<PAGE>
As filed with the Securities and Exchange Commission on
January 30, 1998
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. 37 (X)
and/or
REGISTRATION STATEMENT
UNDER THE
INVESTMENT COMPANY ACT OF 1940 (_)
Amendment No. 38 (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)
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)
(X) 60 days after filing pursuant to paragraph (a)(1)
( ) On (date)pursuant to paragraph (a)(1)
( ) 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 28, 1997, Registrant filed a Rule 24f-2
Notice for its fiscal year ended November 30, 1996. 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.
This Post-Effective Amendment No.37 has been filed by The Benchmark Funds, a
Delaware business trust (the "Delaware Trust"), for the purpose of adopting
under the Securities Act of 1933 and the Investment Company Act of 1940 the
Registrations Statement on Form N-1A of The Benchmark Funds, a Massachusetts
business trust (the "Massachusetts Trust"), pursuant to the provisions of Rule
414 under the Securities Act of 1933. In accordance with the provisions of
paragraph (d) of Rule 414, this Registrations Statement also revises and sets
forth additional information arising in connection with Registrant's change of
domicile. Upon the effectiveness of the Post-Effective Amendment, the Delaware
Trust hereby affirmatively adopts the Registration Statement (File Nos. 2-80543
and 811-3605) of the Massachusetts Trust.
<PAGE>
THE BENCHMARK FUNDS
Money Market Portfolios
Service Shares
Premium Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 485)
<TABLE>
<CAPTION>
Part A Caption
- ------ -------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Summary of Expenses
3. Condensed Financial Not Applicable
Information
4. General Description Summary of Expenses; Investment
of Registrant Information; Organization
5. Management of the Fund Trust Information
6. Capital Stock and Trust Information; Investing;
Other Securities Net Asset Value; Organization
7. Purchase of Securities Trust Information; Investing;
Being Offered Net Asset Value
8. Redemption or Repurchase Investing
9. Pending Legal Proceedings Not Applicable
Part B Caption
- ------ -------
10. Cover Page Cover Page
11. Table of Contents Index
12. General Information Description of Service Shares and
and History Premium Shares; Other Information
13. Investment Objectives Investment Objectives and Policies;
Investment Restrictions
14. Management of the Fund Additional Trust Information--Investment
Adviser, Transfer Agent and
Custodian;--Administrator and Distributor
15. Control Persons and Additional Trust Information--Description
Principal Holders of Service Shares and
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Premium Shares
16. Investment Advisory Additional Trust Information--
and Other Services Investment Adviser, Transfer Agent and
Custodian; Portfolio Transactions;
Service Plan
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Description of Service Shares and
Other Securities Premium Shares
19. Purchase, Redemption and Description of Service Shares and
Pricing of Securities Premium Shares; Additional
Being Offered Trust Information--In-Kind Purchases
20. Tax Status Taxes
21. Underwriters Additional Trust Information--
Administrator and Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
<PAGE>
THE BENCHMARK FUNDS
Investment Adviser, Transfer Agent and Custodian:
The Northern Trust Company 50 S. LaSalle Street Chicago, IL 60675
Administrator and Distributor:
Goldman, Sachs & Co. 4900 Sears Tower Chicago, IL 60606
The
Benchmark
Funds
Money
Market
Portfolios
Service Shares
PROSPECTUS
, 1998
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--JANUARY 30, 1998
THE BENCHMARK FUNDS
(Advised by The Northern Trust Company)
THE NORTHERN TRUST COMPANY INVESTMENT ADVISER, TRANSFER
50 S. LaSalle Street AGENT AND CUSTODIAN
Chicago, Illinois 60675
312-630-6000 -----------------
This Prospectus describes the Service Class Shares ("Service Shares" or
"shares") of four short-term money market portfolios (the "Portfolios") offered
by The Benchmark Funds (the "Trust") to institutional investors. Each
Portfolio, other than the Tax-Exempt Portfolio, seeks to maximize current
income to the extent consistent with the preservation of capital and
maintenance of liquidity. The Tax-Exempt Portfolio seeks to provide, to the
extent consistent with the preservation of capital and prescribed portfolio
standards, a high level of income exempt from regular Federal income tax.
The GOVERNMENT SELECT PORTFOLIO invests in selected short-term obligations
of the U.S. Government, its agencies and instrumentalities the interest on
which is generally exempt from state income taxation.
The GOVERNMENT PORTFOLIO invests in short-term obligations of the U.S.
Government, its agencies and instrumentalities and related repurchase
agreements.
The DIVERSIFIED ASSETS PORTFOLIO invests in money market instruments of both
U.S. and foreign issuers, including certificates of deposit, bankers'
acceptances, commercial paper and repurchase agreements.
The TAX-EXEMPT PORTFOLIO invests primarily in short-term municipal
instruments the interest on which is exempt from regular Federal income tax.
Each Portfolio is advised by The Northern Trust Company ("Northern"). Shares
are sold and redeemed without any purchase or redemption charge imposed by the
Trust, although Northern and other institutions may charge their customers for
services provided in connection with their investments.
This Prospectus provides information about the Portfolios that you should know
before investing. It should be read and retained for future reference. If you
would like more detailed information, a Statement of Additional Information
(the "Additional Statement") dated , 1998 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.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR OTHERWISE SUPPORTED BY, THE NORTHERN TRUST COMPANY, ITS PARENT
COMPANY OR ITS AFFILIATES AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. THERE CAN BE NO ASSURANCE THAT ANY
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN A PORTFOLIO INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS 3
- ----------
Description of Trust 3
Summary of Expenses 3
INVESTMENT INFORMATION 6
- ----------------------
Government Select Portfolio 6
Government Portfolio 7
Diversified Assets Portfolio 7
Tax-Exempt Portfolio 7
Description of Securities and Com-
mon Investment Techniques 8
Investment Restrictions 15
TRUST INFORMATION 15
- -----------------
Board of Trustees 15
Investment Adviser, Transfer Agent
and Custodian 15
Administrator and Distributor 16
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Service Plan 16
Expenses 17
INVESTING 17
---------
Purchase of Service Shares 17
Redemption of Service Shares 20
Distributions 22
Taxes 22
NET ASSET VALUE 24
---------------
PERFORMANCE INFORMATION 24
-----------------------
ORGANIZATION 25
------------
MISCELLANEOUS 26
-------------
</TABLE>
2
<PAGE>
HIGHLIGHTS
DESCRIPTION OF TRUST
The Trust is an open-end, management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). Each Portfolio consists of a
separate pool of assets with separate investment policies, as described below
under "Investment Information." All of the Portfolios are classified as
diversified companies. Northern serves as investment adviser, transfer agent
and custodian. Goldman Sachs serves as distributor and administrator.
Shares of the Portfolios are offered exclusively to institutional investors.
See "Investing--Purchase of Service Shares" and "Investing--Redemption of
Service Shares" for information on how to place purchase and redemption orders.
Each Portfolio seeks to maintain a net asset value of $1.00 per share. The
assets of each Portfolio will be invested in dollar-denominated debt securities
with remaining maturities of thirteen months or less as defined by the
Securities and Exchange Commission (the "SEC"), and each Portfolio's dollar-
weighted average portfolio maturity will not exceed 90 days. All securities
acquired by the Portfolios will be determined by Northern, under guidelines
established by the Trust's Board of Trustees, to present minimal credit risks,
and will be "Eligible Securities" as defined by the SEC. There can be no
assurance that the Portfolios will be able to achieve a stable net asset value
on a continuous basis, or that they will achieve their investment objectives.
Investors should note that one or more of the Portfolios may purchase variable
and floating rate instruments, enter into repurchase agreements, reverse
repurchase agreements and securities loans, acquire U.S. dollar-denominated
instruments of foreign issuers and make limited investments in illiquid
securities and securities issued by other investment companies. These
investment practices involve investment risks of varying degrees. None of the
Portfolios will invest in instruments denominated in a foreign currency.
SUMMARY OF EXPENSES
The following table sets forth the estimated annualized operating expenses for
Service Shares of the Portfolios for the current fiscal year. Hypothetical
examples based on the table are also shown.
<TABLE>
<CAPTION>
GOVERNMENT DIVERSIFIED TAX-
SELECT GOVERNMENT ASSETS EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on
Purchases....................... None None None None
Sales Charge Imposed on Rein-
vested Distributions............ None None None None
Deferred Sales Load Imposed on
Redemptions..................... None None None None
Redemption Fees.................. None None None None
Exchange Fees.................... None None None None
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT DIVERSIFIED TAX-
SELECT GOVERNMENT ASSETS EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Annual Operating Expenses After
Expense Reimbursements and Fee
Reductions (as a percentage of
average daily net assets)
Management Fees (After Fee Re-
ductions)...................... .10% .25% .25% .25%
12b-1 Fees...................... None None None None
Other Operating Expenses
Administrative Support Fees..... .33% .33% .33% .33%
Other Expenses (After Expense
Reimbursements and Fee Reduc-
tions)......................... .11% .11% .11% .11%
---- ---- ---- ----
Total Operating Expenses (After
Expense Reimbursements and Fee
Reductions)...................... .54% .69% .69% .69%
==== ==== ==== ====
</TABLE>
EXAMPLE OF EXPENSES. Based on the foregoing table, you would pay the following
expenses on a hypothetical $1,000 investment in Service Shares assuming a 5%
annual return and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Government Select Portfolio...................................... $6 $17
Government Portfolio............................................. $7 $22
Diversified Assets Portfolio..................................... $7 $22
Tax-Exempt Portfolio............................................. $7 $22
</TABLE>
The figures shown in the table above under "Other Expenses" are estimated for
the current fiscal year. The other costs and expenses included in the table are
based on actual amounts incurred by each Portfolio for the fiscal year ended
November 30, 1997. During the Trust's last fiscal year, Northern voluntarily
reduced its advisory fee for the Government Select Portfolio (payable at the
annual rate of .25% of the Portfolio's average daily net assets) to .10% per
annum. For the fiscal period December 1, 1996 through April 30, 1997, Goldman
Sachs reduced its administration fee (otherwise payable with respect to each
Portfolio during such period 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. In addition, Goldman Sachs reimbursed expenses
for each Portfolio to the extent that 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) exceeded on an annualized basis .10% of each other Portfolio's
average daily net assets for such fiscal year. For the period May 1, 1997
through November 30, 1997, Goldman Sachs was entitled to an administration fee
equal to .10% of the average daily net assets of each Portfolio. In addition,
during such period Goldman Sachs reimbursed "Other Expenses" for each Portfolio
(including fees payable to Goldman Sachs as administrator, but excluding fees
payable to Northern for its duties as adviser and transfer agent and certain
extraordinary expenses) which exceeded on an annualized basis .10% of each
Portfolio's assets for such period. The expense information in the table has,
accordingly, been presented to reflect these fee reductions and reimbursements.
Without the undertakings of Northern and Goldman Sachs, "Other Expenses" of the
Government Select, Government, Diversified Assets and Tax-Exempt Portfolios
would be 0.15%, 0.13%, 0.12% and 0.15%, respectively; and "Total Operating
Expenses" of the Government Select, Government, Diversified Assets and Tax-
Exempt Portfolios would be 0.73%, 0.71%, 0.70% and 0.73%, respectively. For a
more complete description of the Portfolios' expenses, see "Trust Information"
in this Prospectus.
4
<PAGE>
---------------------
THE PURPOSE OF THE FOREGOING TABLE IS TO ASSIST YOU IN UNDERSTANDING THE
VARIOUS SHAREHOLDER TRANSACTION AND OPERATING EXPENSES OF EACH PORTFOLIO THAT
SHAREHOLDERS 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 SERVICE SHARES." 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.
