GOLDMAN SACHS EQUITY PORTFOLIOS INC, 485APOS, 1995-03-31

GOLDMAN SACHS EQUITY PORTFOLIOS INC
485APOS, 1995-03-31

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<PAGE>

1933 Act Registration No. 33-33316
1940 Act Registration No. 811-6036

As filed with the Securities and Exchange Commission on
March 31, 1995

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________

FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933

Post-Effective Amendment No. 16 ( X )

and

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940

Amendment No. 18 ( X )
(Check appropriate box or boxes)

____________

GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(Formerly GS Capital Growth Fund, Inc.)
(Exact name of registrant as specified in charter)

One New York Plaza
New York, New York 10004
(Address of principal executive offices)

Registrant's Telephone Number, including Area Code
212-902-0800

_____________

with a copy to:
Michael J. Richman Ernest V. Klein
Goldman Sachs Asset Management Hale and Dorr
85 Broad Street 60 State Street
New York, New York Boston, Massachusetts
10004 02109

(name and address of agent for service)
<PAGE>

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

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

( X ) on May 31, 1995 pursuant to paragraph (a)(i)
( ) 75 days after filing pursuant to paragraph (a)(ii)
( ) on (date) pursuant to paragraph (a)(ii) of rule 485

REGISTRANT HAS REGISTERED AN UNLIMITED NUMBER OF ITS SHARES
UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2.
ON MARCH 31, 1995, REGISTRANT FILED A RULE 24F-2 NOTICE
FOR THE FISCAL YEAR ENDED JANUARY 31, 1995.
<PAGE>

CROSS REFERENCE SHEET
(as required by Rule 495(a))

N-1A ITEM NO. LOCATION
------------- --------

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

Goldman Sachs Select Equity Fund, Goldman Sachs Capital Growth Fund, Goldman
----------------------------------------------------------------------------
Sachs Small Cap Fund, Goldman Sachs International Equity Fund, Goldman Sachs
----------------------------------------------------------------------------
Growth and Income Fund, Goldman Sachs Asia Growth Fund and Goldman Sachs
------------------------------------------------------------------------
Balanced Fund
-------------

Item 1. Cover Page Cover Page

Item 2. Synopsis Summary

Item 3. Condensed Financial Not Applicable
Information

Item 4. General Description Cover Page; Summary;
of Registrant Investment Objective;
Investment Policies; Special
Investment Methods and Risk
Factors; Reports to
Shareholders; Shares of the
Company; Additional
Information

Item 5. Management of Fund Investment Adviser and
Administrator; Management

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

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

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

Item 9. Pending Legal Not Applicable
Proceedings
<PAGE>

PART B

Item 10. Cover Page Cover Page

Item 11. Table of Contents Table of Contents

Item 12. General Information Introduction
and History

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

Item 14. Management of the Management
Registrant

Item 15. Control Persons and Not Applicable
Principal Holders of
Securities

Item 16. Investment Advisory and Management
Other Services

Item 17. Brokerage Allocation Portfolio Transactions
and Other Practices

Item 18. Capital Stock and Shares of the Company
Other Securities

Item 19. Purchase, Redemption Management; Net Asset of
and Pricing of Value; Other Information
Securities Being Regarding Purchases,
Offered Redemptions, Exchanges and
Dividends

Item 20. Tax Status Taxation

Item 21. Underwriters Management -- Distributor and
Transfer Agent; Management --
Distribution Plan

Item 22. Calculation of Performance Information
Performance Data

Item 23. Financial Statements Not Applicable
<PAGE>

PART C

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

GOLDMAN SACHS EQUITY
PORTFOLIOS

PROSPECTUS

JUNE 1, 1995

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------------------------------------------------
<S> <C>

Fund Highlights 1
Fees and Expenses 5
Financial Highlights 7
Investment Objectives and Policies 8
Special Investment Methods and Risk
Factors 12
Investment Restrictions 22
Portfolio Turnover 22
Management 23
Reports to Shareholders 25
How to Invest 26
Distribution and Authorized Dealer Service Plans 31
How to Sell Shares of the Funds 31
Dividends 32
Net Asset Value 33
Performance Information 33
Shares of the Company 33
Taxation 34
Additional Information 35
Account Information Form
</TABLE>

GOLDMAN SACHS BALANCED FUND seeks current income and long-term capital growth
through investments in equity and fixed income securities.

GOLDMAN SACHS SELECT EQUITY FUND seeks total return through investments in
equity securities consisting of capital appreciation plus dividend income that,
net of Fund expenses, exceeds the total return realized on the Standard and
Poor's Index of 500 Common Stocks.

GOLDMAN SACHS GROWTH AND INCOME FUND seeks long-term growth of capital and
growth of income through investments in equity securities that the Fund's
Investment Adviser considers to have favorable prospects for capital
appreciation and/or dividend growth. Goldman Sachs Capital Growth Fund seeks
long-term growth of capital through investments in equity securities of
companies that the Fund's Investment Adviser considers to have long-term capital
appreciation possibilities.

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

GOLDMAN SACHS INTERNATIONAL EQUITY FUND seeks long-term capital appreciation
through investments in equity securities of companies that are organized outside
the U.S. or whose securities are principally traded outside the U.S.

GOLDMAN SACHS ASIA GROWTH FUND seeks long-term capital appreciation through
investments in equity securities of companies related (in the manner described
herein) to Asian countries.

GOLDMAN, SACHS & CO.

Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, Small Cap Equity and
International Equity Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), an
affiliate of Goldman Sachs, serves as investment adviser to the Capital Growth
and Select Equity Funds. Goldman Sachs Asset Management International
("GSAMI"), London, England, an affiliate of Goldman Sachs, serves as investment
adviser to the Asia Growth Fund and sub-adviser to the International Equity
Fund. GSAM, GSFM and GSAMI are referred to in this Prospectus as the
"Investment Adviser." GSAM serves as each Fund's administrator and Goldman
Sachs serves as each Fund's distributor and transfer agent.

This Prospectus, which sets forth concisely the information about Goldman Sachs
Equity Portfolios, Inc. (the "Company") and the Funds that a prospective
investor ought to know before investing, should be retained for future
reference. A Statement of Additional Information (the "Additional Statement"),
dated June 1, 1995, containing further information about the Company and the
Funds which may be of interest to investors, has been filed with the Securities
and Exchange Commission, 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.

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

A FUND'S INVESTMENTS IN SECURITIES OF EMERGING MARKETS AND OTHER FOREIGN ISSUERS
AND OF COMPANIES WHOSE SECURITIES ARE PRINCIPALLY TRADED OUTSIDE THE UNITED
STATES, AND INVESTMENTS QUOTED OR DENOMINATED IN FOREIGN CURRENCIES, AS WELL AS
THE MANAGEMENT TECHNIQUES EMPLOYED BY THE FUNDS, ENTAIL CERTAIN RISKS NOT
CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF U.S. ISSUERS. IN
PARTICULAR, THE SECURITIES MARKETS OF ASIAN AND OTHER EMERGING MARKET
COUNTRIESIN WHICH THE ASIA GROWTH AND INTERNATIONAL EQUITY FUNDS WILL INVEST ARE
LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET
CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO AS
EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS AS
THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. THE FUNDS ARE INTENDED FOR
INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND MAY NOT
BE SUITABLE FOR ALL INVESTORS. SEE "SPECIAL INVESTMENT METHODS AND RISK
FACTORS."

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

FUND HIGHLIGHTS
=================

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

WHAT IS GOLDMAN SACHS EQUITY PORTFOLIOS, INC.?

Goldman Sachs Equity Portfolios, Inc. is an open end management
investment company that offers its shares in several series or funds. Each Fund
pools the resources of investors by selling its shares to the public and
investing the proceeds in a portfolio of securities designed to achieve that
Fund's stated investment objective. The Small Cap Equity, International Equity
and Asia Growth Funds are non-diversified funds and each of the other Funds is a
diversified fund as defined in the Investment Company Act of 1940 (the "Act").

WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?

Each Fund has distinct investment objectives and policies. There can
be no assurance that a Fund's objective will be achieved. For a complete
description of each Fund's investment objective and policies, see "Investment
Objectives and Policies" and "Special Investment Methods and Risk Factors."

GOLDMAN SACHS BALANCED FUND -- The Fund's investment objective is to
provide shareholders with current income and long-term capital growth. The Fund
seeks to achieve its objective by investing in a diversified portfolio of equity
and fixed income securities. Under normal market conditions, the Fund will
invest at least 25% of its total assets in fixed income senior securities and
the remainder of its assets in equity securities, other fixed income securities
and cash. Under normal market conditions, the Investment Adviser expects that
the Fund generally will invest between 50% and 70% of its total assets in equity
securities.

GOLDMAN SACHS SELECT EQUITY FUND -- The investment objective of the
Fund is to provide investors with a total return consisting of capital
appreciation plus dividend income that, net of Fund expenses, exceeds the total
return realized on the Standard & Poor's Index of 500 Common Stocks (the "S&P
500 Index"). Under normal circumstances, the Fund will invest at least 90% of
its total assets in equity securities. The Fund seeks to achieve its investment
objective by investing in a portfolio of equity securities selected by a
portfolio optimization model that seeks to maximize the Fund's risk to reward
ratio (the "Optimization Model"). The Fund's portfolio is designed to have
risk, capitalization and industry characteristics similar to the S&P 500 Index
but which is intended to provide a total return that exceeds the total return on
the S&P 500 Index.

GOLDMAN SACHS GROWTH AND INCOME FUND -- The Fund's investment objectives are to
provide its shareholders with long-term growth of capital and growth of income.
The Fund seeks to achieve its investment objectives by investing, under normal
market conditions, at least 65% of its total assets in equity securities that
the Investment Adviser considers to have favorable prospects for capital
appreciation and/or dividend growth. Equity securities in which the Fund may
invest consist of common stocks, preferred stocks, convertible securities,
warrants and stock purchase rights, and interests in real estate investment
trusts. These securities may or may not pay a current dividend. The Fund may
invest up to 35% of its total assets in fixed income securities.

GOLDMAN SACHS CAPITAL GROWTH FUND -- The Fund's investment objective
is long-term capital growth. The Fund seeks to achieve its objective by
investing primarily in securities that are considered by the Investment Adviser
to have long-term capital appreciation possibilities. Under normal market
conditions, the Fund will invest at least 65% of its total assets in equity
securities, including common stocks, convertible securities, preferred stocks,
warrants and stock purchase rights, and interests in real estate investment
trusts. The Fund may also invest up to 25% of its total assets in fixed income
securities.

GOLDMAN SACHS SMALL CAP EQUITY FUND -- The Fund's investment objective
is long-term capital growth. Dividend income, if any, is an incidental
consideration. The Fund seeks to achieve its investment objective by investing,
under normal conditions, 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. However, the Fund will emphasize investments in
companies with public stock market capitalizations of $500 million or less at
the time of investment. The Fund may invest up to 35% of its total assets in the
equity securities of companies with public stock market capitalizations in
excess of $1 billion and in fixed income securities.

GOLDMAN SACHS INTERNATIONAL EQUITY FUND -- The Fund's investment
objective is long-term capital appreciation. Under normal market conditions,
the Fund will invest substantially all, and at least 65%, of its total assets in
equity securities of companies organized outside the United States or whose
securities are principally traded outside the United States. Many of the
countries in which the Fund may invest have emerging economies or securities
markets which involve certain risks. The Fund may employ certain currency
management techniques to seek to hedge against currency exchange rate
fluctuations or to seek to increase total return. When used to enhance return,
these management techniques are considered speculative. See "Special Investment
Methods and Risk Factors - Foreign Transactions." The Fund may also invest up
to 35% of its total assets in fixed income securities of
<PAGE>

foreign and domestic corporations, mortgage and asset-backed issuers and the
U.S. Government, foreign governments and their respective agencies,
instrumentalities, political subdivisions and authorities and fixed income
securities issued or guaranteed by international or supranational entities that,
in the opinion of the Investment Adviser, offer the potential to enhance total
return.

GOLDMAN SACHS ASIA GROWTH FUND -- The Fund's investment objective is
long-term capital appreciation. Under normal market conditions, the Fund will
invest substantially all, and at least 65%, of its 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 which are considered by the Investment Adviser to have long-term
capital appreciation potential. Concentration of the Fund's assets in one or a
few of the Asian countries will subject the Fund, to a greater extent than if
the Fund's assets were less geographically concentrated, to the risks of adverse
changes in the securities and foreign exchange markets of such countries and
social, political or economic events which may occur in those countries. The
Fund may also invest up to 35% of its total assets in equity securities of
issuers in other countries, including Japan, and fixed income securities. The
Fund may employ certain currency techniques to hedge against currency exchange
rate fluctuations or to seek to increase total return. When used to enhance
return, these management techniques are considered speculative. See "Special
Investment Methods and Risk Factors - Foreign Transactions."

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

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

There are certain risks associated with the investment policies of
each of the Funds. For instance, to the extent that a Fund invests in the
securities and related financial instruments of small to medium sized market
capitalization companies, the Fund may be exposed to a higher degree of risk and
price volatility because such securities may lack sufficient liquidity to enable
a Fund to effect sales at an advantageous time or without a substantial drop in
price. A Fund's use of certain investment techniques, including the use of
derivatives, purchases of put and call options, foreign currency, forward
contracts and options and futures transactions will subject a Fund to greater
risk than funds that do not employ such techniques. To the extent that a Fund
invests in securities of non-U.S. issuers and foreign currencies, the Fund may
face risks that are different from those associated with investment in domestic
securities, including the effect of different economies, changes in relative
currency exchange rates, future political and economic developments, the
possible imposition of exchange controls or other governmental confiscation or
restrictions, and less availability of data on companies and the securities
industry as well as less regulation of stock exchanges, brokers and issuers. A
Fund's investments in emerging markets and countries will involve greater risks
than investments in the developed countries of Western Europe, the U.S. and
Japan. In addition, because the International Equity and Asia Growth Funds will
invest primarily outside the U.S., these Funds may involve greater risks, since
the securities markets of foreign countries are generally less liquid and
subject to greater price volatility. In particular, the securities markets of
the developing countries of Asia are marked by 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 Small Cap Equity, International Equity and Asia Growth Funds are
each "non-diversified" funds as defined under the Act and are therefore subject
only to certain federal tax diversification requirements, in addition to the
policies adopted by the Investment Adviser. To the extent that a Fund is not
diversified under the Act, it will be more susceptible to adverse developments
affecting any single issuer of portfolio securities. See "Special Investment
Methods and Risk Factors - Non-Diversification Status."

WHO MANAGES THE FUNDS?

Goldman Sachs Asset Management, a separate operating division of
Goldman Sachs, acts as administrator to each Fund and serves as the Investment
Adviser to the Balanced, Growth and Income, Small Cap Equity and International
Equity Funds. Goldman Sachs Funds Management, L.P., an affiliate of Goldman
Sachs, serves as investment adviser to the Capital Growth and Select Equity
Funds. Goldman Sachs Asset Management International, London, England, an
affiliate of Goldman Sachs, serves as investment adviser to the Asia Growth Fund
and sub-adviser to the International Equity Fund. As of _____, 1995, the
Investment Advisers, together with their affiliates, acted as investment
adviser, administrator or distributor for approximately $____ billion in assets.

WHO DISTRIBUTES THE FUND'S SHARES?

Goldman Sachs acts as distributor of each Fund's shares.

2
<PAGE>

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment for purchases of shares of a Fund is
$1,500. The minimum initial investment for tax sheltered retirement plans is
$250. The minimum investment is $50 for purchases made through the Automatic
Investment Plan. The minimum subsequent investment is $50. See "How to Invest
- How to Buy Shares of the Funds."

HOW DO I PURCHASE SHARES?

You may purchase shares of the Funds through Goldman Sachs and certain
investment dealers, including members of the National Association of Securities
Dealers, Inc. (the "NASD") and certain other financial service firms that have
sales agreements with Goldman Sachs ("Authorized Dealers"). Shares of the Funds
may be purchased at the current net asset value per share plus any applicable
sales charge. The sales charge is paid at the time of purchase. The maximum
sales charge is currently 5.5% of the purchase price with reduced sales charges
for purchases amounting to $50,000 or more. The sales charge is waived for
specified classes of investors as described under "How to Invest - Offering
Price."

HOW DO I SELL MY SHARES?

You may redeem shares upon request on any Business Day, as defined
under "Additional Information," at the net asset value next determined after
receipt of such request in proper form. See "How to Redeem Shares."

HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?

Each Fund intends that all or substantially all of its net investment
income and net realized long-term and short-term capital gains for each taxable
year, after reduction by available capital losses, including any capital losses
carried forward from prior years will be declared as dividends. The Balanced
and Growth and Income Funds will pay dividends in respect of net investment
income quarterly. Each other Fund will pay dividends in respect of net
investment income at least annually. All of the Funds will pay dividends in
respect of net realized long-term and short-term capital gains at least
annually.

You will receive dividends in additional shares of the Fund in which
you have invested or may elect to receive cash, shares of another Fund or
certain other mutual funds sponsored by Goldman Sachs whose shares are subject
to an initial sales charge (the "Goldman Sachs Portfolios") or ILA Service Units
of the Prime Obligations Portfolio or the Tax-Exempt Diversified Portfolio of
Goldman Sachs Money Market Trust (the "ILA Portfolios"). For further
information concerning dividends, see "Dividends."

3
<PAGE>

FEES AND EXPENSES
=====================
<TABLE>
<CAPTION>

Growth Small
Select and Capital Cap Int'l Asia
SHAREHOLDER TRANSACTION EXPENSES: Balanced Equity Income Growth Equity Equity Growth
Fund Fund Fund Fund Fund Fund Fund
-------------------------------------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases/1/ 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Maximum Sales Charge Imposed
on Reinvested Dividends none none none none none none none
Redemption Fees/2/ none none none none none none none
Exchange Fees/2/ none none none none none none none

ANNUAL FUND OPERATING EXPENSES:

Management Fees (including advisory
and administration fees) 0.65% 0.55% 0.70% 1.00% 1.00% 1.00% 1.00%
Broker Service Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Distribution (Rule 12b-1) Fees/3/ 0.00% 0.25% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses 0.10%/4/ 0.21% 0.30%/4/ 0.13% 0.35% 0.51% 0.65%/4/
======== ======== ======== ======== ======== ======== ========
TOTAL FUND OPERATING EXPENSES
(AFTER EXPENSE LIMITATION) 1.00%/5/ 1.26%/6/ 1.25%/5/ 1.38%/5/ 1.60%/5/ 1.76%/5/ 1.90%/5/
</TABLE>
EXAMPLE

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

Fund 1 Year 3 Years 5 Years 10 Years
--------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>

Balanced Fund N/A N/A
Select Equity Fund
Growth and Income Fund
Capital Growth Fund
Small Cap Equity Fund
International Equity Fund
Asia Growth Fund N/A N/A
-------------
</TABLE>

/1/ As a percentage of the offering price. No sales charge is imposed on
purchases by certain classes of investors. See "How to Invest - Offering
Price."

/2/ 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 Portfolios 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." A contingent deferred sales charge may be imposed in
connection with certain redemptions of shares sold without an initial sales
charge to certain participant-directed plans. See "How to Invest -Participant-
Directed Plans." The transfer agency fee incurred by each Fund is based on a
fixed per account charge plus transaction fees. See "Management - Distributor
and Transfer Agent."

/3/ During the fiscal year ending January 31, 1996, Goldman Sachs has agreed to
waive the amount of the distribution fees payable by each Fund (other than the
Select Equity Fund) to .00% of the Fund's average daily net assets. Goldman
Sachs has no current intention of modifying or discontinuing such limitation but
may do so in the future at its discretion. Without this waiver, the
distribution fees payable by each Fund would be .25% of average daily net
assets.

4
<PAGE>

/4/ The Investment Adviser voluntarily agreed to reduce or limit certain
"Other Expenses" of the Balanced, Growth and Income and Asia Growth Funds
(excluding advisory, administration and distribution and service fees, taxes,
interest, brokerage fees and litigation, indemnification and other extraordinary
expenses) for the fiscal year ended January 31, 1995 to the extent such expenses
exceeded .10% of the average daily net assets of the Balanced Fund, .30% of the
average daily net assets of the Growth and Income Fund and .65% of the average
daily net assets of the Asia Growth Fund. The Investment Adviser to each Fund
has no current intention of modifying or discontinuing such limitation but may
do so in the future at its discretion. If the Investment Adviser to the
Balanced, Growth and Income and Asia Growth Funds did not agree to limit the
"Other Expenses" of such Funds to 0.10%, 0.30% and 0.65%, respectively, such
expenses would have been ____%, ____% and ____%.

/5/ Based on estimated amounts for the current year for the Balanced and Asia
Growth Funds. If Goldman Sachs and the Investment Advisers did not agree to the
limits described above, the total operating expenses of the Funds would have
been: Balanced - ____%, Growth and Income - ____%, Capital Growth - ____%,
Small Cap Equity - ____%, International Equity - ____% and Asia Growth - ____%.
See "Management - Investment Advisers, Subadviser and Administrator" and
"Distribution and Authorized Dealer Service Plans."

/6/ Based on estimated amounts for the current fiscal year. GSAM and GSFM have
voluntarily agreed to limit their administration and management fees to 0.55%.
Without such limitations, Select Equity Fund's management fees and
administration fees would be 0.75% and 0.25%, respectively of average daily net
assets. For the fiscal year ending January 31, 1995, GSFM has agreed to limit
the Select Equity Fund's "Other Expenses" (excluding transfer agency fees
estimated to be 0.15% of average daily net assets, advisory, administration and
distribution and service fees, taxes, interest, brokerage fees and litigation,
indemnification and other extraordinary expenses) to 0.06% of average daily net
assets. GSAM and GSFM have no current intention of modifying or discontinuing
any of such limitations but may do so in the future at their discretion. If
GSFM and GSAM did not agree to reduce the fees described above and to limit
certain "Other Expenses," the Select Equity Fund's "Other Expenses" would be
___% of average daily net assets and total expenses would be ____% of average
daily net assets.

Investors should be aware that, due to the distribution fees, a long-term
shareholder in the Fund may pay over time more than the economic equivalent of
the maximum front-end sales charge permitted under the rules of the NASD.

The information with respect to the Select Equity Fund set forth in the
foregoing table and hypothetical example relates only to the Class A Shares (the
class offered by this Prospectus) of the Select Equity Fund. The Select Equity
Fund, but not the other Funds, also offers Institutional Shares and
Administration Shares which are subject to different fees and expenses (which
affects performance), have different minimum investment requirements and are
entitled to different services. Information regarding Institutional and
Administration Shares may be obtained from your sales representative or from
Goldman Sachs by calling the number of the back cover page of this prospectus.

The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of a Fund that an investor in the Fund will bear
directly or indirectly. Since the Balanced and Asia Growth Funds have only a
limited history, the costs and expenses included in the table and hypothetical
example above for those Funds are based on estimated fees and expenses for the
current fiscal year, while expenses of the other Funds are those actually
incurred during the prior fiscal year. The information on cost and expenses
included in the table and the hypothetical example above should not be
considered as representative of past or future expenses. Actual fees and
expenses may be greater or less than those indicated. Moreover, while the
example assumes a 5% annual return, a Fund's actual performance will vary and
may result in an actual return greater or less than 5%. See "Management -
Investment Adviser and Administrator."

5
<PAGE>

FINANCIAL HIGHLIGHTS
======================

SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

The following data with respect to a share of the Funds outstanding
during the period(s) indicated has been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report incorporated by
reference into the Additional Statement from the Annual Report to shareholders
for the Funds for the year ended January 31, 1995 (the "Annual Report"). This
information should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Additional
Statement. The Annual Report also contains performance information and is
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus.

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INVESTMENT OBJECTIVES AND POLICIES
====================================

Potential equity investments for each Fund (other than the Select
Equity Fund) generally are evaluated using fundamental analysis, including
criteria such as earnings, cash flow, asset values and/or dividend-paying
ability. The Select Equity Fund will use a portfolio optimization model to
select its securities. In choosing a Fund's securities, the Investment Adviser
may also perform first-hand fundamental research, including visiting company
headquarters and plant sites to access operations and meet decision-makers. The
Investment Advisers also use a macro analysis of numerous economic and valuation
variables to determine the anticipated investment climate. Each Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Research Department and other affiliates of the Investment Adviser as well
as information provided by other securities dealers.

The Investment Advisers intend to purchase equity securities of
companies that are, in their view, underpriced relative to such companies' long-
term earnings prospects, growth rate and/or dividend-paying ability. The Funds
may also purchase securities of companies that have experienced difficulties and
that, in the opinion of an Investment Adviser, are available at attractive
prices. Consideration will be given to the business quality of the underlying
issuer. Factors positively affecting an Investment Adviser's view of that
quality include the competitiveness and degree of regulation in the markets in
which the company operates, the return of capital invested in the business, the
market position of the company in the markets in which it operates, the
acceptability of the level of the company's financial leverage and the existence
of a management team with a record of success.

Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that their market price fully reflects or
exceeds their fundamental valuation or when other more attractive investments
are identified or due to an increase in risk beyond acceptable levels.

The investment objectives and principal investment policies of each
Fund are described below. Certain other investment practices and management
techniques, which involve certain risks, as well as the minimum rating criteria
with respect to a Fund's investments in fixed income securities, are described
under "Special Investment Methods and Risk Factors."

BALANCED FUND

The Balanced Fund's investment objective is to provide its
shareholders with current income and long-term capital growth. The Fund seeks
to achieve its objective by investing in a diversified portfolio of equity and
fixed income securities. Under normal market conditions, the Fund will invest
at least 25% of its total assets in fixed income senior securities and the
remainder of its assets in equity and equity-related securities, other fixed
income securities and cash. Under normal market conditions, the Investment
Adviser expects that the Fund generally will invest between 50% and 70% of its
total assets in equity securities. The Fund will invest in fixed income
securities primarily to provide income for regular quarterly dividends while
seeking capital appreciation primarily through the equity component of its
portfolio. The percentage of the portfolio invested in equity and fixed income
securities will vary from time to time as the Investment Adviser evaluates their
relative attractiveness based on business, economic and market conditions,
subject to the Fund's intention to pay regular quarterly dividends. The amount
of quarterly dividends can also be expected to fluctuate in accordance with
factors such as prevailing interest rates and the percentage of the Fund's
assets invested in fixed-income securities.

The equity securities in which the Fund will invest consist of common
stocks, preferred stocks, interests in real estate investment trusts,
convertible debt obligations, convertible preferred stocks, equity interests in
trusts, partnerships, joint ventures and similar enterprises, warrants and stock
purchase rights and other rights to acquire stock that the Investment Adviser
believes offer the potential for capital appreciation. Although the Fund's
equity investments will consist primarily of publicly traded U.S. securities,
the Fund may invest up to 20% of its total assets in the equity securities of
foreign issuers, including issuers in countries with emerging markets and
economies, and equity securities quoted in a foreign currency. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income include
interests in real estate investment trusts, convertible securities, preferred
stocks, utility stocks and interests in limited partnerships.

The fixed income securities in which the Fund invests primarily
consist of mortgage-backed, asset-backed and other fixed income securities
issued by U.S. and foreign corporations or other entities or by the U.S.
Government, its agencies,

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<PAGE>

instrumentalities or sponsored enterprises. The Fund may also invest in
municipal securities, custodial receipts and inverse floating rate securities.
Municipal securities consist of 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, the interest on which is excluded from gross income for
federal income tax purposes. Custodial receipts evidence ownership of future
interest payments, principal payments or both on certain notes or bonds issued
by the U.S. Government or its agencies, authorities, instrumentalities or
sponsored enterprises. The interest rate on an inverse floating rate security
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 Fund may also invest in debt obligations issued or guaranteed by
one or more foreign governments or any of their political subdivisions, agencies
or instrumentalities. The Fund may invest up to 20% of its total assets in
fixed income securities that are issued by foreign issuers, including issuers in
countries with emerging markets and economies. A number of investment strategies
will be used in selecting fixed income securities for the Fund's portfolio.
These strategies include market sector selection, determination of yield curve
exposure and issuer and security selection. In addition, the Investment Adviser
will attempt to take advantage of pricing inefficiencies in the fixed income
markets.

SELECT EQUITY FUND

The Select Equity Fund's investment objective is to provide its
shareholders with a total return consisting of capital appreciation plus
dividend income that, net of fund expenses, exceeds the total return realized on
the S&P 500 Index. Under normal circumstances, the Fund will invest at least
90% of its total assets in equity securities. However, the Fund may invest in
securities of foreign issuers that are traded in the United States and that
comply with U.S. accounting standards. The Fund seeks to achieve its investment
objective by investing in a portfolio of equity securities selected by the
Optimization Model, which seeks to maximize the Fund's reward to risk ratio.
The Fund's portfolio is designed to have risk, capitalization and industry
characteristics similar to the S&P 500 Index but which is intended to provide a
total return that exceeds the total return on the S&P 500 Index. The Investment
Adviser begins with a universe primarily of large capitalization equity
securities. The Investment Adviser assigns each equity security a rating based
on the Multifactor Model and if the security is followed by the Goldman Sachs
Investment Research Department (the "Research Department") a second rating will
be assigned based upon the Research Department's evaluation. The first rating
is assigned by the Multifactor Model. The Multifactor Model is a sophisticated
computerized rating system for valuing equity securities according to
fundamental investment characteristics. The factors used by the Multifactor
Model incorporate many variables studied by traditional fundamental analysis,
and cover measures of value, yield, growth, momentum, risk and liquidity, which
include price/earnings ratio, book/price ratio, long and short-term growth
estimates, earning estimates, price momentum, volatility and liquidity. All of
the factors used by the Multifactor Model have been shown to significantly
impact the performance of equity securities. The weightings assigned to the
factors are derived using a statistical formulation that considers each factor's
historical performance in different market environments. As such, the
Multifactor Model is designed to evaluate each security using only the factors
that are statistically related to returns in the anticipated market environment.
Because it includes many disparate factors, the Investment Adviser believes that
the Multifactor Model is broader in scope and provides a more thorough
evaluation than most conventional, value-oriented quantitative models. As a
result, the securities ranked highest by the Multifactor Model do not have one
dominant investment characteristic (such as a low price/earnings ratio); rather,
such securities possess many different investment characteristics.

