<PAGE>
As filed with the Securities and Exchange Commission on
January 14, 1997
1933 Act Registration No. 2-80543
1940 Act Registration No. 811-3605
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933 ( )
Post-Effective Amendment No. 32 ( X )
and/or
REGISTRATION STATEMENT
UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 33 ( X )
(Check appropriate box or boxes)
____________________
THE BENCHMARK FUNDS
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606
(Address of principal executive offices)
(Registrant's Telephone Number, including Area Code)
800-621-2550
-----------------------------------
Michael J. Richman, Secretary with a copy to:
Goldman Sachs Asset Management W. Bruce McConnel, III
85 Broad Street Drinker Biddle & Reath
New York, NY 10004 Suite 1100
1345 Chestnut Street
Philadelphia, PA
19107-3496
(name and address of agent for service)
The Index to Exhibits is located on page ____.
Page 1 of ___ total pages.
<PAGE>
It is proposed that this filing will become effective
(check appropriate box)
( ) immediately upon filing pursuant to paragraph (b)
( ) on (date) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) On (date)pursuant to paragraph (a)(1)
(x) 75 days after filing pursuant to paragraph (a)(2) of Rule 485
( ) On (date) pursuant to paragraph (a)(2) of Rule 485
=================================================================
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of its units of beneficial interest under the
Securities Act of 1933. On January 29, 1996, Registrant filed a Rule 24f-2
Notice for its fiscal year ended November 30, 1995. Registrant continues its
election to register an indefinite number of units of beneficial interest
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
<PAGE>
U.S. TREASURY INDEX PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Organization
Management of the Fund Trust Information
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
<PAGE>
U.S. GOVERNMENT SECURITIES PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
SHORT-INTERMEDIATE BOND PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
BOND PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
SHORT DURATION PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
INTERNATIONAL BOND PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
BALANCED PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
EQUITY INDEX PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
DIVERSIFIED GROWTH PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
FOCUSED GROWTH PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
SMALL COMPANY INDEX PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
INTERNATIONAL GROWTH PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
<TABLE>
<CAPTION>
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registration Summary of Expenses;
Investment Information;
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY INDEX PORTFOLIO
CROSS REFERENCE SHEET
- ---------------------
Form N-1A
Part A
Item Prospectus Caption
- --------- ------------------
<S> <C>
Cover Page Cover Page
Synopsis Summary of Expenses
Condensed Financial Information Financial Highlights
[**1]General Description of Registration Summary of Expenses;
Investment Information;
Organization
Management of the Fund Trust Information
Capital Stock and Other Securities Trust Information;
Investing; Net Asset
Value; Organization
Purchase of Securities Being Offered Trust Information;
Investing; Net Asset
Value
Redemption Repurchase Investing
Pending Legal Proceedings Not Applicable
</TABLE>
<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 six fixed income, one balanced and six equity
portfolios (the "Portfolios") 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 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 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 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 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.
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
50 S. LaSalle Street INVESTMENT ADVISER, TRANSFER AGENT AND
Chicago, Illinois 60675 CUSTODIAN
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 equal to 0.75% and 1.00%,
respectively, of the amount invested.
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.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES 3
- -------------------
FINANCIAL HIGHLIGHTS 9
- --------------------
INVESTMENT INFORMATION 20
- ----------------------
Introduction 20
Short Duration Portfolio 20
U.S. Government Securities Portfo-
lio 21
Short-Intermediate Bond Portfolio 22
U.S. Treasury Index Portfolio 22
Bond Portfolio 22
International Bond Portfolio 23
Balanced Portfolio 24
Equity Index Portfolio 25
Diversified Growth Portfolio 25
Focused Growth Portfolio 26
Small Company Index Portfolio 26
International Equity Index Portfo-
lio 27
International Growth Portfolio 28
Special Risks and Other Considera-
tions 29
Description of Securities and
Common Investment Techniques 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions 43
TRUST INFORMATION 43
- -----------------
Board of Trustees 43
Investment Adviser, Transfer Agent
and Custodian 43
Portfolio Managers 45
Administrator and Distributor 45
Unitholder Servicing Plan 46
Service Information 47
INVESTING 47
- ---------
Purchase of Units 47
Redemption of Units 50
Distributions 52
Taxes 53
NET ASSET VALUE 55
- ---------------
PERFORMANCE INFORMATION 55
- -----------------------
ORGANIZATION 57
- ------------
MISCELLANEOUS 58
- -------------
</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 other than the
Short Duration 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>
Short
Duration 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> <C>
Unitholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None 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 None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None None
Redemption Fees........ None None None None None None None None None
Exchange Fees.......... None 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(1,2)... .15% .25% .25% .25% .25% .25% .25% .25% .25%
12b-1 Fees............. None None None None None None None None None
Servicing Fees(5)...... None None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(5)............... N/A .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(3)..... .10% .10% .10% .10% .10% .10% .10% .10% .10%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Operating
Expenses(1,2,3,5)... .25% .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............... $3 $4 $5 $6 $8 $4 $5 $6 $8
Three Years............ $8 $12 $16 $19 $24 $12 $16 $19 $24
Five Years............. $14 $20 $28 $33 $42 $20 $28 $33 $42
Ten Years.............. $32 $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(1,2)... .15% .15% .15% .15% .25% .25% .25% .25%
12b-1 Fees............. None None None None None None None None
Servicing Fees(5)...... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(5)............... .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(3)..... .10% .10% .10% .10% .10% .10% .10% .10%
---- ---- ---- ---- ---- ---- ---- ----
Total Operating
Expenses(1,2,3,5)... .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(1,2)... .70% .70% .70% .70% .50% .50% .50% .50%
12b-1 Fees............. None None None None None None None None
Servicing Fees(5)...... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(5)............... .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(3)..... .25% .25% .25% .25% .10% .10% .10% .10%
---- ----- ----- ----- ---- ---- ---- -----
Total Operating
Expenses(1,2,3,5)... .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 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(5)...... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(5)............... .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(3)..... .11% .11% .11% .11% .13% .13% .13% .13%
---- ---- ---- ---- ---- ---- ---- -----
Total Operating
Expenses(1,2,3,5,6). .22% .36% .46% .61% .69% .83% .93% 1.08%
==== ==== ==== ==== ==== ==== ==== =====
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 $22 $26 $30 $34
Five Years............. $12 $20 $26 $34 $38 $46 $51 $60
Ten Years.............. $28 $46 $58 $76 $86 $103 $114 $132
</TABLE>
<TABLE>
<CAPTION>
Focused Growth Small Company Index
------------------------------- -----------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Units Units Units Units Units(2) Units(2) Units(2) Units(2)
------- ------- ------- ------- -------- -------- -------- --------
<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)(4).......... 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(3)..... .80% .80% .80% .80% .20% .20% .20% .20%
12b-1 Fees............. None None None None None None None None
Servicing Fees(5)...... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(5)............... .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(3)..... .10% .10% .10% .10% .11% .11% .11% .11%
---- ----- ----- ----- ---- ---- ---- ----
Total Operating
Expenses(1,2,3,5,6). .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 $26 $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 Im-
posed on Purchases........ None None None None None None None None
Additional Transaction Fee
(as a percentage of
amount invested)(4)....... 1.00% 1.00% 1.00% 1.00% None None None None
Deferred Sales Charge Im-
posed on Reinvested Dis-
tributions................ None None None None None None None None
Deferred Sales Charge Im-
posed 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(5).......... None .10% .15% .25% None .10% .15% .25%
Transfer Agency Fees(5).... .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After Ex-
pense Reimbursements and
Fee Reductions(3)......... .25% .25% .25% .25% .25% .25% .25% .25%
--------- --------- --------- --------- ----- ----- ----- -----
Total Operating
Expenses(1,2,3,4,5,7,8). .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................... $5 $7 $8 $9 $11 $12 $13 $15
Three Years................ $12 $14 $15 $16 $34 $38 $41 $46
Five Years................. $20 $22 $23 $24 $58 $66 $71 $79
Ten Years.................. $43(8) $45(8) $45(8) $47(8) $129 $145 $157 $174
</TABLE>
6
<PAGE>
- ----------
(1) For the fiscal year ending November 30, 1996, Northern voluntarily reduced
its advisory fee for the Short Duration, U.S. Government Securities,
Short-Intermediate Bond, U.S. Treasury Index, Bond and International Bond
Portfolios to .15%, .25%, .25%, .15%, .25% and .70%, respectively, of the
Portfolios' respective average daily net assets (advisory fees are
otherwise payable at the annual rate of .40%, .60%, .60%, .40%, .60% and
.90%, respectively, of the Portfolios' respective average daily net
assets). For the fiscal year ending November 30, 1996, Northern
voluntarily reduced its advisory fee for the Balanced, Equity Index,
Diversified Growth, Focused Growth, Small Company Index and International
Growth Portfolios to .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 .80%, .30%, .80%, 1.10%, .40% and
1.00%, respectively, of the Portfolios' respective average daily net
assets).
(2) For the fiscal year ending November 30, 1996, Goldman Sachs advised the
Trust that, except with respect to the Short Duration Portfolio, it
intends to voluntarily reduce 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
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 reimbursements.
(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:
Short Duration Portfolio -- 0.40%; U.S. Government Securities Portfolio --
0.48%; Short-Intermediate Bond Portfolio -- 0.30%; U.S. Treasury Index
Portfolio -- 0.48%; Bond Portfolio -- 0.23%; and International Bond
Portfolio -- 0.56%; and the total annual operating expenses would have
been as follows: Short Duration-- 0.80%; U.S. Government Securities Class
A, Class B, Class C and Class D units -- 1.09%, 1.23%, 1.33% and 1.48%,
respectively; Short-Intermediate Bond Class A, Class B, Class C and Class
D units -- 0.91%, 1.05%, 1.15% and 1.30%, respectively; U.S. Treasury
Index Class A, Class B, Class C and Class D units -- 0.89%, 1.03%, 1.13%
and 1.28%, respectively; Bond Class A, Class B, Class C and Class D units
-- 0.84%, 0.98%, 1.08% and 1.23%, respectively; and International Bond
Class A, Class B, Class C and Class D units -- 1.47%, 1.61%, 1.71% and
1.86%, respectively, based on actual expenses incurred during the fiscal
year ended November 30, 1996. For a more complete description of the
Portfolios' expenses, see "Trust Information" in this Prospectus. 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: Balanced
Portfolio .47%; Equity Index Portfolio .23%; Diversified Growth Portfolio
.31%; Focused Growth Portfolio .36%; Small Company Index Portfolio .40%;
and International Growth Portfolio .37%, and the total annual operating
expenses of the Portfolios' units would have been as follows: Balanced
Class A, Class B, Class C and Class D units--1.28%, 1.42%, 1.52% and
1.67%, respectively; Equity Index Class A, Class B, Class C and Class D
units--.54%, .68%, .78% and .93%, respectively; Diversified Growth Class
A, Class B, Class C and Class D units--1.12%, 1.26%, 1.36% and 1.51%,
respectively; Focused Growth Class A, Class B, Class C and Class D units--
1.47%, 1.61%, 1.71% and 1.86%, respectively; Small Company Index Class A,
Class B, Class C and Class D units--.81%, .95%, 1.05% and 1.20%,
respectively; and International Growth Portfolio Class A, Class B, Class C
and Class D units--1.38%, 1.52%, 1.62% and 1.77%, respectively, based on
actual expenses incurred during the fiscal year ended November 30, 1996.
(4) 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".)
(5) 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, Class C and Class 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, Class C and Class D units, respectively of each Portfolio (other than
the Short Duration Portfolio). The Trust also allocates transfer agency
fees, which are attributable to the Class A, Class B, Class C and Class 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.
7
<PAGE>
(6) The actual expense ratios reflected in the above table for each class of
the Equity Index, Diversified Growth and Small Company Index Portfolios
include interest expense of .01%, .03% and .01%, respectively, 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, Class B, Class C and Class D units--.21%,
.35%, .45% and .60% respectively; Diversified Growth Class A, Class B,
Class C, and Class D units--.66%, .80%, .90% and 1.05%, respectively; and
Small Company Index Class A, Class B, Class C and Class D units--.31%,
.45%, .55% and .70%, respectively. Whether such borrowings will occur in
any given year and the actual amount of such 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 D units of the Focused Growth and Small Company Index Portfolios
and Class C 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, 1995.
(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.
(8) Based on estimated amounts for the current fiscal year.
---------------------
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. Information regarding
units other than Class A and Class D units with respect to the Short-
Intermediate Bond, U.S. Treasury, International Bond, Diversified Growth,
Focused Growth, Small Company Index and International Growth Portfolios has
not been given since no such units were outstanding. Information regarding
Class B units other than units with respect to the Bond, U.S. Government
Securities, Balanced and Equity Index Portfolios has not been given since no
such units were outstanding. The Annual Report also contains 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 D
--------------------------- ---------------
1995 1994 1993 (a) 1995 1994(b)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PE-
RIOD $ 19.05 $ 20.07 $ 20.00 $19.05 $19.43
Income from investment opera-
tions:
Net investment income 1.05 0.91 0.55 0.96 0.22
Net realized and unrealized gain
(loss) on
investments 1.02 (1.02) 0.05 1.00 (0.38)
- -------------------------------------------------------------------------------
Total income (loss) from invest-
ment operations 2.07 (0.11) 0.60 1.96 (0.16)
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO UNITHOLDERS
FROM:
Net investment income (1.04) (0.91) (0.53) (0.97) (0.22)
- -------------------------------------------------------------------------------
Total distributions to
unitholders (1.04) (0.91) (0.53) (0.97) (0.22)
- -------------------------------------------------------------------------------
Net increase (decrease) 1.03 (1.02) 0.07 0.99 (0.38)
- -------------------------------------------------------------------------------
Net asset value, end of period $ 20.08 $ 19.05 $ 20.07 $20.04 $19.05
- -------------------------------------------------------------------------------
Total return (c) 11.18% (0.57)% 3.00% 10.66% (.89)%
Ratio to average net assets of:
(d)
Expenses, net of waivers and re-
imbursements 0.36% 0.36% 0.43% 0.75% 0.75%
Expenses, before waivers and
reimbursements 1.09% 1.12% 1.18% 1.48% 1.51%
Net investment income, net of
waivers and reimbursements 5.43% 4.62% 4.18% 5.08% 4.65%
Net investment income, before
waivers and reimbursements 4.70% 3.86% 3.43% 4.35% 3.89%
Portfolio turnover rate 141.14% 45.55% 20.59% 141.14% 45.55%
Net assets at end of period (in
thousands) $56,329 $25,293 $32,479 $ 67 $ 13
- -------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on April 5, 1993.
(b) Class D units were issued on September 15, 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.
9
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
<TABLE>
<CAPTION>
Short-Intermediate Bond Portfolio
---------------------------------------------
Class A Class D
--------------------------- ----------------
1995 1994 1993 (a) 1995 1994 (b)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 19.53 $ 20.33 $ 20.00 $19.53 $19.82
Income from investment opera-
tions:
Net investment income 1.02 0.97 0.85 0.94 0.23
Net realized and unrealized
gain (loss) on investments 1.19 (0.80) 0.31 1.18 (0.27)
- -------------------------------------------------------------------------------
Total income (loss) from in-
vestment operations 2.21 0.17 1.16 2.12 (0.04)
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO UNITHOLDERS
FROM:
Net investment income (1.01) (0.97) (0.83) (0.94) (0.23)
- -------------------------------------------------------------------------------
Total distributions to
unitholders (1.01) (0.97) (0.83) (0.94) (0.23)
- -------------------------------------------------------------------------------
Net increase (decrease) 1.20 (0.80) 0.33 1.18 (0.27)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 20.73 $ 19.53 $ 20.33 $20.71 $19.53
- -------------------------------------------------------------------------------
Total return (c) 11.58% 0.84% 5.90% 11.09% (0.38)%
Ratio to average net assets of:
(d)
Expenses, net of waivers and
reimbursements 0.36% 0.36% 0.36% 0.75% 0.75%
Expenses, before waivers and
reimbursements 0.91% 0.95% 1.00% 1.30% 1.34%
Net investment income, net of
waivers and reimbursements 5.14% 4.84% 4.79% 4.85% 4.42%
Net investment income, before
waivers and reimbursements 4.59% 4.25% 4.15% 4.30% 3.83%
Portfolio turnover rate 54.68% 48.67% 19.48% 54.68% 48.67%
Net assets at end of period (in
thousands) $158,678 $96,209 $107,550 $ 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
--------------------------- ----------------
1995 1994 1993 (a) 1995 1994 (b)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of pe-
riod $ 18.77 $ 21.05 $ 20.00 $18.77 $18.80
Income from investment opera-
tions:
Net investment income 1.11 1.15 0.95 1.00 0.09
Net realized and unrealized gain
(loss) on investments 2.01 (1.93) 1.02 2.03 (0.03)
- --------------------------------------------------------------------------------
Total income (loss) from invest-
ment operations 3.12 (0.78) 1.97 3.03 0.06
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO UNITHOLDERS
FROM:
Net investment income (1.11) (1.14) (0.92) (1.05) (0.09)
Net realized gain on investments -- (0.36) -- -- --
- --------------------------------------------------------------------------------
Total distributions to
unitholders (1.11) (1.50) (0.92) (1.05) (0.09)
- --------------------------------------------------------------------------------
Net increase (decrease) 2.01 (2.28) 1.05 1.98 (0.03)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 20.78 $ 18.77 $ 21.05 $20.75 $18.77
- --------------------------------------------------------------------------------
Total return (c) 16.95% (3.80)% 9.94% 16.43% 0.58%
Ratio to average net assets of:
(d)
Expenses, net of waivers and re-
imbursements 0.26% 0.26% 0.26% 0.65% 0.65%
Expenses, before waivers and re-
imbursements 0.89% 0.79% 0.83% 1.28% 1.18%
Net investment income, net of
waivers and reimbursements 5.09% 5.60% 5.11% 5.41% 6.05%
Net investment income, before
waivers and reimbursements 4.46% 5.07% 4.54% 4.78% 5.52%
Portfolio turnover rate 80.36% 52.80% 77.75% 80.36% 52.80%
Net assets at end of period (in
thousands) $17,674 $37,305 $71,456 $ 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
----------------------------- -------- -----------------
1995 1994 1993 (a) 1995 (b) 1995 1994 (c)
- ------------------------- -------- -------- -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 18.29 $ 20.70 $ 20.00 $20.21 $18.29 $18.74
Income from investment
operations:
Net investment income 1.17 1.42 1.42 0.47 1.08 0.28
Net realized and
unrealized gain (loss)
on investments 2.66 (2.21) 0.66 0.74 2.66 (0.48)
- -----------------------------------------------------------------------------------
Total income (loss) from
investment operations 3.83 (0.79) 2.08 1.21 3.74 (0.20)
- -----------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (1.14) (1.46) (1.38) (0.45) (1.09) (0.28)
Net realized gain on in-
vestments -- (0.15) -- -- -- --
Return of capital (0.02) (0.01) -- (0.01) -- --
- -----------------------------------------------------------------------------------
Total distributions to
unitholders (1.16) (1.62) (1.38) (0.46) (1.09) (0.28)
- -----------------------------------------------------------------------------------
Net increase (decrease) 2.67 (2.41) 0.70 0.75 2.65 (0.48)
- -----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 20.96 $ 18.29 $ 20.70 $20.96 $20.94 $18.29
- -----------------------------------------------------------------------------------
Total return (d) 21.55% (4.04)% 10.61% 5.92% 21.06% (0.91)%
Ratio to average net as-
sets of: (e)
Expenses, net of waivers
and reimbursements 0.36% 0.36% 0.36% 0.60% 0.75% 0.75%
Expenses, before waivers
and reimbursements 0.84% 0.87% 0.92% 1.08% 1.23% 1.26%
Net investment income,
net of waivers and
reimbursements 5.94% 7.31% 7.84% 5.59% 5.48% 6.31%
Net investment income,
before waivers and
reimbursements 5.46% 6.80% 7.28% 5.11% 5.00% 5.80%
Portfolio turnover rate 74.19% 103.09% 89.06% 74.19% 74.19% 103.09%
Net assets at end of pe-
riod (in thousands) $286,301 $257,391 $245,112 $3,704 $ 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 Short Duration Portfolio
----------------- -------- ----------------------------
1995 1994 (a) 1995 (b) 1995 1994 1993 (c)
- ------------------------ ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 19.93 $ 20.00 $22.17 $ 9.97 $ 10.03 $ 10.00
Income from investment
operations:
Net investment income 1.26 0.79 0.02 0.59 0.40 0.14
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions 2.28 0.01 (0.08) 0.01 (0.05) 0.03
- ------------------------------------------------------------------------------------
Total income (loss) from
investment
operations 3.54 0.80 (0.06) 0.60 0.35 0.17
- ------------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income
(d) (1.73) (0.87) (0.37) (0.58) (0.40) (0.14)
Net realized gain on
investments -- -- -- -- (0.01) --
- ------------------------------------------------------------------------------------
Total distributions to
unitholders (1.73) (0.87) (0.37) (0.58) (0.41) (0.14)
- ------------------------------------------------------------------------------------
Net increase (decrease) 1.81 (0.07) (0.43) 0.02 (0.06) 0.03
- ------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 21.74 $ 19.93 $21.74 $ 9.99 $ 9.97 $ 10.03
- ------------------------------------------------------------------------------------
Total return (e) 18.20% 4.03% (0.78)% 6.14% 3.64% 1.73%
Ratio to average net as-
sets of: (f)
Expenses, net of waiv-
ers and reimbursements 0.96% 0.96% 1.35% 0.25% 0.25% 0.32%
Expenses, before waiv-
ers and reimbursements 1.47% 1.49% 1.86% 0.80% 0.77% 0.50%
Net investment income,
net of waivers and
reimbursements 5.92% 5.93% 3.26% 5.80% 3.93% 3.00%
Net investment income,
before waivers and
reimbursements 5.41% 5.40% 2.75% 5.25% 3.41% 2.82%
Portfolio turnover rate 54.46% 88.65% 54.46% 1,272.21% 1,364.00% 434.32%
Net assets at end of pe-
riod (in thousands) $32,673 $26,947 $9 $ 45,473 $ 89,803 $186,765
- ------------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on March 28, 1994.
(b) Class D units were issued on November 30, 1995.
(c) Commenced investment operations on June 2, 1993.
(d) For the International Bond Portfolio, 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.
(e) 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.
(f) Annualized for periods less than a full year.