5
<PAGE>
INVESTMENT INFORMATION
The investment objective of each Portfolio, other than the Tax-Exempt
Portfolio, is to seek to maximize current income to the extent consistent with
the preservation of capital and maintenance of liquidity by investing
exclusively in high quality money market instruments. The Tax-Exempt Portfolio
seeks to provide its shareholders, to the extent consistent with the
preservation of capital and prescribed portfolio standards, with a high level
of income exempt from Federal income tax by investing primarily in municipal
instruments. The investment objective of a Portfolio may not be changed without
the vote of the majority of the outstanding shares of the particular Portfolio
(as defined below under "Organization"). Except as expressly noted below,
however, a Portfolio's investment policies may be changed without a vote of
shareholders.
All securities acquired by the Portfolios will be determined by Northern, under
guidelines established by the Board of Trustees, to present minimal credit
risks and will be "Eligible Securities" as defined by the SEC. Eligible
Securities consist of (i) securities that either (a) have short-term debt
ratings at the time of purchase in the two highest rating categories by at
least two unaffiliated nationally recognized statistical rating organizations
("NRSROs") (or one NRSRO if the security is rated by only one NRSRO), or (b)
are comparable in priority and security with a security issued by an issuer
which has such ratings, and (ii) securities that are unrated (including
securities of issuers that have long-term but not short-term ratings) but are
of comparable quality as determined in accordance with guidelines approved by
the Board of Trustees. Securities which are rated or that have been issued by
an issuer that is rated with respect to a class of short-term debt obligations,
or any security within that class, comparable in priority and quality with such
securities in the highest short-term rating category by at least two NRSROs are
designated "First Tier Securities." Under normal circumstances, the Government
Select, Government and Diversified Assets Portfolios intend to limit purchases
of securities to First Tier Securities. The Additional Statement includes a
description of applicable NRSRO ratings.
Each Portfolio is managed so that the average maturity of all instruments in
the Portfolio (on a dollar-weighted basis) will not exceed 90 days. In no event
will the Portfolios purchase any securities which mature more than 13 months
from the date of purchase (except for certain variable and floating rate
instruments and securities collateralizing repurchase agreements). Securities
in which the Portfolios invest may not earn as high a level of income as long-
term or lower quality securities, which generally have greater market risk and
more fluctuation in market value.
GOVERNMENT SELECT PORTFOLIO
The Government Select Portfolio seeks to achieve its investment objective by
investing exclusively in securities issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities. In making
investments, Northern will seek to acquire, under normal market conditions,
only those U.S. Government securities the interest on which is generally exempt
from state income taxation. Securities generally eligible for this exemption
include those issued by the U.S. Treasury and certain U.S. Government agencies
and instrumentalities, including the Federal Home Loan Bank, Federal Farm
Credit Banks Funding Corp. and the Student Loan Marketing Association. The
Portfolio intends to limit investments to only the foregoing exempt U.S.
Government securities. However, under extraordinary
6
<PAGE>
circumstances, such as when appropriate exempt securities are unavailable, the
Portfolio may make investments in non-exempt U.S. Government securities and
cash equivalents, and may hold uninvested cash. See "Investing--Taxes" below
for certain tax considerations.
GOVERNMENT PORTFOLIO
The Government Portfolio seeks to achieve its investment objective by investing
exclusively in:
(A) Marketable securities issued or guaranteed as to principal and interest
by the U.S. Government or by any of its agencies or instrumentalities
(including the International Bank for Reconstruction and Development) and
custodial receipts with respect thereto; and
(B) Repurchase agreements relating to the above instruments.
DIVERSIFIED ASSETS PORTFOLIO
In pursuing its investment objective, the Diversified Assets Portfolio may
invest in a broad range of government, bank and commercial obligations that are
available in the money markets. In particular, the Portfolio may invest in:
(A) U.S. dollar-denominated obligations of U.S. banks with total assets in
excess of $1 billion (including obligations of foreign branches of such
banks);
(B) U.S. dollar-denominated obligations of foreign commercial banks where
such banks have total assets in excess of $5 billion;
(C) High quality commercial paper and other obligations issued or
guaranteed by U.S. and foreign corporations and other issuers rated (at the
time of purchase) A-2 or higher by Standard & Poor's Ratings Group ("S&P"),
Prime-2 or higher by Moody's Investors Service, Inc. ("Moody's"), Duff 2 or
higher by Duff & Phelps Credit Rating Co. ("D&P"), F-2 or higher by Fitch
IBCA, Inc. ("Fitch") or TBW-2 or higher by Thomson BankWatch, Inc. ("TBW");
(D) Rated and unrated corporate bonds, notes, paper and other instruments
that are of comparable quality to the commercial paper permitted to be
purchased by the Portfolio;
(E) Asset-backed securities (including interests in pools of assets such as
mortgages, installment purchase obligations and credit card receivables);
(F) Securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies or instrumentalities and custodial
receipts with respect thereto;
(G) Dollar-denominated securities issued or guaranteed by one or more
foreign governments or political subdivisions, agencies or
instrumentalities thereof;
(H) Repurchase agreements relating to the above instruments; and
(I) Securities issued or guaranteed by state or local governmental bodies.
TAX-EXEMPT PORTFOLIO
The Tax-Exempt Portfolio invests primarily in high quality short-term
instruments, the interest on which is, in the opinion of bond counsel for the
issuers, exempt from regular Federal income tax ("Municipal
7
<PAGE>
Instruments"). Such opinions may contain various assumptions, qualifications or
exceptions that are reasonably acceptable to Northern. In particular, the
Portfolio may invest in:
(A) Fixed and variable rate notes and similar debt instruments rated MIG-2,
VMIG-2 or Prime-2 or higher by Moody's, SP-2 or A-2 or higher by S&P, AA or
higher by D&P or F-2 or higher by Fitch;
(B) Tax-exempt commercial paper and similar debt instruments rated Prime-2
or higher by Moody's, A-2 or higher by S&P, Duff 2 or higher by D&P or F-2
or higher by Fitch;
(C) Rated and unrated municipal bonds, notes, paper or other instruments
that are of comparable quality to the tax-exempt commercial paper permitted
to be purchased by the Portfolio; and
(D) Municipal bonds and notes which are guaranteed as to principal and
interest by the U.S. Government or an agency or instrumentality thereof or
which otherwise depend directly or indirectly on the credit of the United
States.
As a matter of fundamental policy, changeable only with the approval of the
holders of a majority of the outstanding shares of the Tax-Exempt Portfolio, at
least 80% of the Portfolio's annual gross income will be derived from Municipal
Instruments except under extraordinary circumstances, such as when Northern
believes that market conditions indicate that the Portfolio should adopt a
temporary defensive posture by holding uninvested cash or investing in taxable
short-term securities ("Taxable Investments"). Taxable Investments will consist
exclusively of instruments that may be purchased by the Diversified Assets
Portfolio.
DESCRIPTION OF SECURITIES AND COMMON INVESTMENT TECHNIQUES
BANK OBLIGATIONS. Domestic and foreign bank obligations in which the
Diversified Assets Portfolio may invest include certificates of deposit, bank
and deposit notes, bankers' acceptances and fixed time deposits. Such
obligations may be general obligations of the parent bank or may be limited to
the issuing branch or subsidiary by the terms of the specific obligation or by
government regulation. Total assets of a bank are determined on the basis of
the bank's most recent annual financial statements.
FOREIGN OBLIGATIONS. In addition to the obligations of foreign commercial banks
and foreign branches of U.S. banks, the Diversified Assets Portfolio may
acquire commercial obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, as well as Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer. The Diversified Assets
Portfolio may also invest in obligations issued or guaranteed by one or more
foreign governments or any of their political subdivisions, agencies or
instrumentalities. Such obligations may include debt obligations of
supranational entities, including international organizations (such as the
European Coal and Steel Community) designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies.
Obligations of foreign issuers acquired by the Diversified Assets Portfolio may
involve risks that are different than those of obligations of domestic issuers.
These risks include unfavorable political and economic developments, the
possible imposition of withholding taxes on interest income, possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on such
8
<PAGE>
obligations. In addition, foreign branches of U.S. banks and foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks and, generally, there may be less publicly
available information regarding such issuers. The Trust could also encounter
difficulties in obtaining or enforcing a judgment against a foreign issuer
(including a foreign branch of a U.S. bank).
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolios may purchase rated and
unrated variable and floating rate instruments, which may have stated
maturities in excess of the Portfolios' maturity limitations but will, in any
event, permit a Portfolio to demand payment of the principal of the instrument
at least once every 13 months on not more than thirty days' notice (unless the
instrument is issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof). In the case of the Diversified Assets Portfolio, such
instruments may include variable amount master demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated variable and floating rate
instruments will be determined by Northern to be of comparable quality at the
time of the purchase to rated instruments purchasable by the Portfolios. The
absence of an active secondary market with respect to particular variable and
floating rate instruments could, however, make it difficult for a Portfolio to
dispose of the instruments if the issuer defaulted on its payment obligation or
during periods that the Portfolio is not entitled to exercise its demand
rights, and the Portfolio could, for these or other reasons, suffer a loss with
respect to such instruments. Variable and floating rate instruments held by a
Portfolio will be subject to the Portfolio's 10% limitation on illiquid
investments when the Portfolio may not demand payment of the principal amount
within seven days and a reliable trading market is absent.
UNITED STATES GOVERNMENT OBLIGATIONS. Each Portfolio may invest in a variety of
U.S. Treasury obligations, consisting of bills, notes and bonds, which
principally differ only in their interest rates, maturities and time of
issuance. These obligations include "stripped" securities issued by the U.S.
Treasury and recorded in the Federal Reserve book-entry record-keeping system.
The Portfolios may also invest in other securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities. Obligations of certain
agencies and instrumentalities, such as the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others are supported only by the credit of the
instrumentalities. No assurance can be given that the U.S. Government would
provide financial support to its agencies or instrumentalities if it is not
obligated to do so by law. Obligations of the International Bank for
Reconstruction and Development (also known as the World Bank) are supported by
subscribed but unpaid commitments of its member countries. There is no
assurance that these commitments will be undertaken or complied with in the
future.
Securities guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities are deemed to include (a) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or an agency or instrumentality thereof,
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. The secondary market for certain of these
participations is limited. Such participations may therefore be regarded as
illiquid.
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CUSTODIAL RECEIPTS FOR TREASURY SECURITIES. The Portfolios (other than the
Government Select Portfolio) may also purchase participations in trusts that
hold U.S. Treasury securities (such as TIGRs and CATS) where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the U.S. Treasury obligations. These
participations are normally issued at a discount to their "face value," and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors.
Investments by the Government Portfolio in such custodial receipts will not
exceed 35% of the value of that Portfolio's total assets.
REPURCHASE AGREEMENTS. Each Portfolio may, in accordance with its investment
objective, policies and guidelines established by the Trust's Board of
Trustees, agree to purchase portfolio securities from financial institutions
subject to the seller's agreement to repurchase them at a mutually agreed upon
date and price ("repurchase agreements"). Although the securities subject to a
repurchase agreement may bear maturities exceeding 13 months, settlement for
the repurchase agreement will never be more than one year after a Portfolio's
acquisition of the securities and normally will be within a shorter period of
time. Securities subject to repurchase agreements are held either by the
Trust's custodian or subcustodian (if any), or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
maintain the value of the securities subject to the agreement in an amount
exceeding the repurchase price (including accrued interest). Default by the
seller would, however, expose a Portfolio to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.