If the equity security is followed by the Research Department, the
security is also assigned a rating based upon the Research Department's
evaluation. The Research Department assigns a rating of one (recommended for
purchase) to four (likely to underperform) to each equity security. With an
annual budget of more than $120 million, the Research Department has a staff of
approximately 150 senior professionals who follow over 1,700 issuers. By
employing both a quantitative (i.e., the Multifactor Model) and a qualitative
(i.e., the analyst's ratings) method of selecting securities, the Fund seeks to
overcome the inherent inability of quantitative methods to analyze non-
quantitative factors (such as the impact of change in management or a pending
lawsuit) and, conversely, the susceptibility of qualitative methods to
subjective influences and biases.

Each equity security in the Fund's investment universe will be
processed by the Optimization Model. The Optimization Model selects a portfolio
for the Fund based upon two sets of criteria. First, the Optimization Model
considers the ratings assigned by the Multifactor Model and the Research
Department. Second, the Optimization Model takes into account certain
characteristics of the S&P 500 Index, such as industry category, capitalization
and volatility. Using these two criteria, the Optimization Model selects a
portfolio that has risk characteristics and industry weightings similar to the
S&P 500 but that is composed of equity securities that have been assigned higher
ratings. Although it has a bias toward the highest

8
<PAGE>

rated securities, the Optimization Model does not necessarily select only the
highest rated securities but seeks to achieve a balance between ratings and the
risk profile of the S&P 500. Under normal market conditions, the Investment
Adviser will not modify the portfolio recommended by the Optimization Model.
Under normal conditions, the securities of any one issuer may not exceed 5% of
the Fund's net assets. The Fund will normally maintain a cash position
approximately equal to 2% to 5% of the Fund's net assets, but may purchase
futures contracts on the S&P 500 Index in order to keep the Fund's effective
equity exposure close to 100%.

GROWTH AND INCOME FUND

The Growth and Income Fund's investment objectives are to provide its
shareholders with long-term growth of capital and growth of income. The Fund
seeks to achieve its investment objectives by investing, under normal market
conditions, at least 65% of its total assets in equity securities that the
Investment Adviser considers to have favorable prospects for capital
appreciation and/or dividend growth. Equity securities in which the Fund may
invest consist of common stocks, preferred stocks, convertible securities,
warrants and stock purchase rights and interests in real estate investment
trusts. These securities may or may not pay a current dividend. The Fund may
invest up to 35% of its total assets in mortgage-backed, asset-backed and fixed
income securities issued by corporations or other entities or by the U.S.
Government or its agencies, instrumentalities or sponsored enterprises if such
securities, in the opinion of the Investment Adviser, offer the potential to
further the Fund's investment objectives. In addition, although the Fund will
invest primarily in publicly traded U.S. securities, it may invest up to 25% of
its total assets in foreign securities, including securities of issuers in
countries with emerging markets and economies.

CAPITAL GROWTH FUND

The Capital Growth Fund's investment objective is to provide its
shareholders with long-term growth of capital. This objective is a fundamental
policy that cannot be changed without shareholder approval. The Fund seeks to
achieve its investment objective by investing primarily in securities that are
considered by the Investment Adviser to have long-term capital appreciation
possibilities. Among such investments, the Fund emphasizes the purchase of
common stocks, convertible debt securities, convertible preferred stock,
warrants, mortgage-backed and asset-backed securities and lower rated or unrated
debt obligations that the Investment Adviser believes offer the potential for
long-term capital growth. Under normal market conditions, the Fund will invest
at least 65% of its total assets in equity securities, including common stocks,
convertible securities, preferred stocks, warrants and stock purchase rights,
and interests in real estate investment trusts. At least 75% of the Fund's
total assets will be invested in securities of U.S. issuers and no more than 25%
of the Fund's total assets may be invested in foreign equity or fixed income
securities, including issuers in countries with emerging markets and economies.
Up to 25% of the Fund's total assets may be invested in fixed income securities
issued or guaranteed by corporate issuers (both domestic and foreign), the U.S.
Government, or its agencies, instrumentalities or sponsored enterprises that in
the opinion of the Investment Adviser offer long-term capital appreciation
possibilities.

SMALL CAP EQUITY FUND

The Small Cap Equity Fund's investment objective is to provide its
shareholders with long-term capital growth. Dividend income, if any, is an
incidental consideration. The Fund seeks to achieve its investment objective by
investing, 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. However, the Fund emphasizes
investments in companies with public stock market capitalizations of $500
million or less at the time of investment. Under normal market conditions, the
Fund's investment horizon for ownership of stocks will be two to three years.
Equity securities in which the Fund may invest include common stocks, preferred
stocks, convertible securities, warrants and interests in real estate investment
trusts. Investments may be made in companies that are in the early stages of
their life that the Investment Adviser believes have significant growth
potential. The Fund may invest, without limitation, in securities of small
capitalization companies which may have experienced financial difficulties. 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 capitalization companies
involve special risks. See "Special Investment Methods and Risk Factors -
Investing in Small Capitalization Companies." The Investment Adviser expects
that the Fund will typically invest in the securities of approximately 30 to 40
companies. The number of stocks owned is intended to provide the Fund with a
moderate level of diversification while at the same time not diluting the impact
of any one investment. However, the Fund will be considered "non-diversified"
as defined in the Act. See "Special Investment Methods and Risk Factors - Non
Diversification Status." 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 issuers in countries with emerging markets and economies.
Up to 35% of

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<PAGE>

its total assets may be invested in the equity securities of companies with
public stock market capitalizations in excess of $1 billion and in fixed income
securities, which may include notes, bonds, debentures, government securities
and zero coupon bonds.

INTERNATIONAL EQUITY FUND

The International Equity Fund's investment objective is to provide its
shareholders with long-term capital appreciation. Under normal market
conditions, the Fund will seek to achieve its objective by investing
substantially all, and at least 65%, of its total assets in equity securities of
companies that are organized outside the United States or whose securities are
principally traded outside the United States. The Fund may allocate its assets
among countries as determined by the Investment Adviser from time to time
provided that the Fund's assets are invested in at least three foreign
countries. The equity securities in which the Fund will primarily invest will
consist of common stock, preferred stock, convertible debt obligations,
convertible preferred stock and warrants or other rights to acquire stock that
the Investment Adviser believes offer the potential for long-term capital
appreciation. The Fund expects to invest a substantial portion of its assets
in the securities of companies located in the developed countries in Western
Europe and in Japan. However, the Fund may also invest in the securities of
issuers located in the following countries: Argentina, Australia, Bangladesh,
Brazil, Canada, Chile, China, Columbia, Czech Republic, Egypt, Hong Kong,
Hungary, India, Indonesia, Israel, Jamaica, Jordan, Kenya, Kuwait, Malaysia,
Mexico, Morocco, New Zealand, Nigeria, Pakistan, Philippines, Poland, The
Republic of Slovakia, Singapore, South Korea, Sri Lanka, South Africa, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe. Many of the countries in which the
Fund may invest have emerging markets or economies which involve certain risks
as described below under "Special Investment Methods and Risk Factors -
Investments in Emerging Markets," which are not present in investments in more
developed countries. The number of stocks in which the Fund will typically
invest is intended to provide the Fund with a moderate level of diversification
while at the same time not diluting the impact of any one investment. However,
the Fund will be considered "non-diversified" as defined in the Act. See
"Special Investment Methods and Risk Factors-Non-Diversification Status."

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

The Fund may invest in debt obligations (i) issued by foreign and U.S.
corporate, mortgage and asset backed issuers, (ii) issued or guaranteed by the
U.S. Government, foreign governments, or their respective agencies,
instrumentalities, political subdivisions and authorities and (iii) issued or
guaranteed by international or supranational organizations. The Fund will not,
under normal conditions, invest more than 35% of its total assets in such debt
obligations.

ASIA GROWTH FUND

The Asia Growth Fund's investment objective is to provide its
shareholders with long-term capital appreciation. The Fund seeks to achieve its
objective by investing primarily in equity securities of Asian companies which
are considered by the Investment Adviser to have long-term capital appreciation
potential. Under normal market conditions, the Fund will invest substantially
all, and at least 65%, of its total assets in equity and equity-related
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. 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 the Asian region (other than Japan) to the extent that foreign
investors are permitted by applicable law to make such investments. Many of the
countries in which the Fund may invest have emerging markets or economies which
involve certain risks as described below under "Special Investment Methods and
Risk Factors - Investments in Emerging Markets," which are not present in
investments in more developed countries. The equity securities in which the
Fund will primarily invest will consist of common stock, preferred stock,
convertible debt obligations, convertible preferred stock, equity interests in
trusts, partnerships, joint ventures and similar enterprises, warrants and stock

10
<PAGE>

purchase rights. 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. The Investment Adviser expects that the Fund will typically invest in
the securities of approximately 25 to 40 companies. The Fund intends to
purchase that number of stocks which it believes will provide the Fund with a
moderate level of diversification while at the same time not diluting the impact
of any one investment. However, the Fund will be considered "non-diversified"
as defined in the Act. See "Special Investment Method and Risk Factors - Non
Diversification Status."

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

The Fund may allocate its assets among the Asian countries as
determined from time to time by the Investment Adviser. Allocation of the
Fund's investments will depend upon the relative attractiveness of the Asian
markets and particular issuers. Concentration of the Fund's assets in one or a
few of the Asian countries and Asian currencies will subject the Fund to greater
risks than if the Fund's assets were not geographically concentrated. See
"Special Investment Methods and Risk Factors - Foreign Transactions -
Substantial Investment in Foreign Countries." The Fund may invest up to 35% of
its total assets in equity securities of issuers in other countries, including
Japan, and fixed income securities. The Fund may invest in fixed income
securities (i) issued by foreign and U.S. corporate, mortgage and asset backed
issuers, (ii) issued or guaranteed by the U.S. Government, foreign governments,
or their respective agencies, instrumentalities, political subdivisions and
authorities and (iii) issued or guaranteed by international or supranational
organizations.

SPECIAL INVESTMENT METHODS AND RISK FACTORS

CONVERTIBLE SECURITIES

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

WARRANTS AND STOCK PURCHASE RIGHTS

Each Fund may purchase warrants and stock purchase rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price. Generally, warrants and stock
purchase rights do not carry with them the right to receive dividends or
exercise voting rights with respect to the underlying securities, and they do
not represent any rights in the assets of the issuer. As a result, an
investment in warrants and stock purchase rights may be considered to entail
greater investment risk than certain other types of investments. In addition,
the value of warrants and stock purchase rights does not necessarily change with
the value of the underlying securities, and they cease to have value if they are
not exercised on or prior to their expiration date. Investment in warrants and
stock purchase rights increases the potential profit or loss to be realized from
the investment of a given amount of a Fund's assets as compared with investing
the same amount in the underlying stock.

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<PAGE>

FOREIGN TRANSACTIONS

FOREIGN SECURITIES. Investments in foreign securities may offer
potential benefits not available from investments solely in securities of
domestic issuers. Such potential benefits include the opportunity to invest in
foreign issuers that offer better investment opportunities than domestic
securities. Foreign countries may have economic policies or business cycles
different from those of the United States and securities markets that do not
necessarily move in a manner parallel to U.S. markets.

Investing in the securities of foreign issuers involves risks that are
not typically associated with investing in securities of domestic issuers. Such
investments may be affected by changes in currency rates, changes in foreign or
U.S. laws or restrictions applicable to such investments and in exchange control
regulations (e.g., currency blockage). Some foreign exchanges may have
substantially less volume than, for example, the New York Stock Exchange and
securities of some foreign companies may be less liquid than securities of
comparable domestic companies. 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 on occasion been
unable to keep pace with the volume of securities transactions, thus making it
difficult to conduct such transactions.

Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic companies. There may be less publicly available information about a
foreign company than about a domestic company. In addition, there is generally
less government regulation of stock exchanges, brokers, and listed and unlisted
companies in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of nationalization,
expropriation or confiscatory taxation, imposition of withholding taxes on
dividend or interest payments, limitations on the removal of funds or other
assets of the Funds, political or social instability or diplomatic developments
which could affect investments in those countries.

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

SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING MARKETS.
Investing in the securities of issuers in emerging markets involves risks in
addition to those discussed above. The International Equity and Asia Growth
Funds may each invest without limit in the securities of issuers in countries
with emerging economies or securities markets. The Balanced, Growth and Income,
Capital Growth, and Small Cap Equity Funds may each invest up to 15%, 25%, 10%
and 25%, respectively, of their total assets in securities of issuers in
countries with emerging economies or securities markets. These emerging markets
are generally located in the Asia-Pacific region, Eastern Europe, Latin and
South America and Africa. A Fund's purchase and sale of portfolio securities in
certain emerging markets may be constrained by limitations as to daily changes
in the prices of listed securities, periodic trading or settlement volume and/or
limitations on aggregate holdings of foreign investors. Such limitations may be
computed based on the aggregate trading volume by or holdings of a Fund, the
Investment Adviser and its affiliates and their respective clients and other
service providers. A Fund may not be able to sell securities in circumstances
where price, trading or settlement volume limitations have been reached.

Foreign investment in the securities markets of certain emerging
markets is restricted or controlled to varying degrees which may limit
investment in such countries or increase the administrative costs of such
investments. For example, certain

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<PAGE>

Asian countries require governmental approval prior to investments by foreign
persons or limit investment by foreign persons to only a specified percentage of
an issuer's outstanding securities or a specific class of securities which may
have less advantageous terms (including price) than securities of such company
available for purchase by nationals. In addition, certain countries may
restrict or prohibit investment opportunities in issuers or industries deemed
important to national interests. Such restrictions may affect the market price,
liquidity and rights of securities that may be purchased by a Fund. Due to
restrictions on direct investment in equity securities in certain Asian
counties, such as Taiwan, it is anticipated that a Fund may invest in such
countries only through other investment funds in such countries. See "Other
Investment Companies." Furthermore, the repatriation of both investment income
and capital from several of the Asian countries is subject to restrictions such
as the need for certain governmental consents.

Many of the emerging markets may be subject to a greater degree of
economic, political and social instability than is the case in Western Europe,
the United States and Japan. Many of the emerging markets do not have fully
democratic governments. For example, some governments of emerging market
countries are authoritarian in nature or have been installed or removed as a
result of military coups, while governments in other emerging markets have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of democratization, and ethnic, religious and racial
disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some of the Asian and other countries. The economies of
most of the emerging markets are heavily dependent upon international trade and
are accordingly affected by protective trade barriers and the economic
conditions of their trading partners, principally, the United States, Japan,
China and the European Union. In addition, the economies of some of the
emerging markets are vulnerable to weakness in world prices for their commodity
exports.

Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the emerging market countries. Consequently, there can be
no assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.

FOREIGN CURRENCY TRANSACTIONS. A Fund may, to the extent it invests
in foreign securities, purchase or sell forward foreign currency exchange
contracts for hedging purposes. A Fund may enter into forward foreign currency
exchange contracts to seek to protect against anticipated changes in future
foreign currency exchange rates. In addition, the International Equity and Asia
Growth Funds may enter into such contracts to seek to increase total return when
the Investment Adviser anticipates that the foreign currency will appreciate or
depreciate in value, but securities denominated or quoted in that currency do
not present attractive investment opportunities and are not held in the Fund's
portfolio. When purchased or sold to seek to increase total return, forward
foreign currency exchange contracts are considered speculative. The
International Equity and Asia Growth Funds may also engage in cross-hedging by
using forward contracts in a currency different from that in which the hedged
security is denominated or quoted if the Investment Adviser determines that
there is a pattern of correlation between the two currencies. If a Fund enters
into a forward foreign currency exchange contract to buy foreign currency or the
International Growth or Asia Growth Funds enter into forward foreign currency
exchange contracts to sell foreign currency to seek to increase total return,
the Fund will be required to place and maintain cash or liquid, high grade debt
securities in a segregated account with the Fund's custodian in an amount equal
to the value of the Fund's total assets committed to the consummation of the
forward contract. The Fund will incur costs in connection with conversions
between various currencies.

Currency exchange rates may fluctuate significantly over short periods
of time causing, along with other factors, a Fund's net asset value to fluctuate
as well. 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. 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. To the extent that a substantial portion of
a Fund's total assets, adjusted to reflect the Fund's net position after giving
effect to currency transactions, is denominated or quoted in the currencies of
foreign countries, the Fund will be more susceptible to the risk of adverse
economic and political developments within those countries.

The market in forward foreign currency exchange contracts used by each
Fund, and currency swaps and other privately negotiated currency instruments
authorized for use by the International Equity and Asia Growth Funds, offers
less protection against defaults by the other party to such instruments than is
available for currency instruments traded on an

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<PAGE>

exchange. 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 the Fund of unrealized profits, transaction costs
or the benefits of a currency hedge or force the Fund to cover its purchase or
sale commitments, if any, at the current market price. A Fund will not enter
into such transactions unless the credit quality of the unsecured senior debt or
the claims-paying ability to the counterparty is considered to be investment
grade by the Investment Adviser.

In addition to investing in securities denominated or quoted in a
foreign currency, the International Equity and Asia Growth Funds may engage in a
variety of foreign currency management techniques. The Funds may hold foreign
currency received in connection with investments in foreign securities when, in
the judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in the
relevant exchange rate. However, due to the limited market for these
instruments with respect to the currencies of certain Asian countries, the
Investment Adviser does not currently anticipate that a significant portion of
Asia Growth Fund's currency exposure will be covered by such instruments. The
opportunity for hedging currency exposure to other emerging markets is also
generally limited. For a discussion of such instruments and the risks
associated with their use, see "Investment Objective and Policies" in the
Additional Statement.

Because investment in foreign issuers will usually involve currencies
of foreign countries, and because the International Equity and Asia Growth Funds
may have currency exposure independent of their securities positions, the value
of the assets of a Fund as measured in U.S. dollars will be affected by changes
in foreign currency exchange rates.

OPTIONS ON FOREIGN CURRENCIES. A Fund may, to the extent it invests
in foreign securities, purchase and sell (write) put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of foreign portfolio securities and anticipated dividends on such
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. In addition, the International Equity and Asia Growth Funds may
use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different currency, if there is a pattern of correlation between the two
currencies. As with other kinds of option transactions, however, the writing of
an option on foreign currency will constitute only a partial hedge, up to the
amount of the premium received. A Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put
and call options, for hedging purposes, the International Equity and Asia Growth
Funds may purchase call or put options on currency to seek to increase total
return when the Investment Adviser anticipates that the currency will appreciate
or depreciate in value, but the securities quoted or denominated in that
currency do not present attractive investment opportunities and are not held in
the Fund's portfolio. When purchased or sold to increase total return, options
on currencies are considered speculative. Options on foreign currencies to be
written or purchased by the Funds will be traded on U.S. and foreign exchanges
or over-the-counter.

INVESTING IN SMALL CAPITALIZATION COMPANIES

The Small Cap Equity Fund will emphasize and the other Funds may
invest in smaller, lesser-known companies which the Investment Adviser believes
offer greater growth potential than larger, more mature, better known firms.
Investing in the securities of such companies, however, involves greater risk
and the possibility of greater portfolio price volatility. Historically, small
capitalization stocks and stocks of recently organized companies have been more
volatile in price than the larger capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.

FIXED INCOME SECURITIES

Each Fund may invest in U.S. Government securities and (other than
the Select Equity Fund) corporate and certain other fixed income securities.
Fixed income securities are subject to the risk of the issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). Except to the extent that values are
independently affected by currency exchange rate fluctuations, when interest
rates decline, the value of fixed income securities can generally be expected to
rise. Conversely, when interest rates rise, the value of fixed income
securities can be expected to decline. The interest rates payable on certain
fixed income securities in which a Fund may invest

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<PAGE>

are not fixed and may fluctuate based upon changes in market rates of interest.

RATING CRITERIA. The debt securities in which the Balanced, Growth
and Income, International Equity and Asia Growth Funds may invest will, except
as noted below, be rated investment grade at the time of investment. Investment
grade debt securities are securities rated BBB or higher by Standard & Poor's
Rating Group ("S&P") or Baa or higher by Moody's Investors Service, Inc.
("Moody's"). A security will be deemed to have met a rating requirement if it
receives the minimum required rating from at least one such rating organization
even though it has been rated below the minimum rating by one or more other
rating organizations, or if unrated by such rating organizations, determined by
the Investment Adviser to be of comparable credit quality. The Balanced Fund
may invest up to 10% of its total assets in debt securities that are rated BB or
B by S&P or Ba or B by Moody's or, if unrated by such rating organizations,
determined by the Investment Adviser to be of comparable credit quality. The
Capital Growth, Small Cap Equity and Growth and Income Funds may invest up to
25%, 35% and 10%, respectively, of their total assets in debt securities which
are unrated or rated in the lowest rating categories by S&P or Moody's (i.e., BB
----
or lower by S&P or Ba or lower by Moody's). Fixed income securities rated BB or
Ba or below (or comparable unrated securities) are commonly referred to as "junk
bonds" and are considered predominantly speculative and may be questionable as
to principal and interest payments. In some cases, such bonds may be highly
speculative, have poor prospects for reaching investment grade standing and be
in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investment in investment-grade
bonds (i.e., bonds rated AAA, AA, A or BBB by S&P or Aaa, Aa, A or Baa by
Moody's). Also, to the extent that the rating assigned to a security in a
Fund's portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned by
S&P and Moody's.

GOVERNMENT DEBT OBLIGATIONS. Each Fund may invest in U.S. Government
securities which include: obligations issued by the U.S. Government or by any
agency, instrumentality or sponsored enterprise thereof supported by the full
faith and credit of the U.S. Government, the authority of the issuer to borrow
from the U.S. Treasury, or the discretionary authority of the U.S. Government to
purchase the obligations of the agency, instrumentality or enterprise;
obligations fully guaranteed as to principal and interest by an agency,
instrumentality or sponsored enterprise of the U.S. Government; obligations of
U.S. Government agencies, instrumentalities or state government agencies or
instrumentalities, which may or may not be entitled to the full faith and credit
of the issuer. A Fund may also invest in zero coupon U.S. Treasury securities
and in zero coupon securities issued by financial institutions, which represent
a proportionate interest in underlying U.S. Treasury securities. A zero coupon
security pays no interest to its holder during its life and its value consists
of the difference between its face value at maturity and its cost. The market
prices of zero coupon securities generally are more volatile than the market
prices of securities that pay interest periodically. A Fund's investment in
zero coupon securities may require the Fund to sell certain of its portfolio
securities to generate sufficient cash to satisfy certain income distribution
requirements. See "Taxation" in the Additional Statement.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than
the Select Equity Fund) may invest in mortgage-backed securities, which
represent direct or indirect participations in, or are collateralized by and
payable from, mortgage loans secured by real property. The Balanced Fund may
also invest in stripped mortgage-backed securities, which are derivative
mortgage securities. Each Fund (other than the Select Equity Fund) may also
invest in asset-backed securities, which represent participations in, or are
secured by and payable from, assets such as motor vehicle installment sale
contracts, installment loan contracts, leases of various types of real and
personal property, receivables from revolving credit (credit card) agreements
and other categories of receivables.

Mortgage-backed and asset-backed securities are often subject to more
rapid repayment than their stated maturity dates would indicate as a result of
the pass-through of prepayments of principal on the underlying loans which may
increase the volatility of such investments relative to similarly rated debt
securities. During periods of declining interest rates, prepayment of loans
underlying mortgage-backed and asset-backed securities can be expected to
accelerate and thus impair a Fund's ability to reinvest the returns of principal
at comparable yields. During periods of rising interest rates, reduced
prepayment rates may extend the average life of mortgage-backed and asset backed
securities and increase a Fund's exposure to rising interest rates.
Accordingly, the market values of such securities will vary with changes in
market interest rates generally and in yield differentials among various kinds
of U.S. Government securities and other mortgage-backed and 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. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to

15
<PAGE>

support payments on these securities.

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

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

MORTGAGE DOLLAR ROLLS. The Balanced Fund may enter into mortgage
"dollar rolls" in which the Fund sells securities for delivery in the current
month and simultaneously contracts with the same counterparty to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period the Fund loses the right to receive
principal and interest paid on the securities sold. However, the Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (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 the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. The Fund
will hold and maintain in a segregated account until the settlement date cash or
liquid, high grade debt securities in an amount equal to the forward purchase
price. The benefits derived from the use of mortgage dollar rolls may depend
upon the Investment Adviser's ability to predict correctly mortgage prepayments
and interest rates. There is no assurance that mortgage dollar rolls can be
successfully employed. For financial reporting and tax purposes, the Fund
treats mortgage dollar rolls as two separate transactions; one involving the
purchase of a security and a separate transaction involving a sale. The Fund
does not currently intend to enter into mortgage dollar rolls that are accounted
for as a financing.

OPTIONS ON SECURITIES AND SECURITIES INDICES

Each Fund, other than the Select Equity Fund, may purchase put and
call options and write (sell) covered 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. A Fund will purchase and write such options that are listed on
national or foreign securities exchanges or traded in the over-the-counter
market. The writing and purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with direct investments in equity securities. The use of options to increase
total return involves the risk of loss if the Investment Adviser is incorrect in
its expectation of fluctuations in securities prices or interest rates. The
successful use of puts for hedging purposes also depends in part on the ability
of the Investment Adviser to predict future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which options
are written and purchased and the securities in a Fund's investment portfolio,
the investment performance of the Fund will be less favorable than it would have
been in the absence of such options transactions. The writing of options could
significantly increase a Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.

The Balanced Fund may also purchase options and write covered options
on the yield "spread," or yield differential,

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<PAGE>

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.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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

While transactions in futures contracts and options on futures may
reduce certain risks, such transactions themselves entail certain other risks.
See "Investment Objectives and Policies - Futures Contracts and Options on
Futures Contracts" in the Additional Statement. Thus, while a Fund may benefit
from the use of futures and options on futures, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the Fund than if it had not entered into any
futures contracts or options transactions. The loss incurred by a Fund in
writing options on futures is potentially unlimited and may exceed the amount of
the premium received. Futures markets are highly volatile and the use of
futures may increase the volatility of a Fund's net asset value. The
profitability of a Fund's trading in futures to seek to increase total return
depends upon the ability of the Investment Adviser to correctly analyze the
futures markets. In addition, because of the low margin deposits normally
required in futures trading, a relatively small price movement in a futures
contract may result in substantial losses to a Fund. Further, futures contracts
and options on futures may be illiquid, and exchanges may limit fluctuations in
futures contract prices during a single day.

In the event of an imperfect correlation between a futures position
and portfolio position which is intended to be protected, the desired protection
may not be obtained and the Fund may be exposed to risk of loss. Perfect
correlation between a Fund's futures positions and its portfolio positions will
be impossible to achieve. A Fund's transactions in options and futures
contracts may be limited by the requirements of the Code for qualification as a
regulated investment company.

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

The Balanced Fund may enter into currency swaps for hedging purposes
and the International Equity and Asia Growth Funds may enter into currency swaps
for both hedging purposes and to seek to increase total return. In addition,
the Balanced Fund may enter into mortgage, 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 of their respective rights to make or receive payments in specified
currencies. Interest rate swaps involve the exchange by a Fund with another
party of their respective commitments to pay or receive interest, such as an
exchange of fixed rate payments for floating rate payments. Mortgage swaps are
similar to interest rate swaps in that they represent commitments to pay and
receive interest. The notional principal amount, however, is tied to a
reference pool or pools of mortgages. Index swaps involve the exchange by a
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. 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.

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<PAGE>

A 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
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 Fund is contractually obligated to
make. If the other party to an interest rate, index or mortgage swap defaults,
the Fund's risk of loss consists of the net amount of interest payments that the
Fund is contractually entitled to receive. In contrast, 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. 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 a
Fund under a currency swap or an interest rate floor, cap or collar is held in a
segregated account consisting of cash or liquid, high grade debt securities, the
Funds and the Investment Advisers believe that swaps do not constitute senior
securities under the Act and, accordingly, will not treat them as being subject
to a Fund's borrowing restriction.

A Fund will not enter into 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 organizations, determined to be of
comparable quality by the Investment Adviser.

The use of interest rate, mortgage, 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 Investment Adviser is
incorrect in its forecasts of market values, interest rates and currency
exchange rates, the investment performance of a Fund would be less favorable
than it would have been if this investment technique were not used. The staff
of the SEC currently take the position that swaps, caps, floors and collars are
illiquid and thus subject to a Fund's 15% limitation on investments in illiquid
securities.

