<PAGE>
THE
BENCHMARK
FUNDS
Fixed
The Benchmark Funds Income and
Equity
Portfolios
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
PROSPECTUS
APRIL 1, 1997
<PAGE>
THE BENCHMARK FUNDS
(Advised by The Northern Trust Company)
This Prospectus describes five fixed income, one balanced and six equity
portfolios (the "Portfolios") offered by The Benchmark Funds (the "Trust") to
institutional investors.
The U.S. GOVERNMENT SECURITIES PORTFOLIO seeks to maximize total return with
reasonable risk by investing in a broad range of U.S. Government securities
and maintaining a dollar-weighted average maturity of between 1 and 5 years.
The SHORT-INTERMEDIATE BOND PORTFOLIO seeks to maximize total return
consistent with reasonable risk by investing in a broad range of bonds and
other fixed income securities and maintaining a dollar-weighted average
maturity of between 2 and 5 years.
The U.S. TREASURY INDEX PORTFOLIO seeks to provide investment results
approximating the performance of the Lehman Brothers Treasury Bond Index (the
"Lehman Index") by investing primarily in securities represented in the
Lehman Index.
The BOND PORTFOLIO seeks to maximize total return consistent with reasonable
risk by investing in a broad range of bonds and other fixed income securities
and maintaining a dollar-weighted average maturity of between 5 and 15 years.
The INTERNATIONAL BOND PORTFOLIO seeks to maximize total return consistent
with reasonable risk by investing primarily in a broad range of bonds and
other fixed income securities of foreign issuers while maintaining a dollar-
weighted average maturity of between 3 and 11 years.
The BALANCED PORTFOLIO seeks to provide long-term capital appreciation and
current income by investing in stocks, bonds and cash equivalents.
The EQUITY INDEX PORTFOLIO seeks to provide investment results approximating
the aggregate price and dividend performance of the securities included in
the Standard & Poor's 500 Composite Stock Price Index (the "S&P Index") by
investing substantially all of its assets in securities comprising the S&P
Index.
The DIVERSIFIED GROWTH PORTFOLIO seeks to provide long-term capital
appreciation with income a secondary consideration by investing principally
in common and preferred stocks and securities convertible into common stock
of growth companies.
The FOCUSED GROWTH PORTFOLIO seeks to provide long-term capital appreciation
by investing primarily in common stocks of growth companies. Any income
received is incidental to the objective of capital appreciation.
The SMALL COMPANY INDEX PORTFOLIO seeks to provide investment results
approximating the aggregate price and dividend performance of the securities
included in the Russell 2000 Small Stock Index (the "Russell Index") by
investing substantially all of its assets in securities represented in the
Russell Index.
The INTERNATIONAL EQUITY INDEX PORTFOLIO seeks to provide investment results
approximating the aggregate price and dividend performance of the securities
in the Morgan Stanley Capital International (MSCI) Europe, Australia and Far
East Index (the "EAFE Index").
The INTERNATIONAL GROWTH PORTFOLIO seeks to provide long-term capital
appreciation by investing principally in common and preferred stocks and
securities convertible into common stock of foreign issuers. Any income
received is incidental to the objective of capital appreciation.
This Prospectus provides information about the Portfolios that you should
know before investing. It should be read and retained for future reference.
If you would like more detailed information, a Statement of Additional
Information (the "Additional Statement") dated April 1, 1997 is available
upon request without charge by writing to the Trust's distributor, Goldman,
Sachs & Co. ("Goldman Sachs"), 4900 Sears Tower, Chicago, Illinois 60606 or
by calling 1-800-621-2550.
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. INVESTMENT IN THE PORTFOLIOS
INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is April 1, 1997.
<PAGE>
THE NORTHERN TRUST COMPANY INVESTMENT ADVISER, TRANSFER AGENT AND
50 S. LaSalle Street CUSTODIAN
Chicago, Illinois 60675
312-630-6000
Each Portfolio is advised by The Northern Trust Company ("Northern"). Units of
all Portfolios other than the Small Company Index and International Equity
Index Portfolios are sold and redeemed without any purchase or redemption
charge imposed by the Trust, although Northern and other institutions may
charge their customers for services provided in connection with their
investments. The Small Company Index and International Equity Index Portfolios
require the payment of an additional transaction fee with respect to purchase
transactions equal to 0.75% and 1.00%, respectively, of the amount invested.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES 3
- -------------------
FINANCIAL HIGHLIGHTS 9
- --------------------
INVESTMENT INFORMATION 20
- ----------------------
Introduction 20
U.S. Government Securities Portfo-
lio 20
Short-Intermediate Bond Portfolio 20
U.S. Treasury Index Portfolio 21
Bond Portfolio 21
International Bond Portfolio 21
Balanced Portfolio 22
Equity Index Portfolio 23
Diversified Growth Portfolio 24
Focused Growth Portfolio 24
Small Company Index Portfolio 25
International Equity Index Portfo-
lio 26
International Growth Portfolio 27
Special Risks and Other Considera-
tions 28
Description of Securities and
Common Investment Techniques 30
Investment Restrictions 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TRUST INFORMATION 42
- -----------------
Board of Trustees 42
Investment Adviser, Transfer Agent
and Custodian 42
Portfolio Managers 44
Administrator and Distributor 44
Unitholder Servicing Plan 45
Service Information 45
INVESTING 46
- ---------
Purchase of Units 46
Redemption of Units 49
Distributions 51
Taxes 52
NET ASSET VALUE 54
- ---------------
PERFORMANCE INFORMATION 54
- -----------------------
ORGANIZATION 55
- ------------
MISCELLANEOUS 56
- -------------
</TABLE>
2
<PAGE>
SUMMARY OF EXPENSES
The following table sets forth certain information regarding the unitholder
transaction expenses imposed by the Trust and the annualized operating
expenses the Portfolios (except the International Equity Index Portfolio)
incurred during the Trust's last fiscal year, and the estimated annualized
operating expenses the International Equity Index Portfolio expects to incur
during the current fiscal year. Hypothetical examples based on the table are
also shown. Investors should note that units of each Portfolio have been
classified into four separate classes, Class A, B, C and D units. Each class
is distinguished by the level of administrative support and transfer agency
services provided. Class A, B, C and D units represent pro rata interests in a
Portfolio except that different unitholder servicing fees and transfer agency
fees are payable by Class A, B, C and D units in a Portfolio. See "Trust
Information--Unitholder Servicing Plan."
<TABLE>
<CAPTION>
U.S. Government Securities Short-Intermediate Bond
------------------------------- --------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Units Units Units Units Units Units Units Units
------- ------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unitholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Additional Transaction
Fee (as a percentage
of amount invested)... None None None None None None None None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
Annual Operating
Expenses After Expense
Reimbursements and Fee
Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .25% .25% .25% .25% .25% .25% .25% .25%
12b-1 Fees............. None None None None None None None None
Servicing Fees(4)...... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(4)............... .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(2,3)... .10% .10% .10% .10% .10% .10% .10% .10%
---- ---- ---- ---- ---- ---- ---- ----
Total Operating
Expenses(1,2,3,4)... .36% .50% .60% .75% .36% .50% .60% .75%
==== ==== ==== ==== ==== ==== ==== ====
Example of Expenses.
Based on the foregoing
table, you would pay
the following expenses
on a hypothetical
$1,000 investment,
assuming a 5% annual
return and redemption
at the end of each time
period:
One Year............... $4 $5 $6 $8 $4 $5 $6 $8
Three Years............ $12 $16 $19 $24 $12 $16 $19 $24
Five Years............. $20 $28 $33 $42 $20 $28 $33 $42
Ten Years.............. $46 $63 $75 $93 $46 $63 $75 $93
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
U.S. Treasury Index Bond
------------------------------- -------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Units Units Units Units Units Units Units Units
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unitholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Additional Transaction
Fee (as a percentage
of amount invested)... None None None None None None None None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
Annual Operating
Expenses After Expense
Reimbursements and Fee
Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .15% .15% .15% .15% .25% .25% .25% .25%
12b-1 Fees............. None None None None None None None None
Servicing Fees(4)...... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(4)............... .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(2,3)... .10% .10% .10% .10% .10% .10% .10% .10%
---- ---- ---- ---- ---- ---- ---- ----
Total Operating
Expenses(1,2,3,4)... .26% .40% .50% .65% .36% .50% .60% .75%
==== ==== ==== ==== ==== ==== ==== ====
Example of Expenses.
Based on the foregoing
table, you would pay
the following expenses
on a hypothetical
$1,000 investment,
assuming a 5% annual
return and redemption
at the end of each time
period:
One Year............... $3 $4 $5 $7 $4 $5 $6 $8
Three Years............ $8 $13 $16 $21 $12 $16 $19 $24
Five Years............. $15 $22 $28 $36 $20 $28 $33 $42
Ten Years.............. $33 $51 $63 $81 $46 $63 $75 $93
</TABLE>
<TABLE>
<CAPTION>
International Bond Balanced
------------------------------- -------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Units Units Units Units Units Units Units Units
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unitholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Additional Transaction
Fee (as a percentage
of amount invested)... None None None None None None None None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
Annual Operating
Expenses After Expense
Reimbursements and Fee
Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .70% .70% .70% .70% .50% .50% .50% .50%
12b-1 Fees............. None None None None None None None None
Servicing Fees(4)...... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(4)............... .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(2,3)... .25% .25% .25% .25% .10% .10% .10% .10%
---- ----- ----- ----- ---- ---- ---- -----
Total Operating
Expenses(1,2,3,4)... .96% 1.10% 1.20% 1.35% .61% .75% .85% 1.00%
==== ===== ===== ===== ==== ==== ==== =====
Example of Expenses.
Based on the foregoing
table, you would pay
the following expenses
on a hypothetical
$1,000 investment,
assuming a 5% annual
return and redemption
at the end of each time
period:
One Year............... $10 $11 $12 $14 $6 $8 $9 $10
Three Years............ $31 $35 $38 $43 $20 $24 $27 $32
Five Years............. $53 $61 $66 $74 $34 $42 $47 $55
Ten Years.............. $118 $134 $145 $162 $76 $93 $105 $122
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Equity Index(6) Diversified Growth
------------------------------- -------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Units Units Units Units Units Units Units Units
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unitholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Additional Transaction
Fee (as a percentage
of amount invested)... None None None None None None None None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
Annual Operating
Expenses After Expense
Reimbursements and Fee
Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .10% .10% .10% .10% .55% .55% .55% .55%
12b-1 Fees............. None None None None None None None None
Servicing Fees(4)...... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(4)............... .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(2,3)... .11% .11% .11% .11% .10% .10% .10% .10%
---- ---- ---- ---- ---- ---- ---- -----
Total Operating
Expenses(1,2,3,4,6). .22% .36% .46% .61% .66% .80% .90% 1.05%
==== ==== ==== ==== ==== ==== ==== =====
Example of Expenses.
Based on the foregoing
table, you would pay
the following expenses
on a hypothetical
$1,000 investment,
assuming a 5% annual
return and redemption
at the end of each time
period:
One Year............... $2 $4 $5 $6 $7 $8 $9 $11
Three Years............ $7 $12 $15 $20 $21 $26 $29 $33
Five Years............. $12 $20 $26 $34 $37 $44 $50 $58
Ten Years.............. $28 $46 $58 $76 $82 $99 $111 $128
</TABLE>
<TABLE>
<CAPTION>
Focused Growth Small Company Index(6)
------------------------------- -------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Units Units Units Units Units Units Units Units
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unitholder Transaction
Expenses
Maximum Sales Charge Im-
posed on Purchases...... None None None None None None None None
Additional Transaction
Fee (as a percentage of
amount invested)(5)..... None None None None .75% .75% .75% .75%
Deferred Sales Charge
Imposed on Reinvested
Distributions........... None None None None None None None None
Deferred Sales Charge
Imposed on Redemptions.. None None None None None None None None
Redemption Fees.......... None None None None None None None None
Exchange Fees............ None None None None None None None None
Annual Operating Expenses
After Expense
Reimbursements and
Fee Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)....... .80% .80% .80% .80% .20% .20% .20% .20%
12b-1 Fees............... None None None None None None None None
Servicing Fees(4)........ None .10% .15% .25% None .10% .15% .25%
Transfer Agency Fees(4).. .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After Ex-
pense Reimbursements
and
Fee Reductions(2,3)..... .10% .10% .10% .10% .11% .11% .11% .11%
---- ----- ----- ----- ---- ---- ---- ----
Total Operating
Expenses(1,2,3,4,5,6). .91% 1.05% 1.15% 1.30% .32% .46% .56% .71%
==== ===== ===== ===== ==== ==== ==== ====
Example of Expenses. Based
on the foregoing table,
you would pay the
following expenses on a
hypothetical $1,000
investment, assuming a 5%
annual return and
redemption at the end of
each time period:
One Year................. $9 $11 $12 $13 $11 $12 $13 $15
Three Years.............. $29 $33 $37 $41 $18 $22 $25 $30
Five Years............... $50 $58 $63 $71 $25 $33 $39 $47
Ten Years................ $112 $128 $140 $157 $48 $65 $77 $95
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
International Equity Index Portfolio(7) International Growth
------------------------------------------ -------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Units Units Units Units Units Units Units Units
--------- --------- --------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unitholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Additional Transaction
Fee (as a percentage
of amount
invested)(5).......... 1.00% 1.00% 1.00% 1.00% None None None None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
Annual Operating
Expenses After Expense
Reimbursements and
Fee Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .25% .25% .25% .25% .80% .80% .80% .80%
12b-1 Fees............. None None None None None None None None
Servicing Fees(4)...... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(4)............... .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(2,3)... .25% .25% .25% .25% .25% .25% .25% .25%
--------- --------- --------- --------- ----- ----- ----- -----
Total Operating
Expenses(1,2,3,4,5). .51% .65% .75% .90% 1.06% 1.20% 1.30% 1.45%
========= ========= ========= ========= ===== ===== ===== =====
Example of Expenses.
Based on the foregoing
table, you would pay
the following expenses
on a hypothetical
$1,000 investment,
assuming a 5% annual
return and redemption
at the end of each time
period:
One Year............... $15 $17 $18 $19 $11 $12 $13 $15
Three Years............ $22 $24 $25 $26 $34 $38 $41 $46
Five Years............. NA NA NA NA $58 $66 $71 $79
Ten Years.............. NA NA NA NA $129 $145 $157 $174
</TABLE>
6
<PAGE>
- ----------
(1) For the fiscal year ending November 30, 1996, Northern voluntarily reduced
its advisory fee for the U.S. Government Securities, Short-Intermediate
Bond, U.S. Treasury Index, Bond, International Bond, Balanced, Equity
Index, Diversified Growth, Focused Growth, Small Company Index and
International Growth Portfolios to .25%, .25%, .15%, .25%, .70%, .50%,
.10%, .55%, .80%, .20% and .80%, respectively, of the Portfolios'
respective average daily net assets (advisory fees are otherwise payable
at the annual rate of .60%, .60%, .40%, .60%, .90%, .80%, .30%, .80%,
1.10%, .40% and 1.00%, respectively, of the Portfolios' respective average
daily net assets). In addition, Northern has voluntarily agreed to reduce
its advisory fee for the International Equity Index Portfolio to .25% of
the Portfolio's average daily net assets for the current fiscal year
(advisory fees are otherwise payable at the annual rate of .50% of the
Portfolio's average daily net assets).
(2) For the fiscal year ending November 30, 1996, Goldman Sachs reduced its
administration fee (otherwise payable with respect to each Portfolio at
the annual 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 Portfolio's net assets) to .10% of each Portfolio's average
net assets. Goldman Sachs has advised the Trust that it intends to
reimburse expenses for each Portfolio to the extent that, in any fiscal
year, the sum of a Portfolio's expenses (including the fees payable to
Goldman Sachs as administrator, but excluding the fees payable to Northern
for its duties as adviser and certain other expenses) exceeds on an
annualized basis .25% of the International Bond, International Growth and
International Equity Index Portfolio's average daily net assets and .10%
of each other Portfolio's average daily net assets for such fiscal year.
The expense information in the table has, accordingly, been presented to
reflect these fee reductions and expense reimbursements (estimated in the
case of the International Equity Index Portfolio).
(3) Without the undertakings of Northern and Goldman Sachs, and had all
classes of units been outstanding during the year ending November 30,
1996, "Other Expenses" in the foregoing table would have been as follows:
U.S. Government Securities Portfolio -- .33%; Short-Intermediate Bond
Portfolio -- .27%; U.S. Treasury Index Portfolio -- .63%; Bond Portfolio
-- .23%; International Bond Portfolio -- .67%; Balanced Portfolio--.39%;
Equity Index Portfolio--.19%; Diversified Growth Portfolio--.29%; Focused
Growth Portfolio--.32%; Small Company Index Portfolio--.38%; and
International Growth Portfolio--.42%; and the total annual operating
expenses would have been as follows for Class A, B, C and D units,
respectively: U.S. Government Securities Portfolio--.94%, 1.08%, 1.18% and
1.33%; Short-Intermediate Bond Portfolio--.88%, 1.02%, 1.12% and 1.27%;
U.S. Treasury Index Portfolio--1.04%, 1.18%, 1.28% and 1.43%; Bond
Portfolio--.84%, .98%, 1.08% and 1.23%; International Bond Portfolio--
1.58%, 1.72%, 1.82% and 1.97%; Balanced Portfolio--1.20%, 1.34%, 1.44% and
1.59%; Equity Index Portfolio--.50%, .64%, .74% and .89%; Diversified
Growth Portfolio--1.10%, 1.24%, 1.34% and 1.49%; Focused Growth
Portfolio--1.43%, 1.57%, 1.67% and 1.82%; Small Company Index Portfolio--
.79%, .93%, 1.03% and 1.18%; and International Growth Portfolio--1.43%,
1.57%, 1.67% and 1.82%, based on actual expenses incurred during the
fiscal year ended November 30, 1996. Without the undertakings of Northern
and Goldman Sachs, it is estimated that "Other Expenses" would be .59% for
the International Equity Index Portfolio, and total annual operating
expenses for the Portfolio's Class A, B, C and D units would be 1.10%,
1.24%, 1.34% and 1.49%, respectively, for the current fiscal year. See
note (7) below. For a more complete description of the Portfolio's
expenses, see "Trust Information" in this Prospectus.
(4) The Trust has adopted a Unitholder Servicing Plan pursuant to which the
Trust may enter into agreements with Institutions or other financial
intermediaries under which they render (or arrange to have rendered)
certain unitholder administrative support services for their Customers or
other Investors who beneficially own Class B, C and D units in return for
a fee ("Servicing Fee") of up to .10%, .15%, and .25%, respectively, per
annum of the value of each Portfolio's outstanding Class B, C and D units,
respectively. The Trust also allocates transfer agency fees, which are
attributable to the Class A, B, C and D units in a Portfolio, separately
to such units, as reflected in the table. For further information, see
"Investment Adviser, Transfer Agent and Custodian" and "Unitholder
Servicing Plan" under the heading "Trust Information" in this Prospectus.
(5) To prevent the Small Company Index Portfolio and International Equity
Index Portfolio from being adversely affected by the transaction costs
associated with unit purchases, the Portfolios will sell units at a price
equal to the net asset value of the units plus an additional transaction
fee equal to .75% and 1.00%, respectively, of such value. Such amounts are
not sales charges, but are retained by the Portfolio for the benefit of
all unitholders. (See "Investment Information--Small Company Index
Portfolio," "Investment Information--International Equity Index
Portfolio," "Investing--Purchase of Units" and "Investing--Redemption of
Units").
(6) The actual expense ratios reflected in the above table for each class of
the Equity Index and Small Company Index Portfolios include interest
expense of .01%, associated with temporary borrowings. Interest expense is
not subject to voluntary expense limitations. Had the Portfolios not
experienced such temporary borrowings, the total annual operating expense
ratios would have been as follows: Equity Index Class A, B, C and D
units--.21%, .35%, .45% and .60%, respectively, and Small Company Index
Class A, B, C and D units--.31%, .45%, .55% and .70%, respectively.
Whether such borrowings will occur in any given year and the actual amount
of such
7
<PAGE>
borrowings is difficult to predict. The expenses noted in the table under
"Other Expenses After Expense Reimbursements and Fee Reductions" have been
restated with respect to Class B and C units of the Small Company Index
Portfolios and Class B units of the Equity Index Portfolio to reflect what
such expenses would have been had such classes of units of those Portfolios
been outstanding for the entire fiscal year ended November 30, 1996.
(7) Since the Portfolio does not yet have an operating history, the costs and
expenses included in the table and hypothetical example above are based on
estimated fees and expenses for the current fiscal year and should not be
considered as representative of past or future expenses. Actual fees and
expenses may be greater or less than those indicated.
--------------------
THE PURPOSE OF THE FOREGOING TABLE IS TO ASSIST YOU IN UNDERSTANDING THE
VARIOUS UNITHOLDER TRANSACTION AND OPERATING EXPENSES OF EACH PORTFOLIO THAT
UNITHOLDERS BEAR DIRECTLY OR INDIRECTLY. IT DOES NOT, HOWEVER, REFLECT ANY
CHARGES WHICH MAY BE IMPOSED BY NORTHERN, ITS AFFILIATES AND CORRESPONDENT
BANKS AND OTHER INSTITUTIONS ON THEIR CUSTOMERS AS DESCRIBED UNDER
"INVESTING--PURCHASE OF UNITS." THE EXAMPLE SHOWN ABOVE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RATE OF RETURN.
ACTUAL EXPENSES AND RATE OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN.
8
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following data have been audited by Ernst & Young LLP, independent
auditors, as indicated in their report incorporated by reference into the
Additional Statement from the annual report to unitholders for the fiscal year
ended November 30, 1996 (the "Annual Report"), and should be read in
conjunction with the financial statements and related notes incorporated by
reference and attached to the Additional Statement. No information is
presented with respect to Class C units of the Short-Intermediate Bond, U.S.
Treasury Index, International Bond, Diversified Growth, Small Company Index
and International Growth Portfolios, units of any class of the International
Equity Index Portfolio, and Class B units of the Portfolios because no such
units were outstanding during the fiscal year ended November 30, 1996. The
Annual Report also contains additional performance information and is
available upon request and without charge by calling the telephone number or
writing to the address on the first page of this Prospectus.
For the Years Ended November 30,
<TABLE>
<CAPTION>
U.S. Government Securities Portfolio
-------------------------------------------------------------------------
Class A Class C Class D
----------------------------------- -------- --------------------------
1996 1995 1994 1993 (a) 1996 (b) 1996 1995 1994 (c)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 20.08 $ 19.05 $ 20.07 $ 20.00 $ 20.13 $ 20.04 $ 19.05 $19.43
Income (loss) from in-
vestment operations:
Net investment income 1.02 1.05 0.91 0.55 0.91 0.96 0.96 0.22
Net realized and
unrealized gain (loss)
on
investments (0.01) 1.02 (1.02) 0.05 (0.12) (0.03) 1.00 (0.38)
- ----------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.01 2.07 (0.11) 0.60 0.79 0.93 1.96 (0.16)
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (1.02) (1.04) (0.91) (0.53) (0.86) (0.94) (0.97) (0.22)
- ----------------------------------------------------------------------------------------------------
Total distributions to
unitholders (1.02) (1.04) (0.91) (0.53) (0.86) (0.94) (0.97) (0.22)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) (0.01) 1.03 (1.02) 0.07 (0.07) (0.01) 0.99 (0.38)
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 20.07 $ 20.08 $ 19.05 $ 20.07 $ 20.06 $ 20.03 $ 20.04 $19.05
- ----------------------------------------------------------------------------------------------------
Total return (d) 5.15% 11.18% (0.57)% 3.00% 4.05% 4.77% 10.66% (0.90)%
Ratio to average net as-
sets of (e):
Expenses, net of waiv-
ers and reimbursements 0.36% 0.36% 0.36% 0.43% 0.60% 0.75% 0.75% 0.75%
Expenses, before waiv-
ers and reimbursements 0.94% 1.09% 1.12% 1.18% 1.18% 1.33% 1.48% 1.51%
Net investment income,
net of waivers and
reimbursements 5.22% 5.43% 4.62% 4.18% 4.97% 4.83% 5.08% 4.65%
Net investment income,
before waivers and
reimbursements 4.64% 4.70% 3.86% 3.43% 4.39% 4.25% 4.35% 3.89%
Portfolio turnover rate 119.75% 141.14% 45.55% 20.59% 119.75% 119.75% 141.14% 45.55%
Net assets at end of pe-
riod (in thousands) $92,351 $56,329 $25,293 $32,479 $ 3,535 $ 225 $ 67 $ 13
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on April 5, 1993.
(b) Class C units were issued on December 29, 1995.
(c) Class D units were issued on September 15, 1994.
(d) 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. Total
return is not annualized for periods less than one year.
(e) Annualized for periods less than a full year.
9
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
<TABLE>
<CAPTION>
Short-Intermediate Bond Portfolio
---------------------------------------------------------------
Class A Class D
------------------------------------- ------------------------
1996 1995 1994 1993 (a) 1996 1995 1994 (b)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 20.73 $ 19.53 $ 20.33 $ 20.00 $20.71 $19.53 $19.82
Income (loss) from in-
vestment operations:
Net investment income 1.14 1.02 0.97 0.85 1.07 0.94 0.23
Net realized and
unrealized gain (loss)
on investments (0.01) 1.19 (0.80) 0.31 (0.02) 1.18 (0.29)
- ------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.13 2.21 0.17 1.16 1.05 2.12 (0.06)
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (1.16) (1.01) (0.97) (0.83) (1.10) (0.94) (0.23)
- ------------------------------------------------------------------------------------------
Total distributions to
unitholders (1.16) (1.01) (0.97) (0.83) (1.10) (0.94) (0.23)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (0.03) 1.20 (0.80) 0.33 (0.05) 1.18 (0.29)
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 20.70 $ 20.73 $ 19.53 $ 20.33 $20.66 $20.71 $19.53
- ------------------------------------------------------------------------------------------
Total return (c) 5.68% 11.58% 0.84% 5.90% 5.22% 11.09% (0.30)%
Ratio to average net as-
sets of (d):
Expenses, net of waiv-
ers and reimbursements 0.36% 0.36% 0.36% 0.36% 0.75% 0.75% 0.75%
Expenses, before waiv-
ers and reimbursements 0.88% 0.91% 0.95% 1.00% 1.27% 1.30% 1.34%
Net investment income,
net of waivers and
reimbursements 5.83% 5.14% 4.84% 4.79% 4.96% 4.85% 4.42%
Net investment income,
before waivers and
reimbursements 5.31% 4.59% 4.25% 4.15% 4.44% 4.30% 3.83%
Portfolio turnover rate 47.68% 54.68% 48.67% 19.48% 47.68% 54.68% 48.67%
Net assets at end of pe-
riod (in thousands) $153,675 $158,678 $96,209 $107,550 $ 343 $ 13 $ 1
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on January 11, 1993.
(b) Class D units were issued on September 14, 1994.
(c) 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. Total
return is not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
10
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
<TABLE>
<CAPTION>
U.S. Treasury Index Portfolio
------------------------------------------------------------
Class A Class D
----------------------------------- -----------------------
1996 1995 1994 1993(a) 1996 1995 1994(b)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 20.78 $ 18.77 $ 21.05 $ 20.00 $20.75 $18.77 $18.80
Income (loss) from in-
vestment operations:
Net investment income 1.19 1.11 1.15 0.95 1.17 1.00 0.09
Net realized and
unrealized gain (loss)
on investments (0.18) 2.01 (1.93) 1.02 (0.24) 2.03 (0.03)
- --------------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.01 3.12 (0.78) 1.97 0.93 3.03 0.06
- --------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (1.19) (1.11) (1.14) (0.92) (1.11) (1.05) (0.09)
Net realized gain on
investments -- -- (0.36) -- -- -- --
- --------------------------------------------------------------------------------------
Total distributions to
unitholders (1.19) (1.11) (1.50) (0.92) (1.11) (1.05) (0.09)
- --------------------------------------------------------------------------------------
Net increase (decrease) (0.18) 2.01 (2.28) 1.05 (0.18) 1.98 (0.03)
- --------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 20.60 $ 20.78 $ 18.77 $ 21.05 $20.57 $20.75 $18.77
- --------------------------------------------------------------------------------------
Total return (c) 5.10% 16.95% (3.80)% 9.94% 4.72% 16.43% 0.37%
Ratio to average net as-
sets of (d):
Expenses, net of waiv-
ers and reimbursements 0.26% 0.26% 0.26% 0.26% 0.65% 0.65% 0.65%
Expenses, before waiv-
ers and reimbursements 1.04% 0.89% 0.79% 0.83% 1.43% 1.28% 1.18%
Net investment income,
net of waivers and re-
imbursements 5.93% 5.09% 5.60% 5.11% 5.57% 5.41% 6.05%
Net investment income,
before waivers and re-
imbursements 5.15% 4.46% 5.07% 4.54% 4.79% 4.78% 5.52%
Portfolio turnover rate 42.49% 80.36% 52.80% 77.75% 42.49% 80.36% 52.80%
Net assets at end of pe-
riod (in thousands) $26,273 $17,674 $37,305 $71,456 $ 848 $ 286 $ --
- --------------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on January 11, 1993.
(b) Class D units were issued on November 16, 1994.
(c) 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. Total
return is not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
11
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
<TABLE>
<CAPTION>
Bond Portfolio
------------------------------------------------------------------------------------
Class A Class C Class D
--------------------------------------- ---------------- --------------------------
1996 1995 1994 1993 (a) 1996 1995 (b) 1996 1995 1994 (c)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 20.96 $ 18.29 $ 20.70 $ 20.00 $20.96 $20.21 $ 20.94 $ 18.29 $18.74
Income (loss) from
investment operations:
Net investment income 1.29 1.17 1.42 1.42 1.25 0.47 1.22 1.08 0.28
Net realized and
unrealized gain (loss)
on investments (0.19) 2.66 (2.21) 0.66 (0.18) 0.74 (0.18) 2.66 (0.45)
- ---------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment
operations 1.10 3.83 (0.79) 2.08 1.07 1.21 1.04 3.74 (0.17)
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (1.26) (1.14) (1.46) (1.38) (1.22) (0.45) (1.19) (1.09) (0.28)
Net realized gain on
investments -- -- (0.15) -- -- -- -- -- --
Return of capital (0.03) (0.02) (0.01) -- (0.03) (0.01) (0.03) -- --
- ---------------------------------------------------------------------------------------------------------------
Total distributions to
unitholders (1.29) (1.16) (1.62) (1.38) (1.25) (0.46) (1.22) (1.09) (0.28)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) (0.19) 2.67 (2.41) 0.70 (0.18) 0.75 (0.18) 2.65 (0.45)
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 20.77 $ 20.96 $ 18.29 $ 20.70 $20.78 $20.96 $ 20.76 $ 20.94 $18.29
- ---------------------------------------------------------------------------------------------------------------
Total return (d) 5.57% 21.55% (4.04)% 10.60% 5.33% 6.08% 5.17% 21.06% (0.94)%
Ratio to average net as-
sets of (e):
Expenses, net of
waivers and
reimbursements 0.36% 0.36% 0.36% 0.36% 0.60% 0.60% 0.75% 0.75% 0.75%
Expenses, before
waivers and
reimbursements 0.84% 0.84% 0.87% 0.92% 1.08% 1.08% 1.23% 1.23% 1.26%
Net investment income,
net of waivers and re-
imbursements 6.39% 5.94% 7.31% 7.84% 6.09% 5.59% 5.99% 5.48% 6.31%
Net investment income,
before waivers and
reimbursements 5.91% 5.46% 6.80% 7.28% 5.61% 5.11% 5.51% 5.00% 5.80%
Portfolio turnover rate 101.38% 74.19% 103.09% 89.06% 101.38% 74.19% 101.38% 74.19% 103.09%
Net assets at end of
period (in thousands) $366,850 $286,301 $257,391 $245,112 $7,342 $3,704 $ 220 $ 120 $ 15
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on January 11, 1993.
(b) Class C units were issued on July 3, 1995.
(c) Class D units were issued on September 14, 1994.
(d) 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. Total
return is not annualized for periods less than one year.
(e) Annualized for periods less than a full year.
12
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
<TABLE>
<CAPTION>
International Bond Portfolio
--------------------------------------------
Class A Class D
-------------------------- ----------------
1996 1995 1994 (a) 1996 1995 (b)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PE-
RIOD $ 21.74 $ 19.93 $ 20.00 $21.74 $22.17
Income (loss) from investment
operations:
Net investment income 1.54 1.26 0.79 1.37 0.02
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions 0.43 2.28 0.01 0.51 (0.08)
- --------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.97 3.54 0.80 1.88 (0.06)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO UNITHOLDERS
FROM:
Net investment income (c) (1.55) (1.73) (0.87) (1.48) (0.37)
- --------------------------------------------------------------------------------
Total distributions to
unitholders (1.55) (1.73) (0.87) (1.48) (0.37)
- --------------------------------------------------------------------------------
Net increase (decrease) 0.42 1.81 (0.07) 0.40 (0.43)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.16 $ 21.74 $ 19.93 $22.14 $21.74
- --------------------------------------------------------------------------------
Total return (d) 9.47% 18.20% 4.03% 9.04% (0.30)%
Ratio to average net assets of
(e):
Expenses, net of waivers and
reimbursements 0.96% 0.96% 0.96% 1.35% 1.35%
Expenses, before waivers and
reimbursements 1.58% 1.47% 1.49% 1.97% 1.86%
Net investment income, net of
waivers and reimbursements 5.91% 5.92% 5.93% 5.67% 3.26%
Net investment income, before
waivers and reimbursements 5.29% 5.41% 5.40% 5.05% 2.75%
Portfolio turnover rate 33.89% 54.46% 88.65% 33.89% 54.46%
Net assets at end of period (in
thousands) $34,183 $32,673 $26,947 $ 52 $ 9
- --------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on March 28, 1994.
(b) Class D units were issued on November 20, 1995.
(c) Distributions to unitholders from net investment income include amounts
relating to foreign currency transactions which are treated as ordinary
income for Federal income tax purposes.
(d) 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. Total
return is not annualized for periods less than one year.
(e) Annualized for periods less than a full year.
13
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
<TABLE>
<CAPTION>
Balanced Portfolio
---------------------------------------------------------
Class A Class C Class D
------------------------------------- -------- --------
1996 1995 1994 1993 (a) 1996 (b) 1996 (c)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 11.05 $ 9.50 $ 10.22 $ 10.00 $ 11.12 $ 11.34
Income (loss) from in-
vestment operations:
Net investment income 0.34 0.34 0.24 0.09 0.29 0.22
Net realized and
unrealized gain (loss)
on investments and op-
tions 1.19 1.55 (0.72) 0.22 1.12 0.96
- -----------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.53 1.89 (0.48) 0.31 1.41 1.18
- -----------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (0.34) (0.34) (0.22) (0.09) (0.29) (0.29)
Net realized gain on
investments and op-
tions -- -- (0.02) -- -- --
- -----------------------------------------------------------------------------------
Total distributions to
unitholders (0.34) (0.34) (0.24) (0.09) (0.29) (0.29)
- -----------------------------------------------------------------------------------
Net increase (decrease) 1.19 1.55 (0.72) 0.22 1.12 0.89
- -----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 12.24 $ 11.05 $ 9.50 $ 10.22 $ 12.24 $ 12.23
- -----------------------------------------------------------------------------------
Total return (d) 14.07% 20.22% (4.76)% 3.12% 12.72% 10.55%
Ratio to average net as-
sets of (e):
Expenses, net of waiv-
ers and reimbursements 0.61% 0.61% 0.61% 0.61% 0.85% 1.00%
Expenses, before waiv-
ers and reimbursements 1.20% 1.28% 1.50% 1.62% 1.44% 1.59%
Net investment income,
net of waivers and re-
imbursements 3.03% 3.36% 2.56% 2.20% 2.80% 2.78%
Net investment income,
before waivers and re-
imbursements 2.44% 2.69% 1.68% 1.19% 2.21% 2.19%
Portfolio turnover rate 104.76% 93.39% 75.69% 35.03% 104.76% 104.76%
Average commission rate
per share $0.0718 NA NA NA $0.0718 $0.0718
Net assets at end of pe-
riod (in thousands) $45,157 $38,897 $ 31,462 $15,928 $ 5,997 $ 232
- -----------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on July 1, 1993.