REVERSE REPURCHASE AGREEMENTS. The Government Select Portfolio, Government
Portfolio and Diversified Assets Portfolio may enter into reverse repurchase
agreements which involve the sale of money market securities held by a
Portfolio, with an agreement to repurchase the securities at an agreed upon
price (including interest) and date. A Portfolio will use the proceeds of
reverse repurchase agreements to purchase other money market securities either
maturing, or under an agreement to resell, at a date simultaneous with or prior
to the expiration of the reverse repurchase agreement. A Portfolio will utilize
reverse repurchase agreements, which may be viewed as borrowings (or leverage)
by the Portfolio, when it is anticipated that the interest income to be earned
from the investment of the proceeds of the transaction is greater than the
interest expense of the reverse repurchase transaction. During the time a
reverse repurchase agreement is outstanding, the Portfolio will maintain a
segregated account with the Trust's custodian containing liquid assets having a
value at least equal to the repurchase price. A Portfolio may enter into
reverse repurchase agreements with banks, brokers and dealers, and has the
authority to enter into reverse repurchase agreements in amounts not exceeding
in the aggregate one-third of the Portfolio's total assets. See "Additional
Investment Information--Investment Restrictions" in the Additional Statement.
SECURITIES LENDING. The Portfolios may seek additional income from time to time
by lending their portfolio securities on a short-term basis to banks, brokers
and dealers under agreements requiring that the loans be secured by collateral
in the form of cash, cash equivalents or U.S. Government securities or
irrevocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the securities loaned. A Portfolio may not make
such loans in excess of 33 1/3% of the value of the Portfolio's total assets
(including the loan collateral). Loans of securities involve risks of delay in
receiving additional collateral or in recovering the securities loaned, or
possibly loss of rights in the collateral should the borrower of the securities
become insolvent.
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FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Portfolio may purchase
when-issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased on a when-issued or forward commitment basis involve a risk of loss
if the value of the security to be purchased declines prior to the settlement
date, or if the value of the security to be sold increases prior to the
settlement date. Conversely, securities sold on a delayed-delivery or forward
commitment basis involve the risk that the value of the security to be sold may
increase prior to the settlement date. A Portfolio is required to hold and
maintain liquid assets in a segregated account with the Portfolio's custodian
until the settlement date, having a value (determined daily) at least equal to
the amount of the Portfolio's purchase commitments. In the case of a forward
commitment to sell portfolio securities, a Portfolio is required to hold the
portfolio securities themselves in a segregated account with the custodian
while the commitment is outstanding. Although a Portfolio would generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring securities, the Portfolio may dispose of a when-issued
security or forward commitment prior to settlement if Northern deems it
appropriate to do so.
INVESTMENT COMPANIES. In connection with the management of their daily cash
positions, the Portfolios may invest in securities issued by other investment
companies which invest in short-term, high-quality debt securities and which
determine their net asset value per share based on the amortized cost or penny-
rounding method of valuation ("money market funds"). Each Portfolio will limit
its investments in other money market funds so that, as determined after a
purchase is made, not more than 3% of the total outstanding stock of such
investment company will be owned by the Portfolio, the Trust as a whole and
their affiliated persons (as defined in the 1940 Act). In addition, the
Portfolios may invest in securities issued by other types of investment
companies consistent with their investment objectives and policies. To the
extent required by the 1940 Act and the regulations and orders of the SEC
thereunder, each Portfolio will limit its investments in other types of
investment companies so that, as determined after a purchase is made, (i) not
more than 5% of the value of its total assets will be invested in the
securities of any one investment company; (ii) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or
the Trust as a whole. Notwithstanding the limitations described above, each
Portfolio is authorized to invest substantially all of its assets in a single
open-end investment company or series thereof with substantially the same
investment objective, policies and fundamental restrictions as the Portfolio in
the future. 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. The Trust has been advised by
its counsel that exempt-interest dividends received by the Tax-Exempt Portfolio
as a shareholder of a regulated investment company paying such dividends will
receive the same Federal tax treatment as interest received by the Portfolio on
Municipal Instruments held by it.
MUNICIPAL AND RELATED INSTRUMENTS. Municipal Instruments in which the Tax-
Exempt Portfolio may invest include debt obligations issued by or on behalf of
states, territories and possessions of the United States and their political
subdivisions, agencies, authorities and instrumentalities.
Municipal Instruments may be issued to obtain funds for various public
purposes, including capital improvements, the refunding of outstanding
obligations, general operating expenses, and lending to other public agencies.
Among other instruments, the Portfolio may purchase short-term Tax Anticipation
Notes,
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Bond Anticipation Notes, Revenue Anticipation Notes, and other forms of short-
term loans. Such notes are issued with a short-term maturity in anticipation of
the receipt of tax funds, the proceeds of bond placements or other revenues.
Municipal Instruments include both "general" and "revenue" obligations. General
obligations are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue obligations are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source such as lease payments from the user of the facility
being financed. Industrial development bonds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of an industrial revenue bond is usually
directly related to the credit standing of the private user of the facility
involved.
The Tax-Exempt Portfolio may also invest in "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of a moral
obligation bond is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which
created the issuer.
Municipal bonds with a series of maturity dates are called Serial Bonds. The
Portfolio may purchase Serial Bonds and other long-term securities provided
that they have a remaining maturity meeting the Tax-Exempt Portfolio's maturity
requirements. The Portfolio may also purchase long-term variable and floating
rate bonds (sometimes referred to as "Put Bonds") where the Portfolio obtains
at the time of purchase the right to put the bond back to the issuer or a third
party at par at least every thirteen months. Put Bonds with conditional puts
(that is, puts which cannot be exercised if the issuer defaults on its payment
obligations) will present risks that are different than those of other
Municipal Instruments because of the possibility that the Portfolio might hold
a long-term Put Bond on which a default occurs following its acquisition by the
Portfolio.
The Tax-Exempt Portfolio may acquire securities in the form of custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment or both on certain municipal obligations. Such obligations
are held in custody by a bank on behalf of the holders of the receipts. These
custodial receipts are known by various names, including "Municipal Receipts,"
"Municipal Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and
"Municipal Zero-Coupon Receipts." The Portfolio may also purchase certificates
of participation that, in the opinion of counsel to the issuer, are exempt from
regular Federal income tax. Certificates of participation are a type of
floating or variable rate obligation that represents interests in a pool of
municipal obligations held by a bank.
The Tax-Exempt Portfolio may acquire "standby commitments" with respect to the
Municipal Instruments it holds. Under a standby commitment, a dealer agrees to
purchase at the Portfolio's option specified Municipal Instruments at a
specified price. The acquisition of a standby commitment may increase the cost,
and thereby reduce the yield, of the Municipal Instruments to which the
commitment relates. The Portfolio will acquire standby commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
Municipal Instruments purchased by the Tax-Exempt Portfolio may be backed by
letters of credit or other forms of credit enhancement issued by foreign (as
well as domestic) banks and other financial institutions.
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The credit quality of these banks and financial institutions could, therefore,
cause loss to a Portfolio that invests in Municipal Instruments. Letters of
credit and other obligations of foreign financial institutions may involve
certain risks in addition to those of domestic obligations. (See "Foreign
Obligations" above.)
As stated, the Tax-Exempt Portfolio expects to invest primarily in Municipal
Instruments. However, the Portfolio may from time to time hold uninvested cash
or invest a portion of its assets in Taxable Investments. The Portfolio does
not intend to invest more than 25% of the value of its total assets in
industrial development bonds or similar obligations where the non-governmental
entities supplying the revenues from which such bonds or obligations are to be
paid are in the same industry. The Portfolio may, however, invest 25% or more
of its total assets in (a) Municipal Instruments the interest upon which is
paid solely from revenues of similar projects, and (b) industrial development
obligations. In addition, although the Tax-Exempt Portfolio does not expect to
do so during normal market conditions, it may invest more than 25% of the value
of its total assets in Municipal Instruments whose issuers are in the same
state. When a substantial percentage of the Portfolio's assets is invested in
instruments which are used to finance facilities involving a particular
industry, whose issuers are in the same state or which are otherwise related,
there is a possibility that an economic, business or political development
affecting one such instrument would likewise affect the other related
instruments. The Tax-Exempt Portfolio did not invest 25% or more of its assets
in any of these categories during the year ended November 30, 1997, except for
industrial development obligations.
So long as other suitable Municipal Instruments are available for investment,
the Tax-Exempt Portfolio does not intend to invest in "private activity bonds"
the interest from which may be treated as an item of tax preference to
unitholders under the Federal alternative minimum tax.
The Diversified Assets Portfolio may also invest up to 5% of its net assets
from time to time in municipal instruments or other securities issued by state
and local governmental bodies when, as a result of prevailing economic,
regulatory or other circumstances, the yield of such securities, on a pre-tax
basis, is comparable to that of other permitted short-term taxable investments.
Dividends paid on such investments will be taxable to unitholders.
ISSUER DIVERSIFICATION. In accordance with current SEC regulations, each
Portfolio intends to limit investments in the securities of any single issuer
(excluding cash, cash items, certain repurchase agreements, U.S. Government
securities or securities of other investment companies) to not more than 5% of
the value of its total assets at the time of purchase, except that (a) 25% of
the value of the total assets of each Portfolio may be invested in the
securities of any one issuer (limited to repurchase agreements, certificates of
deposit and bankers' acceptances in the case of the Government Select,
Government and Diversified Assets Portfolios) for a period of up to three
Business Days; and (b) securities subject to certain unconditional guarantees
are subject to different diversification requirements as described in the
Additional Statement. In addition, the Portfolios will limit their investments
in securities that are not First Tier Securities as prescribed in Rule 2a-7.
DERIVATIVE INSTRUMENTS. Each Portfolio may also purchase certain "derivative"
instruments. "Derivative" instruments are instruments that derive value from
the performance of underlying assets, interest rates or indices, and include
(but are not limited to) various structured debt obligations (including certain
variable and floating rate instruments). Derivative instruments present, to
varying degrees, market risk that the performance of the underlying assets,
interest rates or indices will decline; credit risk that the dealer or other
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counterparty to the transaction will fail to pay its obligations; volatility
risk that, if interest rates change adversely, the value of the derivative
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Portfolio will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument will not correlate
exactly to the value of the underlying assets, rates or indices on which it is
based; and operations risk that loss will occur as a result of inadequate
systems and controls, human error or otherwise. Some derivative instruments are
more complex than others, and for those instruments that have been developed
recently, data is lacking regarding their actual performance over complete
market cycles. Northern will evaluate the risks presented by the derivative
instruments purchased by the Portfolios, and will determine, in connection with
its day-to-day management of the Portfolios, how they will be used in
furtherance of the Portfolios' investment objectives. It is possible, however,
that Northern's evaluations will prove to be inaccurate or incomplete and, even
when accurate and complete, it is possible that the Portfolios will, because of
the risks discussed above, incur loss as a result of their investments in
derivative instruments.
ILLIQUID OR RESTRICTED SECURITIES. A Portfolio will not invest more than 10% of
its net assets in securities which are illiquid, including repurchase
agreements and time deposits that do not provide for payment to the Trust
within seven days after notice and certificates of participation for which
there is no readily available secondary market and certain securities which are
subject to trading restrictions because they are not registered under the
Securities Act of 1933 (the "1933 Act"). In accordance with the current
position of the staff of the SEC, municipal custodial receipts representing
rights only to either future interest or to future principal payments will be
considered illiquid.
If otherwise consistent with its investment objective and policies, the
Portfolios may purchase commercial paper issued pursuant to Section 4(2) of the
1933 Act and securities that are not registered under the 1933 Act but can be
sold to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. These securities will not be considered illiquid so long as Northern
determines, under guidelines approved by the Trust's Board of Trustees, that an
adequate trading market exists. This practice could increase the level of
illiquidity during any period that qualified institutional buyers become
uninterested in purchasing these securities.
MISCELLANEOUS. Although the Portfolios will generally not seek profits through
short-term trading, each Portfolio may dispose of any portfolio security prior
to its maturity if, on the basis of a revised credit evaluation of the issuer
or other considerations, Northern believes such disposition is advisable.
