of the Board of Trustees.
** As of the date of this Additional Statement, the Goldman Sachs Mutual Funds
consisted of 65 mutual funds.

B-69
<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, European Equity, 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 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

B-70
<PAGE>

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 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

B-71
<PAGE>

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.

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

B-72
<PAGE>

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, 1998 with respect
to the Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios, and January 22, 1998 with respect to the
Conservative Strategy Portfolio. These arrangements were approved by the sole
shareholder of the Balanced Strategy, Growth and Income Strategy, Growth
Strategy and Aggressive Growth Strategy Portfolios on January 1, 1998, and of
the Conservative Strategy Portfolio on February 3, 1999 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.

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.

Asset Allocation Fee Asset Allocation Fee
Portfolio With Limitations Without Limitations
--------- --------------------- ---------------------

Conservative Strategy 0.15% 0.35%
Balanced Strategy 0.15% 0.35%
Growth and Income Strategy 0.15% 0.35%
Growth Strategy 0.15% 0.35%
Aggressive Growth Strategy 0.15% 0.35%

B-73
<PAGE>

For the period ended June 30, 1998, the amounts of the asset allocation
fees for services rendered under the management agreement were as follows (with
and without the fee limitations that were then in effect):

Period Ended June 30, 1998
----------------------------------------------
Without
With Fee Limitations With Fee Limitations
==================== ====================

Conservative Strategy/1/ N/A N/A
Balanced Strategy/2/ $18,833 $ 44,833
Growth and Income Strategy/2/ 86,146 202,146
Growth Strategy/2/ 61,413 143,413
Aggressive Growth Strategy/2/ 23,841 54,841

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

/1/ Not operational.
/2/ The Balanced Strategy, Growth and Income Strategy, Growth
Strategy and Aggressive Growth Strategy Portfolios commenced operations on
January 2, 1998.

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 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

B-74
<PAGE>

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, 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.

B-75
<PAGE>

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 Portfolios. 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 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.

B-76
<PAGE>

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 retained the following commissions on sales of Class A,
Class B and Class C Shares during the period ended June 30, 19998:

Period Ended June 30, 1998
--------------------------

Conservative Strategy/1/ N/A
Balanced Strategy/2/ $ 85,307
Growth and Income Strategy/2/ 521,511
Growth Strategy/2/ 331,052
Aggressive Growth Strategy/2/ 148,596

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

/1/ Not operational.
/2/ The Balanced Strategy, Growth and Income Strategy, Growth
Strategy and Aggressive Growth Strategy Portfolios commenced operations on
January 2, 1998.

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. For the period
ended June 30, 1998 the amounts paid to Goldman Sachs by each Portfolio were as
follows under the fee schedules then in effect:

B-77
<PAGE>

Period Ended June 30, 1998
--------------------------

Conservative Strategy/1/ N/A
Balanced Strategy/2/ $70,645
Growth and Income Strategy/2/ 92,108
Growth Strategy/2/ 92,039
Aggressive Growth Strategy/2/ 83,082

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

/1/ Not operational.
/2/ The Balanced Strategy, Growth and Income Strategy,
Growth Strategy and Aggressive Growth Strategy Portfolios commenced
operations on January 2, 1998.

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.

Expenses

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

The Adviser has voluntarily agreed to reduce or limit certain "Other
Expenses" (excluding management, distribution and authorized dealer service
fees, taxes, interest, brokerage, litigation, Service Share fees,
indemnification costs and other extraordinary expenses) for the following
Portfolios to the extent such expenses exceed the following percentage of
average daily net assets:

B-78
<PAGE>

Other Expenses
--------------

Conservative Strategy 0.00%
Balanced Strategy 0.00%
Growth Strategy 0.00%
Growth and Income Strategy 0.00%
Aggressive Growth Strategy 0.00%

Such reductions or limits, if any, are calculated monthly on a
cumulative basis and may be discontinued or modified by the Adviser in its
discretion at any time.

Fees and expenses of legal counsel, registering shares of a Portfolio,
holding meetings and communicating with shareholders may include an allocable
portion of the cost of maintaining an internal legal and compliance department.
Each Portfolio may also bear an allocable portion of the Adviser's costs of
performing certain accounting services not being provided by a Portfolio's
Custodian.