(b) Class C units were issued on December 29, 1995.
(c) Class D units were issued on February 20, 1996.
(d) 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. Total
return is not annualized for periods less than one year.
(e) Annualized for periods less than a full year.
NA--Disclosure not applicable to prior periods.
14
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
<TABLE>
<CAPTION>
Equity Index Portfolio
------------------------------------------------------------------------------------
Class A Class C Class D
-------------------------------------- ----------------- -------------------------
1996 1995 1994 1993 (a) 1996 1995 (b) 1996 1995 1994 (c)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN- $ 13.86 $ 10.60 $ 10.78 $ 10.00 $ 13.86 $ 13.43 $ 13.83 $10.60 $10.96
NING OF PERIOD
Income (loss) from in-
vestment
operations:
Net investment income 0.31 0.30 0.27 0.22 0.28 0.05 0.27 0.25 0.02
Net realized and
unrealized gain (loss)
on investments and
futures 3.36 3.47 (0.18) 0.78 3.35 0.45 3.36 3.47 (0.31)
- ---------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 3.67 3.77 0.09 1.00 3.63 0.50 3.63 3.72 (0.29)
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (0.31) (0.30) (0.27) (0.22) (0.27) (0.07) (0.26) (0.28) (0.07)
Net realized gain on
investments and
futures (0.43) (0.21) -- -- (0.43) -- (0.43) (0.21) --
- ---------------------------------------------------------------------------------------------------------------
Total distributions to
unitholders (0.74) (0.51) (0.27) (0.22) (0.70) (0.07) (0.69) (0.49) (0.07)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) 2.93 3.26 (0.18) 0.78 2.93 0.43 2.94 3.23 (0.36)
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 16.79 $ 13.86 $ 10.60 $ 10.78 $ 16.79 $ 13.86 $ 16.77 $13.83 $10.60
- ---------------------------------------------------------------------------------------------------------------
Total return (d) 27.53% 36.60% 0.87% 10.08% 27.24% 3.94% 27.20% 36.20% (2.68)%
Ratio to average net
assets of (e):
Expenses, net of
waivers and
reimbursements 0.22% 0.22% 0.23% 0.21% 0.46% 0.46% 0.61% 0.61% 0.60%
Expenses, before
waivers and
reimbursements 0.50% 0.54% 0.59% 0.66% 0.74% 0.78% 0.89% 0.93% 0.96%
Net investment income,
net of waivers and
reimbursements 2.12% 2.54% 2.62% 2.62% 1.89% 2.29% 1.78% 2.07% 2.67%
Net investment income,
before waivers and
reimbursements 1.84% 2.22% 2.25% 2.17% 1.61% 1.97% 1.50% 1.75% 2.31%
Portfolio turnover rate 18.02% 15.27% 71.98% 2.06% 18.02% 15.27% 18.02% 15.27% 71.98%
Average commission rate
per share $ 0.0228 NA NA NA $0.0228 NA $0.0228 NA NA
Net assets at end of
period (in thousands) $675,804 $479,763 $281,817 $219,282 $53,929 $18,390 $ 8,005 $ 810 $ 3
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on January 11, 1993.
(b) Class C units were issued on September 28, 1995.
(c) Class D units were issued on September 14, 1994.
(d) 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. Total
return is not annualized for periods less than one year.
(e) Annualized for periods less than a full year.
NA--Disclosure not applicable to prior periods.
15
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
<TABLE>
<CAPTION>
Diversified Growth Portfolio
------------------------------------------------------------------
Class A Class D
--------------------------------------- -------------------------
1996 1995 1994 1993 (a) 1996 1995 1994 (b)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 12.20 $ 9.88 $ 10.65 $ 10.00 $ 12.16 $ 9.88 $10.41
Income (loss) investment
operations:
Net investment income 0.14 0.15 0.09 0.09 0.11 0.11 0.01
Net realized and
unrealized gain (loss)
on investments and op-
tions 2.33 2.26 (0.83) 0.65 2.29 2.25 (0.54)
- ---------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 2.47 2.41 (0.74) 0.74 2.40 2.36 (0.53)
- ---------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (0.15) (0.09) (0.01) (0.09) (0.14) (0.08) --
Net realized gain on
investments and op-
tions (0.16) -- (0.02) -- (0.16) -- --
- ---------------------------------------------------------------------------------------------
Total distributions to
unitholders (0.31) (0.09) (0.03) (0.09) (0.30) (0.08) --
- ---------------------------------------------------------------------------------------------
Net increase (decrease) 2.16 2.32 (0.77) 0.65 2.10 2.28 (0.53)
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 14.36 $ 12.20 $ 9.88 $ 10.65 $ 14.26 $12.16 $ 9.88
- ---------------------------------------------------------------------------------------------
Total return (c) 20.83% 24.55% (6.98)% 7.38% 20.39% 24.19% (5.14)%
Ratio to average net as-
sets of (d):
Expenses, net of waiv-
ers and reimbursements 0.66% 0.69% 0.67% 0.71% 1.05% 1.08% 1.05%
Expenses, before waiv-
ers and reimbursements 1.10% 1.12% 1.08% 1.13% 1.49% 1.51% 1.46%
Net investment income,
net of waivers and
reimbursements 0.98% 1.16% 0.77% 1.04% 0.59% 0.73% 0.94%
Net investment income,
before waivers and
reimbursments 0.54% 0.73% 0.35% 0.62% 0.15% 0.30% 0.53%
Portfolio turnover rate 59.99% 81.65% 78.94% 140.88% 59.99% 81.65% 78.94%
Average commission rate
per share $ 0.0655 NA NA NA $0.0655 NA NA
Net assets at end of pe-
riod (in thousands) $142,055 $146,731 $164,963 $199,053 $ 433 $ 221 $ 40
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on January 11, 1993.
(b) Class D units were issued on September 14, 1994.
(c) 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. Total
return is not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
NA--Disclosure not applicable to prior periods.
16
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
<TABLE>
<CAPTION>
Focused Growth Portfolio
-----------------------------------------------------------------------
Class A Class C Class D
--------------------------------------- -------- ------------------
1996 1995 1994 1993 (a) 1996 (b) 1996 1995 (c)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 12.53 $ 9.79 $ 10.43 $ 10.00 $ 13.46 $12.48 $ 9.55
Income (loss) from in-
vestment operations:
Net investment income
(loss) 0.02 0.05 0.02 0.01 (0.01) (0.03) 0.02
Net realized and
unrealized gain (loss)
on investments,
futures and options 2.17 2.71 (0.66) 0.43 1.02 2.15 2.93
- --------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 2.19 2.76 (0.64) 0.44 1.01 2.12 2.95
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (0.05) (0.02) -- (0.01) -- (0.04) (0.02)
Net realized gain on
investments, futures
and options (0.19) -- -- -- -- (0.19) --
- --------------------------------------------------------------------------------------------------
Total distributions to
unitholders (0.24) (0.02) -- (0.01) -- (0.23) (0.02)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) 1.95 2.74 (0.64) 0.43 1.01 1.89 2.93
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 14.48 $ 12.53 $ 9.79 $ 10.43 $ 14.47 $14.37 $12.48
- --------------------------------------------------------------------------------------------------
Total return (d) 17.82% 28.38% (6.15)% 4.33% 7.51% 17.42% 30.97%
Ratio to average net as-
sets of (e):
Expenses, net of waiv-
ers and reimbursements 0.91% 0.91% 0.91% 0.91% 1.15% 1.30% 1.30%
Expenses, before waiv-
ers and reimbursements 1.43% 1.47% 1.55% 1.88% 1.67% 1.82% 1.86%
Net investment income
(loss), net of waivers
and reimbursements 0.12% 0.46% 0.24% 0.14% (0.12)% (0.28)% (0.11)%
Net investment loss,
before waivers and re-
imbursements (0.40)% (0.10)% (0.39)% (0.83)% (0.64)% (0.80)% (0.67)%
Portfolio turnover rate 116.78% 85.93% 74.28% 27.48% 116.78% 116.78% 85.93%
Average commission rate
per share $ 0.0730 NA NA NA $0.0730 $0.0730 NA
Net assets at end of pe-
riod (in thousands) $106,250 $86,099 $57,801 $32,099 $ 6,993 $ 656 $ 489
- --------------------------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on July 1, 1993.
(b) Class C units were issued on June 14, 1994.
(c) Class D units were issued on December 8, 1994.
(d) 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. Total
return is not annualized for periods less than one year.
(e) Annualized for periods less than a full year.
NA--Disclosure not applicable to prior periods.
17
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
<TABLE>
<CAPTION>
Small Company Index Portfolio
--------------------------------------------------------
Class A Class D
------------------------------------- -----------------
1996 1995 1994 1993 (a) 1996 1995 (b)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 12.98 $ 10.86 $ 11.29 $ 10.00 $ 12.95 $ 10.51
Income (loss) from in-
vestment operations:
Net investment income 0.19 0.16 0.14 0.11 0.13 0.18
Net realized and
unrealized gain (loss)
on investments and
futures 1.75 2.67 (0.30) 1.29 1.83 2.96
- ----------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.94 2.83 (0.16) 1.40 1.96 3.14
- ----------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (0.14) (0.15) (0.02) (0.11) (0.14) (0.14)
Net realized gain on
investments and
futures transactions (0.81) (0.56) (0.25) -- (0.81) (0.56)
- ----------------------------------------------------------------------------------
Total distributions to
unitholders (0.95) (0.71) (0.27) (0.11) (0.95) (0.70)
- ----------------------------------------------------------------------------------
Net increase (decrease) 0.99 2.12 (0.43) 1.29 1.01 2.44
- ----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 13.97 $ 12.98 $ 10.86 $ 11.29 $ 13.96 $ 12.95
- ----------------------------------------------------------------------------------
Total return (c) 15.96% 27.76% (1.54)% 14.09% 16.20% 31.62%
Ratio to average net as-
sets of (d):
Expenses, net of waiv-
ers and reimbursements 0.32% 0.32% 0.33% 0.31% 0.71% 0.71%
Expenses, before waiv-
ers and reimbursements 0.79% 0.81% 0.86% 1.02% 1.18% 1.20%
Net investment income,
net of waivers and re-
imbursements 1.36% 1.31% 1.27% 1.25% 1.02% 0.90%
Net investment income,
before waivers and re-
imbursements 0.89% 0.82% 0.74% 0.54% 0.55% 0.41%
Portfolio turnover rate 46.26% 38.46% 98.43% 26.31% 46.26% 38.46%
Average commission rate
per share $ 0.0257 NA NA NA $0.0257 NA
Net assets at end of pe-
riod (in thousands) $112,856 $94,899 $77,120 $54,763 $ 269 $ 44
- ----------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on January 11, 1993.
(b) Class D units were issued on December 8, 1994.
(c) 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. Total
return is not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
NA--Disclosure not applicable to prior periods.
18
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
<TABLE>
<CAPTION>
International Growth Portfolio
--------------------------------------------------------
Class A Class D
----------------------------- -------------------------
1996 1995 1994(a) 1996 1995 1994(b)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 9.88 $ 10.21 $ 10.00 $ 9.83 $10.21 $10.47
Income (loss) from in-
vestment operations:
Net investment income 0.10 0.12 0.05 0.01 0.19 --
Net realized and
unrealized gain (loss)
on investments
and foreign currency
transactions 0.87 (0.36) 0.16 0.92 (0.48) (0.26)
- -----------------------------------------------------------------------------------
Total income (loss) from
investment operations 0.97 (0.24) 0.21 0.93 (0.29) (0.26)
- -----------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (0.22) (0.05) -- (0.22) (0.05) --
Net realized gain on
investments and for-
eign currency transac-
tions -- (0.04) -- -- (0.04) --
- -----------------------------------------------------------------------------------
Total distributions to
unitholders (0.22) (0.09) -- (0.22) (0.09) --
- -----------------------------------------------------------------------------------
Net increase (decrease) 0.75 (0.33) 0.21 0.71 (0.38) (0.26)
- -----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 10.63 $ 9.88 $ 10.21 $ 10.54 $ 9.83 $10.21
- -----------------------------------------------------------------------------------
Total return (c) 9.96% (2.32)% 2.11% 9.59% (2.78)% (2.56)%
Ratio to average net as-
sets of (d):
Expenses, net of waiv-
ers and reimbursements 1.06% 1.06% 1.04% 1.45% 1.45% 1.35%
Expenses, before waiv-
ers and reimbursements 1.43% 1.38% 1.47% 1.82% 1.77% 1.78%
Net investment income,
net of waivers and re-
imbursements 0.73% 1.22% 0.76% 0.44% 2.01% --
Net investment income
(loss), before waivers
and reimbursements 0.36% 0.90% 0.33% 0.07% 1.69% (0.43)%
Portfolio turnover rate 202.47% 215.31% 77.79% 202.47% 215.31% 77.79%
Average commission rate
per share $ 0.0292 NA NA $0.0292 NA NA
Net assets at end of pe-
riod (in thousands) $138,182 $148,704 $133,212 $ 94 $ 20 --
- -----------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on March 28, 1994.
(b) Class D units were issued on November 16, 1994.
(c) 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. Total
return is not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
NA--Disclosure not applicable to prior periods.
19
<PAGE>
INVESTMENT INFORMATION
INTRODUCTION
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). Each Portfolio consists of a
separate pool of assets with separate investment objectives and policies, as
described below. Each Portfolio, other than the International Bond Portfolio,
is classified as a diversified investment company. The International Bond
Portfolio is classified as a non-diversified investment company. Units of each
Portfolio have been classified into four classes--Class A units, Class B
units, Class C units and Class D units. Northern serves as investment adviser,
transfer agent and custodian. Goldman Sachs serves as distributor and
administrator. The investment objective of a Portfolio may not be changed
without the vote of the majority of the outstanding units of the particular
Portfolio. Except as expressly noted below, however, a Portfolio's investment
policies may be changed without a vote of unitholders. The U.S. Government
Securities, Short-Intermediate Bond, U.S. Treasury Index, Bond and
International Bond Portfolios may collectively be referred to as the "Fixed
Income Portfolios" and the Balanced, Equity Index, Diversified Growth, Focused
Growth, Small Company Index, International Equity Index and International
Growth Portfolios may collectively be referred to as the "Equity Portfolios."
U.S. GOVERNMENT SECURITIES PORTFOLIO
In pursuing its investment objective, the U.S. Government Securities Portfolio
will, under normal market conditions, invest at least 65% of its total assets
in a broad range of securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities and repurchase agreements relating to such
securities, including mortgage-related securities issued by agencies of the
U.S. Government. The Portfolio's dollar-weighted average maturity will be
between one and five years.
The Portfolio may enter into interest rate swaps and may invest in options and
futures contracts and related options. The Portfolio may also invest in
certain short-term fixed income securities as cash reserves. See "Description
of Securities and Common Investment Techniques" below for more information.
SHORT-INTERMEDIATE BOND PORTFOLIO
In pursuing its investment objective, the Short-Intermediate Bond Portfolio
invests in a broad range of bonds and other fixed income securities. The
Portfolio's dollar-weighted average maturity will be between two and five
years. The Portfolio will invest primarily in fixed income securities of all
types and in any proportion that generally are rated investment grade at the
time of purchase, and may include obligations of the U.S. Government, its
agencies or instrumentalities, obligations of foreign governments, obligations
of U.S. and foreign corporations and obligations of U.S. and foreign banks.
The obligations of a foreign issuer will not be purchased by the Short-
Intermediate Bond Portfolio if, as a result of the purchase, more than 20% of
the total assets of the Portfolio will be invested in the obligations of
issuers within a single foreign country. The Portfolio may also invest up to
10% of its total assets in non-investment grade securities. Under normal
market conditions, at least 65% of the Portfolio's total assets will be
invested in bonds, debentures, mortgage and other asset-related securities,
zero coupon bonds and convertible debentures. The Portfolio may also invest in
short-term notes, bills, commercial paper and certificates of deposit.
The Portfolio may enter into forward currency contracts and interest rate
swaps and may invest in options and futures contracts and related options. The
Portfolio may also invest in certain short-term fixed income securities
20
<PAGE>
as cash reserves. See "Description of Securities and Common Investment
Techniques" below for more information.
U.S. TREASURY INDEX PORTFOLIO
In pursuing its investment objective, the U.S. Treasury Index Portfolio under
normal conditions will invest directly or indirectly at least 80% of its total
assets in a representative sample of the U.S. Treasury obligations included in
the Lehman Index. The Lehman Index is comprised of all public obligations of
the U.S. Treasury, excluding flower bonds and foreign-targeted issues.
Northern will select securities for the Portfolio based on their expected
contribution to its overall duration, quality and total return as compared to
the Lehman Index and comparable investment characteristics. Lehman Brothers
("Lehman") makes no representation or warranty, implied or express, to
purchasers of Portfolio units or any member of the public regarding the
advisability of investing in the Portfolio or the ability of the Lehman Index
to track general bond market performance.
The Portfolio is managed through the use of a "passive" or "indexing"
investment approach, which attempts to duplicate the investment composition
and performance of the Lehman Index through statistical procedures. As a
result, Northern does not employ traditional methods of fund investment
management, such as selecting securities on the basis of economic, financial
and market analysis.
The Portfolio may invest in options and futures contracts and related options.
The Portfolio may also invest in certain short-term fixed income securities as
cash reserves. See "Description of Securities and Common Investment
Techniques" and "Special Risks and Other Considerations" below for more
information.
BOND PORTFOLIO
In pursuing its investment objective, the Bond Portfolio invests in a broad
range of bonds and other fixed income securities. The Portfolio's dollar-
weighted average maturity will range between five and fifteen years.
The Portfolio will invest primarily in fixed income securities of all types
and in any proportion that generally are rated investment grade at the time of
purchase, and may include obligations of the U.S. Government, its agencies or
instrumentalities, obligations of foreign, state and local governments,
obligations of U.S. and foreign corporations and obligations of U.S. and
foreign banks. The obligations of a foreign issuer will not be purchased by
the Bond Portfolio if, as a result of the purchase, more than 20% of the total
assets of the Portfolio will be invested in the obligations of issuers within
a single foreign country. The Portfolio may also invest up to 10% of its total
assets in non-investment grade securities. Under normal market conditions, at
least 65% of the Portfolio's total assets will be invested in bonds,
debentures, mortgage and other asset-related securities, zero coupon bonds and
convertible debentures. The Portfolio may also invest in short-term notes,
bills, commercial paper and certificates of deposits.
The Portfolio may enter into forward currency contracts and interest rate
swaps and may invest in options and futures contracts and related options. The
Portfolio may also invest in certain short-term fixed income securities as
cash reserves. See "Description of Securities and Common Investment
Techniques" below for more information.
INTERNATIONAL BOND PORTFOLIO
In pursuing its investment objective, the International Bond Portfolio invests
primarily (at least 65% of its total assets under normal market conditions) in
a broad range of bonds and other fixed income securities of foreign issuers.
The Portfolio's dollar-weighted average maturity will range between three and
eleven years.
21
<PAGE>
The Portfolio will be invested at all times in the securities of issuers
located in at least three different foreign countries. These countries
include, but are not limited to: Argentina, Australia, Belgium, Brazil,
Canada, Chile, Colombia, Denmark, Finland, France, Germany, Greece, Hong Kong,
Hungary, Indonesia, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, the
Netherlands, New Zealand, Norway, Peru, the Philippines, Poland, Portugal,
Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan,
Thailand, Turkey, the United Kingdom and Venezuela. Criteria for determining
the appropriate distribution of investments among various countries and
regions include prospects for relative economic growth, expected levels of
inflation, government policies influencing business conditions, the outlook
for currency relationships, and the range of investment opportunities
available to international investors.
The Portfolio will invest primarily in fixed income securities of all types as
set forth below and in any proportion that generally are rated investment
grade at the time of purchase, although a portion of its assets may be
invested in non-investment grade securities. These securities may include
obligations of foreign governments, their agencies, instrumentalities and
political subdivisions; supranational organizations (e.g., European Investment
Bank, Inter-American Development Bank and the World Bank); and foreign
corporations and banks. These obligations may consist of bonds, debentures,
mortgage and other asset-related securities, zero coupon bonds and convertible
debentures. The Portfolio may also invest in obligations of the U.S.
Government, its agencies and instrumentalities (including repurchase
agreements collateralized by such obligations) and of U.S. corporations and
banks as well as short-term notes, bills, commercial paper and certificates of
deposit. It is expected that during the current fiscal year a substantial
portion of the Portfolio's assets will be invested in foreign governmental
obligations.
The International Bond Portfolio is classified as a non-diversified portfolio
under the 1940 Act. Investment return on a non-diversified portfolio typically
is dependent upon the performance of the securities of a smaller number of
issuers relative to the number held in a diversified portfolio. Consequently,
the change in value of any one security may affect the overall value of a non-
diversified portfolio more than it would a diversified portfolio.
The Portfolio may enter into forward currency exchange contracts and currency
and interest rate swaps and utilize options and futures contracts. Pending
investment, as a temporary defensive measure and to meet anticipated
redemption requests, the Portfolio may invest, in accordance with its
investment policies, in various short-term obligations, such as U.S.
Government obligations, high quality money market investments and repurchase
agreements. See "Description of Securities and Common Investment Techniques"
and "Special Risks and Other Considerations" below for more information.
BALANCED PORTFOLIO
The Balanced Portfolio seeks to provide long-term capital appreciation and
current income. The Portfolio will invest at least 25% of the value of its
total assets in fixed income senior securities and no more than 75% in equity
securities under normal market conditions. The actual percentage of assets
invested in equity and fixed
income securities will vary from time to time, depending upon Northern's
judgment as to general market and economic conditions, trends and yields,
interest rates and changes in fiscal and monetary policies. The Portfolio
reserves the right to hold as a temporary defensive measure up to 100% of its
total assets in cash and short-term obligations (having remaining maturities
of 18 months or less) at such times and in such proportions as, in the opinion
of Northern, is warranted. For purposes of determining the percentages of the
Portfolio's assets that are
22
<PAGE>
invested in equity and fixed income securities, respectively, only that
portion of the value of convertible securities attributable to their fixed
income characteristics will be deemed to be a fixed income investment.
The Portfolio may invest in common and preferred stocks and securities
convertible into common stock ("equity securities"). The Portfolio selects
equity securities based on such factors as growth of sales, return on equity,
growth and consistency of earnings, financial condition, market share, product
leadership and other investment criteria. The Portfolio will normally limit
its equity investments to the securities of companies which together with
their predecessors have been in continuous operation for at least five years
and have stock market capitalization in excess of $200 million. The Portfolio
may also purchase warrants and rights which entitle the holder to buy equity
securities at a specified price for a specified period of time.
The Portfolio will invest in fixed income securities of all types as set forth
below and in any proportions that generally are rated investment-grade at the
time of purchase. These securities may include bonds, debentures, mortgage and
other asset-related securities, zero coupon bonds, convertible debentures, and
other obligations issued by the U.S. Government, its agencies or
instrumentalities, foreign governments, U.S. and foreign corporations and U.S.
and foreign banks. The Portfolio may also purchase bonds that are issued in
tandem with warrants which entitle the holder to purchase certain common stock
at a specified price valid during a specified period of time. The Portfolio
may also invest in short-term notes, bills, commercial paper and certificates
of deposit. The dollar-weighted average maturity of the fixed income portion
of the Portfolio will, under normal market conditions, range between two and
ten years. The Balanced Portfolio may also invest up to 5% of its total assets
in pair-off transactions involving securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
The Portfolio may also enter into forward currency contracts and utilize
options and futures contracts and related options. Pending investment, as a
temporary defensive measure and to meet anticipated redemption requests, the
Portfolio may also invest in various short-term obligations. See "Description
of Securities and Common Investment Techniques" and "Special Risks and Other
Considerations" below for more information.
EQUITY INDEX PORTFOLIO
The Equity Index Portfolio seeks to provide investment results approximating
the aggregate price and dividend performance of the securities included in the
S&P Index. Under normal market conditions the Portfolio will invest directly
or indirectly at least 80% of the Portfolio's total assets in the common
stocks of the companies that constitute the S&P Index, in approximately the
same proportions as they are represented in the S&P Index. The S&P Index is a
market value-weighted index consisting of 500 common stocks which are traded
on the New York Stock Exchange, American Stock Exchange and the NASDAQ
National Market System and selected by Standard & Poor's Corporation ("S&P")
through a detailed screening process starting on a macro-economic level and
working toward a micro-economic level dealing with company-specific
information such as market value, industry group classification,
capitalization and trading activity. S&P's primary objective for the S&P Index
is to be the performance benchmark for the U.S. equity markets. The companies
chosen for inclusion in the S&P Index tend to be leaders in important
industries within the U.S. economy. However, companies are not selected by S&P
for inclusion because they are expected to have superior stock price
performance relative to the market in general or other stocks in particular.
S&P makes no representation or warranty, implied or express, to
23
<PAGE>
purchasers of Portfolio units or any member of the public regarding the
advisability of investing in the Portfolio or the ability of the S&P Index to
track general stock market performance.
The Equity Index Portfolio is managed through the use of a "passive" or
"indexing" investment approach, which attempts to duplicate the investment
composition and performance of the S&P Index through statistical procedures.
As a result, Northern does not employ traditional methods of fund investment
management, such as selecting securities on the basis of economic, financial
and market analysis.
The Portfolio may invest in options and futures contracts and related options.
The Portfolio may also invest in certain short-term fixed income securities as
cash reserves. However, it is not anticipated that the Portfolio will invest
in cash reserves, options or futures contracts and related options as part of
a temporary defensive strategy such as lowering its investment in common
stocks to protect against potential stock market declines. See "Description of
Securities and Common Investment Techniques" and "Special Risks and Other
Considerations" below for more information.
DIVERSIFIED GROWTH PORTFOLIO
The Diversified Growth Portfolio seeks to provide long-term capital
appreciation, with income a secondary consideration. The Portfolio invests
principally in common and preferred stocks and securities convertible into
common stock. The Portfolio will, under normal market conditions, invest at
least 65% of its assets in equity securities of domestic and foreign issuers.
The Portfolio selects investments based on such factors as growth of sales,
return on equity, growth and consistency of earnings, financial condition,
market share, product leadership and other investment criteria. The Portfolio
may also purchase warrants and rights which entitle the holder to buy equity
securities at a specific price for a specific period of time.
The Portfolio may also enter into forward currency contracts and utilize
options and futures contracts and related options. Pending investment, as a
temporary defensive measure and to meet anticipated redemption requests, the
Portfolio may also invest in various short-term obligations. See "Description
of Securities and Common Investment Techniques" below for more information.
FOCUSED GROWTH PORTFOLIO
The Focused Growth Portfolio seeks to provide long-term capital appreciation.
Any income received is incidental to the objective of capital appreciation.
The Portfolio invests in common and preferred stocks and securities
convertible into common stock of companies believed by Northern to have
superior quality and growth characteristics. Under normal market conditions at
least 65% of the Portfolio's total assets will be invested in equity
securities of domestic and foreign issuers. The Portfolio selects equity
securities based on such factors as growth of sales, return on equity, growth
and consistency of earnings, financial condition, market share, product
leadership and other investment criteria. Companies in which the Portfolio
invests often retain their earnings to finance current and future growth and
generally pay little or no dividends. The Portfolio may also purchase warrants
and rights which entitle the holder to buy equity securities at a specific
price for a specific period of time. The Portfolio intends to invest in the
securities of companies which together with their predecessors have been in
continuous operation for at least five years and have stock market
capitalization in excess of $200 million.
The Portfolio may also enter into forward currency contracts and utilize
options and futures contracts and related options. Pending investment, as a
temporary defensive measure and to meet anticipated redemption requests, the
24
<PAGE>
Portfolio may also invest in various short-term obligations. See "Description
of Securities and Common Investment Techniques" below for more information.
SMALL COMPANY INDEX PORTFOLIO
The Small Company Index Portfolio seeks to provide investment results
approximating the aggregate price and dividend performance of the securities
included in the Russell Index. Under normal market conditions, the Portfolio
will invest directly or indirectly at least 80% of its total assets in the
stocks included in the Russell Index. The Russell Index is a market value-
weighted index comprised of the stocks of the smallest 2,000 companies in the
Russell 3000 Index which is comprised of the stocks of 3,000 large U.S.
domiciled companies (based on market capitalization) that represent
approximately 98% of the investable U.S. equity markets. Because of its
emphasis on the smallest 2,000 companies, the Russell Index represents
approximately 10% of the total market capitalization of the Russell 3000
Index. As of January 31, 1997, the average market capitalization of the
companies included in the Russell Index, adjusted for cross-holdings, was
approximately $447 million. The Russell Index is reconstituted annually to
reflect changes in market capitalization. The primary criteria used by Frank
Russell & Company ("Russell") to determine the initial list of securities
eligible for inclusion in the Russell 3000 Index (and, accordingly, the
Russell Index) is total market capitalization adjusted for large private
holdings and cross-ownership. However, companies are not selected by Russell
for inclusion in the Russell Index because they are expected to have superior
stock price performance relative to the stock market in general or other
stocks in particular. Russell makes no representation or warranty, implied or
express, to purchasers of Portfolio units or any member of the public
regarding the advisability of investing in the Portfolio or the ability of the
Russell Index to track general market performance of small capitalization
stocks.
The Portfolio will be constructed to have aggregate investment characteristics
similar to those of the Russell Index as a whole. The Portfolio will invest in
securities which will be selected on the basis of such factors as
market capitalization, beta, industry sectors and economic factors. The number
of issues included will be a function of the Portfolio's liquidity and size.
The Portfolio will be restructured annually when the Russell Index is
reconstituted.
It should be noted that small companies in which the Portfolio may invest may
have limited product lines, markets, or financial resources, or may be
dependent upon a small management group, and their securities may be subject
to more abrupt or erratic market movements than larger, more established
companies, both because their securities typically are traded in lower volume
and because the issuers typically are subject to a greater degree of changes
in their earnings and prospects.
The Portfolio may invest in options and futures contracts and related options.
The Portfolio may also invest in certain short-term fixed income securities as
cash reserves. However, it is not anticipated that the Portfolio will invest
in cash reserves, options or futures contracts and related options as part of
a temporary defensive strategy such as lowering its investment in common
stocks to protect against potential stock market declines. See "Description of
Securities and Common Investment Techniques" and "Special Risks and Other
Considerations" below for more information.
The Portfolio requires the payment of an additional transaction fee on the
purchase of units equal to 0.75% of the dollar amount invested. See
"Investing--Purchase of Units" and "Investing--Redemption of Units" below for
more information.
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INTERNATIONAL EQUITY INDEX PORTFOLIO
The International Equity Index Portfolio seeks to provide investment results
approximating the aggregate price and dividend performance of the equity
securities in the EAFE Index. The EAFE Index is a broad-based market
capitalization weighted index currently comprised of more than 1,100
securities in twenty countries. Fourteen European countries (Austria, Belgium,
Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Spain,
Sweden, Switzerland and the United Kingdom) constitute approximately 55% of
the EAFE Index. Six Asian/Pacific countries (Australia, Hong Kong, Japan,
Malaysia, New Zealand and Singapore) account for the remaining 45%. Under
normal market conditions, the Portfolio will invest, directly or indirectly,
at least 65% of its total assets in the securities that constitute the EAFE
Index.
The International Equity Index Portfolio is managed through the use of a
"passive" or "indexing" investment approach, which attempts to duplicate the
investment composition and performance of the EAFE Index through statistical
procedures. The Portfolio will be constructed to have aggregate investment
characteristics similar to those of the EAFE Index as a whole. The proportion
of assets invested in each country will approximate the weight of each country
in the EAFE Index, and the Portfolio will invest in securities selected on the
basis of such factors as country exposure, market capitalization, beta,
industry sectors and economic factors. The number of issuers included will be
a function of the Portfolio's liquidity and size.
Because the Portfolio will invest in countries according to their weights in
the EAFE Index, more than 25% of the Portfolio's assets may be invested in a
single country. In particular, Japan currently constitutes approximately one-
third of the EAFE Index and would comprise a similar percentage of the
Portfolio's assets, making the Portfolio's performance more dependent upon the
political and economic circumstances in Japan than a portfolio that is more
widely diversified among the issuers in different countries.
It is anticipated that, in seeking to achieve its investment objective, the
Portfolio may, during the current fiscal year, invest a substantial portion of
its assets in instruments such as World Equity Benchmark Shares SM issued by
The Foreign Fund, Inc. ("WEBS") and similar securities of other issuers. WEBS
are shares of an investment company that invests substantially all of its
assets in securities included in the MSCI indices for specific countries.
Because the expense associated with an investment in WEBS can be substantially
lower than the expense of small investments directly in the securities
comprising the indices they seek to track, Northern believes that investments
in WEBS of countries that are included in the EAFE Index can provide a cost-
effective means of diversifying the Portfolio's assets across a broad range of
equity securities until the Portfolio gains sufficient assets to economically
invest directly in the securities included in the EAFE Index.
WEBS are listed on the American Stock Exchange (the "AMEX"), and were
initially offered to the public in 1996. The market prices of WEBS are
expected to fluctuate in accordance with both changes in the net asset values
of their underlying indices and supply and demand of WEBS on the AMEX. To date
WEBS have traded at relatively modest discounts and premiums to their net
asset values. However, WEBS have a limited operating history, and information
is lacking regarding the actual performance and trading liquidity of WEBS for
extended periods or over complete market cycles. In addition, there is no
assurance that the requirements of the AMEX necessary to maintain the listing
of WEBS will continue to be met or will remain unchanged. In the event
substantial market or other disruptions affecting WEBS should occur in the
future, the liquidity and value of the Portfolio's units could also be
substantially and adversely affected, and the Portfolio's ability to provide
investment results approximating the performance of securities in the EAFE
Index could be impaired. If such
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disruptions were to occur, the Portfolio could be required to reconsider the
use of WEBS as part of its investment strategy.
The Portfolio may invest in convertible securities and may enter into forward
currency contracts and utilize options, futures contracts and related options
and currency swaps. The Portfolio may also purchase warrants and rights which
entitle the holder to buy equity securities at a specific price for a specific
period of time. In addition, the Portfolio may also invest in certain short-
term fixed income securities as cash reserves. However, it is not anticipated
that the Portfolio will invest in cash reserves, options or futures contracts
and related options as part of a temporary defensive strategy such as lowering
its investment in equity securities to protect against potential market
declines. See "Description of Securities and Common Investment Techniques" and
"Special Risk and Other Considerations" for more information.
The Portfolio requires the payment of an additional transaction fee on the
purchase of units equal to 1.00% of the dollar amount invested. See
"Investing--Purchase of Units" and "Investing--Redemption of Units" below for
more information.
INTERNATIONAL GROWTH PORTFOLIO
The International Growth Portfolio seeks to provide long-term capital
appreciation. Any income received is incidental to the objective of capital
appreciation. The Portfolio invests principally in common and preferred stocks
and securities convertible into common stock of foreign issuers. The Portfolio
will, under normal market conditions, invest directly or indirectly at least
65% of its total assets in equity securities of foreign issuers. The Portfolio
selects investments based on such factors as growth of sales, return on
equity, growth and consistency of earnings, financial condition, market share,
product leadership and other investment criteria. The Portfolio will normally
limit its equity investments to the securities of companies which together
with their predecessors have been in continuous operation for at least five
years and have stock market capitalizations in excess of $200 million. The
Portfolio invests in securities listed on foreign and domestic securities
exchanges and securities traded in foreign and domestic over-the-counter
markets, and may invest in unlisted securities. Securities issued in certain
countries are currently accessible to the Portfolio only through investment in
other investment companies that are specifically authorized to invest in such
securities.