RISKS OF DERIVATIVE TRANSACTIONS

A Fund's transactions, if any, in options, futures, options on
futures, swap transactions, 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 being hedged, the
potential illiquidity of the markets for derivative instruments, the risks
arising from the margin requirements and related leverage factors associated
with such transactions. The use of these management techniques to seek to
increase total return also involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities, interest rates or
currency prices.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

Each Fund may purchase when-issued securities. When-issued
transactions arise when securities are purchased by a Fund with payment and
delivery taking place in the future in order to secure what is considered to be
an advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond customary settlement time. A Fund is required to hold and
maintain in a segregated account with the Fund's custodian until the settlement
date, cash or liquid, high grade debt securities in an amount sufficient to meet
the purchase price. Alternatively, the Fund may enter into offsetting contracts
for the forward sale of other securities that it owns. The purchase of
securities on a when-issued or forward commitment basis involves a risk of loss
if the value of the security to be purchased declines prior to the settlement
date. Although a Fund would generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of when-issued securities or forward
commitments prior to settlement if its Investment Adviser deems it appropriate
to do so.

INVESTMENT IN UNSEASONED COMPANIES

Each Fund may invest up to 5% of its assets, calculated at the time of
purchase, in companies (including predecessors) which have operated less than
three years, except for 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.

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<PAGE>

ILLIQUID AND RESTRICTED SECURITIES

A Fund may not invest more than 15% of its total assets in securities
that are subject to restrictions on resale ("restricted securities") under the
Securities Act of 1933, as amended ("1933 Act"), including securities eligible
for resale in reliance on Rule 144A under the 1933 Act. In addition, a Fund
will not invest more than 15% of its net assets in illiquid investments, which
includes securities (both foreign and domestic) that are not readily marketable,
swap transactions, 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 restricted securities, unless it is determined, based
upon continuing review of the trading markets for the specific restricted
security, that such restricted security is eligible for sale under Rule 144A and
is liquid. The Board of Directors has adopted guidelines and delegated to the
Investment Adviser the daily function of determining and monitoring the
liquidity of restricted securities. The Board of Directors, however, retains
oversight focusing on factors such as valuation, liquidity and availability of
information and is ultimately responsible for each determination. Investing in
restricted securities eligible for resale pursuant to Rule 144A could have the
effect of increasing the level of illiquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. The purchase price and subsequent valuation of
restricted and illiquid securities normally reflect a discount, which may be
significant, from the market price of comparable securities for which a liquid
market exists.

OTHER INVESTMENT COMPANIES

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

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The International Equity and Asia Growth Funds may
also enter into repurchase agreements involving certain foreign government
securities. If the other party or "seller" defaults, a Fund might suffer a loss
to the extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund in connection with the related repurchase
agreement are less than the repurchase price. In addition, in the event of
bankruptcy of the seller or failure of the seller to repurchase the securities
as agreed, the Fund could suffer losses, including loss of interest on or
principal of the security and costs associated with delay and enforcement of the
repurchase agreement. The Directors of the Company have reviewed and approved
certain sellers whom they believe to be creditworthy and have authorized the
Funds to enter into repurchase agreements with such sellers. In addition, each
Fund, together with other registered investment companies having advisory
agreements with an Investment Adviser may transfer uninvested cash balances into
a single joint account, the daily aggregate balance of which will be invested in
one or more repurchase agreements.

LENDING OF PORTFOLIO SECURITIES

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

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<PAGE>

SHORT SALES AGAINST-THE-BOX

Each Fund (other than the Select Equity Fund) may make short sales of
securities or maintain a short position, provided that at all times when a short
position is open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further consideration,
for an equal amount of the securities of the same issuer as the securities sold
short (a short sale against-the-box). Not more than 25% of a Fund's net assets
(determined at the time of the short sale) may be subject to such short sales.
Short sales will be made primarily to defer realization of gain or loss for
federal tax purposes; a gain or loss in a Fund's long position will be offset by
a gain or loss in its short position.

TEMPORARY INVESTMENTS

Notwithstanding a Fund's investment objective, each Fund may on
occasion, for temporary defensive purposes to preserve capital, hold part or all
of its assets (except that the Select Equity Fund may only hold up to 35% of its
total assets) in cash, obligations issued or guaranteed by the U.S. Government,
its agencies, instrumentalities, political subdivisions or authorities,
commercial paper rated at least A-2 by S&P or P-2 by Moody's, certificates of
deposit, bankers' acceptances, repurchase agreements, non-convertible preferred
stocks, non-convertible corporate bonds with a remaining maturity of less than
one year or, subject to certain tax restrictions, foreign currencies. When a
Fund's assets are invested in such instruments, the Fund may not be achieving
its investment objective.

NON-DIVERSIFICATION STATUS

Since the Small Cap Equity, International Equity and Asia Growth Funds
are "non-diversified" under the Act, they are subject only to certain federal
tax diversification requirements. The other Funds are also subject to the same
tax diversification requirements in addition to the diversification requirements
arising out of their status as diversified funds. Under federal tax laws, each
of these Funds may, with respect to 50% of its total assets, invest up to 25% of
total assets in the securities of any issuer (except that this limitation does
not apply to U.S. Government securities). With respect to the remaining 50% of
a Fund's total assets, (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer (other than the U.S. Government), and
(2) the Fund may not acquire more than 10% of the outstanding voting securities
of any one issuer. These tests apply at the end of each quarter of its taxable
year and are subject to certain conditions and limitations under the Code. With
respect to 75% of each non-diversified Fund's total assets, the Fund, as a
matter of investment policy, may not acquire more than 10% of the outstanding
voting securities of any one issuer. Since the Funds are not diversified under
the Act, they will be more susceptible to adverse developments affecting any
single issuer.

INVESTMENT RESTRICTIONS

Each Fund is subject to certain investment restrictions that are
described in detail under "Investment Restrictions" in the Additional Statement.
These investment restrictions are fundamental policies of a Fund that can not be
changed without approval of a majority of the outstanding shares of that Fund.
For more information on a Fund's investment restrictions, an investor should
obtain the Additional Statement. All investment objectives and policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in a Fund's investment
objective, shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial positions and needs.

PORTFOLIO TURNOVER

A high rate of portfolio turnover (100% or more) involves
correspondingly greater expenses which must be borne by a Fund and its
shareholders and may under certain circumstances make it more difficult for a
Fund to qualify as a regulated investment company under the Code. See
"Financial Highlights" for a statement of each Fund's historical portfolio
turnover ratio. The portfolio turnover rate is calculated by dividing the
lesser of the dollar amount of sales or purchase of portfolio securities by the
average monthly value of a Fund's portfolio securities, excluding securities
having a maturity at the date of purchase of one year or less. Notwithstanding
the foregoing, the Investment Adviser may, from time to time, make short-term
investments when it believes such investments are in the best interest of a
Fund.

20
<PAGE>

MANAGEMENT

DIRECTORS AND OFFICERS

The Company's Board of Directors is responsible for deciding matters
of general policy and reviewing the actions of the Investment Advisers,
Subadviser, administrator, distributor and transfer agent. The officers of the
Company conduct and supervise each Fund's daily business operations. The
Additional Statement contains information as to the identity of, and other
information about, the Directors and officers of the Company.

INVESTMENT ADVISERS, SUBADVISER AND ADMINISTRATOR

INVESTMENT ADVISERS AND SUBADVISER. Goldman Sachs Asset Management, a
separate operating division of Goldman Sachs, serves as the investment adviser
to the Balanced, Growth and Income, Small Cap Equity and International Equity
Funds. Goldman Sachs registered as an investment adviser in 1981. Goldman
Sachs Funds Management, L.P., a Delaware limited partnership which is an
affiliate of Goldman Sachs, serves as the investment adviser to the Capital
Growth and Select Equity Funds. Goldman Sachs Funds Management, L.P. registered
as an investment adviser in 1990. Goldman Sachs Asset Management International,
an affiliate of Goldman Sachs, serves as the investment adviser to the Asia
Growth Fund and sub-adviser to the International Equity Fund. Goldman Sachs
Asset Management International became a member of the Investment Management
Regulatory Organisation Limited in 1990 and registered as an investment adviser
in 1991. Goldman Sachs Asset Management serves as administrator to each Fund.
As of April 30, 1995, GSAM, GSFM and GSAMI, together with their affiliates,
acted as investment adviser, administrator or distributor for approximately $___
billion in assets.

Under an Investment Advisory Agreement with each Fund, the applicable
Investment Adviser, and in the case of the International Equity Fund under a
Subadvisory Agreement, the Subadviser, subject to the general supervision of the
Company's Board of Directors, provides day-to-day advice as to the Fund's
portfolio transactions. Goldman Sachs has agreed to permit the Company to use
the name "Goldman Sachs" or a derivative thereof as part of each Fund's name for
as long as a Fund's Investment Advisory Agreement is in effect.

In performing its investment advisory services, each Investment
Adviser, while remaining ultimately responsible for the management of the Funds,
may rely upon the asset management division of its Hong Kong and Tokyo
affiliates and is able to draw upon the research and expertise of its other
affiliate offices, for portfolio decisions and management with respect to
certain portfolio securities.

The Balanced Fund's portfolio managers are Jonathan A. Beinner,
Mitchell E. Cantor, Ronald E. Gutfleish, Richard C. Lucy and Theodore T. Sotir.
Mr. Cantor and Mr. Gutfleish are primarily responsible for the Fund's equity
investments and Mr. Beinner, Mr. Lucy and Mr. Sotir are primarily responsible
for the Fund's fixed income investments. Mr. Cantor joined the Investment
Adviser in 1991. Prior to 1991, Mr. Cantor served as research director of the
Institutional Division and as the investment management research director for
Sanford C. Bernstein & Co., Inc. Mr. Gutfleish joined the Investment Adviser in
1993. Prior to 1993, he was a principal of Sanford C. Bernstein & Co., Inc. in
its Investment Management Research Department. Mr. Beinner joined the
Investment Adviser in 1990. Prior to 1990, Mr. Beinner worked in the trading
and arbitrage group of Franklin Savings Association. Mr. Lucy joined the
Investment Adviser in 1992. Prior to 1992, Mr. Lucy spent nine years managing
fixed income assets at Brown Brothers Harriman & Co. Mr. Sotir joined the
Investment Adviser in 1993. Mr. Sotir is a strategist and member of the risk
control team. Prior to 1993, Mr. Sotir worked as a portfolio manager at
Fidelity Management Trust Company. Prior to joining Fidelity, Mr. Sotir worked
for Goldman Sachs for six years.

The Select Equity Fund's Portfolio Manager is Robert C. Jones. Mr.
Jones brings 13 years of investment experience to his work in developing and
implementing the Investment Advisers' quantitative equity management services.
Prior to joining the Investment Adviser in 1989, Mr. Jones was the senior
quantitative analyst in Goldman Sachs' Investment Research Department and the
author of the monthly Stock Selection publication.

Mitchell E. Cantor and Ronald E. Gutfleish are also the Growth and
Income Fund's senior portfolio managers.

The Capital Growth Fund's senior portfolio manager is James S.
McClure. Before joining the Investment Adviser in 1989, he served as chief
investment officer at National Securities and Research Corporation and
Oppenheimer Management.

The Small Cap Equity Fund's senior portfolio manager is Paul D.
Farrell. Prior to joining the Investment Adviser

21
<PAGE>

in 1991, Mr. Farrell served as a managing director at Plaza Investments, the
investment subsidiary of GEICO Corp., a major insurance company.

The International Equity Fund's Portfolio managers are Roderick D.
Jack, Marcel Jongen, Warwick Negus and Shogo Maeda. Before joining the
Investment Adviser in 1992, Mr. Jack spent five years with the advisory and
financing group for S.G. Warburg in London. Before joining the Investment
Adviser in 1992, Mr. Jongen was with Philips pension fund in Eindhaven where he
was head of equities. Before joining Goldman Sachs Asset Management Japan
Limited in 1994, Mr. Maeda spent most of the last thirteen years at Nomura and a
period at Manufacturers Hanover Bank in New York. See below for information
about Mr. Negus.

The Asia Growth Fund's portfolio manager is Warwick Negus, who is
based in Hong Kong. His responsibilities include Asian equities and emerging
equities markets. Mr. Negus joined the Investment Adviser in January 1994 after
seven years as Vice President of Bankers Trust Australia Ltd. where he was head
of their Southeast Asian equity group.

It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates.

As compensation for its services rendered and assumption of certain
expenses pursuant to an Investment Advisory Agreement GSAM is entitled to a fee
from the Balanced, Growth and Income, Small Cap Equity and International Equity
Funds, computed daily and payable monthly, at the annual rates of .50%, .55%,
.75% and .25%, respectively of average daily net assets. As compensation for
its services rendered and assumption of certain expenses pursuant to an
Investment Advisory Agreement GSFM is entitled to a fee from the Select Equity
and Capital Growth Funds, computed daily and payable monthly, at the annual rate
of .75%; however, GSFM is currently only imposing its advisory fee with respect
to the Select Equity Fund at the annual rate of 0.40% of average daily net
assets. GSFM may discontinue or modify such limitation in the future at its
discretion, although it has no current intention to do so. As compensation for
its services rendered and assumption of certain expenses pursuant to Investment
Advisory and Subadvisory Agreements GSAMI is entitled to a fee from the Asia
Growth and International Equity Funds, computed daily and payable monthly at the
annual rates of .75% and .50%, respectively of average daily net assets. For
the fiscal period ended January 31, 1995, each Fund paid fees at the foregoing
rates. The advisory fee paid by the Small Cap Equity, International Equity and
Asia Growth Funds is higher than the fees paid by most funds but the Investment
Adviser believes such fees are comparable to advisory fees paid by funds with
similar investment strategies. Each Investment Adviser has voluntarily agreed
to reduce the fees payable to it by a Fund (to the extent of its fees) by the
amount (if any) that the Fund's expenses would exceed the applicable expense
limitations imposed by state securities administrators. See "Management -
Expenses" in the Additional Statement. In addition, the Investment Adviser to
the Balanced, Growth and Income and Asia Growth Funds has voluntarily agreed to
reduce or limit certain "Other Expenses" of such Funds (excluding advisory,
administration and distribution and service fees, taxes, interest and brokerage
and litigation, indemnification and other extraordinary expenses) to the extent
such expenses exceed .10%, .30% and .65% per annum of such Funds' average daily
net assets, respectively. Such reductions or limits, if any, are calculated
monthly on a cumulative basis and may be discontinued or modified by the
Investment Adviser in its discretion at any time.

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

22
<PAGE>

ADMINISTRATOR. As administrator, pursuant to an Administration
Agreement with each Fund, GSAM provides personnel for supervisory,
administrative, and clerical functions; oversees the performance of
administrative and professional services to each Fund by others; provides office
facilities; and prepares, but does not pay for, reports to shareholders, the SEC
and other regulatory authorities. As compensation for the services rendered to
the Funds, GSAM is entitled to a fee from the Balanced and Growth and Income
Funds, computed daily and payable monthly, at an annual rate equal to 0.15% of a
Funds' average daily net assets and GSAM is entitled to a fee from each other
Fund, computed daily and payable monthly at an annual rate equal to 0.25% of
such Funds' average daily net assets; however, GSAM is currently only imposing
its administration fee with respect to the Select Equity Fund at the annual rate
of 0.15% of average daily net assets. GSAM may discontinue or modify such
limitation in the future at its discretion, although it has no current intention
to do so. For the period ended January 31, 1995, each Fund paid GSAM a fee for
administration services at the foregoing rates, except that the Select Equity
Fund paid an administrative fee equal to 0.25% of its average daily net assets.
GSAM has agreed to reduce its fees payable by a Fund (to the extent of its fees)
by the amount (if any) that a Fund's expenses exceed the applicable expense
limitations imposed by state securities administrators. See "Management-
Expenses" in the Additional Statement.

Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers for performing administrative
services for their customers. These services include maintaining account
records, processing orders to purchase, redeem and exchange Fund shares and
responding to certain customer inquiries. The amount of such compensation may
be up to 0.125% annually of the average daily net assets of the Balanced and
Select Equity Funds, 0.135% annually of the average daily net assets of the
Growth and Income Fund and 0.1875% annually of the average daily net assets of
the Capital Growth, Small Cap Equity, International Equity and Asia Growth Funds
attributable to shares held by customers of such Authorized Dealers. In
addition, Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers who perform administrative services
with respect to depository institutions whose customers purchase shares of a
Fund. These services include responding to certain inquiries from and providing
written materials to depository institutions about a Fund; furnishing advice
about and assisting depository institutions in obtaining from state regulatory
agencies any rulings, exemptions or other authorizations that may be required to
conduct a mutual fund sales program; acting as liaison between depository
institutions and national regulatory organizations; assisting with the
preparation of sales material; and providing general assistance and advice in
establishing and maintaining mutual fund sales programs on the premises of
depository institutions. The amount of such compensation may be up to .08%
annually of the average net assets of a Fund's shares attributable to purchases
through, and held by the customers of, such depository institutions. Such
compensation does not represent an additional expense to a Fund or its
shareholders, since it will be paid from the assets of Goldman Sachs or its
affiliates.

DISTRIBUTOR AND TRANSFER AGENT

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

Goldman Sachs, 4900 Sears Tower, Chicago, Illinois, also serves as
each Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
each Fund by Goldman Sachs as transfer agent and the assumption by Goldman Sachs
of the expenses related thereto, Goldman Sachs is entitled to receive a fee from
each Fund, and in the case of the Select Equity Fund from Class A shares of the
Fund, equal to $12,000 per year plus $3.50 per account, together with out-of-
pocket and transaction-related expenses (including those out-of-pocket expenses
payable to servicing agents). Shareholders with inquiries regarding any Fund
should contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus.

REPORTS TO SHAREHOLDERS

Shareholders will receive an annual report containing audited
financial statements and a semi-annual report. Each shareholder will also be
provided with a printed confirmation for each transaction in the shareholder's
account and an individual quarterly account statement. A year-to-date statement
for any account will be provided upon request made to Goldman Sachs. The Funds
do not generally provide sub-accounting services.

23
<PAGE>

HOW TO INVEST

HOW TO BUY SHARES OF THE FUNDS

You may purchase shares of the Funds through any Authorized Dealer
(including Goldman Sachs) or directly from a Fund c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711. The
purchase price is the net asset value next determined after receipt of an order,
plus any applicable sales charge. If, by the close of regular trading on the
New York Stock Exchange (currently 4:00 p.m. New York time), a purchase order is
received by a Fund, Goldman Sachs or an Authorized Dealer, the price per share
will be based on the net asset value computed on the day the purchase order is
received. The minimum initial investment is $1500. An initial investment
minimum of $250 applies to purchases in connection with Individual Retirement
Account Plans. For purchases through the Automatic Investment Plan, the minimum
investment is $50. The minimum subsequent investment is $50. These
requirements may be waived at the discretion of the Company's officers.

You may pay for purchases of shares by check (except that a check
drawn on a foreign bank will not be accepted), 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 Equity Portfolios, Inc. - (Name of Fund) and sent to NFDS, Inc.,
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 five business days of receipt
of the purchase order. An investor's Authorized Dealer is responsible for
forwarding payment promptly to the Fund.

In order to make an initial investment in a Fund, an investor must
establish an account with the Fund by furnishing to the Fund, Goldman Sachs or
the investor's Authorized Dealer the information in the Account Information Form
attached to this Prospectus. The Fund may refuse to open an account for any
investor who fails to (1) provide a social security number or other taxpayer
identification number, or (2) certify that such number is correct (if required
to do so under applicable law).

The Funds reserve the right to redeem shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market conditions.
A Fund will give sixty (60) days' prior written notice to shareholders whose
shares are being redeemed to allow them to purchase sufficient additional shares
of the Fund to avoid such redemption. In addition, the Funds and Goldman Sachs
reserve the right to modify the minimum investment, the manner in which shares
are offered and the sales charge rates applicable to future purchases of shares.

OFFERING PRICE

The offering price is the next determined net asset value per share
plus a sales charge, if any, paid to Goldman Sachs at the time of purchase of
shares of the Funds as shown in the following table or as set forth under
"Participant-Directed Plans":
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
AMOUNT OF PURCHASE SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
(INCLUDING SALES PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE
----------------- --------------- -------------- ---------------
<S> <C> <C> <C>

Less than $50,000 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000 4.75 4.99 4.00
$100,000 up to (but less than) $250,000 3.75 3.90 3.00
$250,000 up to (but less than) $500,000 2.75 2.83 2.25
$500,000 up to (but less than) $1 million 2.00 2.04 1.75
$1 million up to (but less than) $3 million 1.25 1.27 1.15
$3 million or more 0.00 0.00 *
</TABLE>

__________________________
* Goldman Sachs may pay a commission equal to 0.40% in the case of the
Balanced, Growth and Income and Select Equity Funds and 0.50% for each other
Fund of the amount of shares purchased to Authorized Dealers who initiate or are
responsible for purchases of $3 million or more of shares of the Funds, provided
such shares remain in the Fund for at least twelve months.

24
<PAGE>

For purchases of shares of the Balanced Fund during the period June 1, 1995
through June 30, 1995, the entire amount of the sales charge will be reallowed
to Authorized Dealers.

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

Shares of the Funds may be sold at net asset value without payment of any
initial 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 Director or officer of the Company and designated family members of any of
the above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors or 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 minor children; (e)
institutional investors, including insurance companies, broker-dealers,
discretionary accounts of investment advisers with at least $100 million under
management for the last twelve months and business entities that have either
gross assets of at least $100 million or publicly traded securities outstanding;
(f) unitholders or shareholders of Goldman Sachs Money Market Trust, GS Core
Fixed Income Fund, GS Short-Term Government Agency Fund, GS Adjustable Rate
Government Agency Fund or GS Short Duration Tax-Free Fund that are banks, trust
companies or other types of depository institutions; (g) any state, county or
city, or any instrumentality, department, authority or agency thereof, which is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of a Fund; (h) pension and
profit sharing plans, pension funds or other benefit plans sponsored by state
and municipal governments and by certain business entities, and Taft-Hartley
plans, provided any such plan has a minimum of $25 million under management; (i)
qualified non-profit organizations, foundations and endowments that have gross
assets of at least $100 million; and (j) shareholders whose purchase is
attributable to redemption proceeds (subject to appropriate documentation) from
a registered open-end management investment company not distributed or managed
by Goldman Sachs or its affiliates, if such redemption has occurred no more than
60 days prior to the purchase of shares of the Funds and the shareholder either
(i) paid an initial sales charge or (ii) was at some time subject to a deferred
sales charge with respect to the redemption proceeds. Purchasers must certify
eligibility for an exemption on the Account Information Form 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. Goldman
Sachs reserves the right to limit the participation in the Fund of its partners
and employees. In addition, under certain circumstances, dividends and
distributions from any Goldman Sachs Portfolio may be reinvested in shares of
each Fund at net asset value, as described under "Cross-Reinvestment of
Dividends and Distributions."

PARTICIPANT-DIRECTED PLANS

Participant-directed qualified retirement plans, including 401(k), 403(b),
457 and tax-sheltered annuity plans, may purchase shares of the Funds at the
next determined net asset value per share plus a sales charge paid, except as
set forth below, at the time of purchase of shares of the Funds, as shown in the
following table:
<TABLE>
<CAPTION>

SALES CHARGE MAXIMUM DEALER
AMOUNT OF PURCHASE SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
(INCLUDING SALES PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE
----------------- ---------------- -------------- ---------------
<S> <C> <C> <C>

Less than $50,000 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000 4.75 4.99 4.00
$100,000 up to (but less than) $250,000 3.75 3.90 3.00
$250,000 up to (but less than) $500,000 2.75 2.83 2.25

</TABLE>

25
<PAGE>

<TABLE>

<S> <C> <C> <C>
$500,000 or more 0.00* 0.00* 0.00*
---------------
</TABLE>
* No sales charge is payable by participant-directed plans at the time of
purchase on investments of $500,000 or more, but for such investments a
contingent deferred sales charge, as described below, may be imposed in the
event of certain redemptions within one year of purchase.
** Goldman Sachs may pay a one-time commission equal to a percentage of the
amount of shares purchased to Authorized Dealers who initiate or are
responsible for purchases by participant-directed plans of $500,000 or more
of shares of the Funds, at the rates shown in the following table:

Maximum Dealer
Allowance as
Percentage of
Amount of Purchase Offering Price
------------------ ----------------
<S> <C>
$500,000 up to (but less than) $2 million......... 1.00%
$2 million up to (but less than) $3 million....... 0.80
$3 million up to (but less than) $50 million...... 0.50
$50 million up to (but less than) $100 million.... 0.25
$100 million or more.............................. 0.15
</TABLE>

Participant-directed plans are defined as qualified employee benefit plans not
affiliated with Goldman Sachs which allow their participants to select among one
or more investment options, including any of the Funds. In order to take
advantage of the reduced sales charge rate described herein, the sponsor of a
participant-directed plan must submit an investment authorization form to
Goldman Sachs (the "Authorization Form") which establishes a Fund as an eligible
investment for the plan.

CUMULATIVE QUANTITY DISCOUNTS. In determining the amount of purchase and the
sales charge rate applicable to purchases by participant-directed plans, shares
of the Funds and any other Goldman Sachs Portfolio will be combined with shares
purchased or held for all participants in the same participant-directed plan.
Participant-directed plans may qualify for cumulative quantity discounts by
using the right of accumulation and statement of intention described below. If
a plan does not purchase the entire amount of shares contemplated by a statement
of intention, Goldman Sachs may elect not to pursue the recovery of any
additional sales charge due if the amount of the sales charge or the investment
shortfall is considered de minimis by Goldman Sachs.

CONTINGENT DEFERRED SALES CHARGE. Purchases by participant-directed plans of
$500,000 or more of Fund shares will be made at net asset value without an
initial sales charge. However, if, within 12 months after the effective date of
the applicable Authorization Form, the plan sponsor notifies Goldman Sachs that
it is terminating the eligibility of the Funds as an investment for its plan, a
contingent deferred sales charge ("CDSC") will be imposed on all redemptions
resulting from such termination. Any CDSCs will be paid to the Funds' principal
distributor, Goldman Sachs. The amount of the CDSC will be equal to 1% of the
current market value or the original purchase cost of the redeemed shares,
whichever is less. No CDSC will be imposed on increases in account value above
the initial purchase price, including any dividends that have been reinvested in
additional Fund shares. In determining whether a CDSC applies to a redemption,
the calculation will be made in a manner that results in the lowest possible
CDSC.

EXCHANGES. No CDSC is imposed upon exchanges between the Funds and another
Goldman Sachs Portfolio or an ILA Portfolio. However, shares acquired in an
exchange will be subject to the CDSC to the same extent as if there had been no
exchange. (As stated above, no CDSC will be imposed unless the plan sponsor
terminates the eligibility of the Fund as an investment for the plan within the
first twelve months). For purposes of determining whether the CDSC is
applicable, the length of time a plan has owned shares acquired by exchange will
be measured from the date the plan acquired the original shares and will not be
affected by any subsequent exchange.

OTHER PURCHASE INFORMATION

If shares of a Fund are held in a "street name" account or were purchased
through an Authorized Dealer, shareholders should contact the Authorized Dealer
to purchase, redeem or exchange shares, to make changes in or give instructions
concerning the account or to obtain information about the account. Authorized
Dealers who receive a portion of the sales charge applicable to the purchase of
shares of the Fund will not be permitted to impose any other fees in connection
with the

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<PAGE>

purchase of such shares.

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

REINVESTMENT OF REDEMPTION PROCEEDS

A shareholder who redeems shares of a Fund may reinvest at net asset value
any portion or all of his redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his purchase to the nearest full share)
in shares of a Fund or any other Goldman Sachs Portfolio. Shareholders should
obtain and read the applicable prospectuses of such other funds and consider
their objectives, policies and applicable fees carefully 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. Shares are sold to a reinvesting shareholder at the net asset
value next determined following timely receipt by Goldman Sachs or an Authorized
Dealer of a written purchase order indicating that the shares are eligible for
reinvestment at net asset value.

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

RIGHT OF ACCUMULATION

Purchases 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. Shares of the Goldman Sachs Portfolios may be combined under
the Right of Accumulation. See Additional Statement for more information about
the Right of Accumulation.

STATEMENT OF INTENTION

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

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. See Additional Statement for more information about the
Automatic Investment Plan.

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<PAGE>

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE PROGRAM

A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund at net asset value without a sales charge in shares
of any other Fund, Goldman Sachs Portfolio or units of the ILA Portfolios.
Shareholders may also elect to exchange automatically a specified dollar amount
of shares of a Fund at net asset value without an additional sales charge for
shares of any other Fund, Goldman Sachs Portfolio or units of the ILA
Portfolios. Automatic exchanges are made monthly on the fifteenth day of each
month or the first Business Day thereafter . The minimum dollar amount for
automatic exchanges must be at least $50 per month. Cross-reinvestments and
automatic exchanges are subject to the following conditions: (i) the value of
the shareholder's account(s) in the fund which is paying the dividend or from
which the automatic exchange is being made must equal or exceed $10,000 and (ii)
the value of the account in the acquired fund must equal or exceed the acquired
fund's minimum initial investment requirement or the shareholder must elect to
continue cross reinvestment or automatic exchanges until the value of acquired
fund shares in the shareholder's account equals or exceeds the acquired fund's
minimum initial investment requirement. The names, addresses and social
security or other taxpayer identification number in both accounts must be
identical. A Fund shareholder should obtain and read the prospectus of the Fund
into which dividends are invested or automatic exchanges are made.