13
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Balanced Portfolio
For the Years Ended November 30,
<TABLE>
<CAPTION>
Class A
---------------------------
1995 1994 1993 (a)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.50 $ 10.22 $ 10.00
Income from investment operations:
Net investment income 0.34 0.24 0.09
Net realized and unrealized gain (loss) on invest-
ments 1.55 (0.72) 0.22
- -------------------------------------------------------------------------------
Total income (loss) from investment operations 1.89 (0.48) 0.31
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO UNITHOLDERS FROM:
Net investment income (0.34) (0.22) (0.09)
Net realized gain on investments -- (0.02) --
- -------------------------------------------------------------------------------
Total distributions to unitholders (0.34) (0.24) (0.09)
- -------------------------------------------------------------------------------
Net increase (decrease) 1.55 (0.72) 0.22
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.05 $ 9.50 $ 10.22
- -------------------------------------------------------------------------------
Total return (b) 20.22% (4.76)% 3.12%
Ratio to average net assets of: (c)
Expenses, net of waivers and reimbursements 0.61% 0.61% 0.61%
Expenses, before waivers and reimbursements 1.28% 1.50% 1.62%
Net investment income, net of waivers and reim-
bursements 3.36% 2.56% 2.20%
Net investment income, before waivers and reim-
bursements 2.69% 1.68% 1.19%
Portfolio turnover rate 93.39% 75.69% 35.03%
Net assets at end of period (in thousands) $38,897 $31,462 $15,928
- -------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on July 1, 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.
14
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Equity Index Portfolio
For the Years Ended November 30,
<TABLE>
<CAPTION>
Class A Class C Class D
---------------------------- -------- ----------------
1995 1994 1993 (a) 1995 (b) 1995 1994 (c)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD $ 10.60 $ 10.78 $ 10.00 $ 13.43 $10.60 $10.96
Income from investment
operations:
Net investment income 0.30 0.27 0.22 0.05 0.25 0.02
Net realized and
unrealized gain (loss)
on investments and
futures 3.47 (0.18) 0.78 0.45 3.47 (0.31)
- -----------------------------------------------------------------------------------
Total income (loss)
from investment opera-
tions 3.77 0.09 1.00 0.50 3.72 (0.29)
- -----------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income (0.30) (0.27) (0.22) (0.07) (0.28) (0.07)
Net realized gain on
investments (0.21) -- -- -- (0.21) --
- -----------------------------------------------------------------------------------
Total distributions to
unitholders (0.51) (0.27) (0.22) (0.07) (0.49) (0.07)
- -----------------------------------------------------------------------------------
Net increase (decrease) 3.26 (0.18) 0.78 0.43 3.23 (0.36)
- -----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 13.86 $ 10.60 $ 10.78 $ 13.86 $13.83 $10.60
- -----------------------------------------------------------------------------------
Total return (d) 36.60% 0.87% 10.09% 3.73% 36.20% (2.65)%
Ratio to average net as-
sets of: (e)
Expenses, net of waiv-
ers and reimbursements 0.22% 0.23% 0.21% 0.46% 0.61% 0.60%
Expenses, before waiv-
ers and reimbursements 0.54% 0.59% 0.66% 0.78% 0.93% 0.96%
Net investment income,
net of waivers and re-
imbursements 2.54% 2.62% 2.62% 2.29% 2.07% 2.67%
Net investment income,
before waivers and re-
imbursements 2.22% 2.25% 2.17% 1.97% 1.75% 2.31%
Portfolio turnover rate 15.27% 71.98% 2.06% 15.27% 15.27% 71.98%
Net assets at end of pe-
riod (in thousands) $479,763 $281,817 $219,282 $18,390 $ 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.
15
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Diversified Growth Portfolio
For the Years Ended November 30,
<TABLE>
<CAPTION>
Class A Class D
----------------------------- ----------------
1995 1994 1993 (a) 1995 1994 (b)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.88 $ 10.65 $ 10.00 $ 9.88 $10.41
Income from investment opera-
tions:
Net investment income 0.15 0.09 0.09 0.11 0.01
Net realized and unrealized
gain (loss) on investments 2.26 (0.83) 0.65 2.25 (0.54)
- --------------------------------------------------------------------------------
Total income (loss) from in-
vestment operations 2.41 (0.74) 0.74 2.36 (0.53)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO UNITHOLDERS
FROM:
Net investment income (0.09) (0.01) (0.09) (0.08) --
Net realized gain on invest-
ments -- (0.02) -- -- --
- --------------------------------------------------------------------------------
Total distributions to
unitholders (0.09) (0.03) (0.09) (0.08) --
- --------------------------------------------------------------------------------
Net increase (decrease) 2.32 (0.77) 0.65 2.28 (0.53)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.20 $ 9.88 $ 10.65 $12.16 $ 9.88
- --------------------------------------------------------------------------------
Total return (c) 24.55% (6.98)% 7.39% 24.19% (5.18)%
Ratio to average net assets
of: (d)
Expenses, net of waivers and
reimbursements 0.69% 0.67% 0.71% 1.08% 1.05%
Expenses, before waivers and
reimbursements 1.12% 1.08% 1.13% 1.51% 1.46%
Net investment income, net of
waivers and reimbursements 1.16% 0.77% 1.04% 0.73% 0.94%
Net investment income, before
waivers and reimbursments 0.73% 0.35% 0.62% 0.30% 0.53%
Portfolio turnover rate 81.65% 78.94% 140.88% 81.65% 78.94%
Net assets at end of period
(in thousands) $146,731 $164,963 $199,053 $ 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.
16
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Focused Growth Portfolio
For the Years Ended November 30,
<TABLE>
<CAPTION>
Class A Class D
---------------------------- --------
1995 1994 1993 (a) 1995 (b)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.79 $ 10.43 $ 10.00 $ 9.55
Income from investment operations:
Net investment income 0.05 0.02 0.01 0.02
Net realized and unrealized gain
(loss) on investments 2.71 (0.66) 0.43 2.93
- -------------------------------------------------------------------------------
Total income (loss) from investment
operations 2.76 (0.64) 0.44 2.95
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO UNITHOLDERS FROM:
Net investment income (0.02) -- (0.01) (0.02)
Net realized gain on investments -- -- -- --
- -------------------------------------------------------------------------------
Total distributions to unitholders (0.02) -- (0.01) (0.02)
- -------------------------------------------------------------------------------
Net increase (decrease) 2.74 (0.64) 0.43 2.93
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.53 $ 9.79 $ 10.43 $12.48
- -------------------------------------------------------------------------------
Total return (c) 28.38% (6.15)% 4.33% 31.00%
Ratio to average net assets of: (d)
Expenses, net of waivers and reim-
bursements 0.91% 0.91% 0.91% 1.30%
Expenses, before waivers and reim-
bursements 1.47% 1.55% 1.88% 1.86%
Net investment income (loss), net of
waivers and reimbursements 0.46% 0.24% 0.14% (0.11)%
Net investment loss, before waivers
and reimbursements (0.10)% (0.39)% (0.83)% (0.67)%
Portfolio turnover rate 85.93% 74.28% 27.48% 85.93%
Net assets at end of period (in thou-
sands) $86,099 $57,801 $32,099 $ 489
- -------------------------------------------------------------------------------
</TABLE>
(a) Commenced investment operations on July 1, 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.
17
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Small Company Index Portfolio
For the Years Ended November 30,
<TABLE>
<CAPTION>
Class A Class D
--------------------------- --------
1995 1994 1993 (a) 1995 (b)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.86 $ 11.29 $ 10.00 $10.51
Income from investment operations:
Net investment income 0.16 0.14 0.11 0.18
Net realized and unrealized gain (loss)
on investments and futures 2.67 (0.30) 1.29 2.87
- ------------------------------------------------------------------------------
Total income (loss) from investment op-
erations 2.83 (0.16) 1.40 3.05
- ------------------------------------------------------------------------------
DISTRIBUTIONS TO UNITHOLDERS FROM:
Net investment income (0.15) (0.02) (0.11) (0.14)
Net realized gain on investments and
futures (0.56) (0.25) -- (0.56)
- ------------------------------------------------------------------------------
Total distributions to unitholders (0.71) (0.27) (0.11) (0.70)
- ------------------------------------------------------------------------------
Net increase (decrease) 2.12 (0.43) 1.29 2.35
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.98 $ 10.86 $ 11.29 $12.95
- ------------------------------------------------------------------------------
Total return (c) 27.76% (1.54)% 14.09% 30.50%
Ratio to average net assets of: (d)
Expenses, net of waivers and reimburse-
ments 0.32% 0.33% 0.31% 0.71%
Expenses, before waivers and reimburse-
ments 0.81% 0.86% 1.02% 1.20%
Net investment income, net of waivers
and reimbursements 1.31% 1.27% 1.25% 0.90%
Net investment income, before waivers
and reimbursements 0.82% 0.74% 0.54% 0.41%
Portfolio turnover rate 38.46% 98.43% 26.31% 38.46%
Net assets at end of period (in thou-
sands) $94,899 $77,120 $54,763 $ 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 does not include the additional purchase price amount payable by
investors in connection with purchases of Portfolio units. Total return is
not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
18
<PAGE>
FINANCIAL HIGHLIGHTS
International Growth Portfolio
For the Years Ended November 30,
<TABLE>
<CAPTION>
Class A Class D
------------------- -----------------
1995 1994(a) 1995 1994(b)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.21 $ 10.00 $ 10.21 $10.47
Income from investment operations:
Net investment income 0.12 0.05 0.19 --
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (0.36) 0.16 (0.48) (0.26)
- ------------------------------------------------------------------------------
Total income (loss) from investment
operations (0.24) 0.21 (0.29) (0.26)
- ------------------------------------------------------------------------------
DISTRIBUTIONS TO UNITHOLDERS FROM:
Net investment income (0.05) -- (0.05) --
Net realized gain on investments and
foreign currency transactions (0.04) -- (0.04) --
- ------------------------------------------------------------------------------
Total distributions to unitholders (0.09) -- (0.09) --
- ------------------------------------------------------------------------------
Net increase (decrease) (0.33) 0.21 (0.38) (0.26)
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.88 $ 10.21 $ 9.83 $10.21
- ------------------------------------------------------------------------------
Total return (c) (2.32)% 2.11% (2.78)% (2.51)%
Ratio to average net assets of: (d)
Expenses, net of waivers and reim-
bursements 1.06% 1.04% 1.45% 1.35%
Expenses, before waivers and reim-
bursements 1.38% 1.47% 1.77% 1.78%
Net investment income, net of waivers
and reimbursements 1.22% 0.76% 2.01% --
Net investment income (loss), before
waivers and reimbursements 0.90% 0.33% 1.69% (0.43)%
Portfolio turnover rate 215.31% 77.79% 215.31% 77.79%
Net assets at end of period (in thou-
sands) $148,704 $133,212 $ 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.
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 (other than the Short Duration
Portfolio, which has only been classified into one class of 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 Short Duration, 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."
SHORT DURATION PORTFOLIO
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 12 months and the Portfolio's maximum duration will
be 12 months. 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, although a portion of its assets may be invested in
non-investment grade securities.
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, acquire U.S. dollar-denominated
instruments of foreign issuers, invest in asset-backed 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 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
20
<PAGE>
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 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 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 Common Investment Techniques" below for more information.
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.
21
<PAGE>
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 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 as
cash reserves. See "Description of Securities and Common Investment
Techniques" below for more information.
U.S. TREASURY INDEX PORTFOLIO
In seeking to attain 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
22
<PAGE>
or instrumentalities, obligations of foreign governments, obligations of U.S.
and foreign corporations and obligations of U.S. and foreign banks. 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.
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 a smaller number of securities 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.
23
<PAGE>
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 policy, 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 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 "Description of Other
Securities and Investment Techniques Used by the Balanced Portfolio" below for
more information.
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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 at least
80% of the Portfolio's total assets in the common stocks of the companies that
constitute the S&P Index directly or indirectly, 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 (the
"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 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. 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.
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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 equity securities 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. 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
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, 1996, the average market capitalization of the
companies included in the Russell Index was approximately $274 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.
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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" below for more information.
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 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 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 issues 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 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
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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 disruptions were to occur, the Portfolio
could be required to reconsider the use of WEBS as part of its investment
strategy.
The Portfolio may also enter into forward currency contracts and utilize
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 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" 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.
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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 may also enter into forward currency contracts, purchase
convertible bonds, and utilize options, futures contracts and currency swaps.
Pending investment, as a temporary defensive measure and to meet anticipated
redemption requests, the Portfolio may invest, in accordance with its
investment policy, 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" below for
more information.
SPECIAL RISKS AND OTHER CONSIDERATIONS
FOREIGN SECURITIES. The Short Duration Portfolio may invest directly in U.S.
dollar-denominated securities of foreign issuers. 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. 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 the debt securities in
which the Fixed Income Portfolios will invest, 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 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
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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 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 Portfolio
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 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.
The obligations of a foreign issuer will not be purchased by the Short
Duration, Short-Intermediate Bond or Bond Portfolios 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.
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 three 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 and natural
disasters there have affected Japanese securities and currency markets, and
have disrupted the relationship of the Japanese yen with other currencies and
with the U.S. dollar. Future political, economic and social developments can
be expected to produce continuing effects on securities and currency markets.
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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.
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 Index ("tracking variance") may result from unitholder
purchases and redemptions of units of the Portfolio that occur daily, as well
as from the expenses borne by the 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 the Portfolio, the maintenance of a cash reserve pending
investment or to meet expected redemptions, changes made in the 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 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
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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 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 Duration, 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.
INVESTMENT GRADE SECURITIES. The Fixed Income Portfolios and the Balanced
Portfolio may invest in fixed income securities of all types, including
convertible securities, and the Diversified Growth, Focused Growth and
International Growth 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
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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 and convertible
securities in which the Fixed Income Portfolios and Balanced Portfolio may
invest and the convertible securities in which the 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 Short Duration,
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
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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,
or will otherwise cover their position in accordance with applicable
requirements of the Securities and Exchange Commission (the "SEC").
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 "basket".
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.
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 at any time prior
to the expiration date of the option, regardless of the market price of the
security or currency. In contrast to
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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.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Portfolio may invest in futures
contracts and options on futures contracts for hedging purposes, to earn
additional income or to maintain liquidity to meet potential unitholder
redemptions, invest cash balances or dividends or minimize trading costs. The
International Bond and International Growth Portfolios may also invest in
futures contracts for speculative purposes (to seek to increase total return).
However, each Portfolio expects that it 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 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 a stated quantity of a foreign currency. 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
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 at any time 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 anticipation of a market
advance, a Portfolio may purchase call options on futures contracts as a
substitute for the purchase of futures contracts to hedge against a possible
increase in the price of securities which the Portfolio intends to purchase.
Similarly, if the value of a Portfolio's portfolio securities is expected to
decline, the Portfolio might purchase put options or sell call options on
futures contracts rather than sell futures contracts. In connection with a
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 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
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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) 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 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
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securities for a fixed price at a future date beyond customary settlement
time. Securities purchased or sold 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. A Portfolio is required
to hold and maintain in a segregated account with the Portfolio's custodian
until the settlement date, liquid assets having a value (determined daily) at
least equal to the amount of the Portfolio's purchase commitments. 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 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; 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 Risk 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
Trust's 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
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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.
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 purchasable 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 investment
company will be owned by the Portfolio, the Trust as a whole and their
affiliated persons (or defined in the 1940 Act).
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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. Total assets of a bank are determined on the basis of the bank's
most recent annual financial statements.
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 Duration, 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 and credit card receivables) 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 and investment banks. Asset-backed
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securities acquired by such Portfolios 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
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 Duration, 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 Duration, 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.
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GUARANTEED INVESTMENT CONTRACTS. The Short Duration, Short-Intermediate Bond,
Bond and Balanced Portfolios may make limited investments in guaranteed
investment contracts ("GICs") issued by U.S. insurance companies. Pursuant 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 pursuant to guidelines approved by
the Board of Trustees. 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.
WARRANTS. The Balanced, Diversified Growth, Focused Growth, International
Growth 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 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") 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.
Certain such institutions issuing ADRs 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.
EUROPEAN 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 European Depository
Receipts ("EDRs") or similar securities representing securities of foreign
issuers. These securities may not be denominated in the same currency as the
securities they represent. EDRs are receipts issued by a European financial
institution evidencing ownership of the underlying foreign securities and are
generally denominated in foreign currencies. Generally, EDRs, in bearer form,
are designed for use in the European securities markets. The Balanced,
Diversified Growth and Focused Growth Portfolios will limit investments in
EDRs 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) 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
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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 difference between the
purchase and sale prices from the counter-party 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 cash or U.S. Government securities 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.
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, but expects that the annual
turn-over rate for the Short Duration Portfolio will be very high for the
reasons stated above under "Investment Information--Short Duration Portfolio."
For the fiscal year ended November 30, 1996, the portfolio turnover rate for
the Short Duration Portfolio exceeded %. The annualized turnover rate for the
current fiscal year is not expected to exceed %. 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 value of the debt securities held by the Fixed Income Portfolios and the
Balanced Portfolio (and the other Portfolios to the extent permitted by their
investment policies stated above) will vary inversely with changes in
prevailing interest rates.
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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.
For a description of applicable securities ratings, see Appendix A to the
Additional Statement.
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.
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 $ billion in assets, $
billion in deposits and employed over persons.
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Northern administered in various capacities (including as master trustee,
investment manager or custodian) approximately $ billion of assets as of
December 31, 1996, including approximately $ 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 an
annual rate of as follows:
<TABLE>
<CAPTION>
RATE PAID FOR
ANNUAL FISCAL YEAR
RATE ENDED 11/30/96
------ --------------
<S> <C> <C>
Short Duration Portfolio............................... .40% .15%
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................... -- N/A
International Growth Portfolio......................... 1.00% .80%
</TABLE>
Although the advisory fee rates payable by the International Bond, Balanced,
Diversified Growth and International Growth Portfolios are higher than the
rates payable by most mutual funds, the Board of Trustees believes they are
comparable to the rates paid by many other growth, balanced and international
funds. 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.
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<PAGE>
PORTFOLIO MANAGERS
<TABLE>
<CAPTION>
YEARS PRIMARILY FIVE YEAR
NAME AND TITLE PORTFOLIO RESPONSIBLE EMPLOYMENT HISTORY
- --------------------- -------------------------- --------------- ------------------
<S> <C> <C> <C>
Kurt V. Anderson Balanced Since 1996 Mr. Anderson joined Northern
Vice President in 1992.
Andrew C. Buchner International Equity Index Since 1997 Mr. Buchner joined Northern
Investment Officer in 1992.
Mary Ann Flynn Short Duration Since 1993 Ms. Flynn joined Northern in
Investment Officer 1969.
Thomas E. Kirkenmeier Focused Growth Since 1993 Mr. Kirkenmeier joined
Vice President Northern in 1992.
Robert A. LaFleur International Growth Since 1994 Mr. LaFleur joined Northern
Vice President in 1982.
Michael J. Lannan International Bond Since 1994 Mr. Lannan joined Northern
Vice President in 1986.
Thomas L. Mallman Short Duration Since 1993 Mr. Mallman joined Northern
Senior Vice President in 1980.
Monty M. Memler Balanced Since 1993 Mr. Memler joined Northern
Vice President in 1986.
Jerry R. Pearson Short Duration Since 1993 Mr. Pearson joined Northern
Vice President in 1987.
Steve Schafer U.S. Government Securities Since 1995 Mr. Schafer joined Northern
Second Vice President in 1988.
Mark J. Wirth Short-Intermediate Bond Since 1993 Mr. Wirth joined Northern in
Vice President Bond Since 1993 1986.
John J. Zielinski Diversified Growth Since 1996 Mr. Zielinski joined
Vice President Northern in 1980.
</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. Subject to the limitations
described below under "Expenses," 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
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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 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 and
International Growth Portfolios and .10% of each other Portfolio's average
daily net assets for such fiscal year, 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 Short Duration, 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 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 (other than the Short Duration
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.
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<PAGE>
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.
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.
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. Units of the Short Duration
Portfolio and Class A, B, C and D units of each other 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 class through procedures established by Institutions 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. Institutions that purchase units
directly may do so by means of one of the following procedures provided that
they make 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 account
application to The Benchmark Funds, c/o The Northern Trust Company, P.O.
Box 75943, Chicago, Illinois
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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.
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 Portfolios. The Trust
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<PAGE>
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 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 shall 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. 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, 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 be up to 25% 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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<PAGE>
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 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 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
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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 (other than the
Short Duration Portfolio) 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. Exchange orders of the other Portfolios are effected at the net asset
value per unit 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.
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 Portfolio in acquiring stocks
of small capitalization or foreign companies. Without the additional
transaction fee, the Portfolio would generally be selling its units at a price
less than the cost to the Portfolio of acquiring the portfolio securities
necessary to maintain their investment characteristics, resulting in reduced
investment performance for
51
<PAGE>
all unitholders in the Portfolio. With the additional transaction fee, the
transaction costs of acquiring additional stocks are not borne by all existing
unitholders, but the source of funds for these costs is the purchase price
paid by those investors making additional purchases. Because these costs are
covered by the additional purchase price for units, and therefore do not need
to be paid out of the Portfolio's other assets, the Portfolio is expected to
track its Index more closely.
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 and annualized capital gains
are made as follows:
<TABLE>
<CAPTION>
INVESTMENT INCOME
DIVIDENDS CAPITAL
------------------- GAINS
DECLARED PAID DISTRIBUTION
--------- --------- ------------
<S> <C> <C> <C>
Short Duration Portfolio....................... Daily Monthly Annually
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>
52
<PAGE>
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
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
53
<PAGE>
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.
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 Portfolio's
total assets at the close of any taxable year consists of debt securities,
stock or securities of foreign corporations, the Portfolio may elect, for
Federal income tax purposes, to treat certain foreign taxes paid by it,
including generally any withholding taxes and other foreign income taxes, as
paid by its unitholders. Should the Portfolio make this election, the amount
of such foreign taxes paid by the Portfolio will be included in its
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.
54
<PAGE>
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.
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 sales 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 market capitalization weighted Morgan Stanley Capital International
Europe, Australia and Far East Index. Performance data as reported in national
financial publications such as Money Magazine,
55
<PAGE>
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 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 greater 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. Changes in the net asset value of a
class should be considered in ascertaining the total return to unitholders for
a given period. 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.
56
<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, thirteen of which
are described in this Prospectus; the other series of units are described in a
separate prospectus. 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 (other than the Short Duration Portfolio which has only been
classified into one class of units): 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
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, The Northern Trust Company Thrift Incentive Plan owned
beneficially and of record % and % of the units of the Balanced Portfolio
and Focused Growth Portfolio, respectively. As of the same date, The Northern
Trust Company Pension Plan owned beneficially and of record % and % of the
units of the Diversified Growth Portfolio and Small Company Index Portfolio,
respectively.
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 term "majority of the outstanding units" of either the Trust or a
particular Portfolio means the vote of the lesser of (i) 67% or more of the
units of the Trust or such Portfolio present at a meeting, if the holders of
more than 50% of the outstanding units of the Trust or such Portfolio are
present or represented by proxy, or (ii) more than 50% of the outstanding
units of the Trust or such Portfolio.
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.
57
<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 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 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 Morgan Stanley, nor does Morgan Stanley guarantee the accuracy
and/or completeness of the EAFE Index or any data included therein. Morgan
Stanley 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. Morgan Stanley
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
58
<PAGE>
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.