Subsequent to its purchase, a portfolio security may be assigned a lower rating
or cease to be rated. Such an event would not necessarily require the
disposition of the security, if the continued holding of the security is
determined to be in the best interest of the Portfolio and its shareholders.
In determining the creditworthiness of the issuers of portfolio securities that
may be purchased and held by the Portfolios, Northern gathers and reviews
historical financial data and, through the use of a proprietary software
computer program, analyzes and attempts to assess the fundamental strengths and
weaknesses of individual issuers, industries and market sectors. Exposure
limits are established by Northern for each security in conformance with the
objectives and policies stated in this Prospectus, and are thereafter adjusted
periodically in response to changes in relevant credit factors.
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The Portfolios do not intend to purchase certificates of deposit of Northern or
its affiliate banks, commercial paper issued by Northern's parent holding
company or other securities issued or guaranteed by Northern, its parent
holding company or their subsidiaries or affiliates.
INVESTMENT RESTRICTIONS
The Portfolios are subject to certain investment restrictions which, as
described in more detail in the Additional Statement, are fundamental policies
that cannot be changed without the approval of a majority of the outstanding
shares of a Portfolio. Each Portfolio will limit its investments so that less
than 25% of the Portfolio's total assets will be invested in the securities of
issuers in any one industry (with certain limited exceptions). Each Portfolio
may borrow money from banks for temporary or emergency purposes or to meet
redemption requests, provided that the Portfolio maintains asset coverage of at
least 300% for all such borrowings.
TRUST INFORMATION
BOARD OF TRUSTEES
The business and affairs of the Trust and each Portfolio are managed under the
direction of the Trust's Board of Trustees. The Additional Statement contains
the name of each Trustee and background information regarding the Trustees.
INVESTMENT ADVISER, TRANSFER AGENT AND CUSTODIAN
Northern, which has offices at 50 S. LaSalle Street, Chicago, Illinois 60675,
serves as investment adviser, transfer agent and custodian for each Portfolio.
As transfer agent, Northern performs various shareholder servicing functions,
and any shareholder 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, 1997, Northern Trust
Corporation and its subsidiaries had approximately $25.3 billion in assets,
$16.4 billion in deposits and employed over 7,553 persons.
Northern and its affiliates administered in various capacities (including as
master trustee, investment manager or custodian) approximately $1 trillion of
assets as of December 31, 1997, including approximately $196.5 billion of
assets for which Northern and its affiliates had investment management
responsibility. Included in managed assets were approximately $ billion of
money market instruments.
Under its Advisory Agreement with the Trust, Northern, subject to the general
supervision of the Trust's Board of Trustees, is responsible for making
investment decisions for the Portfolios and placing purchase and sale orders
for portfolio securities. Northern is also responsible for monitoring and
preserving the records required to be maintained under the regulations of the
SEC (with certain exceptions unrelated to its activities for the Trust). As
compensation for its advisory services and its assumption of related expenses,
Northern is entitled to a fee, computed daily and payable monthly, at an annual
rate of .25% of the average daily net assets of each Portfolio.
For serving as investment adviser during the fiscal year ended November 30,
1997, Northern earned fees paid by the Government Portfolio, the Diversified
Assets Portfolio and the Tax-Exempt Portfolio at the rate of
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.25% (per annum) of each Portfolio's average daily net assets. For serving as
investment adviser during the fiscal year ended November 30, 1997, Northern
earned fees (after waivers) paid by the Government Select Portfolio at the rate
of .10% (per annum) of its average daily net assets.
ADMINISTRATOR AND DISTRIBUTOR
Goldman Sachs, 85 Broad Street, New York, New York 10004, acts as administrator
and distributor for the Portfolios. Subject to the limitations described below,
as compensation for its administrative services (which include supervision with
respect to the Trust's non-investment advisory operations) and the assumption
of related expenses, Goldman Sachs is entitled to a fee from each Portfolio,
computed daily and payable monthly, at an annual rate of .10% of the average
daily net assets of each Portfolio. No compensation is payable by the Trust to
Goldman Sachs for its distribution services.
In addition, Goldman Sachs has agreed that it will reimburse each Portfolio for
all expenses (including the fees payable to Goldman Sachs as Administrator, but
excluding the fees payable to Northern for its duties as investment adviser and
transfer agent and extraordinary expenses such as interest, taxes and
indemnification expenses) which exceed on an annualized basis .10% of such
Portfolio's average daily net assets for any fiscal year. In addition, as
stated under "Highlights--Summary of Expenses," Northern intends to voluntarily
reduce its advisory fee for the Government Select Portfolio during the Trust's
current fiscal year. The result of these reimbursement and fee reductions will
be to increase the yields of the Portfolios during the periods for which the
reimbursements and reductions are made.
SERVICE PLAN
Pursuant to a Service Plan ("Service Plan") adopted by the Board of Trustees of
the Trust with respect to the Service Shares, banks, trust companies and other
financial institutions which may include Northern and its affiliates
("Servicing Agents") may enter into agreements ("Servicing Agreements"), under
which they will render (or arrange for the rendering of) administrative support
services for Service Share investors for the fees described below ("Service
Fees").
The administrative support services to be provided by Servicing Agents, which
are described more fully in the Additional Statement, may include establishing
and maintaining individual accounts and records with respect to Service Shares
owned by their customers, processing purchase, redemption and exchange orders
for their customers, placing net purchase and redemption orders from their
customers, placing net purchase and redemption orders with Northern acting as
the Trust's transfer agent and providing cash management or sweep accounts and
similar programs and services for their customers. For these administrative
support services, the Service Plan provides for the payment of fees to
Servicing Agents at an annual rate of up to .25% of the average daily net asset
value of the Service Shares beneficially owned by their customers. In addition,
the Service Plan provides for the payment of fees to Goldman Sachs or other
institutions at an annual rate of up to .08% of the average daily net asset
value of Service Shares serviced by such institutions for ongoing consulting
services, technology and systems support services relating to cash management
or sweep account services.
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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 Service Shares. Conflict of interest restrictions may apply to
the receipt of compensation by the Trust to a Servicing Agent in connection
with the investment of fiduciary funds in Service Shares. 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.
EXPENSES
Except as set forth above and in the Additional Statement under "Additional
Trust Information," each Portfolio is responsible for the payment of its
expenses. Such expenses include without limitation, the fees and expenses
payable to Northern and Goldman Sachs, fees for the registration or
qualification of Portfolio shares under Federal or state securities laws,
expenses of the organization of the Portfolio, taxes, interest, costs of
liability insurance, fidelity bonds, indemnification or contribution, any
costs, expenses or losses arising out of any liability of, or claim for damages
or other relief asserted against, the Trust for violation of any law, legal,
tax and auditing fees and expenses, Servicing Fees, expenses of preparing and
printing prospectuses, statements of additional information, proxy materials,
reports and notices and the printing and distributing of the same to the
Trust's shareholders and regulatory authorities, compensation and expenses of
its Trustees, expenses of industry organizations such as the Investment Company
Institute, miscellaneous expenses and extraordinary expenses incurred by the
Trust.
INVESTING
PURCHASE OF SERVICE SHARES
Service Shares 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"). Service Shares of the
Portfolios are sold on a continuous basis by the Trust's distributor, Goldman
Sachs, to Institutions that have agreed to render (or arrange for the rendering
of) administrative support services to customers pursuant to a Servicing
Agreement and either maintain certain qualified accounts with Northern or its
affiliates or invest an aggregate of at least $5 million in one or more
Portfolios of the Trust. See "Trust Information--Servicing Plan" above. The
Trust has established procedures for purchasing Service Shares in order to
accommodate different types of Institutions.
PURCHASE OF SERVICE SHARES THROUGH QUALIFIED ACCOUNTS. Any Institution
maintaining a qualified account at Northern or an affiliate may make purchases
through such qualified account either by directing automatic investment of cash
balances in excess of certain agreed upon amounts or by directing investments
from time to time on a non-automatic basis. The nature of an Institution's
relationship with Northern or an affiliate will determine whether the
Institution maintains a qualified account as well as the procedures available
for purchases. Institutions should contact Northern or an affiliate for further
information in this regard. There is no minimum initial investment for
Institutions that maintain qualified accounts with Northern or its affiliates.
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PURCHASE OF SERVICE SHARES DIRECTLY FROM THE TRUST. An Institution that
purchases Service Shares directly may do so by means of one of the following
procedures, provided it makes an aggregate minimum initial investment of $5
million in one or more Portfolios of the Trust:
PURCHASE BY MAIL. An Institution desiring to purchase Service Shares of a
Portfolio by mail should mail a check or Federal Reserve draft payable to
the specific Portfolio together with a completed and signed new account
application to The Benchmark Funds, c/o The Northern Trust Company, P.O.
Box 75943, Chicago, Illinois 60675-5943. An application will be incomplete
if it does not include a corporate resolution with the corporate seal and
secretary's certification within the preceding 30 days, or other acceptable
evidence of authority. If an Institution desires to purchase the Service
Shares of more than one Portfolio, the Institution should send a separate
check for each Portfolio. All checks must be payable in U.S. dollars and
drawn on a bank located in the United States. A $20 charge will be imposed
if a check does not clear. The proceeds of redemptions of shares purchased
by check may be delayed up to 15 days to allow the Trust to determine that
the check has cleared and been paid. Cash and third party checks are not
acceptable for the purchase of Service Shares.
PURCHASE BY TELEPHONE. An Institution desiring to purchase Service Shares
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 Service Shares 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
Service Shares of a Portfolio by wire or ACH Transfer should call the
Transfer Agent at 1-800-637-1380 for instructions if it is not making an
additional payment to an existing account. An Institution that wishes to
add to an existing account should wire Federal funds or effect an ACH
Transfer to:
The Northern Trust Company
Chicago, Illinois
ABA Routing No. 0710-00152
(Reference 10 Digit Portfolio Account Number)
(Reference Unitholder's Name)
For other information concerning requirements for the purchase of Service
Shares, call the Transfer Agent at 1-800-637-1380.
EFFECTIVE TIME OF PURCHASES. A purchase order for Service Shares placed with
the Transfer Agent by 1:00 p.m., Chicago time, on a Business Day (as defined
under "Miscellaneous") will be effected on that Business Day at the net asset
value next determined on that day with respect to a Portfolio, provided that
the Transfer Agent receives the purchase price in Federal funds or other
immediately available funds prior to 1:00 p.m.,
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Chicago time, on the same Business Day such order is received. Orders received
after 1:00 p.m. on a Business Day will be effected at the net asset value next
determined on the following Business Day, provided that payment is received as
provided herein. Purchase orders received on a non-Business Day will not be
executed until the following Business Day in accordance with the foregoing
procedures. An order generated pursuant to an automatic investment direction of
an Institution that has a qualified account with Northern or its affiliates
will normally be placed either on the Business Day that funds are available in
such account or on the first Business Day thereafter, depending upon the terms
of the Institution's automatic investment arrangements. Shares of a Portfolio
are entitled to the dividends declared by the Portfolio beginning on the
Business Day the purchase order is executed.
MISCELLANEOUS PURCHASE INFORMATION. Shares are purchased without a sales charge
imposed by the Trust. The minimum initial investment is $5 million for
Institutions that invest directly in one or more investment portfolios of the
Trust. The Trust reserves the right to waive this minimum and to determine the
manner in which the minimum investment is satisfied. There is no minimum for
subsequent investments.
Institutions intending to place a purchase order of $5 million or more directly
with the Trust through the Transfer Agent are requested to give advance notice
to the Transfer Agent no later than 11:00 a.m. Chicago Time on a Business Day
in order to assist in the processing of the order.
See "Miscellaneous" below for information on when the Trust may advance the
time by which purchase requests must be received.