TAX-SHELTERED RETIREMENT PLANS

The Funds offer their shares for purchase by retirement plans, including IRA
Plans for individuals and their non-employed spouses and defined contribution
plans such as 401(k) Salary Reduction Plans. See "Participant-Directed Plans."
Detailed information concerning these plans and copies of the plans may be
obtained from the Transfer Agent. This information should be read carefully,
and consultation with an attorney or tax adviser may be advisable. The
information sets forth the service fee charged for retirement plans and
describes the federal income tax consequences of establishing a plan. Under all
plans, dividends and distributions will be automatically reinvested in
additional shares of a Fund or, if so directed by the shareholder, in cash, in
shares of another Goldman Sachs Portfolio or in units of the ILA Portfolios.

EXCHANGE PRIVILEGE

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

An exchange may be made by identifying the applicable Fund and either writing
to Goldman Sachs, Attention: Goldman Sachs Equity Portfolios, Inc., Shareholder
Services, c/o NFDS, P.O. Box 419711, Kansas City, MO 64141-6711 or, if
previously elected in the Fund's Account Information Form, by telephone at 800-
526-7384 (8:00 a.m. to 3:00 p.m. Chicago time). Certain procedures are employed
to prevent unauthorized or fraudulent exchange requests as set forth under
"Redemption of Shares." Under the telephone exchange privilege, shares may be
exchanged among accounts with different names, addresses and social security or
other taxpayer identification numbers only if the exchange request is in writing
and is received in accordance with the procedures set forth under "How to Sell
Shares of the Funds." In times of drastic economic or market changes the
telephone exchange privilege may be difficult to implement.

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

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<PAGE>

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

DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS

DISTRIBUTION PLAN. The Company, on behalf of each Fund, has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Act (the "Distribution
Plan"). Under the Distribution Plan, Goldman Sachs is entitled to a quarterly
fee from each Fund for distribution services equal, on an annual basis, to 0.25%
of a Fund's average daily net assets. Currently, Goldman Sachs has voluntarily
agreed to waive the entire amount of such fee for each Fund (other than the
Select Equity Fund). Goldman Sachs has no current intention of modifying or
discontinuing such waiver, but may do so in the future at its discretion. For
the period ended January 31, 1995, each Fund paid Goldman Sachs a fee at the
rate of 0.25% of the Fund's average daily net assets. Effective _______, 1995,
each Fund's Distribution Plan was amended to reduce the fee to .25% of average
daily net assets from .50% of such assets and to eliminate the provision of
certain services under the Distribution Plan which are currently provided under
the Authorized Dealer Service Plan, discussed below.

Goldman Sachs may use the distribution fee for its expenses of distribution of
shares of the Funds. The types of expenses for which Goldman Sachs may be
compensated for distribution services under the Distribution Plan include
compensation paid to and expenses incurred by their respective officers,
employees and sales representatives, allocable overhead, telephone and travel
expenses, the printing of prospectuses for prospective shareholders, preparation
and distribution of sales literature, advertising of any type and all other
expenses incurred in connection with activities primarily intended to result in
the sale of Fund shares. If the fee received by Goldman Sachs pursuant to the
Ditribution Plan exceeds its expenses, Goldman Sachs may realize a profit from
these arrangements. The Distribution Plan will be reviewed and is subject to
approval annually by the Board of Directors of the Company. The aggregate
compensation that may be received under the Distribution Plan for distribution
services may not exceed the limitations imposed by the NASD's Rules of Fair
Practice.

AUTHORIZED DEALER SERVICE PLAN. The Company on behalf of each Fund has
adopted, effective ________, 1995, a non-Rule 12b-1 Authorized Dealer Service
Plan (the "Service Plan") pursuant to which Goldman Sachs and Authorized Dealers
are compensated for providing personal and account maintenance services. Each
Fund pays a fee under its Service Plan equal on an annual basis to .25% of its
average daily net assets (or, in the case of Select Equity Fund, average daily
net assets attributable to Class A shares). The fee for personal and account
maintenance services paid pursuant to the Service Plan may be used to make
payments to Goldman Sachs, Authorized Dealers and their officers, sales
representatives and employees for responding to inquiries of, and furnishing
assistance to, shareholders regarding ownership of their shares or their
accounts or similar services not otherwise provided on behalf of the Funds.

HOW TO SELL SHARES OF THE FUNDS

Each Fund will redeem its shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form. See "Net Asset Value." Redemption proceeds will normally
be mailed by check to a shareholder within seven (7) days of receipt of a
properly executed request. If shares to be redeemed were recently purchased by
check, the Fund may delay transmittal of redemption proceeds until such time as
it has assured itself that good funds have been collected for the purchase of
such shares. This may take up to fifteen (15) days. Redemption requests may be
made by writing to or calling the Transfer Agent at the address or telephone
number set forth on the back cover page of this Prospectus or an Authorized
Dealer.

A shareholder may request redemptions by telephone if the optional telephone
redemption privilege is elected on the Account Information Form. It may be
difficult to implement redemptions by telephone in times of drastic economic or
market changes. In an effort to prevent unauthorized or fraudulent redemption
and exchange requests by telephone, Goldman Sachs and NFDS each employ
reasonable procedures specified by the Company 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 Information Form and exchanges of shares will be made
only to an identical account. Telephone requests will also be recorded. The
Company may implement other procedures from time to time. If reasonable
procedures are not implemented, the Company may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither a Fund,
the Company nor Goldman Sachs will be responsible for the authenticity of
instructions received by telephone. Proceeds of telephone redemptions will be
mailed to the shareholder's address of record or wired to

29
<PAGE>

the authorized bank account indicated on the Account Information Form, unless
the shareholder provides written instructions (accompanied by a signature
guarantee) indicating another address.

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

The Funds will also arrange for the proceeds of redemptions effected by any
means to be wired as Federal Funds to the bank account designated in the
shareholder's Account Information Form. Redemption proceeds will normally be
wired on the next Business Day in Federal Funds (for a total one Business Day
delay) following receipt of a properly executed wire transfer redemption
request. Wiring of redemption proceeds may be delayed one additional Business
Day if the Federal Reserve Bank is closed on the day redemption proceeds would
ordinarily be wired. A transaction fee of $7.50 may be charged for payments of
redemption proceeds by wire. In order to change the bank designated on the
Account 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 or an Authorized Dealer, neither a Fund, the Company, 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.

Except with respect to shareholders whose account balances are less than $50
or who have not provided a social security number or other taxpayer
identification number and certification (if required) that such number is
correct, shares are not redeemable at the option of a Fund unless the Board of
Directors of the Company determines in its sole discretion that failure to so
redeem may have material adverse consequences to the shareholders of that Fund.
The Company, however, assumes no responsibility to compel redemptions of a Fund.

SYSTEMATIC WITHDRAWAL PLAN

A shareholder may draw on shareholdings systematically with monthly checks in
any amount specified by the shareholder over $50. Each systematic withdrawal is
a sale for tax purposes. A minimum balance of $10,000 in Fund shares is
required. The maintenance of a withdrawal plan concurrently with purchases of
additional shares would be disadvantageous because of the sales charge included
in such purchases. See Additional Statement for more information about the
Systematic Withdrawal Plan.

DIVIDENDS

Each dividend from net investment income and capital gain distribution, if
any, declared by a Fund on its outstanding shares will, at the election of each
shareholder, be paid in (i) cash, (ii) additional shares of the Fund or (iii)
shares of any other Fund or any of the Goldman Sachs Portfolios or units of the
ILA Portfolios, as described under "How to Purchase Shares-Cross-Reinvestment of
Dividends and Distributions." 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 the applicable Fund. If
cash dividends are elected with respect to a Fund's net investment income
dividends then cash dividends must also be elected with respect to the short-
term capital gains component, if any, of the Fund's annual dividend.

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

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<PAGE>

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

At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the Fund
or realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions (or portions thereof) of taxable income or
realized appreciation on such shares may be taxable to the investor even if the
net asset value of the investor's shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions
thereof) represent a return of a portion of the purchase price.

NET ASSET VALUE

The net asset value per share of each Fund is calculated by the Fund's
custodian as of the close of regular trading on the New York Stock Exchange
(normally 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"). Net asset value per
share of each class is calculated by determining the net assets attributable to
each class and dividing by the number of outstanding shares of that class.
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 Company's Board of Directors.

PERFORMANCE INFORMATION

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

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

The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be considered
a representation of what an investment may earn or what the Fund's performance
may be in any future period. In addition to information provided in shareholder
reports, the Funds may, in their discretion, from time to time, make a list of
their holdings available to investors upon request.

SHARES OF THE COMPANY

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<PAGE>

Each Fund is a series of the Company, which was incorporated under the laws
of the State of Maryland on September 27, 1989. The authorized capital stock of
the Company consists of 1,000,000,000 shares of common stock, par value of $.001
per share. The Directors of the Company have authority under the Company's
Charter to create and classify shares of capital stock in separate series,
without further action by shareholders. Additional series may be added in the
future. The Directors also have authority to classify and reclassify any series
or portfolio of shares into one or more classes. The Funds, other than the
Select Equity Fund, have not divided their shares into classes. The Select
Equity Fund offers three classes of shares, Institutional Shares, Administration
Shares and the shares offered by this Prospectus which are designated as Class A
shares.

When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All shares
entitle their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights.

Unless otherwise required by the Act, ordinarily it will not be necessary for
the Company to hold annual meetings of shareholders. As a result, Fund
shareholders may not consider each year the election of Directors or the
appointment of independent accountants. However, pursuant to the Company's By-
Laws, the recordholders of at least 10% of the shares outstanding and entitled
to vote at a special meeting may require the Company to hold such special
meeting of shareholders for any purpose and recordholders may, under certain
circumstances as permitted by the Act, communicate with other shareholders in
connection with requiring a special meeting of shareholders. Shareholders of
the Company may remove a Director by the affirmative vote of a majority of the
Company's outstanding voting shares. The Board of Directors, however, will call
a special meeting of shareholders for the purpose of electing Directors if, at
any time, less than a majority of Directors holding office at the time were
elected by shareholders.

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

TAXATION

FEDERAL TAXES

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

Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net long-
term capital loss and original issue discount or market discount income will be
taxable to shareholders as ordinary income. Dividends paid by a Fund from the
excess of net long-term capital gain over net short-term capital loss will be
taxable as long-term capital gains regardless of how long the shareholders have
held their shares. These tax consequences will apply regardless of whether
distributions are received in cash or reinvested in shares. A Fund's dividends
that are paid to its corporate shareholders from qualifying dividends such Fund
receives from U.S. domestic corporations may be eligible, in the hands of such
corporate shareholders, for the corporate dividends-received deduction, subject
to certain holding period requirements and debt financing limitations under the
Code. Dividends paid by International Equity Fund and Asia Growth Fund are not
generally expected to qualify, in the hands of corporate shareholders, for the
corporate dividends-received deduction, but a portion of each other Fund's
dividends may generally so qualify. Certain distributions paid by a Fund in
January of a given year may be taxable to shareholders as if received the prior
December 31. Shareholders will be informed annually about the amount and
character of distributions received from the Funds for federal income tax
purposes.

Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the

32
<PAGE>

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 on which a shareholder
may recognize a gain or loss.

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

Each Fund anticipates that it will be subject to foreign withholding or other
foreign taxes on income or gain from certain foreign securities. If more than
50% of the value of its total assets is comprised of stock or securities of
foreign corporations at the end of its taxable year and the Fund so elects,
shareholders will include in their gross incomes (in addition to the dividends
they receive) their pro rata shares of foreign income or other qualified foreign
taxes paid by the Fund and, subject to applicable limitations under the Code,
may be entitled to take federal income tax credits or deductions with respect to
such taxes. It is expected that only the International Equity and Asia Growth
Funds will generally qualify to pass through such taxes to their shareholders
and that shareholders of the other Funds will generally not take such taxes into
account on their own tax returns.

OTHER TAXES

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

ADDITIONAL INFORMATION

The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting, if
the holders of more than 50% of the outstanding shares of the Fund are present
or represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund.

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

33
<PAGE>

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

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

GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ

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

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

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

PROSPECTUS

GOLDMAN
SACHS EQUITY
PORTFOLIOS

<PAGE>

PART B

STATEMENT OF ADDITIONAL INFORMATION

GOLDMAN SACHS BALANCED FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS SELECT EQUITY FUND (CLASS A SHARES)
GOLDMAN SACHS CAPITAL GROWTH FUND
GOLDMAN SACHS SMALL CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
(PORTFOLIOS OF GOLDMAN SACHS EQUITY PORTFOLIOS, INC.)

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 combined Prospectus of Goldman Sachs Balanced Fund, Goldman Sachs Growth and
Income Fund, Goldman Sachs Select Equity Fund (Class A Shares), Goldman Sachs
Captial Growth Fund, Goldman Sachs Small Capital Growth Fund, Goldman Sachs
International Equity Fund and Goldman Sachs Asia Growth Fund, dated June 1, 1995
as amended and/or supplemented from time to time (the "Prospectus"), which may
be obtained without charge from Goldman, Sachs & Co. by calling the telephone
number, or writing to one of the addresses, listed below.

TABLE OF CONTENTS
Page
=====
[S] [C]

Introduction B-3
Investment Objective and Policies B-4
Investment Restrictions B-50
Management B-64
Portfolio Transactions and Brokerage B-82
Net Asset Value B-88
Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends B-90
Performance Information B-93
Shares of the Company B-102
Taxation B-103
Financial Statements B-111
Other Information B-111
Appendix A: 1-A
Appendix B: 1-B
Appendix C: 1-C
Appendix D: 1-D

The date of this Additional Statement is June 1, 1995.
<PAGE>

GOLDMAN SACHS FUNDS MANAGEMENT, L.P. GOLDMAN, SACHS & CO.
Adviser to Goldman Sachs Capital Distributor
Growth Fund and 85 Broad Street
Goldman Sachs Select Equity Fund New York, New York 10004
One New York Plaza
New York, New York 10004

GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN SACHS ASSET
Administrator to all Funds and MANAGEMENT INTERNATIONAL
Goldman Sachs Small Cap Equity Fund, Adviser to Goldman Sachs
Goldman Sachs International Equity Fund, Asia Growth Fund
Goldman Sachs Growth and Income Fund Subadviser to Goldman Sachs
and Goldman Sachs Balanced Fund International Equity Fund
One New York Plaza 140 Fleet Street
New York, New York 10004 London, England EC4A 2BJ

GOLDMAN, SACHS & CO.
Transfer Agent
4900 Sears Tower
Chicago, Illinois 60606

Toll free.......800-526-7384

B-2
<PAGE>

INTRODUCTION

Goldman Sachs Equity Portfolios, Inc. (the "Company") is an open-end,
management investment company currently offering eight series of shares,
including Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), Goldman Sachs Select Equity Fund
("Select Equity Fund"), Goldman Sachs Capital Growth Fund ("Capital Growth
Fund"), Goldman Sachs Small Cap Equity Fund ("Small Cap Fund"), Goldman Sachs
International Equity Fund ("International Fund") and Goldman Sachs Asia Growth
Fund ("Asia Growth Fund"). Balanced Fund, Growth and Income Fund, Select Equity
Fund, Capital Growth Fund, Small Cap Fund, International Fund, Asia Growth Fund
and are sometimes referred to collectively herein as the "Funds."

The Company was organized under the laws of the State of Maryland on
September 27, 1989. The Company assumed its current name on May 14, 1991. The
Directors of the Company have authority under the Company's Charter to create
and classify shares into separate series and to classify and reclassify any
series or portfolio of shares into one or more classes without further action by
shareholders. Pursuant thereto, the Directors have created the Funds, and
additional series may be added in the future from time to time. Each Fund,
other than Select Equity Fund, offers a single class of shares, Select Equity
Fund's shares are divided into three classes, Class A Shares, Institutional
Shares and Administration Shares. See "Shares of the Company."

Goldman Sachs Funds Management, L.P., ("GSFMLP") an affiliate of Goldman,
Sachs & Co., serves as investment adviser to Capital Growth Fund and Select
Equity Fund. Goldman Sachs Asset Management ("GSAM"), a separate operating
division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser
to Small Cap Fund, International Fund, Growth and Income Fund and Balanced Fund.
Goldman Sachs Asset Management International ("GSAM International"), an
affiliate of Goldman Sachs, serves as the investment adviser to Asia Growth Fund
and subadviser to International Fund. GSFMLP, GSAM and GSAM International are
sometimes referred to collectively herein as the "Advisers". In addition, GSAM
serves as administrator of each Fund. Goldman Sachs serves as each Fund's
distributor and transfer agent. Each Fund's custodian is State Street Bank and
Trust Company ("State Street").

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

B-3
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

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

CAPITAL GROWTH FUND, SMALL CAP FUND, GROWTH AND INCOME FUND AND ASIA GROWTH
===========================================================================
FUND.
=====

The investment objective of each of Capital Growth Fund and Small Cap Fund
is long-term growth of capital. The investment objectives of Growth and Income
Fund are long-term growth of capital and growth of income. The investment
objective of the Asia Growth Fund is long-term capital appreciation. In
managing the portfolios of Capital Growth Fund, Small Cap Fund and Growth and
Income Fund, the Investment Adviser chooses one stock at a time and applies a
business value approach to investing. In managing Asia Growth Fund, GSAM
International's goal is to find companies in Asia whose strengths are
unrecognized or undervalued in the marketplace. Firsthand research, company
visits and interviews with competitors and customers are important parts of the
investment process conducted by the Advisers for these Funds. The Asia Growth
Fund's managers in Hong Kong visit an average of 30 companies each month to
interview managers, tour plant and company sites, and gain a better
understanding of the businesses under consideration. In addition, the Advisers,
with the assistance of Goldman Sachs (Asia) L.L.C. ("GSALLCC") (Asia Growth Fund
only), conduct their own analysis of company financial information rather than
relying on outside sources.

In applying a business value approach, the goal of each Adviser is to find
companies whose strengths are unrecognized or undervalued in the marketplace
because they are relatively obscure, or, in the Adviser's view, coping with
temporary uncertainties. While some of these companies may offer innovative
products and services, others are involved in very traditional businesses.

Against this broadly diversified background, the companies in which Capital
Growth Fund, Small Cap Fund, Growth and Income Fund and Asia Growth Fund invest
share many of the following characteristics: (1) a strong market position, (2)
high or improving returns on capital, (3) the ability to achieve solid,
sustainable growth and to generate substantial free cash flow after all working
and fixed capital expenditures and investments for future growth, (4) skilled
managers who think and act like owners, and (5) valuation at a substantial
discount to business value. Companies under consideration is analyzed from the
standpoint of management quality, earning power, cash-generating capacity, the
value of its assets and, in the case of Growth and Income Fund,

B-4
<PAGE>

dividend-paying ability. GSAM International has the flexibility to include
purchase for inclusion in Asia Growth Fund's portfolio Asian Companies (as
defined in the Prospectus) from any industry group ranging from those offering
new and innovative products and services to those involved in more traditional
businesses.

A FOCUS ON COMPANY MANAGEMENT. Getting to know the management of a company
is an important part of the investment process for Capital Growth Fund, Small
Cap Fund, Growth and Income Fund and Asia Growth Fund. In selecting investments
for these Funds, the Advisers look for companies with skilled managers who use
capital efficiently and are dedicated to maximizing long-term shareholder value.
GSFMLP and GSAM particularly favor companies whose managers have significant
personal equity interests in the business and compensation that is closely tied
to the company's stock price. GSAM International favors particularly companies
whose major shareholders are running the businesses.

THE IMPORTANCE OF ATTRACTIVE VALUATION. Ideally, Capital Growth Fund, Small
Cap Fund and Growth and Income Fund seek to invest in businesses whose stocks
are available at reasonable prices, but these Funds also may invest in good
businesses at low prices. The Advisers have little interest in paying high
prices even for great businesses, or in bargain hunting for deteriorating
businesses.

Before a new stock is purchased for Capital Growth Fund, Small Cap Fund, or
Growth and Income Fund, the applicable Adviser estimates its business value.
This involves estimating the company's long-term sustainable growth rate and how
much excess cash the company will generate after providing for future growth.
The Advisers believe that excess cash flow is one of the best indicators of a
company's underlying value.

In the opinion of the Advisers, the business value approach results in
portfolios of companies that are trading at below-average valuations. The
Advisers believe that the average portfolio security that is chosen in
accordance with this approach has the potential to grow faster and generate more
free cash flow than the average company in the Standard & Poor's Index of 500
Common Stocks (the "S&P 500 Index").

MEASURING BUSINESS VALUE. GSAM International, on behalf of Asia Growth
Fund, measures a company's business value by its ability to generate a growing
stream of free cash flow after satisfying all working and fixed capital
requirements and making investments needed for future growth. In GSAM
International's view, free cash flow is the best measure of a company's
underlying economics, is less subject to manipulation than reported earnings,
and is more meaningful when valuing companies across different tax and
accounting systems. Having identified companies with superior free cash flow
characteristics, GSAM International, then evaluates

B-5
<PAGE>

that Company's prospects for long-term growth of cash flow and its relationship
to the company's stock price. Using these two components, GSAM International
determines an expected total return at the stock's prevailing market price.

Because Capital Growth Fund, Small Cap Fund, Growth and Income Fund and Asia
Growth Fund each seek long-term capital appreciation (Growth and Income Fund
also seeks growth of income), their portfolios have relatively low turnover
rates. Under normal circumstances, GSAM expects that Growth and Income Fund's
and Small Cap Fund's investment horizons for ownership of equity securities will
be two to four years and two to three years, respectively. In addition, GSAM
expect that Growth and Income Fund and Small Cap Fund will invest in the
securities of approximately 40 to 60 companies and 30 to 40 companies,
respectively. GSAM International expects that Asia Growth Fund will invest in
securities of approximately 25 to 40 companies.

INVESTING IN ASIA
=================

The Asia Growth Fund is intended for long-term investors who can accept
the risks associated with investing primarily in equity and equity-related
securities of Asian Companies as well as the risks associated with investments
quoted or denominated in foreign currencies. In addition, certain of the Asia
Growth Fund's potential investment and management techniques entail special
risks. There can be no assurance that the Asia Growth Fund will achieve its
investment objective. See "Investment Objective and Policies" and "Special
Investment Methods and Risk Factors" in the Prospectus.

The pace of change in Asia over the last 10 years has been rapid.
Accelerating economic growth in the region has combined with capital market
development, high government expenditure, increasing consumer wealth and
taxation policies favoring company expansion. As a result, stock market returns
in many Asian countries have been relatively attractive. See Appendix B. GSAM
International believes that Asia offers an attractive investment environment and
that new opportunities will continue to emerge in the years ahead. The Asia
Growth Fund concentrates on companies that GSAM International believes are
taking full advantage of the region's growth and that have the potential for
long-term capital appreciation. See "Special Investment Methods and Risk
Factors" in the Prospectus.

Each of the securities markets of the Asian 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. Certain of the Asian

B-6
<PAGE>

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 limited liquidity of Asian markets may also
affect the Asia Growth Fund's ability to accurately value its portfolio
securities or to acquire or dispose of securities at the price and time it
wishes to do so or in order to meet redemption requests.

Foreign investment in the securities markets of several of the Asian
countries is restricted or controlled to varying degrees. These restrictions
may limit the Asia Growth Fund's investment in certain of the Asian countries
and may increase the expenses of the Asia Growth Fund. Certain Asian countries
require governmental approval prior to investments by foreign persons or limit
investment by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. In addition, the repatriation of both investment
income and capital from several of the Asian countries is subject to
restrictions such as the need for certain governmental consents. Even where
there is no outright restriction on repatriation of capital, the mechanics of
repatriation may affect certain aspects of the operation of the Asia Growth
Fund.

Each of the Asian countries may be subject to a greater degree of economic,
political and social instability than is the case in the United States, Japan
and 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 Asia Growth Fund invests and adversely affect the value of the Asia
Growth Fund's assets.

The Asia Growth 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 to reduce the otherwise applicable tax rates. The Asia
Growth Fund may elect, when eligible, to "pass-through" to the Asia Growth
Fund's shareholders those taxes that are treated as income or excess profits
taxes for U.S. federal income tax purposes. If the Asia Growth Fund is eligible
for and makes such election, U.S. shareholders will be required to include in
income their

B-7
<PAGE>

proportionate share of the amount of qualifying non-U.S. taxes paid by the Asia
Growth Fund and may be entitled to claim either a credit or deduction for all or
a portion of such taxes. Certain shareholders, including shareholders not
subject to U.S. taxation, will not be entitled to the benefit of a deduction or
credit with respect to non-U.S. income taxes paid by the Asia Growth Fund. See
"Taxation."

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

INTERNATIONAL FUND
==================

International Fund's investment objective is long-term capital appreciation.
International Fund will seek to achieve its objective by investing primarily in
equity and equity-related securities that are organized outside the United
States or whose securities are principally traded outside the United States.
Although widespread interest in foreign equity investments has only recently
developed among U.S. investors, foreign equities have since 1970 produced higher
dollar-based returns than the S&P 500 Index. Because research coverage outside
the United States is fragmented and relatively unsophisticated, many foreign
companies that are well-positioned to grow and prosper have not come to the
attention of investors. GSAM and GSAM International believe that the high
historical returns and less efficient pricing of foreign markets create
favorable conditions for International Fund's highly focused investment
approach.

A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and
company research, GSAM's and GSAM International's equity team in London, Hong
Kong and Tokyo seeks to identify companies that have a high probability of
achieving superior long-term returns. Stocks are carefully selected for
International Fund's portfolio through a three-stage investment process.

Using the research of Goldman Sachs as well as information gathered from
other sources in Europe and the Asia-Pacific region, the portfolio managers
first identify attractive industries around the world. Such industries have
favorable underlying economics and allow companies to generate sustainable and
predictable high

B-8
<PAGE>

returns. As a rule, they are less economically sensitive, relatively free of
regulation and favor strong franchises.

Within these industries the portfolio managers identify well-run companies
that enjoy a stable competitive advantage and are able to benefit from the
favorable dynamics of the industry. This stage includes analyzing the current
and expected financial performance of the company; contacting suppliers,
customers and competitors; and meeting with management. In particular, the
portfolio managers look for companies whose managers have a strong commitment to
both maintaining the high returns of the existing business and reinvesting the
capital generated at high rates of return. Management should always act in the
interests of the owners and seek to maximize returns to all stockholders.

GSAM and GSAM International measure a company's business value by its
ability to generate substantial free cash flow after all working and fixed
capital expenditures. In the judgment of GSAM and GSAM International, free cash
flow is the best measure of the underlying economics of a company, is less
subject to manipulation than reported earnings, and is more meaningful when
valuing companies across different tax and accounting regimes. Having
identified companies with superior free cash flow characteristics, GSAM and GSAM
International then consider that free cash flow relative to the current stock
price and the prospects for long-term growth. These two components are used to
determine an expected total return at the stock's prevailing market price.
After buying a stock, the portfolio managers monitor developments within the
company and its industry and maintain regular contact with management. Because
International Fund is a long-term holder of stocks, the portfolio managers
adjust International Fund's portfolio only when expected returns fall below
acceptable levels or when the portfolio managers identify substantially more
attractive investments.

BUSINESS VALUE INVESTING ABROAD. International Fund's approach to investing
in international markets is based on the concept of "business value." As
explained above, a company is eligible for International Fund only if it meets a
set of strict criteria and its stock is trading below GSAM and GSAM
International's assessment of its business value. Given that few companies meet
GSAM and GSAM International's criteria, International Fund invests in a limited
number of stocks, which it intends to hold over a long time horizon. While
International Fund is not designed to provide a broadly diversified exposure to
different countries or geographic regions, it is expected that its investments
will be in countries in Western Europe and the Asia-Pacific region.

GSAM's currency team manages the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program is designed to
protect the value of foreign investments in sustained periods of dollar
appreciation and to add returns by

B-9
<PAGE>

seeking to take advantage of foreign exchange fluctuations. See "Investment
Objective and Policies" and "Advisory and Administrative Services - Investment
Advisers and Administrator."

The members of GSAM and GSAM International's international equity team bring
together years of experience in analyzing and investing in companies in Europe
and the Asia-Pacific region. Their expertise spans a wide range of skills
including investment analysis, investment management, investment banking and
business consulting. In addition, they have access to over 200 economic, equity
and currency research professionals of Goldman Sachs in London, Frankfurt, Hong
Kong, Tokyo and New York.

BALANCED FUND
=============

The investment objective of the Balanced Fund is to provide shareholders
with current income and long-term capital growth. The Balanced Fund seeks to
achieve its investment objective by investing in a balanced portfolio
diversified among both equity and fixed income securities.

The Balanced Fund is intended to provide a foundation on which an investor
can build an investment portfolio or to serve as the core of an investment
program, depending on the investor's goals. The Balanced Fund is designed for
relatively conservative investors who seek a combination of long-term capital
growth and current income in a single investment. The Balanced Fund offers a
portfolio of equity and fixed income securities intended to provide less
volatility than a portfolio completely invested in equity securities and greater
diversification than a portfolio invested in only one asset class. The Balanced
Fund may be appropriate for people who want to increase their capital, but are
concerned about the volatility typically associated with a fund that invests
solely in stocks and other equity securities.

