<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
THE BENCHMARK FUNDS
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
GOVERNMENT SELECT PORTFOLIO
GOVERNMENT PORTFOLIO
DIVERSIFIED ASSETS PORTFOLIO
TAX-EXEMPT PORTFOLIO
APRIL 1, 1997 AS SUPPLEMENTED ON OCTOBER 10, 1997
This Statement of Additional Information (the "Additional Statement") dated
April 1, 1997 (as supplemented on October 10, 1997) is not a prospectus. This
Additional Statement should be read in conjunction with the Prospectus for the
Government Select, Government, Diversified Assets and Tax-Exempt Portfolios of
The Benchmark Funds (the "Prospectus") dated April 1, 1997. Copies of the
Prospectus may be obtained without charge by calling Goldman, Sachs & Co.
("Goldman Sachs") toll-free at 1-800-621-2550 (outside Illinois) or by writing
to the address stated above. Capitalized terms not otherwise defined have the
same meaning as in the Prospectus.
------------------
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL INVESTMENT INFORMATION B-3
Investment Objectives and Policies B-3
Investment Restrictions B-10
ADDITIONAL TRUST INFORMATION B-13
Trustees and Officers B-13
Investment Adviser,
Transfer Agent and Custodian B-20
Administrator and Distributor B-26
Counsel and Auditors B-28
In-Kind Purchases B-28
PERFORMANCE INFORMATION B-29
AMORTIZED COST VALUATION B-30
DESCRIPTION OF UNITS B-32
ADDITIONAL INFORMATION CONCERNING TAXES B-35
General B-35
Special Tax Considerations
Pertaining to the
Tax-Exempt Portfolio B-37
Foreign Investors B-38
Conclusion B-38
OTHER INFORMATION B-38
FINANCIAL STATEMENTS B-40
APPENDIX A (Description of Securities Ratings) 1-A
</TABLE>
----------------
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in this Additional Statement or in the prospectus
in connection with the offering made by the Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Trust or its distributor. The Prospectus does not constitute
an offering by the trust or by the distributor in any jurisdiction in which such
offering may not lawfully be made.
UNITS OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR OTHERWISE SUPPORTED BY, THE NORTHERN TRUST COMPANY, ITS PARENT
COMPANY OR ITS AFFILIATES AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. THERE CAN BE NO ASSURANCE THAT ANY
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER UNIT.
AN INVESTMENT IN A PORTFOLIO INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS
OF PRINCIPAL.
B-2
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
INVESTMENT OBJECTIVES AND POLICIES
The following supplements the investment objectives and policies of the
Government Select, Government, Diversified Assets and Tax-Exempt Portfolios (the
"Portfolios") of The Benchmark Funds (the "Trust") as set forth in the
Prospectus.
Description of Commercial Paper, Bankers' Acceptances, Certificates of Deposit
and Time Deposits
Commercial paper represents short-term unsecured promissory notes issued in
bearer form by banks or bank holding companies, corporations and finance
companies. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties that vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party.
As stated in the Prospectus, the Diversified Assets Portfolio may invest a
portion of its assets in the obligations of foreign banks and foreign branches
of domestic banks. Such obligations include Eurodollar Certificates of Deposit
("ECDs") which are U.S. dollar-denominated certificates of deposit issued by
offices of foreign and domestic banks located outside the United States;
Eurodollar Time Deposits ("ETDs") which are U.S. dollar-denominated deposits in
a foreign branch of a U.S. bank or a foreign bank; Canadian Time Deposits
("CTDs") which are essentially the same as ETDs except they are issued by
Canadian offices of major Canadian banks; Schedule Bs, which are obligations
issued by Canadian branches of foreign or domestic banks; Yankee Certificates of
Deposit ("Yankee CDs") which are U.S. dollar-denominated certificates of deposit
issued by a U.S. branch of a foreign bank and held in the United States; and
Yankee Bankers' Acceptances ("Yankee BAs") which are U.S. dollar-denominated
bankers' acceptances issued by a U.S. branch of a foreign bank and held in the
United States.
B-3
<PAGE>
Description of Asset-Backed Securities
The Diversified Assets Portfolio may purchase asset-backed securities, which are
securities backed by mortgages, installment contracts, credit card receivables
or other assets. The average life of asset-backed securities varies with the
maturities of the underlying instruments, and the average life of a mortgage-
backed instrument, in particular, is likely to be substantially less than the
original maturity of the mortgage pools underlying the securities as a result of
mortgage prepayments. For this and other reasons, an asset-backed security's
stated maturity may be shortened, and the security's total return may be
difficult to predict precisely. Such difficulties are not, however, expected to
have a significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 13 months or less. Asset-backed
securities acquired by the Portfolio may include collateralized mortgage
obligations ("CMOs") issued by private companies.
U.S. Government Obligations
Examples of the types of U.S. Government obligations that may be acquired by the
Portfolios include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, and the Maritime Administration.
Custodial Receipts for Treasury Securities
The Portfolios (other than the Government Select Portfolio) may acquire U.S.
Government obligations and their unmatured interest coupons that have been
separated ("stripped") by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government obligations, the holder will resell the
stripped securities in custodial receipt programs with a number of different
names, including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate of
Accrual on Treasury Securities" ("CATS"). The stripped coupons are sold
separately from the underlying principal, which is usually sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are ostensibly owned by the
bearer or holder), in trust on behalf of the owners. Counsel to the underwriters
of these certificates or other evidences of
B-4
<PAGE>
ownership of U.S. Treasury securities have stated that, in their opinion,
purchasers of the stripped securities most likely will be deemed the beneficial
holders of the underlying U.S. Government obligations for Federal tax purposes.
The Trust is not aware of any binding legislative, judicial or administrative
authority on this issue.
U.S. Treasury STRIPS
The Treasury Department has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and principal payments on Treasury securities through the
Federal Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program, a
Portfolio will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities. All Portfolios, including the Government Select
Portfolio, may acquire securities registered under the STRIPS program.
Bank and Deposit Notes
The Diversified Assets Portfolio may purchase bank and deposit notes. Bank notes
rank junior to deposit liabilities of banks and pari passu with other senior,
unsecured obligations of the bank. Bank notes are classified as "other
borrowings" on a bank's balance sheet, while deposit notes and certificates of
deposit are classified as deposits. Bank notes are not insured by the Federal
Deposit Insurance Corporation or any other insurer. Deposit notes are insured by
the Federal Deposit Insurance Corporation only to the extent of $100,000 per
depositor per bank.
Variable and Floating Rate Instruments
With respect to the variable and floating rate instruments that may be acquired
by the Portfolios as described in the Prospectus, Northern will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and, if the instruments are subject to demand
features, will continuously monitor their financial status and ability to meet
payment on demand. Where necessary to ensure that a variable or floating rate
instrument is of "high quality," the issuer's obligation to pay the principal of
the instrument will be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend. The Portfolios will invest in variable and
floating rate instruments only when Northern deems the investment to involve
minimal credit risk. In determining weighted average portfolio maturity, an
instrument may, subject to SEC regulations, be deemed to have a maturity shorter
than its nominal maturity based on
B-5
<PAGE>
the period remaining until the next interest rate adjustment or the time the
Portfolio involved can recover payment of principal as specified in the
instrument.
Investment Companies
To the extent required by the 1940 Act and the regulations and orders of the SEC
thereunder, each Portfolio currently intends to limit its investments in
securities issued by other investment companies so that, as determined
immediately after a purchase of such securities is made, not more than 3% of the
total outstanding stock of any one investment company will be owned by the
Portfolio, the Trust as a whole and their affiliated persons (as defined in the
1940 Act). An investment company whose securities are purchased by a Portfolio
or the Trust is not obligated to redeem such securities in an amount exceeding
1% of the investment company's total outstanding securities during any period of
less than 30 days. Therefore, such securities that exceed this amount may be
illiquid. Notwithstanding the foregoing, a Portfolio may adhere to more
restrictive limitations with respect to its investments in securities issued by
other investment companies if required by the SEC or deemed to be in the best
interests of the Trust, and will comply with any fundamental investment
restriction that may otherwise be applicable to such investments. To the extent
required by the 1940 Act, each Portfolio expects to vote the shares of other
investment companies that are held by it in the same proportion as the vote of
all other holders of such securities.
Repurchase Agreements
Each Portfolio may enter into repurchase agreements with financial institutions,
such as banks and broker-dealers, as are deemed creditworthy by Northern under
guidelines approved by the Trust's Board of Trustees. The repurchase price under
the repurchase agreements will generally equal the price paid by a Portfolio
plus interest negotiated on the basis of current short-term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). Securities subject to repurchase agreements will be held by the
Trust's custodian (or subcustodian), in the Federal Reserve/Treasury book-entry
system or by another authorized securities depository. Repurchase agreements are
considered to be loans by a Portfolio under the 1940 Act.
Reverse Repurchase Agreements
Each Portfolio (except the Tax-Exempt Portfolio) may borrow funds for temporary
or emergency purposes by selling portfolio securities to financial institutions
such as banks and broker/dealers and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements"). Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Portfolio may decline below the repurchase price. The Portfolios will pay
interest
B-6
<PAGE>
on amounts obtained pursuant to a reverse repurchase agreement. While reverse
repurchase agreements are outstanding, a Portfolio will maintain in a segregated
account liquid assets in an amount at least equal to the market value of the
securities, plus accrued interest, subject to the agreement. Reverse repurchase
agreements are considered to be borrowings by a Portfolio under the 1940 Act.
Securities Lending
Collateral for loans of portfolio securities made by a Portfolio may consist of
cash, securities issued or guaranteed by the U.S. Government or its agencies or
irrevocable bank letters of credit (or any combination thereof). The borrower
of securities will be required to maintain the market value of the collateral
at not less than the market value of the loaned securities, and such value will
be monitored on a daily basis. When a Portfolio lends its securities, it
continues to receive interest on the securities loaned and may simultaneously
earn interest on the investment of the cash collateral which will be invested in
readily marketable, high-quality, short-term obligations. Although voting
rights, or rights to consent, attendant to securities on loan pass to the
borrower, such loans will be called so that the securities may be voted by a
Portfolio if a material event affecting the investment is to occur.
Forward Commitments and When-Issued Securities
Each Portfolio may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment (sometimes called delayed delivery)
basis. These transactions involve a commitment by the Portfolio to purchase or
sell securities at a future date. The price of the underlying securities
(usually expressed in terms of yield) and the date when the securities will be
delivered and paid for (the settlement date) are fixed at the time the
transaction is negotiated. When-issued purchases and forward commitment
transactions are normally negotiated directly with the other party.
A Portfolio will purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis only with the intention of completing
the transaction and actually purchasing or selling the securities. If deemed
advisable as a matter of investment strategy, however, a Portfolio may dispose
of or negotiate a commitment after entering into it. A Portfolio also may sell
securities it has committed to purchase before those securities are delivered to
the Portfolio on the settlement date. The Portfolio may realize a capital gain
or loss in connection with these transactions. For purposes of determining a
Portfolio's average dollar-weighted maturity, the maturity of when-issued or
forward commitment securities will be calculated from the commitment date.
When a Portfolio purchases securities on a when-issued or forward commitment
basis, the Portfolio's custodian (or subcustodian) will
B-7
<PAGE>
maintain in a segregated account liquid assets having a value (determined daily)
at least equal to the amount of the Portfolio's purchase commitments. In the
case of a forward commitment to sell portfolio securities, the custodian or
subcustodian will hold the portfolio securities themselves in a segregated
account while the commitment is outstanding. These procedures are designed to
ensure that the Portfolio will maintain sufficient assets at all times to cover
its obligations under when-issued purchases and forward commitments.
Yields and Ratings
The yields on certain obligations, including the money market instruments in
which the Portfolios invest (such as commercial paper and bank obligations), are
dependent on a variety of factors, including general money market conditions,
conditions in the particular market for the obligation, financial condition of
the issuer, size of the offering, maturity of the obligation and ratings of the
issue. The ratings of S&P, Moody's, D&P, Fitch and TBW represent their
respective opinions as to the quality of the obligations they undertake to rate.
Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate may
have different market prices.
Municipal Instruments
Opinions relating to the validity of Municipal Instruments and to the exemption
of interest thereon from regular Federal income tax are rendered by bond counsel
to the respective issuing authorities at the time of issuance. Neither the
Trust nor Northern will review the proceedings relating to the issuance of
Municipal Instruments or the bases for such opinions.
An issuer's obligations under its Municipal Instruments are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Instruments may be
materially adversely affected by litigation or other conditions.
From time to time proposals have been introduced before Congress for the purpose
of restricting or eliminating the Federal income tax exemption for interest on
Municipal Instruments. For example, under the Tax Reform Act of 1986 interest
on certain private activity bonds must be included in an investor's Federal
alternative minimum taxable income, and corporate investors must include all
tax-exempt interest in their Federal alternative minimum taxable income. The
Trust
B-8
<PAGE>
cannot predict what legislation, if any, may be proposed in the future in
Congress as regards the Federal income tax status of interest on Municipal
Instruments. Future proposals could materially adversely affect the availability
of Municipal Instruments for investment by the Tax-Exempt Portfolio and the
liquidity and value of the Portfolio. In such an event the Board of Trustees
would reevaluate the Portfolio's investment objective and policies and consider
changes in its structure or possible dissolution.
Interest earned by the Tax-Exempt Portfolio on private activity bonds (if any)
that is treated as a specific tax preference item under the Federal alternative
minimum tax will not be deemed to have been derived from Municipal Instruments
for purposes of determining whether that Portfolio meets its fundamental policy
that at least 80% of its annual gross income be derived from Municipal
Instruments.
STANDBY COMMITMENTS
The Tax-Exempt Portfolio may enter into standby commitments with respect to
Municipal Instruments held by it. Under a standby commitment, a dealer agrees to
purchase at the Portfolio's option a specified Municipal Instrument at its
amortized cost value to the Portfolio plus accrued interest, if any. Standby
commitments may be exercisable by the Portfolio at any time before the maturity
of the underlying Municipal Instruments and may be sold, transferred or assigned
only with the instruments involved.
The Tax-Exempt Portfolio expects that standby commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Portfolio may pay for a standby commitment either
separately in cash or by paying a higher price for Municipal Instruments which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding standby commitments held by the Portfolio will not exceed
1/2 of 1% of the value of the Portfolio's total assets calculated immediately
after each standby commitment is acquired.
The Portfolio intends to enter into standby commitments only with dealers, banks
and broker-dealers which, in Northern's opinion, present minimal credit risks.
The Portfolio will acquire standby commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a standby commitment will not affect the valuation
or assumed maturity of the underlying Municipal Instrument. The actual standby
commitment will be valued at zero in determining net asset value. Accordingly,
where the Portfolio pays directly or indirectly for a standby commitment, its
cost will be reflected as an unrealized loss for the period during which the
commitment is held by the Portfolio and will be reflected in realized gain or
loss when the commitment is exercised or expires.
B-9
<PAGE>
INVESTMENT RESTRICTIONS
Each Portfolio is subject to the fundamental investment restrictions enumerated
below which may be changed with respect to a particular Portfolio only by a vote
of the holders of a majority of such Portfolio's outstanding units.
No Portfolio may:
(1) Make loans, except (a) through the purchase of debt obligations in
accordance with the Portfolio's investment objective and policies, (b)
through repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities.
(2) Mortgage, pledge or hypothecate any assets (other than pursuant to
reverse repurchase agreements for the Diversified Assets, Government and
Government Select Portfolios) except to secure permitted borrowings.
(3) Purchase or sell real estate or securities issued by real estate
investment trusts, but this restriction shall not prevent a Portfolio from
investing directly or indirectly in portfolio instruments secured by real
estate or interests therein.
(4) Purchase or sell commodities or commodity contracts or oil or gas or
other mineral exploration or development programs.
(5) Invest in companies for the purpose of exercising control or
management.
(6) Act as underwriter of securities (except as a Portfolio may be deemed
to be an underwriter under the Securities Act of 1933 in connection with
the purchase and sale of portfolio instruments in accordance with its
investment objective and portfolio management policies), purchase
securities on margin (except for delayed delivery or when-issued
transactions or such short-term credits as are necessary for the clearance
of transactions), make short sales of securities or maintain a short
position, or write puts, calls or combinations thereof.
(7) Purchase the securities of any issuer if such purchase would cause more
than 10% of the voting securities of such issuer to be held by the
Portfolio, except that up to 25% of the value of its total assets may be
invested without regard to this 10% limitation.
(8) Purchase the securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if immediately after such purchase more than 5% of the
value of such Portfolio's total
B-10
<PAGE>
assets would be invested in such issuer, except that: (a) up to 25% of the
value of the total assets of the Tax-Exempt Portfolio may be invested in
any securities, and up to 25% of the value of the total assets of each of
the other Portfolios may be invested in repurchase agreements, certificates
of deposit and bankers' acceptances, without regard to this 5% limitation;
and (b) with respect to each Portfolio, such 5% limitation shall not apply
to repurchase agreements collateralized by obligations of the U.S.
Government, its agencies or instrumentalities.
(9) Purchase securities if such purchase would cause more than 25% in the
aggregate of the market value of the total assets of a Portfolio to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no
limitation with respect to, and each Portfolio reserves freedom of action,
when otherwise consistent with its investment policies, to concentrate its
investments in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, obligations (other than commercial paper)
issued or guaranteed by U.S. banks and U.S. branches of foreign banks and
repurchase agreements and securities loans collateralized by such U.S.
Government obligations or such bank obligations. For the purposes of this
restriction, state and municipal governments and their agencies and
authorities are not deemed to be industries; as to utility companies, the
gas, electric, water and telephone businesses are considered separate
industries; personal credit finance companies and business credit finance
companies are deemed to be separate industries; and wholly-owned finance
companies are considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents.
(10) Borrow money (other than pursuant to reverse repurchase agreements for
the Portfolios described above), except (a) as a temporary measure, and
then only in amounts not exceeding 5% of the value of the Portfolio's total
assets or (b) from banks, provided that immediately after any such
borrowing all borrowings of the Portfolio do not exceed one-third of the
Portfolio's total assets. No purchases of securities will be made if
borrowings subject to this restriction exceed 5% of the value of the
Portfolio's assets. The exceptions in (a) and (b) to this restriction are
not for investment leverage purposes but are solely for extraordinary or
emergency purposes or to facilitate management of the Trust's Portfolios by
enabling the Trust to meet redemption requests when the liquidation of
portfolio instruments is deemed to be disadvantageous or not possible. If
due to market fluctuations or other reasons the total assets of a Portfolio
fall below 300% of its borrowings, the Trust will promptly reduce the
borrowings of such Portfolio in accordance with the 1940 Act.