Institutions may impose minimum investment and other requirements on Customers
purchasing shares 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,
Institutions will enter into Servicing Agreements with the Trust whereby they
will perform (or manage to have performed) various administrative support
services for customers who are the beneficial owners of Service Shares. These
services may include providing sweep accounts or similar programs to their
customers. See "Trust Information--Service Plan." The exercise of voting rights
and the delivery to Customers of shareholder 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 shares on behalf of Customers are responsible for
transmitting purchase orders to the Transfer Agent and delivering required
Federal funds on a timely basis. An Institution will be responsible for all
losses and expenses of a Portfolio as a result of a check that does not clear,
an ACH transfer that is rejected, or any other failure to make payment in the
time and manner described above, and Northern may redeem shares from an account
it maintains to protect the Portfolio and Northern against loss. The Trust
reserves the right to reject any purchase order. In those cases in which an
Institution pays for shares by check, Federal funds will generally become
available two Business Days after a purchase order is received. Federal
regulations require that the Transfer Agent be furnished with a taxpayer
identification number upon opening or reopening an account. Purchase orders
without such a number or an indication that a number has been applied for will
not be accepted. If a number has been applied for, the number must be provided
and certified within sixty days of the date of the order.
19
<PAGE>
Payment for shares of a Portfolio may, in the discretion of Northern, be made
in the form of securities that are permissible investments for the Portfolio.
For further information about the terms of such purchases, see the Additional
Statement.
In the interests of economy and convenience, certificates representing shares
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 and
other financial intermediaries who provide services to their customers who
invest in the Trust or whose customers purchase significant amounts of shares
of a Portfolio. The amount of such compensation may be made on a one-time
and/or periodic basis, and may represent all or a portion of the annual fees
that are earned by Northern as investment adviser to such Portfolio (after
adjustments) and are attributable to shares held by such customers. Such
compensation will not represent an additional expense to the Trust or its
shareholders, since it will be paid from assets of Northern or its affiliates.
REDEMPTION OF SERVICE SHARES
Institutions may redeem shares of a Portfolio through procedures established by
Northern and its affiliates in connection with the requirements of their
qualified accounts or through procedures set forth herein with respect to
Institutions that invest directly.
REDEMPTION OF SHARES THROUGH QUALIFIED ACCOUNTS. Institutions may redeem shares
in their qualified accounts at Northern or its affiliates. For Institutions
that participate in an automatic investment service described above under
"Purchase of Service Shares," Northern or its affiliates will calculate on each
Business Day the number of shares that need to be redeemed in order to bring
the Institution's account up to any agreed upon minimum amount. Redemption
requests on behalf of an Institution will normally be placed either on the
Business Day the redemption amount is calculated or on the first Business Day
thereafter, depending upon the terms of the Institution's automatic investment
arrangements. In the latter case, however, Northern or its affiliates normally
will provide funds by provisionally crediting the qualified account of the
Institution on the Business Day on which the calculation is made. The nature of
an Institution's relationship with Northern or an affiliate will determine
whether the Institution maintains a "qualified account" as well as the
procedures available for redemptions. Institutions should contact Northern or
an affiliate for further information in this regard.
REDEMPTION OF SHARES DIRECTLY. Institutions that purchase shares directly from
the Trust through the Transfer Agent may redeem all or part of their Portfolio
shares in accordance with the procedures set forth below.
REDEMPTION BY MAIL. An Institution may redeem shares 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 shares or the dollar
amount to be redeemed and identify the Portfolio Account Number. See "Other
Requirements."
20
<PAGE>
REDEMPTION BY TELEPHONE. An Institution may redeem shares 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, shareholders
should follow procedures outlined above under "Redemption by Mail."
REDEMPTION BY WIRE. If an Institution has given authorization for expedited
wire redemption, shares 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 shares 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 shareholder 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 instruments.
All checks will be made payable to the shareholder of record and mailed
only to the shareholder's address of record. See "Other Requirements."
Additionally, the Transfer Agent utilizes recorded lines for telephone
transactions and retains such tape recordings for six months, and will
request a form of identification if such identification has been furnished
to the Transfer Agent or the Trust.
OTHER REQUIREMENTS. A change of wiring instructions and a change of the
address of record may be effected only by a written request to the Transfer
Agent accompanied by (i) a corporate resolution which evidences authority
to sign on behalf of the Institution (including the corporate seal and
secretary's certification within the preceding 30 days), (ii) a signature
guarantee by a financial institution that is a participant in the Stock
Transfer Agency Medallion Program ("STAMP") in accordance with rules
promulgated by the SEC (a signature notarized by a notary public is not
acceptable) or (iii) such other means or evidence of authority as may be
acceptable to the Transfer Agent. A redemption request by mail will not be
effective unless signed by a person authorized by the corporate resolution
or other acceptable evidence of authority on file with the Transfer Agent.
EXCHANGE PRIVILEGE. Institutions and, to the extent permitted by their account
agreements, Customers, may, after appropriate prior authorization, exchange
Service Shares of a Portfolio having a value of at least $1,000 for Service
Shares of certain other portfolios of the Trust as to which the Institution or
Customer maintains an existing account with an identical title.
Exchanges will be effected by a redemption of shares of the portfolio held and
the purchase of shares 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.
21
<PAGE>
Customers and Institutions exercising the exchange privilege should read the
relevant Prospectus prior to making an exchange. The Trust reserves the right
to modify or terminate the exchange privilege at any time upon 60 days' written
notice to shareholders of record and to reject any exchange request. Exchanges
are only available in states where an exchange can legally be made.
EFFECTIVE TIME OF REDEMPTIONS AND EXCHANGES. Redemption orders of Portfolio
shares are effected at the net asset value per share 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 shares); and the signature of a
duly authorized person (except for telephone and wire redemptions). See
"Investing--Redemption of Service Shares--Other Requirements." Exchange orders
are effected at the net asset value per share next determined after receipt in
good order by the Transfer Agent. Payment for redeemed shares for which a
redemption order is received by Northern with respect to a qualified account it
maintains or the Transfer Agent as of 1:00 p.m., Chicago time, on a Business
Day normally will be made in Federal funds or other immediately available funds
wired or sent by check to the redeeming shareholder or, if selected, the
shareholder's qualified account with Northern on that Business Day. Redemption
orders received after 1:00 p.m. will be effected the next Business Day.
Proceeds for redemption orders received on a non-Business Day will normally be
sent on the next Business Day after receipt in good order.
MISCELLANEOUS REDEMPTION AND EXCHANGE 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 shares may not be effected if a shareholder has failed to submit a completed
and properly executed (with corporate resolution or other acceptable evidence
of authority) new account application. Institutions intending to place exchange
and redemption orders for same day proceeds of $5 million or more directly with
the Trust through the Transfer Agent are requested to give advance notice to
the Transfer Agent no later than 11:00 a.m. Chicago Time on a Business Day. The
proceeds of redemptions of shares purchased by check may be delayed up to 15
days to allow the Trust to determine that the check has cleared and been paid.
The Trust reserves the right to defer crediting, sending or wiring redemption
proceeds for up to seven days after receiving a redemption order if, in its
judgment, an earlier payment could adversely affect a Portfolio.
See "Miscellaneous" below for information on when the Trust may advance the
time by which redemption and exchange requests must be received.
The Trust may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Dividends on shares are earned through and
including the day prior to the day on which they are redeemed.
It is the responsibility of Institutions acting on behalf of Customers to
transmit redemption orders to the Transfer Agent and to credit Customers'
accounts with the redemption proceeds on a timely basis. If a Customer has
agreed with a particular Institution to maintain a minimum balance in his
account at such Institution and the balance in such account falls below that
minimum, such Customer may be obliged to redeem all or part of his shares to
the extent necessary to maintain the required minimum balance.
22
<PAGE>
DISTRIBUTIONS
Shareholders of each Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the particular Portfolio. Dividends from each Portfolio's net income
are declared daily as a dividend to shareholders of record at the close of
business on the days the dividends are declared (or 3:00 p.m., Chicago time, on
non-Business Days).
Net income of the Service Shares of each Portfolio includes interest accrued on
the assets of such Portfolio and allocated to its Service Shares less the
estimated expenses charged to the Service Shares of such Portfolio. Net
realized short-term capital gains of each Portfolio will be distributed at
least annually. The Portfolios do not expect to realize net long-term capital
gains.
Dividends declared during a calendar month (including dividends with respect to
shares redeemed at any time during the month) will be paid as soon as
practicable following the end of the month. All distributions are paid by each
Portfolio in cash or are automatically reinvested (without any sales charge) in
additional Service Shares of the same Portfolio. Arrangements may be made for
the crediting of such distributions to a shareholder's account with Northern,
its affiliates or its correspondent banks.
TAXES
Management of the Trust intends that each Portfolio will qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code") as long as such qualification is in the best interest of
the Portfolio's shareholders. Such qualification generally relieves each
Portfolio of liability for Federal income taxes to the extent its earnings are
distributed in accordance with the Code, but shareholders, unless otherwise
exempt, will pay income taxes on amounts so distributed (except distributions
that constitute "exempt-interest dividends" or that are treated as a return of
capital). Dividends paid from net short-term capital gains are treated as
ordinary income dividends. None of the Portfolios' distributions will be
eligible for the corporate dividends received deduction.
The Tax-Exempt Portfolio intends to pay substantially all of its dividends as
"exempt-interest dividends." Investors in the Portfolio should note, however,
that taxpayers are required to report the receipt of tax-exempt interest and
"exempt-interest dividends" on their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
taxable to persons subject to alternative minimum taxes. First, tax-exempt
interest and "exempt-interest dividends" derived from certain private activity
bonds issued after August 7, 1986 generally will constitute an item of tax
preference for corporate and noncorporate taxpayers in determining alternative
minimum tax liability. Second, all tax-exempt interest and "exempt-interest
dividends" must be taken into account by corporate taxpayers in determining
certain adjustments for alternative minimum tax purposes. Shareholders who are
recipients of Social Security Act or Railroad Retirement Act benefits should
note that tax-exempt interest and "exempt-interest dividends" will be taken
into account in determining the taxability of their benefit payments. To the
extent, if any, that dividends paid by the Tax-Exempt Portfolio to its
shareholders are derived from taxable interest or from capital gains, such
dividends will be subject to Federal income tax, whether received in cash or
reinvested in additional shares.
23
<PAGE>
The Tax-Exempt Portfolio will determine annually the percentages of its net
investment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for purposes of the Federal alternative
minimum tax, and which are fully taxable and will apply such percentages
uniformly to all distributions declared from net investment income during that
year. These percentages may differ significantly from the actual percentages
for any particular day.
The Trust will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a
specified date in those months will be deemed for Federal tax purposes to have
been paid by a Portfolio and to have been received by the shareholders on
December 31 of that year, if the dividends are actually paid during the
following January.
The foregoing discussion is only a brief summary of some of the important tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, investors
should consult their tax advisers with specific reference to their own Federal,
state and local tax situation. In particular, although the Government Select
Portfolio intends to invest primarily in U.S. Government securities the
interest on which is generally exempt from state income taxation, an investor
should consult his or her own tax adviser to determine whether distributions
from the Portfolio are exempt from state income taxation in the investor's own
situation. Similarly, dividends paid by the Portfolios may be taxable to
investors under state or local law as dividend income even though all or a
portion of such dividends may be derived from interest on obligations which, if
realized directly, would be exempt from such income taxes. Future legislative
or administrative changes or court decisions may materially affect the tax
consequences of investing in one or more of the Portfolios.