A VALUE APPROACH TO STOCK SELECTION

GSAM employs a value approach in selecting stocks for the Fund's portfolio.
Stocks are selected by identifying those judged by GSAM to be inexpensive
relative to the issuer's expected earnings, cash flow and ability to pay
dividends. This approach may result in investments in well-known companies that
are temporarily out of favor due to cyclical economic conditions or near-term
difficulties that GSAM judges to be temporary in nature. The Balanced Fund's
portfolio may also include stocks chosen primarily for their dividend paying
ability, as well as real estate investment trusts ("REITs") and convertible
securities.

In building the Balanced Fund's portfolio, the GSAM equity team uses
extensive fundamental research to look for companies that have strong market
positions in a profitable industry or niche. Generally, these companies are
expected to be able to earn high

B-10
<PAGE>

returns on invested capital, and often generate more cash than they can
effectively deploy internally. Further, each company is analyzed with regard to
the quality and durability of its business franchise and its management's
commitment to serving the long-term interests of shareholders.

FIXED INCOME STRATEGIES FOCUS ON MAXIMIZING RETURN AND MANAGING RISK

GSAM's fixed income investment approach, on behalf of the Balanced Fund,
seeks to provide high returns relative to a market benchmark, the Lehman
Brothers Aggregate Bond Index, while also providing high current income. This
approach emphasizes (1) sector allocation strategies which enable GSAM to
tactically overweight or underweight one sector of the fixed-income market
(i.e., mortgages, corporate bonds, U.S. Treasuries, non-dollar bonds, emerging
market debt) versus another; (2) individual security selection based on
identifying relative value (fixed income securities inexpensive relative to
others in their sector); and (3) to a lesser extent, strategies based on the
Investment Adviser's expectation of the direction of interest rates or the
spread between short-term and long-term interest rates such as yield curve
strategy.

GSAM seeks to manage fixed income portfolio risk in a number of ways. These
include diversifying the fixed income portion of the Balanced Fund's portfolio
among types of fixed income securities and utilizing sophisticated quantitative
models to understand how this portion of the portfolio will perform under a
variety of market and economic scenarios. In addition, GSAM uses extensive
credit analysis to select and monitor any investment-grade or non-investment
grade bonds that may be included in the Balanced Fund's portfolio. In employing
this and other investment strategies, the GSAM team has access to extensive
fundamental research and analysis available through Goldman Sachs and a broad
range of other sources.

MARKET SECTOR SELECTION. Market sector selection is the underweighting or
overweighting of one or more market sectors (i.e., U.S. Treasuries, U.S.
Government agency securities, corporate securities, mortgage-backed securities
and asset-backed securities). GSAM may decide to overweight or underweight a
given market sector or subsector (e.g., within the corporate sector,
industrials, financial issuers and utilities) based on, among other things,
expectations of future yield spreads between different sectors or subsectors.

ISSUER SELECTION. Issuer selection is the purchase and sale of corporate
securities based on a corporation's current and expected credit standing (within
the constraints imposed by the Fund's minimum credit quality requirements).
This strategy focuses on four types of investment-grade corporate issuers.
Selection of securities from the first type of issuers -those with low but
stable credit - enhances total returns by providing incremental

B-11
<PAGE>

yield. Selecting securities from the second type of issuers -those with low and
intermediate but improving credit quality -enhances total returns in two stages.
Initially, these securities provide incremental yield. Eventually, price
appreciation occurs relative to alternative securities as credit quality
improves, the nationally recognized statistical rating organizations upgrade
credit ratings, and credit spreads narrow. Securities from the third type of
issuers - issuers with deteriorating credit quality - will be avoided, since
total returns are enhanced by avoiding the widening of credit spreads and the
consequent relative price depreciation. Finally, total returns can be enhanced
by focusing on securities that are rated differently by different rating
organizations. If the securities are trading in line with the higher published
quality rating while GSAM concurs with the lower published quality rating, the
securities would generally be sold and any potential price deterioration
avoided. On the other hand, if the securities are trading in line with the
lower published quality rating while the higher published quality rating is
considered more realistic, the securities may be purchased in anticipation of
the expected market reevaluation and relative price appreciation.

YIELD CURVE STRATEGY. Yield curve strategy consists of overweighting or
underweighting different maturity sectors relative to a benchmark to take
advantage of the shape of the yield curve. Three alternative maturity sector
selections are available: a "barbell" strategy in which short and long maturity
sectors are overweighted while intermediate maturity sectors are underweighted;
a "bullet" strategy in which, conversely, short-and long-maturity sectors are
underweighted while intermediate-maturity sectors are overweighted; and a
"neutral yield curve" strategy in which the maturity distribution mirrors that
of a benchmark.

SELECT EQUITY FUND
==================

The Select Equity Fund will seek to meet its objective by investing, under
normal circumstances, primarily in equity securities that, at the time of
purchase, are included on the Recommended List developed by the Investment
Research Department (the "Research Department") of Goldman Sachs. In addition,
analysts in the Research Department rate certain stocks that are not on the
Recommended List as likely to outperform the market (referred to collectively as
the "Secondary Group"). The Adviser will, using the Multifactor Model, rank the
securities on the Recommended List and in the Secondary Group and select
investments for the Fund's portfolio from among these securities. The Adviser
will normally purchase the 50 securities on the Recommended List and in the
Secondary Group that are ranked highest by the Multifactor Model, but may
purchase other highly-ranked Recommended List and Secondary Group securities
when the Adviser deems it advisable to do so. Securities eligible for purchases
by the Fund are referred to herein as securities within the "Buy Range" for the

B-12
<PAGE>

Fund. The Recommended List, the Secondary Group and the Multifactor Model are
described more fully below.

By employing both a qualitative (i.e., the Recommended List and the
Secondary Group) and a quantitative (i.e., the Multifactor Model) method of
selecting securities as described below, the Fund seeks to overcome the inherent
inability of quantitative methods to analyze non-quantitative factors (such as
the impact of a change in management or a pending lawsuit) and, conversely, the
susceptibility of qualitative methods to subjective influences and biases.

Once securities are within the Buy Range, the Fund will acquire them in
amounts that are approximately proportionate to their market capitalizations
relative to the market capitalizations of the other securities in the Fund's
portfolio as adjusted based on a proprietary portfolio optimization methodology
of GSAM, that is designed to balance the trade-off between risk and expected
return. However, under normal conditions the securities of any one issuer may
not exceed 5% of the Fund's net assets at the time of purchase. The Adviser
believes that this weighting method should reduce portfolio volatility and
enhance trading liquidity as compared to most other methods for assigning weight
to each investment.

Periodically, the Fund will be "rebalanced" in order to align the securities
in the Fund's portfolio with those included in the Buy Range. Such rebalancings
are expected to occur when the Adviser determines a rebalancing to be necessary.
Such rebalancings are not expected to cause the portfolio turnover rate of the
Fund to exceed 150%. To limit portfolio turnover, however, Recommended List and
Secondary Group securities not within the Buy Range that continue to be rated
attractively by the Multifactor Model and which were previously acquired by the
Fund will be sold only to the extent that their actual weights in the Fund
exceed weights that are approximately proportionate to their relative market
capitalizations as adjusted in accordance with the portfolio optimization
methodology. Recommended List and Secondary Group securities that are not
within the Buy Range, but continue to be rated attractively by the Multifactor
Model, will be considered by the Adviser to be within the "Hold Range" for the
Fund. Such "Hold Range" securities may also include Recommended List and
Secondary Group securities which are subsequently rated by Research Department
analysts as likely to match (but not underperform) the performance of the
relevant market. The Fund will not make new purchases of securities in the Hold
Range.

During a rebalancing, all securities not within the Buy Range or Hold Range
will be sold in their entirety. Securities in the Buy Range or Hold Range will
also be sold to the extent that their actual Fund weights exceed weights that
are approximately proportionate to their relative market capitalizations as
adjusted in accordance with the portfolio optimization methodology. The

B-13
<PAGE>

proceeds from the sale of Fund portfolio securities will be invested in
securities from the Recommended List or the Secondary Group that are in the Buy
Range and are weighted in the Fund in amounts below their proportionate market
capitalizations as adjusted in accordance with the portfolio optimization
methodology (but not to exceed 5% of the Fund's net assets). This may often
include securities not previously held by the Fund (e.g., securities new to the
Recommended List, the Secondary Group or the Buy Range).

The Fund may also purchase and sell securities between rebalancings. For
instance, it is expected that the Fund will sell a security within a reasonable
time after it has been removed from the Recommended List or the Secondary Group
(unless the security has been removed for a reason not related to its
investment characteristics or it continues to be rated attractively by the
Multifactor Model). The Fund may make new investments between rebalancings when
dividends are paid on Fund holdings or when additional Fund shares are sold to
investors. In determining which securities to purchase or sell under these
types of circumstances, the Adviser will consider, among other things, such
factors as a security's present status on the Recommended List or the Secondary
Group, its ranking by the Multifactor Model, its weighting in the portfolio, the
amount of unrealized gain or loss in the security and the depth and liquidity of
the market for the security.

The investment strategy described above will be implemented to the extent it
is consistent with maintaining the Fund's qualification as a regulated
investment company under the Internal Revenue Code. The Fund's strategy may be
limited, in particular, by the requirement for such qualification that less than
30% of the Fund's annual gross income be derived from the sale or other
disposition of stocks or securities (including options and futures contracts)
held for less than three months.

Since normal settlement for equity securities is five trading days, the Fund
will need to hold cash balances to satisfy shareholder redemption requests.
Such cash balances will normally range from 5% to 10% of the Fund's net assets.
The Fund may purchase futures contracts on the S&P 500 Index in order to keep
the Fund's effective equity exposure close to 100%. For example, if cash
balances are equal to 10% of the net assets, the Fund may enter into long
futures contracts covering an amount equal to 10% of the Fund's net assets. As
cash balances fluctuate based on new contributions or withdrawals, the Fund may
enter into additional contracts or close out existing positions.

THE RECOMMENDED LIST AND THE SECONDARY GROUP. The Fund will invest at least
65% of its net assets in securities that, at the time of purchase, are included
on the Research Department's Recommended List. The Recommended List is
typically comprised of equity securities traded in the United States that are
issued by

B-14
<PAGE>

approximately 150 to 200 domestic companies and foreign companies that comply
with U.S. accounting standards. The Fund may invest up to 35% of its net assets
in Secondary Group securities that, at the time of purchase, are rated by
analysts in the Research Department as likely to outperform the relevant market.
The Secondary Group is typically comprised of equity securities traded in the
United States that are issued by approximately 300 to 400 domestic companies and
foreign companies that comply with U.S. accounting Standards. Analysts in the
Research Department also rate stocks which are not on the Recommended List or in
the Secondary Group as likely either to match the performance ("Market
Performers") or to underperform the performance of the relevant market
("Underperformers"). Market Performers may be included within the Hold Range,
but would not be in the Buy Range. Underperformers would not be included in
either the Buy Range or the Hold Range.

A security is proposed for inclusion on or removal from the Recommended List
by the Research Department analyst following the issuer of a particular security
based on his or her knowledge of the security's fundamentals and the industry
outlook. Once the inclusion or removal of a security is proposed by the
analyst, the Co-heads of the Research Department and the Stock Selection
Committee at Goldman Sachs (comprised of senior Goldman Sachs investment
strategists and analysts) decide whether to include the security on, or remove
the security from, the Recommended List. They consider the fundamental
characteristics of a security and its attractiveness in the anticipated economic
and market climate when reviewing the proposals of analysts and selecting
securities for inclusion in or removal from the Recommended List.

A simpler procedure is followed for determining which securities not on the
Recommended List should be added to or removed from the Secondary Group. This
determination is based solely on an assessment by an individual analyst in the
Research Department of whether a security is likely to outperform the relevant
market.

THE MULTIFACTOR MODEL. The Multifactor Model is a sophisticated
=====================
computerized rating system for evaluating equity securities according to twelve
fundamental investment characteristics (or factors). The twelve factors used by
the Multifactor Model incorporate many variables studied by traditional
fundamental analysts, and cover measures of value, yield, growth, momentum, risk
and liquidity which include price/earnings ratio, sustainable growth rate,
earnings momentum and market liquidity. All of these factors have been shown to
significantly impact the performance of equity securities. The weights applied
to the twelve factors are derived using a statistical formulation that considers
each factor's historical relationship to returns for the type of security being
evaluated. As such, the Multifactor Model is designed to evaluate each security
using only the factors that are statistically related to returns for that type
of security.

B-15
<PAGE>

For example, because their investment characteristics may differ, the
Multifactor Model may not evaluate the securities of an electric utility in the
same manner that it evaluates the securities of a drug manufacturer.

Because it includes many disparate factors, the Adviser believes that the
Multifactor Model is broader in scope and provides a more thorough evaluation
than most conventional, value-oriented quantitative models. As a result, the
securities ranked highest by the Multifactor Model do not have one dominant
investment characteristic (such as a low price/earnings ratio); rather, such
securities possess many different investment characteristics. By using a
variety of relevant factors to select securities from the Recommended List and
Secondary Group, the Adviser believes that the Fund will be better balanced and
have more consistent performance than an investment portfolio that uses only one
or two factors to select securities.

The Adviser will monitor, and may occasionally suggest and changes to, the
method by which securities are selected for or weighted in the Fund. Such
changes (which may be the result of changes in the nature of the Recommended
List, the Secondary Group, the Multifactor Model or the method of applying the
Multifactor Model) may include: (i) evolutionary and changes to the structure of
the Multifactor Model (e.g., the addition of new factors or a new means of
weighting the factors); (ii) changes in trading procedures (e.g., trading
frequency or the manner in which the Fund uses futures on the S&P 500 Index);
(iii) changes in the method by which securities are weighted in the Fund; or
(iv) changes to the parameters of the Buy and Hold Ranges (e.g., allowing the
purchase generally of Recommended List and Secondary Group securities ranked
below the top 50 by the Multifactor Model). Any such changes will preserve the
Fund's basic investment philosophy of combining qualitative and quantitative
methods of selecting securities using a disciplined investment process.

It is possible that the Recommended List, the Secondary Group and the
Multifactor Model will suggest securities for the Fund issued by 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 Goldman Sachs' ability to include securities on the
Recommended List or in the Secondary Group or the Fund's flexibility in
purchasing and selling such securities. When Goldman Sachs is engaged in an
underwriting or other distribution of securities of an entity, the Adviser may
be prohibited from purchasing or recommending the purchase of certain securities
of that entity for the Fund. In addition, the Recommended List, the Secondary
Group and the Multifactor Model are available to certain clients of Goldman
Sachs and its affiliates (including the Adviser.

B-16
<PAGE>

MORTGAGE-BACKED SECURITIES
==========================

GENERAL CHARACTERISTICS. Each Fund (excluding Select Equity Fund) may
invest in mortgage-backed securities. 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 a 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 a 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 a Fund invests in mortgage-backed securities, the
Advisers will seek to manage these potential risks by investing in a variety of
mortgage-backed securities and by using certain hedging techniques.

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") and stripped mortgage-backed securities. A 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.

A Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of

B-17
<PAGE>

its agencies, authorities, instrumentalities or sponsored enterprises, like 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 Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). However, the Mortgage Loans in Fannie Mae
Pools are primarily conventional Mortgage Loans. The lenders originating and
servicing the Mortgage Loans are subject to certain eligibility requirements
established by Fannie Mae.

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

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

B-18
<PAGE>

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 and
undivided interests in whole loans and participations comprising another Freddie
Mac Certificate group.

MORTGAGE PASS-THROUGH SECURITIES. Each Fund (other than Select Equity Fund)
may invest in both government guaranteed and privately issued mortgage pass-
through securities ("Mortgage Pass-Throughs"); that is, fixed or adjustable rate
mortgage-backed securities which provide for monthly payments that are a "pass-
through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicer of the underlying mortgage loans.

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

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

Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
--------
basis, or any combination thereof. The stated interest rate on any

B-19
<PAGE>

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 thereof, to ensure,
subject to certain limitations, that scheduled payments on the

B-20
<PAGE>

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

B-21
<PAGE>

of the then outstanding subordinated amount. Unless otherwise specified, until
the subordinated amount is reduced to zero, on any distribution date any amount
otherwise distributable to the subordinate certificates or, to the extent
specified, in the Reserve Fund will generally be used to offset the amount of
any losses realized with respect to the mortgage loans ("Realized Losses").
Realized Losses remaining after application of such amounts will generally be
applied to reduce the ownership interest of the subordinate certificates in the
mortgage pool. If the subordinated amount has been reduced to zero, Realized
Losses generally will be allocated pro rata among all certificate-holders in
--------
proportion to their respective outstanding interests in the mortgage pool.

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

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

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

MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates 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

B-22
<PAGE>

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 Funds do not intend to purchase residual interests in
REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage- backed securities (the "Mortgage Assets").
The obligations of Fannie Mae or Freddie Mac under their respective guaranty of
the REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac,
respectively.

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

B-23
<PAGE>

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. The Balanced Fund may invest in
stripped mortgage-backed securities ("SMBS"), which are derivative multiclass
mortgage securities. Although the market for such securities is increasingly
liquid, certain SMBS may not be readily marketable and will be considered
illiquid for purposes of the 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.

B-24
<PAGE>

CORPORATE DEBT OBLIGATIONS
==========================

Each Fund[, OTHER THAN SELECT EQUITY FUND,] may invest, under normal market
conditions, in corporate debt obligations, including obligations of industrial,
utility and financial issuers. Corporate debt obligations are subject to the
risk of an issuer's inability to meet principal and interest payments on the
obligations and may also be subject to price volatility due to such factors as
market interest rates, market perception of the creditworthiness of the issuer
and general market liquidity. International Fund and Asia Growth Fund may
invest in debt obligations rated at the time of investment BBB or higher by
Standard & Poor's Ratings Group ("Standard & Poor's") or Baa or higher by
Moody's Investors Service, Inc. ("Moody's"), or if unrated by such rating
organizations, determined by either of its Advisers to be of comparable credit
quality. Growth and Income Fund, Capital Growth Fund, Small Cap Fund and
Balanced Fund may make a variety of investments, including corporate debt
obligations which are unrated or rated in the lowest rating categories by
Standard & Poor's or by Moody's (i.e., ratings of BB or lower by Standard &
Poor's or Ba or lower by Moody's). Bonds rated at the time of investment BB or
Ba or below (or comparable unrated securities) are commonly referred to as "junk
bonds" and are considered speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment standing and be in default. As a
result, investment in such bonds will entail greater speculative risks than that
associated with investment in investment grade bonds (i.e., bonds rated AAA, AA,
A or BBB by Standard & Poor's or Aaa, Aa, A or Baa by Moody's). See Appendix A
for a description of the ratings issued by investment rating organizations.
Capital Growth Fund will invest no more than 25% of its assets in corporate debt
obligations (including corporate debt obligations rated below investment grade).
Small Cap Fund will limit its investments in corporate debt obligations rated
below investment grade to less than 35% of its assets and Growth and Income Fund
will limit its investments in such securities to 10% of its assets. Balanced
Fund may invest up to 10% of its total assets in debt securities that are rated
BB or B by Standard & Poor's or Ba or B by Moody's or, if unrated by such rating
organizations, determined by the Adviser to be of comparable credit quality.
The Asia Growth Fund will limit its investments, in debt obligations, together
with equity and equity related securities of Japanese and non-Asian Companies,
to less than 35% of the value of its total assets.

An economic downturn could severely affect the ability of highly leveraged
issuers of junk bond securities to service their debt obligations or to repay
their obligations upon maturity. Factors having an adverse impact on the market
value of junk bond securities will have an adverse effect on a Fund's net asset
value to the extent it invests in such securities. In addition, a Fund

B-25
<PAGE>

may incur additional expenses to the extent it is required to seek recovery upon
a default in payment of principal or interest on its portfolio holdings.

The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on
Growth and Income Fund's, Capital Growth Fund's, Small Cap Fund's and Balanced
Fund's ability to dispose of a particular security when necessary to meet its
liquidity needs. Under adverse market or economic conditions, the secondary
market for junk bond securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the Advisers could find it difficult to sell these securities or may be able to
sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated
securities, under such circumstances, may be less than the prices used in
calculating a net asset value.

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

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

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

B-26
<PAGE>

and its ability to make timely payments of income and principal, as well as
broad economic trends and corporate developments.

ZERO COUPON BONDS
=================

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

ASSET-BACKED SECURITIES
=======================

Asset-backed securities represent participations 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.

Similar to 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. A Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that a 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 U.S. Government
securities and other asset-backed securities.

B-27
<PAGE>

Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities, as discussed herein, 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 owned 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,
recoveries on repossessed collateral may not be available to support payments on
these securities.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
==================================================

Each Fund may purchase and sell futures contracts. Each Fund, other than
Select Equity Fund, may also purchase and write options on futures contracts.
Capital Growth Fund, Small Cap Fund, International Fund, Growth and Income Fund,
Asia Growth Fund and Balanced Fund 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. Select Equity
Fund may only purchase and sell futures contracts on the S&P 500 Index. Each
Fund will engage in futures and, in the case of Capital Growth Fund, Small Cap
Fund, International Fund, Growth and Income Fund, Asia Growth Fund and Balanced
Fund 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").
All futures contracts entered into by a Fund are traded on U.S. exchanges or
boards of trade that are licensed and regulated by the CFTC or on foreign
exchanges.

FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
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).

B-28
<PAGE>

When interest rates are rising or securities prices are falling, a 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,
a Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, Capital Growth Fund, Small Cap Fund,
International Fund, Growth and Income Fund, Asia Growth Fund and Balanced Fund
can 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. Each of Capital Growth Fund, Small Cap Fund,
International Fund, Growth and Income Fund, Asia Growth Fund and Balanced Fund
can purchase futures contracts on foreign currency to establish the price in
U.S. dollars of a security quoted or denominated in such currency that such Fund
has acquired or expects to acquire.

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

HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
establish more certainly than would otherwise be possible the effective price,
rate of return or currency exchange rate on portfolio securities or securities
that a Fund owns or proposes to acquire. A Fund may, for example, take a
"short" position in the futures market by selling futures contracts in order 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. Such futures contracts may, in the case of
Capital Growth Fund, Small Cap Fund, International Fund, Growth and Income Fund,
Asia Growth Fund and Balanced Fund include contracts for the future delivery of
securities held by the Fund or securities with characteristics similar to those
of the Fund's portfolio securities. Similarly, each of Capital Growth Fund,
Small Cap Fund, International Fund, Growth and Income Fund, Asia Growth Fund and
Balanced Fund may sell futures contracts on a currency in which its portfolio
securities are quoted or denominated or in one currency to hedge against
fluctuations in the value of securities quoted or denominated in a

B-29
<PAGE>

different currency if there is an established historical pattern of correlation
between the two currencies. If, in the opinion of the applicable Adviser, there
is a sufficient degree of correlation between price trends for a Fund's
portfolio securities and futures contracts based on other financial instruments,
securities indices or other indices, the Fund may also enter into such futures
contracts as part of its hedging strategy. Although under some circumstances
prices of securities in a Fund's portfolio may be more or less volatile than
prices of such futures contracts, the Advisers will attempt to estimate the
extent of this volatility difference based on historical patterns and compensate
for any such differential by having the Fund enter into a greater or lesser
number of futures contracts or by attempting to achieve only a partial hedge
against price changes affecting the Fund's securities portfolio. 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 the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.

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

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

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

B-30
<PAGE>

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 series.
There is no guarantee that such closing transactions can be effected. A Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.

OTHER CONSIDERATIONS. Each Fund will engage in futures transactions (and
Capital Growth Fund, Small Cap Fund, International Fund, Growth and Income Fund,
Asia Growth Fund and Balanced Fund 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. A Fund
will determine that the price fluctuations in the futures contracts and options
on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or which it expects to purchase.
Except as stated below, each Fund's futures transactions will be entered into
for traditional hedging purposes -- i.e., futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the Fund owns, or futures contracts will be
purchased to protect the Fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase.
As evidence of this hedging intent, each Fund expects that on 75% or more of the
occasions on which it takes a long futures or option position (involving the
purchase of futures contracts), the Fund will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities (or assets
quoted or denominated in the related currency) in the cash market at the time
when the futures or option position is closed out. However, in particular
cases, when it is economically advantageous for a Fund to do so, a long futures
position may be terminated or an option may expire without the corresponding
purchase of securities or other assets.

As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test, under which the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures to seek to
increase total return may 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. Each Fund will engage in transactions in futures
contracts (and Capital Growth Fund, Small Cap Fund, International Fund, Growth
and Income Fund, Asia Growth Fund and Balanced Fund will engage in related
options transactions) only to the extent such transactions are consistent with
the

B-31
<PAGE>

requirements of the Internal Revenue Code of 1986, as amended (the "Code") for
maintaining its qualification as a regulated investment company for federal
income tax purposes (see "Taxation").

Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian cash or liquid, high grade debt securities in an
amount equal to the underlying value of such contracts and options.

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

Perfect correlation between a Fund's futures positions and portfolio
positions will be difficult to achieve because no futures contracts based on
individual equity or corporate fixed-income securities are currently available.
The only futures contracts available to hedge a Fund's portfolio are various
futures on U.S. Government securities, securities indices and, in the case of
Capital Growth Fund, Small Cap Fund, International Fund, Growth and Income Fund,
Asia Growth Fund and Balanced Fund foreign currencies. In addition, it is not
possible for Capital Growth Fund, Small Cap Fund, International Fund, Growth and
Income Fund, Asia Growth Fund and Balanced 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. Each Fund may write (sell) covered call and put
options on any securities in which it may invest, although Select Equity Fund
has no present intention of doing so. A call option written by a 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 a Fund are covered, which means that such
Fund will own the securities subject to the option so long as the option is
outstanding. A Fund's purpose in writing covered call options is to realize
greater income than would be realized on portfolio securities transactions
alone. However, a Fund may forego the opportunity to profit from an increase in
the

B-32
<PAGE>

market price of the underlying security.

A put option written by a 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
a Fund would be covered, which means that such Fund would have deposited with
its custodian cash or liquid, high grade debt securities 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 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.

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

A Fund may also write (sell) covered call and put options on any securities
index composed of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash 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.

A 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 held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A Fund may cover call and put options on a
securities index by maintaining cash or liquid, high grade debt securities with
a value equal to the exercise price in a segregated account with its custodian.

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

PURCHASING OPTIONS. Each Fund may purchase put and call

B-33
<PAGE>

options on any securities in which it may invest or options on any securities
index based on securities in which it may invest although Select Equity Fund has
no present intention of doing so. A Fund would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options it had purchased.

A Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified securities at a specified price during the option period.
A Fund would ordinarily realize a gain 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 a Fund would realize either no gain or a loss
on the purchase of the call option.

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

The 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. The Balanced Fund may enter into options on the yield
"spread," or yield 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.

B-34
<PAGE>

The Balanced Fund may purchase or write yield curve options for the same
purposes as other options on securities. For example, the Balanced Fund may
purchase a call option on the yield spread between two securities if it owns one
of the securities and anticipates purchasing the other security and wants to
hedge against an adverse change in the yield spread between the two securities.
The Balanced Fund may also purchase or write yield curve options in an effort to
increase its current income if, in the judgment of the Investment Adviser, the
Balanced 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, if the spread moves
in a direction or to an extent which was not anticipated.

Yield curve options written by the Balanced Fund will be "covered." A call
(or put) option is covered if the Balanced Fund holds another call (or put)
option on the spread between the same two securities and maintains in a
segregated account with its custodian cash or liquid, high grade debt securities
sufficient to cover the Balanced Fund's net liability under the two options.
Therefore, the Balanced Fund's liability for such a covered option is generally
limited to the difference between the amount of the Balanced Fund's liability
under the option written by the Balanced Fund less the value of the option held
by the Balanced 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 an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it will have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be

B-35
<PAGE>

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.

Each 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. Until such time as the staff of the Securities and Exchange
Commission ("SEC") changes its position, each Fund will treat purchased over-
the-counter options and all assets used to cover written over-the-counter
options as illiquid securities, except that with respect to options written with
primary dealers in U.S. Government securities pursuant to an agreement requiring
a closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula.

Transactions by each 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 a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Advisers. An exchange, board of trade or other trading
facility may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.

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 Adviser's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.

B-36
<PAGE>

REAL ESTATE INVESTMENT TRUSTS
=============================

The Capital Growth Fund, Small Cap Fund and Growth and Income Fund may
invest in shares of REITs. The Balanced Fund may invest up to 15% of its total
assets (determined at the time of purchase) in shares of REITs that are non
self-administered and non self-managed. 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. 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 Funds, REITs are not
taxed on income distributed to shareholders provided they comply with certain
requirements under the Code. A Fund will indirectly bear its proportionate
share of any expenses paid by REITs in which it invests in addition to the
expenses paid by a Fund.

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

WARRANTS AND STOCK PURCHASE RIGHTS
==================================

Each Fund may invest up to 5% of its total assets, calculated at the time of
purchase, in warrants or rights (other than 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 but will do so only if such equity
securities are deemed appropriate by the Advisers for investment by the Fund,
although the Select Equity Fund has no present intention of doing so. Each Fund
will not invest more than 2% of its total assets, calculated at the time of
purchase, in warrants or rights which are not listed on the New York or American
Stock Exchanges. Warrants and rights have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer.

B-37
<PAGE>

CUSTODIAL RECEIPTS
==================

A Fund may acquire 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.