For the period ended June 30, 1998 the amounts of certain "Other
Expenses" of each Portfolio then in existence that were reduced or otherwise
limited were as follows under the expense limitations that were then in effect:

Period Ended June 30, 1998
--------------------------

Conservative Strategy/1/ N/A
Balanced Strategy/2/ $12,181
Growth and Income Strategy/2/ 58,619
Growth Strategy/2/ 41,181
Aggressive Growth Strategy/2/ 15,775

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

/1/ Not operational.
/2/ The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.

Custodian and Sub-Custodians

State Street, 1776 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.

B-79
<PAGE>

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.

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

B-80
<PAGE>

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 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.

B-81
<PAGE>

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 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.

B-82
<PAGE>

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
Trust's Valuation Committee deems 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.

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.

B-83
<PAGE>

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 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

B-84
<PAGE>

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 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);

B-85
<PAGE>

. 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.

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;

B-86
<PAGE>

. 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.

B-87
<PAGE>

<TABLE>
<CAPTION>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
Assuming no voluntary
waiver of fees and no
expense reimbursements
----------------------
Assumes Assumes
Maximum maximum
Applicable Assumes Applicable Assumes
Sales no sales sales no sales
Fund Class Time Period Charge** Charge Charge** Charge
---- ----- ----------- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balanced Strategy A 1/2/98-6/30/98 - Since inception* (0.35)% 5.43% (1.09)% 4.65%
Balanced Strategy B 1/2/98-6/30/98 - Since inception* 0.12% 5.16% (0.62)% 4.47%
Balanced Strategy C 1/2/98-6/30/98 - Since inception* 4.14% 5.14% 3.40% 4.45%
Balanced Strategy Institutional 1/2/98-6/30/98 - Since inception* N/A 5.73% N/A 5.02%
Balanced Strategy Service 1/2/98-6/30/98 - Since inception* N/A 5.41% N/A 4.72%

Growth and Income Strategy A 1/2/98-6/30/98 - Since inception* 1.80% 7.70% 1.46% 7.34%
Growth and Income Strategy B 1/2/98-6/30/98 - Since inception* 2.39% 7.41% 2.05% 7.14%
Growth and Income Strategy C 1/2/98-6/30/98 - Since inception* 6.30% 7.30% 5.96% 7.53%
Growth and Income Strategy Institutional 1/2/98-6/30/98 - Since inception* N/A 7.81% N/A 7.26%
Growth and Income Strategy Service 1/2/98-6/30/98 - Since inception* N/A 7.55% N/A

Growth Strategy A 1/2/98-6/30/98 - Since inception* 2.13% 8.05% 1.73% 7.63%
Growth Strategy B 1/2/98-6/30/98 - Since inception* 2.75% 7.75% 2.35% 7.41%
Growth Strategy C 1/2/98-6/30/98 - Since inception* 6.84% 7.84% 6.44% 7.49%
Growth Strategy Institutional 1/2/98-6/30/98 - Since inception* N/A 8.16% N/A 7.81%
Growth Strategy Service 1/2/98-6/30/98 - Since inception* N/A 7.93% N/A 7.56%
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
Assuming no voluntary
waiver of fees and no
expense reimbursements
----------------------
Assumes Assumes
Maximum maximum
Applicable Assumes Applicable Assumes
Sales no sales sales no sales
Fund Class Time Period Charge** Charge Charge** Charge
---- ----- ----------- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Strategy A 1/2/98-6/30/98 - Since inception* 1.70% 7.60% 1.01% 6.87%
Aggressive Growth Strategy B 1/2/98-6/30/98 - Since inception* 2.40% 7.40% 1.71% 6.75%
Aggressive Growth Strategy C 1/2/98-6/30/98 - Since inception* 6.40% 7.40% 5.71% 6.75%
Aggressive Growth Strategy Institutional 1/2/98-6/30/98 - Since inception* N/A 7.60% N/A 6.95%
Aggressive Growth Strategy Service 1/2/98-6/30/98 - Since inception* N/A 7.60% N/A 6.94%
</TABLE>

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

All returns are average annual total returns.
* Represents an aggregate total return (not annualized) since this class has
not completed a full twelve months of operations.
** Total return reflects a maximum initial sales charge of 5.5% for Class A
Shares, the assumed deferred sales charge for Class B Shares (5% maximum
declining to 0% after six years) and the assumed deferred sales charge for
Class C Shares (1% if redeemed within 12 months of purchase).

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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.