The Portfolio will be invested at all times in the securities of issuers
located in at least three different foreign countries. These countries
include, but are not limited to: Argentina, Australia, Belgium, Brazil,
Canada, Chile, Colombia, Czech Republic, Denmark, Finland, France, Germany,
Greece, Hong Kong, Hungary, Indonesia, Ireland, Italy, Japan, Luxembourg,
Malaysia, Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines,
Poland, Portugal, Singapore, South Africa, South Korea, Spain, Sweden,
Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and Venezuela.
Criteria for determining the appropriate distribution of investments among
various countries and regions include prospects for relative economic growth,
expected levels of inflation, government policies influencing business
conditions, the outlook for currency relationships, and the range of
investment opportunities available to international investors.
The Portfolio may also enter into forward currency contracts, purchase
convertible bonds, and utilize options, futures contracts and currency swaps.
In addition, the Portfolio may purchase warrants and rights which entitle the
holder to buy equity securities at a specific price for a specific period of
time. Pending investment, as a temporary defensive measure and to meet
anticipated redemption requests, the Portfolio may invest, in accordance with
its investment policies, in various short-term obligations, such as U.S.
Government obligations, high quality money market instruments and repurchase
agreements. See "Description of Securities and Common Investment Techniques"
and "Special Risks and Other Considerations" below for more information.
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SPECIAL RISKS AND OTHER CONSIDERATIONS
FOREIGN SECURITIES. The Short-Intermediate Bond, Bond, Balanced, Diversified
Growth and Focused Growth Portfolios may, and the International Bond,
International Equity Index and International Growth Portfolios will, invest
directly or indirectly in the securities of foreign issuers, whether or not
U.S. dollar-denominated. In addition, each such Portfolio may acquire the
obligations of foreign banks and foreign branches of U.S. banks as stated
below under "Description of Securities and Common Investment Techniques--
Short-Term Obligations." There are certain risks and costs involved in
investing in securities of companies and governments of foreign nations, which
are in addition to the usual risks inherent in U.S. investments. Foreign
securities, and in particular foreign debt securities, are sensitive to
changes in interest rates and the interest rate environment. In addition,
investment in foreign debt, or the securities of foreign governments, will
subject a Portfolio to risks, including the risk that foreign governments may
default on their obligations, may not respect the integrity of such debt, may
attempt to renegotiate the debt at a lower rate, and may not honor investments
by United States entities or citizens. The performance of investments in
securities denominated in a foreign currency will also depend, in part, on the
strength of the foreign currency against the U.S. dollar and the interest rate
environment in the country issuing the currency. Absent other events which
could otherwise affect the value of a foreign security (such as a change in
the political climate or an issuer's credit quality), appreciation in the
value of the foreign currency generally can be expected to increase the value
of a foreign currency-denominated security in terms of U.S. dollars. A rise in
foreign interest rates or decline in the value of the foreign currency
relative to the U.S. dollar generally can be expected to depress the value of
a foreign currency-denominated security.
Investment in foreign securities also involves higher costs than investment in
U.S. securities, including higher transaction and custody costs as well as the
imposition of additional taxes by foreign governments. Foreign investments may
also involve risks associated with the level of currency exchange rates, less
complete financial information about the issuers, less market liquidity, more
market volatility and political instability. Future political and economic
developments, the possible imposition of withholding taxes on dividend income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls or freezes on the convertibility of
currency, or the adoption of other governmental restrictions might adversely
affect an investment in foreign securities. Additionally, foreign banks and
foreign branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
In addition, there are other risks of investing in countries with emerging
economies or securities markets. These countries are located in the
Asia/Pacific region, Eastern Europe, Latin and South America and Africa.
Political and economic structures in many such countries may be undergoing
significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristic of more developed
countries. Some of these countries may have in the past failed to recognize
private property rights and may have at times nationalized or expropriated the
assets of private companies. As a result, the risks described above, including
the risks of nationalization or expropriation of assets, may be heightened.
While the Portfolios' investments may, if permitted, be denominated in foreign
currencies, the portfolio securities and other assets held by the Portfolios
are valued in U.S. dollars. Currency exchange rates may fluctuate
significantly over short periods of time causing, together with other factors,
a Portfolio's net asset value to fluctuate as well. Currency exchange rates
can be affected unpredictably by the intervention or the failure to intervene
by U.S. or foreign governments or central banks, or by currency controls or
political developments in the U.S. or abroad. A Portfolio's net long and short
foreign currency exposure will not exceed its total asset
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value. To the extent that a Portfolio is fully invested in foreign securities
while also maintaining currency positions, it may be exposed to greater
combined risk. The Portfolios' respective net currency positions may expose
them to risks independent of their securities positions.
Because the securities markets in the following countries are highly
developed, liquid and subject to extensive regulation, the International
Growth Portfolio and International Bond Portfolio may invest more than 25% of
their total assets in the securities of issuers located in Japan, the United
Kingdom, France, Germany or Switzerland. Because the International Equity
Index Portfolio invests in countries according to their weightings in the EAFE
Index, more than 25% of such Portfolio's assets may also be invested in the
securities of issuers in a single country. Investment in a particular country
of 25% or more of the Portfolio's total assets will make the Portfolio's
performance more dependent upon the political and economic circumstances of a
particular country than a mutual fund that is more widely diversified among
issuers in different countries. Although the five foreign countries listed
above have developed economies, they are not immune from these risks. For
example, efforts by the member countries of the European Union to move toward
monetary union and a single currency have encountered opposition arising from
the conflicting economic, political and cultural interests and traditions of
the member countries and their citizens. The end of the Cold War, the
reunification of Germany, the accession of new Western European members to the
European Union and the aspirations of Eastern European states to join and
other political and social events in Europe have caused considerable economic,
social and political dislocation. In addition, events in the Japanese economy,
as well as political and social developments there have affected Japanese
securities and currency markets, and the relationship of the Japanese yen with
other currencies and with the U.S. dollar. Future political, economic and
social developments in Japan and in the Asia/Pacific regional context can be
expected to produce continuing effects on securities and currency markets.
DERIVATIVE INSTRUMENTS. Each Portfolio may also purchase certain "derivative"
instruments. "Derivative" instruments are instruments that derive value from
the performance of underlying assets, interest or currency exchange rates, or
indices, and include (but are not limited to) interest rate and currency
swaps, futures contracts, options, forward currency contracts and structured
debt obligations (including collateralized mortgage obligations and other
types of asset-backed securities, "stripped" securities and various floating
rate instruments, including "inverse floaters"). Derivative instruments
present, to varying degrees, market risk that the performance of the
underlying assets, exchange rates or indices will decline; credit risk that
the dealer or other counterparty to the transaction will fail to pay its
obligations; volatility and leveraging risk that, if interest or exchange
rates change adversely, the value of the derivative instrument will decline
more than the assets, rates or indices on which it is based; liquidity risk
that a Portfolio will be unable to sell a derivative instrument when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative instrument (such as an option) will not correlate
exactly to the value of the underlying assets, rates or indices on which it is
based; and operations risk that loss will occur as a result of inadequate
systems and controls, human error or otherwise. Some derivative instruments
are more complex than others, and for those instruments that have been
developed recently, data is lacking regarding their actual performance over
complete market cycles. Northern will evaluate the risks presented by the
derivative instruments purchased by the Portfolios, and will determine, in
connection with its day-to-day management of the Portfolios, how they will be
used in furtherance of the Portfolios' investment objectives. It is possible,
however, that Northern's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Portfolios will,
because of the risks discussed above, incur loss as a result of their
investments in derivative instruments.
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AVERAGE MATURITIES. The Fixed Income Portfolios will normally maintain the
dollar-weighted average maturities of their portfolios within specified ranges
as previously described. The maturities of certain instruments, however, such
as those subject to prepayment or redemption by the issuers, are subject to
estimation. There can be no assurance that the estimates used by the Fixed
Income Portfolios for such instruments will, in fact, be accurate or that, if
inaccurate, a Fixed Income Portfolio's dollar-weighted average maturity will
remain within the specified limits.
TRACKING VARIANCE. Northern believes that under normal market conditions, the
quarterly performance of the Equity Index, Small Company Index, International
Equity Index and U.S. Treasury Index Portfolios, before Portfolio expenses,
will be within a .95 correlation with the S&P Index, Russell Index, EAFE Index
and Lehman Index, respectively. However, there is no assurance that a
Portfolio will be able to do so on a consistent basis. Deviations from the
performance of its designated Index ("tracking variance") may result from
unitholder purchases and redemptions of units of a Portfolio that occur daily,
as well as from the expenses borne by a Portfolio. Such purchases and
redemptions may necessitate the purchase and sale of securities by the
Portfolio and the resulting transaction costs which may be substantial because
of the number and the characteristics of the securities held. In addition,
transaction costs are incurred because sales of securities received in
connection with spin-offs and other corporate reorganizations are made to
conform the Portfolio's holdings with its investment objective. Tracking
variance may also occur due to factors such as the size of a Portfolio, the
maintenance of a cash reserve pending investment or to meet expected
redemptions, changes made in the Portfolio's designated Index or the manner in
which the Index is calculated or because the indexing and investment approach
of Northern does not produce the intended goal of the Portfolio. In the event
the performance of a Portfolio is not comparable to the performance of its
designated Index, the Board of Trustees will evaluate the reasons for the
deviation and the availability of corrective measures. If substantial
deviation in a Portfolio's performance were to continue for extended periods,
it is expected that the Board of Trustees would consider recommending to
unitholders possible changes to the Portfolio's investment objective.
DESCRIPTION OF SECURITIES AND COMMON INVESTMENT TECHNIQUES
UNITED STATES GOVERNMENT OBLIGATIONS. Each Portfolio may invest, to the extent
consistent with its investment policies, in a variety of U.S. Treasury
obligations consisting of bills, notes and bonds, which principally differ
only in their interest rates, maturities and time of issuance. Each Portfolio
(other than the U.S. Treasury Index Portfolio) may also invest in other
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities consisting of bills, notes and bonds, which principally
differ only in their interest rates, maturities and time of issuance.
Obligations of certain agencies and instrumentalities, such as the Government
National Mortgage Association ("GNMA"), are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Export-Import Bank
of the United States, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others are supported
only by the credit of the instrumentalities. No assurance can be given that
the U.S. Government would provide financial support to its agencies or
instrumentalities if it is not obligated to do so by law. There is no
assurance that these commitments will be undertaken or complied with in the
future.
Securities guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities are deemed to include (a) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or an agency or instrumentality thereof,
and (b) participations in loans
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made to foreign governments or their agencies that are so guaranteed. The
secondary market for certain of these participations is limited. Such
participations will therefore be regarded as illiquid.
CONVERTIBLE SECURITIES. The Short-Intermediate Bond, Bond, International Bond,
Balanced, Diversified Growth, Focused Growth, International Growth and
International Equity Index Portfolios may each acquire convertible securities.
A convertible security is a security that may be converted either at a stated
price or rate within a specified period of time into a specified number of
shares of common stock. By investing in convertible securities, a Portfolio
seeks the opportunity, through the conversion feature, to participate in the
capital appreciation of the common stock into which the securities are
convertible, while earning higher current income than is available from the
common stock. Convertible securities acquired by the Portfolios will be
subject to the same rating requirements as a Portfolio's investments in its
fixed income securities, or if unrated, will be of comparable quality as
determined by Northern in accordance with guidelines approved by the Board of
Trustees, except that a Portfolio may acquire convertible securities rated
below investment grade so long as a Portfolio's investments in all non-
investment grade securities does not exceed the limitations set forth below
under "Non-Investment Grade Securities." The Fixed Income Portfolios will
ordinarily sell units of common stock received upon conversion.
CORPORATE OBLIGATIONS. A Portfolio (other than the U.S. Government Securities
and U.S. Treasury Index Portfolios) may purchase debt obligations of domestic
or foreign corporations subject to the Portfolio's minimum rating requirements
for purchases of debt securities. See discussion of "Investment Grade
Securities" and "Non-Investment Grade Securities" below.
INVESTMENT GRADE SECURITIES. The Fixed Income and Balanced Portfolios may
invest in fixed income securities of all types, and the Short-Intermediate
Bond, Bond, International Bond, Balanced, Diversified Growth, Focused Growth,
International Growth and International Equity Index Portfolios may invest a
portion of their assets in convertible securities. Such securities will
generally be investment grade. Investment grade securities include those
securities which are rated BBB or higher by Standard and Poor's Ratings Group
("S&P"), Baa or higher by Moody's Investors Service, Inc. ("Moody's"), BBB or
higher by Duff & Phelps Credit Rating Co. ("Duff") or BBB or higher by Fitch
Investors Service, Inc. ("Fitch") at the time of purchase, or if unrated, are
of comparable quality as determined by Northern. Securities rated BBB by S&P,
Duff or Fitch, or Baa by Moody's have certain speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments than in the
case of higher rated securities. Commercial paper and other short-term
obligations acquired by a Portfolio will be rated A-2 or higher by S&P, P-2 or
higher by Moody's, D-2 or higher by Duff, or F-2 or higher by Fitch at the
time of purchase or, if unrated, determined to be of comparable quality by
Northern. Subsequent to its purchase by a Portfolio, a rated security may
cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Portfolio. Northern will consider such an event
in determining whether the Portfolio should continue to hold such security. In
addition, certain Portfolios may acquire fixed income securities rated below
investment grade when Northern believes that the investment characteristics of
such securities make them desirable acquisitions. In either case, a
Portfolio's total investment in non-investment grade securities will not
exceed the limitations set forth below under "Non-Investment Grade
Securities."
NON-INVESTMENT GRADE SECURITIES. Although the fixed income securities in which
the Fixed Income Portfolios and Balanced Portfolio may invest and the
convertible securities in which the Short-Intermediate Bond, Bond,
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International Bond, Balanced, Diversified Growth, Focused Growth,
International Growth and International Equity Index Portfolios may invest will
normally be rated investment grade at the time of purchase, the Portfolios
(other than the U.S. Government Securities and U.S. Treasury Index Portfolios)
may invest in non-investment grade or convertible securities when Northern
believes that the investment characteristics of such securities make them
desirable in light of the Portfolios' investment objectives and current
portfolio mix, so long as under normal market and economic conditions, (i) no
more than 5% of the respective total assets of the International Bond,
International Growth and International Equity Index Portfolios and no more
than 10% of the respective total assets of the Short-Intermediate Bond, Bond,
Balanced, Diversified Growth and Focused Growth Portfolios are invested in
non-investment grade securities and (ii) such securities are rated "B" or
higher at the time of purchase by at least one major rating agency, or if
unrated will be of comparable quality as determined by Northern. Non-
investment grade securities (those that are rated "Ba" or lower by Moody's or
"BB" or lower by S&P, Duff or Fitch) are commonly referred to as "junk bonds."
To the extent that securities, including convertible securities, acquired by a
Portfolio are not rated investment grade, there is a greater risk as to the
timely repayment of the principal on, and timely payment of interest or
dividends with respect to, such securities. Particular risks associated with
lower-rated securities are (a) the relative youth and growth of the market for
such securities, (b) the sensitivity of such securities to interest rate and
economic changes, (c) the lower degree of protection of principal and interest
payments, (d) the relatively low trading market liquidity for the securities,
(e) the impact that legislation may have on the high yield bond market (and,
in turn, on a Portfolio's net asset value and investment practices), and (f)
the creditworthiness of the issuers of such securities. During an economic
downturn or substantial period of rising interest rates, leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. An economic downturn could
also disrupt the market for lower-rated securities and adversely affect the
value of outstanding securities and the ability of the issuers to repay
principal and interest. If the issuer of a security held by a Portfolio
defaulted, the Portfolio could incur additional expenses to seek recovery.
FORWARD CURRENCY EXCHANGE CONTRACTS. The Short-Intermediate Bond, Bond,
International Bond, Balanced, Diversified Growth, Focused Growth,
International Growth and International Equity Index Portfolios may enter into
forward currency exchange contracts for hedging purposes and in an effort to
reduce the level of volatility caused by changes in foreign currency exchange
rates or where such transactions are economically appropriate for the
reduction of risks inherent in the ongoing management of the Portfolios. The
International Bond and International Growth Portfolios may also enter into
forward currency exchange contracts for speculative purposes (to seek to
increase total return). In addition, the International Growth and
International Bond Portfolios may engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities denominated in a different currency if Northern believes that there
is a pattern of correlation between the two currencies.
A forward currency exchange contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the
time of contract. Although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
tend to limit any potential gain that might be realized should the value of
such currency increase. Consequently, a Portfolio may choose to refrain from
entering into such contracts. In connection with forward currency exchange
contracts, the Portfolios will create a segregated account of liquid assets in
accordance with applicable requirements of the Securities and Exchange
Commission (the "SEC").
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The International Bond Portfolio may also invest in debt securities
denominated in the European Currency Unit ("ECU"), which is a "basket"
consisting of specified amounts in the currencies of certain of the twelve
member states of the European Community. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministries of the
European Community from time to time to reflect changes in relative values of
the underlying currencies. In addition, the Portfolio may invest in securities
denominated in other currency "baskets".
OPTIONS. Each Portfolio may write covered call options, buy put options, buy
call options and write secured put options for hedging (or cross-hedging)
purposes or for the purpose of earning additional income. Such options may
relate to particular securities, foreign or domestic securities indices,
financial instruments or foreign currencies and may or may not be listed on a
foreign or domestic securities exchange and issued by the Options Clearing
Corporation. The Portfolios will not purchase put and call options in an
amount that exceeds 5% of their respective net assets at the time of purchase.
The aggregate value of a Portfolio's assets that will be subject to options
written by the Portfolio will not exceed 25% of its net assets at the time the
option is written.
In the case of a call option on a security or currency, the option is
"covered" if a Portfolio owns the security or currency underlying the call or
has an absolute and immediate right to acquire that security or currency
without additional cash consideration (or, if additional cash consideration is
required, liquid assets in such amount are held in a segregated account by its
custodian) upon conversion or exchange of other securities or instruments held
by it. For a call option on an index, the option is covered if a Portfolio
maintains with its custodian a portfolio of securities substantially
replicating the movement of the index, or liquid assets equal to the contract
value. A call option is also covered if a Portfolio holds a call on the same
security, currency or index as the call written where the exercise price of
the call held is (i) equal to or less than the exercise price of the call
written, or (ii) greater than the exercise price of the call written provided
the difference is maintained by the Portfolio in liquid assets in a segregated
account with its custodian. Put options written by a Portfolio are "secured"
if the Portfolio maintains liquid assets in a segregated account with its
custodian in an amount not less than the exercise price of the option at all
times during the option period.
Options trading is a highly specialized activity which entails greater than
ordinary investment risks. A call option for a particular security or currency
gives the purchaser of the option the right to buy, and a writer the
obligation to sell, the underlying security or currency at the stated exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security or currency. The premium paid to the writer is in
consideration for undertaking the obligation under the option contract. A put
option for a particular security or currency gives the purchaser the right to
sell the security or currency at the stated exercise price to the expiration
date of the option, regardless of the market price of the security or
currency. In contrast to an option on a particular security, an option on an
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option. The amount of this settlement will be equal to
the difference between the closing price of the index at the time of exercise
and the exercise price of the option expressed in dollars, times a specified
multiple.
Each Portfolio will invest and trade in unlisted over-the-counter options only
with firms deemed creditworthy by Northern. However, unlisted options are not
subject to the protections afforded purchasers of listed options by the
Options Clearing Corporation, which performs the obligations of its members
which fail to perform them in connection with the purchase or sale of options.
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FUTURES CONTRACTS AND RELATED OPTIONS. Each Portfolio may invest in futures
contracts and options on futures contracts for hedging purposes, to increase
total return (i.e., for speculative purposes) or to maintain liquidity to meet
potential unitholder redemptions, invest cash balances or dividends or
minimize trading costs. The value of a Portfolio's contracts may equal or
exceed 100% of its total assets, although a Portfolio will not purchase or
sell a futures contract unless immediately after any such transaction the sum
of the aggregate amount of margin deposits on its existing futures positions
and the amount of premiums paid for related options entered into for other
than bona fide hedging purposes is 5% or less of its total assets.
Futures contracts obligate a Portfolio, at maturity, to take or make delivery
of certain domestic or foreign securities, the cash value of a securities
index or, in the case of the International Bond, International Growth and
International Equity Index Portfolios, a stated quantity of a foreign
currency. When used as a hedge, a Portfolio may sell a futures contract in
order to offset a decrease in the market value of its portfolio securities
that might otherwise result from a market decline or currency exchange
fluctuations. A Portfolio may do so either to hedge the value of its portfolio
of securities as a whole, or to protect against declines, occurring prior to
sales of securities, in the value of the securities to be sold. Conversely, a
Portfolio may purchase a futures contract as a hedge in anticipation of
purchases of securities. In addition, a Portfolio may utilize futures
contracts in anticipation of changes in the composition of its portfolio
holdings.
The Portfolios may purchase and sell call and put options on futures contracts
traded on a domestic or foreign exchange or board of trade. When a Portfolio
purchases an option on a futures contract, it has the right to assume a
position as a purchaser or seller of a futures contract at a specified
exercise price during the option period. When a Portfolio sells an option on a
futures contract, it becomes obligated to purchase or sell a futures contract
if the option is exercised. In connection with a Portfolio's position in a
futures contract or option thereon, the Portfolio will create a segregated
account of liquid assets, in accordance with applicable requirements of the
SEC.
The primary risks associated with the use of futures contracts and options
are: (i) imperfect correlation between the change in market value of the
securities held by a Portfolio and the price of futures contracts and options;
(ii) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures contract when desired; (iii) losses due
to unanticipated market movements which are potentially unlimited; and (iv)
Northern's ability to predict correctly the direction of securities prices,
interest rates, currency exchange rates and other economic factors. For a
further discussion see "Additional Investment Information--Futures Contracts
and Related Options" and Appendix B in the Additional Statement.
The Portfolios intend to comply with the regulations of the Commodity Futures
Trading Commission exempting the Portfolios from registration as a "commodity
pool operator."
INTEREST RATE SWAPS, FLOORS AND CAPS AND CURRENCY SWAPS. Each Fixed Income
Portfolio (other than the U.S. Treasury Index Portfolio) and the Balanced
Portfolio may, in order to protect its value from interest rate fluctuations
and to hedge against fluctuations in the floating rate market, enter into
interest rate swaps or purchase interest rate floors or caps. The Portfolios
expect to enter into these hedging transactions primarily to preserve a return
or spread of a particular investment or portion of its holdings and to protect
against an increase in the price of securities the Portfolios anticipate
purchasing at a later date. Interest rate swaps involve the exchange by a
Portfolio with another party of their respective commitments to pay or receive
interest (e.g., an exchange of floating rate payments for fixed rate
payments). The purchase of an interest rate floor entitles the purchaser, to
the extent that a specified index falls below a predetermined interest rate,
to receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive
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payments of interest on a notional principal amount from the party selling
such interest rate cap. In order to protect against currency fluctuations, the
International Bond, International Growth and International Equity Index
Portfolios may enter into currency swaps. Currency swaps involve the exchange
of the rights of a Portfolio and another party to make or receive payments in
specified currencies.
The net amount of the excess, if any, of a Portfolio's obligations over its
entitlements with respect to each interest rate or currency swap will be
accrued on a daily basis and an amount of liquid assets having an aggregate
net asset value at least equal to such accrued excess will be maintained in a
segregated account by the Portfolio's custodian. If the other party to an
interest rate swap defaults, a Portfolio's risk of loss consists of the net
amount of interest payments that the Portfolio is contractually entitled to
receive. In contrast, currency swaps usually involve the delivery of the
entire principal value of one designated currency in exchange for the other
designated currency. Therefore, the entire principal value of a currency swap
is subject to the risk that the other party to the swap will default on its
contractual delivery obligations. A Portfolio will not enter into any interest
rate swap, floor or cap transaction or any currency swap unless the unsecured
commercial paper, senior debt, or claims paying ability of the other party is
rated either A or A-1 or better by S&P, Duff or Fitch, or A or P-1 or better
by Moody's.
SECURITIES LENDING. The Portfolios may seek additional income from time to
time by lending their respective portfolio securities on a short-term basis to
banks, brokers and dealers under agreements requiring that the loans be
secured by collateral in the form of cash, cash equivalents, U.S. Government
securities or irrevocable bank letters of credit maintained on a current basis
equal in value to at least the market value of the securities loaned. A
Portfolio may not make such loans in excess of 33 1/3% of the value of the
Portfolio's total assets. Loans of securities involve risks of delay in
receiving additional collateral or in recovering the securities loaned, or
possible loss of rights in the collateral should the borrower of the
securities become insolvent. The proceeds received by a Portfolio in
connection with loans of portfolio securities may be invested in U.S.
Government securities and other liquid high grade debt obligations.
FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS.
The Portfolios may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased
on a when-issued, delayed-delivery or forward commitment basis involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. Conversely, securities sold on a delayed-delivery or forward
commitment basis involve the risk that the value of the security to be sold
may increase prior to the settlement date. A Portfolio is required to hold and
maintain liquid assets in a segregated account with the Portfolio's custodian
until the settlement date 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, a Portfolio is required to hold the
portfolio securities themselves in a segregated account with the custodian
while the commitment is outstanding. Although the Portfolios would generally
purchase securities on a when-issued, delayed-delivery or a forward commitment
basis with the intention of acquiring the securities, the Portfolios may
dispose of such securities prior to settlement if Northern deems it
appropriate to do so.
BORROWINGS. The Portfolios are authorized to make limited borrowings for
temporary purposes to the extent described below under "Investment
Restrictions." If the securities held by the Portfolios should decline in
value while borrowings are outstanding, the net asset value of the Portfolios'
outstanding units will decline in value by proportionately more than the
decline in value suffered by the Portfolios' securities. Borrowings may be
effected through reverse repurchase agreements under which the Portfolios
would sell portfolio securities to financial
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institutions such as banks and broker-dealers and agree to repurchase them at
a particular date and price. A Portfolio may use the proceeds of reverse
repurchase agreements to purchase other securities either maturing, or under
an agreement to resell, at a date simultaneous with or prior to the expiration
of the reverse repurchase agreement. The Fixed Income and Balanced Portfolios
may utilize reverse repurchase agreements, which may be viewed as borrowings
(or leverage), when it is anticipated that the interest income to be earned
from the investment of the proceeds of the transaction is greater than the
interest expense of the reverse repurchase transaction. Reverse repurchase
agreements involve the risks that the interest income earned in the investment
of the proceeds of the transaction will be less than the interest expense of
the reverse repurchase agreement, that the market value of the securities sold
by the Portfolio may decline below the price of the securities the Portfolio
is obligated to repurchase and that the securities may not be returned to the
Portfolio. During the time a reverse repurchase agreement is outstanding, a
Portfolio will maintain a segregated account with the Trust's custodian
containing liquid assets having a value at least equal to the repurchase
price. A Portfolio may enter into reverse repurchase agreements with banks,
brokers and dealers, and does not have the authority to enter into reverse
repurchase agreements exceeding in the aggregate one-third of the Portfolio's
total assets. See "Additional Investment Information--Investment Restrictions"
in the Additional Statement.
SHORT-TERM OBLIGATIONS. Subject to each Portfolio's investment objective and
policies, a Portfolio may also invest in short-term U.S. government
obligations, high quality money market instruments and repurchase agreements,
pending investment, to meet anticipated redemption requests, or as a temporary
defensive measure. Such obligations may include those issued by foreign banks
and foreign branches of U.S. banks. See "Special Risks and Other
Considerations--Foreign Securities" above.
REPURCHASE AGREEMENTS. The Portfolios may agree to purchase portfolio
securities from financial institutions such as banks and broker/dealers which
are deemed to be creditworthy by Northern under guidelines approved by the
Board of Trustees subject to the seller's agreement to repurchase them at a
mutually agreed upon date and price ("repurchase agreements"). Although the
securities subject to a repurchase agreement may bear maturities exceeding one
year, settlement for the repurchase agreement will never be more than one year
after a Portfolio's acquisition of the securities and normally will be within
a shorter period of time. Securities subject to repurchase agreements are held
either by the Trust's custodian or subcustodian (if any), or in the Federal
Reserve/Treasury Book-Entry System. The seller under a repurchase agreement
will be required to maintain the value of the securities which are subject to
the agreement and held by a Portfolio in an amount that exceeds the agreed
upon repurchase price (including accrued interest). Default by or bankruptcy
of the seller would, however, expose a Portfolio to possible loss because of
adverse market action or delays in connection with the disposition of the
underlying obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolios may enter into reverse
repurchase agreements which involve the sale of securities held by them, with
an agreement to repurchase the securities at an agreed upon price (including
interest) and date. The Portfolios will use the proceeds of reverse repurchase
agreements to purchase other securities either maturing, or under an agreement
to resell, at a date simultaneous with or prior to the expiration of the
reverse repurchase agreement. The Portfolios will utilize reverse repurchase
agreements, which may be viewed as borrowings (or leverage), when it is
anticipated that the interest income to be earned from the investment of the
proceeds of the transaction is greater than the interest expense of the
reverse repurchase transaction. Reverse repurchase agreements involve the
risks that the interest income earned from the investment of the proceeds of
the transaction will be less than the interest expense of the reverse
repurchase agreement, that the market value of the securities sold by the
Portfolio may decline below the price of the securities the Portfolio is
obligated to repurchase and that the securities may not be returned to the
Portfolio. During the time a reverse
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repurchase agreement is outstanding, a Portfolio will maintain a segregated
account with the Trust's custodian containing liquid assets having a value at
least equal to the repurchase price. A Portfolio may enter into reverse
repurchase agreements with banks, brokers and dealers, and has the authority
to enter into reverse repurchase agreements in amounts not exceeding in the
aggregate one-third of the Portfolio's total assets. See "Additional
Investment Information--Investment Restrictions" in the Additional Statement.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolios may purchase rated and
unrated variable and floating rate instruments. These instruments may include
variable amount master demand notes that permit the indebtedness thereunder to
vary in addition to providing for periodic adjustments in the interest rate.
The Portfolios may also invest in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate on an inverse floater
resets in the opposite direction from the market rate of interest to which the
inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly, the duration of an inverse
floater may exceed its stated final maturity. Unrated variable and floating
rate instruments will be determined by Northern to be of comparable quality at
the time of the purchase to rated instruments which may be purchased by the
Portfolios.
The absence of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for the Portfolios to
dispose of the instruments if the issuer defaulted on its payment obligation
or during periods that the Portfolios are not entitled to exercise their
demand rights, and the Portfolios could, for these or other reasons, suffer a
loss with respect to such instruments. Variable and floating rate instruments
including inverse floaters held by a Portfolio will be subject to the
Portfolio's 15% limitation on illiquid investments when the Portfolio may not
demand payment of the principal amount within seven days absent a reliable
trading market.
INVESTMENT COMPANIES. In connection with the management of their daily cash
positions, the Portfolios may invest in securities issued by other investment
companies which invest in short-term, high-quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. The U.S. Treasury Index, Equity Index,
Small Company Index and International Equity Index Portfolios may also invest
in shares of other investment companies that are structured to seek a similar
correlation to the performance of the Lehman Index, S&P Index, Russell Index
or EAFE Index, respectively. The International Bond, International Growth and
International Equity Index Portfolios may also purchase shares of investment
companies investing primarily in foreign securities, including "country
funds." Country funds have portfolios consisting primarily of securities of
issuers located in one foreign country or region. As stated above, the
International Equity Index Portfolio may invest in WEBS and similar securities
that invest in securities included in foreign securities indices. In addition,
the Portfolios may invest in securities issued by other investment companies
if otherwise consistent with their respective investment objectives and
policies. As a shareholder of another investment company, a Portfolio would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses including advisory fees. These expenses would be
in addition to the advisory fees and other expenses the Portfolio bears
directly in connection with its own operations. 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 is
made, not more than 3% of the total outstanding stock of any
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investment company will be owned by the Portfolio, the Trust as a whole and
their affiliated persons (as defined in the 1940 Act).
ILLIQUID OR RESTRICTED SECURITIES. Each Portfolio may invest up to 15% of its
net assets in securities which are illiquid. Illiquid securities would
generally include repurchase agreements and time deposits with
notice/termination dates in excess of seven days, unlisted over-the-counter
options and certain securities that are traded in the United States but are
subject to trading restrictions because they are not registered under the
Securities Act of 1933 (the "1933 Act"), interest rate and currency swaps,
stripped mortgage-backed securities ("SMBS") issued by private issuers and
guaranteed investment contracts ("GICs").
If otherwise consistent with their respective investment objectives and
policies, the Portfolios may purchase domestically-traded securities which are
not registered under the 1933 Act but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act. Any
such security will not be considered illiquid so long as it is determined by
Northern, under guidelines approved by the Trust's Board of Trustees, that an
adequate trading market exists for that security. This investment practice
could have the effect of increasing the level of illiquidity in a Portfolio
during any period that qualified institutional buyers become uninterested in
purchasing these restricted securities.
STRIPPED OBLIGATIONS. To the extent consistent with their investment
objectives, the Fixed Income and Balanced Portfolios may purchase Treasury
receipts and other "stripped" securities that evidence ownership in either the
future interest payments or the future principal payments on U.S. Government
and other domestic and foreign obligations. These participations, which may be
issued by the U.S. Government (or a U.S. Government agency or
instrumentality), foreign governments or by private issuers such as banks and
other financial institutions, are issued at a discount to their "face value,"
and may include SMBS, which are derivative multi-class mortgage securities.
Stripped securities, particularly SMBS, may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal
and interest are returned to investors.
CUSTODIAL RECEIPTS FOR TREASURY SECURITIES. Each Fixed Income Portfolio (other
than the U.S. Treasury Index and International Bond Portfolios) and the
Balanced Portfolio may also purchase participations in trusts that hold U.S.
Treasury securities (such as TIGRs and CATS) where the trust participations
evidence ownership in either the future interest payments or the future
principal payments on the U.S. Treasury obligations. Like other stripped
securities, these participations are also normally issued at a discount to
their "face value," and may exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest
are returned to investors. Investments by the Portfolio in such receipts will
not exceed 5% of the value of the Portfolio's total assets.
BANK OBLIGATIONS. The Portfolios may invest in domestic and foreign bank
obligations, including certificates of deposit, bank and deposit notes,
bankers' acceptances and fixed time deposits. Such obligations may be general
obligations of the parent bank or may be limited to the issuing branch or
subsidiary by the terms of the specific obligation or by government
regulation.
ASSET-BACKED SECURITIES. The U.S. Government Securities Portfolio may purchase
securities that are secured or backed by mortgages and issued by an agency of
the U.S. Government. The Short-Intermediate Bond, Bond, International Bond and
Balanced Portfolios may purchase asset-backed securities that are secured or
backed by mortgages or other assets (e.g., automobile loans, credit card
receivables and other financial assets) and are issued by entities such as
GNMA, FNMA, FHLMC, commercial banks, financial companies, finance subsidiaries
of industrial companies, savings and loan associations, mortgage banks,
investment banks and certain special purpose entities. Asset-backed securities
acquired by such Portfolios will be rated BBB or better by S&P, Duff
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or Fitch, or Baa or better by Moody's at the time of purchase or, if not
rated, will be determined by Northern to be of comparable quality. The
Portfolios will not purchase non-mortgage asset-backed securities that are not
rated by S&P, Duff, Fitch or Moody's.
Presently there are several types of mortgage-backed securities that may be
acquired by the Short-Intermediate Bond, Bond, International Bond and Balanced
Portfolios, including guaranteed mortgage pass-through certificates, which
provide the holder with a pro rata interest in the underlying mortgages, and
collateralized mortgage obligations ("CMOs"), which provide the holder with a
specified interest in the cash flow of a pool of underlying mortgages or other
mortgage-backed securities. Issuers of CMOs ordinarily elect to be taxed as
pass-through entities known as real estate mortgage investment conduits
("REMICs"). CMOs are issued in multiple classes, each with a specified fixed
or floating interest rate and a final distribution date. The relative payment
rights of the various CMO classes may be structured in a variety of ways. The
Portfolios will not purchase "residual" CMO interests, which normally exhibit
greater price volatility.