59
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
THE BENCHMARK FUNDS
4900 Sears Tower
Chicago, Illinois 60606
BALANCED PORTFOLIO
EQUITY INDEX PORTFOLIO
DIVERSIFIED GROWTH PORTFOLIO
FOCUSED GROWTH PORTFOLIO
SMALL COMPANY INDEX PORTFOLIO
INTERNATIONAL EQUITY INDEX PORTFOLIO
INTERNATIONAL GROWTH PORTFOLIO
This Statement of Additional Information (the "Additional Statement")
dated April 1, 1997 is not a prospectus. This Additional Statement should be
read in conjunction with the Prospectus for the Balanced Portfolio, Equity Index
Portfolio, Diversified Growth Portfolio, Focused Growth Portfolio, Small Company
Index Portfolio, International Equity Index Portfolio and International Growth
Portfolio (the "Portfolios") of The Benchmark Funds (the "Prospectus") dated
April 1, 1997. Copies of the Prospectus may be obtained without charge by
calling Goldman, Sachs & Co. ("Goldman Sachs") toll-free at 1-800-621-2550
(outside Illinois) or by writing to the address stated above. Capitalized terms
not otherwise defined have the same meaning as in the Prospectus.
------------------------------------
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL INVESTMENT INFORMATION B-3
Investment Objectives and Policies B-3
Investment Restrictions B-18
ADDITIONAL TRUST INFORMATION B-21
Trustees and Officers B-21
Investment Adviser, Transfer Agent and Custodian B-27
Portfolio Transactions B-33
Administrator and Distributor B-37
Unitholder Servicing Plan B-39
Counsel and Auditors B-41
In-Kind Purchases B-42
PERFORMANCE INFORMATION B-42
TAXES B-50
</TABLE>
<PAGE>
<TABLE>
<S> <C>
General B-51
Taxation of Certain Financial Instruments B-53
Foreign Investors B-55
Conclusion B-56
DESCRIPTION OF UNITS B-56
OTHER INFORMATION B-61
FINANCIAL STATEMENTS B-61
APPENDIX A (Description of Bond Ratings) 1-A
APPENDIX B (Futures Contracts) 1-B
</TABLE>
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in this Additional Statement or in the Prospectus
in connection with the offering made by the Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Trust or its distributor. The Prospectus does not constitute
an offering by the Trust or by the distributor in any jurisdiction in which such
offering may not lawfully be made.
UNITS OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR OTHERWISE SUPPORTED BY, THE NORTHERN TRUST COMPANY, ITS PARENT
COMPANY OR ITS AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE PORTFOLIOS INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
ADDITIONAL INVESTMENT INFORMATION
Investment Objectives and Policies
The following supplements the investment objectives and policies of the
Balanced, Equity Index, Diversified Growth, Focused Growth, Small Company Index,
International Equity Index, and International Growth Portfolios of The Benchmark
Funds (the "Trust") as set forth in the Prospectus.
Warrants. The Balanced, Diversified Growth, Focused Growth,
--------
International Equity Index and International Growth Portfolios may purchase
warrants and similar rights, which are privileges issued by corporations
enabling the owners to subscribe to and purchase a specified number of shares of
the corporation at a specified price during a specified period of time. The
purchase of warrants involves the risk that a Portfolio could lose the purchase
value of a warrant if the right to subscribe to additional shares is not
exercised prior to the warrant's expiration. Also, the purchase of warrants
involves the risk that the effective price paid for the warrant added to the
subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security. A Portfolio will not invest more than 5% of
its total assets, taken at market value, in warrants. Warrants acquired by a
Portfolio in units or attached to other securities are not subject to this
restriction.
U.S. Government Obligations. Examples of types of U.S. Government
---------------------------
obligations that may be acquired by the Portfolios includes U.S. Treasury Bills,
Treasury Notes and Treasury Bonds and the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, and the Maritime
Administration.
Foreign Securities. Unanticipated political or social developments
------------------
may also affect the value of a Portfolio's investments in emerging market
countries and the availability to a Portfolio of additional investments in those
countries. The small size and inexperience of the securities markets in certain
of such countries and the limited volume of trading in securities in those
countries may make a Portfolio's investments in such countries illiquid and more
volatile than investments in Japan or
B-3
<PAGE>
most Western European countries, and a Portfolio may be required to establish
special custodial or other arrangements before making certain investments in
those countries. There may be little financial or accounting information
available with respect to issuers located in certain of such countries, and it
may be difficult as a result to assess the value or prospects of an investment
in such issuers.
Investors should understand that the expense ratio of the International Equity
Index and International Growth Portfolios can be expected to be higher than
those funds investing primarily in domestic securities. The costs attributable
to investing abroad are usually higher for several reasons, such as the higher
cost of investment research, higher cost of custody of foreign securities,
higher commissions paid on comparable transactions on foreign markets and
additional costs arising from delays in settlements of transactions involving
foreign securities.
Foreign Currency Transactions. In order to protect against a possible loss
-----------------------------
on investments resulting from a decline or appreciation in the value of a
particular foreign currency against the U.S. dollar or another foreign currency
or for other reasons, the Balanced, Diversified Growth, Focused Growth,
International Equity Index and International Growth Portfolios are authorized to
enter into forward currency exchange contracts. In addition, with respect to the
International Equity Index and International Growth Portfolios, Northern may
purchase or sell forward foreign currency exchange contracts to seek to increase
total return when Northern anticipates that the foreign currency will appreciate
or depreciate in value. These contracts involve an obligation to purchase or
sell a specified currency at a future date at a price set at the time of the
contract. Forward currency contracts do not eliminate fluctuations in the values
of portfolio securities but rather allow a Portfolio to establish a rate of
exchange for a future point in time.
When entering into a contract for the purchase or sale of a security, a
Portfolio may enter into a forward foreign currency exchange contract for the
amount of the purchase or sale price to protect against variations, between the
date the security is purchased or sold and the date on which payment is made or
received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.
When Northern anticipates that a particular foreign currency may decline
substantially relative to the U.S. dollar or other leading currencies, in order
to reduce risk, a Portfolio may enter into a forward contract to sell, for a
fixed amount, the
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<PAGE>
amount of foreign currency approximating the value of some or all of the
Portfolio's securities denominated in such foreign currency. Similarly, when the
securities held by a Portfolio create a short position in a foreign currency,
the Portfolio may enter into a forward contract to buy, for a fixed amount, an
amount of foreign currency approximating the short position. With respect to any
forward foreign currency contract, it will not generally be possible to match
precisely the amount covered by that contract and the value of the securities
involved due to the changes in the values of such securities resulting from
market movements between the date the forward contract is entered into and the
date it matures. In addition, while forward contracts may offer protection from
losses resulting from declines or appreciation in the value of a particular
foreign currency, they also limit potential gains which might result from
changes in the value of such currency. A Portfolio may also incur costs in
connection with forward foreign currency exchange contracts and conversions of
foreign currencies and U.S. dollars.
A separate account consisting of liquid assets equal to the amount of a
Portfolio's assets that could be required to consummate forward contracts will
be established with the Portfolios' Custodian except to the extent the contracts
are otherwise "covered." For the purpose of determining the adequacy of the
securities in the account, the deposited securities will be valued at market or
fair value. If the market or fair value of such securities declines, additional
cash or securities will be placed in the account daily so that the value of the
account will equal the amount of such commitments by the Portfolio. A forward
contract to sell a foreign currency is "covered" if a Portfolio owns the
currency (or securities denominated in the currency) underlying the contract, or
holds a forward contract (or call option) permitting the Portfolio to buy the
same currency at a price no higher than the Portfolio's price to sell the
currency. A forward contract to buy a foreign currency is "covered" if a
Portfolio holds a forward contract (or call option) permitting the Portfolio to
sell the same currency at a price as high as or higher than the Portfolio's
price to buy the currency.
Options. Each Portfolio may buy put options and buy call options and
-------
write covered call and secured put options. Such options may relate to
particular securities, stock indices, financial instruments, or foreign
currencies and may or may not be listed on a domestic or foreign securities
exchange or issued by the Options Clearing Corporation. Options trading is a
highly specialized activity which entails greater than ordinary investment risk.
Options on particular securities may be more volatile than the underlying
instruments, and therefore, on a percentage basis, an investment in options may
be subject to
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<PAGE>
greater fluctuation than an investment in the underlying instruments themselves.
The Portfolios will write call options only if they are "covered." 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 as are held in a segregated account by its custodian) upon
conversion or exchange of other securities 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. The Portfolios will
write put options only if they are "secured" by liquid assets maintained in a
segregated account by the Portfolios' custodian in an amount not less than the
exercise price of the option at all times during the option period.
A Portfolio's obligation to sell a security subject to a covered call
option written by it, or to purchase a security or currency subject to a secured
put option written by it, may be terminated prior to the expiration date of the
option by the Portfolio's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying security or currency, exercise price and expiration date) as the
option previously written. Such a purchase does not result in the ownership of
an option. A closing purchase transaction will ordinarily be effected to realize
a profit on an outstanding option, to prevent an underlying security or currency
from being called, to permit the sale of the underlying security or currency or
to permit the writing of a new option containing different terms on such
underlying security. The cost of such a liquidation purchase plus transaction
costs may be greater than the premium received upon the original option, in
which event the Portfolio will have incurred a loss in the transaction. There is
no assurance that a liquid secondary market will exist for any particular
option. An option writer, unable to effect a closing purchase transaction, will
not be able to sell the underlying security or currency (in the case of a
covered call option) or liquidate the segregated account (in the case of a
secured put option) until the option
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<PAGE>
expires or the optioned security or currency is delivered upon exercise with the
result that the writer in such circumstances will be subject to the risk of
market decline or appreciation in the security or currency during such period.
When a Portfolio purchases an option, the premium paid by it is recorded as
an asset of the Portfolio. When the Portfolio writes an option, an amount equal
to the net premium (the premium less the commission) received by the Portfolio
is included in the liability section of the Portfolio's statement of assets and
liabilities as a deferred credit. The amount of this asset or deferred credit
will be subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the current bid price. If an option
purchased by the Portfolio expires unexercised the Portfolio realizes a loss
equal to the premium paid. If the Portfolio enters into a closing sale
transaction on an option purchased by it, the Portfolio will realize a gain if
the premium received by the Portfolio on the closing transaction is more than
the premium paid to purchase the option, or a loss if it is less. If an option
written by the Portfolio expires on the stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, it will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold) and the deferred credit related to such option
will be eliminated. If an option written by the Portfolio is exercised, the
proceeds of the sale will be increased by the net premium originally received
and the Portfolio will realize a gain or loss.
There are several risks associated with transactions in certain options.
For example, there are significant differences between the securities, currency
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded over-the-
counter or on a national securities exchange ("Exchange") may be absent for
reasons which include the following: there may be insufficient trading interest
in certain options; restrictions may be imposed by an Exchange on opening
transactions or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options or underlying securities or currencies; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading value; or one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or
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<PAGE>
series of options) would cease to exist, although outstanding options that had
been issued by the Options Clearing Corporation as a result of trades on that
Exchange would continue to be exercisable in accordance with their terms.
Supranational Bank Obligations. The Balanced Portfolio may invest in
------------------------------
obligations of supranational banks. Supranational banks are international
banking institutions designed or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., the World
Bank). Obligations of supranational banks may be supported by appropriated but
unpaid commitments of their member countries and there is no assurance that
these commitments will be undertaken or met in the future.
Stripped Securities. The Balanced Portfolio may purchase stripped
-------------------
securities. The Treasury Department has facilitated transfers of ownership of
zero coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and principal payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." The
Portfolio may purchase securities registered in the STRIPS program. Under the
STRIPS program, the Portfolio will be able to have its beneficial ownership of
zero coupon securities recorded directly in the book-entry record-keeping system
in lieu of having to hold certificates or other evidences of ownership of the
underlying U.S. Treasury securities.
In addition, the Balanced Portfolio may acquire U.S. Government
obligations and their unmatured interest coupons that have been separated
("stripped") by their holder, typically a custodian bank or investment brokerage
firm. Having separated the interest coupons from the underlying principal of
the U.S. Government obligations, the holder will resell the stripped securities
in custodial receipt programs with a number of different names, including
"Treasury Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on
Treasury Securities" ("CATS"). The stripped coupons are sold separately from
the underlying principal, which is usually sold at a deep discount because the
buyer receives only the right to receive a future fixed payment on the security
and does not receive any rights to periodic interest (cash) payments. The
underlying U.S. Treasury bonds and notes themselves are held in book-entry form
at the Federal Reserve Bank or, in the case of bearer securities (i.e.,
unregistered securities which are ostensibly owned by the bearer or holder), in
trust on behalf of the owners. Counsel to the underwriters of these
certificates or other evidences of ownership of U.S. Treasury securities have
stated that, in their opinion, purchasers of the stripped securities most likely
will
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<PAGE>
be deemed the beneficial holders of the underlying U.S. Government obligations
for Federal tax purposes. The Trust is not aware of any binding legislative,
judicial or administrative authority on this issue.
The Prospectus discusses other types of stripped securities that may
be purchased by the Portfolio, including stripped mortgage-backed securities.
Asset-Backed Securities. The Balanced Portfolio may purchase asset backed
-----------------------
securities, which are securities backed by mortgages, installment contracts,
credit card receivables or other assets. Asset-backed securities represent
interests in "pools" of assets in which payments of both interest and principal
on the securities are made monthly, thus in effect "passing through" monthly
payments made by the individual borrowers on the assets that underlie the
securities, net of any fees paid to the issuer or guarantor of the securities.
The average life of asset-backed securities varies with the maturities of the
underlying instruments, and the average life of a mortgage-backed instrument, in
particular, is likely to be substantially less than the original maturity of the
mortgage pools underlying the securities as a result of mortgage prepayments.
For this and other reasons, an asset-backed security's stated maturity may be
shortened, and the security's total return may be difficult to predict
precisely. Asset-backed securities acquired by the Portfolio may include
collateralized mortgage obligations ("CMOs") issued by private companies.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-backed securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA and are not
backed by or entitled to the full faith and credit of the United States, but are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of the principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage
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<PAGE>
Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
Non-mortgage asset-backed securities involve certain risks that are
not presented by mortgage-backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many of
which have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
Interest Rate and Currency Swaps. The Balanced Portfolio may enter
--------------------------------
into interest rate swaps for hedging purposes and not for speculation. Interest
rate swaps involve the exchange by the Portfolio with another party of their
respective commitments to pay or receive interest, such as an exchange of fixed
rate payments for floating rate payments. The Portfolio will typically use
interest rate swaps to preserve a return on a particular investment or portion
of its portfolio or to shorten the effective duration of its portfolio
investments. The Portfolio will only enter into interest rate swaps on a net
basis, i.e. the two payment streams are netted out, with the
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<PAGE>
Portfolio receiving or paying, as the case may be, only the net amount of the
two payments.
The International Equity Index and International Growth Portfolios may
enter into currency swaps, which involve the exchange of the rights of a
Portfolio and another party to make or receive payments in specified currencies.
Currency swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency.
Inasmuch as interest rate and currency swaps are entered into for good
faith hedging purposes, the Balanced, International Equity Index and
International Growth Portfolios and Northern believe that such transactions do
not constitute senior securities as defined in the 1940 Act and, accordingly,
will not treat them as being subject to the Portfolios' borrowing
restrictions.
The Balanced, International Equity Index and International Growth
Portfolios will not enter into an interest rate swap or a currency swap,
respectively, unless the unsecured commercial paper, senior debt or the claims-
paying ability of the other party thereto is rated either A or A-l or better by
S&P, Duff or Fitch, or A or P-1 or better by Moody's. If there is a default by
the other party to such transaction, the Portfolios will have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with markets for other similar instruments which
are traded in the Interbank market.
Futures Contracts and Related Options. Each Portfolio may invest in
-------------------------------------
futures contracts and may purchase and sell call and put options on futures
contracts. The International Growth Portfolio may also invest in futures
contracts for speculative purposes (to seek to increase total return). For a
detailed description of futures contracts and related options, see Appendix B to
this Additional Statement.
Real Estate Investment Trusts. The Small Company Index Portfolio may
-----------------------------
invest in equity real estate investment trusts ("REITs") that constitute a part
of the Russell 2000 Small Stock Index. REITs pool investors' funds for
investment primarily in commercial real estate properties. Investments in REITs
may subject the Portfolio to certain risks. REITs may be affected by changes in
the value of the underlying property owned by the trust. REITs are dependent
upon specialized management skill, may not be diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency,
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<PAGE>
defaults by borrowers, self liquidation and the possibility of failing to
qualify for the beneficial tax treatment available to REITs under the Internal
Revenue Code of 1986, as amended, and to maintain exemption from the 1940 Act.
As a shareholder in a REIT, the Portfolio would bear, along with other
shareholders, its pro rata portion of the REIT's operating expenses. These
expenses would be in addition to the advisory and other expenses the Portfolio
bears directly in connection with its own operations.
Securities Lending. Collateral for loans of portfolio securities made
------------------
by a Portfolio may consist of cash, securities issued or guaranteed by the U.S.
Government or its agencies or irrevocable bank letters of credit (or any
combination thereof). The borrower of securities will be required to maintain
the market value of the collateral at not less than the market value of the
loaned securities, and such value will be monitored on a daily basis. When a
Portfolio lends its securities, it continues to receive dividends and interest
on the securities loaned and may simultaneously earn interest on the investment
of the cash collateral. Although voting rights, or rights to consent, attendant
to securities on loan pass to the borrower, such loans will be called so that
the securities may be voted by a Portfolio if a material event affecting the
investment is to occur.
Forward Commitments, When-Issued Securities and Delayed Delivery
----------------------------------------------------------------
Transactions. When a Portfolio purchases securities on a when-issued, delayed
- ------------
delivery or forward commitment basis, the Portfolio's custodian (or
subcustodian) will maintain in a segregated account liquid assets having a value
(determined daily) at least equal to the amount of the Portfolio's purchase
commitments. In the case of a forward commitment to sell portfolio securities,
the custodian or subcustodian will hold the portfolio securities themselves in a
segregated account while the commitment is outstanding. These procedures are
designed to ensure that the Portfolio will maintain sufficient assets at all
times to cover its obligations under when-issued purchases, forward commitments
and delayed delivery transactions.
Commercial Paper, Bankers' Acceptances, Certificates of Deposit, Time
---------------------------------------------------------------------
Deposits and Bank Notes. Commercial paper represents short-term unsecured
- -----------------------
promissory notes issued in bearer form by banks or bank holding companies,
corporations and finance companies. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers' acceptances are
negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on
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<PAGE>
maturity. Fixed time deposits are bank obligations payable at a stated maturity
date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn
on demand by the investor, but may be subject to early withdrawal penalties that
vary depending upon market conditions and the remaining maturity of the
obligation. There are no contractual restrictions on the right to transfer a
beneficial interest in a fixed time deposit to a third party. Bank notes usually
represent senior debt of the bank which ranks pari passu with deposits and all
other senior, unsecured obligations of the bank, except those required by law to
be secured or subject to any priorities or preferences. Some states have
"depositor preference" laws that give depositors of their state chartered banks
priority over holders of bank notes and other general creditors. In addition,
the U.S. Congress has adopted legislation which creates a Federal "depositor
preference" law providing the claims of certain creditors of an insured
depository institution (including its depositors) with priority over the claims
of that institution's unsecured creditors (including holders of its notes) in
the event of that institution's insolvency or other resolution. Bank notes are
classified as "other borrowings" on bank's balance sheet, while deposit notes
and certificates of deposit are classified as deposits. Bank notes are not
insured by the Federal Deposit Insurance Corporation or any other insurer.
Each Portfolio may invest a portion of its assets in the obligations
of foreign banks and foreign branches of domestic banks. Such obligations
include Eurodollar Certificates of Deposit ("ECDs") which are U.S. dollar-
denominated certificates of deposit issued by offices of foreign and domestic
banks located outside the United States; Eurodollar Time Deposits ("ETDs") which
are U.S. dollar-denominated deposits in a foreign branch of a U.S. bank or a
foreign bank; Canadian Time Deposits ("CTDs") which are essentially the same as
ETDs except they are issued by Canadian offices of major Canadian banks;
Schedule Bs, which are obligations issued by Canadian branches of foreign or
domestic banks; Yankee Certificates of Deposit ("Yankee CDs") which are U.S.
dollar-denominated certificates of deposit issued by a U.S. branch of a foreign
bank and held in the United States; and Yankee Bankers' Acceptances ("Yankee
BAs") which are U.S. dollar-denominated bankers' acceptances issued by a U.S.
branch of a foreign bank and held in the United States.
Variable and Floating Rate Instruments. With respect to the variable
--------------------------------------
and floating rate instruments that may be acquired by the Portfolios, Northern
will consider the earning power, cash flows and other liquidity ratios of the
issuers and guarantors of such instruments and, if the instruments are subject
to demand features, will continuously monitor their financial status to meet
payment on demand. Where necessary to ensure that a variable or floating rate
instrument meets the Portfolios'
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<PAGE>
quality requirements the issuer's obligation to pay the principal of the
instrument will be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend.
Repurchase Agreements. Each Portfolio may enter into repurchase
---------------------
agreements with financial institutions, such as banks and broker-dealers, as are
deemed creditworthy by Northern under guidelines approved by the Trust's Board
of Trustees. The repurchase price under the repurchase agreements will generally
equal the price paid by a Portfolio plus interest negotiated on the basis of
current short-term rates (which may be more or less than the rate on the
securities underlying the repurchase agreement). Securities subject to
repurchase agreements will be held by the Trust's custodian (or subcustodian),
in the Federal Reserve/Treasury book-entry system or by another authorized
securities depository. Repurchase agreements are considered to be loans by a
Portfolio under the 1940 Act.
Reverse Repurchase Agreements. Each Portfolio may borrow funds for
-----------------------------
temporary or emergency purposes by selling portfolio securities to financial
institutions such as banks and broker/dealers and agreeing to repurchase them at
a mutually specified date and price ("reverse repurchase agreements"). Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a Portfolio may decline below the repurchase price. The Portfolio will
pay interest on amounts obtained pursuant to a reverse repurchase agreement.
While reverse repurchase agreements are outstanding, a Portfolio will maintain
in a segregated account liquid assets in an amount at least equal to the market
value of the securities, plus accrued interest, subject to the agreement.
Reverse repurchase agreements are considered to be borrowings by a Portfolio
under the 1940 Act.
Pair-Off Transactions. Subject to the requirements of the 1940 Act,
---------------------
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 the Portfolio's paying or receiving the difference
between the purchase and sale prices from the counter-party 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 it 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
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<PAGE>
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 cash or
U.S. Government securities 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 sold short and (c) 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 this
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 5% of the value of the Portfolio's total
assets.
Although pair-off transactions represent a strategy that may 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.
Investment Companies. To the extent required by the 1940 Act and the
--------------------
regulations and orders of the SEC thereunder, each Portfolio currently intends
to limit its investments in securities issued by other investment companies so
that, as determined immediately after a purchase of such securities is made, not
more than 3% of the total outstanding stock of any one investment company will
be owned by the Portfolio, the Trust as a whole and their affiliated persons (as
defined in the 1940 Act). An investment company whose securities are purchased
by a Portfolio or the Trust is not obligated to redeem such securities in an
amount exceeding 1% of the investment company's total outstanding securities
during any period of less than 30 days. Therefore, such securities that exceed
this amount may be illiquid. Notwithstanding the foregoing, a portfolio may
adhere to more restrictive limitations with respect to its investments in
securities issued by other investment companies if required by the SEC or deemed
to be in the best interests of the Trust. To the extent required by the 1940
Act, each Portfolio expects to
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<PAGE>
vote the shares of other investment companies that are held by it in the same
proportion as the vote of all other holders of such securities.