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

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<PAGE>

class of shares may have different minimum investment requirements and be
entitled to different shareholder services. With limited exceptions, shares of a
class 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 relevant Portfolio available for distribution to
such shareholders. All shares are freely transferable and have no preemptive,
subscription or conversion rights.

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<PAGE>

As of November 20, 1998, Merrill Lynch Pierce Fenner & Smith, Attn:
Service Team 97TM4, 4800 Deer Lake Drive, East 3rd Floor, Jacksonville, FL
32246-6484, (beneficially for its customers) was recordholder of 7% of the
Balanced Strategy Portfolio's outstanding Class B shares; Merrill Lynch Pierce
Fenner & Smith, Attn: Service Team 97TM4, 4800 Deer Lake Drive, East 3rd Floor,
Jacksonville, FL 32246-6484, (beneficially for its customers) was recordholder
of 9% of the Balanced Strategy Portfolio's outstanding Class C shares; Merrill
Lynch Pierce Fenner & Smith, Attn: Service Team 97TM4, 4800 Deer Lake Drive,
East 3rd Floor, Jacksonville, FL 32246-6484, (beneficially for its customers)
was recordholder of 5% of the Growth and Income Strategy Portfolio's outstanding
Class B shares; Merrill Lynch Pierce Fenner & Smith, Attn: Service Team 97TM4,
4800 Deer Lake Drive, East 3rd Floor, Jacksonville, FL 32246-6484, (beneficially
for its customers) was recordholder of 9% of the Growth and Income Strategy
Portfolio's outstanding Class C shares; Kentucky Wesleyan College, Endowment
Account, c/o Cindra Stiff, 3000 Frederica Street, Owensboro, KY 42301-6055, was
recordholder of 5% of the Growth Strategy Portfolio's outstanding Class A
shares; Merrill Lynch Pierce Fenner & Smith, Attn: Service Team 97TM4, 4800 Deer
Lake Drive, East 3rd Floor, Jacksonville, FL 32246-6484, (beneficially for its
customers) was recordholder of 5% of the Growth Strategy Portfolio's outstanding
Class B shares; Merrill Lynch Pierce Fenner & Smith, Attn: Service Team 97TM4,
4800 Deer Lake Drive, East 3rd Floor, Jacksonville, FL 32246-6484, (beneficially
for its customers) was recordholder of 11% of the Growth Strategy Portfolio's
outstanding Class C shares; and Merrill Lynch Pierce Fenner & Smith, Attn:
Service Team 97TM4, 4800 Deer Lake Drive, East 3rd Floor, Jacksonville, FL
32246-6484, (beneficially for its customers) was recordholder of 9% of the
Aggressive Growth Strategy Portfolio's outstanding Class C shares.

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.

B-92
<PAGE>

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 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

B-93
<PAGE>

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 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.

B-94
<PAGE>

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 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.

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 generally 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 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

B-95
<PAGE>

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, European Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity, Asia Growth or Global Income 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 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

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<PAGE>

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 of the 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.

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.

B-97
<PAGE>

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.

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.

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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 generally 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 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 load not taken

B-99
<PAGE>

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. 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

B-100
<PAGE>

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.

FINANCIAL STATEMENTS

The unaudited financial statements contained in the Semi-Annual Report
for the period ended June 30, 1998 of each of the Portfolios (except
Conservative Strategy Portfolio) are incorporated by reference into this
Additional Statement. No other part of the Semi-Annual Report is incorporated
by reference herein. Copies of the Semi-Annual Report may be obtained upon
request and without charge by calling Goldman, Sachs & Co. toll free at 800-526-
7384.

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.

B-101
<PAGE>

(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 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

B-102
<PAGE>

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.

OTHER INFORMATION REGARDING PURCHASES,
REDEMPTIONS, EXCHANGES AND DIVIDENDS
(Class A, Class B and Class C Shares Only)

Maximum Sales Charges
=====================

Class A Shares of each Portfolio are sold at a maximum sales charge of
5.5%. Using the initial offering price per share, as of June 30, 1998 and
$10.00 for the Conservative Strategy Portfolio, the maximum offering price of
each Portfolio's Class A shares would be as follows:

<TABLE>
<CAPTION>
Net Asset Maximum Offering Price
Value Sales Charge to Public
----- ------------ ---------
<S> <C> <C> <C>
Conservative Strategy $10.00 5.5% $10.58
Balanced Strategy 10.44 5.5% 11.05
Growth and Income Strategy 10.71 5.5% 11.33
Growth Strategy 10.78 5.5% 11.41
Aggressive Growth Strategy 10.76 5.5% 11.39
</TABLE>

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

B-103
<PAGE>

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
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

B-104
<PAGE>

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.