The yield characteristics of asset-backed securities differ from traditional
debt securities. A major difference is that the principal amount of the
obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster
than expected prepayments will increase, while slower than expected
prepayments will decrease, yield to maturity. In calculating the average
weighted maturity of the U.S. Government Securities, Short-Intermediate Bond,
Bond and International Bond Portfolios or the fixed income portion of the
Balanced Portfolio, the maturity of asset-backed securities will be based on
estimates of average life.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore,
prepayment rates are influenced by a variety of economic and social factors.
In general, the collateral supporting non-mortgage asset-backed securities is
of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. Like other fixed income securities, when interest
rates rise the value of an asset-backed security generally will decline;
however, when interest rates decline, the value of an asset-backed security
with prepayment features may not increase as much as that of other fixed
income securities.
EXCHANGE RATE-RELATED SECURITIES. The Short-Intermediate Bond, Bond,
International Bond and Balanced Portfolios may invest in securities for which
the principal repayment at maturity, while paid in U.S. dollars, is determined
by reference to the exchange rate between the U.S. dollar and the currency of
one or more foreign countries ("Exchange Rate-Related Securities"). The
interest payable on these securities is denominated in U.S. dollars and is not
subject to foreign currency risk and, in most cases, is paid at rates higher
than most other similarly rated securities in recognition of the foreign
currency risk component of Exchange Rate-Related Securities. Investments in
Exchange Rate-Related Securities entail certain risks. There is the
possibility of significant changes in rates of exchange between the U.S.
dollar and any foreign currency to which an Exchange Rate-Related Security is
linked. In addition, potential illiquidity in the forward foreign exchange
market and the high volatility of the foreign exchange market may from time to
time combine to make it difficult to sell an Exchange Rate-Related Security
prior to maturity without incurring a significant price loss.
GUARANTEED INVESTMENT CONTRACTS. The Short-Intermediate Bond, Bond and
Balanced Portfolios may make limited investments in guaranteed investment
contracts ("GICs") issued by U.S. insurance companies. Pursuant
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to such contracts, a Portfolio makes cash contributions to a deposit fund of
the insurance company's general account. The insurance company then credits to
the Portfolio on a monthly basis interest which is based on an index (in most
cases this index is expected to be the Salomon Brothers CD Index), but is
guaranteed not to be less than a certain minimum rate. A GIC is normally a
general obligation of the issuing insurance company and not a separate
account. The purchase price paid for a GIC becomes part of the general assets
of the insurance company, and the contract is paid from the company's general
assets. A Portfolio will only purchase GICs from insurance companies which, at
the time of purchase, have assets of $1 billion or more and meet quality and
credit standards established by Northern. Generally, GICs are not assignable
or transferable without the permission of the issuing insurance companies, and
an active secondary market in GICs does not currently exist. Therefore, GICs
will normally be considered illiquid instruments, and will be subject to a
Portfolio's limitation on investments in illiquid securities.
WARRANTS. The Balanced, Diversified Growth, Focused Growth, International
Growth, Small Company Index and International Equity Index Portfolios may
invest up to 5% of their respective assets at the time of purchase in warrants
and similar rights (other than those that have been acquired in units or
attached to other securities). Warrants represent rights to purchase
securities at a specific price valid for a specific period of time. The
Balanced, Diversified Growth, Focused Growth and International Growth
Portfolios may also purchase bonds that are issued in tandem with warrants.
The prices of warrants do not necessarily correlate with the prices of the
underlying securities.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS. The Balanced, Diversified
Growth, Focused Growth, International Growth and International Equity Index
Portfolios may invest in securities of foreign issuers in the form of American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs") or similar securities representing securities of
foreign issuers. These securities may not be denominated in the same currency
as the securities they represent. ADRs are receipts typically issued by a
United States bank or trust company evidencing ownership of the underlying
foreign securities and are denominated in U.S. dollars. EDRs and GDRs are
receipts issued by a non-U.S. financial institution evidencing ownership of
the underlying foreign or U.S. securities and are generally denominated in
foreign currencies. ADRs may be listed on a national securities exchange or
may be traded in the over-the-counter market. EDRs and GDRs are generally
designed for use in a foreign securities exchange and over-the-counter
markets. Investments in ADRs, EDRs and GDRs involve risks similar to those
accompanying direct investments in foreign securities. See "Special Risks and
Other Considerations--Foreign Securities" above.
Certain such institutions issuing ADRs, EDRs and GDRs may not be sponsored by
the issuer. A non-sponsored depository may not provide the same unitholder
information that a sponsored depository is required to provide under its
contractual arrangement with the issuer. The Balanced, Diversified Growth and
Focused Growth Portfolios will limit investments in ADRs to 20% of their
respective assets and will limit investments in EDRs and GDRs to 5% of their
respective assets.
PAIR-OFF TRANSACTIONS. Subject to the requirements of the 1940 Act, each Fixed
Income Portfolio (other than the U.S. Treasury Index Portfolio) and the
Balanced Portfolio may engage in pair-off transactions involving securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. In a pair-off transaction Northern will commit to purchase
or sell a security. Then, prior to the settlement date, Northern will "pair-
off" the purchase or sale with a matching sale or purchase of the same
security that settles prior to, or on, the original settlement date. Profits
or losses on the pair-off transaction are settled by a Portfolio's paying or
receiving the
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difference between the purchase and sale prices from the counterparty in the
transaction (which will be a bank, broker-dealer or other financial
institution determined to be creditworthy by Northern).
A pair-off transaction that involves an initial sale by a Portfolio of a
security that it does not own (or does not have the right to obtain at no
added cost) will be considered a short sale of the security. Until the sale is
paired-off as described above, the Portfolio will maintain on a daily basis a
segregated account containing liquid assets at such a level that (a) the
amount deposited in the account will equal the current value of the security
sold short and (b) the amount deposited in the segregated account will not be
less than the market value of the security at the time it was sold short.
Similarly, a segregated account will be maintained for a pair-off transaction
that involves an initial purchase by the Portfolio of a security on a forward
commitment or when-issued basis as described more fully in the Additional
Statement.
A Portfolio will not enter into a pair-off transaction that involves either a
short sale or a forward commitment or when-issued purchase if, after effect is
given to the sale or purchase, the total market value of all open pair-off
transactions would exceed 25% of the value of the Portfolio's net assets.
Although pair-off transactions represent a strategy that will be used by
Northern in attempting to earn additional income for the Portfolios resulting
from short-term price movements in the securities markets, the transactions
may result in losses instead. In addition, pair-off transactions may produce
higher than normal portfolio turnover which may result in increased
transaction costs to the Portfolios and gains from the sale of securities
deemed to have been held for less than three months. Such gains must not
exceed 30% of a Portfolio's gross income in a taxable year in order for the
Portfolio to qualify as a regulated investment company under the Internal
Revenue Code of 1986.
FIXED INCOME INVESTMENTS. Even though interest-bearing securities are
investments which often offer a stable stream of income, the prices of fixed
income securities will vary inversely with changes in the prevailing level of
interest rates. These securities experience appreciation when interest rates
decline and depreciation when interest rates rise. An investment portfolio
consisting of fixed income securities will react in a similar manner.
Generally, the longer the maturity of a fixed income security, the higher its
yield and the greater its price volatility. Conversely, the shorter the
maturity, the lower the yield but the greater the price stability. The values
of fixed income securities also may be affected by changes in the credit
rating or financial condition of the issuing entities. A security's rating
normally depends on the likelihood that the borrower will meet each interest
and principal installment on a timely basis. As a result, lower-rated bonds
typically yield more than higher-rated bonds of the same maturity. Credit
ratings evaluate the safety of principal and interest payments, not market
risk, and rating agencies may or may not make timely changes in a rating to
reflect economic or company conditions that affect a security's market value.
As a result, the ratings of rating services are used by Northern only as
indicators of investment quality. For a more complete discussion of ratings,
see Appendix A to the Additional Statement.
PORTFOLIO TURNOVER. The portfolio turnover rate of the International Bond,
International Growth and International Equity Index Portfolios will be
affected by changes in country and currency weightings, as well as changes in
the holdings of specific issuers and investments in issuers in smaller or
emerging markets. The Trust cannot accurately predict the turnover rate for
any Portfolio, which may vary from year to year. The portfolio turnover rate
of each Portfolio for the last fiscal year, except the International Equity
Index Portfolio which had not commenced operations, is stated above under
"Financial Highlights." It is expected that the portfolio turnover
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rate for the International Equity Index Portfolio will not exceed 50% during
the current fiscal year. High portfolio turnover (in excess of 100%) may
result in the realization of short-term capital gains which are taxable to
unitholders as ordinary income (see "Taxes"). In addition, high portfolio
turnover rates may result in corresponding increases in brokerage commissions
and other transaction costs. The Portfolios will not consider portfolio
turnover rate a limiting factor in making investment decisions consistent with
their respective objectives and policies.
MISCELLANEOUS. The Portfolios do not intend to purchase certificates of
deposit of Northern or its affiliate banks, commercial paper issued by
Northern's parent holding company or other securities issued or guaranteed by
Northern, its parent holding company or their subsidiaries or affiliates.
The Equity Index, Small Company Index and International Equity Index
Portfolios may experience higher custody costs than other stock funds because
they maintain large portfolios of securities consistent with their respective
investment objectives.
INVESTMENT RESTRICTIONS
The Portfolios are subject to certain investment restrictions which, as
described in more detail in the Additional Statement, are fundamental policies
that cannot be changed without the approval of a majority of the outstanding
units of a Portfolio. Each Portfolio (except the International Bond Portfolio)
will limit its investments so that, with respect to 75% of a Portfolio's total
assets, not more than 5% will be invested in the securities of any one issuer
(other than U.S. Government securities or repurchase agreements collateralized
by U.S. Government securities) and each Portfolio will not invest more than
25% of its total assets in the securities (other than U.S. Government
securities and repurchase agreements collateralized by such securities) of
issuers in any one industry. These restrictions do not apply to investments by
the International Equity Index Portfolio in securities of other investment
companies. In addition, each Portfolio may borrow money from banks for
temporary or emergency purposes or to meet redemption requests, provided that
the Portfolio maintains asset coverage of at least 300% for all such
borrowings.
As a non-fundamental investment restriction that can be changed without
unitholder approval, the International Bond Portfolio may not, at the end of
any tax quarter, invest more than 5% of the total value of its assets in the
securities of any one issuer (except U.S. Government securities), except that
up to 50% of the total value of the Portfolio's assets may be invested in any
securities without regard to this 5% limitation so long as no more than 25% of
the total value of its assets is invested in the securities of any one issuer
(except U.S. Government securities).
TRUST INFORMATION
BOARD OF TRUSTEES
The business and affairs of the Trust and each Portfolio are managed under the
direction of the Trust's Board of Trustees. The Additional Statement contains
the name of each Trustee and background information regarding the Trustees.
INVESTMENT ADVISER, TRANSFER AGENT AND CUSTODIAN
Northern, which has offices at 50 S. LaSalle Street, Chicago, Illinois 60675,
serves as investment adviser, transfer agent and custodian for each Portfolio.
As transfer agent, Northern performs various administrative servicing
functions, and any unitholder inquiries should be directed to it.
42
<PAGE>
Northern, a member of the Federal Reserve System, is an Illinois state-
chartered commercial bank and the principal subsidiary of Northern Trust
Corporation, a bank holding company. Northern was formed in 1889 with
capitalization of $1 million. As of December 31, 1996, Northern Trust
Corporation and its subsidiaries had approximately $21.6 billion in assets,
$13.8 billion in deposits and employed over 6,900 persons.
Northern administered in various capacities (including as master trustee,
investment manager or custodian) approximately $778.9 billion of assets as of
December 31, 1996, including approximately $130.3 billion of assets for which
Northern had investment management responsibility.
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 the Portfolios and placing purchase and sale orders
for portfolio securities. Northern is also responsible for monitoring and
preserving the records required to be maintained under the regulations of the
SEC (with certain exceptions unrelated to its activities for the Trust). As
compensation for its advisory services and its assumption of related expenses,
Northern is entitled to a fee, computed daily and payable monthly, at annual
rates set forth in the table below (expressed as a percentage of the
Portfolio's respective average daily net assets). The table also reflects the
advisory fees (after voluntary fee waivers) paid by the Portfolios for the
fiscal year ended November 30, 1996.
<TABLE>
<CAPTION>
MAXIMUM
ANNUAL ADVISORY FEE PAID
ADVISORY FOR FISCAL YEAR
FEE ENDED 11/30/96
-------- -----------------
<S> <C> <C>
U.S. Government Securities Portfolio.............. .60% .25%
Short-Intermediate Bond Portfolio................. .60% .25%
U.S. Treasury Index Portfolio..................... .40% .15%
Bond Portfolio.................................... .60% .25%
International Bond Portfolio...................... .90% .70%
Balanced Portfolio................................ .80% .50%
Equity Index Portfolio............................ .30% .10%
Diversified Growth Portfolio...................... .80% .55%
Focused Growth Portfolio.......................... 1.10% .80%
Small Company Index Portfolio..................... .40% .20%
International Equity Index Portfolio*............. .50% N/A
International Growth Portfolio.................... 1.00% .80%
</TABLE>
- --------
* In addition, Northern has voluntarily agreed to reduce its advisory fee for
the International Equity Index Portfolio to .25% of the Portfolio's average
daily net assets for the current fiscal year.
The difference between the stated advisory fee and the actual advisory fees
paid by the Portfolios reflects the fact that Northern did not charge the full
amount of the advisory fees to which it would have been entitled.
43
<PAGE>
PORTFOLIO MANAGERS
The table below sets forth information on the persons primarily responsible
for the day-to-day management of the following Portfolios:
<TABLE>
<CAPTION>
YEARS PRIMARILY FIVE YEAR
NAME AND TITLE PORTFOLIO RESPONSIBLE EMPLOYMENT HISTORY
- --------------------- -------------------------- --------------- ------------------
<S> <C> <C> <C>
Jon D. Brorson Balanced Since 1996 Mr. Brorson joined Northern
Vice President Diversified Growth in 1996. He was with
Focused Growth Hartline Investment Corp.
since 1990.
Andrew C. Buchner International Equity Index Since 1997 Mr. Buchner joined Northern
Investment Officer Small Company Index Since 1996 in 1992.
Susan M. French Equity Index Since 1996 Ms. French joined Northern
Vice President in 1986.
Robert A. LaFleur International Growth Since 1994 Mr. LaFleur joined Northern
Senior Vice President in 1982.
Michael J. Lannan International Bond Since 1994 Mr. Lannan joined Northern
Vice President in 1986.
Monty M. Memler Balanced Since 1993 Mr. Memler joined Northern
Vice President in 1986.
Steven Schafer U.S. Government Securities Since 1995 Mr. Schafer joined Northern
Second Vice President in 1988.
Richard Steck U.S. Treasury Index Since 1993 Mr. Steck joined Northern in
Vice President August 1985.
Mark J. Wirth Short-Intermediate Bond Since 1993 Mr. Wirth joined Northern in
Vice President Bond Since 1993 1986.
</TABLE>
Northern also receives compensation as the Trust's custodian and transfer
agent under separate agreements. The fees payable by the Portfolios for these
services are described in this Prospectus under "Summary of Expenses" and in
the Additional Statement. Different transfer agency fees are payable with
respect to the Class A, B, C and D units in the Portfolios.
ADMINISTRATOR AND DISTRIBUTOR
Goldman Sachs, 85 Broad Street, New York, New York 10004, acts as
administrator and distributor for the Portfolios. As compensation for its
administrative services (which include supervision with respect to the Trust's
non-investment advisory operations) and the assumption of related expenses,
Goldman Sachs is entitled to a fee from each Portfolio, computed daily and
payable monthly, at an annual 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. No
compensation is payable by the Trust to Goldman Sachs for its distribution
services.
Goldman Sachs has voluntarily agreed to reduce its administration fee to .10%
of each Portfolio's average daily net assets. In addition, Goldman Sachs has
voluntarily agreed that if, for the current fiscal year, the sum of a
Portfolio's expenses (including the fees payable to Goldman Sachs as
administrator, but excluding the fees
44
<PAGE>
payable to Northern for its duties as investment adviser and transfer agent,
servicing fees and extraordinary expenses, such as litigation, interest, taxes
and indemnification expenses) exceeds on an annualized basis .25% of each of
the International Bond, International Growth and International Equity Index
Portfolios' average daily net assets and .10% of each other Portfolio's
average daily net assets, it will waive a portion of its fees and/or reimburse
such Portfolio for the amount of the excess. In addition, as stated under
"Summary of Expenses," Northern intends to voluntarily reduce its advisory fee
for the U.S. Government Securities, Short-Intermediate Bond, U.S. Treasury
Index, Bond, International Bond, Balanced, Equity Index, Diversified Growth,
Focused Growth, Small Company Index, International Equity Index and
International Growth Portfolios during the Trust's current fiscal year. The
result of these reimbursements and fee reductions will be to increase the
performance of the Portfolios during the periods for which the reimbursements
and reductions are made.
UNITHOLDER SERVICING PLAN
Pursuant to a Unitholder Servicing Plan ("Servicing Plan") adopted by the
Board of Trustees of the Trust, the Trust may enter into agreements
("Servicing Agreements") with banks, corporations, brokers, dealers and other
financial institutions which may include Northern and its affiliates
("Servicing Agents"), under which they will render (or arrange for the
rendering of) administrative support services for investors who beneficially
own Class B, C and D units of each Portfolio. Beneficial owners of Class C and
D units require extensive administrative support services while beneficial
owners of Class B units need only some of these services. Administrative
support services, which are described more fully in the Additional Statement,
may include processing purchase and redemption requests from investors,
placing net purchase and redemption orders with Northern acting as the Trust's
transfer agent, providing necessary personnel and facilities to establish and
maintain investor accounts and records, and providing information periodically
to investors showing their positions in Portfolio units.
For these services, fees are payable by the Trust to Servicing Agents at an
annual rate of up to .10%, .15% and .25% of the average daily net asset value
of Class B units, Class C units and Class D units, respectively, held or
serviced by such Servicing Agents for beneficial unitholders ("Servicing
Fees"). Servicing Agents are required to provide investors with a schedule of
any credits, fees or other conditions that may be applicable to the investment
of their assets in Portfolio units.
Conflict of interest restrictions may apply to the receipt of compensation
paid by the Trust to a Servicing Agent in connection with the investment of
fiduciary funds in Portfolio units. Banks and other institutions regulated by
the Office of Comptroller of the Currency, Board of Governors of the Federal
Reserve System and state banking commissions, and investment advisers and
other money managers subject to the jurisdiction of the SEC, the Department of
Labor or state securities commissions, are urged to consult legal counsel
before entering into Servicing Agreements.
SERVICE INFORMATION
Class A units are designed to be purchased by institutional investors or
others who can obtain information about their unitholder accounts and who do
not require the Transfer Agent or Servicing Agent services that are provided
for Class B, C and D unitholders.
Class B units are designed to be purchased by organizations maintaining record
ownership on behalf of beneficial owners where certain services of the
Transfer Agent and a Servicing Agent are required that are incident to the
separation of record and beneficial ownership.
45
<PAGE>
Class C units are designed to be purchased by institutional investors who
require certain account related services of the Transfer Agent and a Servicing
Agent that are incident to the investor being the beneficial owner of units.
Class D units are designed to be purchased by investors having a relationship
with an organization which requires that account related services and
information be provided to the investor and organization by the Transfer Agent
and a Servicing Agent.
Any person entitled to receive compensation for selling or servicing units of
a Portfolio may receive different compensation with respect to one particular
class of units over another in the same Portfolio.
EXPENSES
Except as set forth above and in the Additional Statement under "Additional
Trust Information," 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, fees
for the registration or qualification of Portfolio units under Federal or
state securities laws, expenses of the organization of the Portfolio, 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 and auditing fees and expenses, Servicing Fees,
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 of industry
organizations such as the Investment Company Institute, miscellaneous expenses
and extraordinary expenses incurred by the Trust.
INVESTING
PURCHASE OF UNITS
Units of the Portfolios are sold on a continuous basis by the Trust's
distributor, Goldman Sachs, to institutional investors that either maintain
certain qualified accounts at Northern or its affiliates or invest an
aggregate of at least $5 million in one or more Portfolios of the Trust.
Goldman Sachs has established several procedures for purchasing Portfolio
units in order to accommodate different types of institutional investors.
PURCHASE OF UNITS THROUGH QUALIFIED ACCOUNTS. Class A, B, C and D units of
each Portfolio are offered to Northern, its affiliates and other institutions
and organizations (the "Institutions") acting on behalf of their customers,
clients, employees and others (the "Customers") and for their own account.
Institutions may purchase units of a Portfolio through procedures established
in connection with the requirements of their qualified accounts or through
procedures set forth herein with respect to Institutions that invest directly.
Institutions should contact Northern or an affiliate for further information
regarding purchases through qualified accounts. There is no minimum initial
investment for Institutions that maintain qualified accounts with Northern or
its affiliates.
PURCHASE OF UNITS DIRECTLY FROM THE TRUST. An Institution that purchases units
directly may do so by means of one of the following procedures, provided that
it makes an aggregate minimum initial investment of $5 million in one or more
Portfolios of the Trust:
46
<PAGE>
PURCHASE BY MAIL. An Institution desiring to purchase units of a Portfolio
by mail should mail a check or Federal Reserve draft payable to the
specific Portfolio together with a completed and signed new account
application to The Benchmark Funds, c/o The Northern Trust Company, P.O.
Box 75943, Chicago, Illinois 60675-5943. An application will be incomplete
if it does not include a corporate resolution with the corporate seal and
secretary's certification within the preceding 30 days, or other acceptable
evidence of authority. If an Institution desires to purchase the units of
more than one Portfolio, the Institution should send a separate check for
each Portfolio. All checks must be payable in U.S. dollars and drawn on a
bank located in the United States. A $20 charge will be imposed if a check
does not clear. The Trust may delay transmittal of redemption proceeds for
units recently purchased by check until such time as it has assured itself
that good funds have been collected for the purchase of such units. This
may take up to fifteen (15) days. Cash and third party checks are not
acceptable for the purchase of Trust units.
PURCHASE BY TELEPHONE. An Institution desiring to purchase units of a
Portfolio by telephone should call Northern acting as the Trust's transfer
agent ("Transfer Agent") at 1-800-637-1380. Please be prepared to identify
the name of the Portfolio with respect to which units are to be purchased
and the manner of payment. Please indicate whether a new account is being
established or an additional payment is being made to an existing account.
If an additional payment is being made to an existing account, please
provide the Institution's name and Portfolio Account Number. Purchase
orders are effected upon receipt by the Transfer Agent of Federal funds or
other immediately available funds in accordance with the terms set forth
below.
PURCHASE BY WIRE OR ACH TRANSFER. An Institution desiring to purchase units
of a Portfolio by wire or ACH Transfer should call the Transfer Agent at 1-
800-637-1380 for instructions if it is not making an additional payment to
an existing account. An Institution that wishes to add to an existing
account should wire Federal funds or effect an ACH Transfer to:
The Northern Trust Company
Chicago, Illinois
ABA Routing No. 0710-00152
(Reference 10 Digit Portfolio Account Number)
(Reference Unitholder's Name)
For more information concerning requirements for the purchase of units,
call the Transfer Agent at 1-800-637-1380.
EFFECTIVE TIME OF PURCHASES. A purchase order for Portfolio units received by
the Transfer Agent by 3:00 p.m., Chicago time, on a Business Day (as defined
under "Miscellaneous") will be effected on that Business Day at the net asset
value determined on that day with respect to each Portfolio (other than the
Small Company Index and International Equity Index Portfolios), and at the net
asset value plus an additional transaction fee of .75% and 1.00% of the net
asset value determined on that day with respect to the Small Company Index and
International Equity Index Portfolios, respectively, provided that either: (a)
the Transfer Agent receives the purchase price in Federal funds or other
immediately available funds prior to 3:00 p.m., Chicago time, on the same
Business Day such order is received; or (b) payment is received on the next
Business Day in the form of Federal funds or other immediately available funds
in a qualified account maintained by an Institution with Northern or an
affiliate. Orders received after 3:00 p.m. will be effected at the next
determined net asset value, provided that payment is made as provided herein.
If an Institution accepts a purchase order from a Customer on a non-Business
Day, the order will not be executed until it is received and accepted by the
Transfer Agent on a Business Day in accordance with the foregoing procedures.
47
<PAGE>
MISCELLANEOUS PURCHASE INFORMATION. Units are purchased without a sales charge
imposed by the Trust. The minimum initial investment is $5 million for
Institutions that invest directly in one or more investment portfolios of the
Trust. The Trust reserves the right to waive this minimum and to determine the
manner in which the minimum investment is satisfied. There is no minimum for
subsequent investments.
The Small Company Index and International Equity Index Portfolios require the
payment of an additional transaction fee on purchases of units of the
Portfolios equal to 0.75% and 1.00%, respectively, of the dollar amount
invested. The additional transaction fee is paid to the Portfolios, not to
Goldman Sachs or Northern. It is not a sales charge. The amount applies to
initial investments in the Portfolios and all subsequent purchases (including
purchases made by exchange from the other Portfolios of the Trust), but not to
reinvested dividends or capital gain distributions. The purpose of the
additional transaction fee is to indirectly allocate transaction costs
associated with new purchases to investors making those purchases, thus
protecting existing unitholders. These costs include: (1) brokerage costs; (2)
market impact costs--i.e., the increase in market prices which may result when
the Portfolios purchase thinly traded stocks; and, most importantly, (3) the
effect of the "bid-ask" spread in the over-the-counter market. (Securities in
the over-the-counter market are bought at the "ask" or purchase price, but are
valued in the Portfolios at the last quoted bid price). The additional
transaction fees represent Northern's estimate of the brokerage and other
transaction costs which may be incurred by the Small Company Index and
International Equity Index Portfolios in acquiring stocks of small
capitalization or foreign companies. Without the additional transaction fee,
the Portfolio would generally be selling their units at a price less than the
cost to the Portfolios of acquiring the portfolio securities necessary to
maintain their investment characteristics, thereby resulting in reduced
investment performance for all unitholders in the Portfolios. With the
additional transaction fee, the transaction costs of acquiring additional
stocks are not borne by all existing unitholders, but are defrayed by the
transaction fees paid by those investors making additional purchases of units.
Because these transaction costs do not need to be paid out of the Portfolios'
other assets, the Portfolios are expected to track their designated indices
more closely.
Institutions may impose different minimum investment and other requirements on
Customers purchasing units through them. Depending on the terms governing the
particular account, Institutions may impose account charges such as asset
allocation fees, account maintenance fees, compensating balance requirements
or other charges based upon account transactions, assets or income which will
have the effect of reducing the net return on an investment in a Portfolio. In
addition, certain Institutions may enter into Servicing Agreements with the
Trust whereby they will perform (or arrange to have performed) various
administrative support services for Customers who are the beneficial owners of
Class B, C and D units and receive fees from the Portfolios for such services;
such fees will be borne exclusively by the beneficial owners of Class B, C and
D units, respectively. See "Trust Information--Unitholder Servicing Plan." The
level of administrative support services, as well as transfer agency services,
required by an Institution and its Customers generally will determine whether
they purchase units of Class A, B, C or D. The exercise of voting rights and
the delivery to Customers of unitholder communications from the Trust will be
governed by the Customers' account agreements with the Institutions. Customers
should read this Prospectus in connection with any relevant agreement
describing the services provided by an Institution and any related
requirements and charges, or contact the Institution at which the Customer
maintains its account for further information.
Institutions that purchase units on behalf of Customers are responsible for
transmitting purchase orders to the Transfer Agent and delivering required
funds on a timely basis. An Institution will be responsible for all losses
48
<PAGE>
and expenses of a Portfolio as a result of a check that does not clear, an ACH
transfer that is rejected, or any other failure to make payment in the time
and manner described above, and Northern may redeem units from an account it
maintains to protect the Portfolio and Northern against loss. The Trust
reserves the right to reject any purchase order. Federal regulations require
that the Transfer Agent be furnished with a taxpayer identification number
upon opening or reopening an account. Purchase orders without such a number or
an indication that a number has been applied for will not be accepted. If a
number has been applied for, the number must be provided and certified within
sixty days of the date of the order.
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.
For further information about the terms of such purchases, see the Additional
Statement.
In the interests of economy and convenience, certificates representing units
of the Portfolios are not issued.
Institutions investing in the Portfolios on behalf of their Customers should
note that state securities laws regarding the registration of dealers may
differ from the interpretations of Federal law and such Institutions may be
required to register as dealers pursuant to state law.
Northern may, at its own expense, provide compensation to certain dealers
whose customers purchase significant amounts of units of the Trust. The amount
of such compensation may be made on a one-time and/or periodic basis, and may
represent all or a portion of the annual fees that are earned by Northern as
investment adviser (after adjustments) and are attributable to units held by
such customers. Such compensation will not represent an additional expense to
the Trust or its unitholders, since it will be paid from assets of Northern or
its affiliates.
REDEMPTION OF UNITS
REDEMPTION OF UNITS THROUGH QUALIFIED ACCOUNTS. Institutions may redeem units
of a class through procedures established by Northern and its affiliates in
connection with the requirements of their qualified accounts. Institutions
should contact Northern or an affiliate for further information regarding
redemptions through qualified accounts.
REDEMPTION OF UNITS DIRECTLY. Institutions that purchase units directly from
the Trust through the Transfer Agent may redeem all or part of their Portfolio
units in accordance with procedures set forth below.
REDEMPTION BY MAIL. An Institution may redeem units by sending a written
request to The Benchmark Funds, c/o The Northern Trust Company, P.O. Box
75943, Chicago, Illinois 60675-5943. Redemption requests must be signed by
a duly authorized person, and must state the number of units or the dollar
amount to be redeemed and identify the Portfolio Account Number. See "Other
Requirements."
REDEMPTION BY TELEPHONE. An Institution may redeem units by placing a
redemption order by telephone by calling the Transfer Agent at 1-800-637-
1380. During periods of unusual economic or market changes, telephone
redemptions may be difficult to implement. In such event, unitholders
should follow procedures outlined above under "Redemption by Mail."
REDEMPTION BY WIRE. If an Institution has given authorization for expedited
wire redemption, units can be redeemed and the proceeds sent by Federal
wire transfer to a single previously designated bank account. The minimum
amount which may be redeemed by this method is $10,000. The Trust reserves
the right to change or waive this minimum or to terminate the wire
redemption privilege. See "Other Requirements."
49
<PAGE>
TELEPHONE PRIVILEGE. An Institution that has notified the Transfer Agent in
writing of the Institution's election to redeem or exchange units by
placing an order by telephone may do so by calling the Transfer Agent at
1-800-637-1380. Neither the Trust nor its Transfer Agent will be
responsible for the authenticity of instructions received by telephone that
are reasonably believed to be genuine. To the extent that the Trust fails
to use reasonable procedures to verify the genuineness of telephone
instructions, it or its service providers may be liable for such
instructions that prove to be fraudulent or unauthorized. In all other
cases, the unitholder will bear the risk of loss for fraudulent telephone
transactions. However, the Transfer Agent has adopted procedures in an
effort to establish reasonable safeguards against fraudulent telephone
transactions. The proceeds of redemption orders received by telephone will
be sent by check, by wire or by transfer pursuant to proper instructions.
All checks will be made payable to the unitholder of record and mailed only
to the unitholder's address of record. See "Other Requirements."
Additionally, the Transfer Agent utilizes recorded lines for telephone
transactions and retains such tape recordings for six months, and will
request a form of identification if such identification has been furnished
to the Transfer Agent or the Trust.
OTHER REQUIREMENTS. A change of wiring instructions and a change of the
address of record may be effected only by a written request to the Transfer
Agent accompanied by (i) a corporate resolution which evidences authority
to sign on behalf of the Institution (including the corporate seal and
secretary's certification within the preceding 30 days), (ii) a signature
guarantee by a financial institution that is a participant in the Stock
Transfer Agency Medallion Program ("STAMP") in accordance with rules
promulgated by the SEC (a signature notarized by a notary public is not
acceptable) or (iii) such other evidence of authority as may be acceptable
to the Transfer Agent. A redemption request by mail will not be effective
unless signed by a person authorized by the corporate resolution or other
acceptable evidence of authority on file with the Transfer Agent.
EXCHANGE PRIVILEGE. Institutions and, to the extent permitted by their account
agreements, Customers, may, after appropriate prior authorization, exchange
Class A, B, C or D units of a Portfolio having a value of at least $1,000 for
Class A, B, C or D units, respectively, of other portfolios of the Trust as to
which the Institution or Customer maintains an existing account with an
identical title.
Exchanges will be effected by a redemption of Class A, B, C or D units of the
Portfolio held and the purchase of units of the Portfolio acquired. Customers
of Institutions should contact their Institutions for further information
regarding the Trust's exchange privilege and Institutions should contact the
Transfer Agent as appropriate. The Trust reserves the right to modify or
terminate the exchange privilege at any time upon 60 days' written notice to
unitholders and to reject any exchange request. Exchanges are only available
in states where an exchange can legally be made.
EFFECTIVE TIME OF REDEMPTIONS AND EXCHANGES. Redemption orders of Portfolio
units are effected at the net asset value per unit next determined after
receipt in good order by the Transfer Agent. Good order means that the request
includes the following: the account number and Portfolio name; the amount of
the transaction (as specified in dollars or units); and the signature of a
duly authorized person (except for telephone and wire redemptions). See
"Investing--Redemption of Units--Other Requirements." Exchange orders
involving the purchase of units of the Small Company Index Portfolio and
International Equity Index Portfolio are effected at the net asset value per
unit next determined after receipt in good order by the Transfer Agent plus an
additional transaction fee equal to .75% and 1.00%, respectively, of such
value. See "Purchase of Units--Miscellaneous Purchase Information" above.
Exchange orders of the other Portfolios are effected at the net asset value
per unit
50
<PAGE>
next determined after receipt in good order by the Transfer Agent. If received
by Northern with respect to a qualified account it maintains or the Transfer
Agent by 3:00 p.m., Chicago time, on a Business Day, a redemption request
normally will result in proceeds being credited to such account or sent on the
next Business Day. Proceeds for redemption orders received on a non-Business
Day will normally be sent on the second Business Day after receipt in good
order.
MISCELLANEOUS REDEMPTION INFORMATION. All redemption proceeds will be sent by
check unless Northern or the Transfer Agent is directed otherwise. The ACH
system may be utilized for payment of redemption proceeds. Redemption of units
may not be effected if a unitholder has failed to submit a completed and
properly executed (with corporate resolution or other acceptable evidence of
authority) new account application. If units to be redeemed were recently
purchased by check, the Trust may delay transmittal of redemption proceeds
until such time as it has assured itself that good funds have been collected
for the purchase of such units. This may take up to fifteen (15) days. The
Trust reserves the right to defer crediting, sending or wiring redemption
proceeds for up to seven days after receiving the redemption order if, in its
judgment, an earlier payment could adversely affect a Portfolio.
The Trust may require any information reasonably necessary to ensure that a
redemption has been duly authorized.
It is the responsibility of Institutions acting on behalf of Customers to
transmit redemption orders to the Transfer Agent and to credit Customers'
accounts with the redemption proceeds on a timely basis. If a Customer has
agreed with a particular Institution to maintain a minimum balance in his
account at such Institution and the balance in such account falls below that
minimum, such Customer may be obliged to redeem all or part of his units to
the extent necessary to maintain the required minimum balance.