B-11
<PAGE>
* * *
The freedom of action reserved in Restriction No. 9 with respect to U.S.
branches of foreign banks is subject to the requirement that they are subject to
the same regulation as domestic branches of U.S. banks.
In addition, as matters of fundamental policy, the Government Select Portfolio,
Government Portfolio and Diversified Assets Portfolio may not enter into reverse
repurchase agreements exceeding in the aggregate one-third of the applicable
Portfolio's total assets; and the Tax-Exempt Portfolio may not acquire direct
ownership of industrial development bonds if, as a result of such acquisition,
more than 5% of the value of its total assets would be invested in industrial
development bonds where payment of principal and interest is the responsibility
of companies (including their predecessors) with less than three years of
operating history and such bonds are not guaranteed as to principal and interest
by companies (including their predecessors) with three years or more of
operating history.
Except to the extent otherwise provided in Investment Restriction (9) for the
purpose of such restriction, in determining industry classification the Trust
intends to use the industry classification titles in the Standard Industrial
Classification Manual.
In applying Restriction No. 8 and Restriction No. 9 above, a security is
considered to be issued by the entity, or entities, whose assets and revenues
back the security. A guarantee of a security is not deemed to be a security
issued by the guarantor when the value of all securities issued and guaranteed
by the guarantor, and owned by a Portfolio, does not exceed 10% of the value of
the Portfolio's total assets.
Any restriction which involves a maximum percentage will not be considered
violated unless an excess over the percentage occurs immediately after, and is
caused by, an acquisition or encumbrance of securities or assets of, or
borrowings by, a Portfolio.
B-12
<PAGE>
ADDITIONAL TRUST INFORMATION
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers of the Trust is set forth
below.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- ------------------------
<S> <C> <C>
William H. Springer, 68 Chairman Vice Chairman of Ameritech (a telecommunications holding
701 Morningside Drive and company), from February 1987 to retirement in August 1992;
Lake Forest, IL 60045 Trustee Vice Chairman, Chief Financial and Administrative Officer of
Ameritech prior to 1987; Director, Walgreen Co. (a retail drug
store business); Director of Baker, Fentress & Co. (a closed-end,
non-diversified management investment company) from April 1992 to
present; Trustee, Goldman Sachs Trust from 1989 to present.
Richard Gordon Cline, 62 Trustee Chairman, Hawthorne Investors, Inc. (a management advisory
4200 Commerce Court services and private investment company) since January 1996;
Suite 300 Chairman and CEO of NICOR Inc. (a diversified public utility
Lisle, IL 60532 holding company) from 1986 to 1995, and President, 1992-1993;
Director: Whitman Corporation (a diversified holding company);
Kmart Corporation (a retailing company); Ryerson Tull, Inc. (a
metals distribution company); and University of Illinois
Foundation.
Edward J. Condon, Jr., 57 Trustee Chairman of The Paradigm Group, Ltd. (a financial advisor) since
227 West Monroe Street July 1993; Vice President and Treasurer of Sears, Roebuck and Co.
Chicago, IL 60606 (a retail corporation) from February 1989 to July 1993; within the
last five years he has served as a Director of: Sears Roebuck
Acceptance
</TABLE>
B-13
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- ------------------------
<S> <C> <C>
Corp.; Discover Credit Corp.; Sears
Receivables Financing Group,Inc.; Sears
Credit Corp.; and Sears Overseas Finance
N.V; Member of the Board of Managers of
The Liberty Hampshire Company, LLC; Vice
Chairman and Director of Energenics LLC;
Director of University Eldercare, Inc.;
Director of the Girl Scouts of Chicago;
and Trustee of Dominican University.
John W. English, 64 Trustee Private Investor; Vice President
50-H New England Avenue and Chief Investment
P.O. Box 640 Officer of The Ford Foundation
Summit, NJ 07902-0640. (a charitable trust) from 1981 until 1993; Trustee:
The China Fund, Inc.; Retail Property
Trust; Sierra Trust; American Red Cross in
Greater New York; Mote Marine Laboratory;
and United Board for Christian Higher
Education in Asia. Director: University
of Iowa Foundation; Blanton-Peale
Institutes of Religion and Health;
Community Foundation of Sarasota County;
Duke Management Company; and John Ringling
Centre Foundation.
James J. Gavin, Jr., 75 Trustee Vice Chairman from January
161 Thorntree Lane 1985 to August 1987 and Senior
Winnetka, Illinois 60093 Vice President-Finance and Chief Financial
Officer from 1975 to January 1985 of Borg-
Warner Corporation (a diversified
manufacturing company also engaged in
providing financial and protective
services); Director of Service Corporation
International (a funeral service/cemetery
company) since September 1986 and Huntco,
Inc. (a major intermediate steel
processor) since June 1993.
</TABLE>
B-14
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
<S> <C> <C>
Sandra Polk Guthman, 53 Trustee President and CEO of Polk
420 N. Wabash Avenue Bros. Foundation (an Illinois
Suite 204 not-for-profit corporation)
Chicago, IL 60611 from 1993 to present; Director of Business
Transformation from 1992-1993, and
Midwestern Director of Marketing from
1988-1992, IBM Corporation; Director:MBIA
Insurance Corporation of Illinois (bank
holding company) since 1994 and Avondale
Financial Corporation (a stock savings and
loan holding company) since 1995.
Frederick T. Kelsey, 70 Trustee Consultant to Goldman Sachs
738 York Court from December 1985 through
Northbrook, IL 60062 February 1988; Director of
Goldman Sachs Funds Group and Vice
President of Goldman Sachs from May 1981
until his retirement in November 1985;
President and Treasurer of the Trust and
other investment companies affiliated with
Goldman Sachs through August 1985;
President from 1983 to 1985, and Trustee
from 1983 to 1994, The Centerland Funds
and its successor, The Pilot Funds;
Trustee, various management investment
companies affiliated with Zurich Kemper
Investments.
Richard P. Strubel, 57 Trustee Managing Director, Tandem
70 West Madison St Partners, Inc. (a privately
Suite 1400 held management services firm)
Chicago, IL 60602 since 1990; President and CEO, Microdot,
Inc. (a privately held manufacturing firm)
from 1984 to 1994; Trustee, Goldman Sachs
Trust from 1987 to present; Director of
Kaynar Technologies Inc. (a leading
manufacturer of aircraft fasteners);
Trustee of the University of Chicago;
Director of Children's Memorial Medical
Center.
</TABLE>
B-15
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------------------- ---------- -----------------------------
<S> <C> <C>
Nancy L. Mucker, 47 Vice Vice President, Goldman Sachs
4900 Sears Tower President (since April 1985); Manager,
Chicago, IL 60606 Shareholder Servicing of GSAM
(since November 1989).
John W. Mosior, 58 Vice Vice President, Goldman Sachs;
4900 Sears Tower President Manager of Shareholder
Chicago, IL 60606 Servicing of GSAM (since
November 1989).
Scott M. Gilman, 37 Treasurer Director, Mutual Fund Admin-
One New York Plaza istration, GSAM (since April
New York, NY 10004 1994); Assistant Treasurer of
Goldman Sachs Funds Management,
Inc. (since March 1993); Vice
President, Goldman Sachs (since
March 1990).
John Perlowski, 32 Assistant Vice President, Goldman Sachs
One New York Plaza Treasurer (since July 1995); Director,
New York, NY 10004 Investors Bank and Trust Company
(November 1993 to July 1995);
Audit Manager of Arthur
Anderson, LLP (prior thereto).
Michael J. Richman, 36 Secretary Associate General Counsel,
85 Broad Street GSAM (since February 1994);
New York, NY 10004 Vice President and Assistant
General Counsel of Goldman Sachs
(since June 1992); Counsel to
the Funds Group of GSAM (since
June 1992); Partner of Hale and
Dorr (September 1991 to June
1992).
Howard B. Surloff, 32 Assistant Vice President and Assistant
85 Broad Street Secretary General Counsel, Goldman Sachs
New York, NY 10004 (since November 1993 and May
1994, respectively); Counsel to
the Funds Group, GSAM (since
November 1993); Associate of
Shereff, Friedman, Hoffman &
Goodman, LLP (prior thereto).
</TABLE>
B-16
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- -------------------------- ---------- ------------------------------
<S> <C> <C>
Valerie A. Zondorak, 31 Assistant Vice President, Goldman Sachs
85 Broad Street Secretary (since March 1997); Counsel to
New York, NY 10004 the Funds Group, GSAM (since
March 1997); Associate,
Shereff, Friedman, Hoffman &
Goodman, LLP (prior thereto).
Steven E. Hartstein, 33 Assistant Legal Products Analyst,
85 Broad Street Secretary Goldman Sachs (since June
New York, NY 10004 1993); Funds Compliance
Officer, Citibank Global Asset
Management (August 1991 to June
1993).
Deborah A. Farrell, 26 Assistant Legal Assistant, Goldman Sachs
85 Broad Street Secretary (since January 1994;)
New York, NY 10004 Formerly at Cleary,
Gottlieb, Steen & Hamilton.
</TABLE>
Certain of the Trustees and officers and the organizations with which they are
associated have had in the past, and may have in the future, transactions with
Northern, Goldman Sachs and their respective affiliates. The Trust has been
advised by such Trustees and officers that all such transactions have been and
are expected to be in the ordinary course of business and the terms of such
transactions, including all loans and loan commitments by such persons, have
been and are expected to be substantially the same as the prevailing terms for
comparable transactions for other customers. Messrs. Springer, Kelsey, Strubel,
Mosior, Gilman, Richman, Surloff and Hartstein and Mmes. Farrell, Mucker and
Zondorak hold similar positions with one or more investment companies that are
advised by Goldman Sachs. As a result of the responsibilities assumed by
Northern under its Advisory Agreement, Transfer Agency Agreement and Custodian
Agreement and Foreign Custody Agreement with the Trust and by Goldman Sachs
under its Administration Agreement and Distribution Agreement with the Trust,
the Trust itself requires no employees.
Each officer holds comparable positions with certain other investment companies
of which Goldman Sachs, GSAM or an affiliate thereof is the investment adviser,
administrator and/or distributor.
Each Trustee earns a quarterly retainer of $6,250 and the Chairman of the Board
earns a quarterly retainer of $9,375. Each Trustee, including the Chairman of
the Board, earns an additional fee of $1,500 for each meeting attended, plus
reimbursement of expenses incurred as a Trustee.
B-17
<PAGE>
In addition, the Trustees established an Audit Committee consisting of three
members including a Chairman of the Committee. Each member earns a fee of
$1,500 for each meeting attended and the Chairman earns a quarterly retainer of
$1,250.
Each Trustee will hold office for an indefinite term until the earliest of (1)
the next meeting of Unitholders if any, called for the purpose of considering
the election or re-election of such Trustee and until the election and
qualification of his or her successor, if any, elected at such meeting; (2) the
date a Trustee resigns or retires, or a Trustee is removed by the Board of
Trustees or Unitholders, in accordance with the Trust's Agreement and
Declaration of Trust, or (3) in accordance with the current resolutions of the
Board of Trustees (which may be changed without Unitholder vote), on the last
day of the fiscal year of the Trust in which he or she attains the age of 72
years (or, in the case of Mr. Gavin, until November 30, 1997).
The Trust's officers do not receive fees from the Trust for services in such
capacities, although Goldman Sachs, of which they are also officers, receives
fees from the Trust for administrative services.
B18
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended November
30, 1996:+
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation from
Aggregate Accrued as Registrant and
Compensation Part of Fund Complex Paid
Name of Trustee from the Registrant Trust's Expenses to Trustees
- ----------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C>
William H. Springer $45,000 $0 $45,000
Edward J. Condon, Jr. $32,500 $0 $32,500
John W. English $31,000 $0 $31,000
James J. Gavin $35,500 $0 $35,500
William B. Jordan* $ 2,083 $0 $ 2,083
Frederick T. Kelsey $35,500 $5,325** $40,825
Richard P. Strubel $40,500 $0 $40,500
</TABLE>
* Retired as of December 31, 1995.
** Interest from deferred compensation.
+ Mr. Cline and Ms. Guthman are not included in the foregoing table as they
were not elected as Trustees of the Trust until September 1997.
B-19
<PAGE>
INVESTMENT ADVISER, TRANSFER AGENT AND CUSTODIAN
Northern is one of the nation's leading providers of trust and investment
management services. As of June 30, 1997, Northern had over $149 billion in
assets under management for clients including public and private retirement
funds, endowments, foundations, trusts, corporations, and individuals. Northern
is one of the strongest banking organizations in the United States. Northern
believes it has built its organization by serving clients with integrity, a
commitment to quality, and personal attention. Its stated mission with respect
to all its financial products and services is to achieve unrivaled client
satisfaction. With respect to such clients, the Trust is designed to assist (i)
defined contribution plan sponsors and their employees by offering a range of
diverse investment options to help comply with 404(c) regulation and may also
provide educational material to their employees, (ii) employers who provide
post-retirement Employees' Beneficiary Associations ("VEBA") and require
investments that respond to the impact of federal regulations, (iii) insurance
companies with the day-to-day management of uninvested cash balances as well as
with longer-term investment needs, and (iv) charitable and not-for-profit
organizations, such as endowments and foundations, demanding investment
management solutions that balance the requirement for sufficient current income
to meet operating expenses and the need for capital appreciation to meet future
investment objectives.
Under its Advisory Agreement with the Trust, Northern, subject to the general
supervision of the Trust's Board of Trustees, is responsible for making
investment decisions for each Portfolio and placing purchase and sale orders for
the portfolio transactions of the Portfolios. In connection with portfolio
transactions for the Portfolios, which are generally done at a net price without
a broker's commission, Northern's Advisory Agreement provides that Northern
shall attempt to obtain the best net price and execution. In assessing the best
overall terms available for any transaction, Northern is to consider all factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. In evaluating the best overall
terms available and in selecting the broker or dealer to execute a particular
transaction, Northern may consider the brokerage and research services provided
to the Portfolios and/or other accounts over which Northern or an affiliate of
Northern exercises investment discretion. These brokerage and research services
may include industry and company analyses, portfolio services, quantitative
data, market information systems and economic and political consulting and
analytical services.
For the fiscal years ended November 30, 1996, 1995 and 1994, all portfolio
transactions for the Portfolios were executed on a principal basis and,
therefore, no brokerage commissions were paid by
B-20
<PAGE>
the Portfolios. Purchases by the Portfolios from underwriters of portfolio
securities, however, normally include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers include the spread between
the dealer's cost for a given security and the resale price of the security.
Northern's investment advisory duties for the Trust are carried out through its
Trust Department. On occasions when Northern deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other fiduciary
or agency accounts managed by it (including any other Portfolio, investment
company or account for which Northern acts as adviser), the Agreement provides
that Northern, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be sold or purchased for such Portfolio with those
to be sold or purchased for such other accounts in order to obtain best net
price and 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
Northern in the manner it considers to be most equitable and consistent with its
fiduciary obligations to the Portfolio and other accounts involved. In some
instances, this procedure may adversely affect the size of the position
obtainable for a Portfolio or the amount of the securi ties that are able to be
sold for a Portfolio. To the extent that the execution and price available from
more than one broker or dealer are believed to be comparable, the Agreement
permits Northern, at its discretion but subject to applicable law, to select the
executing broker or dealer on the basis of Northern's opinion of the reliability
and quality of such broker or dealer.
The Advisory Agreement provides that Northern may render similar services to
others so long as its services under such Agreement are not impaired thereby.
The Advisory Agreement also provides that the Trust will indemnify Northern
against certain liabilities (including liabilities under the Federal securities
laws relating to untrue statements or omissions of material fact and actions
that are in accordance with the terms of the Agreement) or, in lieu thereof,
contribute to resulting losses.
Under its Transfer Agency Agreement with the Trust, Northern has undertaken to
(1) answer customer inquiries regarding the current yield of, and certain other
matters (e.g. account status information) pertaining to, the Trust, (2) process
purchase and redemption transactions, including transactions generated by any
service provided outside of the Agreement by Northern, its affiliates or
correspondent banks whereby customer account cash balances are automatically
invested in units of the Portfolios, and the disbursement of the proceeds of
redemptions, (3) establish and maintain separate omnibus accounts with respect
to unitholders investing through Northern or any of its affiliates and
correspondent banks and act as transfer agent and perform sub-accounting
services with respect to each such account, (4) provide periodic statements
showing account balances, (5) mail reports and proxy materials to
B-21
<PAGE>
unitholders, (6) provide information in connection with the preparation by the
Trust of various regulatory reports and prepare reports to the Trustees and
management, (7) answer inquiries (including requests for prospectuses and
Additional Statements, and assistance in the completion of new account
applications) from investors and respond to all requests for information
regarding the Trust (such as current price, recent performance, and yield data)
and questions relating to accounts of investors (such as possible errors in
statements, and transactions), (8) respond to and seek to resolve all complaints
of investors with respect to the Trust or their accounts, (9) furnish proxy
statements and proxies, annual and semi-annual financial statements, and
dividend, distribution and tax notices to investors, (10) furnish the Trust all
pertinent Blue Sky information, (11) perform all required tax withholding, (12)
preserve records, and (13) furnish necessary office space, facilities and
personnel. Northern may appoint one or more sub-transfer agents in the
performance of its services.
As compensation for the services rendered by Northern under the Transfer Agency
Agreement and the assumption by Northern of related expenses, Northern is
entitled to a fee from the Trust, payable monthly, at an annual rate equal to
$18 for each subaccount relating to units of the Trust. This fee is subject to
annual upward adjustments based on increases in the Consumer Price Index for All
Urban Consumers, provided that Northern may permanently or temporarily waive all
or any portion of any upward adjustment. Northern's affiliates and correspondent
banks may receive compensation for performing the services described in the
preceding paragraph that Northern would otherwise receive. Conflict-of-interest
restrictions under state and Federal law (including the Employee Retirement
Income Security Act of 1974) may apply to the receipt by such affiliates or
correspondent banks of such compensation in connection with the investment of
fiduciary funds in Portfolio units.
Under its Custodian Agreement with the Trust, Northern (1) holds each
Portfolio's cash and securities, (2) maintains such cash and securities in
separate accounts in the name of the Portfolio, (3) makes receipts and
disbursements of funds on behalf of the Portfolio, (4) receives, delivers and
releases securities on behalf of the Portfolio, (5) collects and receives all
income, principal and other payments in respect of the Portfolio's securities
held by Northern under the Agreement, and (6) maintains the accounting records
of the Trust. Northern may employ one or more subcustodians, provided that
Northern shall have no more responsibility or liability to the Trust on account
of any action or omission of any subcustodian so employed than such subcustodian
has to Northern and that the responsibility or liability of the subcustodian to
Northern shall conform to the resolution of the Trustees of the Trust
authorizing the appointment of the particular subcustodian. Northern may also
appoint agents to carry out such of the provisions of the Custodian Agreement as
Northern may from time to time direct, provided that the appointment
B-22
<PAGE>
of an agent shall not relieve Northern of any of its responsibilities under the
Agreement.