NET ASSET VALUE
The net asset value per share of each Portfolio for purposes of purchases and
redemptions is calculated by Northern as of 3:00 p.m., Chicago time,
immediately after the declaration of net income earned by shareholders of
record, on each Business Day (as defined below under "Miscellaneous"), except
for days during which no shares are tendered to the Portfolio for redemption
and no orders to purchase or sell shares are received by the Portfolio and
except for days on which there is an insufficient degree of trading in the
Portfolio's securities for changes in the value of such securities to
materially affect the net asset value per share. The time at which the net
asset value per share of each Portfolio is calculated may be advanced on days
on which Northern or the securities markets close early. See "Miscellaneous"
below. Net asset value per share of each Portfolio is calculated by adding the
value of all securities and other assets belonging to the Portfolio that are
allocated to the Service Shares, subtracting the liabilities charged to the
Service Shares and dividing by the number of Service Shares of the Portfolio
outstanding.
In seeking to maintain a net asset value of $1.00 per share with respect to
each Portfolio for purposes of purchases and redemptions, the Trust values the
portfolio securities held by a Portfolio pursuant to the amortized cost method.
Under this method, investments purchased at a discount or premium are valued by
amortizing the difference between the original purchase price and maturity
value of the issue over the period of maturity. See "Amortized Cost Valuation"
in the Additional Statement. There can be no assurance that a Portfolio will be
able at all times to maintain a net asset value per share of $1.00.
24
<PAGE>
PERFORMANCE INFORMATION
From time to time the Portfolios may advertise the "yields" and "effective
yields", and the Government Select Portfolio and Tax-Exempt Portfolio may
advertise the "tax-equivalent yields", of Service Shares. These yield figures
will fluctuate, are based on historical earnings and are not intended to
indicate future performance. "Yield" refers to the net investment income
generated by an investment in the Portfolio over a seven-day period identified
in the advertisement. This net investment income is then "annualized." That
is, the amount of net investment income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. "Effective yield" is calculated
similarly but, when annualized, the net investment income earned by an
investment in the Portfolio is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment. The "tax-equivalent yield" demonstrates the level
of taxable yield necessary to produce an after-tax yield equivalent to a
Portfolio's tax-free yield. It is calculated by taking that portion of the
seven-day "yield" which is tax-exempt and adjusting it to reflect the tax
savings associated with a stated tax rate. The "tax-equivalent yield" will
always be higher than the Portfolio's yield.
The Portfolios' yields may not provide a basis for comparison with bank
deposits and other investments which provide a fixed yield for a stated period
of time. Yield will be affected by portfolio quality, composition, maturity,
market conditions and the level of the Portfolio's operating expenses.
Each Portfolio may also quote from time to time the total return on its
Service Shares in accordance with SEC regulations.
ORGANIZATION
Each Portfolio is a series of The Benchmark Funds, which was formed as a
Delaware business trust on July 1, 1997 under an Agreement and Declaration of
Trust. The Portfolios were formerly series of The Benchmark Funds, a
Massachusetts business trust, and were reorganized into the Trust on March 31,
1998. As of the date of this Prospectus, the Trust offers eighteen separate
series of shares of beneficial interest representing interests in eighteen
investment portfolios, four of which are described in this prospectus; the
other series of shares are described in a separate prospectus. The business
and affairs of the Trust are managed by or under the direction of its Board of
Trustees. The Declaration of Trust of the Trust authorizes the Board of
Trustees to classify or reclassify any unissued shares into additional series
or subseries within a series. Pursuant to such authority, the Board of
Trustees has classified three subseries of shares in each Portfolio, the
Shares, Service Shares and Premier Shares. This Prospectus relates only to
Service Shares of the Portfolios described herein.
Each share of a Portfolio is without par value, represents an equal
proportionate interest in that Portfolio with each other share 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. Shares of each class bear their pro rata portion of all operating
expenses paid by a Portfolio, except transfer agency fees and amounts payable
under the Trust's Service Plan relating to the Service Shares and the Premier
Shares. Because of these class-specific expenses, the performance of a
Portfolio's Shares is expected to be higher than the
25
<PAGE>
performance of the Portfolio's Service Shares, and the performance of the
Portfolio's Shares and Service Shares is expected to be higher than the
performance of the Portfolio's Premier Shares. Any person entitled to receive
compensation for selling or servicing shares of a Portfolio may receive
different compensation with respect to one particular class of shares over
another in the same Portfolio. The Trust offers various services in connection
with the Service and Premier Shares in the Portfolios, including an automatic
investment plan. For further information regarding the Trust's Shares and
Premier Shares, contact 1-800-621-2550.
The Trust's shareholders are entitled at the discretion of the Board of
Trustees to vote either on the basis of the number of shares held or the
aggregate net asset value represented by such shares. Each series entitled to
vote on a matter will vote thereon in the aggregate and not by series or class,
except as otherwise required by law or when the matter to be voted on affects
only the interests of shareholders of a particular series or class. The
Additional Statement gives examples of situations in which the law requires
voting by series or class. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of the Trust may elect all
of the Trustees irrespective of the vote of the other shareholders. In
addition, holders of Shares, Service Shares and Premier Shares representing
interests in the same Portfolio have equal voting rights except that only
shares of a particular class within the Portfolio will be entitled to vote on
matters submitted to a vote of shareholders (if any) relating to class-specific
expenses that are payable by that class of shares.
As of December 31, 1997, Northern possessed sole or shared voting or investment
power for its customer accounts with respect to more than 50% of the
outstanding shares of the Trust.
The Trust does not presently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. Pursuant to the
Trust Agreement, the Trustees will promptly call a meeting of shareholders to
vote upon the removal of any Trustee when so requested in writing by the record
holders of 10% or more of the outstanding shares. To the extent required by
law, the Trust will assist in shareholder communications in connection with
such a meeting.
The Trust Agreement provides that each shareholder, by virtue of becoming such,
will be held to have expressly assented and agreed to the terms of the Trust
Agreement and to have become a party thereto.
MISCELLANEOUS
The address of the Trust is 4900 Sears Tower, Chicago, Illinois 60606 and the
telephone number is 1-800-621-2550.
As used in this Prospectus, the term "Business Day" refers to each day when
Northern and the New York Stock Exchange are open, which is Monday through
Friday, except for holidays observed by Northern and/or the Exchange other than
Good Friday. For 1998, the holidays of Northern and/or the Exchange are: New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving and
Christmas Day. Notice of purchase, redemption or exchange orders to be executed
on Good Friday, or any other day Northern is open for business and the Exchange
is closed must be received by the Transfer Agent no later than 11:00 a.m.
Chicago time on the
26
<PAGE>
prior Business Day if the amount of the order is in excess of $1,000,000. On
those days when Northern or the Exchange closes early as a result of unusual
weather or other circumstances, the right is reserved to advance the time on
that day by which purchase, redemption and exchange 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, redemption
and exchange orders for same Business Day credit up to one hour before the PSA
recommended closing time. Purchase, redemption and exchange requests received
after the advanced closing time will be effected on the next Business Day.
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
27
<PAGE>
THE BENCHMARK FUNDS
Investment Adviser, Transfer Agent and Custodian:
The Northern Trust Company 50 S. LaSalle Street Chicago, IL 60675
Administrator and Distributor:
Goldman, Sachs & Co. 4900 Sears Tower Chicago, IL 60606
The
Benchmark
Funds
Money
Market
Portfolios
Premier Shares
PROSPECTUS
, 1998
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--JANUARY 30, 1998
THE BENCHMARK FUNDS
(Advised by The Northern Trust Company)
THE NORTHERN TRUST COMPANY INVESTMENT ADVISER, TRANSFER
50 S. LaSalle Street AGENT AND CUSTODIAN
Chicago, Illinois 60675
312-630-6000
-----------------
This Prospectus describes the Premier Class of shares ("Premier Shares" or
"shares") of four short-term money market portfolios (the "Portfolios") offered
by The Benchmark Funds (the "Trust") to institutional investors. Each
Portfolio, other than the Tax-Exempt Portfolio, seeks to maximize current
income to the extent consistent with the preservation of capital and
maintenance of liquidity. The Tax-Exempt Portfolio seeks to provide, to the
extent consistent with the preservation of capital and prescribed portfolio
standards, a high level of income exempt from regular Federal income tax.
The GOVERNMENT SELECT PORTFOLIO invests in selected short-term obligations
of the U.S. Government, its agencies and instrumentalities the interest on
which is generally exempt from state income taxation.
The GOVERNMENT PORTFOLIO invests in short-term obligations of the U.S.
Government, its agencies and instrumentalities and related repurchase
agreements.
The DIVERSIFIED ASSETS PORTFOLIO invests in money market instruments of both
U.S. and foreign issuers, including certificates of deposit, bankers'
acceptances, commercial paper and repurchase agreements.
The TAX-EXEMPT PORTFOLIO invests primarily in short-term municipal
instruments the interest on which is exempt from regular Federal income tax.
Each Portfolio is advised by The Northern Trust Company ("Northern"). Shares
are sold and redeemed without any purchase or redemption charge imposed by the
Trust, although Northern and other institutions may charge their customers for
services provided in connection with their investments.
This Prospectus provides information about the Portfolios that you should know
before investing. It should be read and retained for future reference. If you
would like more detailed information, a Statement of Additional Information
(the "Additional Statement") dated , 1998 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.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR OTHERWISE SUPPORTED BY, THE NORTHERN TRUST COMPANY, ITS PARENT
COMPANY OR ITS AFFILIATES AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. THERE CAN BE NO ASSURANCE THAT ANY
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN A PORTFOLIO INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS 3
- ----------
Description of Trust 3
Summary of Expenses 3
FINANCIAL HIGHLIGHTS 6
- --------------------
INVESTMENT INFORMATION 6
- ----------------------
Government Select Portfolio 6
Government Portfolio 7
Diversified Assets Portfolio 7
Tax-Exempt Portfolio 7
Description of Securities and Com-
mon Investment Techniques 8
Investment Restrictions 15
TRUST INFORMATION 15
- -----------------
Board of Trustees 15
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Adviser, Transfer Agent
and Custodian 15
Administrator and Distributor 16
Service Plan 16
Expenses 17
INVESTING 16
---------
Purchase of Premier Shares 17
Redemption of Premier Shares 20
Distributions 22
Taxes 23
NET ASSET VALUE 24
---------------
PERFORMANCE INFORMATION 25
-----------------------
ORGANIZATION 25
------------
MISCELLANEOUS 26
-------------
</TABLE>
2
<PAGE>
HIGHLIGHTS
DESCRIPTION OF TRUST
The Trust is an open-end, management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). Each Portfolio consists of a
separate pool of assets with separate investment policies, as described below
under "Investment Information." All of the Portfolios are classified as
diversified companies. Northern serves as investment adviser, transfer agent
and custodian. Goldman Sachs serves as distributor and administrator.
Shares of the Portfolios are offered exclusively to institutional investors.
See "Investing--Purchase of Premier Shares" and "Investing--Redemption of
Premier Shares" for information on how to place purchase and redemption orders.
Each Portfolio seeks to maintain a net asset value of $1.00 per share. The
assets of each Portfolio will be invested in dollar-denominated debt securities
with remaining maturities of thirteen months or less as defined by the
Securities and Exchange Commission (the "SEC"), and each Portfolio's dollar-
weighted average portfolio maturity will not exceed 90 days. All securities
acquired by the Portfolios will be determined by Northern, under guidelines
established by the Trust's Board of Trustees, to present minimal credit risks,
and will be "Eligible Securities" as defined by the SEC. There can be no
assurance that the Portfolios will be able to achieve a stable net asset value
on a continuous basis, or that they will achieve their investment objectives.
Investors should note that one or more of the Portfolios may purchase variable
and floating rate instruments, enter into repurchase agreements, reverse
repurchase agreements and securities loans, acquire U.S. dollar-denominated
instruments of foreign issuers and make limited investments in illiquid
securities and securities issued by other investment companies. These
investment practices involve investment risks of varying degrees. None of the
Portfolios will invest in instruments denominated in a foreign currency.
SUMMARY OF EXPENSES
The following table sets forth the estimated annualized operating expenses for
Premier Shares of the Portfolios for the current fiscal year. Hypothetical
examples based on the table are also shown.