DISTRIBUTIONS
Distributions from a Portfolio's net investment income and annualized capital
gains are made as follows:
<TABLE>
<CAPTION>
INVESTMENT INCOME
DIVIDENDS CAPITAL
------------------- GAINS
DECLARED PAID DISTRIBUTION
--------- --------- ------------
<S> <C> <C> <C>
U.S. Government Securities Portfolio........... Monthly Monthly Annually
Short-Intermediate Bond Portfolio.............. Monthly Monthly Annually
U.S. Treasury Index Portfolio.................. Monthly Monthly Annually
Bond Portfolio................................. Monthly Monthly Annually
International Bond Portfolio................... Quarterly Quarterly Annually
Balanced Portfolio............................. Quarterly Quarterly Annually
Equity Index Portfolio......................... Quarterly Quarterly Annually
Diversified Growth Portfolio................... Annually Annually Annually
Focused Growth Portfolio....................... Annually Annually Annually
Small Company Index Portfolio.................. Annually Annually Annually
International Equity Index Portfolio........... Annually Annually Annually
International Growth Portfolio................. Annually Annually Annually
</TABLE>
Dividends and distributions will reduce a Portfolio's net asset value by the
amount of the dividend or distribution. All dividends and distributions are
automatically reinvested (without any sales charge or additional purchase
51
<PAGE>
price amount) in additional units of the same Portfolio at their net asset
value per unit determined on the payment date. However, a holder may elect,
upon written notification to the Transfer Agent, to have dividends or capital
gain distributions (or both) paid in cash or reinvested in the same class of
units of another Portfolio at their net asset value per unit (plus an
additional purchase price amount equal to .75% and 1.00% of the amount
invested in the case of the Small Company Index Portfolio and International
Equity Index Portfolio, respectively) determined on the payment date (provided
the holder maintains an account in such Portfolio). Unitholders of record must
make such election, or any revocation thereof, in writing to the Transfer
Agent. The election will become effective with respect to dividends paid two
days after its receipt by the Transfer Agent.
Net loss, if any, from certain foreign currency transactions or instruments
that is otherwise taken into account with respect to the International Bond,
International Growth and International Equity Index Portfolios in calculating
net investment income or net realized capital gains for accounting purposes
may not be taken into account in determining the amount of dividends to be
declared and paid, with the result that a portion of the Portfolios' dividends
may be treated as a return of capital, nontaxable to the extent of a
unitholder's tax basis in his units.
Because of the different servicing fees and transfer agency fees payable with
respect to the Class A, B, C and D units in a Portfolio, the amount of such
Portfolio's net investment income available for distribution to the holders of
such units will be effectively reduced by the amount of such fees. See
"Unitholder Service Plan" and "Investment Adviser, Transfer Agent and
Custodian" under the heading "Trust Information" in this Prospectus.
TAXES
Each Portfolio intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). Such qualification
generally will relieve the Portfolios of liability for Federal income taxes to
the extent their earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that each Portfolio distribute to its
unitholders an amount equal to at least 90% of its investment company taxable
income for such year. In general, a Portfolio's investment company taxable
income will be its taxable income, subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Each Portfolio
intends to distribute as dividends substantially all of its investment company
taxable income each year. Such dividends will be taxable as ordinary income to
the Portfolio's unitholders who are not currently exempt from Federal income
taxes whether they are received in cash or reinvested in additional units.
(Federal income taxes for distributions to an IRA or other qualified
retirement plan are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for
corporations to the extent of the total qualifying dividends received by the
distributing Portfolio from domestic corporations for the taxable year. It is
not expected that any Fixed Income Portfolio distributions will qualify for
the dividends received deduction for corporations.
Substantially all of each Portfolio's net realized long-term capital gains
will be distributed at least annually to its unitholders. The Portfolios
generally will have no tax liability with respect to such gains and the
distributions will be taxable to Portfolio unitholders who are not currently
exempt from Federal income taxes as long-term capital gains, regardless of how
long the unitholders have held the units and whether such gains are received
in cash or reinvested in additional units. Unitholders should note that, upon
sale or exchange of Portfolio units, if the unitholder has not held such units
for more than six months, any loss on the sale or exchange of those units
52
<PAGE>
will be treated as long term capital loss to the extent of the capital gain
dividends received with respect to the units.
Dividends declared in October, November or December of any year payable to
unitholders of record on a specified date in such months will be deemed for
Federal tax purposes to have been paid by the Portfolio and received by the
unitholders on December 31 of such year if such dividends are paid during
January of the following year.
An investor considering buying units of a Portfolio on or just before the
record date of a dividend should be aware that the amount of the forthcoming
dividend payment, although in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a unitholder upon the redemption,
transfer or exchange of units of a Portfolio depending upon the tax basis and
their price at the time of redemption, transfer or exchange.
It is expected that dividends and certain interest income earned by the
International Bond, International Growth and International Equity Index
Portfolios from foreign securities will be subject to foreign withholding
taxes or other taxes. So long as more than 50% of the value of the Portfolios'
total assets at the close of any taxable year consists of debt securities,
stock or securities of foreign corporations, the Portfolios may elect, for
Federal income tax purposes, to treat certain foreign taxes paid by them,
including generally any withholding taxes and other foreign income taxes, as
paid by their unitholders. Should the Portfolios make this election, the
amount of such foreign taxes paid by the Portfolios will be included in their
unitholders' income pro rata (in addition to taxable distributions actually
received by them), and such unitholders will be entitled either (a) to credit
their proportionate amounts of such taxes against their Federal income tax
liabilities, or (b) to deduct such proportionate amounts from their Federal
taxable income under certain circumstances.
If the International Bond, International Growth and International Equity Index
Portfolios invest in certain "passive foreign investment companies" ("PFICs"),
they will be subject to Federal income tax (and possibly additional interest
charges) on a portion of any "excess distribution" or gain from the
disposition of such investments, even if they distribute such income to their
unitholders. If a Portfolio elects to treat the PFIC as a "qualified electing
fund" ("QEF") and the PFIC furnishes certain financial information in the
required form, a Portfolio would instead be required to include in income each
year its allocable share of the ordinary earnings and net capital gains of the
QEF, regardless of whether such income is received, and such amounts would be
subject to the various distribution requirements described above. In addition,
a Portfolio may be permitted in the future to elect instead to recognize any
appreciation in the PFIC shares that it owns by marking them to market as of
the last Business Day of each taxable year (and on certain other dates
prescribed in the Code). Again, gain recognized under this "mark-to-market"
approach would be subject to the various distribution requirements described
above, even if no cash is received currently from the PFIC investment.
Unitholders of record will be advised by the Trust at least annually as to the
Federal income tax consequences of distributions made to them each year.
The foregoing discussion summarizes some of the important Federal tax
considerations generally affecting the Portfolios and their unitholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own Federal, state and local tax situation.
53
<PAGE>
NET ASSET VALUE
The net asset value per unit of each Portfolio for purposes of pricing
purchase and redemption orders is calculated by Northern as of 3:00 p.m.,
Chicago Time, on each Business Day. Net asset value per unit of a particular
class in a Portfolio is calculated by dividing the value of all securities and
other assets belonging to a Portfolio that are allocated to such class, less
the liabilities charged to that class, by the number of the outstanding units
of that class.
U.S. and foreign investments held by a Portfolio are valued at the last quoted
sales price on the exchange on which such securities are primarily traded,
except that securities listed on an exchange in the United Kingdom are valued
at the average of the closing bid and ask prices. If any securities listed on
a U.S. securities exchange are not traded on a valuation date, they will be
valued at the last quoted bid price. If securities listed on a foreign
securities exchange are not traded on a valuation date, they will be valued at
the most recent quoted trade price. Securities which are traded in the U.S.
over-the-counter markets are valued at the last quoted bid price. Securities
which are traded in the foreign over-the-counter markets are valued at the
last sales price, except that such securities traded in the United Kingdom are
valued at the average of the closing bid and ask prices. Any securities,
including restricted securities, for which current quotations are not readily
available are valued at fair value as determined in good faith by Northern
under the supervision of the Board of Trustees. Short-term investments are
valued at amortized cost which Northern has determined, pursuant to Board
authorization, approximates market value. Securities may be valued on the
basis of prices provided by independent pricing services when such prices are
believed to reflect the fair market value of such securities.
PERFORMANCE INFORMATION
The performance of a class of units of a Portfolio may be compared to those of
other mutual funds with similar investment objectives and to bond, stock and
other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of
mutual funds. For example, the performance of a class of units may be compared
to data prepared by Lipper Analytical Services, Inc. or other independent
mutual fund reporting services. In addition, the performance of a class may be
compared to the Lehman Brothers Government Bond Index (or its two components,
the Treasury Bond Index and the Agency Bond Index), the Lehman Brothers
Corporate Bond Index, S&P Index, S&P/Barra Growth Index, the Russell Index,
the EAFE Index, the Consumer Price Index or other unmanaged stock and bond
indices, including, but not limited to, the J.P. Morgan Non-U.S. Government
Bond Index, the Dow Jones Industrial Average, a recognized unmanaged index of
common stocks of 30 industry companies listed on the New York Stock Exchange,
and the EAFE Index. Performance data as reported in national financial
publications such as Money Magazine, Morningstar, Forbes, Barron's, The Wall
Street Journal and The New York Times, or in publications of a local or
regional nature, may also be used in comparing the performance of a class of
units of a Portfolio.
The Portfolios calculate their total returns for each class of units on an
"average annual total return" basis for various periods from the dates the
respective Portfolios commenced investment operations and for other periods as
permitted under the rules of the SEC. Average annual total return reflects the
average annual percentage change in value of an investment in the class over
the measuring period. Total returns for each class of units may also be
calculated on an "aggregate total return" basis for various periods. Aggregate
total return reflects the total percentage change in value over the measuring
period. Both methods of calculating total return reflect
54
<PAGE>
changes in the price of the units and assume that any dividends and capital
gain distributions made by the Portfolio with respect to a class during the
period are reinvested in the units of that class. When considering average
total return figures for periods longer than one year, it is important to note
that the annual total return of a class for any one year in the period might
have been more or less than the average for the entire period. The Portfolios
may also advertise from time to time the total return of one or more classes
of units on a year-by-year or other basis for various specified periods by
means of quotations, charts, graphs or schedules.
The yield of a class of units in the Fixed Income Portfolios and the Balanced
Portfolio is computed based on the net income of such class during a 30-day
(or one month) period (which period will be identified in connection with the
particular yield quotation). More specifically, a Portfolio's yield for a
class of units is computed by dividing the per unit net income for the class
during a 30-day (or one month) period by the net asset value per unit on the
last day of the period and annualizing the result on a semi-annual basis.
The Small Company Index and International Equity Index Portfolios may
advertise total return data without reflecting the .75% and 1.00% portfolio
transaction fee, respectively, if, in accordance with the rules of the SEC,
they are accompanied by average annual total return data reflecting this fee.
Quotations which do not reflect the fee will, of course, be higher than
quotations which do.
Because of the different servicing fees and transfer agency fees payable with
respect to the Class A, B, C and D units in a Portfolio, the performance of
such units will be effectively reduced by the amount of such fees. For
example, because Class A units bear the lowest servicing and transfer agency
fees, the return of Class A units will be more than the return of other
classes of units of the same Portfolio. See "Unitholder Servicing Plan" and
"Investment Adviser, Transfer Agent and Custodian" under the heading "Trust
Information" in this Prospectus.
The performance of each class of units of the Portfolios is based on
historical earnings, will fluctuate and is not intended to indicate future
performance. The investment return and principal value of an investment in a
class will fluctuate so that a unitholder's units, when redeemed, may be worth
more or less than their original cost. Performance data may not provide a
basis for comparison with bank deposits and other investments which provide a
fixed yield for a stated period of time. Total return data should also be
considered in light of the risks associated with a Portfolio's composition,
quality, maturity, operating expenses and market conditions. Any fees charged
by Institutions directly to their Customer accounts in connection with
investments in a Portfolio will not be included in calculations of performance
data.
ORGANIZATION
The Trust was formed as a Massachusetts business trust on July 15, 1982 under
an Agreement and Declaration of Trust (the "Trust Agreement"). The Trust
Agreement permits the Board of Trustees to issue an unlimited number of units
of beneficial interest of one or more separate series representing interests
in one or more investment portfolios. As of the date of this Prospectus, the
Trust offers seventeen separate series of units of beneficial interest
representing interests in seventeen investment portfolios, twelve of which are
described in this Prospectus; the other series of units are described in
separate prospectuses. The Trust Agreement further permits the Board of
Trustees to classify or reclassify any unissued units into additional series
or subseries within a series. Pursuant to such authority, the Board of
Trustees has classified four subseries (sometimes referred to as "Classes") of
units in each Portfolio: the Class A units, Class B units, Class C units and
Class D units. Each unit of a Portfolio is without par value, represents an
equal proportionate interest in that Portfolio with each other
55
<PAGE>
unit of its class in that Portfolio and is entitled to such dividends and
distributions earned on such Portfolio's assets as are declared in the
discretion of the Board of Trustees.
The Trust's unitholders are entitled to one vote for each full unit held and
proportionate fractional votes for fractional units held. Each series entitled
to vote on a matter will vote thereon in the aggregate and not by series,
except as otherwise required by law or when the matter to be voted on affects
only the interests of unitholders of a particular series. The Additional
Statement gives examples of situations in which the law requires voting by
series. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate units of the Trust may elect all of the Trustees
irrespective of the vote of the other unitholders. In addition, holders of
each of the Class A, B, C and D units representing interests in the same
Portfolio have equal voting rights except that only units of a particular
class within the Portfolio will be entitled to vote on matters submitted to a
vote of unitholders (if any) relating to unitholder servicing expenses and
transfer agency fees that are payable by that class.
As of March 1, 1997, Northern possessed sold or shared voting or investment
power for its customer accounts with respect to more than 50% of the
outstanding units of the Trust.
The Trust does not presently intend to hold annual meetings of unitholders
except as required by the 1940 Act or other applicable law. Pursuant to the
Trust Agreement, the Trustees will promptly call a meeting of unitholders to
vote upon the removal of any Trustee when so requested in writing by the
record holders of 10% or more of the outstanding units. To the extent required
by law, the Trust will assist in unitholder communications in connection with
such a meeting.
The Trust Agreement provides that each unitholder, by virtue of becoming such,
will be held to have expressly assented and agreed to the terms of the Trust
Agreement and to have become a party thereto.
MISCELLANEOUS
The address of the Trust is 4900 Sears Tower, Chicago, Illinois 60606 and the
telephone number is (800) 621-2550.
As used in this Prospectus, the term "Business Day" refers to each day when
Northern and the New York Stock Exchange are open, which is Monday through
Friday, except for holidays observed by Northern and/or the Exchange. For 1997
the holidays of Northern and/or the Exchange are: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving and Christmas Day.
On those days when Northern or the Exchange closes early as a result of
unusual weather or other circumstances, the right is reserved to advance the
time on that day by which purchase and redemption requests must be received.
In addition, on any Business Day when the Public Securities Association (PSA)
recommends that the securities markets close early, the Portfolios
reserve the right to cease or to advance the deadline for accepting purchase
and redemption orders for same Business Day credit up to one hour before the
PSA recommended closing time. Purchase and redemption requests received after
the advanced closing time will be effected on the next Business Day.
---------------------
The U.S. Treasury Index Portfolio is not sponsored, endorsed, sold or promoted
by Lehman, nor does Lehman guarantee the accuracy and/or completeness of the
Lehman Index or any data included therein. Lehman makes no warranty, express
or implied, as to the results to be obtained by the Portfolio, owners of the
Portfolio, any
56
<PAGE>
person or any entity from the use of the Lehman Index or any data included
therein. Lehman makes no express or implied warranties and expressly disclaims
all such warranties of merchantability or fitness for a particular purpose or
use with respect to the Lehman Index or any data included therein.
---------------------
The Equity Index Portfolio is not sponsored, endorsed, sold or promoted by
S&P, nor does S&P guarantee the accuracy and/or completeness of the S&P Index
or any data included therein. S&P makes no warranty, express or implied, as to
the results to be obtained by the Portfolio, owners of the Portfolio, any
person or any entity from the use of the S&P Index or any data included
therein. S&P makes no express or implied warranties and expressly disclaims
all such warranties of merchantability or fitness for a particular purpose for
use with respect to the S&P Index or any data included therein.
---------------------
The International Equity Index Portfolio is not sponsored, endorsed, sold or
promoted by MSCI, nor does MSCI guarantee the accuracy and/or completeness of
the EAFE Index or any data included therein. MSCI makes no warranty, express
or implied, as to the results to be obtained by the Portfolio, owners of the
Portfolio, any person or any entity from the use of the EAFE Index or any data
included therein. MSCI makes no express or implied warranties and expressly
disclaims all such warranties of merchantability or fitness for a particular
purpose for use with respect to the EAFE Index or any data included therein.
---------------------
The Small Company Index Portfolio is not sponsored, endorsed, sold or promoted
by Russell, nor does Russell guarantee the accuracy and/or completeness of the
Russell Index or any data included therein. Russell makes no warranty, express
or implied, as to the results to be obtained by the Portfolio, owners of the
Portfolio, any person or any entity from the use of the Russell Index or any
data included therein. Russell makes no express or implied warranties and
expressly disclaims all such warranties of merchantability or fitness for a
particular purpose for use with respect to the Russell Index or any data
included therein.
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS 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. THIS 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.
57
<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
The
Benchmark
Funds
The
Short
Duration
Portfolio
PROSPECTUS
APRIL 1, 1997
<PAGE>
THE BENCHMARK FUNDS
(Advised by The Northern Trust Company)
-------------------
THE NORTHERN TRUST COMPANY INVESTMENT ADVISER, TRANSFER AGENT AND
50 S. LaSalle Street CUSTODIAN
Chicago, Illinois 60675
312-630-6000
This Prospectus describes the Short Duration Portfolio (the "Portfolio")
offered by The Benchmark Funds (the "Trust") to institutional investors. The
Short Duration Portfolio seeks a high level of total return through active
management techniques while preserving capital and maintaining liquidity by
investing in a broad range of investment grade, fixed income instruments and
maintaining a maximum dollar-weighted average maturity of 12 months.
The Portfolio is advised by The Northern Trust Company ("Northern"). Units of
the Portfolio are sold and redeemed without any purchase or redemption charge
imposed by the Trust, although Northern and other institutions may charge
their customers for services provided in connection with their investments.
This Prospectus provides information about the Portfolio that you should know
before investing. It should be read and retained for future reference. If you
would like more detailed information, a Statement of Additional Information
(the "Additional Statement") dated April 1, 1997, is available upon request
without charge by writing to the Trust's distributor, Goldman, Sachs & Co.
("Goldman Sachs"), 4900 Sears Tower, Chicago, Illinois 60606 or by calling
1-800-621-2550.
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. INVESTMENT IN THE PORTFOLIO
INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is April 1, 1997.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES 3
- -------------------
FINANCIAL HIGHLIGHTS 4
- --------------------
INVESTMENT INFORMATION 5
- ----------------------
Introduction 5
Special Risks and Other Considera-
tions 6
Description of Securities and
Investment Techniques 7
Investment Restrictions 16
TRUST INFORMATION 17
- -----------------
Board of Trustees 17
Investment Adviser, Transfer Agent
and Custodian 17
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Portfolio Managers 17
Administrator and Distributor 18
INVESTING 19
- ---------
Purchase of Units 19
Redemption of Units 21
Distributions 23
Taxes 23
NET ASSET VALUE 24
- ---------------
PERFORMANCE INFORMATION 25
- -----------------------
ORGANIZATION 26
- ------------
MISCELLANEOUS 27
- -------------
</TABLE>
2
<PAGE>
SUMMARY OF EXPENSES
The following table sets forth certain information regarding the unitholder
transaction expenses imposed by the Trust and the annualized operating
expenses the Portfolio incurred during the Trust's last fiscal year.
Hypothetical examples based on the table are also shown.
<TABLE>
<CAPTION>
SHORT DURATION
PORTFOLIO
--------------
<S> <C>
Unitholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases..................... None
Deferred Sales Charge Imposed on Reinvested Distributions..... None
Deferred Sales Charge Imposed on Redemptions.................. None
Redemption Fees............................................... None
Exchange Fees................................................. None
Annual Operating Expenses After Expense Reimbursements and Fee
Reductions (as a percentage of average daily net assets).
Management Fees After Fee Reductions(1)....................... .15%
12b-1 Fees.................................................... None
Other Expenses After Expense Reimbursements and Fee
Reductions(2)................................................ .10%
----
Total Operating Expenses(1,2)............................... .25%
====
Example of Expenses. Based on the foregoing table, you would
pay the following expenses on a hypothetical $1,000
investment, assuming a 5% annual return and redemption at the
end of each time period:
One Year...................................................... $3
Three Years................................................... $8
Five Years.................................................... $14
Ten Years..................................................... $32
</TABLE>
- ----------
(1) For the fiscal year ended November 30, 1996, Northern voluntarily reduced
its advisory fee for the Short Duration Portfolio to .15% of the
Portfolio's average daily net assets (advisory fees are otherwise payable
at the annual rate of .40% of the Portfolio's average daily net assets).
Goldman Sachs has voluntarily agreed to reimburse expenses for the
Portfolio to the extent that, in any fiscal year, the sum of the
Portfolio's expenses (including the fees payable to Goldman Sachs as
administrator, but excluding the fees payable to Northern for its duties
as adviser and certain other expenses) exceeds on an annualized basis .10%
of the Portfolio's average daily net assets for such fiscal year. The
expense information in the table has, accordingly, been presented to
reflect these fee reductions and reimbursements.
(2) Without the undertakings of Northern and Goldman Sachs, to voluntarily
reduce the Portfolio's advisory fees and other expenses, respectively, for
the fiscal year ended November 30, 1996, "Other Expenses" in the foregoing
table would have been .41% and the total operating expenses would have
been .81%.
THE PURPOSE OF THE FOREGOING TABLE IS TO ASSIST YOU IN UNDERSTANDING THE
VARIOUS UNITHOLDER TRANSACTION AND OPERATING EXPENSES OF THE PORTFOLIO THAT
UNITHOLDERS BEAR DIRECTLY OR INDIRECTLY. IT DOES NOT, HOWEVER, REFLECT ANY
CHARGES WHICH MAY BE IMPOSED BY NORTHERN, ITS AFFILIATES AND CORRESPONDENT
BANKS AND OTHER INSTITUTIONS ON THEIR CUSTOMERS AS DESCRIBED UNDER
"INVESTING--PURCHASE OF UNITS." THE EXAMPLE SHOWN ABOVE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RATE OF RETURN.
ACTUAL EXPENSES AND RATE OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following data have been audited by Ernst & Young LLP, independent
auditors, as indicated in their report incorporated by reference into the
Additional Statement from the annual report to unitholders for the fiscal year
ended November 30, 1996 (the "Annual Report"), and should be read in
conjunction with the financial statements and related notes incorporated by
reference and attached to the Additional Statement. The Annual Report also
contains additional performance information and is available upon request and
without charge by calling the telephone number or writing to the address on
the first page of this Prospectus.
For the Years Ended November 30,
<TABLE>
<CAPTION>
SHORT DURATION PORTFOLIO
-------------------------------------
1996 1995 1994 1993 (a)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.99 $ 9.97 $ 10.03 $ 10.00
Income (loss) from investment opera-
tions:
Net investment income 0.53 0.59 0.40 0.14
Net realized and unrealized gain (loss)
on
investments and foreign currency
transactions -- 0.01 (0.05) 0.03
- -------------------------------------------------------------------------------
Total income from investment operations 0.53 0.60 0.35 0.17
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO UNITHOLDERS FROM:
Net investment income (0.53) (0.58) (0.40) (0.14)
Net realized gain on investments -- -- (0.01) --
- -------------------------------------------------------------------------------
Total distributions to unitholders (0.53) (0.58) (0.41) (0.14)
- -------------------------------------------------------------------------------
Net increase (decrease) -- 0.02 (0.06) 0.03
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.99 $ 9.99 $ 9.97 $ 10.03
- -------------------------------------------------------------------------------
Total return (b) 5.45% 6.14% 3.64% 1.73%
Ratio to average net assets of (c):
Expenses, net of waivers and reimburse-
ments 0.25% 0.25% 0.25% 0.32%
Expenses, before waivers and
reimbursements 0.81% 0.80% 0.77% 0.50%
Net investment income, net of waivers
and reimbursements 5.30% 5.80% 3.93% 3.00%
Net investment income, before waivers
and reimbursements 4.74% 5.25% 3.41% 2.82%
Portfolio turnover rate 828.58% 1,272.21% 1,364.00% 434.32%
Net assets at end of period (in thou-
sands) $41,813 $ 45,473 $ 89,803 $186,765
- -------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on June 2, 1993.
(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. Total
return is not annualized for periods less than one year.
(c) Annualized for periods less than a full year.
4
<PAGE>
INVESTMENT INFORMATION
INTRODUCTION
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Portfolio consists of a
separate pool of assets with the investment objective and policies described
below. The Portfolio is classified as a diversified investment company.
Northern serves as investment adviser, transfer agent and custodian. Goldman
Sachs serves as distributor and administrator. The investment objective of the
Portfolio may not be changed without the vote of the majority of the
outstanding units of the Portfolio. Except as expressly noted below, however,
the Portfolio's investment policies may be changed without a vote of
unitholders.
In pursuing its objective, the Short Duration Portfolio invests in a broad
range of fixed income instruments and seeks capital appreciation from
increases that may occur in the market price of such instruments. Although
there are no maturity limitations with respect to individual instruments
acquired by the Portfolio, the Portfolio's dollar-weighted average portfolio
maturity will not exceed twelve months and the Portfolio's maximum duration
will be twelve months. The Portfolio will invest primarily in fixed income
securities of all types and in any proportion that are rated investment grade
at the time of purchase.
The Portfolio is designed for investors who seek higher returns than those
typically offered by money market funds and who are willing to accept a
variable unit value to achieve that objective. Because the Portfolio is not a
money market fund which seeks to maintain a stable net asset value, the unit
value of the Portfolio will fluctuate so that units, when redeemed, may be
worth more or less than their original cost. Investors should note that,
consistent with its investment objective, the Portfolio may enter into
repurchase agreements and securities loans, invest in asset-backed securities,
convertible securities, options, futures and interest rate swaps, including
interest rate floors and caps, engage in pair-off transactions and make
limited investments in illiquid securities and securities issued by other
investment companies. The obligations of a foreign issuer will not be
purchased by the Portfolio if, as a result of the purchase, more than 20% of
the total assets of the Portfolio will be invested in the obligations of
issuers within a single foreign country. The Portfolio is also authorized to
enter into reverse repurchase agreements in an aggregate amount not exceeding
one third of its total assets for investment leveraging purposes. These
investment practices involve investment risks of varying degrees, including
the possibility of relatively high transaction costs, the possibility that
management techniques used for the Portfolio will result in losses rather than
additional income, and risks associated with foreign investments and with
compliance with tax requirements applicable to the Portfolio. In general, the
market value of fixed income obligations held by the Portfolio and,
consequently, the Portfolio's net asset value per unit can be expected to vary
inversely to changes in prevailing interest rates. In periods of declining
interest rates, the yield of the Portfolio will tend to be higher than
prevailing market rates and, in periods of rising interest rates, the yield
will tend to be somewhat lower. The Portfolio may also invest in foreign
instruments that are denominated in U.S. dollars. See "Special Risk
Considerations -- Foreign Securities."
The Portfolio expects to experience a very high portfolio turnover rate
because it invests significantly in shorter-term instruments in order to
maintain a dollar-weighted average portfolio maturity that does not exceed
twelve months and because it seeks a high level of total return through active
management techniques. A high rate of
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portfolio turnover involves correspondingly greater brokerage commission
expenses and other transaction costs, which must be borne directly by the
Portfolio and ultimately by its unitholders. High portfolio turnover may
result in the realization of substantial net capital gains; to the extent net
capital gains are realized, distributions resulting from such gains may be
ordinary income for Federal income tax purposes. (See "Investing--Taxes").
The Portfolio's expected high turnover rate could cause the Portfolio to
realize gains in excess of the restrictions imposed by the Internal Revenue
Code of 1986. These restrictions require that less than 30% of the Portfolio's
gross income in each taxable year may be derived from sales or other
dispositions of securities held for less than three months. If this
requirement is not satisfied, the Portfolio would not qualify for the special
Federal tax treatment allowed to a regulated investment company. The Portfolio
intends to monitor its compliance with this requirement.
The Portfolio's duration is a measure of its price sensitivity, including
expected cash flow and mortgage prepayments under a wide range of interest
rate scenarios. The maturity of a security measures only the time until final
payment is due; it does not take into account the pattern of a security's cash
flows over time, including how cash flow is affected by prepayments and by
changes in interest rates. In computing the duration of the Portfolio,
Northern will estimate the duration of obligations that are subject to
prepayment or redemption by the issuer taking into account the influence of
interest rates on prepayments and coupon flows. This method of computing
duration is known as option-adjusted duration. Northern may use the following
techniques to lengthen or shorten the option-adjusted duration of the
Portfolio: the acquisition of debt obligations at a premium or discount;
interest rate swaps; and interest rate futures and options on such futures.
The Portfolio may enter into interest rate swaps and may invest in options and
futures contracts and related options. The Portfolio may also invest in
certain short-term fixed income securities as cash reserves. See "Description
of Securities and Investment Techniques" below for more information.
SPECIAL RISKS AND OTHER CONSIDERATIONS
FOREIGN SECURITIES. The Portfolio may invest directly in U.S. dollar-
denominated securities of foreign issuers. There are certain risks and costs
involved in investing in securities of companies and governments of foreign
nations, which are in addition to the usual risks inherent in U.S.
investments. Foreign securities are sensitive to changes in interest rates and
the interest rate environment. In addition, investment in foreign debt, or the
securities of foreign governments, will subject the Portfolio to risks,
including the risk that foreign governments may default on their obligations,
may not respect the integrity of such debt, may attempt to renegotiate the
debt at a lower rate, and may not honor investments by United States entities
or citizens.
Investment in foreign securities also involves higher costs than investment in
U.S. securities, including higher transaction and custody costs as well as the
imposition of additional taxes by foreign governments. Foreign investments may
also involve risks associated with less complete financial information about
the issuers, less market liquidity, more market volatility and political
instability. Future political and economic developments, the possible
imposition of withholding taxes on dividend income, the possible seizure or
nationalization of foreign holdings, the possible establishment of exchange
controls or freezes on the convertibility of currency, or the adoption of
other governmental restrictions might adversely affect an investment in
foreign securities. Additionally, foreign banks and foreign branches of
domestic banks may be subject to less stringent reserve requirements, and to
different accounting, auditing and recordkeeping requirements.
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In addition, there are other risks of investing in countries with emerging
economies or securities markets. These countries are located in the
Asia/Pacific region, Eastern Europe, Latin and South America and Africa.
Political and economic structures in many such countries may be undergoing
significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristic of more developed
countries. Some of these countries may have in the past failed to recognize
private property rights and may have at times nationalized or expropriated the
assets of private companies. As a result, the risks described above, including
the risks of nationalization or expropriation of assets, may be heightened.
DERIVATIVE INSTRUMENTS. The Portfolio may also purchase certain "derivative"
instruments. "Derivative" instruments are instruments that derive value from
the performance of underlying assets, interest rates or indices, and include
(but are not limited to) interest rate swaps, futures contracts, options and
structured debt obligations (including collateralized mortgage obligations and
other types of asset-backed securities, "stripped" securities and various
floating rate instruments, including "inverse floaters"). Derivative
instruments present, to varying degrees, market risk that the performance of
the underlying assets or indices will decline; credit risk that the dealer or
other counterparty to the transaction will fail to pay its obligations;
volatility and leveraging risk that, if interest rates change adversely, the
value of the derivative instrument will decline more than the assets, rates or
indices on which it is based; liquidity risk that the Portfolio will be unable
to sell a derivative instrument when it wants because of lack of market depth
or market disruption; pricing risk that the value of a derivative instrument
(such as an option) will not correlate exactly to the value of the underlying
assets, rates or indices on which it is based; and operations risk that loss
will occur as a result of inadequate systems and controls, human error or
otherwise. Some derivative instruments are more complex than others, and for
those instruments that have been developed recently, data is lacking regarding
their actual performance over complete market cycles. Northern will evaluate
the risks presented by the derivative instruments purchased by the Portfolio,
and will determine, in connection with its day-to-day management of the
Portfolio, how they will be used in furtherance of the Portfolio's investment
objectives. It is possible, however, that Northern's evaluations will prove to
be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Portfolio will, because of the risks discussed above, incur
loss as a result of its investments in derivative instruments.
AVERAGE MATURITIES. The Portfolio will normally maintain a dollar-weighted
average maturity within the range previously specified. The maturities of
certain instruments, however, such as those subject to prepayment or
redemption by the issuers, are subject to estimation. There can be no
assurance that the estimates used by the Portfolio for such instruments will,
in fact, be accurate or that, if inaccurate, the Portfolio's dollar-weighted
average maturity will remain within the specified limits.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
UNITED STATES GOVERNMENT OBLIGATIONS. The Portfolio may invest, to the extent
consistent with its investment policies, in a variety of U.S. Treasury
obligations consisting of bills, notes and bonds, which principally differ
only in their interest rates, maturities and time of issuance. The Portfolio
may also invest in other securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities consisting of bills, notes and
bonds, which principally differ only in their interest rates, maturities and
time of issuance. Obligations of certain agencies and instrumentalities, such
as the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the discretionary
authority of the U.S.
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Government to purchase the agency's obligations; still others are supported
only by the credit of the instrumentalities. No assurance can be given that
the U.S. Government would provide financial support to its agencies or
instrumentalities if it is not obligated to do so by law. There is no
assurance that these commitments will be undertaken or complied with in the
future.
Securities guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities are deemed to include (a) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or an agency or instrumentality thereof,
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. The secondary market for certain of these
participations is limited. Such participations will therefore be regarded as
illiquid.
CONVERTIBLE SECURITIES. The Portfolio may acquire convertible securities. A
convertible security is a security that may be converted either at a stated
price or rate within a specified period of time into a specified number of
shares of common stock. By investing in convertible securities, the Portfolio
seeks the opportunity, through the conversion feature, to participate in the
capital appreciation of the common stock into which the securities are
convertible, while earning higher current income than is available from the
common stock. Convertible securities acquired by the Portfolio will be subject
to the same rating requirements as the Portfolio's investments in its fixed
income securities, or if unrated, will be of comparable quality as determined
by Northern in accordance with guidelines approved by the Board of Trustees,
except that the Portfolio may acquire convertible securities rated below
investment grade so long as the Portfolio's investments in all non-investment
grade securities do not exceed the limitations set forth below under "Non-
Investment Grade Securities." The Portfolio will ordinarily sell units of
common stock received upon conversion.
INVESTMENT GRADE SECURITIES. The Portfolio may invest in fixed income
securities of all types. Such securities will be investment grade. Investment
grade securities include those securities which are rated BBB or higher by
Standard and Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors
Service, Inc. ("Moody's"), BBB or higher by Duff & Phelps Credit Rating Co.
("Duff") or BBB or higher by Fitch Investors Service, Inc. ("Fitch") at the
time of purchase, or if unrated, are of comparable quality as determined by
Northern. Securities rated BBB by S&P, Duff or Fitch, or Baa by Moody's have
certain speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher rated securities.
Commercial paper and other short-term obligations acquired by the Portfolio
will be rated A-2 or higher by S&P, P-2 or higher by Moody's, D-2 or higher by
Duff, or F-2 or higher by Fitch at the time of purchase or, if unrated,
determined to be of comparable quality by Northern. Subsequent to its purchase
by the Portfolio, a rated security may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Portfolio.
Northern will consider such an event in determining whether the Portfolio
should continue to hold such security.
OPTIONS. The Portfolio may write covered call options, buy put options, buy
call options and write secured put options for hedging purposes or for the
purpose of earning additional income. Such options may relate to particular
securities, foreign or domestic securities indices, or financial instruments
and may or may not be listed on a foreign or domestic securities exchange and
issued by the Options Clearing Corporation. The Portfolio will not purchase
put and call options in an amount that exceeds 5% of its net assets at the
time of purchase. The aggregate value of the Portfolio's assets that will be
subject to options written by the Portfolio will not exceed 25% of its net
assets at the time the option is written.