As compensation for the services rendered to the Trust by Northern as custodian,
and the assumption by Northern of certain related expenses, Northern is entitled
to payment from the Trust as follows: (i) $18,000 annually for each Portfolio,
plus (ii) 1/100th of 1% annually of each Portfolio's average daily net assets to
the extent they exceed $100 million, plus (iii) a fixed dollar fee for each
trade in portfolio securities, plus (iv) a fixed dollar fee for each time that
Northern as custodian receives or transmits funds via wire, plus (v)
reimbursement of expenses incurred by Northern as custodian for telephone,
postage, courier fees, office supplies and duplicating. The fees referred to in
clauses (iii) and (iv) are subject to annual upward adjustments based on
increases in the Consumer Price Index for All Urban Consumers, provided that
Northern may permanently or temporarily waive all or any portion of any upward
adjustment.
Unless sooner terminated, each of the Advisory Agreement, Transfer Agency
Agreement and Custodian Agreement between Northern and the Trust will continue
in effect with respect to a particular Portfolio until April 30, 1998, and
thereafter for successive 12-month periods, provided that the continuance is
approved at least annually (1) by the vote of a majority of the Trustees who are
not parties to the agreement or "interested persons" (as such term is defined in
the 1940 Act) of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval and (2) by the Trustees or by the vote of a
majority of the outstanding units of such Portfolio (as defined below under
"Other Information"). Each agreement is terminable at any time without penalty
by the Trust (by specified Trustee or unitholder action) on 60 days' written
notice to Northern and by Northern on 60 days' written notice to the Trust.
For the fiscal periods ended November 30, as indicated, the amount of the
Advisory Fee (after fee waivers) incurred by each Portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Government Select Portfolio $ 772,113 $ 569,065 $ 412,427
Government Portfolio 2,617,746 1,938,878 2,217,731
Diversified Assets Portfolio 7,832,358 7,080,710 7,778,438
Tax-Exempt Portfolio 1,885,156 1,687,136 2,619,554
</TABLE>
In addition, for the fiscal periods ended November 30, as indicated, Northern
waived additional advisory fees with respect to the Government Select Portfolio
in the amounts of $1,157,788, $853,605 and $622,131. Northern waived additional
advisory fees with respect to the Government Portfolio for the period from June
1, 1994 through July 31, 1994 in the amount of $69,721.
B-23
<PAGE>
For the fiscal periods ended November 30, as indicated, the amount of the
Transfer Agency Fee incurred by each Portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Government Select Portfolio $22,274 $ 25,000 $ 24,000
Government Portfolio 31,048 32,000 42,000
Diversified Assets Portfolio 64,579 110,000 171,999
Tax-Exempt Portfolio 14,883 32,000 61,000
</TABLE>
For the fiscal periods ended November 30, as indicated, the amount of the
Custodian Fees incurred by each Portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Government Select Portfolio $ 96,787 $ 75,122 $ 55,000
Government Portfolio 131,957 101,086 110,235
Diversified Assets Portfolio 360,387 317,635 345,186
Tax-Exempt Portfolio 105,936 97,551 126,449
</TABLE>
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. Northern believes that it may perform the services
contemplated by its agreements with the Trust without violation of such banking
laws or regulations, which are applicable to it. It should be noted, however,
that future changes in either Federal or state statutes and regulations relating
to the permissible activities of banks and their subsidiaries or affiliates, as
well as future judicial or administrative decisions or interpretations of
current and future statutes and regulations, could prevent Northern from
continuing to perform such services for the Trust.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of Northern in connection with the provision of services
on behalf of the Trust, the Trust might be required to alter materially or
discontinue its arrangements with Northern and change its method of operations.
It is not anticipated, however, that any change in the Trust's method of
operations would affect the net asset value per unit of any Portfolio or result
in a financial loss to any unitholder. Moreover, if current restrictions
preventing a bank from legally sponsoring, organizing, controlling or
distributing units of an open-end investment company were relaxed, the Trust
expects that Northern would consider the possibility of offering to perform some
or all of the services now provided by Goldman Sachs. It is not possible, of
course, to predict whether or
B-24
<PAGE>
in what form such restrictions might be relaxed or the terms upon which Northern
might offer to provide services for consideration by the Trustees.
Northern is active as an underwriter of municipal instruments. Under the 1940
Act the Portfolios are precluded, subject to certain exceptions, from purchasing
in the primary market those municipal instruments with respect to which Northern
is serving as a principal underwriter. In the opinion of Northern, this
limitation will not significantly affect the ability of the Portfolios to pursue
their respective investment objectives.
Goldman Sachs is also an active investor, dealer and/or underwriter in many
types of money market instruments. Its activities in this regard could have some
effect on the market for those instruments which the Portfolios acquire, hold or
sell.
In the Advisory Agreement, Northern agrees that the name "The Benchmark" may be
used in connection with the Trust's business on a royalty-free basis. Northern
has reserved to itself the right to grant the non-exclusive right to use the
name "The Benchmark" to any other person. The Advisory Agreement provides that
at such time as the Agreement is no longer in effect, the Trust will cease using
the name "The Benchmark." (This undertaking by the Trust may be subject to
certain legal limitations.)
PORTFOLIO TRANSACTIONS
During the fiscal year ended November 30, 1996, the Diversified Assets Portfolio
acquired and sold securities of Bear Stearns & Co., Donaldson Lufkin & Jenrette
Securities, Inc., J.P. Morgan Securities, Inc., Merrill Lynch & Co., Inc. and
Swiss Bank, each a regular broker/dealer. At November 30, 1996, the Diversified
Assets Portfolio owned the following amounts of securities of its regular
broker/dealers, as defined in Rule 10b-1 under the 1940 Act, or their parents:
Bear Stearns & Co., with an approximate aggregate market value of $270,101,000,
Donaldson, Lufkin & Jenrette Securities, Inc., with an approximate aggregate
market value of $200,000,000, J.P. Morgan Securities, Inc., with an approximate
aggregate market value of $131,063,000, Merrill Lynch & Co., Inc., with an
approximate aggregate market value of $50,000,000 and Swiss Bank, with an
approximate aggregate market value of $10,001,000.
During the fiscal year ended November 30, 1996, the Government Portfolio
acquired and sold securities of Bear Stearns & Co., J.P. Morgan Securities,
Inc., Nomura Securities and UBS Securities, each a regular broker/dealer. At
November 30, 1996, the Government Portfolio owned the following amounts of
securities of its regular broker/dealers, as defined in Rule 10b-1 under the
1940 Act, or their parents: Bear Stearns & Co., with an approximate aggregate
market value of $140,000,000, J.P. Morgan Securities, Inc., with an approximate
aggregate market value of $8,704,000, Nomura Securities,
B-25
<PAGE>
with an approximate aggregate market value of $200,000,000 and UBS Securities,
with an approximate aggregate market value of $50,000,000.
ADMINISTRATOR AND DISTRIBUTOR
Under its Administration Agreement with the Trust, Goldman Sachs, subject to the
general supervision of the Trust's Board of Trustees, acts as the Trust's
Administrator. In this capacity, Goldman Sachs (1) provides supervision of all
aspects of the Trust's non-investment advisory operations (the parties giving
due recognition to the fact that certain of such operations are performed by
Northern pursuant to the Trust's agreements with Northern), (2) provides the
Trust, to the extent not provided pursuant to such agreements, with such
personnel as are reasonably necessary for the conduct of the Trust's affairs,
(3) arranges, to the extent not provided pursuant to such agreements, for the
preparation at the Trust's expense of its tax returns, reports to unitholders,
periodic updating of the Prospectus issued by the Trust, and reports filed with
the SEC and other regulatory authorities (including qualification under state
securities or Blue Sky laws of the Trust's units), and (4) provides the Trust,
to the extent not provided pursuant to such agreements, with adequate office
space and equipment and certain related services in Chicago.
For the fiscal periods ended November 30, as indicated, Goldman Sachs received
fees under the Administration Agreement (after fee waivers) in the amount of:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Government Select Portfolio $ 897,049 $ 751,804 $ 590,000
Government Portfolio 1,036,172 895,112 1,118,000
Diversified Assets Portfolio 2,079,083 1,928,672 1,917,000
Tax-Exempt Portfolio 885,446 828,163 777,000
</TABLE>
For the fiscal periods ended November 30, as indicated, and prior to May 1,
1997, Goldman Sachs voluntarily agreed to waive a portion of its Administration
Fee for each Portfolio resulting in an effective fee of .10% of the average
daily net assets for each Portfolio. The effect of these waivers by Goldman
Sachs was to reduce administration fees by the following amounts:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Government Select Portfolio $364,826 $346,936 $348,837
Government Portfolio 305,696 369,546 525,528
Diversified Assets Portfolio 0 0 0
Tax-Exempt Portfolio 382,218 389,481 66,927
</TABLE>
In addition, pursuant to an undertaking that commenced August 1, 1992, Goldman
Sachs agreed that, if its administration fees (less expense reimbursements paid
by Goldman Sachs to the Trust and less certain marketing expenses paid by
Goldman Sachs) exceed a specified amount ($1 million for the Trust's first
twelve investment portfolios plus $50,000 for each additional portfolio) during
the current fiscal year, Goldman Sachs will waive a portion of its
administration fees
B-26
<PAGE>
during the following fiscal year. This undertaking may be terminated by Goldman
Sachs at any time without the consent of the Trust or the unitholders. There
have been no waivers pursuant to this agreement during the last three fiscal
periods.
Goldman Sachs has agreed for the current fiscal year to reimburse each Portfolio
for all expenses (including fees payable to Goldman Sachs as administrator, but
excluding the fees payable to Northern for its duties as investment adviser or
transfer agent, servicing fees and extraordinary expenses) which exceed on an
annualized basis .10% of each Portfolio's average net assets. Prior to May 1,
1997, this undertaking was voluntary with respect to the Portfolios. As of May 1
1997, this undertaking is contractual with respect to all Portfolios. For the
fiscal periods ended November 30, 1996, 1995 and 1994, there were no reductions
in the administration fee.
Unless sooner terminated the Administration Agreement will continue in effect
with respect to a particular Portfolio until April 30, 1998, and thereafter for
successive 12-month periods, provided that the agreement is approved annually
(1) by the vote of a majority of the Trustees who are not parties to the
agreement or "interested persons" (as such term is defined by the 1940 Act) of
any party thereto, cast in person at a meeting called for the purpose of voting
on such approval, and (2) by the Trustees or by the vote of a majority of the
outstanding units of such Portfolio (as defined below under "Other
Information"). The Administration Agreement is terminable at any time without
penalty by the Trust (upon specified Trustee or unitholder action) on 60 days'
written notice to Goldman Sachs and by Goldman Sachs on 60 days' written notice
to the Trust.
The Trust has entered into a Distribution Agreement under which Goldman Sachs,
as agent, sells shares of each Portfolio on a continuous basis. Goldman Sachs
pays the cost of printing and distributing prospectuses to persons who are not
unitholders of Trust shares (excluding preparation and typesetting expenses) and
of all other sales presentations, mailings, advertising and other distribution
efforts. No compensation is payable by the Trust to Goldman Sachs for such
distribution services.
The Administration Agreement and the Distribution Agreement provide that Goldman
Sachs may render similar services to others so long as its services under such
Agreements are not impaired thereby. The Administration Agreement provides that
the Trust will indemnify Goldman Sachs against certain liabilities (including
liabilities under the Federal securities laws relating to untrue statements or
omissions of material fact and actions that are in accordance with the terms of
the Administration Agreement and Distribution Agreement) or, in lieu thereof,
contribute to resulting losses.
B-27
<PAGE>
Counsel and Auditors
Drinker Biddle & Reath LLP, with offices at 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107, serve as counsel to the Trust.
Ernst & Young LLP, independent auditors, 233 S. Wacker Drive, Chicago, Illinois
60606, have been selected as auditors of the Trust. In addition to audit
services, Ernst & Young LLP prepares the Trust's Federal and state tax returns,
and provides consultation and assistance on accounting, internal control and
related matters.
In-Kind Purchases
Payment for units of a Portfolio may, in the discretion of Northern, be made in
the form of securities that are permissible investments for the Portfolio as
described in the Prospectus. For further information about this form of payment,
contact Northern. In connection with an in-kind securities payment, a Portfolio
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Portfolio and that
the Portfolio receive satisfactory assurances that it will have good and
marketable title to the securities received by it; that the securities be in
proper form for transfer to the Portfolio; and that adequate information be
provided concerning the basis and other tax matters relating to the securities.
B-28
<PAGE>
PERFORMANCE INFORMATION
From time to time the Trust may advertise quotations of "yields" and "effective
yields" with respect to each Portfolio's units, and "tax-equivalent yields" with
respect to units of the Government Select Portfolio and Tax-Exempt Portfolio
computed in accordance with a standardized method, based upon the seven-day
period ended on the date of calculation. In arriving at such quotations as to
"yield," the Trust first determines the net change during the period in the
value of a hypothetical pre-existing account having a balance of one unit at the
beginning of the period (such net change being inclusive of the value of any
additional units issued in connection with distributions of net investment
income as well as net investment income accrued on both the original unit and
any such additional units, but exclusive of realized gains and losses from the
sale of securities and unrealized appreciation and depreciation), then divides
such net change by the value of the account at the beginning of the period to
obtain the base period return, and then multiplies the base period return by
365/7.
The "effective yield" with respect to the units of a Portfolio is computed by
adding 1 to the base period return (calculated as above), raising the sum to a
power equal to 365 divided by 7, and subtracting 1 from the result.
"Tax-equivalent yield" is computed by dividing the tax-exempt portion of the
yield by 1 minus a stated income tax rate, and then adding the product to the
taxable portion of the yield, if any. There may be more than one tax-equivalent
yield, if more than one stated income tax rate is used.
Quotations of yield, effective yield and tax-equivalent yield provided by the
Trust are carried to at least the nearest hundredth of one percent. Any fees
imposed by Northern, its affiliates or correspondent banks on their customers in
connection with investments in units of the Portfolios are not reflected in the
calculation of yields for the Portfolios.
The annualized yield of each Portfolio with respect to units for the seven-day
period ended November 30, 1996 was as follows:
<TABLE>
<CAPTION>
Effective Tax-Equivalent
Yield Yield Yield
----- --------- --------------
<S> <C> <C> <C>
Government Select
Portfolio 5.17% 5.30% N/A
Government Portfolio 5.09 5.22 N/A
Diversified Assets
Portfolio 5.16 5.29 N/A
Tax-Exempt Portfolio 3.35 3.41 5.55%
</TABLE>
B-29
<PAGE>
The information set forth in the foregoing table reflects certain fee reductions
and expense limitations. See "Additional Trust Information - Administrator and
Distributor" and "-- Investment Adviser, Transfer Agent and Custodian." In the
absence of such fee reductions and expense limitations, the annualized yield of
each Portfolio with respect to units for the same seven-day period would have
been as follows:
<TABLE>
<CAPTION>
Effective Tax-Equivalent
Yield Yield Yield
----- --------- --------------
<S> <C> <C> <C>
Government Select
Portfolio 4.97% 5.10% N/A
Government Portfolio 5.06 5.19 N/A
Diversified Assets
Portfolio 5.16 5.29 N/A
Tax-Exempt Portfolio 3.30 3.36 5.50%
</TABLE>
Each Portfolio's yield fluctuates, unlike bank deposits or other investments
which pay a fixed yield for a stated period of time. The annualization of one
week's income is not necessarily indicative of future actual yields. Actual
yields will depend on such variables as portfolio quality, average portfolio
maturity, the type of portfolio instruments acquired, changes in money market
interest rates, portfolio expenses and other factors. Yields are one basis
investors may use to analyze a Portfolio as compared to other money market funds
and other investment vehicles. However, yields of other money market funds and
other investment vehicles may not be comparable because of the foregoing
variables, and differences in the methods used in valuing their portfolio
instruments, computing net asset value and determining yield.
Each Portfolio may also quote from time to time its total return in accordance
with SEC regulations.
AMORTIZED COST VALUATION
As stated in the Prospectus, each Portfolio seeks to maintain a net asset value
of $1.00 per unit and, in this connection, values its instruments on the basis
of amortized cost pursuant to Rule 2a-7 under the 1940 Act. This method values a
security at its cost on the date of purchase and thereafter assumes a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a
Portfolio would receive if the Portfolio sold the instrument. During such
periods the yield to investors in the Portfolio may differ somewhat from that
obtained in a similar entity which uses available indications as to market value
to value its portfolio instruments. For example, if the use of amortized cost
resulted in a lower (higher) aggregate Portfolio value
B-30
<PAGE>
on a particular day, a prospective investor in the Portfolio would be able to
obtain a somewhat higher (lower) yield and ownership interest than would result
from investment in such similar entity and existing investors would receive less
(more) investment income and ownership interest. However, the Trust expects that
the procedures and limitations referred to in the following paragraphs of this
section will tend to minimize the differences referred to above.
Under Rule 2a-7, the Trust's Board of Trustees, in supervising the Trust's
operations and delegating special responsibilities involving portfolio
management to Northern, has established procedures that are intended, taking
into account current market conditions and the Portfolios' investment
objectives, to stabilize the net asset value of each Portfolio, as computed for
the purposes of purchases and redemptions, at $1.00 per unit. The Trustees'
procedures include periodic monitoring of the difference (the "Market Value
Difference") between the amortized cost value per unit and the net asset value
per unit based upon available indications of market value. Available indications
of market value used by the Trust consist of actual market quotations or
appropriate substitutes which reflect current market conditions and include (a)
quotations or estimates of market value for individual portfolio instruments
and/or (b) values for individual portfolio instruments derived from market
quotations relating to varying maturities of a class of money market
instruments. In the event the Market Value Difference of a given Portfolio
exceeds certain limits or Northern believes that the Market Value Difference may
result in material dilution or other unfair results to investors or existing
unitholders, the Trust will take action in accordance with the 1940 Act and the
Trustees will take such steps as they consider appropriate (e.g., selling
portfolio instruments to shorten average portfolio maturity or to realize
capital gains or losses, reducing or suspending unitholder income accruals,
redeeming units in kind, or utilizing a net asset value per unit based upon
available indications of market value which under such circumstances would vary
from $1.00) to eliminate or reduce to the extent reasonably practicable any
material dilution or other unfair results to investors or existing unitholders
which might arise from Market Value Differences. In particular, if losses were
sustained by a Portfolio, the number of outstanding units might be reduced in
order to maintain a net asset value per unit of $1.00. Such reduction would be
effected by having each unitholder proportionately contribute to the Portfolio's
capital the necessary units to restore such net asset value per unit. Each
unitholder will be deemed to have agreed to such contribution in these
circumstances by investing in the Portfolio.