FOREIGN SECURITIES
==================

International Fund and Asia Growth Fund is expected to invest primarily in
securities that are organized outside the United States or whose securities are
principally traded outside the United States ("Foreign Securities"). Each of
Capital Growth Fund, Small Cap Fund and Growth and Income Fund may invest up to
25% of their respective total assets, calculated at the time of purchase, in
Foreign Securities, including American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or other
similar instruments representing securities of foreign issuers (together,
"Depository Receipts"). The Balanced Fund may invest up to 40% of its total
assets, calculated at the time of purchase, in foreign equity and fixed income
securities, including Depository Receipts, provided that no more than 20% of the
Balanced Fund's total assets, calculated at the time of purchase, are invested
in equity securities of foreign issuers and equity securities denominated in a
foreign currency and no more than 20% of the Balanced Fund's total assets,
calculated at the time of purchase, are invested in fixed income securities that
are issued by foreign issuers or denominated in a foreign currency.

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. 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), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate actions
such as stock splits or rights offerings involving the foreign issuer in a
timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments.

B-38
<PAGE>

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.

Investments in Foreign Securities may offer potential benefits not available
from investments solely in securities of U.S. issuers. Such benefits may
include the opportunity to invest in foreign issuers that appear, in the opinion
of the applicable Adviser, to offer better opportunity for long-term growth of
capital and income than investments in U.S. securities, the opportunity to
invest in foreign countries with economic policies or business cycles different
from those of the United States and the opportunity to reduce fluctuations in
portfolio value by taking advantage of foreign stock 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 securities of U.S. issuers. Since investments in Foreign
Securities may involve currencies of foreign countries and since International
Fund, Capital Growth Fund, Small Cap Fund, Growth and Income Fund and Balanced
Fund may temporarily hold funds in bank deposits in foreign currencies during
completion of investment programs and since International Fund, Capital Growth
Fund, Small Cap Fund, Growth and Income Fund and Balanced Fund may be subject to
currency exposure independent of their securities positions, International Fund,
Capital Growth Fund, Small Cap Fund, Growth and Income Fund and Balanced Fund
may be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations and may incur costs in connection with conversions
between various currencies.

Since foreign companies 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 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

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<PAGE>

securities transactions, making it difficult to conduct such transactions. Such
delays in settlement could result in temporary periods when a portion of a
Fund's assets are uninvested and no return is earned on such assets. The
inability of a Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio securities or, if the 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 a 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.

International Fund, Capital Growth Fund, Small Cap Fund, Growth and Income
Fund and Balanced Fund may also 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. In addition, unanticipated political or social developments may
affect the values of a Fund's investments in those countries and the
availability to a Fund of additional investments in those countries. The small
size and inexperience of the securities markets in certain of such countries and
the limited volume of trading in securities in those countries may make a Fund's
investments in such countries illiquid and more volatile than investments in
more developed countries, and a Fund may be required to establish special
custodial or other arrangements before making certain investments in those
countries. There may be little financial or accounting information available
with respect to issuers located in certain of such countries, and it may be
difficult as a result to assess the value or prospects of an investment in such
issuers.

The International Equity and Asia Growth 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 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

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<PAGE>

of the European Community. The specific amounts of currencies comprising the
ECU may be adjusted by the Council of Ministers of the European Community from
time to time to reflect changes in relative values of the underlying currencies.
In addition, the Funds may invest in securities quoted or denominated in other
currency "baskets."

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

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

A Fund may enter into forward foreign currency exchange contracts in several
circumstances. First, when a Fund enters into a contract for the purchase or
sale of a security denominated or quoted in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on such a security which it holds, the 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 Fund will attempt to
protect itself against an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date on
which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.

Additionally, when management of a Fund 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 such

B-41
<PAGE>

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

International Fund and Asia Growth Fund 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 GSAM or GSAM
International determines that there is a pattern of correlation between the two
currencies. International Fund and Asia Growth Fund may also purchase and sell
forward contracts to seek to increase total return when GSAM or GSAM
International 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
International Fund's portfolio.

A Fund's custodian will place cash or liquid, high grade debt securities
into a segregated account of such Fund in an amount equal to the value of the
Fund's total assets committed to the consummation of forward foreign currency
exchange contracts requiring the Fund to purchase foreign currencies or, in the
case of International Fund and Asia Growth Fund, forward contracts entered into
to increase total return. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of a 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, a Fund's ability to utilize forward
foreign currency exchange contracts may be restricted. The Asia Growth Fund
generally will not enter into a forward contract with a term greater than one
year.

While a Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had

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<PAGE>

not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by such
Fund. Such imperfect correlation may cause a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.

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. 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 a Fund of unrealized
profits or force the Fund to cover its commitments for purchase or resale, if
any, at the current market price.

WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. International Fund,
Capital Growth Fund, Small Cap Fund, Growth and Income Fund, Asia Growth Fund
and Balanced Fund each 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 a Fund seeks to close out an option, the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to a Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by a Fund will be traded on U.S. and
foreign exchanges or over-the-counter. International Fund and Asia Growth Fund
may use options on currency to cross-hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different currency with a pattern of correlation. In addition, International
Fund and Asia Growth Fund may purchase call options on currency to seek to
increase total return when GSAM or GSAM International anticipates that the
currency will appreciate in value, but the securities quoted or denominated in
that currency do not present

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<PAGE>

attractive investment opportunities and are not included in International Fund's
portfolio.

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

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

A 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 a Fund are quoted or denominated. The purchase of
a call option would entitle a Fund, in return for the premium paid, to purchase
specified currency at a specified price during the option period. A Fund would
ordinarily realize a gain if, during the option period, the value of such
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.

A 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 a 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 a
Fund's portfolio securities due to currency exchange rate fluctuations. A Fund
would ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying currency or portfolio securities.

In addition to using options for the hedging purposes described

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<PAGE>

above, International Fund and Asia Growth Fund may use options on currency to
seek to increase total return. International Fund and Asia Growth Fund 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,
International Fund and Asia Growth Fund may forego the opportunity to profit
from an increase in the market value of the underlying currency. Also, when
writing put options, International Fund and Asia Growth 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.

International Fund and Asia Growth Fund would normally purchase call options
to seek to increase total return in anticipation of an increase in the market
value of a currency. International Fund and Asia Growth 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 International Fund and Asia Growth Fund would realize either no gain
or a loss on the purchase of the call option. Put options may be purchased by
International Fund and Asia Growth Fund for the purpose of benefiting from a
decline in the value of currencies which it does not own. International Fund
and Asia Growth 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
International Fund would realize either no gain or a loss on the purchase of the
put option.

SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a 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

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<PAGE>

inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.

A 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 a Fund.

The amount of the premiums which a 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.

CURRENCY SWAPS
==============

International Fund and Asia Growth Fund may enter into currency swaps for
hedging purposes and to seek to increase total return. Inasmuch as swaps are
entered into for good faith hedging purposes or are offset by a segregated
account as described below, GSAM and GSAM International believe that swaps do
not constitute senior securities as defined in the Act, and, accordingly, will
not treat them as being subject to International Fund's and Asia Growth Fund's
borrowing restrictions. The net amount of the excess, if any, of International
Fund's or Asia Growth Fund's obligations over its entitlements with respect to
each currency swap will be accrued on a daily basis and an amount of cash or
liquid, high grade debt securities having an aggregate net asset value at least
equal to such accrued excess will be maintained in a segregated account by the
Fund's custodian.

International Fund and Asia Growth Fund will not enter into any currency
swap unless the credit quality of the unsecured senior debt or the claims-paying
ability of the other party thereto is considered to be investment grade by GSAM
or GSAM International. If there is a default by the other party to such a
transaction, International Fund and Asia Growth 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. However, the staff of the SEC takes
the position that currency swaps are illiquid investments that are subject to
International Fund's and Asia Growth Fund's 15% limitation on such investments.

VARIABLE AND FLOATING RATE SECURITIES
=====================================

The interest rates payable on certain securities in which the

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<PAGE>

Balanced 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.

MUNICIPAL SECURITIES
====================

The Balanced Fund may invest up to 5% of its total assets in municipal
securities. Municipal securities consist of 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, the interest on which is exempt from regular
federal income tax. Municipal securities are often issued to obtain funds for
various public purposes. Municipal securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for privately operated facilities, such as
airports and waste disposal facilities, and, in some cases, commercial and
industrial facilities.

The yields and market values of municipal securities are determined
primarily by the general level of interest rates, the creditworthiness of the
issuers of municipal securities and economic and political conditions affecting
such issuers. Due to their tax exempt status, the yields and market prices of
municipal securities may be adversely affected by changes in tax rates and
policies, which may have less effect on the market for taxable fixed income
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could effect the yield on such
securities.

Investments in municipal securities are subject to the risk that the issuer
could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal payments
are to be made or the assets collateralizing such obligations. Revenue bonds,
including private activity bonds, are backed only by specific assets or revenue
sources and not by the full faith and credit of the governmental issuer.

STRUCTURED SECURITIES
=====================

The Balanced Fund may invest in structured notes, bonds or debentures. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of

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<PAGE>

specific 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, may result in the loss of the
Balanced 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 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.

BANK OBLIGATIONS
================

The Balanced Fund may invest in U.S. dollar denominated obligations issued
or guaranteed by U.S. 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 limited to the issuing branch by the
terms of the specific obligations or by government regulation.

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

LENDING OF PORTFOLIO SECURITIES
===============================

Each Fund may lend portfolio securities. Under present regulatory policies,
such loans may be made to institutions such as brokers or dealers and would be
required to be secured continuously by collateral in cash, cash equivalents or
U.S. Government securities maintained on a current basis at an amount at least
equal to the market value of the securities loaned. A 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, a 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. A
Fund would not have the right to vote any securities

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<PAGE>

having voting rights during the existence of the loan, but a Fund would call the
loan in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there are risks of
delay in recovering, or even loss of rights in, the collateral should the
borrower of the securities fail financially. However, the loans would be made
only to firms deemed by the Advisers to be of good standing, and when, in the
judgment of the Advisers, the consideration which can be earned currently from
securities loans of this type justifies the attendant risk. If the Advisers
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
a Fund.

REPURCHASE AGREEMENTS
=====================

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

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

As with any unsecured debt instrument purchased for a Fund, the Advisers
seek 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

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<PAGE>

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), a 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, a Fund, together with other registered investment companies
having advisory agreements with the Advisers 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.

INVESTMENT RESTRICTIONS

The following investment restrictions have been adopted by the Company as
fundamental policies with respect to the relevant Fund 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 Fund. The investment
objective of Capital Growth Fund is fundamental and may not be changed without
the affirmative approval of a majority (as defined in the Act) of the
outstanding voting securities of Capital Growth Fund. The investment objective
of each other Fund and all other investment policies or practices of each Fund
are considered by the Company not to be fundamental and accordingly may be
changed without shareholder approval. See "Investment Objective and Policies"
in each Fund's Prospectus. For purposes of the Act, "majority" means the lesser
of (a) 67% or more of the shares of the Company or a Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Company or a
Fund are present or represented by proxy, or (b) more than 50% of the shares of
the Company or a Fund. 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
Fund. With respect to each Fund's fundamental investment restriction no. 1,
asset coverage of at least 300% (as defined in the Act), inclusive of any
amounts borrowed, must be maintained.

CAPITAL GROWTH FUND AND SELECT EQUITY FUND
==========================================

Each of Capital Growth Fund and Select Equity Fund may not:

1. Borrow money, except (a) for temporary or emergency purposes or for
clearance of transactions in amounts not exceeding

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<PAGE>

10% of the applicable Fund's total assets (in the case of the Capital Growth
Fund not including the amount borrowed); while such borrowings exceed 5% of such
Fund's assets, the Fund will not make any additional investments; and (b) in
connection with the redemption of Fund shares, but only if after each such
borrowing there is asset coverage of at least 300% as defined in the Act. For
purposes of this investment restriction, short sales, the entry into currency
transactions, options, futures contracts, including those relating to indexes,
options on futures contracts or indexes and forward commitment transactions
shall not constitute borrowing.

2. Purchase the securities of any one issuer, other than the United States
Government or any of its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of its total assets would be invested in
such issuer or that Fund would own more than 10% of the outstanding voting
securities of such issuer, except that (a) up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% and 10% limitations and
(b) such 5% limitation shall not apply to repurchase agreements collateralized
by obligations of the United States Government, its agencies or
instrumentalities. (As a matter of non-fundamental policy, under normal
conditions, the securities of any one issuer may not exceed 5% of the Select
Equity Fund's net assets at the time of purchase.)

3. Invest more than 25% of the value of its total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry. This limitation does not apply to investments or obligations of
the U.S. Government or any of its agencies or instrumentalities.

4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indexes, and options on futures contracts or indexes.

5. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but a Fund may make margin
deposits in connection with transactions in currencies, options, futures and
options on futures.

6. Make short sales of securities, except short sales against-the-box, or
maintain a short position.

7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by a

B-51
<PAGE>

Fund may be deemed to be underwriting.

8. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although a Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
for a Fund as a result of the ownership of securities.

9. Invest in commodities except that a Fund may purchase and sell futures
contracts, including those relating to securities, currencies, indexes, and
options on futures contracts or indexes and currencies underlying or related to
any such future contracts, and purchase and sell currencies (and options
thereon) or securities on a forward commitment or delayed-delivery basis as
described in the Prospectuses.

10. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, a Fund may lend its portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets. Any loans of portfolio
securities will be made according to guidelines established by the Securities
and Exchange Commission and the Company's Board of Directors.

11. Issue any senior security (as such term is defined in Section 18(f) of
the Act) except as permitted in Investment Restriction Nos. 1, 4, 5 and 9.

In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment policies in that they may be changed or amended by action of the
Directors of the Company without prior notice to or approval of shareholders.
Accordingly, a Fund may not:

1. Purchase or retain the securities of any issuers if the officers,
directors or partners of the Company, its advisers or managers owning
beneficially more than one-half of 1% of the securities of such issuer, together
own beneficially more than 5% of such securities.

2. Purchase the securities of any issuer if by such purchase a Fund would
own more than 10% of the voting securities of such issuer.

3. Invest more than 10% of its total assets in the securities of other
investment companies or more than 5% of its total assets in the securities of
any one investment company, in each case calculated at the time of purchase, or
acquire more than 3% of the

B-52
<PAGE>

voting securities of any other investment company.

4. Write covered calls or put options with respect to more than 25% of the
value of its net assets, invest more than 25% of its net assets in puts, calls,
spreads or straddles, other than protective put options. The aggregate value of
premiums paid on all options held by a Fund at any time will not exceed 20% of
the Fund's total net assets.

5. Invest (a) more than 15% of its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act");
or (b) more than 15% of its net assets in restricted securities (including those
eligible for resale under Rule 144A).

SMALL CAP FUND
==============

Small Cap Fund may not:

(1) Borrow money, except (a) for temporary or emergency purposes or for
clearance of transactions in amounts not exceeding 10% of the Fund's total
assets, not including the amount borrowed; while such borrowings exceed 5% of
the Fund's total assets, the Fund will not make any additional investments; and
(b) in connection with the redemption of Fund shares, but only if after each
such borrowing there is asset coverage of at least 300% as defined in the Act.
For purposes of this investment restriction, short sales, the entry into
currency transactions, options, futures contracts, including those relating to
indices, options on futures contracts or indices and forward commitment
transactions shall not constitute borrowing.

(2) Invest more than 25% of the value of its total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry. This limitation does not apply to investments or obligations of
the U.S. Government or any of its agencies or instrumentalities.

(3) Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indices, and options on futures contracts or indices.

(4) Purchase securities on margin, except for such short-term credits as are
necessary for the clearance of transactions, but the

B-53
<PAGE>

Fund may make margin deposits in connection with transactions in currencies,
options, futures contracts and options on futures.

(5) Make short sales of securities, except short sales against-the-box, or
maintain a short position.

(6) Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.

(7) Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
for the Fund as a result of the ownership of securities.

(8) Invest in commodities except that the Fund may purchase and sell futures
contracts, including those relating to securities, currencies and indices, and
options on futures contracts, securities, currencies or indices, and purchase
and sell currencies or securities on a forward commitment or delayed-delivery
basis as described in the Prospectus.

(9) Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may lend its portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets.

(10) Issue any senior security (as such term is defined in Section 18(f) of
the Act) except as permitted in Investment Restrictions 1, 3, 4 and 8.

In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment restrictions in that they may be changed or amended by action of the
Directors of the Company without prior notice to or approval of shareholders.
Accordingly, the Fund may not:

1. Purchase the securities of any issuers if the officers, directors or
partners of the Company, its advisers or managers owning beneficially more than
one-half of 1% of the securities of such issuer, together own beneficially more
than 5% of such securities.

2. Invest more than 10% of its total assets in the securities of other
investment companies or more than 5% of its total assets in the securities of
any one investment company, in each case

B-54
<PAGE>

calculated at the time of purchase, or acquire more than 3% of the voting
securities of any other investment company.

3. Write covered calls or put options with respect to more than 25% of the
value of its net assets, invest more than 25% of its net assets in protective
put options or more than 5% of its total assets in puts, calls, spreads or
straddles, or any combination thereof other than protective put options. The
aggregate value of premiums paid on all options held by the Fund at any time
will not exceed 20% of the Fund's total net assets.

4. Invest (a) more than 15% or its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act; or (b) more than 15% of its net
assets in restricted securities (including those eligible for resale under Rule
144A).

5. Purchase the securities of any issuer if, as to 75% of the Fund's
assets at the time of purchase, more than 10% of the voting securities of such
issuer would be held by the Fund.

INTERNATIONAL FUND
==================

International Fund may not:

(1) Borrow money, except from banks on a temporary basis, provided that the
Fund is required to maintain asset coverage of at least 300% for all borrowings.
For purposes of this investment restriction, short sales, transactions in
currency, forward contracts, swaps, options, futures contracts and options on
futures contracts, and forward commitment transactions shall not constitute
borrowing.

(2) Invest more than 25% of the value of its total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry. This limitation does not apply to investments in obligations of
the U.S. Government or any of its agencies, instrumentalities, political
subdivisions or authorities.

B-55
<PAGE>

(4) Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures
contracts and options on futures.

(5) Make short sales of securities, except short sales against-the-box, or
maintain a short position.

(6) Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.

(7) Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
by the Fund as a result of the ownership of securities.

(8) Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts, securities, currencies or indices,
and purchase and sell currencies or securities on a forward commitment or
delayed- delivery basis, as described in the Prospectus.

(9) Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may lend portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets.

(10) Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act) except as permitted in Investment Restriction No. (1).

In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment restrictions in that they may be changed or amended by action of the
Directors of the Company without prior notice to or approval of shareholders.
Accordingly, the Fund may not:

1. Purchase the securities of any issuer if the officers, directors or
partners of the Company, its advisers or managers owning beneficially more than
one-half of 1% of the securities of such issuer, together own beneficially more
than 5% of such securities.

2. Invest more than 10% of its total assets in the securities

B-56
<PAGE>

of other investment companies or more than 5% of its total assets in the
securities of any one investment company, in each case calculated at the time of
purchase, or acquire more than 3% of the voting securities of any other
investment company.

3. Write covered calls or put options with respect to more than 25% of the
value of its total assets or invest more than 5% of its total assets in puts,
calls, spreads or straddles, other than protective put options.

4. Invest (a) more than 15% of its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act; or (b) more than 15% of its net
assets in restricted securities (including those eligible for resale under Rule
144A).

GROWTH AND INCOME FUND
======================

Growth and Income Fund may not:

1. Borrow money, except from banks on a temporary basis in an aggregate
amount not exceeding 10% of the value of the Fund's total assets, provided that
the Fund is required to maintain asset coverage of at least 300% for all
borrowings. For purposes of this investment restriction, forward contracts,
swaps, options, futures contracts and options on futures contracts, and forward
commitment transactions shall not constitute borrowing.

2. Purchase the securities of any one issuer, other than the United States
Government or any of its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of its total assets would be invested in
such issuer or the Fund would own more than 10% of the outstanding voting
securities of such issuer, except that (a) up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% and 10% limitations and
(b) such 5% limitation shall not apply to repurchase agreements collateralized
by obligations of the United States Government, its agencies or
instrumentalities.

B-57
<PAGE>

collateral and initial or variation margin arrangements with respect to currency
transactions, options, futures contracts, including those relating to indices,
and options on futures contracts or indices.

5. Purchase securities on margin, except for such short-term credits as are
necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures
contracts and options on futures.

6. Make short sales of securities (except short sales against-the-box, or
maintain a short position).

7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.

8. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein, securities
of real estate investment trusts and mortgage-related securities and may hold
and sell real estate acquired for the Fund as a result of the ownership of
securities.

9. Invest in commodities except that the Fund may purchase and sell futures
contracts, including those relating to securities, currencies and indices, and
options on futures contracts, securities, currencies or indices, and purchase
and sell currencies or securities on a forward commitment or delayed delivery
basis as described in the Prospectus.

10. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may lend its portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets.

11. Issue any senior security (as such term is defined in Section 18(f) of
the Act) except as permitted in Investment Restriction No. 1.

In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment restrictions in that they may be changed or amended by action of the
Directors of the Company without prior notice to or approval of shareholders.
Accordingly, the Fund may not:

1. Purchase the securities of any issuers if the officers,

B-58
<PAGE>

directors or partners of the Company, its investment advisers or managers owning
beneficially more than one-half of 1% of the securities of such issuer, together
own beneficially more than 5% of such securities.

2. Write covered calls or put options with respect to more than 25% of the
value of its net assets, invest more than 25% of its net assets in protective
put options or more than 5% of its total assets in puts, calls, spreads or
straddles, or any combination thereof other than protective put options. The
aggregate value of premiums paid on all options other than protective put
options, held by the Fund at any time will not exceeds 5% of the Fund's total
net assets.

3. Invest (a) more than 15% of its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act; or (b) more than 15% of its net
assets in restricted securities (including those eligible for resale under Rule
144A).

4. Purchase additional securities while the Fund's borrowings exceed 5% of
its total assets.

ASIA GROWTH FUND
================

The Asia Growth Fund may not:

1. Borrow money, except (a) for temporary or emergency purposes or for
clearance of transactions in amounts not exceeding one-third of the Fund's total
assets, including the amount borrowed; (b) in connection with the redemption of
shares of such Fund or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets; and (c) in order
to fulfill commitments or plans to purchase additional securities pending the
anticipated sale of other portfolio securities or assets, but only if after each
such borrowing there is asset coverage of at least 300% as defined in the Act.
For purposes of this investment restriction, short sales, the entry into
currency transactions, options, futures contracts, including those relating to
indices, options on futures contracts or indices and forward commitment
transactions shall not constitute borrowing.

2. Invest more than 25% of the value of its total assets in the securities
of one or more issuers conducting their principal business activities in the
same industry. This limitation does not apply to investments in obligations of
the U.S. Government or any of its agencies or instrumentalities.

3. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent

B-59
<PAGE>

related to the deposit of assets in escrow in connection with the writing of
covered put and call options and the purchase of securities on a forward
commitment or delayed-delivery basis and collateral and initial or variation
margin arrangements with respect to currency transactions, options, futures
contracts, including those relating to indices, and options on futures contracts
or indices.

4. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures
contracts and options on futures.

5. Make short sales of securities, except short sales against-the-box, or
maintain a short position.

6. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.

7. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
for the Fund as a result of the ownership of securities.

8. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts, securities, currencies or indices,
and purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.

9. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may enter into repurchase agreements and may lend its
portfolio securities in an amount not to exceed 33-1/3% of the value of its
total assets.

10. Issue any senior security (as such term is defined in Section 18(f) of
the Act), except as permitted in fundamental investment restrictions 1, 3, 4 and
8.

In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of the Fund's affairs. These represent
intentions of the Directors based upon current circumstances. They differ from
fundamental investment restrictions in that they may be changed or amended by
action of the Directors of the Company without prior notice to or approval of
shareholders. Accordingly, the Fund may not:

B-60
<PAGE>

2. Invest more than 10% of its total assets in the securities of other
investment companies or more than 5% of its total assets in the securities of
any one investment company, in each case calculated at the time of purchase, or
acquire more than 3% of the voting securities of any other investment company.

3. Write covered calls or put options with respect to more than 25% of the
value of its net assets or invest more than 5% of its net assets in puts, calls,
spreads or straddles, other than protective put options. The aggregate value of
premiums paid on all options held by the Fund at any time will not exceed 5% of
the Fund's total assets.

4. Invest (a) more than 15% of its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act");
or (b) more than 15% of its net assets in restricted securities (including those
eligible for resale under Rule 144A).

5. Purchase the securities of any issuer if, as to 75% of the Fund's
assets at the time of purchase, more than 10% of the voting securities of such
issuer would be held by the Fund.

6. Purchase additional securities if the Fund's borrowings exceed 5% of
its total assets.

BALANCED FUND
=============

The Balanced Fund may not:

1. Borrow money, except (a) from banks for temporary or emergency purposes
or for clearance of transactions in amounts not exceeding one-third of the
Fund's total assets, including the amount borrowed; (b) in connection with the
redemption of shares of such Fund or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other assets; (c)
in order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets and (d)
transactions in mortgage dollar rolls which are accounted for as financings, but
only if after each such borrowing there is asset coverage of at least 300% as
defined in the Act. For purposes of this investment restriction, short sales,
currency transactions, forward contracts, currency, mortgage, index and interest
rate swaps, interest rate

B-61
<PAGE>

caps, floors and collars, options, futures contracts, options on futures
contracts or indices and forward commitment transactions shall not constitute
borrowing.

2. Purchase the securities of any one issuer, other than the U.S.
Government or any or its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of its total assets would be invested in
such issuer or the Fund would own more than 10% of the outstanding voting
securities of such issuer, except that (a) up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% and 10% limitations and
(b) such 5% limitation shall not apply to repurchase agreements collateralized
by obligations of the United States Government, its agencies or
instrumentalities.

5. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures and
options on futures.

6. Make short sales of securities, except short sales against-the-box, or
maintain a short position.

7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.

8. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
for the Fund as a result of the ownership of securities.

9. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities,

B-62
<PAGE>

currencies and indices, and options on futures contracts, securities, currencies
or indices, and purchase and sell currencies or securities on a forward
commitment or delayed-delivery basis.

10. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may enter into repurchase agreements and may lend its
portfolio securities in an amount not to exceed 33-1/3% of the value of its
total assets.

11. Issue any senior security (as such term is defined in Section 18(f) of
the Act) except as permitted in Investment Restriction Nos. 1, 4, 5 and 9.

In addition to the investment restrictions mentioned above, the Directors of
the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment restrictions in that they may be changed or amended by action of the
Directors of the Company without prior notice to or approval of shareholders.
Accordingly, the Fund may not:

2. Write covered calls or put options with respect to more than 25% of the
value of its net assets or invest more than 5% of its net assets in puts, calls,
spreads or straddles, other than protective put options. The aggregate value of
premiums paid on all options, other than protective puts, held by the Fund at
any time will not exceed 5% of the Fund's total net assets.

4. Purchase additional securities if the Fund's borrowings exceed 5% of
its total assets.

5. Purchase equity REITs that are non-self-administered and non-self-
managed if more than 15% of the Fund's total assets would be invested in such
REITs.

For purposes of the foregoing limitations, with respect to each

B-63
<PAGE>

Fund any limitation which involves a maximum percentage will not be violated
unless an excess over the percentage occurs immediately after, and is caused by,
an acquisition or encumbrance of securities or assets of, or borrowings by, a
Fund. With respect to each Fund's fundamental investment restriction regarding
borrowings, the Fund must maintain asset coverage of at least 300% (as defined
in the Act), inclusive of any amounts borrowed.

MANAGEMENT

Information pertaining to the Board of Directors and officers of the Company
is set forth below. Directors and officers deemed to be "interested persons" of
the Company for purposes of the Act are indicated by an asterisk.

NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ====================================

Paul C. Nagel, Jr. 72; Chairman; Retired. Director and
19223 Riverside Dr. Chairman of the Finance and Audit
Tequesta, FL 33469 Committees, Great Atlantic & Pacific Tea Co., Inc.;
Director, United Conveyor Construction.

Ashok N. Bakhru 52; Director; President, ABN Associates,
1235 Westlakes Inc. since June 1994. Retired, Senior
Drive, Suite 385 Vice President of Scott Paper Company;
Berwyn, PA 19312 Director of Arkwright Mutual Insurance Company; Trustee of
International House of Philadelphia; Member of Cornell
University Council; Trustee of the Walnut Street Theatre.

*Marcia L. Beck 39; President and Director; Director
One New York Plaza Institutional Funds Group, GSAM (since
New York, NY 10004 September 1992); Vice President and Senior Portfolio
Manager GSAM from June 1988 to present.

*David B. Ford 49; Director; General Partner, Goldman
One New Plaza Sachs, since 1986. Chairman and Chief
New York, NY 10004 Executive Officer to GSAM since December
1994.

*Alan A. Shuch 45; Director; Director and Vice President
One New York Plaza of Goldman Sachs Fund Management, Inc.
New York, NY 1004 (from April 1990 to November 1994);
President and Chief Operating Officer, GSAM (from September
1988 to November 1994); Limited Partner, Goldman Sachs
(since December 1994).