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In the case of a call option on a security, the option is "covered" if the
Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, liquid assets in such
amount are held in a segregated account by its custodian) upon conversion or
exchange of other securities or instruments held by it. For a call option on
an index, the option is covered if the Portfolio maintains with its custodian
a portfolio of securities substantially replicating the movement of the index,
or liquid assets equal to the contract value. A call option is also covered if
the Portfolio holds a call on the same security or index as the call written
where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written, or (ii) greater than the exercise price of
the call written provided the difference is maintained by the Portfolio in
liquid assets in a segregated account with its custodian. Put options written
by the Portfolio are "secured" if the Portfolio maintains liquid assets in a
segregated account with its custodian in an amount not less than the exercise
price of the option at all times during the option period.
Options trading is a highly specialized activity which entails greater than
ordinary investment risks. A call option for a particular security gives the
purchaser of the option the right to buy, and a writer the obligation to sell,
the underlying security at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price of the security. The
premium paid to the writer is in consideration for undertaking the obligation
under the option contract. A put option for a particular security gives the
purchaser the right to sell the security at the stated exercise price prior to
the expiration date of the option, regardless of the market price of the
security. In contrast to an option on a particular security, an option on an
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option. The amount of this settlement will be equal to
the difference between the closing price of the index at the time of exercise
and the exercise price of the option expressed in dollars, times a specified
multiple.
The Portfolio will invest and trade in unlisted over-the-counter options only
with firms deemed creditworthy by Northern. However, unlisted options are not
subject to the protections afforded purchasers of listed options by the
Options Clearing Corporation, which performs the obligations of its members
which fail to perform them in connection with the purchase or sale of options.
FUTURES CONTRACTS AND RELATED OPTIONS. The Portfolio may invest in futures
contracts and options on futures contracts for hedging purposes, to increase
total return (i.e., for speculative purposes) or to maintain liquidity to meet
potential unitholder redemptions, invest cash balances or dividends or
minimize trading costs. The value of the Portfolio's contracts may equal or
exceed 100% of its total assets, although the Portfolio will not purchase or
sell a futures contract unless immediately after any such transaction the sum
of the aggregate amount of margin deposits on its existing futures positions
and the amount of premiums paid for related options entered into for other
than bona fide hedging purposes is 5% or less of its total assets.
Futures contracts obligate the Portfolio, at maturity, to take or make
delivery of certain domestic or foreign securities or the cash value of a
securities index. When used as a hedge, the Portfolio may sell a futures
contract in order to offset a decrease in the market value of its portfolio
securities that might otherwise result from a market decline. The Portfolio
may do so either to hedge the value of its portfolio of securities as a whole,
or to protect against declines, occurring prior to sales of securities, in the
value of the securities to be sold. Conversely, the Portfolio may purchase a
futures contract in anticipation of purchases of securities. In addition, the
Portfolio may utilize futures contracts as a hedge in anticipation of changes
in the composition of its portfolio holdings.
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The Portfolio may purchase and sell call and put options on futures contracts
traded on a domestic or foreign exchange or board of trade. When the Portfolio
purchases an option on a futures contract, it has the right to assume a
position as a purchaser or seller of a futures contract at a specified
exercise price during the option period. When the Portfolio sells an option on
a futures contract, it becomes obligated to purchase or sell a futures
contract if the option is exercised. In connection with the Portfolio's
position in a futures contract or option thereon, the Portfolio will create a
segregated account of liquid assets, or will otherwise cover its position in
accordance with applicable requirements of the SEC.
The primary risks associated with the use of futures contracts and options
are: (i) imperfect correlation between the change in market value of the
securities held by the Portfolio and the price of futures contracts and
options; (ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures contract when desired;
(iii) losses due to unanticipated market movements which are potentially
unlimited; and (iv) Northern's ability to predict correctly the direction of
securities prices, interest rates and other economic factors. For a further
discussion see "Additional Investment Information--Futures Contracts and
Related Options" and Appendix B in the Additional Statement.
The Portfolio intends to comply with the regulations of the Commodity Futures
Trading Commission exempting the Portfolio from registration as a "commodity
pool operator."
INTEREST RATE SWAPS, FLOORS AND CAPS. The Portfolio may, in order to protect
its value from interest rate fluctuations and to hedge against fluctuations in
the floating rate market, enter into interest rate swaps or purchase interest
rate floors or caps. The Portfolio expects to enter into these hedging
transactions primarily to preserve a return or spread of a particular
investment or portion of its holdings and to protect against an increase in
the price of securities the Portfolio anticipates purchasing at a later date.
Interest rate swaps involve the exchange by the Portfolio with another party
of their respective commitments to pay or receive interest (e.g., an exchange
of floating rate payments for fixed rate payments). The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate floor. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate cap.
The net amount of the excess, if any, of the Portfolio's obligations over its
entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of liquid assets having an aggregate net asset value
at least equal to such accrued excess will be maintained in a segregated
account by the Portfolio's custodian. If the other party to an interest rate
swap defaults, the Portfolio's risk of loss consists of the net amount of
interest payments that the Portfolio is contractually entitled to receive. The
Portfolio will not enter into any interest rate swap, floor or cap transaction
unless the unsecured commercial paper, senior debt, or claims paying ability
of the other party is rated either A or A-1 or better by S&P, Duff or Fitch,
or A or P-1 or better by Moody's.
SECURITIES LENDING. The Portfolio may seek additional income from time to time
by lending its portfolio securities on a short-term basis to banks, brokers
and dealers under agreements requiring that the loans be secured by collateral
in the form of cash, cash equivalents, U.S. Government securities or
irrevocable bank letters of credit maintained on a current basis equal in
value to at least the market value of the securities loaned. The
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Portfolio may not make such loans in excess of 33 1/3% of the value of the
Portfolio's total assets. Loans of securities involve risks of delay in
receiving additional collateral or in recovering the securities loaned, or
possible loss of rights in the collateral should the borrower of the
securities become insolvent. The proceeds received by the Portfolio in
connection with loans of portfolio securities may be invested in U.S.
Government securities and other liquid high grade debt obligations.
FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS.
The Portfolio may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased
on a when-issued, delayed-delivery or forward commitment basis involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. Conversely, securities sold on a delayed-delivery or forward
commitment basis involve the risk that the value of the security to be sold
may increase prior to the settlement date. The Portfolio is required to hold
and maintain liquid assets in a segregated account with the Portfolio's
custodian until the settlement date 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, a Portfolio is required to
hold the portfolio securities themselves in a segregated account with the
custodian while the commitment is outstanding. Although the Portfolio would
generally purchase securities on a when-issued, delayed-delivery or a forward
commitment basis with the intention of acquiring the securities, the Portfolio
may dispose of such securities prior to settlement if Northern deems it
appropriate to do so.
BORROWINGS. The Portfolio is authorized to make limited borrowings for
temporary purposes to the extent described below under "Investment
Restrictions." If the securities held by the Portfolio should decline in value
while borrowings are outstanding, the net asset value of the Portfolio's
outstanding units will decline in value by proportionately more than the
decline in value suffered by the Portfolio's securities. Borrowings may be
effected through reverse repurchase agreements under which the Portfolio would
sell portfolio securities to financial institutions such as banks and broker-
dealers and agree to repurchase them at a particular date and price. The
Portfolio may use the proceeds of reverse repurchase agreements to purchase
other securities either maturing, or under an agreement to resell, at a date
simultaneous with or prior to the expiration of the reverse repurchase
agreement. The Portfolio may utilize reverse repurchase agreements, which may
be viewed as borrowings (or leverage), when it is anticipated that the
interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the reverse repurchase
transaction. Reverse repurchase agreements involve the risks that the interest
income earned in the investment of the proceeds of the transaction will be
less than the interest expense of the reverse repurchase agreement, that the
market value of the securities sold by the Portfolio may decline below the
price of the securities the Portfolio is obligated to repurchase and that the
securities may not be returned to the Portfolio. During the time a reverse
repurchase agreement is outstanding, the Portfolio will maintain a segregated
account with the Trust's custodian containing liquid assets having a value at
least equal to the repurchase price. The Portfolio may enter into reverse
repurchase agreements with banks, brokers and dealers, and does not have the
authority to enter into reverse repurchase agreements exceeding in the
aggregate one-third of the Portfolio's total assets. See "Additional
Investment Information--Investment Restrictions" in the Additional Statement.
SHORT-TERM OBLIGATIONS. The Portfolio may also invest in short-term U.S.
government obligations, high quality money market instruments and repurchase
agreements, pending investment, to meet anticipated redemption requests, or as
a temporary defensive measure. Such obligations may include those issued by
foreign banks and foreign branches of U.S. banks. See "Special Risks and Other
Considerations--Foreign Securities" above.
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REPURCHASE AGREEMENTS. The Portfolio may agree to purchase portfolio
securities from financial institutions such as banks and broker/dealers which
are deemed to be creditworthy by Northern under guidelines approved by the
Board of Trustees subject to the seller's agreement to repurchase them at a
mutually agreed upon date and price ("repurchase agreements"). Although the
securities subject to a repurchase agreement may bear maturities exceeding one
year, settlement for the repurchase agreement will never be more than one year
after the Portfolio's acquisition of the securities and normally will be
within a shorter period of time. Securities subject to repurchase agreements
are held either by the Trust's custodian or subcustodian (if any), or in the
Federal Reserve/Treasury Book-Entry System. The seller under a repurchase
agreement will be required to maintain the value of the securities which are
subject to the agreement and held by the Portfolio in an amount that exceeds
the agreed upon repurchase price (including accrued interest). Default by or
bankruptcy of the seller would, however, expose the Portfolio to possible loss
because of adverse market action or delays in connection with the disposition
of the underlying obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolio may purchase rated and
unrated variable and floating rate instruments. These instruments may include
variable amount master demand notes that permit the indebtedness thereunder to
vary in addition to providing for periodic adjustments in the interest rate.
The Portfolio may also invest in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate on an inverse floater
resets in the opposite direction from the market rate of interest to which the
inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly, the duration of an inverse
floater may exceed its stated final maturity. Unrated variable and floating
rate instruments will be determined by Northern to be of comparable quality at
the time of the purchase to rated instruments which may be purchased by the
Portfolio.
The absence of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for the Portfolio to
dispose of the instruments if the issuer defaulted on its payment obligation
or during periods that the Portfolio is not entitled to exercise its demand
rights, and the Portfolio could, for these or other reasons, suffer a loss
with respect to such instruments. Variable and floating rate instruments
including inverse floaters held by the Portfolio will be subject to the
Portfolio's 15% limitation on illiquid investments when the Portfolio may not
demand payment of the principal amount within seven days absent a reliable
trading market.
INVESTMENT COMPANIES. In connection with the management of its daily cash
positions, the Portfolio may invest in securities issued by other investment
companies which invest in short-term, high-quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. In addition, the Portfolio may invest in
securities issued by other investment companies if otherwise consistent with
its investment objective and policies. As a shareholder of another investment
company, the Portfolio would bear, along with other shareholders, its pro rata
portion of the other investment company's expenses including advisory fees.
These expenses would be in addition to the advisory fees and other expenses
the Portfolio bears directly in connection with its own operations. To the
extent required by the 1940 Act and the regulations and orders of the SEC
thereunder, the Portfolio currently intends to limit its investments in
securities issued by other investment companies so that, as determined
immediately after a purchase is made, not more than 3% of the total
outstanding stock of any investment company will be owned by the Portfolio,
the Trust as a whole and their affiliated persons (as defined in the 1940
Act).
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ILLIQUID OR RESTRICTED SECURITIES. The Portfolio may invest up to 15% of its
net assets in securities which are illiquid. Illiquid securities would
generally include repurchase agreements and time deposits with
notice/termination dates in excess of seven days, unlisted over-the-counter
options and certain securities that are traded in the United States but are
subject to trading restrictions because they are not registered under the
Securities Act of 1933 (the "1933 Act"), interest rate swaps, stripped
mortgage-backed securities ("SMBS") issued by private issuers and guaranteed
investment contracts ("GICs").
The Portfolio may purchase domestically-traded securities which are not
registered under the 1933 Act but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act. Any
such security will not be considered illiquid so long as it is determined by
Northern, under guidelines approved by the Board of Trustees, that an adequate
trading market exists for that security. This investment practice could have
the effect of increasing the level of illiquidity in the Portfolio during any
period that qualified institutional buyers become uninterested in purchasing
these restricted securities.
STRIPPED OBLIGATIONS. To the extent consistent with its investment objective,
the Portfolio may purchase Treasury receipts and other "stripped" securities
that evidence ownership in either the future interest payments or the future
principal payments on U.S. Government and other domestic and foreign
obligations. These participations, which may be issued by the U.S. Government
(or a U.S. Government agency or instrumentality), foreign governments or
private issuers such as banks and other financial institutions, are issued at
a discount to their "face value," and may include SMBS, which are derivative
multi-class mortgage securities. Stripped securities, particularly SMBS, may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors.
CUSTODIAL RECEIPTS FOR TREASURY SECURITIES. The Portfolio may also purchase
participations in trusts that hold U.S. Treasury securities (such as TIGRs and
CATS) where the trust participations evidence ownership in either the future
interest payments or the future principal payments on the U.S. Treasury
obligations. Like other stripped securities, these participations are also
normally issued at a discount to their "face value," and may exhibit greater
price volatility than ordinary debt securities because of the manner in which
their principal and interest are returned to investors. Investments by the
Portfolio in such receipts will not exceed 5% of the value of the Portfolio's
total assets.
CORPORATE OBLIGATIONS. The Portfolio may purchase debt obligations of domestic
or foreign corporations that are rated investment grade by at least one major
rating agency, or if unrated will be of comparable quality as determined by
Northern.
BANK OBLIGATIONS. The Portfolio may invest in domestic and foreign bank
obligations, including certificates of deposit, bank and deposit notes,
bankers' acceptances and fixed time deposits. Such obligations may be general
obligations of the parent bank or may be limited to the issuing branch or
subsidiary by the terms of the specific obligation or by government
regulation. Total assets of a bank are determined on the basis of the bank's
most recent annual financial statements.
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ASSET-BACKED SECURITIES. The Portfolio may purchase asset-backed securities
that are secured or backed by mortgages or other assets (e.g., automobile
loans, credit card receivables and other financial assets) and are issued by
entities such as GNMA, FNMA, FHLMC, commercial banks, financial companies,
finance subsidiaries of industrial companies, savings and loan associations,
mortgage banks, investment banks and certain special purpose entities. Asset-
backed securities acquired by the Portfolio will be rated BBB or better by
S&P, Duff or Fitch, or Baa or better by Moody's at the time of purchase or, if
not rated, will be determined by Northern to be of comparable quality. The
Portfolio will not purchase non-mortgage asset-backed securities that are not
rated by S&P, Duff, Fitch or Moody's.
Presently there are several types of mortgage-backed securities that may be
acquired by the Portfolio, including guaranteed mortgage pass-through
certificates, which provide the holder with a pro rata interest in the
underlying mortgages, and collateralized mortgage obligations ("CMOs"), which
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
ordinarily elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in a variety of ways. The Portfolio will not purchase "residual" CMO
interests, which normally exhibit greater price volatility.
The yield characteristics of asset-backed securities differ from traditional
debt securities. A major difference is that the principal amount of the
obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster
than expected prepayments will increase, while slower than expected
prepayments will decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore,
prepayment rates are influenced by a variety of economic and social factors.
In general, the collateral supporting non-mortgage asset-backed securities is
of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. Like other fixed income securities, when interest
rates rise the value of an asset-backed security generally will decline;
however, when interest rates decline, the value of an asset-backed security
with prepayment features may not increase as much as that of other fixed
income securities.
EXCHANGE RATE-RELATED SECURITIES. The Portfolio may invest in securities for
which the principal repayment at maturity, while paid in U.S. dollars, is
determined by reference to the exchange rate between the U.S. dollar and the
currency of one or more foreign countries ("Exchange Rate-Related
Securities"). The interest payable on these securities is denominated in U.S.
dollars and is not subject to foreign currency risk and, in most cases, is
paid at rates higher than most other similarly rated securities in recognition
of the foreign currency risk component of Exchange Rate-Related Securities.
Investments in Exchange Rate-Related Securities entail certain risks. There is
the possibility of significant changes in rates of exchange between the U.S.
dollar and any foreign currency to which an Exchange Rate-Related Security is
linked. In addition, potential illiquidity in the forward
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foreign exchange market and the high volatility of the foreign exchange market
may from time to time combine to make it difficult to sell an Exchange Rate-
Related Security prior to maturity without incurring a significant price loss.
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make limited investments in
guaranteed investment contracts ("GICs") issued by U.S. insurance companies.
Pursuant to such contracts, the Portfolio makes cash contributions to a
deposit fund of the insurance company's general account. The insurance company
then credits to the Portfolio on a monthly basis interest which is based on an
index (in most cases this index is expected to be the Salomon Brothers CD
Index), but is guaranteed not to be less than a certain minimum rate. A GIC is
normally a general obligation of the issuing insurance company and not a
separate account. The purchase price paid for a GIC becomes part of the
general assets of the insurance company, and the contract is paid from the
company's general assets. The Portfolio will only purchase GICs from insurance
companies which, at the time of purchase, have assets of $1 billion or more
and meet quality and credit standards established by Northern. Generally, GICs
are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Therefore, GICs will normally be considered illiquid instruments, and
will be subject to the Portfolio's limitation on investments in illiquid
securities.
PAIR-OFF TRANSACTIONS. Subject to the requirements of the 1940 Act, the
Portfolio may engage in pair-off transactions involving securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. In a
pair-off transaction Northern will commit to purchase or sell a security.
Then, prior to the settlement date, Northern will "pair-off" the purchase or
sale with a matching sale or purchase of the same security that settles prior
to, or on, the original settlement date. Profits or losses on the pair-off
transaction are settled by the Portfolio's paying or receiving the difference
between the purchase and sale prices from the counterparty in the transaction
(which will be a bank, broker-dealer or other financial institution determined
to be creditworthy by Northern).
A pair-off transaction that involves an initial sale by the Portfolio of a
security that it does not own (or does not have the right to obtain at no
added cost) will be considered a short sale of the security. Until the sale is
paired-off as described above, the Portfolio will maintain on a daily basis a
segregated account containing liquid assets at such a level that (a) the
amount deposited in the account will equal the current value of the security
sold short and (b) the amount deposited in the segregated account will not be
less than the market value of the security at the time it was sold short.
Similarly, a segregated account will be maintained for a pair-off transaction
that involves an initial purchase by the Portfolio of a security on a forward
commitment or when-issued basis as described more fully in the Additional
Statement.
The Portfolio will not enter into a pair-off transaction that involves either
a short sale or a forward commitment or when-issued purchase if, after effect
is given to the sale or purchase, the total market value of all open pair-off
transactions would exceed 25% of the value of the Portfolio's net assets.
Although pair-off transactions represent a strategy that will be used by
Northern in attempting to earn additional income for the Portfolio resulting
from short-term price movements in the securities markets, the transactions
may result in losses instead. In addition, pair-off transactions may produce
higher than normal portfolio turnover which may result in increased
transaction costs to the Portfolio and gains from the sale of securities
deemed to have been held for less than three months. Such gains must not
exceed 30% of the Portfolio's gross income in a taxable year in order for the
Portfolio to qualify as a regulated investment company under the Internal
Revenue Code of 1986.
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<PAGE>
FIXED INCOME INVESTMENTS. Even though interest-bearing securities are
investments which often offer a stable stream of income, the prices of fixed
income securities are affected by changes in the prevailing level of interest
rates. These securities experience appreciation when interest rates decline
and depreciation when interest rates rise. An investment portfolio consisting
of fixed income securities will react in a similar manner. Generally, the
longer the maturity of a fixed income security, the higher its yield and the
greater its price volatility. Conversely, the shorter the maturity, the lower
the yield but the greater the price stability. The values of fixed income
securities also may be affected by changes in the credit rating or financial
condition of the issuing entities. A security's rating normally depends on the
likelihood that the borrower will meet each interest and principal installment
on a timely basis. As a result, lower-rated bonds typically yield more than
higher-rated bonds of the same maturity. Credit ratings evaluate the safety of
principal and interest payments, not market risk, and rating agencies may or
may not make timely changes in a rating to reflect economic or company
conditions that affect a security's market value. As a result, the ratings of
rating services are used by Northern only as indicators of investment quality.
For a more complete discussion of ratings, see Appendix A to the Additional
Statement.
PORTFOLIO TURNOVER. The Trust cannot accurately predict the turnover rate for
the Portfolio, which may vary from year to year, but expects that the annual
turn-over rate will be very high for the reasons stated above under
"Investment Information." For the fiscal year ended November 30, 1996, the
portfolio turnover rate for the Portfolio exceeded 800%. High portfolio
turnover (in excess of 100%) may result in the realization of short-term
capital gains which are taxable to unitholders as ordinary income (see
"Taxes"). In addition, high portfolio turnover rates may result in
corresponding increases in brokerage commissions and other transaction costs.
The Portfolio will not consider portfolio turnover rate a limiting factor in
making investment decisions consistent with its objective and policies.
MISCELLANEOUS. The Portfolio does not intend to purchase certificates of
deposit of Northern or its affiliate banks, commercial paper issued by
Northern's parent holding company or other securities issued or guaranteed by
Northern, its parent holding company or their subsidiaries or affiliates.
For a description of applicable securities ratings, see Appendix A to the
Additional Statement.
INVESTMENT RESTRICTIONS
The Portfolio is subject to certain investment restrictions which, as
described in more detail in the Additional Statement, are fundamental policies
that cannot be changed without the approval of a majority of the outstanding
units of the Portfolio. The Portfolio will limit its investments so that, with
respect to 75% of its total assets, not more than 5% will be invested in the
securities of any one issuer (other than U.S. Government securities or
repurchase agreements collateralized by U.S. Government securities) and the
Portfolio will not invest more than 25% of its total assets in the securities
(other than U.S. Government securities and repurchase agreements
collateralized by such securities) of issuers in any one industry. In
addition, the Portfolio may borrow money from banks for temporary or emergency
purposes or to meet redemption requests, provided that the Portfolio maintains
asset coverage of at least 300% for all such borrowings.
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TRUST INFORMATION
BOARD OF TRUSTEES
The business and affairs of the Trust and the Portfolio are managed under the
direction of the Trust's Board of Trustees. The Additional Statement contains
the name of each Trustee and background information regarding the Trustees.
INVESTMENT ADVISER, TRANSFER AGENT AND CUSTODIAN
Northern, which has offices at 50 S. LaSalle Street, Chicago, Illinois 60675,
serves as investment adviser, transfer agent and custodian for the Portfolio.
As transfer agent, Northern performs various administrative servicing
functions, and any unitholder inquiries should be directed to it.
Northern, a member of the Federal Reserve System, is an Illinois state-
chartered commercial bank and the principal subsidiary of Northern Trust
Corporation, a bank holding company. Northern was formed in 1889 with
capitalization of $1 million. As of December 31, 1996, Northern Trust
Corporation and its subsidiaries had approximately $21.6 billion in assets,
$13.8 billion in deposits and employed over 6,900 persons.
Northern administered in various capacities (including as master trustee,
investment manager or custodian) approximately $778.9 billion of assets as of
December 31, 1996, including approximately $130.3 billion of assets for which
Northern had investment management responsibility.
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 the Portfolio and placing purchase and sale orders
for portfolio securities. Northern is also responsible for monitoring and
preserving the records required to be maintained under the regulations of the
SEC (with certain exceptions unrelated to its activities for the Trust). As
compensation for its advisory services and its assumption of related expenses,
Northern is entitled to a fee, computed daily and payable monthly, at an
annual rate of .40% of the Portfolio's average daily net assets. For serving
as investment adviser during the fiscal year ended November 30, 1996, Northern
earned fees (after waivers) at the annual rate of .15% of the Portfolio's
average daily net assets.
PORTFOLIO MANAGERS
The table below sets forth information on the persons primarily responsible
for the day-to-day management of the Portfolio:
<TABLE>
<CAPTION>
YEARS PRIMARILY FIVE YEAR
NAME AND TITLE RESPONSIBLE EMPLOYMENT HISTORY
- -------------- --------------- ------------------
<S> <C> <C>
Mary Ann Flynn Since 1993 Ms. Flynn joined Northern in
Investment Officer 1969.
Jerry R. Pearson Since 1993 Mr. Pearson joined Northern
Vice President in 1987.
</TABLE>
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<PAGE>
Northern also receives compensation as the Trust's custodian and transfer
agent under separate agreements. The fees payable by the Portfolio for these
services are described in the Additional Statement.
ADMINISTRATOR AND DISTRIBUTOR
Goldman Sachs, 85 Broad Street, New York, New York 10004, acts as
administrator and distributor for the Portfolio. As compensation for its
administrative services (which include supervision with respect to the Trust's
non-investment advisory operations) and the assumption of related expenses,
Goldman Sachs is entitled to a fee from the Portfolio, computed daily and
payable monthly, at an annual 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 the Portfolio. No
compensation is payable by the Trust to Goldman Sachs for its distribution
services.
Goldman Sachs has voluntarily agreed that if, for the current fiscal year, the
sum of a Portfolio's expenses (including the fees payable to Goldman Sachs as
administrator, but excluding the fees payable to Northern for its duties as
investment adviser and transfer agent and extraordinary expenses, such as
litigation, interest, taxes and indemnification expenses) exceeds on an
annualized basis .10% of the Portfolio's average daily net assets for such
fiscal year, it will waive a portion of its fees and/or reimburse the
Portfolio for the amount of the excess. In addition, as stated under "Summary
of Expenses," Northern intends to voluntarily reduce its advisory fee for the
Portfolio during the Trust's current fiscal year. The result of these
reimbursements and fee reductions will be to increase the performance of the
Portfolio during the periods for which the reimbursements and reductions are
made.
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INVESTING
PURCHASE OF UNITS
Units of the Portfolio are sold on a continuous basis by the Trust's
distributor, Goldman Sachs, to institutional investors that either maintain
certain qualified accounts at Northern or its affiliates or invest an
aggregate of at least $5 million in one or more Portfolios of the Trust.
Goldman Sachs has established several procedures for purchasing Portfolio
units in order to accommodate different types of institutional investors.
PURCHASE OF UNITS THROUGH QUALIFIED ACCOUNTS. Units of the Portfolio are
offered to Northern, its affiliates and other institutions and organizations
(the "Institutions") acting on behalf of their customers, clients, employees
and others (the "Customers") and for their own account. Institutions may
purchase units of the Portfolio through procedures established in connection
with the requirements of their qualified accounts or through procedures set
forth herein with respect to Institutions that invest directly. Institutions
should contact Northern or an affiliate for further information regarding
purchases through qualified accounts. There is no minimum initial investment
for Institutions that maintain qualified accounts with Northern or its
affiliates.
PURCHASE OF UNITS DIRECTLY FROM THE TRUST. An Institution that purchases units
directly may do so by means of one of the following procedures, provided that
it makes an aggregate minimum initial investment of $5 million in one or more
investment portfolios of the Trust:
PURCHASE BY MAIL. An Institution desiring to purchase units of the
Portfolio by mail should mail a check or Federal Reserve draft payable to
the Short Duration Portfolio together with a completed and signed new
account application to The Benchmark Funds, c/o The Northern Trust Company,
P.O. Box 75943, Chicago, Illinois 60675-5943. An application will be
incomplete if it does not include a corporate resolution with the corporate
seal and secretary's certification within the preceding 30 days, or other
acceptable evidence of authority. If an Institution desires to purchase the
units of more than one Portfolio, the Institution should send a separate
check for each Portfolio. All checks must be payable in U.S. dollars and
drawn on a bank located in the United States. A $20 charge will be imposed
if a check does not clear. The Trust may delay transmittal of redemption
proceeds for units recently purchased by check until such time as it has
assured itself that good funds have been collected for the purchase of such
units. This may take up to fifteen (15) days. Cash and third party checks
are not acceptable for the purchase of Trust units.
PURCHASE BY TELEPHONE. An Institution desiring to purchase units of the
Portfolio by telephone should call Northern acting as the Trust's transfer
agent ("Transfer Agent") at 1-800-637-1380. Please be prepared to identify
the name of the Portfolio and the manner of payment. Please indicate
whether a new account is being established or an additional payment is
being made to an existing account. If an additional payment is being made
to an existing account, please provide the Institution's name and Portfolio
Account Number. Purchase orders are effected upon receipt by the Transfer
Agent of Federal funds or other immediately available funds in accordance
with the terms set forth below.
PURCHASE BY WIRE OR ACH TRANSFER. An Institution desiring to purchase units
of the Portfolio by wire or ACH Transfer should call the Transfer Agent at
1-800-637-1380 for instructions if it is not making an
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additional payment to an existing account. An Institution that wishes to
add to an existing account should wire Federal funds or effect an ACH
Transfer to:
The Northern Trust Company
Chicago, Illinois
ABA Routing No. 0710-00152
(Reference 10 Digit Portfolio Account Number)
(Reference Unitholder's Name)
For more information concerning requirements for the purchase of units,
call the Transfer Agent at 1-800-637-1380.
EFFECTIVE TIME OF PURCHASES. A purchase order for Portfolio units received by
the Transfer Agent by 3:00 p.m., Chicago time, on a Business Day (as defined
under "Miscellaneous") will be effected on that Business Day at the net asset
value determined on that day provided that either: (a) the Transfer Agent
receives the purchase price in Federal funds or other immediately available
funds prior to 3:00 p.m., Chicago time, on the same Business Day such order is
received; or (b) payment is received on the next Business Day in the form of
Federal funds or other immediately available funds in a qualified account
maintained by an Institution with Northern or an affiliate. Orders received
after 3:00 p.m. will be effected at the next determined net asset value,
provided that payment is made as provided herein. If an Institution accepts a
purchase order from a Customer on a non-Business Day, the order will not be
executed until it is received and accepted by the Transfer Agent on a Business
Day in accordance with the foregoing procedures.
MISCELLANEOUS PURCHASE INFORMATION. Units are purchased without a sales charge
imposed by the Trust. The minimum initial investment is $5 million for
Institutions that invest directly in one or more investment portfolios of the
Trust. The Trust reserves the right to waive this minimum and to determine the
manner in which the minimum investment is satisfied. There is no minimum for
subsequent investments.
Institutions may impose different minimum investment and other requirements on
Customers purchasing units through them. Depending on the terms governing the
particular account, Institutions may impose account charges such as asset
allocation fees, account maintenance fees, compensating balance requirements
or other charges based upon account transactions, assets or income which will
have the effect of reducing the net return on an investment in the Portfolio.
The exercise of voting rights and the delivery to Customers of unitholder
communications from the Trust will be governed by the Customers' account
agreements with the Institutions. Customers should read this Prospectus in
connection with any relevant agreement describing the services provided by an
Institution and any related requirements and charges, or contact the
Institution at which the Customer maintains its account for further
information.
Institutions that purchase units on behalf of Customers are responsible for
transmitting purchase orders to the Transfer Agent and delivering required
funds on a timely basis. An Institution shall be responsible for all losses
and expenses of the Portfolio as a result of a check that does not clear, an
ACH transfer that is rejected, or any other failure to make payment in the
time and manner described above, and Northern may redeem units from an account
it maintains to protect the Portfolio and Northern against loss. The Trust
reserves the right to reject any purchase order. Federal regulations require
that the Transfer Agent be furnished with a taxpayer identification number
upon opening or reopening an account. Purchase orders without such a number or
an indication that a
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<PAGE>
number has been applied for will not be accepted. If a number has been applied
for, the number must be provided and certified within sixty days of the date
of the order.
Payment for units of the Portfolio may, in the discretion of Northern, be made
in the form of securities that are permissible investments for the Portfolio.
For further information about the terms of such purchases, see the Additional
Statement.
In the interests of economy and convenience, certificates representing units
of the Portfolio are not issued.
Institutions investing in the Portfolio on behalf of their Customers should
note that state securities laws regarding the registration of dealers may
differ from the interpretations of Federal law and such Institutions may be
required to register as dealers pursuant to state law.
Northern may, at its own expense, provide compensation to certain dealers
whose customers purchase significant amounts of units of the Trust. The amount
of such compensation may be made on a one-time and/or periodic basis, and may
represent all or a portion of the annual fees that are earned by Northern as
investment adviser (after adjustments) and are attributable to units held by
such customers. Such compensation will not represent an additional expense to
the Trust or its unitholders, since it will be paid from assets of Northern or
its affiliates.
REDEMPTION OF UNITS
REDEMPTION OF UNITS THROUGH QUALIFIED ACCOUNTS. Institutions may redeem units
through procedures established by Northern and its affiliates in connection
with the requirements of their qualified accounts. Institutions should contact
Northern or an affiliate for further information regarding redemptions through
qualified accounts.
REDEMPTION OF UNITS DIRECTLY. Institutions that purchase units directly from
the Trust through the Transfer Agent may redeem all or part of their Portfolio
units in accordance with procedures set forth below.
REDEMPTION BY MAIL. An Institution may redeem units by sending a written
request to The Benchmark Funds, c/o The Northern Trust Company, P.O. Box
75943, Chicago, Illinois 60675-5943. Redemption requests must be signed by
a duly authorized person, and must state the number of units or the dollar
amount to be redeemed and identify the Portfolio Account Number. See "Other
Requirements."
REDEMPTION BY TELEPHONE. An Institution may redeem units by placing a
redemption order by telephone by calling the Transfer Agent at 1-800-637-
1380. During periods of unusual economic or market changes, telephone
redemptions may be difficult to implement. In such event, unitholders
should follow procedures outlined above under "Redemption by Mail."
REDEMPTION BY WIRE. If an Institution has given authorization for expedited
wire redemption, units can be redeemed and the proceeds sent by Federal
wire transfer to a single previously designated bank account. The minimum
amount which may be redeemed by this method is $10,000. The Trust reserves
the right to change or waive this minimum or to terminate the wire
redemption privilege. See "Other Requirements."
TELEPHONE PRIVILEGE. An Institution that has notified the Transfer Agent in
writing of the Institution's election to redeem or exchange units by
placing an order by telephone may do so by calling the Transfer
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<PAGE>
Agent at 1-800-637-1380. Neither the Trust nor its Transfer Agent will be
responsible for the authenticity of instructions received by telephone that
are reasonably believed to be genuine. To the extent that the Trust fails
to use reasonable procedures to verify the genuineness of telephone
instructions, it or its service providers may be liable for such
instructions that prove to be fraudulent or unauthorized. In all other
cases, the unitholder will bear the risk of loss for fraudulent telephone
transactions. However, the Transfer Agent has adopted procedures in an
effort to establish reasonable safeguards against fraudulent telephone
transactions. The proceeds of redemption orders received by telephone will
be sent by check, by wire or by transfer pursuant to proper instructions.
All checks will be made payable to the unitholder of record and mailed only
to the unitholder's address of record. See "Other Requirements."
Additionally, the Transfer Agent utilizes recorded lines for telephone
transactions and retains such tape recordings for six months, and will
request a form of identification if such identification has been furnished
to the Transfer Agent or the Trust.
OTHER REQUIREMENTS. A change of wiring instructions and a change of the
address of record may be effected only by a written request to the Transfer
Agent accompanied by (i) a corporate resolution which evidences authority
to sign on behalf of the Institution (including the corporate seal and
secretary's certification within the preceding 30 days), (ii) a signature
guarantee by a financial institution that is a participant in the Stock
Transfer Agency Medallion Program ("STAMP") in accordance with rules
promulgated by the SEC (a signature notarized by a notary public is not
acceptable) or (iii) such other evidence of authority as may be acceptable
to the Transfer Agent. A redemption request by mail will not be effective
unless signed by a person authorized by the corporate resolution or other
acceptable evidence of authority on file with the Transfer Agent.