Rule 2a-7 requires that each Portfolio limit its investments to instruments
which Northern determines (pursuant to guidelines established by the Board of
Trustees) to present minimal credit risks and which are "Eligible Securities" as
defined by the SEC and described in the Prospectus. The Rule also requires that
each Portfolio maintain a dollar-weighted average portfolio maturity (not
B-31
<PAGE>
more than 90 days) appropriate to its policy of maintaining a stable net asset
value per unit and precludes the purchase of any instrument deemed under the
Rule to have a remaining maturity of more than 13 months. Should the disposition
of a portfolio security result in a dollar-weighted average portfolio maturity
of more than 90 days, the Rule requires a Portfolio to invest its available cash
in such a manner as to reduce such maturity to the prescribed limit as soon as
reasonably practicable.
DESCRIPTION OF UNITS
The Trust Agreement permits the Trust's Board of Trustees to issue an unlimited
number of full and fractional units of beneficial interest of one or more
separate series representing interests in different investment portfolios. The
Trustees may hereafter create series in addition to the Trust's existing
seventeen series which represent interests in the seventeen respective
Portfolios. The Prospectus and this Additional Statement relate only to the
Government Select, Government, Diversified Assets and Tax-Exempt Portfolios. For
information on the Trust's other investment portfolios call Goldman Sachs at the
toll-free number on page 1.
Under the terms of the Trust Agreement, each unit of each Portfolio is without
par value, represents an interest in the particular Portfolio with each other
unit of the same Portfolio and is entitled to such dividends and distributions
out of the income belonging to such Portfolio as are declared by the Trustees.
Upon any liquidation of a Portfolio, its unitholders are entitled to share pro
rata in the net assets belonging to that Portfolio available for distribution.
Units do not have any preemptive or conversion rights. The right of redemption
is described under "Investing-Redemption of Units" in the Prospectus and under
"Amortized Cost Valuation" in this Additional Statement. In addition, pursuant
to the terms of the 1940 Act, the right of a unitholder to redeem units and the
date of payment by a Portfolio may be suspended for more than seven days (a) for
any period during which the New York Stock Exchange is closed, other than the
customary weekends or holidays, or trading in the markets the Portfolio normally
utilizes is closed or is restricted as determined by the SEC, (b) during any
emergency, as determined by the SEC, as a result of which it is not reasonably
practicable for the Portfolio to dispose of instruments owned by it or fairly to
determine the value of its net assets, or (c) for such other period as the SEC
may by order permit for the protection of the unitholders of the Portfolio. The
Trust may also suspend or postpone the recordation of the transfer of its units
upon the occurrence of any of the foregoing conditions. In addition, units of
each Portfolio are redeemable at the unilateral option of the Trust if the
Trustees determine in their sole discretion that failure to so redeem may have
material adverse consequences to the unitholders of the Portfolio. Units when
issued as described in the Prospectus are validly issued, fully paid and
nonassessable, except as stated below.
B-32
<PAGE>
The proceeds received by each Portfolio for each issue or sale of its units, and
all net investment income, realized and unrealized gain and proceeds thereof,
subject only to the rights of creditors, will be specifically allocated to and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio will be segregated on the books of account, and will be charged
with the liabilities in respect to that Portfolio and with a share of the
general liabilities of the Trust. Expenses with respect to the Portfolios are
normally allocated in proportion to the net asset value of the respective
Portfolios except where allocations of direct expenses can otherwise be fairly
made.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding units of each Portfolio
affected by the matter. A Portfolio is affected by a matter unless it is clear
that the interests of each Portfolio in the matter are substantially identical
or that the matter does not affect any interest of the Portfolio. Under the
Rule, the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to a
Portfolio only if approved by a majority of the outstanding units of such
Portfolio. However, the Rule also provides that the ratification of the
appointment of independent accountants, the approval of principal underwriting
contracts and the election of Trustees may be effectively acted upon by
unitholders of the Trust voting together in the aggregate without regard to a
particular Portfolio.
As a general matter, the Trust does not hold annual or other meetings of
unitholders. This is because the Trust Agreement provides for unitholder voting
only for the election or removal of one or more Trustees, if a meeting is called
for that purpose, and for certain other designated matters. Each Trustee serves
until the next meeting of unitholders, if any, called for the purpose of
considering the election or reelection of such Trustee or of a successor to such
Trustee, and until the election and qualification of his successor, if any,
elected at such meeting, or until such Trustee sooner dies, resigns, retires or
is removed by the unitholders or two-thirds of the Trustees.
Under Massachusetts law, there is a possibility that unitholders of a business
trust could, under certain circumstances, be held personally liable as partners
for the obligations of the trust. The Trust Agreement contains an express
disclaimer of unitholder (as well as Trustee and officer) liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each contract, undertaking or instrument entered into or executed by the Trust
or the Trustees. The Trust Agreement provides for indemnification out of Trust
property of any unitholder charged or held personally liable for the obligations
or liabilities of the
B-33
<PAGE>
Trust solely by reason of being or having been a unitholder of the Trust and not
because of such unitholder's acts or omissions or for some other reason. The
Trust Agreement also provides that the Trust shall, upon proper and timely
request, assume the defense of any charge made against any unitholder as such
for any obligation or liability of the Trust and satisfy any judgment thereon.
Thus, the risk of a unitholder incurring financial loss on account of unitholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations.
The Trust Agreement provides that each Trustee of the Trust will be liable for
his own willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee ("disabling
conduct"), and for nothing else, and will not be liable for errors of judgment
or mistakes of fact or law. The Trust Agreement provides further that the Trust
will indemnify Trustees and officers of the Trust against liabilities and
expenses incurred in connection with litigation and other proceedings in which
they may be involved (or with which they may be threatened) by reason of their
positions with the Trust, except that no Trustee or officer will be indemnified
against any liability to the Trust or its unitholders to which he would
otherwise be subject by reason of disabling conduct.
Units are held of record by Northern for the benefit of its customers and the
customers of its affiliates and correspondent banks who have invested in the
Portfolios. As of March 1, 1997, the trustees and officers of the Trust as a
group owned less than 1% of the outstanding units of beneficial interest of each
Portfolio. Northern has advised the Trust that the following persons (whose
mailing address is: c/o The Northern Trust Company, 50 South LaSalle, Chicago,
IL 60675) beneficially owned five percent or more of the outstanding units of
the Portfolios as of March 2, 1997:
B-34
<PAGE>
<TABLE>
<CAPTION>
Percentage
of
Number of Outstanding
Units Units
----- -----
<S> <C> <C>
GOVERNMENT SELECT PORTFOLIO
Northern Trust Custodian
MARISOTE Capital Fund 20,833,417 10.32%
American Medical Association
Reserve Fund 19,384,909 9.60
18-70 Capital Corp. 13,115,508 6.50
Imperial Group First Pacific Advisor 11,284,503 5.59
Santa Fe Pacific Gold Corp Rabi Trust--
Severance Agreements 10,744,620 5.32
Bunting Family I Limited Liability
Company--Sundry Assets 10,698,681 5.30
GOVERNMENT PORTFOLIO
Texas Teachers Global Equity 448,807,820 34.69
TAX-EXEMPT PORTFOLIO
Health Care Indemnity Inc. 59,693,013 14.20
Laurence A. & Preston R. Tisch
Tenants in Common 31,861,958 7.58
RDV Finance Ltd. 22,796,022 5.42
</TABLE>
ADDITIONAL INFORMATION CONCERNING TAXES
General
Each Portfolio is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to qualify as a
regulated investment company. By following this policy, each Portfolio expects
to eliminate or reduce to a nominal amount the Federal income taxes to which it
may be subject. If for any taxable year a Portfolio does not qualify for the
special Federal tax treatment afforded regulated investment companies, all of
the Portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to unitholders. In such event, the
Portfolio's distributions (including amounts derived from interest on Municipal
Instruments in the case of the Tax-Exempt Portfolio) would be taxable as
ordinary income for Federal income tax purposes to the Portfolio's unitholders,
to the extent of its current and accumulated earnings and profits, and would be
eligible for the dividends received deduction in the case of corporate
unitholders.
In order to qualify as a regulated investment company for a taxable year under
the Code, each Portfolio must comply with certain requirements. First, each
Portfolio must distribute to its unitholders an amount equal to at least the sum
of 90% of its investment company taxable income and 90% of its net tax-exempt
interest income (if any) (the "Distribution Requirement"). At least
B-35
<PAGE>
90% of the gross income of each Portfolio must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to the Portfolio's business of investing in such
stock, securities or currencies (the "Income Requirement"). In addition, a
Portfolio must derive less than 30% of its gross income for a taxable year from
gains realized on the sale or other disposition of securities and certain other
investments held for less than three months (the "Short-Short Test"). Interest
(including original issue discount and accrued market discount) received by a
Portfolio upon maturity or disposition of a security held for less than three
months will not be treated as gross income derived from the sale or other
disposition of such security within the meaning of this requirement. However,
any other income attributable to realized market appreciation will be treated as
gross income from the sale or other disposition of securities for this purpose.
Finally, at the close of each quarter of its taxable year, at least 50% of the
value of each Portfolio's assets must consist of cash and cash items, U.S.
Government securities, securities of other regulated investment companies, and
securities of other issuers (as to which the Portfolio has not invested more
than 5% of the value of its total assets in securities of such issuer and as to
which the Portfolio does not hold more than 10% of the outstanding voting
securities of such issuer) and no more than 25% of the value of each Portfolio's
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which such Portfolio controls and which
are engaged in the same or similar trades or businesses. Under the recently-
enacted Taxpayer Relief Act of 1997, the Short-Short Test is repealed for
taxable years beginning after August 11, 1997.
Each Portfolio will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to unitholders within 60 days after the close of the
Portfolio's taxable year.
Ordinary income of individuals (including short-term capital gains) is taxable
at a maximum marginal rate of 39.6%, but because of limitations on itemized
deductions otherwise allowable and the phase-out of personal exemptions, the
maximum effective marginal rate of tax for some taxpayers may be higher. Under
the Taxpayer Relief Act of 1997, for capital gains on securities recognized
after July 28, 1997, the maximum tax rate for individuals is 20% if the property
was held more than 18 months; for property held for more than 12 months, but no
longer than 18 months, the maximum tax rate on capital gains continues to be
28%. For corporations, long-term capital gains and ordinary income are both
taxable at a maximum marginal rate of 35%.
B-36
<PAGE>
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute specified percentages of their ordinary taxable
income and capital gain net income (excess of capital gains over capital
losses). Each Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
The Trust will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends and gross sale proceeds paid to any unitholder
(i) who has provided either an incorrect tax identification number or no number
at all, (ii) who is subject to backup withholding by the Internal Revenue
Service for failure to report the receipt of taxable interest or dividend income
properly, or (iii) who has failed to certify to the Trust, when required to do
so, that he or she is not subject to backup withholding or that he or she is an
"exempt recipient."
SPECIAL TAX CONSIDERATIONS PERTAINING TO THE TAX-EXEMPT PORTFOLIO
As described above and in the Prospectus, the Tax-Exempt Portfolio is designed
to provide investors with current tax-exempt interest income. The Portfolio is
not intended to constitute a balanced investment program and is not designed for
investors seeking capital appreciation or maximum tax-exempt income irrespective
of fluctuations in principal. Units of the Portfolio would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R.10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, would
not gain any additional benefit from the Portfolio's dividends being tax-exempt.
In addition, the Portfolio may not be an appropriate investment for persons or
entities that are "substantial users" of facilities financed by private activity
bonds or "related persons" thereof. "Substantial user" is defined under U.S.
Treasury Regulations to include a non-exempt person which regularly uses a part
of such facilities in its trade or business and whose gross revenues derived
with respect to the facilities financed by the issuance of bonds are more than
5% of the total revenues derived by all users of such facilities, or which
occupies more than 5% of the usable area of such facilities or for which such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, partnerships and its partners and an S corporation and its
shareholders.
In order for the Tax-Exempt Portfolio to pay Federal exempt-interest dividends
with respect to any taxable year, at the close of each taxable quarter at least
50% of the aggregate value of the Portfolio must consist of tax-exempt
obligations. An exempt-interest dividend is any dividend or part thereof (other
than a capital gain dividend) paid by the Portfolio and designated as an exempt-
interest dividend
B-37
<PAGE>
in a written notice mailed to unitholders not later than 60 days after the close
of the Portfolio's taxable year. However, the aggregate amount of dividends so
designated by the Portfolio cannot exceed the excess of the amount of interest
exempt from tax under Section 103 of the Code received by the Portfolio during
the taxable year over any amounts disallowed as deductions under Sections 265
and 171(a)(2) of the Code. The percentage of total dividends paid by the
Portfolio with respect to any taxable year which qualifies as Federal exempt-
interest dividends will be the same for all unitholders receiving dividends from
the Portfolio with respect to such year.
Interest on indebtedness incurred by a unitholder to purchase or carry Portfolio
units generally is not deductible for Federal income tax purposes if the
Portfolio's distributions are not subject to Federal income tax.
FOREIGN INVESTORS
Foreign unitholders generally will be subject to U.S. withholding tax at a rate
of 30% (or a lower treaty rate, if applicable) on distributions by a Portfolio
of net interest income, other ordinary income, and the excess, if any, of net
short-term capital gain over net long-term capital loss for the year. For this
purpose, foreign unitholders include individuals other than U.S. citizens,
residents and certain nonresident aliens, and foreign corporations,
partnerships, trusts and estates. A foreign unitholder generally will not be
subject to U.S. income or withholding tax in respect of proceeds from or gain on
the redemption of units or in respect of capital gain dividends, provided such
unitholder submits a statement, signed under penalties of perjury, attesting to
such unitholder's exempt status. Different tax consequences apply to a foreign
unitholder engaged in a U.S. trade or business. Foreign unitholders should
consult their tax advisers regarding the U.S. and foreign tax consequences of
investing in the Trust.
CONCLUSION
The foregoing discussion is based on tax laws and regulations which are in
effect on the date of this Additional Statement. Such laws and regulations may
be changed by legislative or administrative action. No attempt is made to
present a detailed explanation of the tax treatment of the Portfolios or their
unitholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Unitholders are advised to consult their
tax advisers with specific reference to their own tax situation, including the
application of state and local taxes.
OTHER INFORMATION
The Prospectus and this Additional Statement do not contain all the information
included in the Registration Statement filed with the SEC under the Securities
Act of 1933 with respect to the securities
B-38
<PAGE>
offered by the Trust's Prospectus. Certain portions of the Registration
Statement have been omitted from the Prospectus and this Additional Statement
pursuant to the rules and regulations of the SEC. The Registration Statement
including the exhibits filed therewith may be examined at the office of the SEC
in Washington, D.C.
Each Portfolio is responsible for the payment of its expenses. Such expenses
include, without limitation, the fees and expenses payable to Northern and
Goldman Sachs, brokerage fees and commissions, any portfolio losses, fees for
the registration or qualification of Portfolio units under Federal or state
securities laws, expenses of the organization of the Trust or of additional
Portfolios, taxes, interest, costs of liability insurance, fidelity bonds,
indemnification or contribution, any costs, expenses or losses arising out of
any liability of or claim for damages or other relief asserted against the Trust
for violation of any law, legal, tax services and auditing fees and expenses,
expenses of preparing and printing prospectuses, statements of additional
information, proxy materials, reports and notices and the printing and
distributing of the same to the Trust's unitholders and regulatory authorities,
compensation and expenses of its Trustees, expenses for industry organizations
such as the Investment Company Institute, miscellaneous expenses and
extraordinary expenses incurred by the Trust.
The term "majority of the outstanding units" of either the Trust or a particular
Portfolio means, with respect to the approval of an investment advisory
agreement or a change in a fundamental investment restriction, the vote of the
lesser of (i) 67% or more of the units of the Trust or such Portfolio present at
a meeting, if the holders of more than 50% or the outstanding units of the Trust
or such Portfolio are present or represented by proxy, or (ii) more than 50% of
the outstanding units of the Trust or such Portfolio.
STATEMENTS CONTAINED IN THE PROSPECTUS OR IN THIS ADDITIONAL STATEMENT AS TO THE
CONTENTS OF ANY CONTRACT OR OTHER DOCUMENTS REFERRED TO ARE NOT NECESSARILY
COMPLETE, AND IN EACH INSTANCE REFERENCE IS MADE TO THE COPY OF SUCH CONTRACT OR
OTHER DOCUMENT FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THE
PROSPECTUS AND THIS ADDITIONAL STATEMENT FORM A PART, EACH SUCH STATEMENT BEING
QUALIFIED IN ALL RESPECTS BY SUCH REFERENCE.
At a Special Meeting held on September 2, 1997 (the "Meeting"), the
unitholders of each Portfolio voted on two proposed new fundamental investment
policies and a proposed reorganization of the Portfolio into a corresponding
series of a new Delaware business trust (the "Delaware Trust").
At the Meeting, the unitholders of each Portfolio approved a proposed new
fundamental policy which will allow each Portfolio to invest in securities of
other investment companies to the full extent
B-39
<PAGE>
permitted under the 1940 Act and any regulation or order of the SEC,
notwithstanding the Portfolio's other fundamental policies. This new policy will
permit a Portfolio to implement the "master-feeder" structure by investing all
or substantially all of its assets in a single open-end investment company. The
unitholders of each Portfolio also approved a proposed new fundamental issuer
diversification policy which will require diversification only to the extent
required under the 1940 Act. The aforementioned investment policies will become
effective in connection with the Trust's annual amendment to its registration
statement to be filed in 1998.
At the Meeting, each Portfolio also approved a proposal to reorganize the
Portfolio into a newly-established series of the Delaware Trust. However,
because one fixed income portfolio of the Trust, the U.S. Government Securities
Portfolio, did not approve the reorganization, it is uncertain whether any
Portfolios will be so reorganized. The Board of Trustees of the Trust will
determine what further actions, if any, will be taken with respect to this
proposal.