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.

B-105
<PAGE>

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.

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.

DISTRIBUTION AND SERVICE PLANS
(Class A, Class B and Class C Shares Only)

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

B-106
<PAGE>

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
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-107
<PAGE>

For the period ended June 30, 1998, the distribution fees paid to Goldman
Sachs pursuant to its Class A, Class B and Class C Plans by each Portfolio then
in existence were as follows:

<TABLE>
<CAPTION>
Period Ended June 30, 1998
---------------------------------------------------------------
Class A Plan Class B Plan Class C Plan
============ ============ ============
<S> <C> <C> <C>
Conservative Strategy/1/ N/A N/A N/A
Balanced Strategy/2/ $ 6,359 $ 24,264 $ 23,650
Growth and Income Strategy/2/ 26,046 129,632 106,108
Growth Strategy/2/ 17,742 105,128 68,211
Aggressive Growth Strategy/2/ 6,030 47,399 24,721
</TABLE>

- ---------------------
/1/ Not operational.
/2/ The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.

Without the voluntary limitations then in effect, the Portfolios would have
paid Goldman Sachs the following distribution fees during the period ended June
30, 1998 pursuant to their respective Class A, Class B and Class C Plans:

<TABLE>
<CAPTION>
Period Ended June 30, 1998
---------------------------------------------------------------------------------
Class A Plan Class B Plan Class C Plan
=========================== ========================= =======================
<S> <C> <C> <C>
Conservative Strategy/1/ N/A N/A N/A
Balanced Strategy/2/ $15,898 $ 24,264 $ 23,050
Growth and Income Strategy/2/ 65,114 129,632 106,108
Growth Strategy/2/ 44,355 105,128 68,211
Aggressive Growth Strategy/2/ 15,075 47,389 24,721
</TABLE>

- ------------------------
/1/ Not operational.
/2/ The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.

For the period ended June 30, 1998, Goldman Sachs received service fees
from the Portfolio pursuant to the Plans then in existence at the rate of 0.25%
of each Portfolio's average daily net assets attributable to Class A, Class B,
or Class C Shares, which totaled:

<TABLE>
<CAPTION>
Class A Plan Class B Plan Class C Plan
=========================== ========================= =======================
<S> <C> <C> <C>
Conservative Strategy/1/ N/A N/A N/A
Balanced Strategy/2/ $15,810 $ 8,088 $ 7,935
Growth and Income Strategy/2/ 64,720 43,486 35,369
Growth Strategy/2/ 44,075 35,242 22,737
Aggressive Growth Strategy/2/ 15,075 15,773 8,240
</TABLE>

B-108
<PAGE>

- ---------------------
/1/ Not operational.
/2/ The Balanced Strategy Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.

SERVICE PLAN
(Service Shares Only)

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

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 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 or Service Plan described in the Prospectuses and in this
Additional Statement. Certain Service Organizations or institutions may enter
into sub-transfer agency agreements with the Trust or Goldman Sachs with respect
to their services.

For the period ended June 30, 1998, the amount of the service fees paid by
each Portfolio then in existence to Service Organizations was as follows:

B-109
<PAGE>

Period Ended
June 30, 1998
-------------
Conservative Strategy/1/ N/A
Balanced Strategy/2/ $307
Growth and Income Strategy/2/ 734
Growth Strategy/2/ 145
Aggressive Growth Strategy/2/ 74

_____________________
/1/ Not operational.
/2/ The Balanced Strategy Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.

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

The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling or
distributing securities, although institutions such as national banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. In addition, under some state securities laws, banks and other
financial institutions purchasing Service Shares on behalf of their customers
may be required to register as dealers. Should future legislative or
administrative action or judicial or administrative decisions or interpretations
prohibit or restrict the activities of one or more of the Service Organizations
in connection with the Portfolios, such Service Organizations might be required
to alter materially or discontinue the services performed under their Service
Agreements. If one or more of the Service Organizations were restricted from
effecting purchases or sales of Service Shares automatically pursuant to pre-
authorized instructions, for example, effecting such transactions on a manual
basis might affect the size and/or growth of a Portfolio. Any such alteration
or discontinuance of services could require the Board of Trustees to consider
changing a Portfolio's method of operations or providing alternative means of
offering Service Shares of a Portfolio to customers of such Service
Organizations, in which case the operation of such Portfolio, its size and/or
its growth might be significantly altered. It is not anticipated, however, that
any alternation of a Portfolio's operations would have any effect on the net
asset value per share or result in financial losses to any shareholder.

Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Portfolio in connection with the investment of fiduciary
assets in Service Shares of such Portfolio. Service Organizations, including
banks regulated by the Comptroller of the Currency, the

B-110
<PAGE>

Federal Reserve Board or the Federal Deposit Insurance Corporation, and
investment advisers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor or state securities regulators, are urged to
consult legal advisers before investing fiduciary assets in Service Shares of
the Portfolios. In addition, under some state securities laws, banks and other
financial institutions purchasing Service Shares on behalf of their customers
may be required to register as dealers.

The Trustees, including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plans or the related Service Agreements, most recently
voted to approve each Portfolio's Plan and related Service Agreements at a
meeting called for the purpose of voting on such Plans and Service Agreements on
October 21, 1997. Each Plan and Service Agreement will remain in effect until
April 30, 1998 and will continue in effect thereafter only if such continuance
is specifically approved annually by a vote of the Board of Trustees in the
manner described above. No Plan may be amended to increase materially the
amount to be spent for the services described therein without approval of the
Service Shareholders of the applicable Portfolio, and all material amendments of
each Plan must also be approved by the Board of Trustees in the manner described
above. Each Plan may be terminated at any time by a majority of the Board of
Trustees as described above or by vote of a majority of the outstanding Service
Shares of the applicable Portfolio. The Service Agreements may be terminated at
any time, without payment of any penalty, by vote of a majority of the Board of
Trustees as described above or by a vote of a majority of the outstanding
Service Shares of the applicable Portfolio on not more than sixty (60) days'
written notice to any other party to the Service Agreements. The Service
Agreements will terminate automatically if assigned. So long as the Plans are
in effect, the selection and nomination of those Trustees who are not interested
persons will be committed to the discretion of the Trust's Nominating Committee,
which consists of all of the non-interested members of the Board of Trustees.
The Board of Trustees has determined that, in its judgment, there is a
reasonable likelihood that a Portfolio's Plan will benefit such Portfolio and
its holders of Service Shares. In the Board of Trustees' quarterly review of
the Plans and Service Agreements, the Board will consider their continued
appropriateness and the level of compensation provided therein.

B-111
<PAGE>

APPENDIX A

DESCRIPTION OF BOND RATINGS, INCLUDING MUNICIPAL BONDS/1/

MOODY'S INVESTORS SERVICE, INC.

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

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 a 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.

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.

- ------------------
/1/ The rating systems described herein are believed to be the most recent
ratings systems available from Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group at the date of this Additional Statement for the securities
listed. Ratings are generally given to securities at the time of issuance. While
the rating agencies may from time to time revise such ratings, they undertake no
obligation to do so.

A-1
<PAGE>

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, 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 issuer 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.

Con. (---): Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

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

Description of Ratings of Commercial Paper
- ------------------------------------------

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations not having an original maturity in
excess of one year. Moody's commercial paper rating categories are as follows:

Prime-1: Issuers (or supporting institutions) rated Prime-1 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;

A-2
<PAGE>

- 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; and

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

Prime-2: Issuers (or supporting institutions) rated Prime-2 have a strong
ability for repayment of 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. Capitalization 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.

Not Prime: Issuers do not fall within any of the Prime rating categories.

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

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.
Factors affecting the liquidity of the borrower and short-term cyclical elements
are critical in short-term ratings, while other factors of major importance in
bond risk, long-term secular trends for example, may be less important over the
short run. Symbols used will be as follows:

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

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

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

A-3
<PAGE>

MIG-4/VMIG-4: This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.

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

STANDARD & POOR'S RATINGS GROUP

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

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.

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 to
meet the financial commitment on the obligation for bonds in this category than
in higher rated categories.

BB, B, CCC, CC, C: Bonds and debt rated BB, B, CCC, CC and C are regarded,
on balance, as having significant speculative characteristics with respect to
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 may be outweighed by large
uncertainties or major exposures to adverse conditions.