EFFECTIVE TIME OF REDEMPTIONS. Redemption orders of Portfolio units are
effected at the net asset value per unit next determined after receipt in good
order by the Transfer Agent. Good order means that the request includes the
following: the account number and Portfolio name; the amount of the
transaction (as specified in dollars or units); and the signature of a duly
authorized person (except for telephone and wire redemptions). See
"Investing--Redemption of Units--Other Requirements." If received by Northern
with respect to a qualified account it maintains or the Transfer Agent by 3:00
p.m., Chicago time, on a Business Day, a redemption request normally will
result in proceeds being credited to such account or sent on the next Business
Day. Proceeds for redemption orders received on a non-Business Day will
normally be sent on the second Business Day after receipt in good order.
MISCELLANEOUS REDEMPTION INFORMATION. All redemption proceeds will be sent by
check unless Northern or the Transfer Agent is directed otherwise. The ACH
system may be utilized for payment of redemption proceeds. Redemption of units
may not be effected if a unitholder has failed to submit a completed and
properly executed (with corporate resolution or other acceptable evidence of
authority) new account application. If units to be redeemed were recently
purchased by check, the Trust may delay transmittal of redemption proceeds
until such time as it has assured itself that good funds have been collected
for the purchase of such units. This may take up to fifteen (15) days. The
Trust reserves the right to defer crediting, sending or wiring redemption
proceeds for up to seven days after receiving the redemption order if, in its
judgment, an earlier payment could adversely affect the Portfolio.
The Trust may require any information reasonably necessary to ensure that a
redemption has been duly authorized.
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<PAGE>
It is the responsibility of Institutions acting on behalf of Customers to
transmit redemption orders to the Transfer Agent and to credit Customers'
accounts with the redemption proceeds on a timely basis. If a Customer has
agreed with a particular Institution to maintain a minimum balance in his
account at such Institution and the balance in such account falls below that
minimum, such Customer may be obliged to redeem all or part of his units to
the extent necessary to maintain the required minimum balance.
DISTRIBUTIONS
Dividends from net investment income of the Portfolio are declared daily on
each Business Day as a dividend and paid at least monthly. The Portfolio's net
realized capital gains are distributed at least annually. Dividends and
distributions will reduce the Portfolio's net asset value by the amount of the
dividend or distribution. All dividends and distributions are automatically
reinvested (without any sales charge) in additional units of the Portfolio at
the net asset value per unit determined on the payment date.
TAXES
The Portfolio intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). Such qualification
generally will relieve the Portfolio of liability for Federal income taxes to
the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Portfolio distribute to its
unitholders an amount equal to at least 90% of its investment company taxable
income for such year. In general, the Portfolio's investment company taxable
income will be its taxable income, subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. The Portfolio
intends to distribute as dividends substantially all of its investment company
taxable income each year. Such dividends will be taxable as ordinary income to
the Portfolio's unitholders who are not currently exempt from Federal income
taxes whether they are received in cash or reinvested in additional units.
(Federal income taxes for distributions to an IRA or other qualified
retirement plan are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for
corporations to the extent of the total qualifying dividends received by the
distributing Portfolio from domestic corporations for the taxable year. It is
not expected that Portfolio distributions will qualify for the dividends
received deduction for corporations.
Substantially all of the Portfolio's net realized long-term capital gains will
be distributed at least annually to its unitholders. The Portfolio generally
will have no tax liability with respect to such gains and the distributions
will be taxable to Portfolio unitholders who are not currently exempt from
Federal income taxes as long-term capital gains, regardless of how long the
unitholders have held the units and whether such gains are received in cash or
reinvested in additional units. Unitholders should note that, upon sale or
exchange of Portfolio units, if the unitholder has not held such units for
more than six months, any loss on the sale or exchange of those units will be
treated as long term capital loss to the extent of the capital gain dividends
received with respect to the units.
Dividends declared in October, November or December of any year payable to
unitholders of record on a specified date in such months will be deemed for
Federal tax purposes to have been paid by the Portfolio and received by the
unitholders on December 31 of such year if such dividends are paid during
January of the following year.
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An investor considering buying units of the Portfolio on or just before the
record date of a dividend should be aware that the amount of the forthcoming
dividend payment, although in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a unitholder upon the redemption,
transfer or exchange of units of a Portfolio depending upon the tax basis and
their price at the time of redemption, transfer or exchange.
Unitholders of record will be advised by the Trust at least annually as to the
Federal income tax consequences of distributions made to them each year.
The foregoing discussion summarizes some of the important Federal tax
considerations generally affecting the Portfolio and its unitholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolio should consult their tax advisers with specific
reference to their own Federal, state and local tax situation.
NET ASSET VALUE
The net asset value per unit of the Portfolio for purposes of pricing purchase
and redemption orders is calculated by Northern as of 3:00 p.m., Chicago Time,
on each Business Day. Net asset value per unit of the Portfolio is calculated
by dividing the value of all securities and other assets of the Portfolio less
liabilities by the number of the outstanding units.
U.S. and foreign investments held by the Portfolio are valued at the last
quoted sales price on the exchange on which such securities are primarily
traded, except that securities listed on an exchange in the United Kingdom are
valued at the average of the closing bid and ask prices. If any securities
listed on a U.S. securities exchange are not traded on a valuation date, they
will be valued at the last quoted bid price. If securities listed on a foreign
securities exchange are not traded on a valuation date, they will be valued at
the most recent quoted trade price. Securities which are traded in the U.S.
over-the-counter markets are valued at the last quoted bid price. Securities
which are traded in the foreign over-the-counter markets are valued at the
last sales price, except that such securities traded in the United Kingdom are
valued at the average of the closing bid and ask prices. Any securities,
including restricted securities, for which current quotations are not readily
available are valued at fair value as determined in good faith by Northern
under the supervision of the Board of Trustees. Short-term investments are
valued at amortized cost which Northern has determined, pursuant to Board
authorization, approximates market value. Securities may be valued on the
basis of prices provided by independent pricing services when such prices are
believed to reflect the fair market value of such securities.
24
<PAGE>
PERFORMANCE INFORMATION
The performance of the Portfolio may be compared to those of other mutual
funds with similar investment objectives and to bond or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
Portfolio's performance may be compared to data prepared by Lipper Analytical
Services, Inc. or other independent mutual fund reporting services. In
addition, the performance of the Portfolio may be compared to the Lehman
Brothers Government Bond Index (or its two components, the Treasury Bond Index
and the Agency Bond Index), the Lehman Brothers Corporate Bond Index, S&P
Index, the Consumer Price Index or other unmanaged stock and bond indices,
including, but not limited to, the J.P. Morgan Non-U.S. Government Bond Index,
the Dow Jones Industrial Average, a recognized unmanaged index of common
stocks of 30 industry companies listed on the New York Stock Exchange.
Performance data as reported in national financial publications such as Money
Magazine, Morningstar, Forbes, Barron's, The Wall Street Journal and The New
York Times, or in publications of a local or regional nature, may also be used
in comparing the performance of the Portfolio.
The Portfolio calculates its total return on an "average annual total return"
basis for various periods from the date the Portfolio commenced investment
operations and for other periods as permitted under the rules of the SEC.
Average annual total return reflects the average annual percentage change in
value of an investment in the Portfolio over the measuring period. Total
return may also be calculated on an "aggregate total return" basis for various
periods. Aggregate total return reflects the total percentage change in value
over the measuring period. Both methods of calculating total return reflect
changes in the price of the units and assume that any dividends and capital
gain distributions made by the Portfolio during the period are reinvested.
When considering average total return figures for periods longer than one
year, it is important to note that the annual total return of the Portfolio
for any one year in the period might have been more or less than the average
for the entire period. The Portfolio may also advertise from time to time
total return on a year-by-year or other basis for various specified periods by
means of quotations, charts, graphs or schedules.
The yield of the Portfolio is computed based on the net income during a 30-day
(or one month) period (which period will be identified in connection with the
particular yield quotation). More specifically, the Portfolio's yield is
computed by dividing the per unit net income during a 30-day (or one month)
period by the net asset value per unit on the last day of the period and
annualizing the result on a semi-annual basis.
The performance of units of the Portfolio is based on historical earnings,
will fluctuate and is not intended to indicate future performance. The
investment return and principal value of an investment in the Portfolio will
fluctuate so that a unitholder's units, when redeemed, may be worth more or
less than their original cost. Performance data may not provide a basis for
comparison with bank deposits and other investments which provide a fixed
yield for a stated period of time. Total return data should also be considered
in light of the risks associated with the Portfolio's composition, quality,
maturity, operating expenses and market conditions. Any fees charged by
Institutions directly to their Customer accounts in connection with
investments in the Portfolio will not be included in calculations of
performance data.
25
<PAGE>
ORGANIZATION
The Trust was formed as a Massachusetts business trust on July 15, 1982 under
an Agreement and Declaration of Trust (the "Trust Agreement"). The Trust
Agreement permits the Board of Trustees to issue an unlimited number of units
of beneficial interest of one or more separate series representing interests
in one or more investment portfolios. As of the date of this Prospectus, the
Trust offers seventeen separate series of units of beneficial interest
representing interests in seventeen investment portfolios, one of which is
described in this Prospectus; the other series of units are described in
separate prospectuses. The Trust Agreement further permits the Board of
Trustees to classify or reclassify any unissued units into additional series
or subseries within a series. Each unit of the Portfolio is without par value,
represents an equal proportionate interest in the Portfolio with each other
unit of its class in the Portfolio and is entitled to such dividends and
distributions earned on the Portfolio's assets as are declared in the
discretion of the Board of Trustees.
The Trust's unitholders are entitled to one vote for each full unit held and
proportionate fractional votes for fractional units held. Each series entitled
to vote on a matter will vote thereon in the aggregate and not by series,
except as otherwise required by law or when the matter to be voted on affects
only the interests of unitholders of a particular series. The Additional
Statement gives examples of situations in which the law requires voting by
series. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate units of the Trust may elect all of the Trustees
irrespective of the vote of the other unitholders.
As of March 1, 1997, Northern possessed sole or shared voting or investment
power for its customer accounts with respect to more than 50% of the
outstanding units of the Trust.
The Trust does not presently intend to hold annual meetings of unitholders
except as required by the 1940 Act or other applicable law. Pursuant to the
Trust Agreement, the Trustees will promptly call a meeting of unitholders to
vote upon the removal of any Trustee when so requested in writing by the
record holders of 10% or more of the outstanding units. To the extent required
by law, the Trust will assist in unitholder communications in connection with
such a meeting.
The Trust Agreement provides that each unitholder, by virtue of becoming such,
will be held to have expressly assented and agreed to the terms of the Trust
Agreement and to have become a party thereto.
26
<PAGE>
MISCELLANEOUS
The address of the Trust is 4900 Sears Tower, Chicago, Illinois 60606 and the
telephone number is (800) 621-2550.
As used in this Prospectus, the term "Business Day" refers to each day when
Northern and the New York Stock Exchange are open, which is Monday through
Friday, except for holidays observed by Northern and/or the Exchange. For 1997
the holidays of Northern and/or the Exchange are: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving and Christmas Day.
On those days when Northern or the Exchange closes early as a result of
unusual weather or other circumstances, the right is reserved to advance the
time on that day by which purchase and redemption requests must be received.
In addition, on any Business Day when the Public Securities Association (PSA)
recommends that the securities markets close early, the Portfolio reserves
the right to cease or to advance the deadline for accepting purchase and
redemption orders for same Business Day credit up to one hour before the PSA
recommended closing time. Purchase and redemption requests received after the
advanced closing time will be effected on the next Business Day.
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS 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. THIS 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.
27
<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
THE
BENCHMARK
FUNDS
MONEY
MARKET
PORTFOLIOS
PROSPECTUS
APRIL 1, 1997
<PAGE>
THE BENCHMARK FUNDS
(Advised by The Northern Trust Company)
THE NORTHERN TRUST COMPANY INVESTMENT ADVISER, TRANSFER
50 S. LaSalle Street AGENT AND CUSTODIAN
Chicago, Illinois 60675
312-630-6000 --------------------
This Prospectus describes four short-term money market portfolios (the
"Portfolios") offered by The Benchmark Funds (the "Trust") to institutional
investors. Each Portfolio, other than the Tax-Exempt Portfolio, seeks to
maximize current income to the extent consistent with the preservation of
capital and maintenance of liquidity. The Tax-Exempt Portfolio seeks to
provide, to the extent consistent with the preservation of capital and
prescribed portfolio standards, a high level of income exempt from regular
Federal income tax.
The GOVERNMENT SELECT PORTFOLIO invests in selected short-term obligations
of the U.S. Government, its agencies and instrumentalities the interest on
which is generally exempt from state income taxation.
The GOVERNMENT PORTFOLIO invests in short-term obligations of the U.S.
Government, its agencies and instrumentalities and related repurchase
agreements.
The DIVERSIFIED ASSETS PORTFOLIO invests in money market instruments of
both U.S. and foreign issuers, including certificates of deposit, bankers'
acceptances, commercial paper and repurchase agreements.
The TAX-EXEMPT PORTFOLIO invests primarily in short-term municipal
instruments the interest on which is exempt from regular Federal income
tax.
Each Portfolio is advised by The Northern Trust Company ("Northern"). Units are
sold and redeemed without any purchase or redemption charge imposed by the
Trust, although Northern and other institutions may charge their customers for
services provided in connection with their investments.
This Prospectus provides information about the Portfolios that you should know
before investing. It should be read and retained for future reference. If you
would like more detailed information, a Statement of Additional Information
(the "Additional Statement") dated April 1, 1997 is available upon request
without charge by writing to the Trust's distributor, Goldman, Sachs & Co.
("Goldman Sachs"), 4900 Sears Tower, Chicago, Illinois 60606 or by calling 1-
800-621-2550.
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 AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is April 1, 1997.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS 3
- ----------
Description of Trust 3
Summary of Expenses 3
FINANCIAL HIGHLIGHTS 5
- --------------------
INVESTMENT INFORMATION 9
- ----------------------
Government Select Portfolio 9
Government Portfolio 10
Diversified Assets Portfolio 10
Tax-Exempt Portfolio 10
Description of Securities and Com-
mon Investment Techniques 11
Investment Restrictions 17
TRUST INFORMATION 18
- -----------------
Board of Trustees 18
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Adviser, Transfer Agent
and Custodian 18
Administrator and Distributor 19
INVESTING 19
---------
Purchase of Units 19
Redemption of Units 22
Distributions 24
Taxes 24
NET ASSET VALUE 25
---------------
PERFORMANCE INFORMATION 26
-----------------------
ORGANIZATION 27
------------
MISCELLANEOUS 28
-------------
</TABLE>
2
<PAGE>
HIGHLIGHTS
DESCRIPTION OF TRUST
The Trust is an open-end, management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). Each Portfolio consists of a
separate pool of assets with separate investment policies, as described below
under "Investment Information." All of the Portfolios are classified as
diversified companies. Northern serves as investment adviser, transfer agent
and custodian. Goldman Sachs serves as distributor and administrator.
Units of the Portfolios are offered exclusively to institutional investors. See
"Investing--Purchase of Units" and "Investing--Redemption of Units" for
information on how to place purchase and redemption orders.
Each Portfolio seeks to maintain a net asset value of $1.00 per unit. The
assets of each Portfolio will be invested in dollar-denominated debt securities
with remaining maturities of thirteen months or less as defined by the
Securities and Exchange Commission (the "SEC"), and each Portfolio's dollar-
weighted average portfolio maturity will not exceed 90 days. All securities
acquired by the Portfolios will be determined by Northern, under guidelines
established by the Trust's Board of Trustees, to present minimal credit risks,
and will be "Eligible Securities" as defined by the SEC. There can be no
assurance that the Portfolios will be able to achieve a stable net asset value
on a continuous basis, or that they will achieve their investment objectives.
Investors should note that one or more of the Portfolios may purchase variable
and floating rate instruments, enter into repurchase agreements, reverse
repurchase agreements and securities loans, acquire U.S. dollar-denominated
instruments of foreign issuers and make limited investments in illiquid
securities and securities issued by other investment companies. These
investment practices involve investment risks of varying degrees. None of the
Portfolios will invest in instruments denominated in a foreign currency.
SUMMARY OF EXPENSES
The following table sets forth certain information regarding the annualized
operating expenses the Portfolios, incurred during the Trust's last fiscal
year. Hypothetical examples based on the table are also shown.
<TABLE>
<CAPTION>
GOVERNMENT DIVERSIFIED TAX-
SELECT GOVERNMENT ASSETS EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Unitholder Transaction Expenses
Maximum Sales Charge Imposed on
Purchases....................... None None None None
Sales Charge Imposed on Rein-
vested Distributions............ None None None None
Deferred Sales Load Imposed on
Redemptions..................... None None None None
Redemption Fees.................. None None None None
Exchange Fees.................... None None None None
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT DIVERSIFIED TAX-
SELECT GOVERNMENT ASSETS EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Annual Operating Expenses After
Expense Reimbursements and Fee
Reductions (as a percentage of
average daily net assets)
Management Fees After Fee Reduc-
tions.......................... .10% .25% .25% .25%
12b-1 Fees...................... None None None None
Other Expenses After Expense Re-
imbursements and Fee Reduc-
tions.......................... .10% .10% .09% .10%
---- ---- ---- ----
Total Operating Expenses.......... .20% .35% .34% .35%
==== ==== ==== ====
</TABLE>
EXAMPLE OF EXPENSES. Based on the foregoing table, you would pay the following
expenses on a hypothetical $1,000 investment, assuming a 5% annual return and
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Select Portfolio..................... $2 $ 6 $11 $26
Government Portfolio............................ $4 $11 $20 $44
Diversified Assets Portfolio.................... $3 $11 $19 $43
Tax-Exempt Portfolio............................ $4 $11 $20 $44
</TABLE>
The costs and expenses included in the table and hypothetical example above are
based on actual amounts incurred for the fiscal year ended November 30, 1996.
During the Trust's last fiscal year, Northern voluntarily reduced its advisory
fee for the Government Select Portfolio (payable at the annual rate of .25% of
the Portfolio's average daily net assets) to .10% per annum. In addition,
Goldman Sachs has agreed to reduce or otherwise limit certain other expenses of
the Portfolios on an annualized basis to .10% of each such Portfolio's average
daily net assets (including the fees payable to Goldman Sachs as administrator,
but excluding the fees payable to Northern for its duties as adviser and
certain other expenses). The expense information in the table has, accordingly,
been presented to reflect these fee reductions and reimbursements. Without the
undertakings of Northern and Goldman Sachs, for the fiscal year ended November
30, 1996, the total annual operating expenses of the Government Select,
Government and Tax-Exempt Portfolios would have been .40%, .38% and .40%,
respectively; and other expenses of the Government Select, Government and Tax-
Exempt Portfolios would have been .15%, .13% and .15%, respectively. For a more
complete description of the Portfolios' expenses, see "Financial Highlights"
and "Trust Information" in this Prospectus and the financial statements and
related notes incorporated by reference into the Additional Statement.
---------------------
THE PURPOSE OF THE FOREGOING TABLE IS TO ASSIST YOU IN UNDERSTANDING THE
VARIOUS UNITHOLDER TRANSACTION AND OPERATING EXPENSES OF EACH PORTFOLIO THAT
UNITHOLDERS BEAR DIRECTLY OR INDIRECTLY. IT DOES NOT, HOWEVER, REFLECT ANY
CHARGES WHICH MAY BE IMPOSED BY NORTHERN, ITS AFFILIATES AND CORRESPONDENT
BANKS AND OTHER INSTITUTIONS ON THEIR CUSTOMERS AS DESCRIBED UNDER "INVESTING--
PURCHASE OF UNITS." THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES
AND RATE OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN.
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following data have been audited by Ernst & Young LLP, independent
auditors, as indicated in their report incorporated by reference into the
Additional Statement from the annual report to unitholders for the fiscal year
ended November 30, 1996, and should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement.
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.
5
<PAGE>
- -------------------------------------------------------------------------------
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.
6
<PAGE>
- -------------------------------------------------------------------------------
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.
7
<PAGE>
- -------------------------------------------------------------------------------
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.
8
<PAGE>
INVESTMENT INFORMATION
The investment objective of each Portfolio, other than the Tax-Exempt
Portfolio, is to seek to maximize current income to the extent consistent with
the preservation of capital and maintenance of liquidity by investing
exclusively in high quality money market instruments. The Tax-Exempt Portfolio
seeks to provide its unitholders, to the extent consistent with the
preservation of capital and prescribed portfolio standards, with a high level
of income exempt from Federal income tax by investing primarily in municipal
instruments. The investment objective of a Portfolio may not be changed without
the vote of the majority of the outstanding units of the particular Portfolio
(as defined below under "Organization"). Except as expressly noted below,
however, a Portfolio's investment policies may be changed without a vote of
unitholders.
All securities acquired by the Portfolios will be determined by Northern, under
guidelines established by the Board of Trustees, to present minimal credit
risks and will be "Eligible Securities" as defined by the SEC. Eligible
Securities consist of (i) securities that either (a) have short-term debt
ratings at the time of purchase in the two highest rating categories by at
least two unaffiliated nationally recognized statistical rating organizations
("NRSROs") (or one NRSRO if the security is rated by only one NRSRO), or (b)
are comparable in priority and security with a security issued by an issuer
which has such ratings, and (ii) securities that are unrated (including
securities of issuers that have long-term but not short-term ratings) but are
of comparable quality as determined in accordance with guidelines approved by
the Board of Trustees. Securities which are rated or that have been issued by
an issuer that is rated with respect to a class of short-term debt obligations,
or any security within that class, comparable in priority and quality with such
securities in the highest short-term rating category by at least two NRSROs are
designated "First Tier Securities." Under normal circumstances, the Government
Select, Government and Diversified Assets Portfolios intend to limit purchases
of securities to First Tier Securities. The Additional Statement includes a
description of applicable NRSRO ratings.
Each Portfolio is managed so that the average maturity of all instruments in
the Portfolio (on a dollar-weighted basis) will not exceed 90 days. In no event
will the Portfolios purchase any securities which mature more than 13 months
from the date of purchase (except for certain variable and floating rate
instruments and securities collateralizing repurchase agreements). Securities
in which the Portfolios invest may not earn as high a level of income as long-
term or lower quality securities, which generally have greater market risk and
more fluctuation in market value.
GOVERNMENT SELECT PORTFOLIO
The Government Select Portfolio seeks to achieve its investment objective by
investing exclusively in securities issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities. In making
investments, Northern will seek to acquire, under normal market conditions,
only those U.S. Government securities the interest on which is generally exempt
from state income taxation. Securities generally eligible for this exemption
include those issued by the U.S. Treasury and certain U.S. Government agencies
and instrumentalities, including the Federal Home Loan Bank, Federal Farm
Credit Banks Funding Corp. and the Student Loan Marketing Association. The
Portfolio intends to limit investments to only the foregoing exempt U.S.
Government securities. However, under extraordinary circumstances, such as when
appropriate exempt securities are unavailable, the Portfolio may make
investments in non-exempt U.S. Government securities and cash equivalents, and
may hold uninvested cash. See "Investing--Taxes" below for certain tax
considerations.
9
<PAGE>
GOVERNMENT PORTFOLIO
The Government Portfolio seeks to achieve its investment objective by investing
exclusively in:
(A) Marketable securities issued or guaranteed as to principal and interest
by the U.S. Government or by any of its agencies or instrumentalities
(including the International Bank for Reconstruction and Development) and
custodial receipts with respect thereto; and
(B) Repurchase agreements relating to the above instruments.
DIVERSIFIED ASSETS PORTFOLIO
In pursuing its investment objective, the Diversified Assets Portfolio may
invest in a broad range of government, bank and commercial obligations that are
available in the money markets. In particular, the Portfolio may invest in:
(A) U.S. dollar-denominated obligations of U.S. banks with total assets in
excess of $1 billion (including obligations of foreign branches of such
banks);
(B) U.S. dollar-denominated obligations of foreign commercial banks where
such banks have total assets in excess of $5 billion;
(C) High quality commercial paper and other obligations issued or
guaranteed by U.S. and foreign corporations and other issuers rated (at the
time of purchase) A-2 or higher by Standard & Poor's Ratings Group ("S&P"),
Prime-2 or higher by Moody's Investors Service, Inc. ("Moody's"), Duff 2 or
higher by Duff & Phelps Credit Rating Co. ("D&P"), F-2 or higher by Fitch
Investors Service, Inc. ("Fitch") or TBW-2 or higher by Thomson BankWatch,
Inc. ("TBW");
(D) Rated and unrated corporate bonds, notes, paper and other instruments
that are of comparable quality to the commercial paper permitted to be
purchased by the Portfolio;
(E) Asset-backed securities (including interests in pools of assets such as
mortgages, installment purchase obligations and credit card receivables);
(F) Securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies or instrumentalities and custodial
receipts with respect thereto;
(G) Dollar-denominated securities issued or guaranteed by one or more
foreign governments or political subdivisions, agencies or
instrumentalities thereof;
(H) Repurchase agreements relating to the above instruments; and
(I) Securities issued or guaranteed by state or local governmental bodies.
TAX-EXEMPT PORTFOLIO
The Tax-Exempt Portfolio invests primarily in high quality short-term
instruments, the interest on which is, in the opinion of bond counsel for the
issuers, exempt from regular Federal income tax ("Municipal
10
<PAGE>
Instruments"). Such opinions may contain various assumptions, qualifications or
exceptions that are reasonably acceptable to Northern. In particular, the
Portfolio may invest in:
(A) Fixed and variable rate notes and similar debt instruments rated MIG-2,
VMIG-2 or Prime-2 or higher by Moody's, SP-2 or A-2 or higher by S&P, AA or
higher by D&P or F-2 or higher by Fitch;
(B) Tax-exempt commercial paper and similar debt instruments rated Prime-2
or higher by Moody's, A-2 or higher by S&P, Duff 2 or higher by D&P or F-2
or higher by Fitch;
(C) Rated and unrated municipal bonds, notes, paper or other instruments
that are of comparable quality to the tax-exempt commercial paper permitted
to be purchased by the Portfolio; and
(D) Municipal bonds and notes which are guaranteed as to principal and
interest by the U.S. Government or an agency or instrumentality thereof or
which otherwise depend directly or indirectly on the credit of the United
States.
As a matter of fundamental policy, changeable only with the approval of the
holders of a majority of the outstanding units of the Tax-Exempt Portfolio, at
least 80% of the Portfolio's annual gross income will be derived from Municipal
Instruments except under extraordinary circumstances, such as when Northern
believes that market conditions indicate that the Portfolio should adopt a
temporary defensive posture by holding uninvested cash or investing in taxable
short-term securities ("Taxable Investments"). Taxable Investments will consist
exclusively of instruments that may be purchased by the Diversified Assets
Portfolio.
DESCRIPTION OF SECURITIES AND COMMON INVESTMENT TECHNIQUES
BANK OBLIGATIONS. Domestic and foreign bank obligations in which the
Diversified Assets Portfolio may invest include certificates of deposit, bank
and deposit notes, bankers' acceptances and fixed time deposits. Such
obligations may be general obligations of the parent bank or may be limited to
the issuing branch or subsidiary by the terms of the specific obligation or by
government regulation. Total assets of a bank are determined on the basis of
the bank's most recent annual financial statements.
FOREIGN OBLIGATIONS. In addition to the obligations of foreign commercial banks
and foreign branches of U.S. banks, the Diversified Assets Portfolio may
acquire commercial obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, as well as Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer. The Diversified Assets
Portfolio may also invest in obligations issued or guaranteed by one or more
foreign governments or any of their political subdivisions, agencies or
instrumentalities. Such obligations may include debt obligations of
supranational entities, including international organizations (such as the
European Coal and Steel Community) designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies.
Obligations of foreign issuers acquired by the Diversified Assets Portfolio may
involve risks that are different than those of obligations of domestic issuers.
These risks include unfavorable political and economic developments, the
possible imposition of withholding taxes on interest income, possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on such
11
<PAGE>
obligations. In addition, foreign branches of U.S. banks and foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks and, generally, there may be less publicly
available information regarding such issuers. The Trust could also encounter
difficulties in obtaining or enforcing a judgment against a foreign issuer
(including a foreign branch of a U.S. bank).
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolios may purchase rated and
unrated variable and floating rate instruments, which may have stated
maturities in excess of the Portfolios' maturity limitations but will, in any
event, permit a Portfolio to demand payment of the principal of the instrument
at least once every 13 months on not more than thirty days' notice (unless the
instrument is issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof). In the case of the Diversified Assets Portfolio, such
instruments may include variable amount master demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated variable and floating rate
instruments will be determined by Northern to be of comparable quality at the
time of the purchase to rated instruments purchasable by the Portfolios. The
absence of an active secondary market with respect to particular variable and
floating rate instruments could, however, make it difficult for a Portfolio to
dispose of the instruments if the issuer defaulted on its payment obligation or
during periods that the Portfolio is not entitled to exercise its demand
rights, and the Portfolio could, for these or other reasons, suffer a loss with
respect to such instruments. Variable and floating rate instruments held by a
Portfolio will be subject to the Portfolio's 10% limitation on illiquid
investments when the Portfolio may not demand payment of the principal amount
within seven days and a reliable trading market is absent.
UNITED STATES GOVERNMENT OBLIGATIONS. Each Portfolio may invest in a variety of
U.S. Treasury obligations, consisting of bills, notes and bonds, which
principally differ only in their interest rates, maturities and time of
issuance. These obligations include "stripped" securities issued by the U.S.
Treasury and recorded in the Federal Reserve book-entry record-keeping system.
The Portfolios may also invest in other securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities. Obligations of certain
agencies and instrumentalities, such as the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others are supported only by the credit of the
instrumentalities. No assurance can be given that the U.S. Government would
provide financial support to its agencies or instrumentalities if it is not
obligated to do so by law. Obligations of the International Bank for
Reconstruction and Development (also known as the World Bank) are supported by
subscribed but unpaid commitments of its member countries. There is no
assurance that these commitments will be undertaken or complied with in the
future.
Securities guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities are deemed to include (a) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or an agency or instrumentality thereof,
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. The secondary market for certain of these
participations is limited. Such participations may therefore be regarded as
illiquid.
12
<PAGE>
CUSTODIAL RECEIPTS FOR TREASURY SECURITIES. The Portfolios (other than the
Government Select Portfolio) may also purchase participations in trusts that
hold U.S. Treasury securities (such as TIGRs and CATS) where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the U.S. Treasury obligations. These
participations are normally issued at a discount to their "face value," and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors.
Investments by the Government Portfolio in such custodial receipts will not
exceed 35% of the value of that Portfolio's total assets.
REPURCHASE AGREEMENTS. Each Portfolio may, in accordance with its investment
objective, policies and guidelines established by the Trust's Board of
Trustees, agree to purchase portfolio securities from financial institutions
subject to the seller's agreement to repurchase them at a mutually agreed upon
date and price ("repurchase agreements"). Although the securities subject to a
repurchase agreement may bear maturities exceeding 13 months, settlement for
the repurchase agreement will never be more than one year after a Portfolio's
acquisition of the securities and normally will be within a shorter period of
time. Securities subject to repurchase agreements are held either by the
Trust's custodian or subcustodian (if any), or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
maintain the value of the securities subject to the agreement in an amount
exceeding the repurchase price (including accrued interest). Default by the
seller would, however, expose a Portfolio to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.
REVERSE REPURCHASE AGREEMENTS. The Government Select Portfolio, Government
Portfolio and Diversified Assets Portfolio may enter into reverse repurchase
agreements which involve the sale of money market securities held by a
Portfolio, with an agreement to repurchase the securities at an agreed upon
price (including interest) and date. A Portfolio will use the proceeds of
reverse repurchase agreements to purchase other money market securities either
maturing, or under an agreement to resell, at a date simultaneous with or prior
to the expiration of the reverse repurchase agreement. A Portfolio will utilize
reverse repurchase agreements, which may be viewed as borrowings (or leverage)
by the Portfolio, when it is anticipated that the interest income to be earned
from the investment of the proceeds of the transaction is greater than the
interest expense of the reverse repurchase transaction. During the time a
reverse repurchase agreement is outstanding, the Portfolio will maintain a
segregated account with the Trust's custodian containing liquid assets having a
value at least equal to the repurchase price. A Portfolio may enter into
reverse repurchase agreements with banks, brokers and dealers, and has the
authority to enter into reverse repurchase agreements in amounts not exceeding
in the aggregate one-third of the Portfolio's total assets. See "Additional
Investment Information--Investment Restrictions" in the Additional Statement.
SECURITIES LENDING. The Portfolios may seek additional income from time to time
by lending their portfolio securities on a short-term basis to banks, brokers
and dealers under agreements requiring that the loans be secured by collateral
in the form of cash, cash equivalents or U.S. Government securities or
irrevocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the securities loaned. A Portfolio may not make
such loans in excess of 33 1/3% of the value of the Portfolio's total assets.
Loans of securities involve risks of delay in receiving additional collateral
or in recovering the securities loaned, or possibly loss of rights in the
collateral should the borrower of the securities become insolvent.
13
<PAGE>
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Portfolio may purchase
when-issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased on a when-issued or forward commitment basis involve a risk of loss
if the value of the security to be purchased declines prior to the settlement
date, or if the value of the security to be sold increases prior to the
settlement date. Conversely, securities sold on a delayed-delivery or foward
commitment basis involve the risk that the value of the security to be sold may
increase prior to the settlement date. A Portfolio is required to hold and
maintain liquid assets in a segregated account with the Portfolio's custodian
until the settlement date, having a value (determined daily) at least equal to
the amount of the Portfolio's purchase commitments. In the case of a foward
commitment to sell portfolio securities, a Portfolio is required to hold the
portfolio securities themselves in a segregated account with the custodian
while the commitment is outstanding. Although a Portfolio would generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring securities, the Portfolio may dispose of a when-issued
security or forward commitment prior to settlement if Northern deems it
appropriate to do so.
INVESTMENT COMPANIES. In connection with the management of their daily cash
positions, the Portfolios may invest in securities issued by other investment
companies which invest in short-term, high-quality debt securities and which
determine their net asset value per share based on the amortized cost or penny-
rounding method of valuation. In addition, the Portfolios may invest in
securities issued by other investment companies consistent with their
investment objectives and policies. As a shareholder of another investment
company, a Portfolio would bear, along with other shareholders, its pro rata
portion of the other investment company's expenses, including advisory fees.
These expenses would be in addition to the advisory fees and other expenses the
Portfolio bears directly in connection with its own operations. To the extent
required by the 1940 Act and the regulations and orders of the SEC thereunder,
the Portfolios currently intend to limit their investments in securities issued
by other investment companies so that, as determined immediately after a
purchase is made, not more than 3% of the total outstanding stock of any
investment company will be owned by the Portfolios, the Trust as a whole and
their affiliated persons (as defined in the 1940 Act). The Trust has been
advised by its counsel that exempt-interest dividends received by the Tax-
Exempt Portfolio as a shareholder of a regulated investment company paying such
dividends will receive the same Federal tax treatment as interest received by
the Portfolio on Municipal Instruments held by it.
MUNICIPAL AND RELATED INSTRUMENTS. Municipal Instruments in which the Tax-
Exempt Portfolio may invest include debt obligations issued by or on behalf of
states, territories and possessions of the United States and their political
subdivisions, agencies, authorities and instrumentalities.
Municipal Instruments may be issued to obtain funds for various public
purposes, including capital improvements, the refunding of outstanding
obligations, general operating expenses, and lending to other public agencies.
Among other instruments, the Portfolio may purchase short-term Tax Anticipation
Notes, Bond Anticipation Notes, Revenue Anticipation Notes, and other forms of
short-term loans. Such notes are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues.