FINANCIAL STATEMENTS
The audited financial statements and related report of Ernst & Young LLP,
independent auditors, contained in the annual report to unitholders for the
fiscal year ended November 30, 1996 (the "Annual Report") are hereby
incorporated herein by reference. No other part of the Annual Report is
incorporated by reference herein. Copies of the Annual Report may be obtained by
writing to Goldman, Sachs & Co., Funds Group, 4900 Sears Tower, Chicago,
Illinois 60606, or by calling Goldman Sachs toll-free at 800-621-2550.
B-40
<PAGE>
The Benchmark Funds
Money Market Portfolios
- -------------------------------------------------------------------------------
MARKET VIEW
THE BENCHMARK DIVERSIFIED ASSETS PORTFOLIO
THE BENCHMARK GOVERNMENT PORTFOLIO
THE BENCHMARK GOVERNMENT SELECT PORTFOLIO
The Federal Reserve's monetary policy and expectations about where that policy
was headed had the largest influence on portfolio activity during the fiscal
year ended November 30, 1996.
The Diversified Assets Portfolio was heavily weighted in commercial paper,
where yields were the most attractive. We maintained a barbell maturity struc-
ture as we tried to anticipate Fed activity. Any opportunities to capture ad-
ditional yield by extending the portfolio's maturity were evaluated on a case-
by-case basis. At year end, the portfolio's average maturity was 35 days--con-
sistent with other money market funds with similar investment objectives.
During the first half of the fiscal year, the Government and Government Se-
lect Portfolios were heavily weighted in monthly agency securities. We ex-
pected the federal funds rate to go down, so we initiated this strategy to ex-
tend the portfolios and take advantage of higher yields. In the second half of
the year, as signs of a strengthening economy emerged, the consensus was that
the Fed would raise rates. We employed a barbell strategy, focusing on one-
year Treasury bills for yield and to maintain our average maturity and over-
night securities for liquidity.
Looking ahead, year-end pressures should push rates higher. After that, fi-
nal inflation numbers for 1996 may cause the Fed to take action. We will main-
tain our current portfolio structures and continue to act defensively in an-
ticipating the Fed's next move.
Mary Ann Flynn and Ed Kyritz, Portfolio Managers
THE BENCHMARK TAX-EXEMPT PORTFOLIO
Early in the fiscal year, our outlook was for a stable or declining interest
rate environment. Our strategy, therefore, was to keep the portfolio's average
maturity longer than other portfolios with a similar investment objective.
When short-term rates are stable or declining, it is better to have a rela-
tively longer maturity structure in order to capture incremental yield in-
creases.
As it turned out, interest rates remained relatively stable during the year,
and our strategy worked well. The portfolio's one-year performance was favora-
ble compared to industry averages.
Going forward, we plan to maintain the portfolio's relatively longer average
maturity. Currently, the consensus is split as to whether the Federal Re-
serve's next move will be a tightening or easing of rates. We believe that a
stable rate environment will prevail for at least the next quarter, and possi-
bly for the next six to 12 months. However, we will continue to monitor and
evaluate the country's economic data as it is released, and we will position
the portfolio accordingly.
Brad Snyder, Portfolio Manager
Units of The Benchmark Funds are not bank deposits or obligations of, or
guaranteed, endorsed or otherwise supported by The Northern Trust Company, its
parent company, or its affiliates, and are not Federally insured or guaranteed
by the U.S. Government, Federal Deposit Insurance Corporation, Federal Reserve
Board, or any other governmental agency. Investment in the portfolios involves
investment risks, including possible loss of principal amount invested. The
Benchmark Money Market Portfolios seek to maintain a net asset value of $1.00
per unit, but there can be no assurance that they will be able to do so on a
continuous basis.
<PAGE>
The Benchmark Funds
Money Market Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF INVESTMENTS
November 30, 1996
INVESTMENT ABBREVIATIONS AND NOTES:
AMBAC--American Municipal Bond Assurance Corp.
BAN --Bond Anticipation Note
BTP --Bankers Trust Partnership
Colld.
--Collateral
CP --Commercial Paper
FGIC --Financial Guaranty Insurance Corp.
FNMA --Federal National Mortgage Association
FRN --Floating Rate Note
FSAC --Financial Security Assurance Corp.
GO --General Obligation
Gtd. --Guaranteed
GNMA --Government National Mortgage Association
HDA --Housing Development Authority
IDA --Industrial Development Authority
IDR --Industrial Development Revenue
LOC
--Letter of Credit
MBIA --Municipal Bond Insurance Association
ML SG--Merrill Lynch/Societe Generale
P-Floats
--Puttable Floating Rate Security
PCR --Pollution Control Revenue
RAN --Revenue Anticipation Note
TAN --Tax Anticipation Note
TOB --Tender Option Bond
TRAN --Tax and Revenue Anticipation Note
VRDN --Variable Rate Demand Note
- --The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
- --Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate.
- --Maturity dates represent either the stated date on the security, the next
interest reset date for floating rate securities, or the prerefunded date for
those types of securities.
- --The amortized cost also represents cost for federal income tax purposes.
- --Interest rates are reset daily and interest is payable monthly with respect
to all joint repurchase agreements.
See accompanying notes to financial statements.
2
<PAGE>
The Benchmark Funds
Money Market Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF INVESTMENTS
November 30, 1996
(All amounts in thousands)
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DIVERSIFIED ASSETS PORTFOLIO
BANK NOTES--2.2%
Boatmen's National Bank of Kansas
City FRN
$ 50,000 5.580% 12/03/96 $ 49,995
Boatmen's National Bank of St. Louis
FRN
20,000 5.580 12/03/96 20,000
- -------------------------------------------------------------------------------------------------------
TOTAL BANK NOTES $ 69,995
- -------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--10.9%
DOMESTIC DEPOSITORY INSTITUTIONS--1.1%
First Alabama Bank
$ 10,000 5.400% 03/07/97 $ 10,000
First Tennessee Bank
25,000 5.300 12/23/96 25,000
--------
35,000
FOREIGN DEPOSITORY INSTITUTIONS--9.8%
Abbey National PLC, London
100,000 5.510 04/15/97 100,009
ABN-Amro Bank, New York
35,000 5.690 04/17/97 35,002
Credit Agricole, New York
30,000 5.420 12/30/96 30,002
Deutsche Bank, London
25,000 5.420 12/27/96 25,001
Landesbank Hessen, New York
20,000 6.090 09/11/97 20,065
Norinchukin Bank, New York
25,000 5.540 12/06/96 25,001
Societe Generale, New York
26,000 5.840 10/06/97 26,057
Sumitomo Bank Ltd., New York
5,000 5.410 12/09/96 5,000
35,000 5.370 12/12/96 35,000
Swiss Bank Corp., New York
10,000 5.530 12/18/96 10,001
--------
311,138
- -------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT $346,138
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Maturity Amortized
Amount Interest Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER--48.2%
ASSET-BACKED SECURITIES--9.5%
Ascot Capital Corp.
$ 22,100 5.373% 12/20/96 $ 22,038
Barton Capital Corp.
2,718 5.369 12/16/96 2,712
Centric Funding
13,000 5.344 12/04/96 12,994
5,000 5.405 12/05/96 4,997
Cooperative Association of Tractor
Dealers, Inc.
13,600 5.446 12/10/96 13,582
7,600 5.524 01/10/97 7,554
Crosby Head Funding Corp.
10,000 5.478 12/19/96 9,973
Eureka Securitization, Inc.
10,000 5.360 12/03/96 9,997
Jet Funding Corp. (Dai-Ichi Kangyo
Bank LOC)
18,916 5.452 12/02/96 18,913
30,563 5.506 12/30/96 30,429
SALTS (II) Cayman Islands Corp.
25,000 5.775 12/19/96 25,000
SALTS (III) Cayman Islands Corp.
48,000 5.681 01/23/97 48,000
30,000 5.974 01/23/97 30,000
Strategic Asset Funding Corp. (Sanwa
Bank LOC)
40,744 5.476 01/31/97 40,371
WCP Funding, Inc.
25,000 5.455 12/03/96 24,992
----------
301,552
COMMUNICATIONS--4.6%
GTE Financial Corp.
25,997 5.353 12/13/96 25,951
Lucent Technologies, Inc.
75,000 5.404 12/02/96 74,989
NYNEX Corp.
35,000 5.394 02/14/97 34,612
11,000 5.400 02/21/97 10,867
----------
146,419
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
The Benchmark Funds
Money Market Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF INVESTMENTS
November 30, 1996
(All amounts in thousands)
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
DIVERSIFIED ASSETS PORTFOLIO--CONTINUED
DOMESTIC DEPOSITORY INSTITUTIONS--0.2%
Bankers Trust Corp.
<S> <C> <C> <C>
$ 7,300 5.463% 04/04/97 $ 7,166
ELECTRONIC AND OTHER ELECTRICAL COMPONENTS--4.5%
Cooper Industries, Inc.
50,000 5.404 12/02/96 49,993
Sanyo Electric Finance (USA) Corp.
2,000 5.432 02/07/97 1,980
5,000 5.446 02/25/97 4,936
Whirlpool Financial Corp.
1,440 5.350 12/02/96 1,440
27,000 5.420 12/04/96 26,988
10,000 5.360 12/20/96 9,972
33,000 5.370 12/20/96 32,907
15,000 5.474 02/24/97 14,809
----------
143,025
FOOD AND KINDRED PRODUCTS--2.2%
Pepsico, Inc.
20,000 5.405 12/03/96 19,994
Philip Morris Companies, Inc.
50,000 5.404 12/02/96 49,993
----------
69,987
FOOD STORES--0.5%
Big B, Inc. (NationsBank Georgia LOC)
17,000 5.495 12/18/96 16,956
FOREIGN DEPOSITORY INSTITUTIONS--2.7%
Halifax Building Society
1,550 5.469 03/13/97 1,527
National Australia Funding Inc.
1,000 5.445 02/12/97 989
Nationwide Building Society
39,052 5.474 04/07/97 38,315
San Paolo U.S. Financial Co.
11,000 5.484 04/16/97 10,778
Woolwich Building Society
35,000 5.412 12/13/96 34,938
----------
86,547
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
GENERAL MERCHANDISE STORES--0.8%
J.C. Penney Funding Corp.
<S> <C> <C> <C>
$ 25,000 5.415% 03/07/97 $ 24,645
HOLDING AND OTHER COMPANIES--3.5%
AESOP Funding Corp.
2,000 5.345 12/13/96 1,996
B.A.T. Capital Corp.
10,000 5.376 12/16/96 9,978
CSW Credit, Inc.
12,200 5.296 12/03/96 12,196
16,000 5.309 12/04/96 15,993
Green Tree Financial Corp.
23,143 5.413 12/12/96 23,105
2,000 5.418 12/12/96 1,997
7,000 5.424 12/19/96 6,981
25,000 5.441 12/23/96 24,917
National Rural Utilities Cooperative
15,000 5.370 12/09/96 14,982
----------
112,145
INSURANCE CARRIERS--0.5%
Copley Financing Corp.
7,537 5.372 12/17/96 7,519
Prudential Funding Corp.
8,400 5.277 12/02/96 8,399
----------
15,918
NONDEPOSITORY BUSINESS CREDIT INSTITUTIONS--9.4%
Associates Corp. of North America
150,000 5.424 12/02/96 149,977
FBA Properties, Inc. (NationsBank
Georgia LOC)
11,400 5.474 02/10/97 11,278
Finova Capital Corp.
30,000 5.332 12/02/96 29,995
20,000 5.404 12/02/96 19,997
PHH Corp.
16,300 5.327 12/16/96 16,264
Sanwa Business Credit Corp.
2,000 5.391 12/02/96 2,000
2,000 5.392 12/03/96 1,999
18,000 5.429 02/06/97 17,820
25,000 5.453 02/06/97 24,750
16,000 5.442 02/12/97 15,826
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
NONDEPOSITORY BUSINESS CREDIT INSTITUTIONS--CONTINUED
Showa Leasing (U.S.A.), Inc. Series:
C
(Industrial Bank of Japan Ltd. LOC)
<S> <C> <C> <C>
$10,000 5.457% 02/18/97 $ 9,882
----------
299,788
NONDEPOSITORY PERSONAL CREDIT INSTITUTIONS--0.8%
Countrywide Home Loans
25,000 5.347 12/09/96 24,971
TRANSPORTATION--8.7%
BMW US Capital Corp.
25,000 5.327 12/16/96 24,945
18,091 5.346 12/16/96 18,051
Chrysler Financial Corp.
25,000 5.378 12/19/96 24,933
20,000 5.423 02/20/97 19,759
20,000 5.425 02/20/97 19,759
45,000 5.427 02/25/97 44,425
Ford Motor Credit Corp.
50,000 5.404 12/02/96 49,992
General Motors Acceptance Corp.
2,806 5.580 12/16/96 2,800
28,000 5.626 02/12/97 27,689
11,000 5.467 05/01/97 10,754
35,000 5.478 05/15/97 34,144
----------
277,251
TRANSPORTATION EQUIPMENT--0.3%
PACCAR Financial Corp.
8,000 5.368 12/19/96 7,979
- ---------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER $1,534,349
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
CORPORATE NOTES--6.1%
AT&T Capital Corp. FRN
<S> <C> <C> <C>
$50,000 5.415% 12/23/96 $ 50,000
Bear Stearns Companies FRN
10,100 5.913 12/18/96 10,101
FPL Capital Group
5,400 6.500 07/01/97 5,429
General Electric Engine Receivables
1995-1 Trust FRN
20,974 5.476 12/02/96 20,975
General Motors Acceptance Corp.
4,660 8.000 04/10/97 4,701
International Business Machines
Credit Corp.
55,000 5.000 02/24/97 54,985
10,000 5.450 11/10/97 9,982
PHH Corp.
40,000 4.950 02/10/97 39,940
- ---------------------------------------------------------------------------------------------------
TOTAL CORPORATE NOTES $ 196,113
- ---------------------------------------------------------------------------------------------------
EURODOLLAR TIME DEPOSITS--5.1%
Creditanstalt Bank, Grand Cayman
$75,000 5.625% 12/02/96 $ 75,000
Hong Kong & Shanghai Bank, Grand
Cayman
89,000 5.438 12/02/96 89,000
- ---------------------------------------------------------------------------------------------------
TOTAL EURODOLLAR TIME DEPOSITS $ 164,000
- ---------------------------------------------------------------------------------------------------
GUARANTEED INVESTMENT CONTRACTS--3.5%
General American Life Insurance Co.
FRN
$75,000 5.580% 12/23/96 $ 75,000
Transamerica Life Insurance and
Annuity Co. FRN
35,000 5.375 12/02/96 35,000
- ---------------------------------------------------------------------------------------------------
TOTAL GUARANTEED INVESTMENT CONTRACTS $ 110,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
The Benchmark Funds
Money Market Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF INVESTMENTS
November 30, 1996
(All amounts in thousands)
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
DIVERSIFIED ASSETS PORTFOLIO--CONTINUED
MUNICIPAL INVESTMENTS--2.8%
County of Broward (Florida)
Professional Sports Facilities
<S> <C> <C> <C>
$ 17,500 5.460% 12/01/96 $ 17,500
City of Minneapolis-St. Paul (Minnesota) Metro Airport G.O. Bond
20,000 5.475 12/01/96 20,000
City of Seattle (Washington) Ltd.G.O. Bond, Series: C
30,000 5.400 12/04/96 30,000
Hydro-Quebec Corp. Monthly Put TOB FRN
9,000 5.480 12/01/96 9,000
State of Virginia HDA Multi-Family
Housing Bond
12,745 5.475 12/01/96 12,745
- ---------------------------------------------------------------------------------------------
TOTAL MUNICIPAL INVESTMENTS $ 89,245
- ---------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY--1.6%
Federal Home Loan Bank Discount Note
$ 50,000 5.703% 12/02/96 $ 49,992
- ---------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY $ 49,992
- ---------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATION--1.6%
U.S. Treasury Bill
$ 50,000 5.005% 02/06/97 $ 49,556
- ---------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATION $ 49,556
- ---------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--20.2%
REPURCHASE AGREEMENTS--18.6%
Bear Stearns & Co., Inc., Dated
11/29/96, Repurchase Price $260,123
(U.S. Government Securities Colld.)
$ 260,000 5.680% 12/02/96 $260,000
Donaldson, Lufkin & Jenrette
Securities, Inc., Dated 11/27/96,
Repurchase Price $200,149 (U.S.
Government Securities Colld.)
200,000 5.360 12/02/96 200,000
J.P. Morgan Securities, Inc., Dated
11/29/96, Repurchase Price $115,054
(U.S. Government Securities Colld.)
115,000 5.680 12/02/96 115,000
J.P. Morgan Securities, Inc., Dated
11/29/96, Repurchase Price $16,071
(U.S. Government Securities Colld.)
16,063 5.800 12/02/96 16,063
--------
591,063
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ----------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENT--1.6%
Merrill Lynch Government Securities,
Inc., Dated 8/12/96 (U.S. Government
Securities Colld.) Accrued Interest
$143
<S> <C> <C> <C>
$ 50,000 5.726% 12/02/96 $ 50,000
- ----------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS $ 641,063
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--102.2% $3,250,451
- ----------------------------------------------------------------------------------------------------
Liabilities, less other assets--(2.2%) (70,922)
- ----------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $3,179,529
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
GOVERNMENT PORTFOLIO
U.S. GOVERNMENT AGENCIES--66.5%
FEDERAL HOME LOAN BANK DISCOUNT NOTES--23.2%
<S> <C> <C> <C>
$213,000 5.703% 12/02/96 $212,966
25,000 5.318 12/17/96 24,942
11,000 5.652 01/09/97 10,934
17,000 5.638 01/17/97 16,878
20,000 5.451 01/21/97 19,851
9,000 5.445 01/22/97 8,932
--------
294,503
FEDERAL HOME LOAN BANK MEDIUM TERM
NOTE--1.3%
15,915 5.800 08/12/97 15,921
FEDERAL HOME LOAN MORTGAGE CORPORATION
DISCOUNT NOTES--14.2%
15,000 5.222 12/11/96 14,978
25,000 5.241 12/11/96 24,964
14,900 5.246 12/16/96 14,868
30,000 5.288 02/04/97 29,717
47,000 5.285 02/14/97 46,489
15,000 5.332 02/18/97 14,827
34,000 5.284 02/19/97 33,606
--------
179,449
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DISCOUNT NOTES--15.9%
25,000 5.357 12/18/96 24,938
20,000 5.549 12/19/96 19,946
25,000 5.282 02/10/97 24,743
40,000 5.288 02/10/97 39,588
25,000 5.301 02/18/97 24,713
20,000 5.379 04/04/97 19,638
20,000 5.290 04/16/97 19,609
5,000 5.388 04/16/97 4,901
24,500 5.392 04/16/97 24,014
--------
202,090
FEDERAL NATIONAL MORTGAGE ASSOCIATION
MEDIUM TERM NOTES--3.9%
14,000 5.350 12/26/96 14,000
20,000 5.860 07/03/97 20,024
15,000 5.520 10/28/97 14,996
--------
49,020
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
OVERSEAS PRIVATE INVESTMENT CORP. FRN--2.8%
<S> <C> <C> <C>
$ 35,800 5.390% 12/04/96 $ 35,800
STUDENT LOAN MARKETING ASSOCIATION FRN--3.5%
30,000 5.220 12/03/96 29,994
15,000 5.350 12/03/96 14,992
----------
44,986
STUDENT LOAN MARKETING ASSOCIATION MEDIUM TERM NOTE--1.7%
21,710 5.965 09/12/97 21,737
- -----------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES $ 843,506
- -----------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--2.7%
U.S. TREASURY BILLS
$ 5,000 5.005% 02/06/97 $ 4,956
10,000 5.134 02/06/97 9,909
20,000 5.458 11/13/97 19,003
- -----------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS $ 33,868
- -----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--31.4%
REPURCHASE AGREEMENTS--27.5%
Bear Stearns & Co., Inc., Dated 11/27/96, Repurchase Price $140,104 (U.S.