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

B: Bonds and debt rated B are more vulnerable to non-payment but currently
have the capacity to meet the financial commitment on the obligation. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to meet the 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 the financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet the financial commitment on the obligation.

A-4
<PAGE>

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

C: The rating C may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments on the obligations are being
continued.

D: Bonds and debt rated D are in default. The D rating category is used
when interest payments or principal payments 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.

r: This symbol is attached to ratings of instruments with significant
non-credit risks. Examples of such obligations are: securities whose principal
or interest return is indexed to equities, commodities, or currencies; certain
floaters; 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.

Description of Ratings of Commercial Paper
- ------------------------------------------

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: This highest category indicates that the capacity to meet the
financial commitment on the obligation is strong. Those issues determined to
possess strong capacity to meet the financial commitment on the obligation are
denoted with a plus sign (+) designation.

A-2: Capacity to meet the financial commitment on the obligation on issues
with this designation is satisfactory. However, the obligations are somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories.

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
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation.

A-5
<PAGE>

D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period. The D rating category 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.

Description of Ratings of Municipal Notes
- -----------------------------------------

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

Note rating symbols are as follows:

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

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

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

FITCH IBCA, INC.

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

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 repayment of financial commitments. This capacity is unlikely to be
adversely affected by foreseeable events.

AA: Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's capacity for timely repayment of financial
commitments is very strong. This capacity is not significantly vulnerable to
foreseeable future events.

A: Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's capacity for timely repayment of financial commitments
is considered to be strong. This capacity may, nevertheless, be more vulnerable
to adverse changes in economic conditions than bonds with higher ratings.

BBB: Bonds rated BBB are considered to be investment grade and of good
credit quality. The obligor's capacity for timely repayment of financial
commitments is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to impair this capacity.

A-6
<PAGE>

BB: Bonds are considered 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", "CC", "C" - Bonds have high default risk. Capacity for meeting
financial commitments is reliant upon sustained, favorable business or economic
developments. "CC" ratings indicate that default of some kind appears probable,
and "C" ratings signal imminent default.

DDD, DD, and D: Bonds are in default. Such bonds are not meeting
obligations and are extremely speculative. DDD represents the highest potential
for recovery on these bonds, and D represents the lowest potential for recovery.

Plus (+) and minus (-) signs are used for ratings from and including AA to
B, to indicate the relative position of a credit within the rating category.

Short-Term Ratings
- ------------------

Fitch IBCA 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. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:

F1: Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.

F2: Securities possess good credit quality. This designation indicates a
satisfactory capacity for timely payment of financial commitments, but the
margin of safety is not as great as in the case of the higher ratings.

F3: Securities possess fair credit quality. This designation indicates that
the 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.

A-7
<PAGE>

D: Securities are in actual or imminent payment default.

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.

A+, A, A-: Protection factors 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.

DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payment.

DP: Represents preferred stock with dividend arrearages.

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 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 strong fundamental protection factors.
Risk factors are minor.

A-8
<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 to 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.

A-9
<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 make an unusual effort to identify and recruit the very best person for
every job. Although our activities are measured in billions of dollars, we
select our people one by one. In a service business, we know that without the
best people, we cannot be the best firm.

We offer our people the opportunity to move ahead more rapidly than is
possible at most other places. We have yet to find limits to the responsibility
that our best people are able to assume. Advancement depends solely on ability,
performance and contribution to the Firm's success, without regard to race,
color, religion, sex, age, national origin, disability, sexual orientation, or
any impermissible criterion or circumstance.

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.

The dedication of our people to the Firm and the intense effort they give
their jobs are greater than one finds in most other organizations. We think
that this is an important part of our success.

We consider our size an asset that we try hard to preserve. We want to be
big enough to undertake the largest project that any of our clients could
contemplate, yet small enough to maintain the loyalty, the intimacy and the
esprit de corps that we all treasure and that contribute greatly to our success.

1-B
<PAGE>

We constantly strive to anticipate the rapidly changing needs of our
clients and to develop new services to meet those needs. We know that the world
of finance will not stand still and that complacency can lead to distinction.

We regularly receive confidential information as part of our normal client
relationships. To breach a confidence or to use confidential information
improperly or carelessly would be unthinkable.

Our business is highly competitive, and we aggressively seek to expand our
client relationships. However, we must always be fair competitors and must
never denigrate other firms.

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.

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).

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

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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

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