Risks Related to Lower-Rated Securities. While any investment carries
---------------------------------------
some risk, certain risks associated with lower-rated securities are different
than those for investment-grade securities. The risk of loss through default is
greater because lower-rated securities are usually unsecured and are often
subordinate to an issuer's other obligations. Additionally, the issuers of
these securities frequently have high debt levels and are thus more sensitive to
difficult economic conditions, individual corporate developments and rising
interest rates. Consequently, the market price of these securities may be quite
volatile and may result in wider fluctuations of a Portfolio's net asset value
per unit.
Because the market for lower-rated securities, at least in its present
size and form, is relatively new, there remains some uncertainty about its
performance level under adverse market and economic environments. An economic
downturn or increase in interest rates could have a negative impact on both the
markets for lower-rated securities (resulting in a greater number of bond
defaults) and the value of lower-rated securities held in the portfolio of
investments.
The economy and interest rates can affect lower-rated securities
differently than other securities. For example, the prices of lower-rated
securities are more sensitive to adverse economic changes or individual
corporate developments than are the prices of higher-rated investments. In
addition, during an economic downturn or period in which interest rates are
rising significantly, highly leveraged issuers may experience financial
difficulties, which, in turn, would adversely affect their ability to service
their principal and interest payment obligations, meet projected business goals
and obtain additional financing.
If an issuer of a security defaults, a Portfolio may incur additional
expenses to seek recovery. In addition, periods of economic uncertainty would
likely result in increased volatility for the market prices of lower-rated
securities as well as a Portfolio's net asset value. In general, both the
prices and yields of lower-rated securities will fluctuate.
In certain circumstances it may be difficult to determine a security's
fair value due to a lack of reliable objective information. Such instances
occur where there is not an established secondary market for the security or the
security is lightly traded. As a result, a Portfolio's valuation of a security
and the price it is actually able to obtain when it sells the security could
differ.
B-16
<PAGE>
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the value and liquidity of lower-rated
securities held by a Portfolio, especially in a thinly traded market. Illiquid
or restricted securities held by the Portfolio may involve special registration
responsibilities, liabilities and costs, and could involve other liquidity and
valuation difficulties.
The rating of S&P, Moody's, Duff and Fitch evaluate the safety of a
lower-rated security's principal and interest payments, but do not address
market value risk. Because the ratings of the rating agencies may not always
reflect current conditions and events, in addition to using recognized rating
agencies and other sources, Northern performs its own analysis of the issuers
whose lower-rated securities the Portfolio purchases. Because of this, the
Portfolio's performance may depend more on its own credit analysis than is the
case of mutual funds investing in higher-rated securities.
In selecting convertible securities, Northern considers factors such
as those relating to the creditworthiness of issuers, the ratings and
performance of the securities, the protections afforded the securities and the
diversity of a Portfolio's portfolio. Northern continuously monitors the
issuers of lower-rated securities held by a Portfolio for their ability to make
required principal and interest payments, as well as in an effort to control the
liquidity of the Portfolio so that it can meet redemption requests.
Yields and Ratings. The yields on certain obligations, including the
------------------
instruments in which the Portfolios may invest, are dependent on a variety of
factors, including general market conditions, conditions in the particular
market for the obligation, financial condition of the issuer, size of the
offering, maturity of the obligation and ratings of the issue. The ratings of
S&P, Moody's, Duff, Fitch and TBW represent their respective opinions as to the
quality of the obligations they undertake to rate. Ratings, however, are
general and are not absolute standards of quality. Consequently, obligations
with the same rating, maturity and interest rate may have different market
prices.
Subject to the limitations stated in the Prospectus, if a portfolio
security undergoes a rating revision, a Portfolio may continue to hold the
security if Northern determines such retention is warranted.
B-17
<PAGE>
Portfolio Transactions. Northern's Advisory Agreement with the Trust
----------------------
provides that in selecting brokers or dealers to place orders for transactions
(a) involving common and preferred stocks, Northern shall use its best judgment
to obtain the best overall terms available and (b) involving bonds and other
fixed income obligations, Northern shall attempt to obtain best net price and
execution. In assessing the best overall terms available for any transaction,
Northern is to consider all factors it deems relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
In evaluating the best overall terms available and in selecting the broker or
dealer to execute a particular transaction, Northern may consider the brokerage
and research services provided to the Portfolios and/or other accounts over
which Northern or an affiliate of Northern exercises investment discretion.
These brokerage and research services may include industry and company analyses,
portfolio services, quantitative data, market information systems and economic
and political consulting and analytical services.
Calculation of Portfolio Turnover Rate. The portfolio turnover rate
--------------------------------------
for the Portfolios is calculated by dividing the lesser of purchases or sales of
portfolio investments for the reporting period by the monthly average value of
the portfolio investments owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration dates
at the time of acquisition are one year or less. Portfolio turnover may vary
greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of units and by requirements which
enable the Portfolios to receive favorable tax treatment.
Investment Restrictions
In addition to the fundamental investment restrictions disclosed in
the Prospectus, each Portfolio is subject to the fundamental investment
restrictions enumerated below which may be changed with respect to a particular
Portfolio only by a vote of the holders of a majority of such Portfolio's
outstanding units.
No Portfolio may:
(1) Make loans, except (a) through the purchase of debt obligations in
accordance with the Portfolio's investment objective and policies, (b)
through repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities.
B-18
<PAGE>
(2) Mortgage, pledge or hypothecate any assets (other than pursuant to
reverse repurchase agreements) except to secure permitted borrowings.
(3) Purchase or sell real estate, but this restriction shall not
prevent a Portfolio from investing directly or indirectly in portfolio
instruments secured by real estate or interests therein or acquiring
securities of real estate investment trusts or other issuers that deal
in real estate.
(4) Purchase or sell commodities or commodity contracts or oil or gas
or other mineral exploration or development programs, except that each
Portfolio may, to the extent appropriate to its investment policies,
purchase securities of companies engaging in whole or in part in such
activities, enter into futures contracts and related options, and
enter into forward currency contracts in accordance with its
investment objective and policies.
(5) Invest in companies for the purpose of exercising control.
(6) Act as underwriter of securities, except as a Portfolio may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the purchase and sale of portfolio instruments in
accordance with its investment objective and portfolio management
policies.
(7) Write puts, calls or combinations thereof, except for transactions
in options on securities, financial instruments, currencies and
indices of securities (and in the case of the International Growth
Portfolio, yield curve options); futures contracts; options on futures
contracts; forward currency contracts; short sales of securities
against the box; interest rate swaps; and pair-off transactions
(except in the case of the International Growth Portfolio).
(8) Purchase the securities of any issuer if such purchase would cause
more than 10% of the voting securities of such issuer to be held by
the Portfolio, except that up to 25% of the value of its total assets
may be invested without regard to this 10% limitation, and also except
that with respect to the International Equity Index Portfolio, this
investment restriction does not apply to securities of other
investment companies.
B-19
<PAGE>
(9) Purchase securities (other than obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and, in the
case of the International Equity Index Portfolio, securities of other
investment companies) if such purchase would cause more than 25% in
the aggregate of the market value of the total assets of a Portfolio
to be invested in the securities of one or more issuers having their
principal business activities in the same industry. For the purposes
of this restriction, as to utility companies, the gas, electric, water
and telephone businesses are considered separate industries; personal
credit finance companies and business credit finance companies are
deemed to be separate industries; and wholly-owned finance companies
are considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents.
(10) Borrow money (other than pursuant to reverse repurchase
agreements), except (a) as a temporary measure, and then only in
amounts not exceeding 5% of the value of the Portfolio's total assets
or (b) from banks, provided that immediately after any such borrowing
all borrowings of the Portfolio do not exceed one-third of the
Portfolio's total assets. No purchases of securities will be made if
borrowings subject to this restriction exceed 5% of the value of the
Portfolio's assets. The exceptions in (a) and (b) to this restriction
are not for investment leverage purposes but are solely for
extraordinary or emergency purposes or to facilitate management of the
Portfolios by enabling the Trust to meet redemption requests when the
liquidation of Portfolio instruments is deemed to be disadvantageous
or not possible. If due to market fluctuations or other reasons the
total assets of a Portfolio fall below 300% of its borrowings, the
Trust will promptly reduce the borrowings of such Portfolio in
accordance with the 1940 Act.
(11) Purchase the securities of any one issuer, (other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and, in the case of the International Equity
Index Portfolios, securities of other investment companies) if
immediately after such purchase more than 5% of the value of such
Portfolio's total assets would be invested in such issuer, except
that: (a) up to 25% of the value of the total assets of each
Portfolio may be invested in any securities without regard to this 5%
limitation; and (b) with respect to each Portfolio,
B-20
<PAGE>
such 5% limitation shall not apply to repurchase agreements
collateralized by obligations of the U.S. Government, its
agencies or instrumentalities.
* * *
In applying Restriction No. 11 above, a security is considered to be
issued by the entity, or entities, whose assets and revenues back the security.
A guarantee of a security is not deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the guarantor, and
owned by a Portfolio, does not exceed 10% of the value of the Portfolio's total
assets.
Except to the extent otherwise provided in Investment Restriction (9)
for the purpose of such restriction, in determining industry classification the
Trust intends to use the industry classification titles in the Standard
Industrial Classification Manual (except that the International Growth Portfolio
and the International Equity Index Portfolio will use The Morgan Stanley Capital
International industry classification titles). Securities held in escrow or
separate accounts in connection with a Portfolio's investment practices
described in this Additional Statement and in the Prospectus are not deemed to
be mortgaged, pledged or hypothecated for purposes of the foregoing Investment
Restrictions.
In addition, as a matter of fundamental policy, the International
Equity Index and International Growth Portfolios will not issue senior
securities except as stated in the Prospectus or this Additional Statement.
Any restriction which involves a maximum percentage will not be
considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of, or borrowings by, a Portfolio.
ADDITIONAL TRUST INFORMATION
Trustees and Officers
Information pertaining to the Trustees and officers of the Trust is set forth
below.
B-21
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -------------------
<S> <C> <C>
William H. Springer, 67 Chairman Vice Chairman of
Ameritech and (a telecommunications holding
701 Morningside Drive Trustee company; February 1987 to
Lake Forest, IL 60045 retirement in August 1992);
Vice Chairman, Chief Financial
and Administrative Officer, prior
thereto; Director, Walgreen Co.
(a retail drug store business);
Director of Baker, Fentress & Co.
(a closed-end, non-diversified
management investment company)
(April 1992 to present).
Edward J. Condon, Jr., 56 Trustee Chairman of The Pardigm Group,
227 West Monroe Street Ltd. (a financial advisor) since July
Chicago, IL 60606. 1993. Vice President and Treasurer of
Sears, Roebuck and Co. (a retail
corporation) from February 1989 to July
1993. Within the last five years he
has served as a Director of: Sears
Roebuck Acceptance Corp.; Discover Credit
Corp.; Sears Receivables Financing
Group, Inc.; Sears Credit
Corp.; and Sears Overseas Finance N.V.
John W. English, 63 Trustee Private Investor. Vice President and Chief
50-H New England Avenue Investment Officer of The Ford Foundation (a
P.O. Box 640 charitable trust) from 1981 until 1993.
Summit, NJ 07902-0640. Trustee: The China Fund, Inc.; Paribas
Trust for the Institutions; Retail
Property Trust; Sierra Trust;
American Red Cross in Greater New York;
Mote Marine Laboratory; and United Board
for Christian Higher Education
</TABLE>
B-22
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
in Asia. Director: University
of Iowa Foundation; Blanton-and Health;
Peale Institutes of Religion Community
Foundation of Sarasota County; Duke
Management Company; and John
Ringling Centre Foundation.
James J. Gavin, Jr., 74 Trustee Vice Chairman from January
161 Thorntree Lane 1985 to August 1987 and Senior
Winnetka, Illinois 60093 Vice President-Finance and Chief
Financial Officer from 1975 to
January 1985 of Borg-Warner Corporation
(a diversified manufacturing company
also engaged in providing financial and
protective services). Director of Service
Corporation International (a funeral
service/cemetery company), Stepan
Corporation (a producer of basic and
intermediate chemicals), Borg-Warner
Industrial Products, Inc. (a supplier of
advanced technology fluid transfer and
control equipment, systems and services).
Frederick T. Kelsey, 69 Trustee Consultant to Goldman Sachs
3133 Laughing Gull Court from December 1985 through February 1988.
Johns Island, Director of Goldman Sachs Funds Group and
South Carolina 29455. Vice President of Goldman Sachs from May
1981 until his retirement in November 1985.
President and Treasurer of the Trust
through August 1985. Trustee, various
management
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -------------------
<S> <C> <C>
investment companies
affiliated with Kemper
Financial Companies.
</TABLE>
B-23
<PAGE>
<TABLE>
<S> <C> <C>
Richard P. Strubel, 57 Trustee President and Chief Executive
70 West Madison St Officer, Tandem Partners, Inc.
Suite 1400 (a diversified manufacturer
Chicago, IL 60602 of fastening systems and
connectors)(since January
1984).
Paul Klug, 45 Vice Vice President of Goldman
One New York Plaza President Sachs; Director of Proprietary
New York, NY 10004 Mutual Funds of GSAM (since
February 1994); Chief
Operating Officer, Vista
Capital Management, Chase
Manhattan Bank (from January
1990 to February 1994).
Pauline Taylor, 50 Vice Vice President of Goldman
4900 Sears Tower President Sachs; Co-Manager, Shareholder
Chicago, IL 60606 Services of SGAM Funds Group
since June 1992. Consultant
since 1989. Senior Vice
President of Fidelity
Investments prior to 1989.
Nancy L. Mucker, 47 Vice Vice President, Goldman Sachs
4900 Sears Tower President and Manager of Shareholder
Chicago, IL 60606 Services for GSAM Funds Group
(since November 1989).
John W. Mosior, 58 Vice Vice President, Goldman Sachs
4900 Sears Tower President and Manager of Shareholder
</TABLE>
B-24
<PAGE>
<TABLE>
<S> <C> <C>
Chicago, IL 60606 Services for GSAM Funds
Group (since November 1989).
Scott M. Gilman, 37 Treasurer Director, Mutual Funds Admin-
One New York Plaza istration, Goldman Sachs Asset
New York, NY 10004 Management (since April 1994),
Assistant Treasurer, Goldman
Sachs Funds Management, Inc.
(since March 1993); Vice
President, Goldman Sachs (since
March 1990).
</TABLE>
B-25
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- --------------------------- ---------------- -------------------
<S> <C> <C>
Michael J. Richman, 36 Secretary Associate General Counsel, 85
Broad Street Goldman Sachs Asset Management
New York, NY 10004 (since February 1994); Vice
President and Assistant General
Counsel of Goldman Sachs (since
June 1992); Counsel to the
Funds Group, GSAM (since
June 1992);Partner, Hale and
Dorr (September 1991 to
June 1992).
Howard B. Surloff, 31 Assistant Vice President and Assistant
85 Broad Street Secretary General Counsel, Goldman Sachs
New York, NY 10004 (since November 1993 and May
1994, respectively); Counsel
to the Funds Group, Goldman
Sachs Asset Management (since
November 1993); Formerly
Associate of Shereff Friedman,
Hoffman & Goodman (prior
thereto).
Steven E. Hartstein, 33 Assistant Legal Products Analyst, Goldman
85 Broad Street Secretary Sachs (June 1993 to present);
New York, NY 10004 Funds Compliance Officer,
Citibank Global Asset Management
(August 1991 to June 1993); Legal
Assistant, Brown & Wood (prior
thereto).
Deborah A. Robinson 25 Assistant Administrative Assistant, Goldman
85 Broad Street Secretary Sachs since January 1994. Formerly
New York, NY 10004 at Cleary, Gottlieb, Steen &
Hamilton.
</TABLE>
Certain of the Trustees and officers and the organizations with which they are
associated have had in the past, and may have in the future, transactions with
Northern, Goldman Sachs and their respective affiliates. The Trust has been
advised by such Trustees and officers that all such transactions have been and
are expected to be in the ordinary course of business and the terms of such
transactions, including all loans and loan commitments by such persons, have
been and are expected to be substan-
B-26
<PAGE>
tially the same as the prevailing terms for comparable transactions for other
customers. Messrs. Springer, Kelsey, Strubel, Klug, Mosior, Gilman, Richman,
Surloff and Hartstein and Mmes. Mucker, Taylor and Robinson hold similar
positions with one or more investment companies that are advised by Goldman
Sachs. As a result of the responsibilities assumed by Northern under its
Advisory Agreement, Transfer Agency Agreement, Custodian Agreement and Foreign
Custody Agreement with the Trust and by Goldman Sachs under its Administration
Agreement and Distribution Agreement with the Trust, the Trust itself requires
no employees.
Each officer holds comparable positions with certain other investment companies
of which Goldman Sachs, GSAM or an affiliate thereof is the investment adviser,
administrator and/or distributor.
Each Trustee earns a quarterly retainer of $6,250 and the Chairman of the Board
earns a quarterly retainer of $9,375. Each Trustee, including the Chairman of
the Board, earns an additional fee of $1,500 for each meeting attended, plus
reimbursement of expenses incurred as a Trustee.
In addition, the Trustees established an Audit Committee consisting of three
members including a Chairman of the Committee. Each member earns a fee of
$1,500 for each meeting attended and the Chairman earns a quarterly retainer of
$1,250.
The Trust's officers do not receive fees from the Trust for services in such
capacities, although Goldman Sachs, of which they are also officers, receives
fees from the Trust for administrative services.
B-27
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended November
30, 1996:
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Total Compensation
Aggregate Accrued as from Registrant and
Compensation Part of Fund Complex Paid to
Name of Trustee from Registrant Trust's Expenses Trustees
- --------------------------- --------------- ---------------- --------------------
<S> <C> <C> <C>
William H. Springer $ $ $0
Edward J. Condon, Jr. $ $ $0
John W. English $ $ $0
James J. Gavin $ $ $0
William B. Jordan* $ $ $0
Frederick T. Kelsey $ $ $0
Richard P. Strubel $ $ $0
</TABLE>
* Retired as of December 31, 1995.
** Interest from deferred compensation
B-28
<PAGE>
Investment Adviser, Transfer Agent and Custodian
Northern is one of the nation's leading providers of trust and investment
management services. As of December 31, 1996, Northern had over $_____ billion
in assets under management for clients including public and private retirement
funds, endowments, foundations, trusts, corporations, other investment companies
and individuals. Northern is one of the strongest banking organizations in the
United States. Northern believes it has built its organization by serving
clients with integrity, a commitment to quality, and personal attention. Its
stated mission with respect to all its financial products and services is to
achieve unrivaled client satisfaction. With respect to such clients, the Trust
is designed to assist (i) defined contribution plan sponsors and their employees
by offering a range of diverse investment options to help comply with 404(c)
regulation and may also provide educational material to their employees, (ii)
employers who provide post-retirement Employees' Beneficiary Associations
("VEBA") and require investments that respond to the impact of federal
regulations, (iii) insurance companies with the day-to-day management of
uninvested cash balances as well as with longer-term investment needs, and (iv)
charitable and not-for-profit organizations, such as endowments and foundations,
demanding investment management solutions that balance the requirement for
sufficient current income to meet operating expenses and the need for capital
appreciation to meet future investment objectives.
Subject to the general supervision of the Board of Trustees, Northern makes
decisions with respect to and places orders for all purchases and sales of
portfolio securities for the Portfolios. Northern's Advisory Agreement with the
Trust provides that in selecting brokers or dealers to place orders for
transactions (a) on common and preferred stocks, Northern shall use its best
judgment to obtain the best overall terms available, and (b) on bonds and other
fixed income obligations, Northern shall attempt to obtain best net price and
execution. Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers.
Transactions on foreign stock exchanges involve payment for brokerage
commissions which are generally fixed. Over-the-counter issues, including
corporate debt and government securities, are normally traded on a "net" basis
(i.e., without commission) through dealers, or otherwise involve transactions
directly with the issuer of an instrument. With respect to over-the-counter
transactions, Northern will normally deal directly with dealers who make a
market in the instruments involved except in those circumstances where more
favorable prices and execution are available elsewhere. The cost of foreign and
domestic securities purchased from underwriters
B-29
<PAGE>
includes an underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's mark-up or
mark-down.
The Portfolios may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Portfolios will engage in this practice, however, only when Northern
believes such practice to be in the Portfolios' interests.
Northern's investment advisory duties for the Trust are carried out through
its Trust Department. On occasions when Northern deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other fiduciary
or agency accounts managed by it (including any other Portfolio, investment
company or account for which Northern acts as adviser), the Agreement provides
that Northern, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be sold or purchased for such Portfolio with those
to be sold or purchased for such other accounts in order to obtain best overall
terms available with respect to common and preferred stock, and best net price
and execution with respect to bonds and other fixed income obligations. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by Northern in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
the Portfolio and other accounts involved. In some instances, this procedure may
adversely affect the size of the position obtainable for a Portfolio or the
amount of the securities that are able to be sold for a Portfolio. To the extent
that the execution and price available from more than one broker or dealer are
believed to be comparable, the Agreement permits Northern, at is discretion but
subject to applicable law, to select the executing broker or dealer on the basis
of Northern's opinion of the reliability and quality of such broker or dealer.
The Advisory Agreement provides that Northern may render similar services
to others so long as its services under such Agreement are not impaired thereby.
The Advisory Agreement also provides that the Trust will indemnify Northern
against certain liabilities (including liabilities under the Federal securities
laws relating to untrue statements or omissions of material fact and actions
that are in accordance with the terms of the Agreement) or, in lieu thereof,
contribute to resulting losses.
Under its Transfer Agency Agreement with the Trust, with respect to units
held by Institutions, Northern has undertaken to perform some or all of the
following services: (1) establish and maintain an omnibus account in the name of
each Institution; (2) process purchase orders and redemption requests from an
B-30
<PAGE>
Institution, furnish confirmations and disburse redemption proceeds; (3) act as
the income disbursing agent of the Trust; (4) answer inquiries from
Institutions; (5) provide periodic statements of account to each Institution;
(6) process and record the issuance and redemption of units in accordance with
instructions from the Trust or its administrator; (7) if required by law,
prepare and forward to Institutions unitholder communications (such as proxy
statements and proxies, annual and semi-annual financial statements, and
dividend, distribution and tax notices); (8) preserve all records; and (9)
furnish necessary office space, facilities and personnel. Under the Transfer
Agency Agreement, with respect to units held by investors, Northern has also
undertaken to perform some or all of the following services: (1) establish and
maintain separate accounts in the name of the investors; (2) process purchase
orders and redemption requests, and furnish confirmations in accordance with
applicable law; (3) disburse redemption proceeds; (4) process and record the
issuance and redemption of units in accordance with instructions from the Trust
or its administrator; (5) act as income disbursing agent of the Trust in
accordance with the terms of the prospectus and instructions from the Trust or
its administrator; (6) provide periodic statements of account; (7) answer
inquiries (including requests for prospectuses and Additional Statements, and
assistance in the completion of new account applications) from investors and
respond to all requests for information regarding the Trust (such as current
price, recent performance, and yield data) and questions relating to accounts of
investors (such as possible errors in statements, and transactions); (8) respond
to and seek to resolve all complaints of investors with respect to the Trust or
their accounts; (9) furnish proxy statements and proxies, annual and semi-annual
financial statements, and dividend, distribution and tax notices to investors;
(10) furnish the Trust all pertinent Blue Sky information; (11) perform all
required tax withholding; (12) preserve records; and (13) furnish necessary
office space, facilities and personnel. Northern may appoint one or more sub-
transfer agents in the performance of its services.