Government Securities Colld.)
$140,000 5.350% 12/02/96 $ 140,000
J.P. Morgan Securities, Inc, Dated 11/29/96, Repurchase Price
$8,708 (U.S. Government Securities Colld.)
8,704 5.800 12/02/96 8,704
Nomura Securities International, Dated 11/27/96, Repurchase Price
$200,149 (U.S. Government Securities Colld.)
200,000 5.375 12/02/96 200,000
----------
348,704
JOINT REPURCHASE AGREEMENT--3.9%
UBS Securities, Inc., Dated 08/26/96 (U.S. Government Securities Colld.)
Accrued Interest $144
50,000 5.710 12/02/96 50,000
- -----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS $ 398,704
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.6% $1,276,078
- -----------------------------------------------------------------------------------------------
Liabilities, less other assets--(0.6)% (7,563)
- -----------------------------------------------------------------------------------------------
NET ASSETS--100.0% $1,268,515
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
The Benchmark Funds
Money Market Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF INVESTMENTS
November 30, 1996
(All amounts in thousands)
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
GOVERNMENT SELECT PORTFOLIO
U.S. GOVERNMENT AGENCIES--97.6%
FEDERAL FARM CREDIT BANK DISCOUNT NOTES--15.9%
<S> <C> <C> <C>
$23,560 5.205% 12/02/96 $ 23,557
18,000 5.159 12/04/96 17,992
15,000 5.223 12/05/96 14,991
20,000 5.173 12/09/96 19,977
10,000 5.214 12/09/96 9,989
7,255 5.248 12/12/96 7,243
9,400 5.214 12/13/96 9,384
15,735 5.210 12/18/96 15,696
5,000 5.375 08/14/97 4,816
10,000 5.403 09/25/97 9,572
----------
133,217
FEDERAL FARM CREDIT BANK--0.9%
7,500 5.850 08/01/97 7,505
FEDERAL HOME LOAN BANK--1.2%
10,000 5.800 08/12/97 10,004
FEDERAL HOME LOAN BANK DISCOUNT NOTES--55.3%
6,610 5.147 12/02/96 6,609
15,830 5.216 12/02/96 15,828
42,415 5.703 12/02/96 42,408
25,000 5.165 12/03/96 24,993
13,000 5.186 12/04/96 12,994
40,830 5.255 12/05/96 40,806
30,500 5.336 12/05/96 30,482
6,025 5.234 12/09/96 6,018
30,000 5.201 12/11/96 29,957
35,690 5.220 12/19/96 35,597
20,000 5.221 12/19/96 19,948
30,000 5.451 01/21/97 29,777
22,180 5.445 01/22/97 22,012
20,000 5.284 02/06/97 19,806
26,950 5.472 02/06/97 26,686
20,000 5.291 02/14/97 19,783
40,000 5.301 02/18/97 39,541
9,975 5.269 02/20/97 9,858
9,855 5.587 02/21/97 9,732
17,060 5.656 03/24/97 16,766
3,280 5.376 03/27/97 3,225
----------
462,826
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount/Shares Rate Date Cost
- --------------------------------------------------------------------------------------------------
STUDENT LOAN MARKETING ASSOCIATION DISCOUNT NOTES--7.9%
<S> <C> <C> <C>
$35,000 5.324% 12/02/96 $ 34,995
31,100 5.210 12/18/96 31,024
--------
66,019
STUDENT LOAN MARKETING ASSOCIATION FRN--5.7%
15,000 5.870 06/30/97 15,010
20,000 5.220 08/06/97 19,996
13,000 5.350 09/03/97 12,993
--------
47,999
TENNESSEE VALLEY AUTHORITY DISCOUNT NOTES--10.7%
10,000 5.245 12/10/96 9,987
20,000 5.227 12/12/96 19,968
10,000 5.242 12/12/96 9,984
20,000 5.229 12/20/96 19,945
10,000 5.268 01/24/97 9,922
20,000 5.279 02/03/97 19,814
--------
89,620
- --------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES $817,190
- --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--3.5%
U.S. TREASURY BILLS
$10,000 5.134% 02/06/97 $ 9,911
20,000 5.458 11/13/97 19,003
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATION_______________________________________S$ 28,914
- --------------------------------------------------------------------------------
OTHER--0.1%
Dreyfus Treasury Prime Cash Management, Class A
542 $ 542
- --------------------------------------------------------------------------------------------------
TOTAL OTHER $ 542
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--101.2% $846,646
- --------------------------------------------------------------------------------------------------
Liabilities, less other assets--(1.2)% (10,297)
- --------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $836,349
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO
MUNICIPAL INVESTMENTS--98.1%
ALABAMA--0.2%
City of Greenville IDR VRDN, Series:
1992,
Allied Signal Project (Allied-
Signal, Inc. Gtd.)
<S> <C> <C> <C>
$ 1,350 3.700% 12/06/96 $ 1,350
ALASKA--2.0%
Alaska Housing Finance Corp. VRDN,
Series: 1994,
Merrill P-Floats PT-37 (FNMA
Securities Colld.)
2,300 3.550 12/02/96 2,300
Valdez Marine Terminal Revenue VRDN,
Series: 1994 B,
ARCO Transportation Project
(Atlantic Richfield Co. Gtd.)
10,550 3.700 12/06/96 10,550
--------
12,850
ARIZONA--0.8%
County of Maricopa PCR VRDN, Series:
A, El Paso Electric Project (Westpac
Banking Corp. LOC)
5,000 3.700 12/06/96 5,000
CALIFORNIA--6.8%
California Statewide Community
Development Authority TRAN, Series:
A (California Statewide Communities
Program Pool Residual Fund Insured)
9,000 4.750 06/30/97 9,038
City of Los Angeles IDR VRDN, Series:
BTP-129,
(U.S. Government Securities Colld.)
2,500 3.250 12/12/96 2,500
City of San Marcos Public Facilities
Authority, Series: BTP-187, Civic
Center Project (U.S. Government
Securities Colld.)
6,000 3.750 03/06/97 6,000
City of Santa Rosa High School
District TRAN, Series: 1996-1997
3,000 4.500 07/03/97 3,008
County of Irvine Ranch Water District
VRDN, Series: 1993 B, Districts 2,
102, 103, & 206 (Morgan Guaranty
Trust Co. LOC)
9,800 3.950 12/02/96 9,800
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
County of Los Angeles Convention &
Exhibition Center VRDN, Series:
1993, Merrill P-Floats Series: PA-88
(MBIA Insured)
<S> <C> <C> <C>
$ 2,000 3.650% 12/06/96 $ 2,000
County of Orange VRDN, Irvine Coast
Assessment District #88-1 (Societe
Generale LOC)
3,600 4.050 12/02/96 3,600
County of Sacramento Multifamily
Housing Revenue VRDN, Series: 1985
E, River Oaks Apartments (Dai-Ichi
Kangyo Bank LOC)
1,600 3.550 12/06/96 1,600
State of California RAN, Series: A
6,000 4.500 06/30/97 6,018
--------
43,564
COLORADO--1.6%
Broomfield IDR VRDN, Series: 1984,
Buckeye Investment Project (Bank of
America NT & SA LOC)
1,500 3.600 12/06/96 1,500
City and County of Denver
Transportation VRDN, Series: 1991 B
(Sanwa Bank LOC)
8,000 3.700 12/06/96 8,000
County of Pitkin IDA VRDN, Series:
1994 B, Aspen Skiing Project (First
Chicago NBD Bank LOC)
1,000 4.100 12/02/96 1,000
--------
10,500
FLORIDA--5.2%
County of Broward Housing Finance
Authority Revenue VRDN Landings
Inverrary Apartments (PNC Bank LOC)
7,000 3.650 12/02/96 7,000
County of Dade School District GO
VRDN, Series: 1994, BTP-66 (MBIA
Insured)
5,535 3.750 12/06/96 5,535
County of Orange Housing Finance
Authority VRDN, Series: A (GNMA
Securities Colld.)
5,500 3.750 12/06/96 5,500
County of Palm Beach Housing Finance
Authority Revenue VRDN, Series: 1988
D, Cotton Bay (New England Mutual
Gtd.)
3,600 3.500 12/06/96 3,600
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
The Benchmark Funds
Money Market Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF INVESTMENTS
November 30, 1996
(All amounts in thousands)
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO--CONTINUED
FLORIDA--CONTINUED
Florida State Board of Education
Capital Outlay Board VRDN, Series:
1990 B, BTP-52
<S> <C> <C> <C>
$ 5,000 3.750% 12/06/96 $ 5,000
Jacksonville Health Facilities
Authority VRDN, Series: 1990,
Baptist Health Project (Barnett
Banks NA LOC)
3,200 4.100 12/02/96 3,200
Orlando Utilities Commission VRDN,
Series: 1993, ML SG, Series: 1995
SG8 (Orlando Utilities Commission
Water and Electric-Senior Lien)
3,650 3.600 12/06/96 3,650
--------
33,485
GEORGIA--3.6%
County of DeKalb Development
Authority PCR VRDN, Series: 1987,
General Motors Project (General
Motors Corp. Gtd.)
6,300 3.650 12/06/96 6,300
County of Elbvert Development
Authority IDR VRDN, Series: 1992,
Allied-Signal Project (FMC Corp.
Gtd.)
2,430 3.700 12/06/96 2,430
County of Fulton Development
Authority IDR VRDN, General Motors
Project (General Motors Corp. Gtd.)
1,500 3.650 12/06/96 1,500
County of Fulton Resident Elderly
Authority VRDN, St. Anne's Terrace
Project (NationsBank Georgia LOC)
2,600 3.550 12/06/96 2,600
County of Monroe Development
Authority PCR VRDN, Series: 1995,
Scherer Plant Project (Georgia Power
Co. Gtd.)
4,000 4.100 12/02/96 4,000
Metro Atlanta Rapid Transit Authority
Revenue VRDN, Series: A, BTP-58
(AMBAC Insured)
5,965 3.750 12/06/96 5,965
--------
22,795
ILLINOIS--4.9%
City of Naperville IDR VRDN, General
Motors Project (General Motors Corp.
Gtd.)
1,480 3.650 12/06/96 1,480
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
Illinois HDA TOB, Series: 1987 B,
Residential Mortgage Program
<S> <C> <C> <C>
$ 4,645 3.950 02/01/97 $ 4,645
Illinois HDA TOB, Series: 1987 C,
Residential Mortgage Program
12,900 3.950 02/01/97 12,900
Illinois HDA TOB, Series: 1987 E,
Residential Mortgage Program
2,105 3.950 02/01/97 2,105
Illinois Health Facilities Authority
VRDN, Series: E, Hospital Sisters
Service Project (MBIA Insured)
300 3.550% 12/06/96 300
Illinois Health Facilities Authority
VRDN, Series: 1995, Healthcor
Project (Fuji Bank LOC)
5,950 4.050 12/06/96 5,950
Regional Transportation Authority
Revenue VRDN, Series: D (FGIC
Insured)
4,000 3.650 12/06/96 4,000
-------
31,380
KANSAS--2.7%
City of LaCygne Environmental Revenue
VRDN, Series: 1994 A, Kansas City
Power & Light Project (Kansas City
Power & Light Gtd.)
6,940 3.700 12/06/96 6,940
City of Lawrence GO, Series: 1996 C
9,820 4.000 10/01/97 9,820
City of Topeka Sewer System Revenue
VRDN, Series: 1984 (MBIA Insured)
500 3.550 12/01/96 500
-------
17,260
KENTUCKY--0.3%
City of Mayfield Lease Revenue VRDN,
Series: 1996, Kentucky League of
Cities Pooled Project (PNC Bank LOC)
1,700 3.700 12/06/96 1,700
LOUISIANA--1.4%
Parish of Caddo IDR VRDN, General
Motors Corp. Project (General Motors
Corp. Gtd.)
3,500 3.650 12/06/96 3,500
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
Parish of West Baton Rouge District
#3 PCR CP, Dow Chemical Project (Dow
Chemical Gtd.)
<S> <C> <C> <C>
$ 1,700 3.600% 01/15/97 $ 1,700
West Feliciana Parish PCR IDR VRDN,
Series: 1986, Gulf States Utilities
Project (Canadian Imperial Bank of
Commerce LOC)
3,300 4.050 12/02/96 3,300
West Feliciana Parish PCR VRDN,
Series: 1985 D, Gulf States
Utilities Project (Canadian Imperial
Bank of Commerce LOC)
700 4.050 12/02/96 700
--------
9,200
MARYLAND--7.5%
City of Baltimore IDA VRDN, Series:
1986, Capital Acquisition Program
(Dai-Ichi Kangyo Bank LOC)
7,300 3.700 12/06/96 7,300
County of Anne Arundel PCR Bond,
Baltimore Gas and Electric Project
(Baltimore Gas & Electric Gtd.)
2,685 3.950 07/01/97 2,685
County of Baltimore Consolidated CP,
Series: 1995, Public Improvement BAN
2,900 3.750 12/10/96 2,900
County of Montgomery CP BAN, Series:
1995
2,300 3.600 12/10/96 2,300
Maryland State Community Development
Administration, Series: PT-12,
Merrill P-Floats (Maryland Community
Development Administration)
7,720 3.550 12/02/96 7,720
Maryland State Economic Development
Authority VRDN, Series: 1995
(NationsBank NA LOC)
2,400 3.550 12/06/96 2,400
Maryland State Health & Higher
Education Facility Authority VRDN,
Series: A, Helix Health, Inc.
(NationsBank NA LOC)
16,300 3.550 12/06/96 16,300
Maryland State Health & Higher
Education Facility Authority VRDN,
Series: D, Pooled Loan Program
(NationsBank NA LOC)
5,915 3.550 12/06/96 5,915
--------
47,520
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
MASSACHUSETTS--1.2%
Massachusetts Housing Finance
Authority TOB, Series: 6, Single
Family Mortgage Program
(Massachusetts Housing Finance
Authority)
<S> <C> <C> <C>
$ 1,895 3.850% 12/01/96 $ 1,895
Massachusetts Municipal Electric Co.
Revenue VRDN, Series: 1994 B, BTP-67
(MBIA Insured)
5,760 3.750 12/06/96 5,760
--------
7,655
MICHIGAN--2.5%
City of Detroit School District,
Series: 1996, State School Aid Notes
(Detroit School District Gtd.)
8,000 4.500 05/01/97 8,018
Michigan State Strategic Fund IDR
VRDN, Allied-Signal Project (FMC
Corp. Gtd.)
6,700 3.650 12/06/96 6,700
Michigan State Strategic Fund PCR CP
(Dow Chemical Gtd.)
1,420 3.750 01/27/97 1,420
--------
16,138
MISSOURI--2.9%
City of St. Louis TRAN, Series: 1996
5,000 4.750 06/30/97 5,021
County of Callaway IDA Health System
VRDN, Series: 1995 (NationsBank
Tennessee LOC)
4,800 3.600 12/06/96 4,800
County of St. Louis IDA VRDN,
Friendship Village West Community
Project (LaSalle National Bank LOC)
4,370 3.600 12/06/96 4,370
Missouri Health & Education Facility
Authority Revenue VRDN, Series: 1996
A, Bethesda Barclay House Project
(Mercantile Bank of St. Louis NA
LOC)
4,200 4.250 12/02/96 4,200
--------
18,391
MONTANA--1.5%
City of Forsyth PCR VRDN, Series:
1988 A, Pacificorp Project
(Industrial Bank of Japan LOC)
9,400 4.400 12/02/96 9,400
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
The Benchmark Funds
Money Market Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF INVESTMENTS
November 30, 1996
(All amounts in thousands)
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO--CONTINUED
NEVADA--0.2%
Nevada Housing Division Housing
Revenue Bonds Single Family Program
Senior Bonds, A-1
<S> <C> <C> <C>
$ 1,065 3.700% 04/01/97 $ 1,065
NEW YORK--8.4%
City of New York GO RAN, Series: B
(Bank of Nova Scotia LOC)
10,000 4.500 06/30/97 10,041
City of New York GO VRDN, Subseries:
1994 B-4 (Union Bank of Switzerland
LOC)
1,400 4.250 12/02/96 1,400
Marine Midland Premium Loan Trust
VRDN, Series: 1991 (Hong Kong &
Shanghai Banking Corp. LOC)
1,200 3.750 12/06/96 1,200
Marine Midland Premium Loan Trust
VRDN, Series: 1991 B (Hong Kong &
Shanghai Banking Corp. LOC)
1,492 3.850 12/06/96 1,492
New York State Environmental
Facilities Corp. PCR VRDN, Eagle
Trust Series: 943204 (FSAC Insured)
19,300 3.650 12/06/96 19,300
New York State Medical Care Finance
Agency Revenue Bond, Series: BTP-175
(U.S. Government Securities Colld.)
20,000 3.850 12/17/96 20,000
--------
53,433
NORTH CAROLINA--1.5%
County of Buncombe PCR IDR VRDN,
Series: 1996, Cooper Industries
Project (Cooper Industries Gtd.)