<TABLE>
<CAPTION>
GOVERNMENT DIVERSIFIED TAX-
SELECT GOVERNMENT ASSETS EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on
Purchases....................... None None None None
Sales Charge Imposed on Rein-
vested Distributions............ None None None None
Deferred Sales Load Imposed on
Redemptions..................... None None None None
Redemption Fees.................. None None None None
Exchange Fees.................... None None None None
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT DIVERSIFIED TAX-
SELECT GOVERNMENT ASSETS EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Annual Operating Expenses After
Expense Reimbursements and Fee
Reductions (as a percentage of
average daily net assets)
Management Fees (After Fee Re-
ductions)...................... .10% .25% .25% .25%
12b-1 Fees...................... None None None None
Other Operating Expenses:
Administrative Support Fees..... .33% .33% .33% .33%
Shareholder Liaison Fees........ .25% .25% .25% .25%
Other Expenses (After Expense
Reimbursements and Fee Reduc-
tions)......................... .12% .12% .12% .12%
---- ---- ---- ----
Total Operating Expenses (After
Expense Reimbursements and Fee
Reductions)...................... .80% .95% .95% .95%
==== ==== ==== ====
</TABLE>
EXAMPLE OF EXPENSES. Based on the foregoing table, you would pay the following
expenses on a hypothetical $1,000 investment in Premier Shares, assuming a 5%
annual return and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Government Select Portfolio...................................... $ 8 $26
Government Portfolio............................................. $10 $30
Diversified Assets Portfolio..................................... $10 $30
Tax-Exempt Portfolio............................................. $10 $30
</TABLE>
The figures shown in the table above under "Other Expenses" are estimated for
the current fiscal year. The other costs and expenses included in the table are
based on actual amounts incurred by each Portfolio for the fiscal year ended
November 30, 1997. During the Trust's last fiscal year, Northern voluntarily
reduced its advisory fee for the Government Select Portfolio (payable at the
annual rate of .25% of the Portfolio's average daily net assets) to .10% per
annum. For the fiscal period December 1, 1996 through April 30, 1997, Goldman
Sachs reduced its administration fee (otherwise payable with respect to each
Portfolio during such period 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. In addition, Goldman Sachs reimbursed expenses
for each Portfolio to the extent that 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) exceeded on an annualized basis .10% of each other Portfolio's
average daily net assets for such fiscal year. For the period May 1, 1997
through November 30, 1997, Goldman Sachs was entitled to an administration fee
equal to .10% of the average daily net assets of each Portfolio. In addition,
during such period Goldman Sachs reimbursed "Other Expenses" for each Portfolio
(including fees payable to Goldman Sachs as administrator, but excluding fees
payable to Northern for its duties as adviser and transfer agent and certain
extraordinary expenses) which exceeded on an annualized basis .10% of each
Portfolio's assets for such period. The expense information in the table has,
accordingly, been presented to reflect these fee reductions and reimbursements.
Without the undertakings of Northern and Goldman Sachs, "Other Expenses" of the
Government Select, Government, Diversified Assets and Tax-Exempt Portfolios
would be 0.16%, 0.14%, 0.13% and 0.16%, respectively; and "Total Operating
Expenses" of the Government Select, Government, Diversified Assets and Tax-
Exempt Portfolios would be 0.99%, 0.97%, 0.96% and 0.99%, respectively. For a
more complete description of the Portfolios' expenses, see "Trust Information"
in this Prospectus.
4
<PAGE>
---------------------
THE PURPOSE OF THE FOREGOING TABLE IS TO ASSIST YOU IN UNDERSTANDING THE
VARIOUS SHAREHOLDER TRANSACTION AND OPERATING EXPENSES OF EACH PORTFOLIO THAT
SHAREHOLDERS 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 PREMIER SHARES." 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.
5
<PAGE>
INVESTMENT INFORMATION
The investment objective of each Portfolio, other than the Tax-Exempt
Portfolio, is to seek to maximize current income to the extent consistent with
the preservation of capital and maintenance of liquidity by investing
exclusively in high quality money market instruments. The Tax-Exempt Portfolio
seeks to provide its shareholders, to the extent consistent with the
preservation of capital and prescribed portfolio standards, with a high level
of income exempt from Federal income tax by investing primarily in municipal
instruments. The investment objective of a Portfolio may not be changed without
the vote of the majority of the outstanding shares of the particular Portfolio
(as defined below under "Organization"). Except as expressly noted below,
however, a Portfolio's investment policies may be changed without a vote of
shareholders.
All securities acquired by the Portfolios will be determined by Northern, under
guidelines established by the Board of Trustees, to present minimal credit
risks and will be "Eligible Securities" as defined by the SEC. Eligible
Securities consist of (i) securities that either (a) have short-term debt
ratings at the time of purchase in the two highest rating categories by at
least two unaffiliated nationally recognized statistical rating organizations
("NRSROs") (or one NRSRO if the security is rated by only one NRSRO), or (b)
are comparable in priority and security with a security issued by an issuer
which has such ratings, and (ii) securities that are unrated (including
securities of issuers that have long-term but not short-term ratings) but are
of comparable quality as determined in accordance with guidelines approved by
the Board of Trustees. Securities which are rated or that have been issued by
an issuer that is rated with respect to a class of short-term debt obligations,
or any security within that class, comparable in priority and quality with such
securities in the highest short-term rating category by at least two NRSROs are
designated "First Tier Securities." Under normal circumstances, the Government
Select, Government and Diversified Assets Portfolios intend to limit purchases
of securities to First Tier Securities. The Additional Statement includes a
description of applicable NRSRO ratings.
Each Portfolio is managed so that the average maturity of all instruments in
the Portfolio (on a dollar-weighted basis) will not exceed 90 days. In no event
will the Portfolios purchase any securities which mature more than 13 months
from the date of purchase (except for certain variable and floating rate
instruments and securities collateralizing repurchase agreements). Securities
in which the Portfolios invest may not earn as high a level of income as long-
term or lower quality securities, which generally have greater market risk and
more fluctuation in market value.
GOVERNMENT SELECT PORTFOLIO
The Government Select Portfolio seeks to achieve its investment objective by
investing exclusively in securities issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities. In making
investments, Northern will seek to acquire, under normal market conditions,
only those U.S. Government securities the interest on which is generally exempt
from state income taxation. Securities generally eligible for this exemption
include those issued by the U.S. Treasury and certain U.S. Government agencies
and instrumentalities, including the Federal Home Loan Bank, Federal Farm
Credit Banks Funding Corp. and the Student Loan Marketing Association. The
Portfolio intends to limit investments to only the foregoing exempt U.S.
Government securities. However, under extraordinary
6
<PAGE>
circumstances, such as when appropriate exempt securities are unavailable, the
Portfolio may make investments in non-exempt U.S. Government securities and
cash equivalents, and may hold uninvested cash. See "Investing--Taxes" below
for certain tax considerations.
GOVERNMENT PORTFOLIO
The Government Portfolio seeks to achieve its investment objective by investing
exclusively in:
(A) Marketable securities issued or guaranteed as to principal and interest
by the U.S. Government or by any of its agencies or instrumentalities
(including the International Bank for Reconstruction and Development) and
custodial receipts with respect thereto; and
(B) Repurchase agreements relating to the above instruments.
DIVERSIFIED ASSETS PORTFOLIO
In pursuing its investment objective, the Diversified Assets Portfolio may
invest in a broad range of government, bank and commercial obligations that are
available in the money markets. In particular, the Portfolio may invest in:
(A) U.S. dollar-denominated obligations of U.S. banks with total assets in
excess of $1 billion (including obligations of foreign branches of such
banks);
(B) U.S. dollar-denominated obligations of foreign commercial banks where
such banks have total assets in excess of $5 billion;
(C) High quality commercial paper and other obligations issued or
guaranteed by U.S. and foreign corporations and other issuers rated (at the
time of purchase) A-2 or higher by Standard & Poor's Ratings Group ("S&P"),
Prime-2 or higher by Moody's Investors Service, Inc. ("Moody's"), Duff 2 or
higher by Duff & Phelps Credit Rating Co. ("D&P"), F-2 or higher by Fitch
IBCA, Inc. ("Fitch") or TBW-2 or higher by Thomson BankWatch, Inc. ("TBW");
(D) Rated and unrated corporate bonds, notes, paper and other instruments
that are of comparable quality to the commercial paper permitted to be
purchased by the Portfolio;
(E) Asset-backed securities (including interests in pools of assets such as
mortgages, installment purchase obligations and credit card receivables);
(F) Securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies or instrumentalities and custodial
receipts with respect thereto;
(G) Dollar-denominated securities issued or guaranteed by one or more
foreign governments or political subdivisions, agencies or
instrumentalities thereof;
(H) Repurchase agreements relating to the above instruments; and
(I) Securities issued or guaranteed by state or local governmental bodies.
TAX-EXEMPT PORTFOLIO
The Tax-Exempt Portfolio invests primarily in high quality short-term
instruments, the interest on which is, in the opinion of bond counsel for the
issuers, exempt from regular Federal income tax ("Municipal
7
<PAGE>
Instruments"). Such opinions may contain various assumptions, qualifications or
exceptions that are reasonably acceptable to Northern. In particular, the
Portfolio may invest in:
(A) Fixed and variable rate notes and similar debt instruments rated MIG-2,
VMIG-2 or Prime-2 or higher by Moody's, SP-2 or A-2 or higher by S&P, AA or
higher by D&P or F-2 or higher by Fitch;
(B) Tax-exempt commercial paper and similar debt instruments rated Prime-2
or higher by Moody's, A-2 or higher by S&P, Duff 2 or higher by D&P or F-2
or higher by Fitch;
(C) Rated and unrated municipal bonds, notes, paper or other instruments
that are of comparable quality to the tax-exempt commercial paper permitted
to be purchased by the Portfolio; and
(D) Municipal bonds and notes which are guaranteed as to principal and
interest by the U.S. Government or an agency or instrumentality thereof or
which otherwise depend directly or indirectly on the credit of the United
States.
As a matter of fundamental policy, changeable only with the approval of the
holders of a majority of the outstanding shares of the Tax-Exempt Portfolio, at
least 80% of the Portfolio's annual gross income will be derived from Municipal
Instruments except under extraordinary circumstances, such as when Northern
believes that market conditions indicate that the Portfolio should adopt a
temporary defensive posture by holding uninvested cash or investing in taxable
short-term securities ("Taxable Investments"). Taxable Investments will consist
exclusively of instruments that may be purchased by the Diversified Assets
Portfolio.
DESCRIPTION OF SECURITIES AND COMMON INVESTMENT TECHNIQUES
BANK OBLIGATIONS. Domestic and foreign bank obligations in which the
Diversified Assets Portfolio may invest include certificates of deposit, bank
and deposit notes, bankers' acceptances and fixed time deposits. Such
obligations may be general obligations of the parent bank or may be limited to
the issuing branch or subsidiary by the terms of the specific obligation or by
government regulation. Total assets of a bank are determined on the basis of
the bank's most recent annual financial statements.
FOREIGN OBLIGATIONS. In addition to the obligations of foreign commercial banks
and foreign branches of U.S. banks, the Diversified Assets Portfolio may
acquire commercial obligations issued by Canadian corporations and Canadian
counterparts of U.S. corporations, as well as Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer. The Diversified Assets
Portfolio may also invest in obligations issued or guaranteed by one or more
foreign governments or any of their political subdivisions, agencies or
instrumentalities. Such obligations may include debt obligations of
supranational entities, including international organizations (such as the
European Coal and Steel Community) designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies.
Obligations of foreign issuers acquired by the Diversified Assets Portfolio may
involve risks that are different than those of obligations of domestic issuers.