As compensation for the services rendered by Northern under the Transfer
Agency Agreement and the assumption by Northern of related expenses, Northern is
entitled to a fee from the Trust, payable monthly, at an annual rate of .01%,
.05%, .10% and .15% of the average daily net asset value of the Class A, B, C
and D units, respectively, in the Portfolios.
Under its Custodian Agreement (and in the case of the International Growth
Portfolio and International Equity Index Portfolio, its Foreign Custody
Agreement) with the Trust, Northern (1) holds each Portfolio's cash and
securities, (2) maintains such cash and securities in separate accounts in the
name of the Portfolio, (3) makes receipts and disbursements of funds on behalf
of the Portfolio, (4) receives, delivers and
B-31
<PAGE>
releases securities on behalf of the Portfolio, (5) collects and receives all
income, principal and other payments in respect of the Portfolio's investments
held by Northern under the Agreement, and (6) maintains the accounting records
of the Trust. Northern may employ one or more subcustodians, provided that
Northern shall have no more responsibility or liability to the Trust on account
of any action or omission of any subcustodian so employed than such subcustodian
has to Northern and that the responsibility or liability of the subcustodian to
Northern shall conform to the resolution of the Trustees of the Trust
authorizing the appointment of the particular subcustodian (or, in the case of
the Foreign Custody Agreement, to the terms of any agreement entered into
between Northern and such subcustodian to which such resolution relates). In
addition, the Foreign Custody Agreement provides that Northern shall not be: (i)
responsible for the solvency of any subcustodian appointed by it with reasonable
care; (ii) responsible for any act, omission, default or for the solvency of any
eligible foreign securities depository; and (iii) liable for any loss, damage,
cost, expense, liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where the
subcustodian has otherwise exercised reasonable care. Northern may also appoint
an agent to carry out such of the provisions of the Custodian Agreement and the
Foreign Custody Agreement as Northern may from time to time direct, provided
that the appointment of such an agent shall not relieve Northern of any of its
responsibilities under either Agreement. Northern has entered into agreements
with financial institutions and depositories located in foreign countries with
respect to the custody of the Portfolio's foreign securities.
As compensation for the services rendered to the Trust by Northern as
Custodian with respect to each Portfolio except the International Growth
Portfolio and International Equity Index Portfolio, and the assumption by
Northern of certain related expenses, Northern is entitled to payment from the
Trust as follows: (i) $18,000 annually for each Portfolio, plus (ii) 1/100th of
1% annually of each Portfolio's average daily net assets to the extent they
exceed $100 million, plus (iii) a fixed dollar fee for each trade in portfolio
securities, plus (iv) a fixed dollar fee for each time that Northern as
Custodian receives or transmits funds via wire, plus (v) reimbursement of
expenses incurred by Northern as Custodian for telephone, postage, courier fees,
office supplies and duplicating. The fees referred to in clauses (iii) and (iv)
are subject to annual upward adjustments based on increases in the Consumer
Price Index for All Urban Consumers, provided that Northern may permanently or
temporarily waive all or any portion of any upward adjustment.
As compensation for the services rendered to the Trust under the Foreign
Custody Agreement with respect to the International
B-32
<PAGE>
Growth Portfolio and International Equity Index Portfolio, and the assumption by
Northern of certain related expenses, Northern is entitled to payment from the
Trust as follows: (i) $35,000 annually for the International Growth Portfolio
and International Equity Index Portfolio, plus (ii) 9/100th of 1% annually of
the Portfolios' average daily net assets, plus (iii) reimbursement for fees
incurred by Northern as foreign Custodian for telephone, postage, courier fees,
office supplies and duplicating.
Unless sooner terminated, the Advisory Agreement, Custodian Agreement (or
in the case of the International Growth Portfolio and International Equity Index
Portfolio, the Foreign Custody Agreement) and Transfer Agency Agreement between
Northern and the Trust will continue in effect with respect to a particular
Portfolio until April 30, 1998 and thereafter for successive 12-month periods,
provided that the continuance is approved at least annually (1) by the vote of a
majority of the Trustees who are not parties to the agreement or "interested
persons" (as such term is defined in the 1940 Act) of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval, and (2)
by the Trustees or by the vote of a majority of the outstanding units of such
Portfolio (as defined under "Organization" in the Prospectus). Each agreement
is terminable at any time without penalty by the Trust (by specified Trustee or
unitholder action) on 60 days' written notice to Northern and by Northern on 60
days' written notice to the Trust.
For the fiscal periods ended November 30 as indicated, the amount of the
Advisory Fee incurred by each Portfolio (after fee waivers) was:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balanced Portfolio (1) $ 181,249 $ 118,582
Equity Index Portfolio (2) 380,061 265,647
Diversified Growth Portfolio (2) 845,029 1,019,000
Focused Growth Portfolio (1) 609,180 389,125
Small Company Index Portfolio (2) 172,085 148,538
International Growth Portfolio (3) 1,180,413 648,520
</TABLE>
- --------------------
(1) Commenced investment operations on July 1, 1993.
(2) Commenced investment operations on January 11, 1993.
(3) Commenced investment operations on March 28, 1994.
B-33
<PAGE>
For the same fiscal periods ended November 30 as indicated,
Northern waived advisory fees as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balanced Portfolio (1) $108,249 $ 71,150
Equity Index Portfolio (2) 760,122 531,397
Diversified Growth Portfolio (2) 384,104 463,246
Focused Growth Portfolio (1) 228,443 145,930
Small Company Index Portfolio (2) 172,085 148,544
International Growth Portfolio (3) 295,103 161,282
-------- --------
</TABLE>
__________________
(1) Commenced investment operations on July 1, 1993.
(2) Commenced investment operations on January 11, 1993.
(3) Commenced investment operations on March 28, 1994.
For the fiscal periods ended November 30 as indicated, the amount of
the Transfer Agency Fee incurred by each Portfolio was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balanced Portfolio (1) $ 3,624 $ 2,372
Equity Index Portfolio (2) 40,881 26,570
Diversified Growth Portfolio (2) 15,548 18,530
Focused Growth Portfolio (1) 7,810 4,864
Small Company Index Portfolio (2) 8,647 7,427
International Growth Portfolio (3) 14,784 8,107
</TABLE>
__________________
(1) Commenced investment operations on July 1, 1993.
(2) Commenced investment operations on January 11, 1993.
(3) Commenced investment operations on March 28, 1994.
For the fiscal periods ended November 30 as indicated, the amount of
the Custodian Fee (and in the case of the International Growth Portfolio, the
Foreign Custodian Fee) incurred by each Portfolio was as follows:
1996 1995 1994
---- ---- ----
Balanced Portfolio (1) $ 25,924 $ 24,023
Equity Index Portfolio (2) 126,649 108,000
Diversified Growth Portfolio (2) 34,074 30,346
Focused Growth
B-34
<PAGE>
Portfolio (1) 25,698 19,578
Small Company Index Portfolio (2) 65,810 120,118
International Growth Portfolio (3) 160,492 17,124
___________________
(1) Commenced investment operations on July 1, 1993.
(2) Commenced investment operations on January 11, 1993.
(3) Commenced investment operations on March 28, 1994.
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. Northern believes that it may perform the services
contemplated by its agreements with the Trust without violation of such banking
laws or regulations, which are applicable to it. It should be noted, however,
that future changes in either Federal or state statutes and regulations relating
to the permissible activities of banks and their subsidiaries or affiliates, as
well as future judicial or administrative decisions or interpretations of
current and future statutes and regulations, could prevent Northern from
continuing to perform such services for the Trust.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of Northern in connection with the provision of
services on behalf of the Trust, the Trust might be required to alter materially
or discontinue its arrangements with Northern and change its method of
operations. It is not anticipated, however, that any change in the Trust's
method of operations would affect the net asset value per unit of any Portfolio
or result in a financial loss to any unitholder. Moreover, if current
restrictions preventing a bank from legally sponsoring, organizing, controlling
or distributing units of an open-end investment company were relaxed, the Trust
expects that Northern would consider the possibility of offering to perform some
or all of the services now provided by Goldman Sachs. It is not possible, of
course, to predict whether or in what form such restrictions might be relaxed or
the terms upon which Northern might offer to provide services for consideration
by the Trustees.
Goldman Sachs is also an active investor, dealer and/or underwriter in
many types of stocks, bonds and other instruments. Its activities in this
regard could have some effect on the market for those instruments which the
Portfolios acquire, hold or sell.
B-35
<PAGE>
In the Advisory Agreement, Northern agrees that the name "The
Benchmark" may be used in connection with the Trust's business on a royalty-free
basis. Northern has reserved to itself the right to grant the non-exclusive
right to use the name "The Benchmark" to any other person. The Advisory
Agreement provides that at such time as the Agreement is no longer in effect,
the Trust will cease using the name "The Benchmark." (This undertaking by the
Trust may be subject to certain legal limitations.)
Portfolio Transactions
To the extent that a Portfolio effects brokerage transactions with
Goldman Sachs or any broker-dealer affiliated directly or indirectly with
Northern or its manager, such transactions, including the frequency thereof, the
receipt of any commissions payable in connection therewith, and the selection of
the affiliated broker-dealer effecting such transactions, will be fair and
reasonable to the unitholders of the Portfolio.
B-36
<PAGE>
For the fiscal periods ended November 30 as indicated each Portfolio paid
brokerage commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Fiscal Brokerage Amount of Commissions
Year Total Commissions Transactions Paid
Ended Brokerage Paid to On Which to Brokers
November Commissions Affiliated Commissions Providing
30, 1996: Paid Persons Paid Research
- --------- ---- ------- ---- --------
<S> <C> <C> <C> <C>
(* 10 moved from here; text not shown)
Balanced $ $ $ $
Portfolio
Equity
Index
** 3 Portfolio
Focused
Growth
** 4 Portfolio
Diversified
Growth
** 5 Portfolio
Small
Company
Index
Portfolio
International
Growth
Portfolio
</TABLE>
(*) Percentage of total commissions paid
B-37
<PAGE>
** 6 (**) Percentage of total amount of transactions involving the payment
of commissions effected through affiliated persons.
B-38
<PAGE>
<TABLE>
<CAPTION>
Total Brokerage
Fiscal Total Brokage Amount of Commissions
Year Total Commissions Transactions Paid
Ended Brokerage Paid to On Which to Brokers
November Commissions Affiliated Commissions Providing
30, 1995: Paid Persons Paid Research
- --------------- ---- ------- ---- -----------
<S> <C> <C> <C> <C>
Balanced $ 45,837 $0 $ 24,906,175 $ 39,287
Portfolio
Equity 112,575 0 152,546,455 112,575
Index
Portfolio
Focused 192,628 0 111,053,831 146,993
Growth
Portfolio
Diversified 438,884 3,360 248,311,354 367,010
Growth (.76%)* (.51%)**
Portfolio
Small 102,688 0 58,429,480 51,692
Company
Index
Portfolio
International 2,121,410 4,425 575,340,692 787,039
Growth (.21%)* (.36%)**
Portfolio
</TABLE>
(*) Percentage of total commissions paid
(**) Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
B-39
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Fiscal Brokerage Amount of Commissions
Year Total Commissions Transactions Paid
Ended Brokerage Paid to On Which to Brokers
November Commissions Affiliated Commissions Providing
30, 1994: Paid Persons Paid Research
- --------------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Balanced $ 37,199 $ 0 (0%)* $ 20,763,184 23,386
Portfolio (0%)**
Equity 100,947 322 (.32%)* 191,367,381 70,919
Index (.08%)**
Portfolio
Diversified 357,742 0 (0%)* 220,310,149 267,491
Growth (0%)**
Portfolio
Focused 118,543 0 (0%)* 100,491,832 96,058
Growth (0%)**
Portfolio
Small $ 188,410 $ 0 (0%)* $110,249,401 114,478
Company (0%)**
Index
Portfolio
International $ 843,097 $194 (.02%)* $205,832,703 0
Growth (.04%)**
</TABLE>
Portfolio***
(*) Percentage of total commissions paid
(**) Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
(***) For the period March 28, 1994 through November 30, 1994.
B-41
<PAGE>
{* 7 moved from here; text not shown}
{* 8 moved from here; text not shown}
{* 9 moved from here; text not shown}
{* 3 moved from here; text not shown}
{* 4 moved from here; text not shown}
{* 5 moved from here; text not shown}
{* 6 moved from here; text not shown}
During the fiscal year ended November 30, 1996, the Equity Index
Portfolio acquired and sold securities of Merrill Lynch & Co., Inc, Salomon
Brothers, Inc., Morgan Stanley Group, Inc., and J.P. Morgan & Co., Inc., each a
regular broker/dealer. At November 30, 1996, the Equity Index Portfolio owned
the following amounts of securities of its regular broker/dealers, as defined in
Rule 10b-1 under the 1940 Act, or their parents: Merrill Lynch with an aggregate
value of $1,057,000, Salomon Brothers with an aggregate value of $418,000,
Morgan Stanley with an aggregate value of $716,000, and J.P. Morgan with an
aggregate value of $1,594,000.
During the fiscal year ended November 30, 1996, the International
Equity Portfolio acquired and sold securities of Nomura Securities Co., Ltd., a
regular broker/dealer. At November 30, 1996, the International Equity Portfolio
owned the following amounts of securities of its regular broker/dealers, as
defined in Rule 10b-1 under the 1940 Act, or their parents: Nomura Securities
with an aggregate value of $1,674,000.
Administrator and Distributor
B-42
<PAGE>
Under its Administration Agreement with the Trust, Goldman Sachs,
subject to the general supervision of the Trust's Board of Trustees, acts as the
Trust's Administrator. In this capacity, Goldman Sachs (1) provides supervision
of certain aspects of the Trust's non-investment advisory operations (the
parties giving due recognition to the fact that certain of such operations are
performed by Northern pursuant to the Trust's agreements with Northern), (2)
provides the Trust, to the extent not provided pursuant to such agreements, with
such personnel as are reasonably necessary for the conduct of the Trust's
affairs, (3) arranges, to the extent not provided pursuant to such agreements,
for the preparation at the Trust's expense of its tax returns, reports to
unitholders, periodic updating of the Prospectus issued by the Trust, and
reports filed with the SEC and other regulatory authorities (including
qualification under state securities or Blue Sky laws of the Trust's units), and
(4) provides the Trust, to the extent not provided pursuant to such agreements,
with adequate office space and equipment and certain related services in
Chicago.
For the fiscal periods ended November 30 as indicated, Goldman Sachs
received fees under the Administration Agreement (after fee waivers) in the
amount of:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C>
Balanced Portfolio (1) $ 36,250 $ 23,716
Equity Index Portfolio (2) 380,061 265,699
Diversified Growth Portfolio (2) 153,642 185,295
Focused Growth Portfolio (1) 76,148 48,643
Small Company Index Portfolio (2) 86,043 74,272
International Growth Portfolio (3) 147,552 81,070
- -----------
</TABLE>
(1) Commenced investment operations on July 1, 1993.
(2) Commenced investment operations on January 11, 1993.
(3) Commenced investment operations on March 28, 1994.
B-43
<PAGE>
For the fiscal periods ended November 30 as indicated, Goldman Sachs has
voluntarily agreed to waive a portion of its Administration Fee for each
Portfolio resulting in an effective fee of .10% of the average daily net assets
for each Portfolio. The effect of these waivers by Goldman Sachs were:
<TABLE>
<CAPTION>
1996 1995 1994
---- -------- --------
<S> <C> <C>
Balanced Portfolio (1) $ 54,375 $ 34,000
Equity Index Portfolio (2) 229,985 232,849
Diversified Growth Portfolio (2) 176,821 192,499
Focused Growth Portfolio (1) 114,221 72,967
Small Company Index Portfolio (2) 129,064 111,408
International Growth Portfolio (3) 173,776 187,000
</TABLE>
__________________
(1) Commenced investment operations on July 1, 1993.
(2) Commenced investment operations on January 11, 1993.
(3) Commenced investment operations on March 28, 1994.
In addition, pursuant to an undertaking that commenced August 1, 1992,
Goldman Sachs has agreed that, if its administration fees (less expense
reimbursements paid by Goldman Sachs to the Trust and less certain marketing
expenses paid by Goldman Sachs) exceed a specified amount ($1 million for the
Trust's first twelve investment portfolios plus $50,000 for each additional
portfolio) during the current fiscal year, Goldman Sachs will waive a portion of
its administration fees during the following fiscal year. This undertaking may
be terminated by Goldman Sachs at any time without the consent of the Trust or
the unitholders. There have been no waivers pursuant to this agreement during
the last three fiscal periods.
Goldman Sachs has voluntarily agreed to reimburse the Portfolios for
certain expenses in the event that such expenses, as defined, exceed on an
annualized basis .25% of the International Growth Portfolio's average daily net
assets and .10% of each other Portfolio's average daily net assets. The
B-44
<PAGE>
effect of these reimbursements by Goldman Sachs for the fiscal periods ended
November 30 as indicated were to reduce the expenses of each Portfolio by:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C>
Balanced Portfolio (1) $ 79,928 $104,929
Equity Index Portfolio (2) 194,615 208,610
Diversified Growth Portfolio (2) 100,038 118,579
Focused Growth Portfolio (1) 87,261 91,040
Small Company Index Portfolio (2) 116,594 132,794
International Growth Portfolio (3) N/A N/A
</TABLE>
_____________
(1) Commenced investment operations on July 1, 1993.
(2) Commenced investment operations on January 11, 1993.
(3) Commenced investment operations on March 28, 1994.
Unless sooner terminated the Administration Agreement will continue in
effect with respect to a particular Portfolio until April 30, 1998, and
thereafter for successive 12-month periods, provided that the agreement is
approved annually (1) by the vote of a majority of the Trustees who are not
parties to the agreement or "interested persons" (as such term is defined by the
1940 Act) of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval, and (2) by the
B-45
<PAGE>
Trustees or by the vote of a majority of the outstanding units of such Portfolio
(as defined under "Organization" in the Prospectus). The Administration
Agreement is terminable at any time without penalty by the Trust (upon specified
Trustee or unitholder action) on 60 days' written notice to Goldman Sachs and by
Goldman Sachs on 60 days' written notice to the Trust.
The Trust has entered into a Distribution Agreement under which
Goldman Sachs, as agent, sells units of each Portfolio on a continuous basis.
Goldman Sachs pays the cost of printing and distributing prospectuses to persons
who are not unitholders of the Trust (excluding preparation and typesetting
expenses) and of certain other distribution efforts. No compensation is payable
by the Trust to Goldman Sachs for such distribution services.
The Administration Agreement and the Distribution Agreement provide
that Goldman Sachs may render similar services to others so long as its services
under such Agreements are not impaired thereby. The Administration Agreement
provides that the Trust will indemnify Goldman Sachs against certain liabilities
(including liabilities under the Federal securities laws relating to untrue
statements or omissions of material fact and actions that are in accordance with
the terms of the Administration Agreement and Distribution Agreement) or, in
lieu thereof, contribute to resulting losses.
Unitholder Servicing Plan
As stated in the Portfolios' Prospectus, Institutions may enter into
Servicing Agreements with the Trust under which they provide (or arrange to have
provided) support services to their Customers or other investors who
beneficially own such units in consideration of the Portfolios' payment of not
more than .10%, .15% and .25% (on an annualized basis) of the average daily net
asset value of the Class B, C and D units, respectively, beneficially owned by
such Customers or investors.
For the fiscal periods ended November 30 as indicated, the aggregate
amount of the Unitholder Service Fee incurred by each class of each Portfolio
then in existence was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balanced Portfolio
Class B N/A N/A
Class C N/A N/A
Class D N/A N/A
Equity Index Portfolio
Class B N/A N/A
Class C (1) $4,339.08 N/A
Class D (2) 479.72 $ 0.34
</TABLE>
B-46
<PAGE>
<TABLE>
<S> <C> <C>
Diversified Growth Portfolio
Class B N/A N/A
Class C N/A N/A
Class D (2) 326.04 10.94
Focused Growth Portfolio
Class B N/A N/A
Class C N/A N/A
Class D (3) 436.94 N/A
Small Company Index Portfolio
Class B N/A N/A
Class C N/A N/A
Class D (4) 44.71 N/A
**11 International Growth Portfolio
Class B N/A N/A
Class C N/A N/A
Class D (5) 4.25 0.20
</TABLE>
(1) Commenced operations on September 29, 1995.
(2) Commenced operations on September 14, 1994.
(3) Commenced operations on December 8, 1994.
(4) Commenced operations on December 11, 1994.
(5) Commenced operations on November 16, 1994.
Services provided by or arranged to be provided by Institutions under
their Servicing Agreements may include: (1) establishing and maintaining
separate account records of Customers or other investors; (2) providing
Customers or other investors with a service that invests their assets in units
of certain classes pursuant to specific or pre-authorized instructions, and
assistance with new account applications; (3) aggregating and processing
purchase and redemption requests for units of certain classes from Customers or
other investors, and placing purchase and redemption orders with the Transfer
Agent; (4) issuing confirmations to Customers or other investors in accordance
with applicable law; (5) arranging for the timely transmission of funds
representing the net purchase price or redemption proceeds; (6) processing
dividend payments on behalf of Customers or other investors; (7) providing
information periodically to Customers or other investors showing their
positions in units; (8) responding to Customer or other investor inquiries
(including requests for prospectuses), and complaints relating to the services
performed by the Institutions; (9) acting as liaison with respect to all
inquiries and complaints from Customers and other investors relating to errors
committed by the Trust or its agents, and other matters pertaining to the Trust;
(10) providing or arranging for another person to provide subaccounting with
respect to units of certain classes beneficially owned by Customers or other
investors; (11) if required by law, forwarding unitholder communications from
the Trust (such as proxy
B-47
<PAGE>
statements and proxies, unitholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers and other
investors; (12) providing such office space, facilities and personnel as may be
required to perform its services under the Servicing Agreement; (13) maintaining
appropriate management reporting and statistical information; (14) paying
expenses related to the preparation of educational and other explanatory
materials in connection with the development of investor services; (15)
developing and monitoring investment programs; and (16) providing such other
similar services as the Trust may reasonably request to the extent the
Institutions are permitted to do so under applicable statutes, rules and
regulations.
The Trust's agreements with Institutions are governed by a Plan (called the
"Unitholder Servicing Plan"), which has been adopted by the Board of Trustees.