3,200 3.750 12/06/96 3,200
County of Wake Industrial Pollution
Finance Authority PCR VRDN, Carolina
Power & Light Project (Sumitomo Bank
Ltd. LOC)
1,400 3.650 12/06/96 1,400
North Carolina Medical Care
Commission Hospital Revenue VRDN,
Series: 1991 A, Pooled Financing
Project (NationsBank NA LOC)
4,700 4.050 12/02/96 4,700
--------
9,300
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
OHIO--4.3%
County of Mahoning Care Facility IDR
VRDN, Series: 1994, Assumption
Nursing Home Project (PNC Bank LOC)
<S> <C> <C> <C>
$ 1,400 3.650% 12/06/96 $ 1,400
State of Ohio Air Quality Development
Authority CP, Series: A, Pollution
Control-Duquesne (Union Bank of
Switzerland LOC)
4,000 3.950 07/16/97 4,000
State of Ohio GO VRDN, Series: 1994,
BTP-170
5,875 3.700 12/06/96 5,875
State of Ohio Higher Education
Capital Facilities VRDN, Series:
1990 A, BTP-29 (MBIA Insured)
3,000 3.750 12/06/96 3,000
State of Ohio Higher Education
Capital Facilities VRDN, Series:
1994 A, BTP-69 (AMBAC Insured)
8,745 3.750 12/06/96 8,745
Red Roof Inns Mortgage Bond Trust
VRDN (National City Bank LOC)
4,529 3.650 12/15/96 4,529
--------
27,549
OKLAHOMA--3.4%
State of Oklahoma Water Resources
Board, Series: 1994 A, State Loan
Program
21,725 3.750 03/01/97 21,725
OREGON--1.3%
City of Medford Hospital Facilities
Authority VRDN, Series: 1991, Rogue
Valley Project (Banque Paribas LOC)
8,400 3.700 12/06/96 8,400
</TABLE>
PENNSYLVANIA--11.3%
City of Philadelphia Hospital &
Higher Education Facilities
Authority VRDN, Series: A,
Children's Hospital Project
<TABLE>
<S> <C> <C> <C>
4,500 4.000 12/02/96 4,500
</TABLE>
City of Philadelphia IDR VRDN,
Series: 1988, Franklin Institute
Project (PNC Bank LOC)
<TABLE>
<S> <C> <C> <C>
2,800 3.650 12/06/96 2,800
City of Philadelphia School District
TRAN
17,000 4.500 06/30/97 17,047
City of Philadelphia TRAN, Series:
1995-96 A
18,000 4.500 06/30/97 18,055
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
County of Schuylkill IDA IDR VRDN,
Gilbert Power Project (Mellon Bank
NA LOC)
<S> <C> <C> <C>
$ 7,650 3.550% 12/06/96 $ 7,650
County of Warren Hospital Revenue
VRDN, Series: 1994 B (PNC Bank LOC)
1,000 3.650 12/06/96 1,000
Delaware Valley Regional Finance
Authority Pooled Revenue VRDN,
Series: 1985 A (Midland Bank PLC
LOC)
5,000 3.600 12/06/96 5,000
Delaware Valley Regional Finance
Authority Pooled Revenue VRDN,
Series: 1985 C (Midland Bank PLC
LOC)
2,400 3.600 12/06/96 2,400
Delaware Valley Regional Finance
Authority Pooled Revenue VRDN,
Series: 1985 A-D (Midland Bank PLC
LOC)
9,500 3.600 12/06/96 9,500
Delaware Valley Regional Finance
Authority Pooled Revenue VRDN,
Series: 1985 D (Midland Bank PLC
LOC)
1,900 3.600 12/06/96 1,900
State of Pennsylvania Higher
Education Facilities Authority VRDN,
Series: 1996, Allegheny College
Project (Mellon Bank NA LOC)
2,000 3.550 12/06/96 2,000
--------
71,852
RHODE ISLAND--0.4%
State of Rhode Island TAN, Series:
1996 A
2,500 4.500 06/30/97 2,507
SOUTH CAROLINA--1.9%
County of Lexington IDR VRDN, Series:
1992, Allied-Signal Project (FMC
Corp. Gtd.)
700 3.700 12/06/96 700
County of Lexington Pollution Control
Finance Authority IDR VRDN, Series:
1992 A, Allied-Signal Project (FMC
Corp. Gtd.)
1,880 3.700 12/06/96 1,880
South Carolina Public Service
Authority Revenue VRDN, Series: 1995
B ML SG, Series: SG-32 (FGIC
Insured)
9,855 3.650 12/06/96 9,855
--------
12,435
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
SOUTH DAKOTA--0.4%
State of South Dakota HDA Homeowner
Mortgage VRDN, Merrill P-Floats,
Series: PT-73-A
<S> <C> <C> <C>
$ 2,500 3.700% 12/06/96 $ 2,500
TENNESSEE--2.6%
City of Clarksville Public Building
Authority Revenue VRDN, Series:
1995, Tennessee Muni Bond Fund
(NationsBank of Florida LOC)
1,600 3.550 12/06/96 1,600
City of Memphis GO VRDN, Series: 1996
ML SG, Series: SGB-23
5,000 3.650 12/06/96 5,000
County of Chattanooga-Hamilton
Hospital Authority VRDN, Series:
1987, Erlanger Medical Center
Project
800 4.200 12/02/96 800
County of Hamilton IDA VRDN, Series:
1995, Tennessee Aquarium Project
(NationsBank Tennessee LOC)
5,350 3.550 12/06/96 5,350
County of Shelby GO, Series: B, BTP-
216
4,000 3.700 11/06/97 4,000
--------
16,750
TEXAS--6.9%
Brazos River Harbor Navigation
District PCR CP, Series: 1987 B, Dow
Chemical Project (Dow Chemical Gtd.)
3,000 3.750 01/27/97 3,000
Brazos River Harbor Navigation
District PCR CP, Series: 1990, Dow
Chemical Project (Dow Chemical Gtd.)
1,000 3.750 01/27/97 1,000
City of Austin School District
Building VRDN, Series: 1996 ML SG,
Series: SG-68 (Permanent School Fund
of Texas Gtd.)
7,300 3.650 12/06/96 7,300
City of Denton Independent School
District GO, Series: B, (Permanent
School Fund of Texas Gtd.)
10,000 3.980 08/15/97 10,000
City of Houston Water & Sewer System
CP, Series: A
5,000 3.650 01/23/97 5,000
City of Mansfield Independent School
District, Series: 1996 School
Building (Permanent School Fund of
Texas Gtd.)
7,500 4.140 07/01/97 7,500
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
The Benchmark Funds
Money Market Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF INVESTMENTS
November 30, 1996
(All amounts in thousands)
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
TAX-EXEMPT PORTFOLIO--CONTINUED
TEXAS--CONTINUED
County of Bexar Multifamily Housing
Finance Authority VRDN, Series: 1988
A, Creighton's Mill Development
Project (New England Mutual Gtd.)
<S> <C> <C> <C>
$ 2,600 3.650% 12/06/96 $ 2,600
County of Harris Toll Road Unlimited
Tax Revenue VRDN, Series: 1994 A,
Citicorp Eagle Trust Series: 954302
5,500 3.700 12/06/96 5,500
State of Texas Water Development
Board Pooled VRDN, Series: 1992 A
Revolving Fund (Junior Lien)
2,100 4.200 12/02/96 2,100
--------
44,000
VIRGINIA--2.9%
City of Norfolk GO VRDN, Eagle Trust,
Series: 944601
4,800 3.700 12/06/96 4,800
City of Richmond Redevelopment &
Housing Authority VRDN, Series: 1995
A, Old Manchester Project (Wachovia
Bank of North Carolina NA LOC)
2,000 3.650 12/06/96 2,000
City of Roanoke IDR VRDN, Series:
1994, Cooper Industries Project
(Cooper Industries Gtd.)
2,000 3.700 12/06/96 2,000
State of Virginia GO VRDN, Series:
1994, Citicorp Eagle Trust, Series:
954601
7,000 3.700 12/06/96 7,000
Town of Louisa IDA PCR CP, Series:
1984 (Virginia Electric Power Gtd.)
1,000 3.550 12/17/96 1,000
Town of Louisa PCR CP, Series: 1987
(Virginia Electric Power Gtd.)
1,800 3.800 01/15/97 1,800
--------
18,600
WASHINGTON--4.6%
City of Kent Economic Development
Corp. IDR VRDN, Associated Grocers
Project (Seattle-First National Bank
LOC)
3,800 4.272 12/06/96 3,800
City of Seattle Metropolitan
Municipality GO (U.S. Government
Securities Colld.)
1,000 7.200 01/01/97 1,005
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------------
Washington Public Power Supply System
Revenue Bond,
Series: 1996 A BTP-206 (AMBAC
Insured)
<S> <C> <C> <C>
$ 4,950 4.000% 08/21/97 $ 4,950
Washington Public Power Supply System
Revenue VRDN,
ML SG, Series: SG-15 (MBIA Insured)
6,595 3.650 12/06/96 6,595
Washington Public Power Supply System
Revenue VRDN,
Series: 1990 B BTP-85 (U.S.
Government Securities Colld.)
6,221 3.750 12/06/96 6,221
Washington State GO VRDN, Series:
1993 B
6,950 3.650 12/06/96 6,950
--------
29,521
WISCONSIN--0.8%
Wisconsin Health & Education Revenue
Bond, Series:
1996 B, Riverview Hospital
Association
(Firstar Bank of Milwaukee NA LOC)
500 4.150 12/02/96 500
Wisconsin Housing & Economic
Development Authority,
Home Ownership Revenue Bond, Series:
A
4,875 3.800 03/01/97 4,875
--------
5,375
WYOMING--0.4%
City of Green River PCR VRDN Allied
Signal Project
(FMC Corp. Gtd.)
2,225 3.700 12/06/96 2,225
OTHER MUNICIPAL INVESTMENTS--1.7%
IBM Tax-Exempt Grantor Trust Asset-
Back Lease VRDN, Series: IBM 1996 A,
Certificate Merrill P-Floats (Credit
Suisse Gtd.)
9,050 3.800 12/06/96 9,050
Pooled Puttable Floating Option VRDN,
Series: PPT2 (Alaska Housing Finance
Corp. Insured)
1,650 4.100 12/02/96 1,650
--------
10,700
- -------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL INVESTMENTS $626,125
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Interest Maturity
Shares Rate Date Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER INVESTMENTS--0.7%
AIM Tax Free Money Market Fund
105 -- -- $ 105
Dreyfus Tax Exempt Cash Management
Fund
400 -- -- 400
Federated Tax Free Trust Money Market
Fund #15
2,739 -- -- 2,739
Federated Tax-Free Trust Money Market
Fund #73
819 -- -- 819
Provident Municipal Fund
353 -- -- 353
- --------------------------------------------------------------------------------------------------------------
TOTAL OTHER $ 4,416
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.8% $630,541
- --------------------------------------------------------------------------------------------------------------
Other assets, less liabilities--1.2% 7,966
- --------------------------------------------------------------------------------------------------------------
NET ASSETS--100.0% $638,507
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
The Benchmark Funds
Money Market Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
November 30, 1996
(All amounts in thousands, except net asset value per unit)
<TABLE>
<CAPTION>
Diversified Government
Assets Government Select Tax-Exempt
Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at
amortized cost $2,609,388 $ 877,374 $846,646 $630,541
Repurchase agreements, at cost 641,063 398,704 -- --
Cash 1 1 15 --
Receivables:
Interest 10,425 2,750 1,256 5,502
Fund units sold 111,755 32,941 5,246 17,303
Investment securities sold -- -- -- 4,665
Administrator -- 23 28 33
Other assets 2 1 1 1
- -------------------------------------------------------------------------------
TOTAL ASSETS 3,372,634 1,311,794 853,192 658,045
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for:
Fund units redeemed 179,676 37,728 13,167 17,523
Distributions to unitholders 12,481 5,147 3,488 1,768
Accrued expenses:
Advisory fees 605 253 68 134
Administration fees 163 93 76 67
Custodian fees 42 10 8 9
Transfer agent fees 5 3 2 3
Other liabilities 133 45 34 34
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 193,105 43,279 16,843 19,538
- -------------------------------------------------------------------------------
NET ASSETS $3,179,529 $1,268,515 $836,349 $638,507
- -------------------------------------------------------------------------------
ANALYSIS OF NET ASSETS:
Paid-in capital $3,181,103 $1,268,820 $836,425 $638,366
Accumulated net realized gain
(loss) on
investment transactions (1,574) (305) (76) 141
- -------------------------------------------------------------------------------
NET ASSETS $3,179,529 $1,268,515 $836,349 $638,507
- -------------------------------------------------------------------------------
Total units outstanding (no par
value),
unlimited units authorized 3,181,103 1,268,820 836,425 638,366
- -------------------------------------------------------------------------------
Net asset value, offering and
redemption price per unit
(net assets/units outstanding) $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
The Benchmark Funds
Money Market Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended November 30, 1996
(All amounts in thousands)
<TABLE>
<CAPTION>
Diversified Government
Assets Government Select Tax-Exempt
Portfolio Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME $173,018 $56,872 $41,631 $27,703
- ------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 7,832 2,618 1,930 1,885
Administration fees 2,079 1,036 897 885
Custodian fees 360 132 97 106
Transfer agent fees 65 31 22 15
Registration fees 47 29 26 32
Professional fees 139 50 36 50
Trustee fees 86 29 23 23
Other 102 45 36 28
- ------------------------------------------------------------------------------
TOTAL EXPENSES 10,710 3,970 3,067 3,024
Less: Voluntary waivers of in-
vestment advisory fees -- -- (1,158) --
Less: Expenses reimbursable by
Administrator -- (306) (365) (382)
- ------------------------------------------------------------------------------
Net expenses 10,710 3,664 1,544 2,642
- ------------------------------------------------------------------------------
NET INVESTMENT INCOME 162,308 53,208 40,087 25,061
Net realized gains on investment
transactions 327 133 97 102
- ------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RE-
SULTING FROM OPERATIONS $162,635 $53,341 $40,184 $25,163
- ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
The Benchmark Funds
Money Market Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended November 30,
(All amounts in thousands)
<TABLE>
<CAPTION>
Diversified Assets Government Government Select Tax-Exempt
Portfolio Portfolio Portfolio Portfolio
-------------------------- -------------------------- ------------------------ ------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DE-
CREASE) IN NET
ASSETS FROM:
OPERATIONS:
Net investment
income $ 162,308 $ 159,519 $ 53,208 $ 42,613 $ 40,087 $ 32,259 $ 25,061 $ 24,498
Net realized
gains (losses)
on investment
transactions 327 (1,460) 133 (828) 97 (73) 102 48
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in
net assets re-
sulting from
operations 162,635 158,059 53,341 41,785 40,184 32,186 25,163 24,546
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS:
Net investment
income (162,308) (159,519) (53,208) (42,613) (40,087) (32,259) (25,061) (24,498)
- ------------------------------------------------------------------------------------------------------------------------------
Total distribu-
tions to
unitholders (162,308) (159,519) (53,208) (42,613) (40,087) (32,259) (25,061) (24,498)
- ------------------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS
(AT $1.00 PER
UNIT):
Proceeds from
the sale of
units 42,285,142 43,084,716 12,329,359 10,203,042 4,712,236 3,588,011 5,526,968 5,729,794
Reinvested dis-
tributions 860 -- -- -- 963 -- 126 --
Cost of units
redeemed (41,717,147) (43,366,308) (11,911,641) (10,140,281) (4,562,089) (3,396,629) (5,692,419) (5,779,215)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (de-
crease) in net
assets resulting
from unit trans-
actions 568,855 (281,592) 417,718 62,761 151,110 191,382 (165,325) (49,421)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL CONTRIBU-
TIONS RECEIVED
FROM NORTHERN
TRUST CORPORA-
TION -- 1,519 -- 915 -- 115 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (de-
crease) 569,182 (281,533) 417,851 62,848 151,207 191,424 (165,223) (49,373)
Net assets--be-
ginning of year 2,610,347 2,891,880 850,664 787,816 685,142 493,718 803,730 853,103
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS--END
OF YEAR $ 3,179,529 $ 2,610,347 $ 1,268,515 $ 850,664 $ 836,349 $ 685,142 $ 638,507 $ 803,730
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
The Benchmark Funds
Money Market Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
Diversified Assets Portfolio
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
YEAr $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income 0.05 0.06 0.04 0.03 0.04 0.06 0.08
- -----------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.05 0.06 0.04 0.03 0.04 0.06 0.08
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS
FROM:
Net investment
income (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.08)
- -----------------------------------------------------------------------------------------------------------------------------
Total distribu-
tions to
unitholders (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.08)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return
(a)(b) 5.30% 5.78% 3.92% 3.00% 3.80% 6.19% 8.01%
Ratio to average
net assets of :
Expenses, net
of waivers and
reimbursements 0.34% 0.34% 0.35% 0.34% 0.34% 0.35% 0.35%
Expenses, be-
fore waivers
and
reimbursements 0.34% 0.34% 0.35% 0.36% 0.35% 0.36% 0.36%
Net investment income, net of waivers
and reimburse-
ments 5.18% 5.63% 3.74% 3.00% 3.79% 6.18% 8.01%
Net investment income, before waivers
and reimburse-
ments 5.18% 5.63% 3.74% 2.98% 3.78% 6.17% 8.00%
Net assets at end of year (in thousands) $3,179,529 $2,610,347 $2,891,880 $3,200,288 $2,801,744 $2,784,485 $2,192,756
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
YEAr $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income 0.09 0.07 0.06
- -----------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.09 0.07 0.06
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS
FROM:
Net investment
income (0.09) (0.07) (0.06)
- -----------------------------------------------------------------------------------------------------------------------------
Total distribu-
tions to
unitholders (0.09) (0.07) (0.06)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF YEAR $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return
(a)(b) 8.98% 7.15% 6.30%
Ratio to average
net assets of :
Expenses, net
of waivers and
reimbursements 0.37% 0.39% 0.41%
Expenses, be-
fore waivers
and
reimbursements 0.37% 0.39% 0.41%
Net investment income, net of waivers
and reimburse-
ments 8.98% 7.15% 6.30%
Net investment income, before waivers
and reimburse-
ments 8.98% 7.15% 6.30%
Net assets at end of year (in thousands) $1,871,713 $1,528,203 $1,533,941
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete
redemption of the investment at the net asset value at the end of the
year.
(b) Total return for the year ended November 30, 1995 would have been 5.73%
absent the effect of a capital contribution equivalent to $.0005 per
share received from Northern Trust Corporation.
See accompanying notes to financial statements.