B-64
<PAGE>

NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ====================================

Jackson W. Smart 64; Director; Chairman and Chief Executive
One Northfield Plaza Officer, MSP Communications Inc. (a company
#218 engaged in radio broadcasting) (since
Northfield, IL November 1988); Consultant, Thomas 60093 Industries, Inc.
(a manufacturer of lighting fixtures, home decorations and
hardware items) (August 1987 to November 1988); Chairman
and member of Executive Committee, Thomas Industries, Inc.
(October 1983 to August 1987); Director, Federal Express
Corporation; Director, North American Private Equity Group
(a venture capital fund).

William H. Springer 65; Director; Vice Chairman of Ameritech
701 Morningside Dr. (a telecommunications holding company;
Lake Forest, IL February 1987 to retirement in August
60045 1992); Vice Chairman, Chief Financial and Administrative
Officer, Ameritech (prior thereto); Director, American
Information Technologies corporation; Director Walgreen Co.
(a retail drugstore business); Director of Baker, Fentress
& Co. (a closed-ended, non-diversified management
investment company).

Richard P. Strubel 55; Director; Managing Director, Tandem
70 West Madison St. Partners, Inc. (since 1990); President
Suite 1400 and Chief Executive Officer, Microdot,
Chicago, IL 60602 Inc. (a diversified manufacturer of
of fastening systems and connectors)
(January 1984 to October 1994).

*Scott M. Gilman 35; Treasurer; Director, Mutual Funds
One New York Plaza Administration, GSAM (since April 1994);
New York, NY 10004 Assistant Treasurer of Goldman Sachs Funds Management, Inc.
(since March 1993); Vice President, Goldman Sachs (since
March 1990); Assistant Treasurer of the Trust (April 1990
to October 1991); formerly Manager, Arthur Andersen LLP
(prior to March 1990).

*Pauline Taylor 48; Vice President; Vice President of
4900 Sears Tower Goldman Sachs (since June 1992);
Chicago, IL 60606 Consultant (1989 to June 1992); Senior
Vice President of Fidelity Investments (prior to 1989).

B-65
<PAGE>

NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
======== ====================================

*John W. Mosior 56; Vice President; Vice President, Goldman
4900 Sears Tower Sachs and Co-Manager of Shareholder
Chicago, IL 60606 Services for GSAM Funds Group

*Nancy L. Mucker 45; Vice President; Vice President, Goldman
4900 Sears Tower Sachs and Co-Manager of Shareholder
Chicago, IL 60606 Services for GSAM Funds Group

*Michael J. Richman 34; Secretary; Vice President and Assistant
85 Broad Street General Counsel of Goldman Sachs (since
New York, NY 10004 June 1992); Associate General Counsel to
the Funds Group, GSAM (since February 1994); Partner, Hale
and Dorr (September 1991 to June 1992); Attorney-at-law,
Gaston & Snow (September 1985 to September 1991).

*Howard B. Surloff 29; Assistant Secretary; Counsel and Vice
85 Broad Street President, Goldman Sachs (since November
New York, NY 10004 1993 and May 1994, respectively); Counsel to the Funds
Group of GSAM (since November 1993); Formerly Associate of
Shereff Riedman, Hoffman & Goodman (prior thereto)

*Steven E. Hartstein 31; Assistant Secretary; Legal Products
85 Broad Street Analyst, Goldman Sachs (June 1993 to
New York, NY 10004 present); Funds Compliance Officer, Citibank Global Asset
Management (August 1991 to June 1993); Legal Assistant,
Brown & Wood (prior thereto).

*Gail M. Shanely 26; Assistant Secretary; Legal Products
85 Broad Street Analyst, Goldman Sachs since June
New York, NY 10004 1994. Formerly Blue Sky Legal Assistant at Smith Barney
Shearson.

_____________

* "Interested person" of the Company for purposes of the Act.

The Company's Directors and officers hold comparable positions with certain
other investment companies of which the Advisers or Goldman Sachs are the
investment adviser, administrator, and/or distributor. As of February 28, 1995,
the Directors and officers of the Company as a group owned less than 1% of the
outstanding shares of common stock of each of the Funds.

The following table sets forth certain information with respect to the
compensation of each Director of the Company for the one-year period ended
January 31, 1995:

B-66
<PAGE>

<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Benefits from Goldman Sachs
Compensation Accrued as Mutual Funds
from the Part of Company's (including) the
Name of Trustee Company Expenses the Company)*
===================== ======== ================= ==================
<S> <C> <C> <C>

Paul C. Nagel, Jr. $ $0 $
Ashok N. Bakhru $ $0 $
Marcia L. Beck $0 $0 $0
David B. Ford $0 $0 $0
Alan A. Shuch $0 $0 $0
Jackson W. Smart $ $0 $
William H. Springer $ $0 $
Richard P. Strubel $ $0 $
</TABLE>
______________
* The Goldman Sachs Mutual Funds consisted of 32 mutual funds, including the
seven series of the Company, on January 31, 1995.

ADVISORY AND ADMINISTRATIVE SERVICES
====================================

As stated in the Funds' Prospectuses, GSFMLP, One New York Plaza, New York,
New York, a Delaware limited partnership, which is an affiliate of Goldman
Sachs, 85 Broad Street, New York, New York, serves as investment adviser to
Capital Growth Fund and Select Equity Fund pursuant to an investment advisory
agreement. GSAM, One New York Plaza, New York, New York, a separate operating
division of Goldman Sachs, serves as investment adviser to Small Cap Fund,
International Fund and Growth and Income Fund pursuant to an investment advisory
agreement. GSAM International, 140 Fleet Street, London, England, EC4A 2BJ acts
as the Investment Adviser and Subadviser to Asia Growth Fund and International
Fund, respectively. GSAM serves as administrator to each Fund pursuant to an
administration agreement. See "Management" in the Funds' Prospectus for a
description of the applicable Adviser's duties as investment adviser or
subadviser and GSAM's duties as administrator to the Funds.

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

B-67
<PAGE>

offices throughout the U.S. and in Beijing, Frankfurt, George Town, Hong Kong,
London, Madrid, Milan, Montreal, Osaka, Paris, Seoul, Shanghai, Singapore,
Sydney, Taipei, Tokyo, Toronto, Vancouver and Zurich. It has trading
professionals throughout the United States, as well as in London, Tokyo, Hong
Kong and Singapore. The active participation of Goldman Sachs in the world's
financial markets enhances its ability to identify attractive investments.

The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $120
million, Goldman Sachs' Investment Research Department covers approximately
1,700 companies, including approximately 1,000 U.S. corporations in 60
industries. The in-depth information and analyses generated by Goldman Sachs'
research analysts are available to the Advisers. 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 connection with Capital Growth Fund's, Small Cap Fund's, International
Fund's, Growth and Income Fund's and Asia Growth Fund's investments in foreign
securities and related transactions in foreign currencies, the Advisers have
access to Goldman Sachs' economics team, which is internationally recognized for
its skill in currency forecasting and international economics.

On behalf of the International Fund and Asia Growth Fund, GSAM and GSAM
International have access to Goldman Sachs' economics research. The Economics
Research Department, based in London, conducts economic, financial and currency
markets research which analyzes economic trends and interest and exchange rate
movement worldwide. The Economics Research Department tracks factors such as
inflation and money supply figures, balance of trade figures, economic growth,
commodity prices, monetary and fiscal policies, and political events that can
influence interest rates and currency trends. The success of Goldman Sachs'
international research team has brought wide recognition to its members. The
team has earned top rankings in the Institutional Investor's annual "All British
Research Team Survey" in the following categories: Economics (U.K.) 1986-1993;
Economics/International 1989-1993; and Currency Forecasting 1986-1993. In
addition, the team has also earned top rankings in the annual "Extel Financial
Survey" of U.K. investment managers in the following categories: U.K. Economy
1989-1994; International Economies 1986, 1988-1994; and Currency Movements 1986-
1993.

B-68
<PAGE>

In allocating assets in International Fund's portfolio among currencies,
GSAM and GSAM International will have access to the Global Asset Allocation
Model developed by Dr. Fischer Black and Robert Litterman, Co-head of Goldman
Sachs' Research and Model Development Group. 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, GSAM and GSAM International will
estimate the total returns from each currency sector which are consistent with
the average investor holding a portfolio equal to the market capitalization of
the financial assets among those currency sectors. These estimated equilibrium
returns are then combined with Goldman Sachs' research professionals'
expectations to produce an optimal currency and asset allocation for the level
of risk suitable for the International Fund's investment objective and criteria.
In allocating the International Fund's assets among currencies, GSAM will also
have access to Goldman Sachs' economics team, which is internationally
recognized for its skill in currency forecasting and international economics.

Each Fund's investment advisory agreement and administration agreement and
International Fund's subadvisory agreement provides that the Advisers and GSAM,
respectively, may render similar services to others so long as the services the
Advisers and GSAM provide thereunder are not impaired thereby.

The advisory agreements with respect to the Funds were most recently
approved by the Directors of the Company, including a majority of the Directors
of the Company who are not parties to the investment advisory agreement or
"interested persons" (as such term is defined in the Act) of any party thereto
(the "non-interested Directors"), on April 26, 1995, and by the shareholders of
each of Capital Growth Fund and Select Equity Fund, respectively, at a
shareholders' meeting held on November 27, 1991 and by the sole initial
shareholder of each of Small Cap Fund, International Fund, Growth and Income
Fund, Asia Growth Fund and Balanced Fund on September 16, 1992, October 23,
1992, January 29, 1993, June 1, 1994 and October 4, 1994, respectively. Each
Fund's agreement will remain in effect until June 30, 1996 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 Fund
or a majority of the Directors of the Company, and (b) the vote of a majority of
the non-interested Directors of the Company, cast in person at a meeting called
for the purpose of voting on such approval. Each advisory agreement will
terminate automatically if assigned (as defined in the Act) and is terminable at
any time without penalty by the Directors of the Company or by vote of a
majority of the outstanding voting securities of each Fund affected thereby on
60 days' written notice to the Advisers and by the Advisers on 60 days' written
notice to the Company.

B-69
<PAGE>

Pursuant to Small Cap Fund's, International Fund's, Growth and Income
Fund's and Balanced Fund's advisory agreements, GSAM is entitled to receive a
fee payable monthly by such Funds equal on an annual basis to 0.75%, 0.25%,
0.55% and 0.50%, respectively, of such Funds' average daily net assets.
Pursuant to Capital Growth Fund's and Select Equity Fund's advisory agreements,
GSFMLP is entitled to receive a fee payable monthly by such Funds equal on an
annual basis to 0.75% and 0.50%, respectively, of such Fund's average daily net
assets. Pursuant to Asia Growth Fund's advisory agreement, GSAM International
is entitled to receive a fee payable monthly by the Fund equal on an annual
basis to 0.75% of the Fund's average daily net assets. GSFMLP voluntarily has
agreed to limit its advisory fee with respect to Select Equity Fund to an annual
rate equal to 0.40% of Select Equity Fund's average daily net assets. Although
it has no current intention to do so, GSFMLP may modify or discontinue such
limitation in the future at its discretion. Finally, pursuant to a separate
Subadvisory Agreement with GSAM International and GSAM, the International Fund
pays GSAM International a monthly subadvisory fee equal on an annual basis to
0.50% of such Fund's average daily net assets. The fee paid by International
Fund to GSAM International is in addition to the fee it pays to GSAM for
advisory services.

For the last three fiscal years the amounts of the investment advisory fees
incurred by each Fund then in existence were as follows:

Balanced Fund/1 / $ $N/A $N/A
Growth and Income Fund/2/ 100,926 N/A
Select Equity Fund/3/ 475,941 662,844
Capital Growth Fund 5,469,962 4,096,495
Small Cap Fund/4/ 941,891 83,455
International Fund/5/ 331,134 25,607
Asia Growth Fund/6/ N/A N/A

-------------------------------------------------------------------------------------------
</TABLE>
1 Commenced operations on October 12, 1994.
2 Commenced operations on February 5, 1993.
3 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSFMLP to limit advisory fees to 0.40% of Select Equity
Fund's average daily net assets.
4 Commenced operations on October 22, 1992.
5 Commenced operations on December 1, 1992.
6 Commenced operations on July 8, 1994.

For the fiscal period from December 1, 1992 (commencement of operations)
through January 31, 1993 and for the fiscal years ended January 31, 1994 and
January 31, 1995, International Fund paid GSAM International subadvisory fees of
$51,214, $662,267 and ______,

B-70
<PAGE>

respectively.

Pursuant to each administration agreement with the Company, GSAM's
administrative obligations include, subject to the general supervision of the
Directors of the Company, (a) providing supervision of all aspects of the
Company's non-investment operations (the parties giving due recognition to the
fact that certain of such operations are performed by others pursuant to
agreements with each Fund), (b) providing the Company, to the extent not
provided pursuant to its custodian and transfer agency agreements or agreements
with other institutions, with personnel to perform such executive,
administrative and clerical services as are reasonably necessary to provide
effective administration of the Company, (c) arranging, to the extent not
provided pursuant to such agreements, for the preparation, at the Company's
expense, of its tax returns, reports to shareholders, periodic updating of the
prospectuses and reports filed with the SEC and other regulatory authorities,
(d) providing the Company, to the extent not provided pursuant to such
agreements, with adequate office space and certain related office equipment and
services, and (e) maintaining all of the Company's records other than those
maintained pursuant to such agreements. GSAM voluntarily has agreed to limit
its administration fee with respect to Select Equity Fund to an annual rate
equal to 0.15% of Select Equity Fund's average daily net assets. Although it
has no current intention to do so, GSAM may modify or discontinue such
limitation in the future at its discretion.

For the last three fiscal years the amounts of the administration fees paid
by each Fund then in existence were as follows:

Balanced Fund/1/ $ $ N/A $ N/A
Growth and
Income Fund/2/ 27,525 N/A
Select Equity Fund/3/ 237,970 331,422
Capital Growth Fund 1,823,321 1,365,498
Small Cap Fund/4/ 313,964 27,818
International Fund/5/ 331,134 25,607
Asia Growth Fund/6/ N/A N/A
</TABLE>
-----------------------------
1 Commenced operations on October 12, 1994.
2 Commenced operations on February 5, 1993.

3 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSAM to Select Equity Fund's administration fee to 0.15%
of the Fund's average daily net assets.

4 Commenced operations on October 22, 1992.

B-71
<PAGE>

5 Commenced operations on December 1, 1992.
6 Commenced operations on July 8, 1994.

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

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

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

In connection with their management of applicable Funds, the Advisers may
have access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Advisers will not be under
any obligation, however, to effect transactions on behalf of the Funds in

B-72
<PAGE>

accordance with such analysis and models. In addition, neither Goldman Sachs
nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Funds and it is not anticipated that the
Advisers will have access to such information for the purpose of managing the
Funds. The proprietary activities or portfolio strategies of Goldman Sachs and
its affiliates or the activities or strategies used for accounts managed by them
or other customer accounts could conflict with the transactions and strategies
employed by the Advisers in managing the Funds.

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

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

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

Each Adviser may enter into transactions and invest in instruments on
behalf of the applicable Funds 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 the Funds, and such party may
have no incentive to assure that the Funds obtain the best possible prices or
terms in connection with the transactions. Goldman Sachs and

B-73
<PAGE>

its affiliates may also create, write or issue derivative instruments or
customers of Goldman Sachs or its affiliates, the underlying securities or
instruments of which may be those in which the Funds invest or which may be
based on the performance of a Fund. The Funds may, subject to applicable law,
purchase investments which are the subject of an underwriting or other
distribution by Goldman Sachs or its affiliates and may also enter transactions
with other clients of Goldman Sachs or its affiliates where such other clients
have interest adverse to those of the Funds. To the extent affiliated
transactions are permitted, the Funds will deal with Goldman Sachs and its
affiliates on an arms'-length basis.

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

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

It is possible that a 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 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 Advisers may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Funds.

DISTRIBUTOR AND TRANSFER AGENT
==============================

Goldman Sachs serves as the exclusive distributor of shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Company dated February 1, 1993. Pursuant to the distribution agreement,
after the Prospectus and

B-74
<PAGE>

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 may enter into sales agreements with certain investment dealers (the
"Authorized Dealers") to solicit subscriptions for shares of the Funds.

For the last three fiscal years the amounts of the sales load retained by
Goldman Sachs for each Fund then in existence were as follows:

1995 1994 1993
==== ==== ====

Balanced Fund/1/ $ $ N/A $ N/A
Growth and Income/2/ 59,000 N/A
Select Equity Fund 37,000 111,000
Capital Growth Fund 859,000 796,000
Small Cap Fund/3/ 1,035,000 456,000
International Fund/4/ 1,121,000 815,000
Asia Growth Fund/5/ N/A N/A

1 Commenced operations on October 12, 1994.
2 Commenced operations on February 5, 1993.
3 Commenced operations on October 22, 1992.
4 Commenced operations on December 1, 1992.
5 Commenced operations on July 8, 1994.

Goldman Sachs serves as the Company's transfer agent. Under its
transfer agency agreement with the Company, Goldman Sachs has undertaken with
the Company 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
Company's custodian and the relevant sub-custodian 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 Company by Goldman Sachs as
transfer agent and the assumption by Goldman Sachs of the expenses related
thereto, Goldman Sachs is entitled to receive a fee with respect to each Fund
(other than Select Equity Fund) equal to $12,000 per year plus $3.50 per
account, together with out-of-pocket and transaction-related expenses (including
those

B-75
<PAGE>

out-of-pocket expenses payable to servicing agents). Select Equity Fund pays
Goldman Sachs a fee for transfer agency service at the foregoing rate with
respect to its Class A share and at a rate equal to 0.40% of Select Equity
Fund's average daily net assets attributable to its Institutional Shares and
Administrative Shares. The transfer agency fees paid by Select Equity Fund with
respect to a particular class are allocated to the shares of such class.

For the last three fiscal years the amounts paid to Goldman Sachs by
each Fund then in existence for transfer agency services performed were as
follows:

<TABLE>
<CAPTION>
1995 1994 1993
==== ==== ====
<S> <C> <C> <C>
Balanced Fund/1/ $ $ N/A $ N/A
Growth and
Income Fund/2/ 74,053 N/A
Select Equity Fund 111,104 115,697
Capital Growth Fund 498,169 382,909
Small Cap Fund/3/ 142,256 23,584
International Fund/4/ 150,203 13,174
Asia Growth Fund/5/ N/A N/A
</TABLE>
-------------------------
1 Commenced operations on October 12, 1994.
2 Commenced operations on February 5, 1993.
3 Commenced operations on October 22, 1992.
4 Commenced operations on December 1, 1992.
5 Commenced operations on July 8, 1994.

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

DISTRIBUTION PLAN
=================

As described in the Prospectus, each Fund has adopted a distribution
plan, (the "Plans") pursuant to Rule 12b-1 under the Act, which, in the case of
Select Equity Fund, is only applicable to its Class A Shares. See "Distribution
Plan" in the Prospectus. Each Plan was amended as of _______, 1995.

The Plans have been approved by a majority vote of Directors of the
Company, including a majority of the non-interested Directors of the Company who
have no direct or indirect financial interest in the Plan, cast in person at a
meeting called for the purpose of approving the Plans. The compensation payable
under

B-76
<PAGE>

each Plan may not exceed 0.25% per annum of each Fund's average daily net
assets.

Except in the case of Select Equity Fund, Goldman Sachs is currently
waiving its entire fee under each Plan. Select Equity Fund is currently paying
a fee under its Plan equal to 0.25% of its average daily net assets attributable
to its Class A shares. Goldman Sachs has no current intention of modifying or
discontinuing its fee waiver but may do so in the future at its discretion.

Each Plan was amended effective May , 1995 to reduce the fee payable
under the Plan from 0.50% of average daily net assets to 0.25% of average daily
net assets and to discontinue to provision of personal and account maintenance
services under the Plan. At the time of such amendment the Board of Directors
approved the authorized dealer service plan pursuant to which personal and
account maintenance services are provided. See "Management --Authorized Dealer
Service Plans." During the fiscal year ended January 31, 1995, Goldman Sachs
limited its fee under each Plan to 0.25% of the Fund's average daily net assets.

For the fiscal year ended January 31, 1995 the amounts paid to Goldman
Sachs pursuant to its Plan by each Fund then in existence were as follows:

1995
====

Balanced Fund/1/
Growth and Income Fund
Select Equity Fund
Capital Growth Fund
Small Cap Fund
International Fund
Asia Growth Fund/2/

-----------------------
1 Commenced operations on October 12, 1994.
2 Commenced operations on July 8, 1994.

Had Goldman Sachs' voluntary limitation not been in effect, Capital
Growth Fund, Select Equity Fund, Small Cap Fund, International Fund, Growth and
Income Fund, Asia Growth Fund and Balanced Fund would have paid Goldman Sachs
$_____, $_____, $____, $_____, $______, $______ and $____, respectively during
1995 pursuant to each of its respective Plans.

B-77
<PAGE>

During the fiscal year ended January 31, 1995, Goldman Sachs incurred
the following expenses in connection with distribution and personal and account
maintenance services under the Plan of each Fund then in existence:
<TABLE>
<CAPTION>

Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature
To Dealers Personnel Expenses Shareholders Advertising
============== ============ ========== ============ ============
<S> <C> <C> <C> <C> <C>

Fiscal Year Ended
January 31, 1995:

Balanced Fund/1/

Growth and
Income Fund

Select
Equity Fund

Capital
Growth Fund

Small
Cap Fund

International
Fund

Asia Growth Fund/2/
________________
</TABLE>
/1/Commenced operation on October 12, 1994.
/2/Commenced operation on July 8, 1994.

B-78
<PAGE>

As set forth above, it is intended that each Fund will pay up to 0.25%
of its average daily net assets to Goldman Sachs for distribution activities on
behalf of such Fund in connection with the sale of such Fund's shares. Goldman
Sachs may pay up to the entire amount of this fee to Authorized Dealers for
providing services in connection with the sale of the Fund's shares. To the
extent such fee is not paid to such dealers, Goldman Sachs may retain such fee
as compensation for its services and expenses in accordance with the Plans. If
such fee exceeds its expenses, Goldman Sachs may realize a profit from these
arrangements.

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

Under the Plans, Goldman Sachs, as distributor of each Fund's shares,
will provide to the Directors of the Company for their review, and the Directors
of the Company 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 June 30, 1996 and from year to
year thereafter, provided such continuances are approved annually by a majority
vote of the Directors of the Company, including a majority of the non-interested
Directors of the Company who have no direct or indirect financial interest in
the Plan. The Plans may not be amended to increase materially the amount to be
spent for the services described therein as to a Fund without approval of a
majority of the outstanding voting securities of the affected Fund. All
material amendments of the Plans must also be approved by the Directors of the
Company in the manner described above. The Plans maybe terminated at any time
as to any Fund without payment of any penalty by a vote of a majority of the
non-interested Directors of the company or by vote of a majority of the
outstanding voting securities of the affected Plan. So long as the Plans are in
effect, the selection and nomination of non-interested Directors of the Company
shall be committed to the discretion of the non-interested Directors of the
Company. The Directors of the Company have determined that in their judgment
there is a reasonable likelihood that the Plan will benefit the Funds and their
shareholders.

The Plans with respect to the Funds were most recently approved by the
Directors of the Company, including the

B-79
<PAGE>

non-interested Directors of the Company, at a meeting held on April 26, 1995,
and by the shareholders of each of Capital Growth Fund and Select Equity Fund at
a shareholders' meeting held on November 27, 1991. The Plans were approved by
the sole initial shareholder of each of Small Cap Fund, International Fund,
Growth and Income Fund, Asia Growth Fund and Balanced Fund on September 16,
1992, October 23, 1992, January 29, 1993, June 1, 1994 and October 4, 1994,
respectively.

AUTHORIZED DEALER SERVICE PLAN
==============================

As described in the prospectus, each Fund has adopted a non-Rule 12b-1
authorized Dealer Service Plan (the "Service Plan") pursuant to which Goldman
Sachs and Authorized Dealers are compensated for the provision of personal and
account maintenance services. Each Service Plan has been approved by the Board
of Directors, including a majority of the non-interested Directors who have no
direct or indirect financial interest in the Service Plan, at a meeting held on
April , 1995. Each Service Plan provided for the compensation for personal
and account maintenance services at an annual rate of up to 0.25% of a Fund's
average daily net assets, or in the case of Select Equity Fund, average daily
net assets attributable to its Class A shares.

The Service Plans will remain in effect until June 30, 1996 and from
year to year thereafter, provided such continuances are approved annually by a
majority vote of the Directors of the Company, including a majority of the non-
interested Directors of the Company who have no direct or indirect financial
interest in the Service Plans. All material amendments of the Plans must also
be approved by the Directors of the Company in the manner described above. The
Service Plans 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 Directors of the
Company or by vote of a majority of the outstanding voting securities of the
affected Service Plan. The Directors of the Company have determined that in
their judgment there is a reasonable likelihood that the Service Plans will
benefit the Funds and their shareholders.

EXPENSES
========

Except as set forth in the Prospectus under "Management", the Company
is responsible for the payment of its expenses. The expenses include, without
limitation, the fees payable to the Advisers, the fees payable to GSAM, the fees
and expenses payable to the Company's custodian, transfer agent fees, brokerage
fees and commissions, filing fees for the registration or qualification of the
Company's shares under federal or state securities laws, expenses of the
organization of the Company, fees and expenses incurred by the Company in
connection with membership in investment company organizations, taxes, interest,
costs of liability insurance, fidelity bonds or indemnification, any costs,
expenses

B-80
<PAGE>

or losses arising out of any liability of, or claim for damages or other relief
asserted against, the Company 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, GSAM International and Goldman Sachs with respect
to the Company), 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 Company's shareholders and
regulatory authorities, any expenses assumed by a Fund pursuant to its
distribution, service and administration plans, compensation and expenses of its
"non-interested" Directors and extraordinary expenses, if any, incurred by the
Company. In the case of Select Equity Fund, the fees under service,
distribution and administration plans and transfer agency fees are allocated to
the class to which such expenses relate and are not borne by the Fund's
shareholders. The Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Balanced, Asia, Growth and Growth and Income Funds
(excluding advisory), administration, and distribution and service fees, taxes,
interest, brokerage fees and litigation, indemnification and other
extraordinary expenses) for the fiscal year ended January 31, 1995 to the extent
such expenses exceed 0.10% of the average daily net assets of Balanced Fund,
0.32% of the average daily net assets of Growth and Income Fund and 0.65% of the
average daily net assets of Asia Growth Fund. Such reductions or limits, if
any, are calculated monthly on a cumulative basis and may be discontinued or
modified by the Advisor at its discretion at any time.

For the last three fiscal years the amounts of the expenses of each
Fund then in existence that were reduced or otherwise limited were as follows:
<TABLE>
<CAPTION>

1995 1994 1993
======= ====== ====
<S> <C> <C> <C>

Balanced Fund/1/ N/A N/A
Growth and Income Fund/2/ 319,899 N/A
Select Equity Fund N/A N/A N/A
Capital Growth Fund N/A N/A N/A
Small Cap Fund/3/ 0 89,147
International Fund/4/ 0 53,775
Asia Growth Fund/5/ N/A N/A
</TABLE>
______________________________

/1/ Commenced operation on October 12, 1994.
/2/ Commenced operations on February 5, 1993.
/3/ Commenced operations on October 22, 1992.
/4/ Commenced operations on December 1, 1992.
/5/ Commenced operation on July 8, 1994.

Each Adviser has voluntarily agreed to reduce the fees payable

B-81
<PAGE>

to it by a Fund (to the extent of its fees) by an amount (if any) that the
Fund's expenses (including the advisory (subadvisory for the International Fund
only) and administration and fees payable to the Advisers, but excluding taxes,
interest, brokerage, fees and distribution, service and administration fees and,
where permitted, extraordinary expenses such as for litigation) would exceed the
expense limitations applicable to such Fund imposed by states securities
administrators, as such limitations may be lowered or raised from time to time.
The Advisers will reduce their respective fees payable by the amount of such
excess in amounts proportionate to the fees payable under such investment
advisory (subadvisory for the International Fund only) and administration
agreements. Currently, the most restrictive expense limitation of state
securities commissions of which the Company is aware is 2-1/2% of a Fund's
average daily net assets up to $30 million, 2% of the next $70 million of such
assets and 1-1/2% of such assets in excess of $100 million. Fees and expenses
of legal counsel, registering shares of a Fund, holding meetings and
communicating with shareholders may include an allocable portion of the cost of
maintaining an internal legal and compliance department. Each Fund may also
bear an allocable portion of the applicable Adviser's costs of performing
certain accounting services not being provided by the Fund's custodian.

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

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

INDEPENDENT PUBLIC ACCOUNTANTS
==============================

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

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Advisers are responsible for decisions to buy and sell securities
for the Funds, 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
negotiated commission for their services. Orders may be directed to any broker
including, to the extent and in the manner permitted

B-82
<PAGE>

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. A Fund will not deal with Goldman Sachs
in any transaction in which Goldman Sachs acts as principal.

In placing orders for portfolio securities of a Fund, the Advisers are
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that an Adviser will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. While the
Advisers generally seek reasonably competitive spreads or commissions, a Fund
will not necessarily be paying the lowest spread or commission available.
Within the framework of this policy, the Advisers will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, the 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 statistical
and economic data and research reports on particular companies and industries.
Such services are used by the Advisers in connection with all of their
investment activities, and some of such services obtained in connection with the
execution of transactions for a 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 a Fund, and the services furnished by such brokers may be
used by the Advisers in providing investment advisory services for the Company.
On occasions when an Adviser deems the purchase or sale of a security to be in
the best interest of a Fund as well as its other customers (including any other
fund or other investment company or advisory account for which such Adviser acts
as investment adviser or subadviser), the Adviser, to the extent permitted by
applicable laws and regulations, may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the applicable Adviser in
the manner it considers to be most equitable and consistent with its fiduciary
obligations to such Fund and such other customers. In some instances, this
procedure may adversely

B-83
<PAGE>

affect the price and size of the position obtainable for a Fund.