Pursuant to the Unitholder Servicing Plan, the Board of Trustees will review, at
least quarterly, a written report of the amounts expended under the Trust's
agreements with Institutions and the purposes for which the expenditures were
made. In addition, the arrangements with Institutions must be approved annually
by a majority of the Board of Trustees, including a majority of the Trustees who
are not "interested persons" of the Trust, as defined in the 1940 Act, and have
no direct or indirect financial interest in such arrangements.
The Board of Trustees has approved the arrangements with Institutions based
on information provided by the Trust's service contractors that there is a
reasonable likelihood that the arrangements will benefit the Portfolios and
their unitholders by affording the Portfolios greater flexibility in connection
with the servicing of the accounts of the beneficial owners of their units in an
efficient manner.
Counsel and Auditors
Drinker Biddle & Reath, with offices at 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107, serve as counsel to the Trust.
Ernst & Young LLP, independent auditors, Sears Tower, 233 S. Wacker Drive,
Chicago, Illinois 60606-6301, have been selected as auditors of the Trust. In
addition to audit services, Ernst & Young LLP reviews the Trust's Federal and
state tax returns, and provides consultation and assistance on accounting,
internal control and related matters.
In-Kind Purchases
Payment for units of a Portfolio may, in the discretion of Northern, be
made in the form of securities that are permissible
B-48
<PAGE>
investments for the Portfolio as described in the Prospectus. For further
information about this form of payment, contact Northern. In connection with an
in-kind securities payment, a Portfolio will require, among other things, that
the securities be valued on the day of purchase in accordance with the pricing
methods used by the Portfolio and that the Portfolio receive satisfactory
assurances that it will have good and marketable title to the securities
received by it; that the securities be in proper form for transfer to the
Portfolio; and that adequate information be provided concerning the basis and
other tax matters relating to the securities.
PERFORMANCE INFORMATION
Each Portfolio that advertises an "average annual total return" for a class
of units computes such return by determining the average annual compounded rate
of return during specified periods that equates the initial amount invested to
the ending redeemable value of such investment according to the following
formula:
ERV
T = (-----)(1/n power) - 1
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the applicable period
(or fractional portion thereof) of a hypothetical $1,000 payment made
at the beginning of the period.
B-49
<PAGE>
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of years.
Each Portfolio that advertises an "aggregate total return" for a class of
units computes such return by determining the aggregate compounded rates of
return during specified periods that likewise equate the initial amount invested
to the ending redeemable value of such investment. The formula for calculating
aggregate total return is as follows:
ERV
T = [(-----)] - 1
P
The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per unit
existing on the reinvestment date, (2) all recurring fees charged to all
unitholder accounts are included, and (3) the portfolio transaction fee is taken
into account for purchases of units of the Small Company Index Portfolio and the
International Equity Index Portfolio. The ending redeemable value (variable
"ERV" in the formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring charges at the end
of the measuring period.
B-50
<PAGE>
The average annual total return and the aggregate total return advertised
by a Portfolio may include, for periods prior to the commencement of the
Portfolio's operations, the performance of a predecessor collective fund
adjusted to reflect the higher estimated fees and expenses applicable to such
Portfolio's Class A Units at the time of their inception. Although all such
predecessor collective funds were managed by Northern in a manner and pursuant
to investment objectives that were equivalent in all material respects to the
management and investment objectives of the corresponding Portfolios, such
predecessor collective funds were not registered under the 1940 Act and were not
subject to certain investment restrictions imposed by the 1940 Act. If they had
been registered under the 1940 Act, performance might have been adversely
affected. The average annual total return and the aggregate total return
advertised by a Portfolio for a particular class of units may also include, for
the periods prior to the inception of such class, the performance of the
Portfolio's Class A Units. Because the fees and expenses of Class C and Class D
Units are, respectively, 0.24% and 0.39% higher than those of Class A Units,
actual performance for periods prior to the inception of Class C and Class D
Units would have been lower if such higher fees and expenses had been taken into
account.
B-51
<PAGE>
Average Annual Total Returns for Periods Ended November 30, 1996
1 Year 5 Year 10 Year Since Inception
Bond/1/
Class A
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Class C
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Class D
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Short-Intermediate
Bond/2/
Class A
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Class D
with fee waivers and
expense reimbursemets
w/o fee waivers and
expense reimbursements
US Treasury Index/3/
Inception 1-1-87
Class A
with fee waivers and
expense reimbursements
B-52
<PAGE>
w/o fee waivers and
expense reimbursements
Class D
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Short Duration
Inception 6-2-93
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
US Government Securities/4/
Inception 4-5-93
Class A
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Class D
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
International Bond/5/
Inception 3-28-94
Class A
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Class D
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
B-53
<PAGE>
Diversified Growth/6/
Class A
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Class D
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Focused Growth
Inception 7-1-93
Class A
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Class D
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Equity Index/7/
Class A
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Class C
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Class D
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
B-54
<PAGE>
Small Company Index/8/
Inception 8-1-88
Class A
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Class D
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
International Growth/9/
Inception 7-1-90
Class A
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Class D
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
Balanced
Inception 7-1-93
Class A
with fee waivers and
expense reimbursements
w/o fee waivers and
expense reimbursements
- ----------------------
1. For Class A, C and D Units, performance data prior to January 11, 1993
(commencement of Portfolio) is that of a predecessor collective fund. For
Class C and D Units, performance data from January 11, 1993 to July 3, 1995
(commencement of Class C Units) and September 14, 1994 (commencement of
Class D Units), respectively, is that of
B-55
<PAGE>
Class A Units. Because fees and expenses of Class C and Class D Units are
____% and ____%, respectively, higher than those of Class A Units, actual
performance would have been lower had such fees and expenses been taken
into account. Performance data of the predecessor collective fund is
adjusted to reflect the higher fees and expenses applicable to Class A
Units at the time of their inception.
2. For Class A and D Units, performance data prior to January 11, 1993
(commencement of Portfolio) is that of a predecessor collective fund. For
Class D Units, performance data from January 11, 1993 to September 14, 1994
(commencement of Class D Units) is that of Class A Units. Because the fees
and expenses of Class D Units are ____% higher than those of Class A Units,
actual performance would have been lower had such higher fees and expenses
been taken into account. Performance data of the predecessor collective
fund is adjusted to reflect the higher fees and expenses applicable to
Class A Units at the time of their inception.
3. For Class A and D Units, performance data prior to January 11, 1993
(commencement of Portfolio) is that of a predecessor collective fund. For
Class D Units, performance data from January 11, 1993 to November 16, 1994
(commencement of Class D Units) is that of Class A Units. Because the fees
and expenses of Class D Units are ____% higher than those of Class A Units,
actual performance would have been lower had such higher fees and expenses
been taken into account. Performance data of the predecessor collective
fund is shown from January 1, 1987 and is adjusted to reflect the higher
fees and expenses applicable to Class A Units at the time of their
inception.
4. For Class D Units, performance data prior to September 15, 1994
(commencement of Class D Units) is that of Class A Units. Because fees and
expenses of Class D Units are ____% higher than those of Class A Units,
actual performance would have been lower had such higher fees and expenses
been taken into account.
5. For Class D Units, performance data prior to November 22, 1995
(commencement of Class D Units) is that of Class A Units. Because the fees
and expenses of Class D Units are ____% higher than those of Class A Units,
actual performance would have been lower had such higher fees and expenses
been taken into account.
6. For Class A and D Units, performance data prior to January 11, 1993
(commencement of Portfolio) is that of a predecessor collective fund. For
Class D Units, performance data from January 11, 1993 to September 14, 1994
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<PAGE>
(commencement of Class D Units) is that of Class A Units. Because the fees
and expenses of Class D Units are ____% higher than those of Class A Units,
actual performance would have been lower had such higher fees and expenses
been taken into account. Performance data of the predecessor collective
fund is adjusted to reflect the higher fees and expenses applicable to
Class A Units at the time of their inception.
7. For Class A, C and D Units, performance data prior to January 11, 1993
(commencement of Portfolio) is that of a predecessor collective fund. For
Class C and D Units, performance data from January 11, 1993 to September
29, 1995 (commencement of Class C Units) and September 14, 1994
(commencement of Class D Units), respectively, is that of Class A Units.
Because fees and expenses of Class C and Class D Units are ____% and ____%,
respectively, higher than those of Class A Units, actual performance would
have been lower had such higher fees and expenses been taken into account.
Performance data of the predecessor collective fund is adjusted to reflect
the higher fees and expenses applicable to Class A Units at the time of
their inception.
8. For Class A and D Units, performance data prior to January 11, 1993
(commencement of Portfolio) is that of a predecessor collective fund. For
Class D Units, performance data from January 11, 1993 to December 11, 1994,
(commencement of Class D Units) is that of Class A Units. Because the fees
and expenses of Class D Units are ____% higher than those of Class A Units,
actual performance would have been lower had such higher fees and expenses
been taken into account. Performance data of the predecessor collective
fund is shown from August 1, 1988 and is adjusted to reflect the higher
fees and expenses applicable to Class A Units at the time of their
inception.
9. For Class A and Class D Units, performance data prior to March 28, 1994
(commencement of Portfolio) is that of a predecessor collective fund. For
Class D Units, performance data from March 28, 1994 to November 16, 1994
(commencement of Class D Units) is that of Class A Units. Because the fees
and expenses of Class D Units are ____% higher than those of Class A Units,
actual performance would have been lower had such higher fees and expenses
been taken into account. Performance data of the predecessor collective
fund is shown from July 1, 1990 (the date such fund was first managed in a
manner and pursuant to investment objectives in all material respects
equivalent to the management and investment objective of the Portfolio) and
is adjusted to reflect the higher fees and expenses applicable to Class A
Units at the time of their inception.
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<PAGE>
B-58
<PAGE>
The Balanced Portfolio calculates its 30-day (or one month) standard yield as
described in the Prospectus for a class of units in accordance with the method
prescribed by the SEC for mutual funds:
a-b
Yield = 2[(---- + 1)/6/ - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of units outstanding during the
period that were entitled to receive dividends.
d = maximum offering price per unit on the last of the period.
For the 30 day period ended November 30, 1996, the annualized yield of
the Class A units was ____%. During such period, Goldman Sachs reimbursed
expenses to the Portfolio and voluntarily agreed to reduce a portion of its
administration fees under "Additional Trust Information - Administrator and
Distributor", and Northern waived a portion of
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<PAGE>
its investment advisory fees with respect to the Portfolio. In the absence of
such advisory and administration fee reductions and expense limitations, the 30-
day yield for Class A units would have been 2.13%.
The performance of any investment is generally a function of portfolio
quality and maturity, type of investment and operating expenses.
Because of the different Servicing Fees and transfer agency fees payable
with respect to Class A, B, C and D units in a Portfolio, performance quotations
for units of Class B, C and D of the Portfolio will be lower than the quotations
for Class A units of the Portfolio which will not bear any fees for unitholder
support services and will bear minimal transfer agency fees.
TAXES
The following summarizes certain additional tax considerations generally
affecting the Portfolios and their unitholders that are not described in the
Portfolios' Prospectuses. No attempt is made to present a detailed explanation
of the tax treatment of the Portfolios or their unitholders, and the discussion
here and in the applicable Prospectus is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisers with
specific reference to their own tax situations.
General
Each Portfolio will elect to be taxed separately as a regulated investment
company under Part I of Subchapter M of Subtitle A, Chapter 1 of the Internal
Revenue Code of 1986, as amended (the "Code"). As a regulated investment
company, each Portfolio generally is exempt from Federal income tax on its net
investment income and realized capital gains which it distributes to
unitholders, provided that it distributes an amount equal to at least 90% of its
investment company taxable income (net investment income and the excess of net
short-term capital gain over net long-term capital loss), if any, for the year
(the "Distribution Requirement") and satisfies certain other requirements of the
Code that are described below.
In addition to satisfying the Distribution Requirement, each Portfolio must
derive with respect to a taxable year at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or from other income derived with respect to its business of investing in such
stock, securities, or currencies (the "Income Requirement") and derive less than
30% of its gross income from the sale or
B-60
<PAGE>
other disposition of securities and certain other investments held for less than
three months (the "Short-Short Test"). Interest (including original issue
discount and "accrued market discount") received by a Portfolio at maturity or
on disposition of a security held for less than three months will not be treated
as gross income derived from the sale or other disposition of such security
within the meaning of this requirement. However, any other income which is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of each Portfolio's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which a
Portfolio has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which a Portfolio does not hold more than
10% of the outstanding voting securities of such issuer) and no more than 25% of
the value of each Portfolio's total assets may be invested in the securities of
any one issuer (other than U.S. Government securities and securities
of other regulated investment companies), or in two or more issuers which such
Portfolio controls and which are engaged in the same or similar trades or
businesses.
Each Portfolio intends to distribute to unitholders any excess of net long-
term capital gain over net short-term capital loss ("net capital gain") for each
taxable year. Such gain is distributed as a capital gain dividend and is taxable
to unitholders as long-term capital gain, regardless of the length of time the
unitholder has held the units, whether such gain was recognized by the Portfolio
prior to the date on which a unitholder acquired units of the Portfolio and
whether the distribution was paid in cash or reinvested in units. In addition,
investors should be aware that any loss realized upon the sale, exchange or
redemption of units held for six months or less will be treated as a long-term
capital loss to the extent of the capital gain dividends the unitholder has
received with respect to such units.
In the case of corporate unitholders, distributions of a Portfolio for any
taxable year generally qualify for the dividends received deduction to the
extent of the gross amount of "qualifying dividends" received by such Portfolio
for the year. Generally, a dividend will be treated as a "qualifying dividend"
if it has been received from a domestic corporation.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some
B-61
<PAGE>
taxpayers may be higher. An individual's long-term capital gains are taxable at
a maximum nominal rate of 28%. Capital gains and ordinary income of corporate
taxpayers are both taxed at a nominal maximum rate of 35% (an effective marginal
rate of 39% applies in the case of corporations having taxable income between
$100,000 and $335,000 and an effective marginal rate of 38% applies in the case
of corporations having taxable income between $15 million and $18,333,333).
If for any taxable year any Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to unitholders. In such
event, all distributions (whether or not derived from exempt-interest income)
would be taxable as ordinary income, to the extent of such Portfolio's current
and accumulated earnings and profits and would be eligible for the dividends
received deduction in the case of corporate unitholders.
Unitholders will be advised annually as to the Federal income tax
consequences of distributions made by the Portfolios each year.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Portfolio intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and capital
gain net income each calendar year to avoid liability for this excise tax.
The Trust will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or 31% of gross sale proceeds
paid to any unitholder (i) who has provided either an incorrect tax
identification number or no number at all, (ii) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
taxable interest or dividend income properly, or (iii) who has failed to certify
to the Trust, when required to do so, that he is not subject to backup
withholding or that he is an "exempt recipient."
Taxation of Certain Financial Instruments
Special rules govern the Federal income tax treatment of financial
instruments that may be held by the Portfolios. These rules may have a
particular impact on the amount of income or gain that the Portfolios must
distribute to their respective unitholders to comply with the Distribution
Requirement, on the
B-62
<PAGE>
income or gain qualifying under the Income Requirement and on their ability to
comply with the Short-Short Test described above.
Generally, futures contracts, options on futures contracts and certain
foreign currency contracts held by a Portfolio (collectively, the "Instruments")
at the close of its taxable year are treated for Federal income tax purposes as
sold for their fair market value on the last business day of such year, a
process known as "mark-to-market." Forty percent of any gain or loss resulting
from such constructive sales will be treated as short-term capital gain or loss
and 60% of such gain or loss will be treated as long-term capital gain or loss
without regard to the period a Portfolio has held the Instruments ("the 40%-60%
rule"). The amount of any capital gain or loss actually realized by a Portfolio
in a subsequent sale or other disposition of those Instruments is adjusted to
reflect any capital gain or loss taken into account by the Portfolio in a prior
year as a result of the constructive sale of the Instruments. Losses with
respect to futures contracts to sell, related options and certain foreign
currency contracts, which are regarded as parts of a "mixed straddle" because
their values fluctuate inversely to the values of specific securities held by
the Portfolios, are subject to certain loss deferral rules which limit the
amount of loss currently deductible on either part of the straddle to the amount
thereof which exceeds the unrecognized gain (if any) with respect to the other
part of the straddle, and to certain wash sales regulations. Under short sales
rules, which are also applicable, the holding period of the securities forming
part of the straddle (if they have not been held for the long-term holding
period) will be deemed not to begin prior to termination of the straddle. With
respect to certain Instruments, deductions for interest and carrying charges may
not be allowed. Notwithstanding the rules described above, with respect to
futures contracts which are part of a "mixed straddle" to sell related options
and certain foreign currency contracts which are properly identified as such, a
Portfolio may make an election which will exempt (in whole or in part) those
identified futures contracts, options and foreign currency contracts from the
Rules of Section 1256 of the Code including "the 40%-60% rule" and the mark-to-
market on gains and losses being treated for Federal income tax purposes as sold
on the last business day of the Portfolio's taxable year, but gains and losses
will be subject to such short sales, wash sales and loss deferral rules and the
requirement to capitalize interest and carrying charges. Under Temporary
Regulations, each Portfolio would be allowed (in lieu of the foregoing) to elect
either (1) to offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) to establish a mixed straddle account for which gains and losses
would be recognized and offset on a periodic basis during the taxable year.
Under either election, "the 40%-60% rule" will
B-63
<PAGE>
apply to the net gain or loss attributable to the Instruments, but, in the case
of a mixed straddle account election, not more than 50% of any net gain may be
treated as long-term and no more than 40% of any net loss may be treated as
short-term.
A foreign currency contract must meet the following conditions in order to
be subject to the mark-to-market rules described above: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts. As
of the date of this Additional Statement, the Treasury Department has not issued
any such regulations. Other foreign currency contracts entered into by a
Portfolio may result in the creation of one or more straddles for Federal income
tax purposes, in which case certain loss deferral, short sales, and wash sales
rules and the requirement to capitalize interest and carrying charges may apply.
Some of the non-U.S. dollar denominated investments that the Portfolios may
make, such as foreign debt securities and foreign currency contracts, may be
subject to provisions of the Code which govern the Federal income tax treatment
of certain transactions denominated in terms of a currency other than the U.S.
dollar or determined by reference to the value of one or more currencies other
than the U.S. dollar. The types of transactions covered by these provisions
include the following: (1) the acquisition of, or becoming the obligor under, a
bond or other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (2) the accruing of certain trade receivables and
payables; and (3) the entering into or acquisition of any forward contract,
futures contract, option and similar financial instrument. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer also is treated as a
transaction subject to the special currency rules. However, regulated futures
contracts and nonequity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the mark-to-market rules, unless an election is made to
have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable as ordinary
gain or loss. A taxpayer may elect to treat as capital gain or loss foreign
currency gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. In accordance with Treasury regulations,
certain transactions that are part of
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<PAGE>
a "Section 988 hedging transaction" (as defined in the Code and Treasury
regulations) may be integrated and treated as a single transaction or otherwise
treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code. Gain or loss attributable to the foreign currency component of
transactions engaged in by the Portfolios which are not subject to the special
currency rules (such as foreign equity investments other than certain preferred
stocks) is treated as capital gain or loss and is not segregated from the gain
or loss on the underlying transaction.
Foreign Investors
Foreign unitholders generally will be subject to U.S. withholding tax at a rate
of 30% (or a lower treaty rate, if applicable) on distributions by a Portfolio
of net interest income, other ordinary income, and the excess, if any, of net
short-term capital gain over net long-term capital loss for the year. For this
purpose, foreign unitholders include individuals other than U.S. citizens,
residents and certain nonresident aliens, and foreign corporations,
partnerships, trusts and estates. A foreign unitholder generally will not be
subject to U.S. income or withholding tax in respect of proceeds from or gain on
the redemption of units or in respect of capital gain dividends, provided such
unitholder submits a statement, signed under penalties of perjury, attesting to
such unitholder's exempt status. Different tax consequences apply to a foreign
unitholder engaged in a U.S. trade or business. Foreign unitholders should
consult their tax advisers regarding the U.S. and foreign tax consequences of
investing in a Portfolio.
Conclusion
The foregoing discussion is based on Federal tax laws and regulations which are
in effect on the date of this Additional Statement. Such laws and regulations
may be changed by legislative or administrative action. No attempt is made to
present a detailed explanation of the tax treatment of the Portfolio or its
unitholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Unitholders are advised to consult their
tax advisers with specific reference to their own tax situation, including the
application of state and local taxes.
Although each Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
B-65
<PAGE>
located or in which it is otherwise deemed to be conducting business, each
Portfolio may be subject to the tax laws of such states or localities.
DESCRIPTION OF UNITS
The Trust Agreement permits the Trust's Board of Trustees to issue an
unlimited number of full and fractional units of beneficial interest of one or
more separate series representing interests in one or more investment
portfolios. The Trust may hereafter create series in addition to the Trust's
seventeen existing series, which represent interests in the Trust's seventeen
respective portfolios, seven of which are discussed in this Additional
Statement. 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 Trustees have authorized the
issuance of an unlimited number of units of beneficial interest in four separate
subseries (sometimes referred to as "classes") of units in each of the Trust's
Non-Money Market Portfolios (except the Short Duration Portfolio): Class A, B, C
and D units. Under the terms of the Trust Agreement, each unit of each
Portfolio is without par value, represents an equal proportionate interest in
the particular Portfolio with each other unit of its class in the same Portfolio
and is entitled to such dividends and distributions out of the income belonging
to the Portfolio as are declared by the Trustees. Upon any liquidation of a
Portfolio, unitholders of each class of a Portfolio are entitled to share pro
rata in the net assets belonging to that class available for distribution. Units
do not have any preemptive or conversion rights. The right of redemption is
described under "Investing-Redemption of Units" in the Prospectus. In addition,
pursuant to the terms of the 1940 Act, the right of a unitholder to redeem units
and the date of payment by a Portfolio may be suspended for more than seven days
(a) for any period during which the New York Stock Exchange is closed, other
than the customary weekends or holidays, or trading in the markets the Portfolio
normally utilizes is closed or is restricted as determined by the SEC, (b)
during any emergency, as determined by the SEC, as a result of which it is not
reasonably practicable for the Portfolio to dispose of instruments owned by it
or fairly to determine the value of its net assets, or (c) for such other period
as the SEC may by order permit for the protection of the unitholders of the
Portfolio. The Trust may also suspend or postpone the recordation of the
transfer of its units upon the occurrence of any of the foregoing conditions. In
addition, units of each Portfolio are redeemable at the unilateral option of the
Trust if the Trustees determine in their sole discretion that failure to so
redeem may have material adverse consequences to the unitholders of the
Portfolio. Units when issued as described in
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<PAGE>
the Prospectus are validly issued, fully paid and nonassessable, except as
stated below.
The proceeds received by each Portfolio for each issue or sale of its
units, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to and constitute the underlying assets of that Portfolio. The underlying assets
of each Portfolio will be segregated on the books of account, and will be
charged with the liabilities in respect to that Portfolio and with a share of
the general liabilities of the Trust. Expenses with respect to the Portfolios
are normally allocated in proportion to the net asset value of the respective
Portfolios except where allocations of direct expenses can otherwise be fairly
made.