Municipal Instruments include both "general" and "revenue" obligations. General
obligations are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue obligations are
payable only from the revenues derived from a particular facility or class of
facilities
14
<PAGE>
or, in some cases, from the proceeds of a special excise or other specific
revenue source such as lease payments from the user of the facility being
financed. Industrial development bonds are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of an industrial revenue bond is usually directly related to the
credit standing of the private user of the facility involved.
The Tax-Exempt Portfolio may also invest in "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of a moral
obligation bond is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which
created the issuer.
Municipal bonds with a series of maturity dates are called Serial Bonds. The
Portfolio may purchase Serial Bonds and other long-term securities provided
that they have a remaining maturity meeting the Tax-Exempt Portfolio's maturity
requirements. The Portfolio may also purchase long-term variable and floating
rate bonds (sometimes referred to as "Put Bonds") where the Portfolio obtains
at the time of purchase the right to put the bond back to the issuer or a third
party at par at least every thirteen months. Put Bonds with conditional puts
(that is, puts which cannot be exercised if the issuer defaults on its payment
obligations) will present risks that are different than those of other
Municipal Instruments because of the possibility that the Portfolio might hold
a long-term Put Bond on which a default occurs following its acquisition by the
Portfolio.
The Tax-Exempt Portfolio may acquire securities in the form of custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment or both on certain municipal obligations. Such obligations
are held in custody by a bank on behalf of the holders of the receipts. These
custodial receipts are known by various names, including "Municipal Receipts,"
"Municipal Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and
"Municipal Zero-Coupon Receipts." The Portfolio may also purchase certificates
of participation that, in the opinion of counsel to the issuer, are exempt from
regular Federal income tax. Certificates of participation are a type of
floating or variable rate obligation that represents interests in a pool of
municipal obligations held by a bank.
The Tax-Exempt Portfolio may acquire "standby commitments" with respect to the
Municipal Instruments it holds. Under a standby commitment, a dealer agrees to
purchase at the Portfolio's option specified Municipal Instruments at a
specified price. The acquisition of a standby commitment may increase the cost,
and thereby reduce the yield, of the Municipal Instruments to which the
commitment relates. The Portfolio will acquire standby commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
Municipal Instruments purchased by the Tax-Exempt Portfolio may be backed by
letters of credit or other forms of credit enhancement issued by foreign (as
well as domestic) banks and other financial institutions. The credit quality of
these banks and financial institutions could, therefore, cause loss to a
Portfolio that invests in Municipal Instruments. Letters of credit and other
obligations of foreign financial institutions may involve certain risks in
addition to those of domestic obligations. (See "Foreign Obligations" above.)
As stated, the Tax-Exempt Portfolio expects to invest primarily in Municipal
Instruments. However, the Portfolio may from time to time hold uninvested cash
or invest a portion of its assets in Taxable Investments. The Portfolio does
not intend to invest more than 25% of the value of its total assets in
industrial development
15
<PAGE>
bonds or similar obligations where the non-governmental entities supplying the
revenues from which such bonds or obligations are to be paid are in the same
industry. The Portfolio may, however, invest 25% or more of its total assets in
(a) Municipal Instruments the interest upon which is paid solely from revenues
of similar projects, and (b) industrial development obligations. In addition,
although the Tax-Exempt Portfolio does not expect to do so during normal market
conditions, it may invest more than 25% of the value of its total assets in
Municipal Instruments whose issuers are in the same state. When a substantial
percentage of the Portfolio's assets is invested in instruments which are used
to finance facilities involving a particular industry, whose issuers are in the
same state or which are otherwise related, there is a possibility that an
economic, business or political development affecting one such instrument would
likewise affect the other related instruments. The Tax-Exempt Portfolio did not
invest 25% or more of its assets in any of these categories during the year
ended November 30, 1996, except for industrial development obligations.
So long as other suitable Municipal Instruments are available for investment,
the Tax-Exempt Portfolio does not intend to invest in "private activity bonds"
the interest from which may be treated as an item of tax preference to
unitholders under the Federal alternative minimum tax.
The Diversified Assets Portfolio may also invest up to 5% of its net assets
from time to time in municipal instruments or other securities issued by state
and local governmental bodies when, as a result of prevailing economic,
regulatory or other circumstances, the yield of such securities, on a pre-tax
basis, is comparable to that of other permitted short-term taxable investments.
Dividends paid on such investments will be taxable to unitholders.
ISSUER DIVERSIFICATION. In accordance with current SEC regulations, each
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) to not more than 5% of the value of its total
assets at the time of purchase, except that (a) 25% of the value of the total
assets of each Portfolio may be invested in the securities of any one issuer
(limited to repurchase agreements, certificates of deposit and bankers'
acceptances in the case of the Government Select, Government and Diversified
Assets Portfolios) for a period of up to three Business Days; and (b)
securities subject to certain unconditional guarantees are subject to different
diversification requirements as described in the Additional Statement. In
addition, the Portfolios will limit their investments in securities that are
not First Tier Securities as prescribed in Rule 2a-7.
DERIVATIVE INSTRUMENTS. Each Portfolio may also purchase certain "derivative"
instruments. "Derivative" instruments are instruments that derive value from
the performance of underlying assets, interest rates or indices, and include
(but are not limited to) various structured debt obligations (including certain
variable and floating rate instruments). Derivative instruments present, to
varying degrees, market risk that the performance of the underlying assets,
interest rates or indices will decline; credit risk that the dealer or other
counterparty to the transaction will fail to pay its obligations; volatility
risk that, if interest rates change adversely, the value of the derivative
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Portfolio will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument will not correlate
exactly to the value of the underlying assets, rates or indices on which it is
based; and operations risk that loss will occur as a result of inadequate
systems and controls, human error or otherwise. Some derivative instruments are
more complex than others, and for those instruments that have been developed
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recently, data is lacking regarding their actual performance over complete
market cycles. Northern will evaluate the risks presented by the derivative
instruments purchased by the Portfolios, and will determine, in connection with
its day-to-day management of the Portfolios, how they will be used in
furtherance of the Portfolios' investment objectives. It is possible, however,
that Northern's evaluations will prove to be inaccurate or incomplete and, even
when accurate and complete, it is possible that the Portfolios will, because of
the risks discussed above, incur loss as a result of their investments in
derivative instruments.
ILLIQUID OR RESTRICTED SECURITIES. A Portfolio will not invest more than 10% of
its net assets in securities which are illiquid, including repurchase
agreements and time deposits that do not provide for payment to the Trust
within seven days after notice and certificates of participation for which
there is no readily available secondary market and certain securities which are
subject to trading restrictions because they are not registered under the
Securities Act of 1933 (the "1933 Act"). In accordance with the current
position of the staff of the SEC, municipal custodial receipts representing
rights only to either future interest or to future principal payments will be
considered illiquid.
If otherwise consistent with its investment objective and policies, the
Portfolios may purchase commercial paper issued pursuant to Section 4(2) of the
1933 Act and securities that are not registered under the 1933 Act but can be
sold to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. These securities will not be considered illiquid so long as Northern
determines, under guidelines approved by the Trust's Board of Trustees, that an
adequate trading market exists. This practice could increase the level of
illiquidity during any period that qualified institutional buyers become
uninterested in purchasing these securities.
MISCELLANEOUS. Although the Portfolios will generally not seek profits through
short-term trading, each Portfolio may dispose of any portfolio security prior
to its maturity if, on the basis of a revised credit evaluation of the issuer
or other considerations, Northern believes such disposition is advisable.
Subsequent to its purchase, a portfolio security may be assigned a lower rating
or cease to be rated. Such an event would not necessarily require the
disposition of the security, if the continued holding of the security is
determined to be in the best interest of the Portfolio and its unitholders.
In determining the creditworthiness of the issuers of portfolio securities that
may be purchased and held by the Portfolios, Northern gathers and reviews
historical financial data and, through the use of a proprietary software
computer program, analyzes and attempts to assess the fundamental strengths and
weaknesses of individual issuers, industries and market sectors. Exposure
limits are established by Northern for each security in conformance with the
objectives and policies stated in this Prospectus, and are thereafter adjusted
periodically in response to changes in relevant credit factors.
The Portfolios do not intend to purchase certificates of deposit of Northern or
its affiliate banks, commercial paper issued by Northern's parent holding
company or other securities issued or guaranteed by Northern, its parent
holding company or their subsidiaries or affiliates.
INVESTMENT RESTRICTIONS
The Portfolios are subject to certain investment restrictions which, as
described in more detail in the Additional Statement, are fundamental policies
that cannot be changed without the approval of a majority of
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the outstanding units of a Portfolio. Each Portfolio will limit its investments
so that less than 25% of the Portfolio's total assets will be invested in the
securities (other than U.S. Government securities and repurchase agreements
collateralized by such securities) of issuers in any one industry. Each
Portfolio may borrow money from banks for temporary or emergency purposes or to
meet redemption requests, provided that the Portfolio maintains asset coverage
of at least 300% for all such borrowings.
TRUST INFORMATION
BOARD OF TRUSTEES
The business and affairs of the Trust and each Portfolio are managed under the
direction of the Trust's Board of Trustees. The Additional Statement contains
the name of each Trustee and background information regarding the Trustees.
INVESTMENT ADVISER, TRANSFER AGENT AND CUSTODIAN
Northern, which has offices at 50 S. LaSalle Street, Chicago, Illinois 60675,
serves as investment adviser, transfer agent and custodian for each Portfolio.
As transfer agent, Northern performs various unitholder servicing functions,
and any unitholder inquiries should be directed to it.
Northern, a member of the Federal Reserve System, is an Illinois state-
chartered commercial bank and the principal subsidiary of Northern Trust
Corporation, a bank holding company. Northern was formed in 1889 with
capitalization of $1 million. As of December 31, 1996, Northern Trust
Corporation and its subsidiaries had approximately $21.6 billion in assets,
$13.8 billion in deposits and employed over 6,900 persons.
Northern administered in various capacities (including as master trustee,
investment manager or custodian) approximately $778.9 billion of assets as of
December 31, 1996, including approximately $130.3 billion of assets for which
Northern had investment management responsibility. Included in managed assets
were approximately $69 billion of money market instruments.
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 the Portfolios and placing purchase and sale orders
for portfolio securities. Northern is also responsible for monitoring and
preserving the records required to be maintained under the regulations of the
SEC (with certain exceptions unrelated to its activities for the Trust). As
compensation for its advisory services and its assumption of related expenses,
Northern is entitled to a fee, computed daily and payable monthly, at an annual
rate of .25% of the average daily net assets of each Portfolio.
For serving as investment adviser during the fiscal year ended November 30,
1996, Northern earned fees paid by the Government Portfolio, the Diversified
Assets Portfolio and the Tax-Exempt Portfolio at the rate of .25% (per annum)
of each Portfolio's average daily net assets. For serving as investment adviser
during the fiscal year ended November 30, 1996, Northern earned fees (after
waivers) paid by the Government Select Portfolio at the rate of .10% (per
annum) of its average daily net assets.
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ADMINISTRATOR AND DISTRIBUTOR
Goldman Sachs, 85 Broad Street, New York, New York 10004, acts as administrator
and distributor for the Portfolios. Subject to the limitations described below,
as compensation for its administrative services (which include supervision with
respect to the Trust's non-investment advisory operations) and the assumption
of related expenses, Goldman Sachs is entitled to a fee from each Portfolio,
computed daily and payable monthly, at an annual 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. No compensation is payable by the Trust to Goldman Sachs for its
distribution services.
Goldman Sachs has agreed in its Administration Agreement with the Trust that if
in any fiscal year the sum of a Portfolio's expenses (including the fees
payable to Goldman Sachs as Administrator, but excluding the fees payable to
Northern for its duties as investment adviser and taxes, interest, brokerage
expenses relating to the purchase and sale of securities and extraordinary
expenses such as for litigation) exceeds on an annualized basis .10% of such
Portfolio's average daily net assets for such fiscal year, it will reimburse
such Portfolio for the amount of the excess. In addition, as stated under
"Highlights--Summary of Expenses," Northern intends to voluntarily reduce its
advisory fee for the Government Select Portfolio during the Trust's current
fiscal year. The result of these reimbursement and fee reductions will be to
increase the yields of the Portfolios during the periods for which the
reimbursements and reductions are made.
INVESTING
PURCHASE OF UNITS
Units are offered to Northern, its affiliates and other institutions and
organizations (the "Institutions") acting on behalf of their customers,
clients, employees and others (the "Customers") and for their own account.
Units of the Portfolios are sold on a continuous basis by the Trust's
distributor, Goldman Sachs, to Institutions that either maintain certain
qualified accounts with Northern or its affiliates or invest an aggregate of at
least $5 million in one or more Portfolios of the Trust. Goldman Sachs has
established procedures for purchasing units in order to accommodate different
types of Institutions.
PURCHASE OF UNITS THROUGH QUALIFIED ACCOUNTS. Any Institution maintaining a
qualified account at Northern or an affiliate may make purchases through such
qualified account either by directing automatic investment of cash balances in
excess of certain agreed upon amounts or by directing investments from time to
time on a non-automatic basis. The nature of an Institution's relationship with
Northern or an affiliate will determine whether the Institution maintains a
qualified account as well as the procedures available for purchases.
Institutions should contact Northern or an affiliate for further information in
this regard. There is no minimum initial investment for Institutions that
maintain qualified accounts with Northern or its affiliates.
PURCHASE OF UNITS DIRECTLY FROM THE TRUST. An Institution that purchases units
directly may do so by means of one of the following procedures, provided it
makes an aggregate minimum initial investment of $5 million in one or more
Portfolios of the Trust:
PURCHASE BY MAIL. An Institution desiring to purchase units of a Portfolio
by mail should mail a check or Federal Reserve draft payable to the
specific Portfolio together with a completed and signed new
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account application to The Benchmark Funds, c/o The Northern Trust Company,
P.O. Box 75943, Chicago, Illinois 60675-5943. An application will be
incomplete if it does not include a corporate resolution with the corporate
seal and secretary's certification within the preceding 30 days, or other
acceptable evidence of authority. If an Institution desires to purchase the
units of more than one Portfolio, the Institution should send a separate
check for each Portfolio. All checks must be payable in U.S. dollars and
drawn on a bank located in the United States. A $20 charge will be imposed
if a check does not clear. The proceeds of redemptions of units purchased
by check may be delayed up to 15 days to allow the Trust to determine that
the check has cleared and been paid. Cash and third party checks are not
acceptable for the purchase of Trust units.
PURCHASE BY TELEPHONE. An Institution desiring to purchase units of a
Portfolio by telephone should call Northern acting as the Trust's transfer
agent ("Transfer Agent") at 1-800-637-1380. Please be prepared to identify
the name of the Portfolio with respect to which units are to be purchased
and the manner of payment. Please indicate whether a new account is being
established or an additional payment is being made to an existing account.
If an additional payment is being made to an existing account, please
provide the Institution's name and Portfolio Account Number. Purchase
orders are effected upon receipt by the Transfer Agent of Federal funds or
other immediately available funds in accordance with the terms set forth
below.
PURCHASE BY WIRE OR ACH TRANSFER. An Institution desiring to purchase units
of a Portfolio by wire or ACH Transfer should call the Transfer Agent at 1-
800-637-1380 for instructions if it is not making an additional payment to
an existing account. An Institution that wishes to add to an existing
account should wire Federal funds or effect an ACH Transfer to:
The Northern Trust Company
Chicago, Illinois
ABA Routing No. 0710-00152
(Reference 10 Digit Portfolio Account Number)
(Reference Unitholder's Name)
For other information concerning requirements for the purchase of units,
call the Transfer Agent at 1-800-637-1380.
EFFECTIVE TIME OF PURCHASES. A purchase order for Portfolio units placed with
the Transfer Agent by 1:00 p.m., Chicago time, on a Business Day (as defined
under "Miscellaneous") will be effected on that Business Day at the net asset
value next determined on that day with respect to a Portfolio, provided that
the Transfer Agent receives the purchase price in Federal funds or other
immediately available funds prior to 1:00 p.m., Chicago time, on the same
Business Day such order is received. Orders received after 1:00 p.m. on a
Business Day will be effected at the net asset value next determined on the
following Business Day, provided that payment is received as provided herein.
Purchase orders received on a non-Business Day will not be executed until the
following Business Day in accordance with the foregoing procedures. An order
generated pursuant to an automatic investment direction of an Institution that
has a qualified account with Northern or its affiliates will normally be placed
either on the Business Day that funds are available in such account or on the
first Business Day thereafter, depending upon the terms of the Institution's
automatic investment
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arrangements. Units of a Portfolio are entitled to the dividends declared by
the Portfolio beginning on the Business Day the purchase order is executed.
MISCELLANEOUS PURCHASE INFORMATION. Units are purchased without a sales charge
imposed by the Trust. The minimum initial investment is $5 million for
Institutions that invest directly in one or more investment portfolios of the
Trust. The Trust reserves the right to waive this minimum and to determine the
manner in which the minimum investment is satisfied. There is no minimum for
subsequent investments.
Institutions intending to place a purchase order of $5 million or more directly
with the Trust through the Transfer Agent are requested to give advance notice
to the Transfer Agent no later than 11:00 a.m. Chicago Time on a Business Day
in order to assist in the processing of the order.
Institutions may impose minimum investment and other requirements on Customers
purchasing units through them. Depending on the terms governing the particular
account, Institutions may impose account charges such as asset allocation fees,
account maintenance fees, compensating balance requirements or other charges
based upon account transactions, assets or income, which will have the effect
of reducing the net return on an investment in a Portfolio. The exercise of
voting rights and the delivery to Customers of unitholder communications from
the Trust will be governed by the Customers' account agreements with the
Institutions. Customers should read this Prospectus in connection with any
relevant agreement describing the services provided by an Institution and any
related requirements and charges, or contact the Institution at which the
Customer maintains its account for further information.
Institutions that purchase units on behalf of Customers are responsible for
transmitting purchase orders to the Transfer Agent and delivering required
Federal funds on a timely basis. An Institution will be responsible for all
losses and expenses of a Portfolio as a result of a check that does not clear,
an ACH transfer that is rejected, or any other failure to make payment in the
time and manner described above, and Northern may redeem units from an account
it maintains to protect the Portfolio and Northern against loss. The Trust
reserves the right to reject any purchase order. In those cases in which an
Institution pays for units by check, Federal funds will generally become
available two Business Days after a purchase order is received. Federal
regulations require that the Transfer Agent be furnished with a taxpayer
identification number upon opening or reopening an account. Purchase orders
without such a number or an indication that a number has been applied for will
not be accepted. If a number has been applied for, the number must be provided
and certified within sixty days of the date of the order.
Payment for units of the Portfolio may, in the discretion of Northern, be made
in the form of securities that are permissible investments for the Portfolio.
For further information about the terms of such purchases, see the Additional
Statement.
In the interests of economy and convenience, certificates representing units of
the Portfolios are not issued.
Institutions investing in the Portfolios on behalf of their Customers should
note that state securities laws regarding the registration of dealers may
differ from the interpretations of Federal law and such institutions may be
required to register as dealers pursuant to state law.
Northern may, at its own expense, provide compensation to certain dealers whose
customers purchase significant amounts of units of a Portfolio. The amount of
such compensation may be made on a one-time and/or periodic basis, and may
represent all or a portion of the annual fees that are earned by Northern as
investment adviser to such Portfolio (after adjustments) and are attributable
to units held by such customers. Such compensation will not represent an
additional expense to the Trust or its unitholders, since it will be paid from
assets of Northern or its affiliates.
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REDEMPTION OF UNITS
Institutions may redeem units of a Portfolio through procedures established by
Northern and its affiliates in connection with the requirements of their
qualified accounts or through procedures set forth herein with respect to
Institutions that invest directly.
REDEMPTION OF UNITS THROUGH QUALIFIED ACCOUNTS. Institutions may redeem units
in their qualified accounts at Northern or its affiliates. For Institutions
that participate in an automatic investment service described above under
"Purchase of Units," Northern or its affiliates will calculate on each Business
Day the number of units that need to be redeemed in order to bring the
Institution's account up to any agreed upon minimum amount. Redemption requests
on behalf of an Institution will normally be placed either on the Business Day
the redemption amount is calculated or on the first Business Day thereafter,
depending upon the terms of the Institution's automatic investment
arrangements. In the latter case, however, Northern or its affiliates normally
will provide funds by provisionally crediting the qualified account of the
Institution on the Business Day on which the calculation is made. The nature of
an Institution's relationship with Northern or an affiliate will determine
whether the Institution maintains a "qualified account" as well as the
procedures available for redemptions. Institutions should contact Northern or
an affiliate for further information in this regard.
REDEMPTION OF UNITS DIRECTLY. Institutions that purchase units directly from
the Trust through the Transfer Agent may redeem all or part of their Portfolio
units in accordance with the procedures set forth below.
REDEMPTION BY MAIL. An Institution may redeem units by sending a written
request to The Benchmark Funds, c/o The Northern Trust Company, P.O. Box
75943, Chicago, Illinois 60675-5943. Redemption requests must be signed by
a duly authorized person, and must state the number of units or the dollar
amount to be redeemed and identify the Portfolio Account Number. See "Other
Requirements."
REDEMPTION BY TELEPHONE. An Institution may redeem units by placing a
redemption order by telephone by calling the Transfer Agent at 1-800-637-
1380. During periods of unusual economic or market changes, telephone
redemptions may be difficult to implement. In such event, unitholders
should follow procedures outlined above under "Redemption by Mail."
REDEMPTION BY WIRE. If an Institution has given authorization for expedited
wire redemption, units can be redeemed and the proceeds sent by Federal
wire transfer to a single previously designated bank account. The minimum
amount which may be redeemed by this method is $10,000. The Trust reserves
the right to change or waive this minimum or to terminate the wire
redemption privilege. See "Other Requirements."
TELEPHONE PRIVILEGE. An Institution that has notified the Transfer Agent in
writing of the Institution's election to redeem or exchange units by
placing an order by telephone may do so by calling the Transfer Agent at
1-800-637-1380. Neither the Trust nor its Transfer Agent will be
responsible for the authenticity of instructions received by telephone that
are reasonably believed to be genuine. To the extent that the Trust fails
to use reasonable procedures to verify the genuineness of telephone
instructions, it or its service providers may be liable for such
instructions that prove to be fraudulent or unauthorized. In all other
cases, the unitholder will bear the risk of loss for fraudulent telephone
transactions. However, the Transfer Agent has adopted procedures in an
effort to establish reasonable safeguards against fraudulent
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telephone transactions. The proceeds of redemption orders received by
telephone will be sent by check, by wire or by transfer pursuant to proper
instruments. All checks will be made payable to the unitholder of record
and mailed only to the unitholder's address of record. See "Other
Requirements." Additionally, the Transfer Agent utilizes recorded lines for
telephone transactions and retains such tape recordings for six months, and
will request a form of identification if such identification has been
furnished to the Transfer Agent or the Trust.
OTHER REQUIREMENTS. A change of wiring instructions and a change of the
address of record may be effected only by a written request to the Transfer
Agent accompanied by (i) a corporate resolution which evidences authority
to sign on behalf of the Institution (including the corporate seal and
secretary's certification within the preceding 30 days), (ii) a signature
guarantee by a financial institution that is a participant in the Stock
Transfer Agency Medallion Program ("STAMP") in accordance with rules
promulgated by the SEC (a signature notarized by a notary public is not
acceptable) or (iii) such other means or evidence of authority as may be
acceptable to the Transfer Agent. A redemption request by mail will not be
effective unless signed by a person authorized by the corporate resolution
or other acceptable evidence of authority on file with the Transfer Agent.
EXCHANGE PRIVILEGE. Institutions and, to the extent permitted by their account
agreements, Customers, may, after appropriate prior authorization, exchange
units of a Portfolio having a value of at least $1,000 for units of certain
other portfolios of the Trust as to which the Institution or Customer maintains
an existing account with an identical title.
Exchanges will be effected by a redemption of units of the portfolio held and
the purchase of units of the portfolio acquired. Customers of Institutions
should contact their Institutions for further information regarding the Trust's
exchange privilege and Institutions should contact the Transfer Agent as
appropriate. Customers and Institutions exercising the exchange privilege
should read the relevant Prospectus prior to making an exchange. The Trust
reserves the right to modify or terminate the exchange privilege at any time
upon 60 days' written notice to unitholders of record and to reject any
exchange request. Exchanges are only available in states where an exchange can
legally be made.
EFFECTIVE TIME OF REDEMPTIONS AND EXCHANGES. Redemption orders of Portfolio
units are effected at the net asset value per unit next determined after
receipt in good order by the Transfer Agent. Good order means that the request
includes the following: the account number and Portfolio name; the amount of
the transaction (as specified in dollars or units); and the signature of a duly
authorized person (except for telephone and wire redemptions). See "Investing--
Redemption of Units--Other Requirements." Exchange orders are effected at the
net asset value per unit next determined after receipt in good order by the
Transfer Agent. Payment for redeemed units for which a redemption order is
received by Northern with respect to a qualified account it maintains or the
Transfer Agent as of 1:00 p.m., Chicago time, on a Business Day normally will
be made in Federal funds or other immediately available funds wired or sent by
check to the redeeming unitholder or, if selected, the unitholder's qualified
account with Northern on that Business Day. Redemption orders received after
1:00 p.m. will be effected the next Business Day. Proceeds for redemption
orders received on a non-Business Day will normally be sent on the next
Business Day after receipt in good order.
MISCELLANEOUS REDEMPTION INFORMATION. All redemption proceeds will be sent by
check unless Northern or the Transfer Agent is directed otherwise. The ACH
system may be utilized for payment of redemption
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proceeds. Redemption of units may not be effected if a unitholder has failed to
submit a completed and properly executed (with corporate resolution or other
acceptable evidence of authority) new account application. Institutions
intending to place exchange and redemption orders for same day proceeds of $5
million or more directly with the Trust through the Transfer Agent are
requested to give advance notice to the Transfer Agent no later than 11:00 a.m.
Chicago Time on a Business Day. The proceeds of redemptions of units purchased
by check may be delayed up to 15 days to allow the Trust to determine that the
check has cleared and been paid. The Trust reserves the right to defer
crediting, sending or wiring redemption proceeds for up to seven days after
receiving a redemption order if, in its judgment, an earlier payment could
adversely affect a Portfolio.
The Trust may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Dividends on units are earned through and
including the day prior to the day on which they are redeemed.
It is the responsibility of Institutions acting on behalf of Customers to
transmit redemption orders to the Transfer Agent and to credit Customers'
accounts with the redemption proceeds on a timely basis. If a Customer has
agreed with a particular Institution to maintain a minimum balance in his
account at such Institution and the balance in such account falls below that
minimum, such Customer may be obliged to redeem all or part of his units to the
extent necessary to maintain the required minimum balance.
DISTRIBUTIONS
Unitholders of each Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the particular Portfolio. Dividends from each Portfolio's net income
are declared daily as a dividend to unitholders of record at the close of
business on the days the dividends are declared (or 3:00 p.m., Chicago time, on
non-Business Days).
Net income of each Portfolio includes interest accrued on the assets of such
Portfolio less the estimated expenses charged to such Portfolio. Net realized
short-term capital gains of each Portfolio will be distributed at least
annually. The Portfolios do not expect to realize net long-term capital gains.
Dividends declared during a calendar month (including dividends with respect to
units redeemed at any time during the month) will be paid as soon as
practicable following the end of the month. All distributions are paid by each
Portfolio in cash or are automatically reinvested (without any sales charge) in
additional units of the same Portfolio. Arrangements may be made for the
crediting of such distributions to a unitholder's account with Northern, its
affiliates or its correspondent banks.
TAXES
Management of the Trust intends that each Portfolio will qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code") as long as such qualification is in the best interest of
the Portfolio's unitholders. Such qualification generally relieves each
Portfolio of liability for Federal income taxes to the extent its earnings are
distributed in accordance with the Code, but unitholders, unless otherwise
exempt, will pay income taxes on amounts so distributed (except distributions
that constitute "exempt-interest dividends" or that are treated as a return of
capital). Dividends paid from net short-term capital gains are treated as
ordinary income dividends. None of the Portfolios' distributions will be
eligible for the corporate dividends received deduction.
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The Tax-Exempt Portfolio intends to pay substantially all of its dividends as
"exempt-interest dividends." Investors in the Portfolio should note, however,
that taxpayers are required to report the receipt of tax-exempt interest and
"exempt-interest dividends" on their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
taxable to persons subject to alternative minimum and environmental taxes.
First, tax-exempt interest and "exempt-interest dividends" derived from certain
private activity bonds issued after August 7, 1986 generally will constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
alternative minimum and environmental tax liability. Second, all tax-exempt
interest and "exempt-interest dividends" must be taken into account by
corporate taxpayers in determining certain adjustments for alternative minimum
and environmental tax purposes. Unitholders who are recipients of Social
Security Act or Railroad Retirement Act benefits should note that tax-exempt
interest and "exempt-interest dividends" will be taken into account in
determining the taxability of their benefit payments. To the extent, if any,
that dividends paid by the Tax-Exempt Portfolio to its unitholders are derived
from taxable interest or from capital gains, such dividends will be subject to
Federal income tax, whether received in cash or reinvested in additional units.
The Tax-Exempt Portfolio will determine annually the percentages of its net
investment income which is exempt from the regular Federal income tax, which
constitutes an item of tax preference for purposes of the Federal alternative
minimum tax, and which is fully taxable and will apply such percentages
uniformly to all distributions declared from net investment income during that
year. These percentages may differ significantly from the actual percentages
for any particular day.
The Trust will send written notices to unitholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to unitholders of record on a
specified date in those months will be deemed for Federal tax purposes to have
been paid by a Portfolio and to have been received by the unitholders on
December 31 of that year, if the dividends are actually paid during the
following January.
The foregoing discussion is only a brief summary of some of the important tax
considerations generally affecting the Portfolios and their unitholders and is
not intended as a substitute for careful tax planning. Accordingly, investors
should consult their tax advisers with specific reference to their own Federal,
state and local tax situation. In particular, although the Government Select
Portfolio intends to invest primarily in U.S. Government securities the
interest on which is generally exempt from state income taxation, an investor
should consult his or her own tax adviser to determine whether distributions
from the Portfolio are exempt from state income taxation in the investor's own
situation. Similarly, dividends paid by the Portfolios may be taxable to
investors under state or local law as dividend income even though all or a
portion of such dividends may be derived from interest on obligations which, if
realized directly, would be exempt from such income taxes. Future legislative
or administrative changes or court decisions may materially affect the tax
consequences of investing in one or more of the Portfolios.
NET ASSET VALUE
The net asset value per unit of each Portfolio for purposes of purchases and
redemptions is calculated by Northern as of 3:00 p.m., Chicago time,
immediately after the declaration of net income earned by unitholders of
record, on each Business Day (as defined below under "Miscellaneous"), except
for days during which no
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units are tendered to the Portfolio for redemption and no orders to purchase
or sell units are received by the Portfolio and except for days on which there
is an insufficient degree of trading in the Portfolio's securities for changes
in the value of such securities to materially affect the net asset value per
unit. Net asset value per unit of each Portfolio is calculated by adding the
value of all securities and other assets of the Portfolio, subtracting the
liabilities of the Portfolio and dividing by the number of units of the
Portfolio outstanding.
In seeking to maintain a net asset value of $1.00 per unit with respect to
each Portfolio for purposes of purchases and redemptions, the Trust values the
portfolio securities held by a Portfolio pursuant to the amortized cost
method. Under this 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 of maturity. See "Amortized Cost
Valuation" in the Additional Statement. There can be no assurance that a
Portfolio will be able at all times to maintain a net asset value per unit of
$1.00.
PERFORMANCE INFORMATION
From time to time the Portfolios may advertise their "yields" and "effective
yields" and the Government Select Portfolio and Tax-Exempt Portfolio may
advertise their "tax-equivalent yields." These yield figures will fluctuate,
are based on historical earnings and are not intended to indicate future
performance. "Yield" refers to the net investment income generated by an
investment in the Portfolio over a seven-day period identified in the
advertisement. This net investment income is then "annualized." That is, the
amount of net investment income generated by the investment during that week
is assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. "Effective yield" is calculated similarly but,
when annualized, the net investment income earned by an investment in the
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. The "tax-equivalent yield" demonstrates the level of taxable
yield necessary to produce an after-tax yield equivalent to a Portfolio's tax-
free yield. It is calculated by taking that portion of the seven-day "yield"
which is tax-exempt and adjusting it to reflect the tax savings associated
with a stated tax rate. The "tax-equivalent yield" will always be higher than
the Portfolio's yield.
The Portfolios' yields may not provide a basis for comparison with bank
deposits and other investments which provide a fixed yield for a stated period
of time. Yield will be affected by portfolio quality, composition, maturity,
market conditions and the level of the Portfolio's operating expenses.
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<PAGE>
ORGANIZATION
The Trust was formed as a Massachusetts business trust on July 15, 1982 under
an Agreement and Declaration of Trust (the "Trust Agreement"). The Trust offers
seventeen separate series of units of beneficial interest, representing
interests in seventeen investment portfolios, four of which are described in
this prospectus; the other series of units are described in separate
prospectuses. The Trust's Tax-Exempt Portfolio is the successor to a separate
series of The Benchmark Tax-Exempt Fund, which was organized on July 15, 1982
and which transferred its assets and liabilities to the Tax-Exempt Portfolio
pursuant to a reorganization on October 5, 1990.
The Trust Agreement permits the Board of Trustees to issue an unlimited number
of units of beneficial interest of each of the Trust's series. The Trust
Agreement further authorizes the Board of Trustees to classify or reclassify
any unissued units into any number of additional series of units. Each unit of
a Portfolio is without par value, represents an equal proportionate interest in
that Portfolio and is entitled to such dividends and distributions earned on
such Portfolio's assets as are declared in the discretion of the Board of
Trustees.
The Trust's unitholders are entitled to one vote for each full unit held and
proportionate fractional votes for fractional units held. Each series entitled
to vote on a matter will vote thereon in the aggregate and not by series,
except as otherwise required by law or when the matter to be voted on affects
only the interests of unitholders of a particular series. The Additional
Statement gives examples of situations in which the law requires voting by
series. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate units of the Trust may elect all of the Trustees
irrespective of the vote of the other unitholders.
As of March 1, 1997, Northern possessed sole or shared voting or investment
power for its customer accounts with respect to more than 50% of the
outstanding units of the Trust.
The Trust does not presently intend to hold annual meetings of unitholders
except as required by the 1940 Act or other applicable law. Pursuant to the
Trust Agreement, the Trustees will promptly call a meeting of unitholders to
vote upon the removal of any Trustee when so requested in writing by the record
holders of 10% or more of the outstanding units. To the extent required by law,
the Trust will assist in unitholder communications in connection with such a
meeting.
The Trust Agreement provides that each unitholder, by virtue of becoming such,
will be held to have expressly assented and agreed to the terms of the Trust
Agreement and to have become a party thereto.
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<PAGE>
MISCELLANEOUS
The address of the Trust is 4900 Sears Tower, Chicago, Illinois 60606 and the
telephone number is 1-800-621-2550.
As used in this Prospectus, the term "Business Day" refers to each day when
Northern and the New York Stock Exchange are open, which is Monday through
Friday, except for holidays observed by Northern and/or the Exchange other than
Good Friday. For 1997, the holidays of Northern and/or the Exchange are: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving and
Christmas Day. Notice of purchase or redemption orders to be executed on Good
Friday, or any other day Northern is open for business and the Exchange is
closed must be received by the Transfer Agent no later than 11:00 a.m. Chicago
time on the prior Business Day if the amount of the order is in excess of
$1,000,000. On those days when Northern or the Exchange closes early as a
result of unusual weather or other circumstances, the right is reserved to
advance the time on that day by which purchase and redemption requests must be
received. In addition, on any Business Day when the Public Securities
Association (PSA) recommends that the securities markets close early, the
Portfolios reserve the right to cease or to advance the deadline for accepting
purchase and redemption orders for same Business Day credit up to one hour
before the PSA recommended closing time. Purchase and redemption requests
received after the advanced closing time will be effected on the next Business
Day.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS 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. THIS 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.
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