19
<PAGE>
The Benchmark Funds
Money Market Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
Government Portfolio
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BE-
GINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.05 0.06 0.04 0.03 0.04 0.06 0.08 0.09 0.07 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Total income from in-
vestment operations 0.05 0.06 0.04 0.03 0.04 0.06 0.08 0.09 0.07 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07) (0.06)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to
unitholders (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07) (0.06)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (a)(b) 5.20% 5.64% 3.78% 2.91% 3.91% 6.18% 7.89% 8.63% 6.83% 6.15%
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements 0.35% 0.35% 0.34% 0.34% 0.34% 0.35% 0.37% 0.50% 0.54% 0.44%
Expenses, before
waivers and
reimbursements 0.38% 0.40% 0.41% 0.38% 0.40% 0.40% 0.46% 0.50% 0.55% 0.55%
Net investment in-
come, net of waivers
and reimbursements 5.08% 5.49% 3.60% 2.92% 3.71% 6.03% 7.88% 8.63% 6.83% 6.15%
Net investment in-
come, before waivers
and reimbursements 5.05% 5.44% 3.53% 2.88% 3.65% 5.98% 7.79% 8.63% 6.82% 6.04%
Net assets at end of
year (in thousands) $1,268,515 $850,664 $787,816 $1,065,705 $1,163,905 $895,405 $971,720 $423,517 $335,301 $218,530
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year.
(b) Total return for the year ended November 30, 1995 would have been 5.53%
absent the effect of a capital contribution equivalent to $.0011 per share
received from Northern Trust Corporation.
See accompanying notes to financial statements.
20
<PAGE>
The Benchmark Funds
Money Market Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
Government Select Portfolio
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990(a)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.05 0.06 0.04 0.03 0.04 0.06 0.01
- -----------------------------------------------------------------------------------------------
Total income from in-
vestment operations 0.05 0.06 0.04 0.03 0.04 0.06 0.01
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.01)
- -----------------------------------------------------------------------------------------------
Total distributions to
unitholders (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.01)
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------
Total return (b)(c) 5.31% 5.82% 3.84% 3.00% 3.71% 5.82% 0.50%
Ratio to average net
assets of (d):
Expenses, net of waiv-
ers and reimbursements 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Expenses, before waiv-
ers and reimbursements 0.40% 0.41% 0.43% 0.49% 0.52% 0.60% 1.33%
Net investment income,
net of waivers and re-
imbursements 5.19% 5.67% 3.83% 2.99% 3.70% 5.78% 7.65%
Net investment income,
before waivers and re-
imbursements 4.99% 5.46% 3.60% 2.70% 3.38% 5.38% 6.52%
Net assets at end of
year (in thousands) $836,349 $685,142 $493,718 $386,507 $264,756 $160,750 $44,215
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on November 7, 1990.
(b) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, and a complete
redemption of the investment at the net asset value at the end of the
period.
(c) Total return for the year ended November 30, 1995 would have been 5.80%
absent the effect of a capital contribution equivalent to $.0002 per
share received from Northern Trust Corporation.
(d) Annualized for periods less than a full year.
See accompanying notes to financial statements.
21
<PAGE>
The Benchmark Funds
Money Market Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
Tax-Exempt Portfolio
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.03 0.04 0.02 0.02 0.03 0.05 0.06 0.06 0.05 0.04
- --------------------------------------------------------------------------------------------------------------------------------
Total income from in-
vestment operations 0.03 0.04 0.02 0.02 0.03 0.05 0.06 0.06 0.05 0.04
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (0.03) (0.04) (0.02) (0.02) (0.03) (0.05) (0.06) (0.06) (0.05) (0.04)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions to
unitholders (0.03) (0.04) (0.02) (0.02) (0.03) (0.05) (0.06) (0.06) (0.05) (0.04)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------------------------
Total return (a) 3.37% 3.71% 2.62% 2.27% 2.97% 4.57% 5.71% 6.04% 4.92% 4.00%
Ratio to average net
assets of :
Expenses, net of
waivers and
reimbursements 0.35% 0.35% 0.35% 0.34% 0.34% 0.35% 0.36% 0.49% 0.48% 0.45%
Expenses, before
waivers and
reimbursements 0.40% 0.41% 0.36% 0.38% 0.39% 0.40% 0.43% 0.49% 0.48% 0.46%
Net investment income,
net of waivers and re-
imbursements 3.32% 3.63% 2.40% 2.27% 2.95% 4.57% 5.71% 6.03% 4.92% 4.00%
Net investment income,
before waivers and re-
imbursements 3.27% 3.57% 2.39% 2.23% 2.90% 4.52% 5.64% 6.03% 4.92% 3.99%
Net assets at end of
year (in thousands) $638,507 $803,730 $853,103 $1,191,932 $1,226,480 $872,405 $752,257 $545,215 $529,680 $410,772
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete
redemption of the investment at the end of the year.
See accompanying notes to financial statements.
22
<PAGE>
The Benchmark Funds
Money Market Portfolios
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
November 30, 1996
1. ORGANIZATION
The Benchmark Funds (the "Trust") is a Massachusetts business trust registered
under the Investment Company Act of 1940 (as amended) as an open-end manage-
ment investment company. The Trust includes sixteen portfolios, each with its
own investment objective. The Northern Trust Company ("Northern") acts as the
Trust's investment adviser, transfer agent, and custodian. Goldman, Sachs &
Co. ("Goldman Sachs") acts as the Trust's administrator and distributor. Pre-
sented herein are the financial statements of the money market portfolios.
The Trust includes four diversified money market portfolios: Diversified As-
sets Portfolio, Government Portfolio, Government Select Portfolio and Tax-Ex-
empt Portfolio (the "Portfolios").
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios in the preparation of their financial statements.
These policies are in conformity with generally accepted accounting principles
("GAAP"). The presentation of financial statements in conformity with GAAP re-
quires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Ac-
tual results could differ from those estimates. Certain amounts reported for
periods prior to the year ended November 30, 1996 have been restated to con-
form to the current financial statement presentation.
(a) Investment Valuation
Investments are valued at amortized cost, which approximates market value. Un-
der the amortized cost method, investments purchased at a discount or premium
are valued by amortizing the difference between the original purchase price
and maturity value of the issue over the period to maturity.
(b) Repurchase Agreements
During the term of a repurchase agreement, the market value of the underlying
collateral, including accrued interest, is required to exceed the market value
of the repurchase agreement. The underlying collateral for all repurchase
agreements is held in a customer-only account of Northern, as custodian for
the Trust, at the Federal Reserve Bank of Chicago.
Each Portfolio may enter into joint repurchase agreements with non-affili-
ated counterparties through a master repurchase agreement with Northern.
Northern administers and manages these repurchase agreements in accordance
with and as part of its duties under its investment advisory agreements with
the Portfolios and does not collect any additional fees from the Portfolios.
The Diversified Assets and Government Portfolios had entered into such joint
repurchase agreements as of November 30, 1996, as reflected in the accompany-
ing Statements of Investments.
(c) Interest Income
Interest income is recorded on the accrual basis and includes amortization of
discounts and premiums.
(d) Federal Taxes
It is each portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
each year substantially all of its taxable income and tax-exempt income to its
unitholders. Therefore, no provision is made for federal taxes.
At November 30, 1996, the Trust's most recent tax year end, there were capi-
tal loss carryforwards for U.S. federal tax purposes of approximately
$1,574,000, $305,000 and $76,000 for the Diversified Assets, Government and
Government Select Portfolios, respectively. These amounts are available to be
carried forward to offset future capital gains to the extent permitted by ap-
plicable laws or regulations. These capital loss carryforwards expire in 2002.
23
<PAGE>
The Benchmark Funds
Money Market Portfolios
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--CONTINUED
November 30, 1996
(e) Expenses
Expenses arising in connection with a specific portfolio are allocated to that
portfolio.
Expenses incurred which do not specifically relate to an individual portfolio
are allocated among the Portfolios based on each Portfolio's relative average
net assets for the year.
(f) Distributions
Each Portfolio's net investment income is declared daily as a dividend to
unitholders of record as of 3:00 p.m., Chicago time. Net realized short-term
capital gains, if any in excess of net capital loss carryforwards, are de-
clared and distributed at least annually.
Distributions of net investment income with respect to a calendar month (in-
cluding with respect to units redeemed at any time during the month) are made
as soon as practicable following the end of the month. Distributions are made
by each Portfolio to Northern in cash or automatically reinvested in addi-
tional units of the Portfolio. Northern has undertaken to credit or arrange
for the crediting of such distributions to each unitholder's account with
Northern, its affiliates or its correspondents.
3. ADVISORY, TRANSFER AGENCY, CUSTODIAN AND OTHER AGREEMENTS
As compensation for the services rendered as investment adviser, including the
assumption by Northern of the expenses related thereto, Northern is entitled
to a fee, computed daily and payable monthly, at an annual rate of .25% of
each portfolio's average daily net assets.
Until further notice, Northern has voluntarily agreed to waive .15% of its
advisory fee for the Government Select Portfolio, reducing such fee to .10%
per annum. The effect of this waiver by Northern for the year ended November
30, 1996 was to reduce advisory fees as shown on the accompanying Statements
of Operations.
As compensation for the services rendered as custodian and transfer agent,
including the assumption by Northern of the expenses related thereto, Northern
receives compensation based on a pre-determined schedule of charges approved
by the Board.
The Trust and Northern Trust Corporation (the "Corporation"), parent company
of Northern, entered into an agreement (the "Put Agreement") dated May 19,
1994 which provided the Trust the right to require the Corporation to pur-
chase, and the Corporation the right to require the Trust to sell, certain
Federal Home Loan and Federal Farm Credit Banks securities held by the Diver-
sified Assets, Government and Government Select Portfolios on or before June
19, 1995 (the "final purchase date"). Pursuant to the Put Agreement, the Cor-
poration, on June 19, 1995, purchased these securities at amortized cost,
which exceeded market value by approximately $1,519,000, $915,000 and $115,000
for the Diversified Assets, Government and Government Select Portfolios, re-
spectively. The Portfolios recorded realized losses to the extent the purchase
price exceeded market value of the securities. The Portfolios received capital
contributions from the Corporation in connection with the Put Agreement, which
served to offset such losses.
4. ADMINISTRATION AND DISTRIBUTION AGREEMENTS
As compensation for the services rendered as administrator, and the assumption
by Goldman Sachs of expenses related thereto, Goldman Sachs is entitled to re-
ceive from each Portfolio a fee, computed daily and payable monthly, at an an-
nual rate of .25% of the first $100 million, .15% of the next $200 million,
.075% of the next $450 million and .05% of any excess over $750 million of the
average daily net assets of each Portfolio.
Goldman Sachs has voluntarily agreed to waive a portion of its administration
fees in the event that overall administration fees earned during the prior
fiscal year exceeded certain specified levels. For the year ended November 30,
1996, there was no reduction in administration fees due to this waiver.
Furthermore, Goldman Sachs has agreed to reimburse the portfolios for certain
expenses in the event that such expenses, as defined, exceed, on an annualized
basis,
24
<PAGE>
- --------------------------------------------------------------------------------
.10% of each portfolio's average daily net assets. The expenses reimbursed dur-
ing the year ended November 30, 1996, are shown on the accompanying Statements
of Operations.
Goldman Sachs receives no compensation under the Distribution Agreement.
5. BANK LOANS
The Trust maintains a $5,000,000 revolving bank credit line and a $15,000,000
conditional revolving credit line for liquidity and other purposes. Borrowings
under this arrangement bear interest at 1% above the Fed Funds rate and are se-
cured by pledged securities equal to or exceeding 120% of the outstanding bal-
ance.
There were no borrowings under this agreement during the year ended November
30, 1996.
25
<PAGE>
The Benchmark Funds
Money Market Portfolios
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
To the Unitholders and Trustees of
The Benchmark Funds
Money Market Portfolios
We have audited the accompanying statements of assets and liabilities,
including the statements of investments, of the Diversified Assets,
Government, Government Select and Tax-Exempt Portfolios, comprising the Money
Market Portfolios of The Benchmark Funds, as of November 30, 1996, and the
related statements of operations for the year then ended and changes in net
assets for each of the two years in the period then ended and financial
highlights for the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Portfolios' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
investments owned at November 30, 1996 by physical examination of the
securities held by the custodian and by correspondence with outside
depositories and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Diversified Assets, Government, Government Select and Tax-Exempt Portfolios,
comprising the Money Market Portfolios of The Benchmark Funds, at November 30,
1996, the results of their operations for the year then ended and the changes
in their net assets for each of the two years in the period then ended and
financial highlights for the periods indicated therein, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
January 21, 1997
26
<PAGE>
THE BENCHMARK FUNDS
Investment Adviser, Transfer Agent and Custodian
The Northern Trust Company
50 S. LaSalle Street
Chicago, IL 60675
Administrator and Distributor
Goldman, Sachs & Co.
4900 Sears Tower
Chicago, IL 60606
Trustees
William H. Springer, Chairman
Edward J. Condon, Jr.
John W. English
James J. Gavin, Jr.
Frederick T. Kelsey
Richard P. Strubel
Officers
Paul W. Klug, Jr., President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Independent Auditors
Ernst & Young LLP
233 S. Wacker Dr.
Chicago, IL 60606
Legal Counsel
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, PA 19107
This Annual Report is
authorized for distribution to
prospective investors only
when preceded or accompanied
by a Prospectus which contains
facts concerning the
objectives and policies,
management expenses and other
information.
The
Benchmark
Funds
Money
Market
Portfolios
Annual Report
November 30, 1996
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group, Inc., a division of
McGraw Hill ("S&P"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors
Service, Inc. ("Fitch") and Thomson BankWatch, Inc. ("TBW").
Long-Term Corporate and Tax-Exempt Debt Ratings
The two highest ratings of Moody's for tax-exempt and corporate bonds are Aaa
and Aa. Tax-exempt and corporate bonds rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to bonds which are of "high quality by
all standards." Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements which make the long-term risks
appear somewhat larger. Moody's may modify a rating of Aa by adding numerical
modifiers of 1, 2 or 3 to show relative standing within the Aa category. The
foregoing ratings for tax-exempt bonds are sometimes presented in parentheses
preceded with a "con" indicating the bonds are rated conditionally. Such
parenthetical rating denotes the probable credit stature upon completion of
construction or elimination of the basis of the condition. The notation (P) when
applied to forward delivery bonds indicates that the rating is provisional
pending delivery of the bonds. The rating may be revised prior to delivery if
changes occur in the legal documents or the underlying credit quality of the
bonds. In addition, Moody's has advised that the short-term credit risk of a
long-term instrument sometimes carries a MIG rating or one of the commercial
paper ratings described below.
The two highest ratings of S&P for tax-exempt and corporate bonds are AAA and
AA. Bonds rated AAA bear the highest rating assigned by S&P to a debt obligation
and the AAA rating indicates in its opinion an extremely strong capacity to pay
interest and repay principal. Bonds rated AA by S&P are judged by it to have a
very strong capacity to pay interest and repay principal, and differ from AAA
issues only in small degree. The AA rating may be modified by an addition of a
plus (+) or minus (-) sign to show relative standing within the major rating
category. S&P may attach the rating "r" to highlight derivative, hybrid and
certain other obligations that S&P believes may experience high volatility or
high variability in expected returns due to non-credit risks.
The two highest ratings of D&P for tax-exempt and corporate fixed-income
securities are AAA and AA. Securities rated AAA are of the highest credit
quality. The risk factors are considered to be negligible, being only slightly
more than for risk-free U.S. Treasury debt. Securities rated AA are of high
credit quality.
1-A
<PAGE>
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions. The AA rating may be modified by an
addition of a plus (+) or minus (-) sign to show relative standing within the
major rating category.
The two highest ratings of Fitch for tax-exempt and corporate bonds are AAA and
AA. AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor is judged to have an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. AA bonds are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. Plus (+) and minus (-) signs are used with the AA rating symbol to
indicate relative standing within the rating category.
The two highest ratings of TBW for corporate bonds are AAA and AA. Bonds rated
AAA are of the highest credit quality. The ability of the obligor to repay
principal and interest on a timely basis is considered to be extremely high.
Bonds rated AA indicate a very strong ability on the part of the obligor to
repay principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category. These ratings may be modified by
the addition of a plus (+) or minus (-) sign to show relative standing within
the rating categories. TBW does not rate tax-exempt bonds.
TAX-EXEMPT NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term obligations
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade. MIG-1/VMIG-1
denotes best quality. There is present strong protection by established cash
flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. MIG-2/VMIG-2 denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
S&P describes its SP-1 rating of municipal notes as follows: "Very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus (+)
designation." Municipal notes rated SP-2 are deemed to have satisfactory
capacity to pay principal and interest.
D&P uses the fixed-income ratings described above under "Corporate and Tax-
Exempt Bond Ratings" for tax-exempt notes and other short-term obligations.
2A
<PAGE>
Fitch's short-term ratings apply to tax-exempt and corporate debt obligations
that are payable on demand or have original maturities of up to three years,
including commercial paper and municipal and investment notes. The highest
ratings of Fitch for short-term securities are F-1+, F-1 and F-2. F-1+
securities possess exceptionally strong credit quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for timely
payment. F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+. F-2 securities possess good credit quality. Issues carrying
this rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the F-1+ and F-1 ratings.
TBW does not rate tax-exempt notes.
SHORT-TERM CORPORATE AND TAX-EXEMPT DEBT RATINGS
Short-term ratings, set forth below (except TBW's), are applied to tax-exempt as
well as taxable debt.
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Issuers rated Prime-1 (or related supporting institutions) in the
opinion of Moody's have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of short-
term promissory obligations.
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market. The A-1
designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics will be denoted with a plus (+) sign designation. The A-2
designation indicates that capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated A-1.
The two highest ratings of D&P for commercial paper are D1 and D2. D&P employs
three designations, D1 plus, D1 and D1 minus, within the highest rating
category. D1 plus indicates highest certainty of timely payment. Short-term
liquidity including internal operating factors, and/or ready access to
alternative sources of funds, is judged to be outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations. D1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
strong fundamental protection factors. Risk factors are considered to be minor.
D1 minus indicates high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small. D2 indicates good certainty of timely payment. Liquidity factors and
company
3A
<PAGE>
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Fitch uses the short-term ratings described above under "Tax-Exempt Note
Ratings" for commercial paper.
TBW's short-term ratings assess the likelihood of an untimely or incomplete
payment of principal or interest of unsubordinated debt instruments having a
maturity of one year or less which are issued by United States commercial banks,
thrifts and non-bank banks; non-United States banks; and broker-dealers and
other financial insti tutions. The two highest short-term ratings of TBW are
TBW-1 and TBW-2. Debt rated TBW-1 indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis. The TBW-2
designation indicates that while the degree of safety regarding timely payment
of principal and interest is strong, the relative degree of safety is not as
high as for issues rated TBW-1.
4A