Rule 18f-2 under the 1940 Act provides that any matter required by the
provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding units of
each investment portfolio affected by such matter. Rule 18f-2 further provides
that an investment portfolio shall be deemed to be affected by a matter unless
the interests of each investment portfolio in the matter are substantially
identical or the matter does not affect any interest of the investment
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to an investment portfolio only if approved by a majority of the
outstanding units of such investment portfolio. However, the Rule also provides
that the ratification of the appointment of independent accountants, the
approval of principal underwriting contracts and the election of Trustees may be
effectively acted upon by unitholders of the Trust voting together in the
aggregate without regard to a particular investment portfolio. In addition,
unitholders of each of the classes in a particular investment portfolio have
equal voting rights except that only units of a particular class of an
investment 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 a general matter, the Trust does not hold annual or other meetings of
unitholders. This is because the Trust Agreement provides for unitholder voting
only for the election or removal of one or more Trustees, if a meeting is called
for that purpose, and for certain other designated matters. Each Trustee serves
until the next meeting of unitholders, if any, called for the purpose of
considering the election or reelection of such Trustee or of a successor to such
Trustee, and until the election and
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<PAGE>
qualification of his successor, if any, elected at such meeting, or until such
Trustee sooner dies, resigns, retires or is removed by the unitholders or two-
thirds of the Trustees.
Under Massachusetts law, there is a possibility that unitholders of a
business trust could, under certain circumstances, be held personally liable as
partners for the obligations of the Trust. The Trust Agreement contains an
express disclaimer of unitholder (as well as Trustee and officer) liability for
acts or obligations of the Trust and requires that notice of such disclaimer be
given in each contract, undertaking or instrument entered into or executed by
the Trust or the Trustees. The Trust Agreement provides for indemnification out
of Trust property of any unitholder charged or held personally liable for the
obligations or liabilities of the Trust solely by reason of being or having been
a unitholder of the Trust and not because of such unitholder's acts or omissions
or for some other reason. The Trust Agreement also provides that the Trust
shall, upon proper and timely request, assume the defense of any charge made
against any unitholder as such for any obligation or liability of the Trust and
satisfy any judgment thereon. Thus, the risk of a unitholder incurring financial
loss on account of unitholder liability is limited to circumstances in which the
Trust itself would be unable to meet its obligations.
The Trust Agreement provides that each Trustee of the Trust will be liable
for his own wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee
("disabling conduct"), and for nothing else, and will not be liable for errors
of judgment or mistakes of fact or law. The Trust Agreement provides further
that the Trust will indemnify Trustees and officers of the Trust against
liabilities and expenses incurred in connection with litigation and other
proceedings in which they may be involved (or with which they may be threatened)
by reason of their positions with the Trust, except that no Trustee or officer
will be indemnified against any liability to the Trust or its unitholders to
which he would otherwise be subject by reason of disabling conduct.
As of March 1, 1997 substantially all of the Portfolios' outstanding units
were held of record by Northern for the benefit of its customers and the
customers of its affiliates and correspondent banks that have invested in the
Portfolios. As of the same date, the Trust's Trustees and officers owned
beneficially less than 1% of the outstanding units of each Portfolio. Northern
has advised the Trust that the following persons (whose mailing address is: c/o
The Northern Trust Company, 50 South LaSalle, Chicago, IL 60675) beneficially
owned five percent or more of the outstanding units of the Portfolios as of
March 1, 1997:
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<PAGE>
<TABLE>
<CAPTION>
Number Percentage
of Outstanding
Units Units
----- -----------
<S> <C> <C>
BALANCED PORTFOLIO
The Northern Trust Company
Thrift Incentive Plan
Retirement Trust for Employees
of Tetra Pak Inc.
DIVERSIFIED GROWTH PORTFOLIO
The Northern Trust Company
Pension Plan
EQUITY INDEX PORTFOLIO
The Northern Trust Company
Thrift Incentive Plan
Libby-Owens-Ford Company
Savings Trust
The Northern Trust Company
Pension Plan
Presbyterian Healthcare
Service
American Bankers Association
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Number Percentage
of Outstanding
Units Units
----- -----------
<S> <C> <C>
FOCUSED GROWTH PORTFOLIO
The Northern Trust Company
Thrift Incentive Plan
Doe Run Resources Corporation
Retirement Plan
Rexene Corporation
Retirement Plan
Graham Foundation for Advanced
Studies in the Fine Arts
SMALL COMPANY PORTFOLIO
The Northern Trust Company
Pension Plan
Doe Run Resources Corporation
Retirement Plan
Tuthill Corporation Master
Retirement Trust
INTERNATIONAL GROWTH PORTFOLIO
The Northern Trust Company
Pension Plan
First National Bank of
North Dakota
Global Industrial Technologies, Inc.
Master Retirement Trust
Doe Run Resources Corporation
Retirement Plan
</TABLE>
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<PAGE>
OTHER INFORMATION
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
Securities Act of 1933 with respect to the securities offered by the Trust's
Prospectus. Certain portions of the Registration Statement have been omitted
from the Prospectus and this Additional Statement pursuant to the rules and
regulations of the SEC. The Registration Statement including the exhibits filed
therewith may be examined at the office of the SEC in Washington, D.C.
Each Portfolio is responsible for the payment of its expenses. Such
expenses include, without limitation, the fees and expenses payable to Northern
and Goldman Sachs, brokerage fees and commissions, any portfolio losses, fees
for the registration or qualification of Portfolio units under Federal or state
securities laws, expenses of the organization of the Portfolios, taxes,
interest, costs of liability insurance, fidelity bonds, indemnification or
contribution, any costs, expenses or losses arising out of any liability of, or
claim for damages or other relief asserted against the Trust for violation of
any law, legal, tax 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.
Statements contained in the Prospectus or in this Additional Statement as
to the contents of any contract or other documents referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement of
which the Prospectus and this Additional Statement form a part, each such
statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements and related report of Ernst & Young LLP,
independent auditors, contained in the Annual Report for the fiscal year ended
November 30, 1996 are hereby incorporated herein by reference and attached
hereto. No other parts of the Annual Report, including without limitation
"Management's Discussion of Portfolio Performance," are incorporated by
reference herein. Copies of the Annual Report may be obtained by writing to
Goldman, Sachs & Co., Funds Group, 4900 Sears Tower, Chicago, Illinois 60606, or
by calling Goldman, Sachs toll-free at 800-621-2550.
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APPENDIX A
Description of Bond Ratings
The following summarizes the highest six ratings used by Standard &
Poor's Ratings Group, Inc., a division of McGraw Hill ("S&P") for corporate and
municipal debt:
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in a small degree.
A-Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category than for
those in higher rated categories.
BB and B-Debt rated BB and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. Debt rated
BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
To provide more detailed indications of credit quality, the ratings AA
and lower may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
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S&P may attach the rating "r" to highlight derivative, hybrid and
certain other obligations that S&P believes may experience high volatility or
high variability in expected returns due to non-credit risks.
The following summarizes the highest six ratings used by Moody's
Investors Service, Inc. ("Moody's") for corporate and municipal long-term debt:
Aaa-Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa-Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities.
A-Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa-Bonds that are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba and B-Bonds that possess one of these ratings provide questionable
protection of interest and principal. Ba indicates some speculative
elements. B indicates a general lack of characteristics of desirable
investment.
The foregoing ratings for corporates and municipal long-term debt are
sometimes presented in parenthesis preceded with a "con" indicating the bonds
are rated conditionally. Such
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parenthetical rating denotes the probable credit stature upon completion of
construction or elimination of the basis of the condition. The notation (P) when
applied to forward delivery bonds indicates that the rating is provisional
pending delivery of the bonds. The rating may be revised prior to delivery if
changes occur in the legal documents or the underlying credit quality of the
bond.
The following summarizes the highest six ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for corporate and municipal long term debt:
AAA-Debt rated AAA is of the highest credit quality. The risk factors
are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA-Debt rated AA is of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A-Bonds that are rated A have protection factors which are average but
adequate. However risk factors are more variable and greater in
periods of economic stress.
BBB-Bonds that are rated BBB have below average protection factors but
such protection factors are still considered sufficient for prudent
investment. Considerable variability in risk during economic cycles.
BB and B-Bonds that are rated BB or B are below investment grade.
Bonds rated BB are deemed likely to meet obligations when due. Bonds
rated B possess the risk that the obligations will not be met when
due.
To provide more detailed indications of credit quality, the ratings AA
and lower may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest six ratings used by Fitch
Investors Service, Inc. ("Fitch") for corporate and municipal bonds:
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA".
Because bonds related in the "AAA"
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and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally
rated "F-1+."
A-Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on
these bonds, and therefore, impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB and B-Bonds considered to be speculative investments with respect
to the timely payment of principal and interest in accordance with the
terms of the obligation.
To provide more detailed indications of credit quality, the Fitch
ratings "AA" and lower may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within these major rating categories.
Description of Municipal Note Ratings
The following summarizes the two highest ratings by S&P for short-term
municipal notes:
SP-1-Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2-Satisfactory capacity to pay principal and interest.
The following summarizes the two highest ratings used by Moody's for
short-term municipal notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2. Obligations bearing these designations are of high quality
with margins of protection ample although not as large as in the preceding
group.
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The two highest rating categories of D&P for short-term debt are D1
and D2. D&P employs three designations, D1+, D1 and D1-, within the highest
rating category. D1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations. D1 indicates very high certainty of timely
payment. Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor. D1- indicates high certainty of
timely payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small. D2 indicates good certainty
of timely payment. Liquidity factors and company fundamentals are sound.
Although ongoing funding needs may enlarge total financing requirements, access
to capital markets is good. Risk factors are small.
D&P uses the fixed-income ratings described above under "Description
of Bond Ratings" for tax-exempt notes and other short-term obligations. Fitch
uses the short-term ratings described below under "Description of Commercial
Paper Ratings" for new municipal notes.
Description of Commercial Paper Ratings
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted in A-1+. Capacity for
timely payment on commercial paper rated A-2 is satisfactory but the relative
degree of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers or related supporting institutions rated Prime-1 are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers or related supporting institutions rated Prime-2 are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
The following summarizes the highest ratings used by Fitch for short-term
obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
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F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues assigned this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as the F-1+ and F-1 categories.
D&P uses the short-term ratings described above under "Description of Note
Ratings" for commercial paper.
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APPENDIX B
As stated in their Prospectus, the Portfolios may enter into certain futures
transactions and options. Such transactions are described in this Appendix.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are established
--------------------------------------
in both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within three business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Portfolio could use interest rate
futures contracts as a defense, or hedge, against anticipated interest rate
changes. As described below, this could include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
A Portfolio presently could accomplish a similar result to that which
it hopes to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest rates
are expected to increase, or conversely, selling short-term bonds and investing
in long-term bonds when interest rates are expected to decline. However,
because of the liquidity that is often available in the futures market, the
protection is more likely to be achieved, perhaps at a lower cost and without
changing the rate of interest being earned by a Portfolio, through using futures
contracts. Futures contracts can also be used for nonhedging (speculative)
purposes by a Portfolio as described in the Prospectus.
Description of Interest Rate Futures Contracts. An interest rate
----------------------------------------------
futures contract sale would create an obligation by a Portfolio, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by a Portfolio, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
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Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before a settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Portfolio's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of a sale exceeds the price of the offsetting purchase, a Portfolio is
immediately paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sale price, a Portfolio pays the difference and
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by a Portfolio entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, a Portfolio realizes a gain,
and if the purchase price exceeds the offsetting sale price, a Portfolio
realizes a loss.
Interest rate futures contracts are traded in an auction environment
on the floors of several exchanges -- principally, the Chicago Board of Trade,
the Chicago Mercantile Exchange and the New York Futures Exchange. A Portfolio
would deal only in standardized contracts on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. A Portfolio may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
II. Index Futures Contracts
General. A stock or bond index assigns relative values to the securities
included in the index and the index fluctuates with changes in the market values
of the securities included.
A Portfolio may sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. A Portfolio may do so either to hedge the value of its portfolio
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 index futures contracts in anticipation of purchases of securities.
A long futures
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<PAGE>
position may be terminated without a corresponding purchase of
securities.
In addition, a Portfolio may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that a Portfolio expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
A Portfolio may also sell futures contracts in connection with this strategy, in
order to protect against the possibility that the value of the securities to be
sold as part of the restructuring of the portfolio will decline prior to the
time of sale.
III. Futures Contracts on Foreign Currencies (International
Equity Index and International Growth
Portfolios)
A futures contract on foreign currency creates a binding obligation on one
party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of foreign currency, for an amount fixed in U.S.
dollars. Foreign currency futures may be used by a Portfolio in anticipation of
fluctuations in exchange rates between the U.S. dollars and other currencies
arising from multinational transactions.
IV. Margin Payments
Unlike purchase or sales of portfolio securities, no price is paid or
received by a Portfolio upon the purchase or sale of a futures contract.
Initially, the Portfolio will be required to deposit with the broker or in a
segregated account with the Custodian or a sub-custodian an amount of cash or
cash equivalents, known as initial margin, based on the value of the contract.
The nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
the borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Portfolio upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-the-market. For example, when a particular
Portfolio has purchased a futures contract and the price of the contract has
risen in response to a rise in the underlying instruments, that position will
have
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increased in value and the Portfolio will be entitled to receive from the broker
a variation margin payment equal to that increase in value. Conversely, where
the Portfolio has purchased a futures contract and the price of the future
contract has declined in response to a decrease in the underlying instruments,
the position would be less valuable and the Portfolio would be required to make
a variation margin payment to the broker. At any time prior to expiration of the
futures contract, the Portfolio's adviser may elect to close the position by
taking an opposite position, subject to the availability of a secondary market,
which will operate to terminate the Portfolio's position in the futures
contract. A final determination of variation margin is then made, additional
cash is required to be paid by or released to the Portfolio, and the Portfolio
realizes a loss or gain.
V. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by the
Portfolios. One risk arises because of the imperfect correlation between
movements in the price of the futures and movements in the price of the
instruments which are the subject of the hedge. The price of the future may
move more than or less than the price of the instruments being hedged. If the
price of the futures moves less than the price of the instruments which are the
subject of hedge, the hedge will not be fully effective but, if the price of the
instruments being hedged has moved in an unfavorable direction, the Portfolio
would be in a better position than if it had not hedged at all. If the price of
the instruments being hedged has moved in a favorable direction, this advantage
will be partially offset by the loss on the futures. If the price of the
futures moves more than the price of the hedged instruments, the Portfolio
involved will experience either a loss or gain on the futures which will not be
completely offset by movements in the price of the instruments which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of instruments being hedged and movements in the price of futures
contracts, the Portfolio may buy or sell futures contracts in a greater dollar
amount than the dollar amount of instruments being hedged if the volatility over
a particular time period of the prices of such instruments has been greater than
the volatility over such time period of the futures, or if otherwise deemed to
be appropriate by Northern. Conversely, the Portfolios may buy or sell fewer
futures contracts if the volatility over a particular time period of the prices
of the instruments being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by Northern. It is also possible that, where a Portfolio had sold
futures to hedge its portfolio against a decline in the market, the market may
advance and the value of instruments held in the Portfolio may decline. If this
occurred,
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<PAGE>
the Portfolio would lose money on the futures and also experience a decline in
value in its portfolio securities.
When futures are purchased to hedge against a possible increase in the
price of securities before a Portfolio is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Portfolio then concludes not to invest its cash at that time
because of concern as to possible further market decline or for other reasons,
the Portfolio will realize a loss on the futures contract that is not offset by
a reduction in the price of the instruments that were to be purchased.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by Northern may still not result in a
successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the
Portfolios intend to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Portfolios would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will generally not be sold
until the futures contract can be terminated. In such circumstances, an increase
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<PAGE>
in the price of the securities, if any, may partially or completely offset
losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities will in fact correlate with the price
movements in the futures contract and thus provide an offset on a futures
contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Portfolios is also subject to Northern's
ability to predict correctly movements in the direction of the market. For
example, if a particular Portfolio has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Portfolio will lose part or all of the benefit to
the increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Portfolio has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but will
not necessarily be, at increased prices which reflect the rising market. The
Portfolios may have to sell securities at a time when they may be
disadvantageous to do so.
Futures purchased or sold by the International Growth and International
Equity Portfolios (and related options) may be traded in foreign securities.
Participation in foreign futures and foreign options transactions involves the
execution and clearing of trades on or subject to the rules of a foreign board
of trade. Neither the National Futures Association nor any domestic exchange
regulates activities of any foreign boards of trade, including the execution,
delivery and clearing of transaction, or has the power to compel enforcement of
the rules of a foreign board of trade or any applicable foreign law. This is
true even if the exchange is formally linked to a domestic market so that a
position taken on the market may be liquidated by a transaction on another
market. Moreover, such laws or regulations will vary depending on the foreign
country in which the foreign futures or foreign options transaction occurs.
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<PAGE>
For these reasons, customers who trade foreign futures of foreign options
contracts may not be afforded certain of the protective measures provided by the
Commodity Exchange Act, the Commodity Futures Trading Commission's ("CFTC")
regulations and the rules of the National Futures Association and any domestic
exchange, including the right to use reparations proceedings before the CFTC and
arbitration proceedings provided by the National Futures Association or any
domestic futures exchange. In particular, the investments of the International
Growth Portfolio and International Equity Index Portfolio in foreign futures or
foreign options transactions may not be provided the same protections in respect
of transactions on United States futures exchanges. In addition, the price of
any foreign futures or foreign options contract and, therefore the potential
profit and loss thereon may be affected by any variance in the foreign exchange
rate between the time an order is placed and the time it is liquidated, offset
or exercised.
VI. Options on Futures Contracts
The Portfolios may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of, the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. A Portfolio will be required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those described
above. Net option premiums received will be included as initial margin
deposits.
Investments in futures options involve some of the same considerations that
are involved in connection with investments in futures contracts (for example,
the existence of a liquid secondary market). See "Risks of Transactions in
Futures Contracts" above. In addition, the purchase or sale of an option also
entails the risk that changes in the value of the underlying futures contract
will not correspond to changes in the value of the option purchased. Depending
on the pricing of the option compared to either the futures contract upon which
it is based, or upon the price of any instruments being hedged, an option may or
may not be less risky than ownership of the futures contract or such
instruments. In general, the market prices of options can be expected to be
more volatile than the market prices on the underlying futures contract.
Compared to the
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<PAGE>
purchase or sale of futures contracts, however, the purchase of call or put
options on futures contracts may frequently involve less potential risk to the
Portfolio because the maximum amount at risk is the premium paid for the options
(plus transaction costs). The writing of an option on a futures contract
involves risks similar to those risks relating to the sale of futures contracts.
VII. Other Matters
Accounting for futures contracts will be in accordance with generally
accepted accounting principles.
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OTHER INFORMATION
Item 24.Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
Included in the Fixed Income and Equity Portfolios Prospectus:
Financial Highlights - Selected Data for a Unit Outstanding from Commencement of
Operations through November 30, 1993 (November 30, 1994, with respect to the
International Bond and International Growth Portfolio) and for the years ended
November 30, 1994 and November 30, 1995 for the Short Duration, U.S. Government
Securities, Short-Intermediate Bond, U.S. Treasury Index, Bond, International
Bond Portfolios, Balanced, Equity Index, Diversified Growth, Focused Growth,
Small Company Index and International Growth Portfolios.
- -----------------------------
1 Balanced and Focused Growth Portfolios commenced investment operations on
July 1, 1993. Short Duration Portfolio commenced investment operations on June
2, 1993. U.S. Government Securities Portfolio commenced operations on April 5,
1993. Short-Intermediate Bond, U.S. Treasury Index, Bond, Equity Index,
Diversified Growth and Small Company Index Portfolios commenced investment
operations on January 11, 1993. International Bond and International Growth
Portfolios commenced investment operations on March 28, 1994.
<PAGE>
(i)Included in the Statements of Additional Information
Statement of Investments as of November 30, 1995 for the Balanced, Equity Index,
Diversified Growth, Focused Growth, Small Company Index, International Growth,
Short Duration, U.S. Government Securities, Short-Intermediate Bond, U.S.
Treasury Index, Bond, and International Bond Portfolios.
Statements of Assets and Liabilities as of November 30, 1995 for the Balanced,
Equity Index, Diversified Growth, Focused Growth, Small Company Index,
International Growth, Short Duration, U.S. Government Securities, Short-
Intermediate Bond, U.S. Treasury Index, Bond, and International Bond Portfolios.
Statement of Operations for the year ended November 30, 1995 for the Balanced,
Equity Index, Diversified Growth, Focused Growth, Small Company Index,
International Growth, Short Duration, U.S. Government Securities, Short-
Intermediate Bond, U.S. Treasury Index, Bond, and International Bond Portfolios.
Statement of Changes in Net Assets for the year ended November 30, 1995 for the
Balanced, Diversified Growth, Equity Index, Focused Growth, Small Company Index,
Short Duration, U.S. Government Securities, Short-Intermediate Bond, U.S.
Treasury Index, and Bond Portfolios, for the year ended November 30, 1994 for
the Balanced, Diversified Growth, Equity Index, Focused Growth, Small Company
Index, Short Duration, U.S. Government Securities, Short-Intermediate Bond, U.S.
Treasury Index, and Bond Portfolios and for the period ended November 30, 1994
for the International Growth and International Bond Portfolios.
(b)Exhibits
The following exhibits are incorporated herein by reference to Registrant's
Registration Statement on Form N-1A as initially filed (Reference A), to Pre-
Effective Amendment No. 1 (Reference B), to Post-Effective Amendment No. 1 to
such Registration Statement (Reference C), to Post-Effective Amendment No. 2 to
such Registration Statement (Reference D), to Post-Effective Amendment No. 4 to
such Registration Statement (Reference E), to Post-Effective Amendment No. 7 to
such Registration Statement (Reference F), to Post-Effective Amendment No. 11 to
such Registration Statement (Reference G), to Post-Effective Amendment No. 12 to
such Registration Statement (Reference H), to Post-Effective Amendment No. 13 to
such Registration Statement
<PAGE>
(Reference I), to Post-Effective Amendment No. 16 to such Registration Statement
(Reference J), to Post-Effective Amendment No. 17 to such Registration Statement
(Reference K), to Post-Effective Amendment No. 19 to such Registration Statement
(Reference L), to Post-Effective Amendment No. 20 to such Registration Statement
(Reference M), to Post-Effective Amendment No. 21 to such Registration Statement
(Reference N), to Post-Effective Amendment No. 22 to such Registration Statement
(Reference O) , to Post-Effective Amendment No. 23 to such Registration
Statement (Reference P), to Post-Effective Amendment No. 25 to such Registration
Statement (Reference Q), to Post-Effective Amendment No. 26 to such Registration
Statement (Reference R), to Post-Effective Amendment No. 27 to such Registration
Statement (Reference S), to Post-Effective Amendment No. 28 to such Registration
Statement (Reference T) and to Post Effective Amendment No. 32 to Such
Registration Statement (Reference U).
1 - Agreement and Declaration of Trust dated July 15, 1982 (Reference A).
1(a)- Amendment No. 1 dated November 22, 1982 to Agreement and Declaration
of Trust (Reference A).