Commission rates 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
Directors of the Company.

Subject to the above considerations, the Advisers may use Goldman
Sachs as a broker for a Fund. In order for Goldman Sachs to effect any
portfolio transactions for a 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 Directors of the Company, including a majority of
the Directors who are not "interested" Directors of the Company, 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.

In addition, Goldman Sachs, as a member firm of the New York Stock
Exchange may effect exchange transactions and receive compensation therefor if
expressly so authorized in a written contract with the Company. The Company, on
behalf of each Fund, has entered into such a contract with Goldman Sachs.
Goldman Sachs will provide the Company at least annually with a statement
setting forth the total amount of all compensation retained by Goldman Sachs in
connection with effecting transactions for the accounts of the Funds. The
Directors of the Company will review and approve all the Funds' portfolio
transactions with Goldman Sachs and the compensation received by Goldman Sachs
in connection therewith. The Company, of course, will effect its portfolio
transactions in a manner consistent with all applicable laws.

B-84
<PAGE>

For the past three fiscal years, each Fund in existence paid
brokerage commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
============= =========== =========== ===========
<S> <C> <C> <C> <C>

Fiscal Year Ended
January 31, 1995:

Balanced Fund/(1)/

Growth and Income
Fund

Select Equity Fund

Capital Growth Fund $ ( %)/(2)/ $( %)/(5)/

Small Cap Fund

International Fund

Asia Growth Fund/(4)/
</TABLE>

B-85
<PAGE>

<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== =========== ============ ==========
<S> <C> <C> <C> <C>

Fiscal Year Ended
January 31, 1994:

Growth and
Income Fund/(5)/ 2,974,075 274,704 74,091,306 -0-
(9%)/(2)/ (27%)/(3)/
Select Equity
Fund 187,041 3,857 306,043,566 -0- (2%)/(2)/(1%)/(3)/
Capital Growth
Fund $1,448,921 $ 225,448 $652,557,899 -0- (16%)/(2)/(12%)/(3)/
Small Cap
Fund 448,145 27,826 520,543,798 -0- (6%)/(2)/(1%)/(3)/
International
Fund 765,594 -0- 202,360,486 -0- (0%)/(2)/(0%)/(3)/
Fiscal Year Ended
January 31, 1993:

Select Equity
Fund 466,732 99,522 83,349,921 -0- (21%)/(2)/(21%)/(3)/
Capital Growth
Fund 2,211,707 346,972 124,894,275 -0- (16%)/(2)/(19%)/(3)/
Small Cap
Fund/(6)/ 59,030 8,379 2,208,078 -0- (14%)/(2)/(5%)/(3)/

</TABLE>

B-86
<PAGE>

International
Fund/(7)/ 124,560 0 0 -0- (0%)/(2)/(0%)/(3)/

</TABLE>

1 Balanced Fund commenced operations on October 12, 1994.
2 Percentage of total commissions paid.
3 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
4 Asia Growth Fund commenced operations on July 8, 1994.
5 Growth and Income Fund commenced operations on February 5, 1993.
6 Small Cap Fund commenced operations on October 22, 1992.
7 International Fund commenced operations on December 1, 1992.

B-87
<PAGE>

During the fiscal year ended January 31, 1995, the Company acquired
and sold securities of its regular broker-dealers. ________________ As of
January 31, 1995, the Company held the following amounts of securities of its
regular broker/dealers, as defined in Rule 10b-1 under the Act, or their parents
($ in thousands): ___________________________________

NET ASSET VALUE

Under the Act, the Directors of the Company are responsible for
determining in good faith the fair value of securities of each Fund. In
accordance with procedures adopted by the Directors of the Company, the net
value per share is calculated by determining the net of each Fund (and, in the
case of Select Equity Fund, each class thereof) (assets, including securities at
value, minus liabilities) divided by the number of shares outstanding (or in the
case of Select Equity Fund, each class thereof). All securities are valued as
of the close of regular trading on the New York Stock Exchange (normally 4:00
p.m. New York time) on each Business Day (as 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 Directors of the Company
will reconsider the time at which net asset value is computed. In addition,
each Fund may compute its net asset value as of any time permitted pursuant to
any exemption, order or statement of the SEC or its staff.

Portfolio securities of the Fund for which accurate market quotations
are available are valued as follows: (a) securities listed on any U.S. or
foreign stock exchange or on the Nasdaq National Market ("NASD") 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 principally: (i) on a U.S. exchange or NASDAQ will be valued
at the mean between the closing bid and asked prices; and (ii) on a foreign
exchange will be valued at the last sale price (also referred to as the close
price). The last sale price for securities traded principally on a foreign
exchange will be determined as of the close of the London Stock Exchange or, for
securities traded on exchanges located in the Asia Pacific region, noon London
time; (b) over-the-counter securities not quoted on NASD 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) exchange traded options and futures contracts
will be valued at the last sale price in the market where such contracts are
principally traded; (d) forward foreign currency exchange contracts will be
valued using a pricing service (such as Reuters), then calculating the mean
between the last bid and asked quotations supplied by certain independent
dealers in such

B-88
<PAGE>

contracts; (e) debt securities, other than moneymarket instruments, will be
valued on the basis of dealer-supplied quotations or by using a pricing service
approved by the Board of Directors if such prices are believed by the Investment
Adviser to accurately represent market value; money market instruments, which
are defined as those debt securities with a remaining maturity of 60 days or
less, will be valued at amortized cost; (f) overnight repurchase agreements will
be valued at cost and term repurchase agreements will be valued at the average
of bid quotations obtained daily from at least two recognized dealers; (g) OTC
and exchange traded options will be valued by an independent unaffiliated broker
identified by the portfolio manager/trader and contacted by the custodian bank;
and (h) all other securities, including those for which a pricing service
supplies no quotation or a quotation that is believed by the portfolio
manager/trader to be inaccurate, will be valued at fair value in accordance with
procedures established by the Board of Directors of the Company.

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 Capital Growth Fund's, Small
Cap Fund's, International Fund's, Asia Growth Fund's and Balanced Fund's net
asset value is 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 a Fund's calculation of net asset values unless the Directors deem
that the particular event would materially affect net asset value, in which case
an adjustment will be made.

The proceeds received by the existing Funds and each additional Fund
(as defined herein under "Shares of the Company") established by the Directors
of the Company for each 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 Fund and constitute
the underlying assets of that Fund. The underlying assets of each Fund will be
segregated on the books of account, and will be charged with the liabilities in
respect of such Fund and with a share of the general liabilities of the
Company. Expenses of the company with respect to the Funds are generally
allocated in proportion to the net asset values of the respective Funds except
where allocations of direct expenses can otherwise be fairly made.

B-89
<PAGE>

OTHER INFORMATION REGARDING PURCHASES, REDEMPTIONS,
EXCHANGES AND DIVIDENDS

The following information supplements the information in the
Prospectus under the captions "Purchase of Shares," Redemption of Shares" and
"Dividends." Please see the Prospectus for more complete information.

OTHER PURCHASE INFORMATION

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

RIGHT OF ACCUMULATION

A shareholder qualifies for cumulative quantity discounts if the
current purchase price of the new investment plus the shareholder's current
holdings of existing shares (acquired by purchase or exchange) of the Funds and
shares of any other Goldman Sachs Portfolio total the requisite amount for
receiving a discount. For example, if a shareholder owns shares with a current
market value of $35,000 and purchases additional shares with a purchase price of
$25,000, the sales charge for the $25,000 purchase would be 4.75% (the rate
applicable to a single purchase of $60,000). Shares purchased without the
imposition of a sales charge may not be aggregated with shares purchased subject
to a sales charge. Shares of the Funds and any other Goldman Sachs Portfolio
purchased (i) by an individual, his spouse and his minor children, and (ii) by a
trustee, guardian or other fiduciary of a single trust estate or a single
fiduciary account, will be combined for the purpose of determining whether a
purchase will qualify for such right of accumulation and, if qualifying, the
applicable sales charge level. For purposes of applying the right of
accumulation, shares of the Funds and any other Goldman Sachs Portfolio
purchased by an existing client of the Private Client Services Division of
Goldman Sachs will be combined with shares held by any other account over which
such client or the client's spouse exercises investment or voting power. In
addition, shares of the Funds and shares of any other Goldman Sachs Portfolio
purchased by partners, directors, officers or employees of the same

B-90
<PAGE>

business organization or by groups of individuals represented by and investing
on the recommendation of the same accounting firm or other similar organization
(collectively, "eligible persons") may be combined for the purpose of
determining whether a purchase will qualify for the right of accumulation and,
if qualifying, the applicable sales charge level. This right of accumulation is
subject to the following conditions: (i) the business organization's or firm's
agreement to cooperate in the offering of the Funds' shares to eligible persons;
and (ii) notification to the Funds at the time of purchase that the investor is
eligible for this right of accumulation.

STATEMENT OF INTENTION

If a shareholder anticipates purchasing at least $50,000 of shares of
a Fund alone or in combination with shares of any other Goldman Sachs Portfolio
within a 13-month period, the shareholder may purchase shares of the Fund at a
reduced sales charge by submitting a Statement of Intention (the "Statement").
Shares purchased pursuant to a Statement will be eligible for the same sales
charge discount that would have been available if all of the purchases had been
made at the same time. The shareholder or his Authorized Dealer must inform
Goldman Sachs that the Statement is in effect each time shares are purchased.
There is no obligation to purchase the full amount of shares indicated in the
Statement. A shareholder may include the value of all 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
shares purchased within ninety (90) days before submitting the Statement. The
Statement authorizes the Transfer Agent to hold in escrow a sufficient number of
shares which can be redeemed to make up any difference in the sales charge on
the amount actually invested. For purposes of satisfying the amount specified
on the Statement, the gross amount of each investment, exclusive of any
appreciation on shares previously purchased, will be taken into account.

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS

A Fund shareholder should obtain and read the prospectus relating to
any other Goldman Sachs Portfolio or ILA Portfolio and its shares or units and
consider its investment objective, policies and applicable fees before electing
cross-reinvestment into that fund. 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 Portfolios or in units of ILA
Portfolios is available only in states where such reinvestment may legally be
made.

B-91
<PAGE>

AUTOMATIC EXCHANGE PROGRAM

The names, addresses and social security or other taxpayer
identification numbers for the shareholder accounts with the exchanged and
acquired funds must be identical. A Fund shareholder should obtain and read the
prospectus relating to any other Goldman Sachs Portfolio and its shares and
consider its investment objective, policies and applicable fees and expenses
before electing an automatic exchange into that Goldman Sachs Portfolio.

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan (the "Systematic Withdrawal Plan") is
available to shareholders of a Fund whose shares are worth at least $10,000.
The Systematic Withdrawal Plan provides for monthly payments to the
participating shareholder of any amount not less than $50.

Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the applicable Fund at net asset value. The Transfer Agent acts as
agent for the shareholder in redeeming sufficient full and fractional shares to
provide the amount of the systematic withdrawal payment. The Systematic
Withdrawal Plan may be terminated at any time. Goldman Sachs reserves the right
to initiate a fee of up to $5 per withdrawal, upon thirty (30) days' written
notice to the shareholder. Withdrawal payments should not be considered to be
dividends, yield or income. If periodic withdrawals continuously exceed new
purchases and reinvested dividends and capital gains distributions, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Furthermore, 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.

DIVIDENDS

Net loss, if any, from certain foreign currency transactions or
instruments that is otherwise taken into account in calculating net investment
income or net realized capital gains for accounting purposes may not be taken
into account in determining the amount of dividends to be declared and paid,
with the result that a portion of a Fund's dividends may be treated as a return
of capital, nontaxable to the extent of a shareholder's tax basis in his shares.
In determining amounts of capital gains to be distributed, capital losses,
including any available capital loss carryovers from prior years, will be offset
against capital gains realized during the current year.

B-92
<PAGE>

PERFORMANCE INFORMATION

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

Yield is computed by dividing net investment income earned during a
recent thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.

The distribution rate for a specified period is calculated by
annualizing distributions of net investment income for such period and dividing
this amount by the net asset value per share of 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 at the beginning of the
period, and then calculating the annual compounded rate of return which would
produce that amount, assuming a redemption 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. The following table
indicates the total return (capital changes plus reinvestment of all
distributions) on a hypothetical investment of $1,000 in a Fund for the periods
indicated.

Occasionally statistics may be used to specify Fund volatility or
risk. Measures of volatility or risk are generally used to compare a fund's net
asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market. A beta of more than 1.00 indicates volatility greater than the market,
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation.

B-93
<PAGE>

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 Company may publish an indication of its 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, Changing Times, Financial World, Forbes, Fortune, Money, Personal
Investor, Sylvia Porter's Personal Finance and The Wall Street Journal. The
Company may also advertise information which has been provided to the NASD for
publication in regional and local newspapers. In addition, the Company may from
time to time advertise its performance relative to certain indices and benchmark
investments, including: (a) the Lipper Analytical Services, Inc. Mutual Fund
Performance Analysis, Fixed Income Analysis and Mutual Fund Indices (which
measure total return and average current yield for the mutual fund industry and
rank mutual fund performance); (b) the CDA Mutual Fund Report published by CDA
Investment Technologies, Inc. (which analyzes price, risk and various measures
of return for the mutual fund industry); (c) the Consumer Price Index published
by the U.S. Bureau of Labor Statistics (which measures changes in the price of
goods and services); (d) Stocks, Bonds, Bills and Inflation published by
Ibbotson Associates (which provides historical performance figures for stocks,
government securities and inflation); (e) the Salomon Brothers' World Bond Index
(which measures the total return in U.S. dollar terms of government bonds,
Eurobonds and foreign bonds of ten countries, with all such bonds having a
minimum maturity of five years); (f) the Lehman Brothers Aggregate Bond Index or
its component indices; (g) the Standard & Poor's Bond Indices (which measure
yield and price of corporate, municipal and U.S. Government bonds); (h) the
J.P. Morgan Global Government Bond Index; (i) other taxable investments
including certificates of deposit (CDs), money market deposit accounts (MMDAs),
checking accounts, savings accounts, money market mutual funds 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) the Value-Line Composite-Price Return; (p) the
Wilshire 4500 Index; (q) the FT-Actuaries Europe and Pacific Index, and (r)
historical investment data supplied by the research departments of Goldman
Sachs, Lehman Brothers, First Boston Corporation, Morgan Stanley including
(EAFE), and the Morgan Stanley Capital International Combined Asia ex Japan Free
Index, Salomon Brothers, Merrill Lynch, Donaldson Lufkin and Jenrette or other
providers of such data and (r) the FT-Actuaries Europe and Pacific Index. The
composition of the investments in such indices and the characteristics of such

B-94
<PAGE>

benchmark investments are not identical to, and in some cases are very different
from, those of the Fund's portfolio. 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 Fund to calculate its
performance figures.

B-95
<PAGE>

VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
=============== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>

Capital ended
Growth
Fund 4/20/90* 1/31/95 $1,000

-Assumes 5.5% $_______ ___% ____%
sales charge
-Assumes no $_______ ____% ____%
sales charge
one year
ended
2/1/94 1/31/95 $1,000

-Assumes 5.5%
sales charge $_______ ___% ____%
-Assumes no
sales charge $_______ ___% ____%
</TABLE>
B-96
<PAGE>

<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
=============== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Select
Equity Fund 5/24/91* ended
1/31/95 $1,000
-Assumes 5.5%
sales charge $_______ ___% ____%
-Assumes no
sales charge $_______ ___% ____%

one year
2/1/94 ended
1/31/95 $1,000

-Assumes 5.5%
sales charge $_______ ___% ____%
-Assumes no
sales charge $_______ ___% ____%
</TABLE>

B-97
<PAGE>

(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
=============== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Small
Cap Fund 10/22/92* ended $1,000
1/31/95

-Assumes 5.5%
sales charge $_______ ___% ____%
-Assumes no
sales charge $_______ ___% ____%
one year
ended
2/1/94 1/31/95 $1,000

-Assumes 5.5%
sales charge $_______ ___% ____%
-Assumes no
sales charge $_______ ___% ____%
</TABLE>

B-98
<PAGE>

Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
=============== =========== ========== ======== =============== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
International
Fund/**/ 2/1/92* ended $1,000
1/31/95

-Assumes 5.5%
sales charge $_______ ___% ____%
-Assumes no
sales charge $_______ ___% ____%

one year
ended
2/1/94 1/31/95 $1,000

-Assumes 5.5%
sales charge $_______ ___% ____%
-Assumes no
sales charge $_______ ___% ____%
</TABLE>

B-99
<PAGE>

Growth
and Income ended
Fund 2/5/94* 1/31/95 $1,000

-Assumes 5.5%
sales charge $_______ ___% ____%
-Assumes no
sales charge $_______ ___% ____%

2/1/94 one year
ended
1/31/95 $1,000

-Assumes 5.5%
sales charge $_______ ___% ____%
-Assumes no
sales charge $_______ ___% ____%

Asia Growth ended
Fund 7/8/94* 1/31/95 $1,000

-Assumes 5.5%
sales charge $_______ ___% ____%
-Assumes no
sales charge $_______ ___% ____%
</TABLE>

B-100
<PAGE>

Balanced ended
Fund 10/12/94* 1/31/95 $1,000

-Assumes 5.5%
sales charge $_______ ___% ____%
-Assumes no
sales charge $_______ ___% ____%

</TABLE>

* Commencement of Operations
** Assumes no voluntary waives of
fees and no expense reimbursement.

B-101
<PAGE>

From time to time, advertisements or information may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. 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 Company 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 Fund's investments and
discussions of a Fund's current asset allocation.

Such performance data will be based on historical results and will not
be intended to indicate future performance. A Fund's total return and yield
will vary based on market conditions, portfolio expenses, portfolio investments
and other factors. The value of a Fund's shares will fluctuate and an
investor's shares may be worth more or less than their original cost upon
redemption. The Company may also, at its discretion, from time to time make a
list of a Fund's holdings available to investors upon request.

SHARES OF THE COMPANY

The Funds are series of the Company, which is a Maryland corporation
authorized to issue 1,000,000,000 shares of common stock. The Company assumed
its present name in May 1991. Prior thereto, the name of the Company was
Goldman Sachs Capital Growth Fund, Inc. Each Fund commenced "doing business"
under the name used herein in February 1994. As specified in the Company's
Charter, the names of the Funds are GS Balanced Fund, GS Asia Growth Fund, GS
Capital Growth Fund, GS Select Equity Fund, GS Small Cap Equity Fund, GS
International Equity Fund, GS Growth and Income Fund and GS Diversified Core
Equity Fund. The Directors of the Company have authority under the Company's
Charter to create and classify shares of capital stock in separate series
without further action by shareholders. As of the date of this Additional
Statement, the Directors of the Company have authorized shares of eight series,
seven of which are described in this Additional Statement. Additional series
may be added in the future. The Directors also have authority to classify and
reclassify any series or portfolio of shares into one or more classes. As of
the date of this Additional Statement, Select Equity Fund shares are divided
into three classes: Institutional Shares, Administration Shares and Class A
Shares. Each class of Select Equity Fund's shares are subject to different fees
and expenses (which will affect performance), different minimum investment
requirements and different services. An investor can obtain information
regarding each class from the investor's sales representative or by calling
Goldman Sachs at the address on the cover page of this Additional Statement.
The Act requires that where more than one class or series of shares exists, each
class or series must be preferred

B-102
<PAGE>

over all other classes or series in respect of assets specifically allocated to
such class or series.

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 relevant Fund available for distribution to such shareholders. All shares
entitle their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights.

As of __________ __, 1995, Goldman Sachs Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Gary S. Gounaris, 85
Broad Street, 7th Floor, New York, New York 10004-2434 was the holder of record
of __% of Capital Growth Fund's and __% of Select Equity Fund's outstanding
shares. In addition, as of the same date,[5% SHAREHOLDERS].

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 Company 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 directors from the separate voting
requirements of Rule 18f-2.

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 Fund of the Company. 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 Fund. The summary is based on the laws in effect on the date of this
Additional Statement, which are subject to change.

GENERAL
=======

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

B-103
<PAGE>

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

If a Fund complies with such provisions, then in any taxable year in
which such Fund distributes at least 90% of its "investment

B-104
<PAGE>

company taxable income" (which includes dividends, interest, 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 and certain
net realized foreign exchange gains and is reduced by deductible expenses), such
Fund (but not its shareholders) will be relieved of federal income tax on any
income of the Fund, including long-term capital gains, distributed to
shareholders. However, if a Fund 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 the Fund retains any net capital gain the Fund 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 capital gain, their shares of such undistributed amount,
and (ii) will be entitled to credit their proportionate shares of the tax paid
by the Fund against their U.S. federal income tax liabilities, if any, and to
claim refunds to the extent the credit exceeds such liabilities. For U.S.
federal income tax purposes, the tax basis of shares owned by a shareholder of
the Fund will be increased by an amount equal under current law to 65% of the
amount of undistributed net capital gain included in the shareholder's gross
income. Each Fund intends to distribute at least annually to its shareholders
all or substantially all of its investment company taxable income and net
capital gain. If for any taxable year a Fund fails to distribute at least 90%
of its investment company taxable income or otherwise does not qualify as a
regulated investment company, all of its investment company taxable income and
net capital gain will be taxed to it 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.

Except for Growth and Income Fund, Asia Growth Fund and Balanced Fund,
which were not then in existence, the Funds have received a private letter
ruling from the Internal Revenue Service which confirms that each Fund's
issuance of multiple classes of shares will not adversely affect its tax status
and the tax treatment of its distributions.

In order to avoid a 4% federal excise tax, each Fund must distribute
(or be deemed to have distributed) by December 31 of each calendar year at least
98% of its taxable ordinary income for such year, at least 98% of the excess of
its 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 in such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or

B-105
<PAGE>

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.

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 a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, 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 a 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 Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The short-short test described above may limit a Fund's ability to use
options, forward contracts, and futures transactions as well as its ability to
engage in short sales. The tax provisions described above applicable to
options, futures and forward contracts may affect the amount, timing and
character of a Fund's distributions to shareholders. Moreover, application of
certain requirements for qualification as a regulated investment company and/or
these tax rules to certain derivatives such as currency swaps may be unclear in
some respects, and a Fund may therefore be required to limit its participation
in such transactions. Certain tax elections may be available to a 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 a 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.

A Fund's investment in zero coupon securities, deferred interest
securities or other securities bearing original issue

B-106
<PAGE>

discount or, if a Fund elects to include market discount in income currently,
market discount, will cause it to realize income prior to the receipt of cash
payments with respect to these securities. In order to distribute this income,
maintain its qualification as a regulated investment company and avoid federal
income or excise taxes, the Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold.

Each Fund anticipates that it will be subject to foreign taxes on its
income (possibly including, in some cases, capital gains) from foreign
securities. Tax conventions between certain countries and the U.S. may reduce
or eliminate such taxes. If, as may occur only for the Asia Growth and
International Funds, more than 50% of a Fund's total assets at the close of any
taxable year consists of stock or securities of foreign corporations, the Fund
may file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in income (in addition
to taxable distributions actually received) their pro rata shares of foreign
income taxes paid by the Fund that are treated as income taxes under U.S. tax
regulations (which excludes, for example, stamp taxes, securities transaction
taxes, and similar taxes) even though not actually received, and (ii) treat such
respective pro rata portions as foreign taxes paid by them.

If the Asia Growth and International Funds make this election, their
respective 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.
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 the Asia Growth and International Funds, although such
shareholders will be required to include their shares of such taxes in gross
income if the election is made.

If a shareholder chooses to take credit for the foreign taxes deemed
paid by such shareholder as a result of any such election by Asia Growth and
International Funds, the amount of the credit that may be claimed in any year
may not exceed the same proportion of the U.S. tax against which such credit is
taken which the shareholder's taxable income from foreign sources (but not in
excess of the shareholder's entire taxable income) bears to his entire taxable
income. For this purpose, distributions from long-term and short-term capital
gains or foreign currency gains by a Fund will generally not be treated as
income from foreign sources. This foreign tax credit limitation may also be
applied separately to certain specific categories of foreign-source income and
the related foreign taxes. As a result of these rules, which have different
effects depending upon each shareholder's particular tax situation, certain
shareholders of Asia Growth and International Funds may not be able to claim a
credit for the full amount of their proportionate share of the foreign taxes
paid by such Fund.

B-107
<PAGE>

Shareholders who are not liable for U.S. income taxes, including tax-
exempt shareholders, will ordinarily not benefit from this election. Each year
that the Asia Growth and International Funds file the election described above,
their respectie shareholders will be notified of the amount of (i) each
shareholder's pro rata share of qualified foreign taxes paid by a Fund and (ii)
the portion of Fund dividends which represents income from each foreign country.
The other Funds will not be entitled to elect to pass foreign taxes and
associated credits or deductions through to their shareholders because they will
not satisfy the 50% requirement described above. If a Fund cannot or does not
make this election, it may deduct such taxes in computing its investment company
taxable income.

If a Fund acquires stock in certain non-U.S. corporations that receive
at least 75% of their annual gross income from passive sources (such as sources
that produce interest, dividend, rental, royalty or capital gain income) or hold
at least 50% of their assets in such passive sources ("passive foreign
investment companies"), the 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 Fund is timely distributed to its shareholders.
The 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
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 its investments in passive foreign investment companies or dispose of
such investments if potential adverse tax consequences are deemed material in
particular situations.

Investments in lower-rated securities may present special tax issues
for a 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 a 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 a Fund, in the event it invests in such securities, in order to
eliminate or minimize any adverse tax consequences.

U.S. SHAREHOLDERS - DISTRIBUTIONS
=================================

For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax.

B-108
<PAGE>

Shareholders receiving a distribution in the form of newly issued shares will be
treated for U.S. federal income tax purposes as receiving a distribution in an
amount equal to the amount of cash they would have received had they elected to
receive cash and will have a cost basis in each share received equal to such
amount divided by the number of shares received. Distributions from investment
company taxable income for the year will be taxable as ordinary income.
Distributions designated as derived from a Fund's dividend income, if any, that
would be eligible for the dividends received deduction if such Fund were not a
regulated investment company will be eligible, subject to certain holding period
and debt-financing restrictions, for the 70% dividends received deduction for
corporations. Because eligible dividends are limited to those a Fund receives
from U.S. domestic corporations, it is unlikely that a substantial portion of
the International Fund's distributions will qualify for the dividends-received
deduction. 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 Fund. 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 Fund'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. Distributions in excess of a Fund'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
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.

U.S. SHAREHOLDERS - SALE OF SHARES
==================================

When a shareholder's shares are sold, redeemed or otherwise disposed
of, the shareholder will generally recognize gain or loss equal to the
difference between the shareholder's adjusted tax basis in the shares and the
cash, or fair market value of any property, received. Assuming the shareholder
holds the shares as a capital asset at the time of such sale or other
disposition, such gain or loss should be capital in nature, and long-term if the
shareholder has held the shares for more than one year, otherwise

B-109
<PAGE>

short-term. If, however, 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 the sale or redemption, then any loss the shareholder
realizes on the sale or redemption will be treated as a long-term capital loss
to the extent of such capital gain dividend. All or a portion of the sales load
paid upon the purchase of shares of a Fund 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 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 Fund will
be disallowed to the extent the shares disposed of are replaced 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 Fund.

Each Fund may be required to withhold federal income tax at a rate of
31% from dividends and share redemption and exchange proceeds to individuals and
other non-exempt shareholders ("backup withholding") who fail to furnish such
Fund with a correct taxpayer identification number ("TIN") certified under
penalties of perjury, or if the Internal Revenue Service or a broker notifies
the Fund that the payee has failed to properly report interest or dividend
income to the Internal Revenue Service or that the TIN furnished by the payee to
the Fund 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. Any
amounts withheld may be credited against a shareholder's United States federal
income tax liability.

NON-U.S. SHAREHOLDERS
=====================

Shareholders who, as to the United States, 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.
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
the Fund which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. 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

B-110
<PAGE>

taxable year and certain other conditions are met. Non-U.S. shareholders may
also be subject to U.S. withholding tax on deemed income resulting from any
election by the Asia Growth and International Funds to treat qualified foreign
taxes they pay as passed through to shareholders (as described above), but they
may not be able to claim a U.S. tax credit or deduction with respect to such
taxes.

Any gain realized by a non-U.S. shareholder upon a sale or redemption
of shares of a Fund will not be subject to U.S. federal income or withholding
tax unless the gain is effectively connected with the shareholder's trade or
business in the United States, or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met. Non-U.S. investors should consult their tax advisers about the
applicability of U.S. federal income or withholding taxes to certain
distributions received by them.

STATE AND LOCAL
===============

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

FINANCIAL STATEMENTS

The audited financial statements and related Reports of Independent
Public Accountants, contained in the 1994 Annual Report of each of the Funds are
incorporated herein by reference into this Additional Statement and attached
hereto.

OTHER INFORMATION

Shares of each Fund are sold at a maximum sales charge of 5.5%. Using
the initial offering price per share, as of January 31, 1995, the maximum
offering price of each Fund's shares would be as follows:

Capital Growth Fund