1(b)- Amendment No. 2 dated April 21, 1983 to Agreement and
Declaration of Trust (Reference B).
1(c)- Amendment No. 3 dated May 19, 1983 to Agreement and
Declaration of Trust (Reference B).
1(d)- Amendment No. 4 dated May 19, 1983 to Agreement and
Declaration of Trust (Reference B).
1(e)- Amendment No. 5 dated May 19, 1983 to Agreement and
Declaration of Trust (Reference B).
1(f)- Amendment No. 6 dated December 19, 1983 to Agreement and Declaration
of Trust (Reference D).
1(g)- Amendment No. 7 dated August 23, 1985 to Agreement and
Declaration of Trust (Reference E).
1(h)- Amendment No. 8 dated September 26, 1990 to Agreement
and Declaration of Trust (Reference H).
1(i)- Amendment No. 9 dated October 1, 1990 to Agreement and
Declaration of Trust (Reference H).
1(j)- Amendment No. 10 to Agreement and Declaration of Trust
(Reference I).
1(k)- Amendment No. 11 to Agreement and Declaration of Trust
(Reference J).
<PAGE>
1(l)- Amendment No. 12 to Agreement and Declaration of Trust
(Reference L).
1(m)- Amendment No. 13 to Agreement and Declaration of Trust
(Reference P).
1(n)- Amendment No. 14 dated July 11, 1995 to Agreement and
Declaration of Trust (Reference U).
2- By-Laws of the Registrant (Reference A).
2(a)- Amendment dated May 9, 1983 to Section 2.3 of the By-
Laws (Reference B).
2(b)- Amendment dated April 21, 1983 to Sections 1.1 and 5.3
of the By-Laws (Reference D).
2(c)- Amendment dated August 29, 1983 to Section 6.3 of the
By-Laws (Reference D).
2(d)- Amendment dated December 19, 1983 to Sections 1.1 and
5.3 of the By-Laws (Reference D).
2(e)- Amendment dated January 26, 1987 to Section 3.7 of the
By-Laws (Reference F).
3- Not Applicable.
4- Not Applicable.
5- Advisory Agreement dated October 5, 1990 between Registrant and The
Northern Trust Company (Reference H).
5(a)- Addendum No. 1 to Advisory Agreement between and The Northern Trust
Registrant Company (Reference I).
5(b)- Addendum No. 1, dated June 8, 1992 to Investment Advisory Agreement,
dated October 5, 1990, between The Northern Trust Company and the
Registrant (Reference J)
5(c)- Addendum No 2. to Investment Advisory Agreement between the Registrant
and The Northern Trust Company (Reference K).
5(d)- Addendum No.3 to Investment Advisory Agreement between the Registrant
and The Northern Trust Company (Reference K).
5(e)- Addendum No. 4 to Investment Advisory Agreement between the Registrant
and The Northern Trust Company (Reference S).
<PAGE>
6- Distribution Agreement dated June 8, 1992 Registrant and Goldman,
Sachs & Co. (Reference I).
6(a)- Addendum No. 1 to Distribution Agreement between the Registrant and
Godman, Sachs & Co. (Reference K).
6(b)- Addendum No. 2 to Distribution Agreement between the Registrant and
Godman, Sachs & Co. (Reference L).
6(c)- Form of Addendum No. 3 to Distribution Agreement between the
Registrant and Goldman, Sachs & Co. (Reference T).
7- Not Applicable.
8- Custodian Agreement dated June 8, 1992 between Registrant and The
Northern Trust Company (Reference I).
8(a)- Addendum No. 1 to Custodian Agreement between the Registrant and The
Northern Trust Company (Reference J).
8(b)- Addendum No. 2 to Custodian Agreement between Registrant and The
Northern Trust Company (Reference L).
8(c)- Foreign Custody Agreement between the Registrant and The Northern
Trust Company (Reference T).
9- Agreement and Plan of Reorganization between Registrant and The
Benchmark Tax-Exempt Fund (Reference G).
9(a)- Revised and Restated Transfer Agency Agreement between Registrant and
The Northern Trust Company, dated January 8, 1993 (Reference J).
9(b)- Addendum No. 1 to Transfer Agency Agreement between the Registrant and
The Northern Trust Company (Reference L).
9(c)- Addendum No. 2 to Transfer Agency Agreement between the Registrant and
The Northern Trust Company (Reference S).
9(d)- Administration Agreement dated June 8, 1992 between Registrant and
Goldman, Sachs & Co. (Reference I).
9(e)- Amendment dated August 1, 1992 to Administration Agreement dated June
8, 1992 between Registrant and Goldman, Sachs & Co. (Reference J).
9(f)- Addemdum No. 1 to Administration Agreement between the Registrant and
Goldman, Sachs & Co. (Reference K).
9(g)- Addendum No. 2 to Administration Agreement between the Registrant and
Goldman, Sachs & Co. (Refernce L).
<PAGE>
9(h)- Addendum No. 3 to Administration Agreement between the Registrant and
Goldman, Sachs & Co. (Reference S).
12- Not Applicable.
13- Subscription Agreement with Goldman, Sachs & Co. (Reference B).
13(a)- Amendment No. 1 to Subscription Agreement with Goldman, Sachs & Co.
(Reference B).
13(b)- Amendment No. 2 to Subscription Agreement with Goldman Sachs & Co.
(Reference C).
13(c)- Amendment No. 3 to Subscription Agreement with Goldman, Sachs & Co.
(Reference E).
14- Not Applicable.
15- Servicing Agreement (Reference T).
16- Schedule for computation of performance data for Equity Index
Portfolio, Diversified Growth Portfolio, U.S. Treasury Index Portfolio,
Short-Intermediate Bond Portfolio and Bond Portfolio (Reference L).
16(a)- Schedule for computation of performance data for Diversified Assets
Portfolio, Government Portfolio, Government Select Portfolio,
Tax-Exempt Portfolio and California Municipal Portfolio (Reference M).
16(b)- Schedule for computation of performance data for U.S. Government
Securities Portfolio (Refernce N).
16(c)- Schedule for computation of performance data for Short Duration
Portfolio (Refernce O).
16(d)- Schedule for computation of performance data for Balanced Portfolio,
Diversified Growth Portfolio, Equity Index Portfolio, Focused Growth
Portfolio and Small Company Index Portfolio (Reference Q).
<PAGE>
18- Plan entered into by Registrant pursuant to Rule 18f-3 (Reference U).
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
-------------------------------
<TABLE>
<CAPTION>
Number of Record
Holders as of
Title of Class January 10, 1997
- -------------- ----------------
Class A Class C Class D
------- ------- -------
<S> <C> <C> <C>
Equity Index Portfolio Units............ 1 1 1
Small Company Index Portfolio Units..... 1 1 1
Diversified Growth Portfolio Units ..... 1 N/A 1
Focused Growth Portfolio Units ......... 1 1 1
U.S. Treasury Index Portfolio Units.... 1 1 1
U.S. Government Securities Portfolio.... 1 N/A 1
Short-Intermediate Bond Portfolio Units. 1 N/A 1
Bond Portfolio Units .................. 1 1 1
Short Duration Portfolio Units ........ 1 1 N/A
Balanced Portfolio Units .............. 1 1 1
International Growth Portfolio Units .. 1 1 1
International Bond Portfolio Units ..... 1 N/A 1
</TABLE>
<PAGE>
Item 27. Indemnification
---------------
Section 6.4, 6.5 and 6.6 of the Registrant's Agreement and Declaration of Trust
provide for indemnification of the Registrant's Trustees and officers under
certain circumstances. A copy of such Agreement and Declaration of Trust was
filed as Exhibit 1 to Registrant's Registration Statement on Form N-1 as
initially filed and a copy of Section 6.5 thereof (as amended) was filed as
Exhibit 1(d) to Pre-Effective Amendment No. 1 to such Registration Statement.
Paragraph 7 of the Advisory Agreement between the Registrant and The Northern
Trust Company provides for indemnification of The Northern Trust Company or, in
lieu thereof, contribution by the Registrant, under certain circumstances. A
copy of the Advisory Agreement is filed as Exhibit 5(b) to Post-Effective
Amendment No. 12 to Registrant's Registration Statement on Form N-1A.
Paragraph 7 of the Administration Agreement between the Registrant and Goldman,
Sachs & Co. provides for indemnification of Goldman, Sachs & Co. or, in lieu
thereof, contribution by the Registrant, under certain circumstances. Copies of
the Administration Agreement was filed as Exhibit 17(e) to Post-Effective
Amendment No. 13 to Registrant's Registration Statement on Form N-1A.
A mutual fund and trustee and officer liability policy purchased jointly by the
Registrant and other investment companies advised and/or distributed by Goldman,
Sachs & Co. insures such persons and their respective Trustees, partners,
officers and employees, subject to the policy's coverage limits and exclusions
and varying deductibles, against loss resulting from claims by reason of any
act, error, omission, misstatement, misleading statement, neglect or breach of
duty.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
The Northern Trust Company, Registrant's investment adviser, is a full service
commercial bank and also provides a full range of trust and fiduciary services.
Set forth below is a list of all of the directors, senior officers and those
officers primarily responsible for Registrant's affairs of The Northern Trust
Company and, with respect to each such person, the name and business address of
the company (if any) with which such person has been connected at any time since
June 1, 1990, as well as the capacity in which such person was connected.
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Connection
Name and Position Business Address with
with Investment Adviser of Other Company Other Company
- ------------------------- -------------------- --------------
<S> <C> <C>
Dolores E. Cross Northern Trust Corp- Director
oration
Chicago State President
University
95th Street at
King Drive
Chicago, IL 60643
John R. Goodwin None
Vice President
Robert S. Hamada The University Edward Eagle
Director of Chicago Brown
Graduate School of Distinguished
Business Service
1101 East 58th Street Professor of
Chicago, IL 60637 Finance and
Dean
Northern Trust Director
Corporation
50 S. LaSalle Street
Chicago, IL 60675
A.M. Castle & Co. Director
3400 North Wolf Road
Franklin Park, IL 60131
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Chicago Board of Trade Director
141 West Jackson
Boulevard
Chicago, IL 60604
Barry G. Hastings Northern Trust President &
President & Chief Corporation Chief Operating
Operating Officer & 50 S. LaSalle Street Officer &
Director & Former Chicago, IL 60675 Director
Vice Chairman and
Senior Northern Trust Director
Executive Vice Securities, Inc.
President
50 S. LaSalle Street
Chicago, IL 60675
Northern Trust of Director
California Corporation
155 S. Grand Avenue
Los Angeles, CA 90017
Name and Principal Connection
Name and Position Business Address with
with Investment Adviser of Other Company Other Company
- ------------------------- ------------------------ ---------------
Barry G. Hastings
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Northern Trust Vice Chairman
(cont'd) of Florida of the Board
Corporation & Director
700 Brickell Avenue
Miami, Fl 33131
Nortrust Realty Director
Management, Inc.
50 South LaSalle Street
Chicago, Il 60603
Robert A. Helman Mayer, Brown & Platt Partner
Director 190 S. LaSalle Street
Chicago, IL 60603
Northern Trust Director
Corporation
50 S. LaSalle Street
Chicago, IL 60675
Chicago Stock Exchange Governor
One Financial Plaza
440 S. LaSalle St.
Chicago, Il 60605
The Horsham Director
Corporation
24 Hazelton Avenue
Toronto, Ontario,
Canada
</TABLE>
<PAGE>
M5R 2E2
Alberta Natural Gas Director
Company, Ltd.
2900, 240 Fourth
Ave., N.W.
Calgary, Alberta
Canada T2P 4L7
Brambles USA, Inc. Director
400 N. Michigan Avenue
Chicago, IL 60611
Arthur L Kelly KFD Enterprises Ltd. Managing
Director 135 S. LaSalle Street Partner
Chicago, IL 60603
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Connection
Name and Position Business Address with
with Investment Adviser of Other Company Other Company
- ----------------------- ---------------- -------------
<S> <C> <C>
Arthur L. Kelly Bayerische Motoren Director
(cont'd) Werke
(BMW) A.G. BMW Haus
Petuelring 130
Postfach 40 02 40
D-8000
Munich 40 Germany
Deere & Company Director
John Deere Rd.
Moline, IL 61265
Northern Trust Director
Corporation
50 S. LaSalle Street
Chicago, IL 60675
Nalco Chemical Director
Company
One Nalco Center
Naperville, IL
60563-1198
Snap-on Incorporated Director
2801 80th Street
Kenosha, WI 53140
Tejas Gas Corporation Director
1301 McKinney St.
Houston, TX 77010
Ardis Krainik Lyric Opera General Director
Director 20 North Wacker Drive
Chicago, IL 60606
Northern Trust Director
Corporation
50 South LaSalle Street
Chicago, IL 60675
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Robert D. Krebs Santa Fe Pacific Former Chairman,
Director Corporation President
1700 E. Golf Road and Chief
Schaumburg, IL Executive
60173-5860 Officer &
Director
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Connection
Name and Position Business Address with
with Investment Adviser of Other Company Other Company
- ----------------------- ---------------- -------------
<S> <C> <C>
Robert D. Krebs Burlington Northern President and
(cont'd) Santa Fe Corporation Chief Executive
PO Box 961052 Officer &
Fort Worth, TX Director
76101-0052
Burlington Northern Director
Inc
777 Main Street
Fort Worth, TX 76102
Burlington Northern Director
Railroad Company
777 Main Street
Fort Worth, TX 76102
Santa Fe Pacific Director
Pipelines, Inc.
888 S. Figueroa Street
Los Angeles, CA 90017
Northern Trust Director
Corporation
50 South LaSalle Street
Chicago, IL 60675
Phelps Dodge Director
Corporation
2600 North Central
Avenue
Phoenix, AZ
85004-3014
Santa Fe Energy Director
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Resources, Inc.
1616 South Voss Road
Houston, TX 77057
Santa Fe Pacific Director
Gold Corporation
P.O. Box 27019
Albuquerque, NM 87125
Santa Fe Pacific Director
Gold Corporation
6200 Uptown Blvd.
Albuquerque, NM 87110
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Connection
Name and Position Business Address with
with Investment Adviser of Other Company Other Company
- ----------------------- ---------------- -------------
<S> <C> <C>
Frederick A. Krehbiel Molex Incorporated Chairman and
Director 2222 Wellington Court Chief Executive
Lisle, IL 60532-1682 Officer, Former
Vice Chairman
Northern Trust Director
Corporation
50 South LaSalle Street
Chicago, IL 60675
Nalco Chemical Company Director
One Nalco Center
Naperville, IL
60563-1198
Tellabs, Inc. Director
4951 Indiana Avenue
Lisle, IL 60532
Roger W. Kushla The Northern Trust Director
Senior Vice President Company of New York
80 Broad Street
19th Floor
New York, NY 10004
Robert A. LaFleur None
Senior Vice President
Thomas L. Mallman None
Senior Vice President
James J. Mitchell, III The Northern Trust Director
Executive Vice Company of New York
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
President Company of New York
80 Broad Street
19th Floor
New York, NY 10004
William G. Mitchell Northern Trust Director
Director Corporation
50 South LaSalle Street
Chicago, IL 60675
The Interlake Director
Corporation
7701 Harger Road
Oak Brook, IL
60521-1488
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Connection
Name and Position Business Address with
with Investment Adviser of Other Company Other Company
- ----------------------- ---------------- -------------
<S> <C> <C>
William G. Mitchell Peoples Energy Director
(cont'd) Corporation
122 South Michigan
Avenue
Chicago, IL 60603
The Sherwin-Williams Director
Company
101 Prospect Avenue, N.W.
Cleveland, OH 44115-1075
Edward J. Mooney Nalco Chemical Company Chairman, Chief
Director Are Nalco Center Executive
Naperville, Il Officer,
60663-1198 President &
Director
Morton International, Director
Inc.
100 North Riverside Plaza
Chicago, Il 60605
William A. Osborn Northern Trust Director
Chairman and Corporation
Chief Executive Securities, Inc.
Officer 50 S. LaSalle Street
Former President Chicago, IL 60675
and Chief Operating
Officer& Former Senior Northern Trust of Director and Former
Executive Vice California Corporation Chairman of the Board
President 355 S. Grand Avenue
Los Angeles, CA 90017
Northern Trust Bank of Former Chairman of the
California N.A. Board
355 S. Grand Avenue
Los Angeles, CA 90017
Nortrust Realty Director
Management Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
50 S. LaSalle St.
Chicago, IL 60675
Northern Futures Director
Corporation
50 South LaSalle Street
Chicago, IL 60675
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and
Principal Connection
Name and Position Business Address with
with Investment Adviser of Other Company Other Company
- ----------------------- ---------------- -------------
<S> <C> <C>
Sheila A. Penrose RCB International Inc Director
Executive Vice 29 Federal Street
President Stamford, CT 06901
Perry R. Pero Northern Futures Director
Senior Executive Vice Corporation
Vice President, 50 South LaSalle Street
Chief Financial Chicago, IL 60675
Officer and
Cashier Northern Investment Former Chairman,
Corporation President and Director
50 South LaSalle Street Former Treasurer
Chicago IL 60675
RCB International
Inc
29 Federal Street
Stamford, CT 06901
Northern Trust Director
Securities, Inc.
50 South LaSalle Street
Chicago, IL 60675
Nortrust Realty Director
Management, Inc.
50 South LaSalle Street
Chicago, IL 60675
Peter L. Rossiter Schiff, Hardin Former Partner
Executive Vice & Waite
7200 Sears Tower
Chicago, IL 60606
Tanglewood Bancshares Former Vice President and
Inc
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
600 Bering Dr. Director
Houston, TX 77057
Consolidated Director
Communications Inc.
Illinois Consolidated
Telephone Company
121 S. 17th St.
Mattoon, IL 61938
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and
Principal Connection
Name and Position Business Address
with Investment Adviser of Other Company Other Company
- ------------------------- ------------------ ----------------
<S> <C> <C>
Peter L. Rossiter Northern Trust Executive
(cont'd) Corporation Vice
50 South LaSalle President,
Street General
Chicago, IL 60675 Counsel and
Secretary
Harold B. Smith Illinois Tool Chairman of
Director Works Inc. the Executive
3600 West Lake Committee
Avenue and a
Glenview, IL Director
60025-5811
Northern Trust Director
Corporation
50 South LaSalle Street
Chicago, IL 60675
W. W. Grainger, Inc. Director
5500 West Howard Street
Skokie, IL 60077
Northwestern Mutual Trustee
Life Insurance Co.
720 East Wisconsin Avenue
Milwaukee, WI 53202
William D. Smithburg The Quaker Oats Chairman,
Director Company President and
321 North Clark Street Chief Executive
Chicago, IL 60610 Officer
and Director
Northern Trust Director
Corporation
50 South LaSalle Street
Chicago, IL 60675
Abbott Laboratories Director
One Abbott Park Road
Abbott Park, IL
60064-3500
</TABLE>
<PAGE>
Corning Incorporated Director
Corning, NY 14831
<PAGE>
<TABLE>
<CAPTION>
Name and
Principal Connection
Name and Position Business Address
with Investment Adviser of Other Company Other Company
- ------------------------- ---------------- -------------
<S> <C> <C>
William D. Smithburg Prime Capital Director
(cont'd) Corporation
P.O. Box 8460
Rolling Meadows,
IL 60008
James M. Snyder None
Senior Vice
President
Bide L. Thomas Commonwealth Edison Former President
Company and a Former
One First National Director
Plaza
Chicago, IL 60603
MYR Group Inc. Director
*(formerly L.E. Myers
Company)
2550 W. Golf Rd.
Rolling Meadows, IL 60008
Northern Trust Director
Corporation
50 South LaSalle Street
Chicago, IL 60675
R. R. Donnelley Director
& Sons Company
77 West Wacker Drive
Chicago, IL 60601
* Name change
</TABLE>
Item 29. Principal Underwriters
----------------------
(a) Goldman, Sachs & Co., or an affiliate or a division thereof, currently
serves as investment adviser and distributor of the units or shares of
Goldman Sachs Money Market Trust, Goldman Sachs Trust, Goldman Sachs Equity
Portfolios, Inc. and Trust for Credit Unions. Goldman, Sachs & Co., or a
division thereof currently serves as administrator and distributor for The
Benchmark Funds and The Commerce Funds.
(b) Set forth below is certain information pertaining to the executive
committee of Goldman, Sachs &
<PAGE>
Co., Registrant's principal underwriter. None of the members of the
executive committee hold positions or offices with the Registrant.
GOLDMAN SACHS EXECUTIVE COMMITTEE
<TABLE>
<CAPTION>
Name and Principal
Business Address Position
---------------- --------
<S> <C>
Jon S. Corzine (1) Chief Executive Officer
Robert J. Hurst (1) Managing Director
Henry M. Paulson, Jr.(1) Chief Operating Officer
John A. Thain (1)(3) Chief Financial Officer
John L. Thornton (3) Managing Director
Roy J. Zuckerberg (2) Managing Director
</TABLE>
<PAGE>
______________________
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB,
England
(c) Not Applicable.
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
The Agreement and Declaration of Trust, By-laws and minute books of the
Registrant are in the physical possession of Goldman, Sachs & Co., Goldman Sachs
Asset Management, 85 Broad Street, New York, New York, 10004. Records relating
to Goldman, Sachs & Co.'s functions as distributor and administrator for the
Registrant are located at the same address. All other accounts, books and other
documents required to be maintained under Section 31(a) of the Investment
Company Act of 1940 and the Rules promulgated thereunder are in the physical
possession of The Northern Trust Company, 50 S. LaSalle Street, Chicago,
Illinois 60675.
Item 31. Management Services
-------------------
Not Applicable.
Item 32. Undertakings
------------
(a) The Annual Report will contain certain performance information and is
available to any recipient of the Prospectuses upon request and without
charge by writing to Goldman, Sachs & Co., 4900 Sears Tower, Chicago,
Illinois 60606.
(b) The Registrant undertakes to file a post-effecitve amendment within four to
six months from the efective date of the Post-Effective Amendment to the
Registrant's Registration Statment relating to shares of such Fund.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for the effectiveness of this Post-Effective Amendment No. 32
pursuant to Rule 485(a) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 33 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City and
State of New York on the 14th day of January 1996.
THE BENCHMARK FUNDS
By:
------------------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
PAUL W. KLUG * President January 14, 1997
-------------------------
Paul W. Klug
SCOTT M. GILMAN * Treasurer January 14, 1997
-------------------------
Scott M. Gilman
WILLIAM H. SPRINGER * Trustee January 14, 1997
-------------------------
William H. Springer
JAMES J. GAVIN, JR.* Trustee January 14, 1997
-------------------------
James J. Gavin, Jr.
FREDERICK T. KELSEY * Trustee January 14, 1997
-------------------------
Frederick T. Kelsey
EDWARD J.CONDON * Trustee January 14, 1997
-------------------------
Edward J. Condon
JOHN W. ENGLISH * Trustee January 14, 1997
-------------------------
John W. English
RICHARD P. STRUBEL * Trustee January 14, 1997
---------------------
Richard P. Strubel
*By: January 14, 1997
- ------------------------------
Michael J. Richman,
Attorney-in-fact
</TABLE>