These risks include unfavorable political and economic developments, the
possible imposition of withholding taxes on interest income, possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on such
8
<PAGE>
obligations. In addition, foreign branches of U.S. banks and foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and recordkeeping standards than those applicable to
domestic branches of U.S. banks and, generally, there may be less publicly
available information regarding such issuers. The Trust could also encounter
difficulties in obtaining or enforcing a judgment against a foreign issuer
(including a foreign branch of a U.S. bank).
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolios may purchase rated and
unrated variable and floating rate instruments, which may have stated
maturities in excess of the Portfolios' maturity limitations but will, in any
event, permit a Portfolio to demand payment of the principal of the instrument
at least once every 13 months on not more than thirty days' notice (unless the
instrument is issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof). In the case of the Diversified Assets Portfolio, such
instruments may include variable amount master demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated variable and floating rate
instruments will be determined by Northern to be of comparable quality at the
time of the purchase to rated instruments purchasable by the Portfolios. The
absence of an active secondary market with respect to particular variable and
floating rate instruments could, however, make it difficult for a Portfolio to
dispose of the instruments if the issuer defaulted on its payment obligation or
during periods that the Portfolio is not entitled to exercise its demand
rights, and the Portfolio could, for these or other reasons, suffer a loss with
respect to such instruments. Variable and floating rate instruments held by a
Portfolio will be subject to the Portfolio's 10% limitation on illiquid
investments when the Portfolio may not demand payment of the principal amount
within seven days and a reliable trading market is absent.
UNITED STATES GOVERNMENT OBLIGATIONS. Each Portfolio may invest in a variety of
U.S. Treasury obligations, consisting of bills, notes and bonds, which
principally differ only in their interest rates, maturities and time of
issuance. These obligations include "stripped" securities issued by the U.S.
Treasury and recorded in the Federal Reserve book-entry record-keeping system.
The Portfolios may also invest in other securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities. Obligations of certain
agencies and instrumentalities, such as the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others are supported only by the credit of the
instrumentalities. No assurance can be given that the U.S. Government would
provide financial support to its agencies or instrumentalities if it is not
obligated to do so by law. Obligations of the International Bank for
Reconstruction and Development (also known as the World Bank) are supported by
subscribed but unpaid commitments of its member countries. There is no
assurance that these commitments will be undertaken or complied with in the
future.
Securities guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities are deemed to include (a) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or an agency or instrumentality thereof,
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. The secondary market for certain of these
participations is limited. Such participations may therefore be regarded as
illiquid.
9
<PAGE>
CUSTODIAL RECEIPTS FOR TREASURY SECURITIES. The Portfolios (other than the
Government Select Portfolio) may also purchase participations in trusts that
hold U.S. Treasury securities (such as TIGRs and CATS) where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the U.S. Treasury obligations. These
participations are normally issued at a discount to their "face value," and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors.
Investments by the Government Portfolio in such custodial receipts will not
exceed 35% of the value of that Portfolio's total assets.
REPURCHASE AGREEMENTS. Each Portfolio may, in accordance with its investment
objective, policies and guidelines established by the Trust's Board of
Trustees, agree to purchase portfolio securities from financial institutions
subject to the seller's agreement to repurchase them at a mutually agreed upon
date and price ("repurchase agreements"). Although the securities subject to a
repurchase agreement may bear maturities exceeding 13 months, settlement for
the repurchase agreement will never be more than one year after a Portfolio's
acquisition of the securities and normally will be within a shorter period of
time. Securities subject to repurchase agreements are held either by the
Trust's custodian or subcustodian (if any), or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
maintain the value of the securities subject to the agreement in an amount
exceeding the repurchase price (including accrued interest). Default by the
seller would, however, expose a Portfolio to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.
REVERSE REPURCHASE AGREEMENTS. The Government Select Portfolio, Government
Portfolio and Diversified Assets Portfolio may enter into reverse repurchase
agreements which involve the sale of money market securities held by a
Portfolio, with an agreement to repurchase the securities at an agreed upon
price (including interest) and date. A Portfolio will use the proceeds of
reverse repurchase agreements to purchase other money market securities either
maturing, or under an agreement to resell, at a date simultaneous with or prior
to the expiration of the reverse repurchase agreement. A Portfolio will utilize
reverse repurchase agreements, which may be viewed as borrowings (or leverage)
by the Portfolio, when it is anticipated that the interest income to be earned
from the investment of the proceeds of the transaction is greater than the
interest expense of the reverse repurchase transaction. During the time a
reverse repurchase agreement is outstanding, the Portfolio will maintain a
segregated account with the Trust's custodian containing liquid assets having a
value at least equal to the repurchase price. A Portfolio may enter into
reverse repurchase agreements with banks, brokers and dealers, and has the
authority to enter into reverse repurchase agreements in amounts not exceeding
in the aggregate one-third of the Portfolio's total assets. See "Additional
Investment Information--Investment Restrictions" in the Additional Statement.
SECURITIES LENDING. The Portfolios may seek additional income from time to time
by lending their portfolio securities on a short-term basis to banks, brokers
and dealers under agreements requiring that the loans be secured by collateral
in the form of cash, cash equivalents or U.S. Government securities or
irrevocable bank letters of credit maintained on a current basis equal in value
to at least the market value of the securities loaned. A Portfolio may not make
such loans in excess of 33 1/3% of the value of the Portfolio's total assets
(including the loan collateral). Loans of securities involve risks of delay in
receiving additional collateral or in recovering the securities loaned, or
possibly loss of rights in the collateral should the borrower of the securities
become insolvent.
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<PAGE>
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Portfolio may purchase
when-issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Securities
purchased on a when-issued or forward commitment basis involve a risk of loss
if the value of the security to be purchased declines prior to the settlement
date, or if the value of the security to be sold increases prior to the
settlement date. Conversely, securities sold on a delayed-delivery or forward
commitment basis involve the risk that the value of the security to be sold may
increase prior to the settlement date. A Portfolio is required to hold and
maintain liquid assets in a segregated account with the Portfolio's custodian
until the settlement date, having a value (determined daily) at least equal to
the amount of the Portfolio's purchase commitments. In the case of a forward
commitment to sell portfolio securities, a Portfolio is required to hold the
portfolio securities themselves in a segregated account with the custodian
while the commitment is outstanding. Although a Portfolio would generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring securities, the Portfolio may dispose of a when-issued
security or forward commitment prior to settlement if Northern deems it
appropriate to do so.
INVESTMENT COMPANIES. In connection with the management of their daily cash
positions, the Portfolios may invest in securities issued by other investment
companies which invest in short-term, high-quality debt securities and which
determine their net asset value per share based on the amortized cost or penny-
rounding method of valuation ("money market funds"). Each Portfolio will limit
its investments in other money market funds so that, as determined after a
purchase is made, not more than 3% of the total outstanding stock of such
investment company will be owned by the Portfolio, the Trust as a whole and
their affiliated persons (as defined in the 1940 Act). In addition, the
Portfolios may invest in securities issued by other types of investment
companies consistent with their investment objectives and policies. To the
extent required by the 1940 Act and the regulations and orders of the SEC
thereunder, each Portfolio will limit its investments in other types of
investment companies so that, as determined after a purchase is made, (i) not
more than 5% of the value of its total assets will be invested in the
securities of any one investment company; (ii) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio or
the Trust as a whole. Notwithstanding the limitations described above, each
Portfolio is authorized to invest substantially all of its assets in a single
open-end investment company or series thereof with substantially the same
investment objective, policies and fundamental restrictions as the Portfolio in
the future. 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. The Trust has been advised by
its counsel that exempt-interest dividends received by the Tax-Exempt Portfolio
as a shareholder of a regulated investment company paying such dividends will
receive the same Federal tax treatment as interest received by the Portfolio on
Municipal Instruments held by it.
MUNICIPAL AND RELATED INSTRUMENTS. Municipal Instruments in which the Tax-
Exempt Portfolio may invest include debt obligations issued by or on behalf of
states, territories and possessions of the United States and their political
subdivisions, agencies, authorities and instrumentalities.
Municipal Instruments may be issued to obtain funds for various public
purposes, including capital improvements, the refunding of outstanding
obligations, general operating expenses, and lending to other public agencies.
Among other instruments, the Portfolio may purchase short-term Tax Anticipation
Notes, Bond Anticipation Notes, Revenue Anticipation Notes, and other forms of
short-term loans. Such notes are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues.
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<PAGE>
Municipal Instruments include both "general" and "revenue" obligations. General
obligations are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue obligations are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source such as lease payments from the user of the facility
being financed. Industrial development bonds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of an industrial revenue bond is usually
directly related to the credit standing of the private user of the facility
involved.
The Tax-Exempt Portfolio may also invest in "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of a moral
obligation bond is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which
created the issuer.
Municipal bonds with a series of maturity dates are called Serial Bonds. The
Portfolio may purchase Serial Bonds and other long-term securities provided
that they have a remaining maturity meeting the Tax-Exempt Portfolio's maturity
requirements. The Portfolio may also purchase long-term variable and floating
rate bonds (sometimes referred to as "Put Bonds") where the Portfolio obtains
at the time of purchase the right to put the bond back to the issuer or a third
party at par at least every thirteen months. Put Bonds with conditional puts
(that is, puts which cannot be exercised if the issuer defaults on its payment
obligations) will present risks that are different than those of other
Municipal Instruments because of the possibility that the Portfolio might hold
a long-term Put Bond on which a default occurs following its acquisition by the
Portfolio.
The Tax-Exempt Portfolio may acquire securities in the form of custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment or both on certain municipal obligations. Such obligations
are held in custody by a bank on behalf of the holders of the receipts. These
custodial receipts are known by various names, including "Municipal Receipts,"
"Municipal Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and
"Municipal Zero-Coupon Receipts." The Portfolio may also purchase certificates
of participation that, in the opinion of counsel to the issuer, are exempt from
regular Federal income tax. Certificates of participation are a type of
floating or variable rate obligation that represents interests in a pool of
municipal obligations held by a bank.
The Tax-Exempt Portfolio may acquire "standby commitments" with respect to the
Municipal Instruments it holds. Under a standby commitment, a dealer agrees to
purchase at the Portfolio's option specified Municipal Instruments at a
specified price. The acquisition of a standby commitment may increase the cost,
and thereby reduce the yield, of the Municipal Instruments to which the
commitment relates. The Portfolio will acquire standby commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
Municipal Instruments purchased by the Tax-Exempt Portfolio may be backed by
letters of credit or other forms of credit enhancement issued by foreign (as
well as domestic) banks and other financial institutions. The credit quality of
these banks and financial institutions could, therefore, cause loss to a
Portfolio that invests in Municipal Instruments. Letters of credit and other
obligations of foreign financial institutions may involve certain risks in
addition to those of domestic obligations. (See "Foreign Obligations" above.)
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As stated, the Tax-Exempt Portfolio expects to invest primarily in Municipal
Instruments. However, the Portfolio may from time to time hold uninvested cash
or invest a portion of its assets in Taxable Investments. The Portfolio does
not intend to invest more than 25% of the value of its total assets in
industrial development bonds or similar obligations where the non-governmental
entities supplying the revenues from which such bonds or obligations are to be
paid are in the same industry. The Portfolio may, however, invest 25% or more
of its total assets in (a) Municipal Instruments the interest upon which is
paid solely from revenues of similar projects, and (b) industrial development
obligations. In addition, although the Tax-Exempt Portfolio does not expect to
do so during normal market conditions, it may invest more than 25% of the value
of its total assets in Municipal Instruments whose issuers are in the same
state. When a substantial percentage of the Portfolio's assets is invested in
instruments which are used to finance facilities involving a particular
industry, whose issuers are in the same state or which are otherwise related,
there is a possibility that an economic, business or political development
affecting one such instrument would likewise affect the other related
instruments. The Tax-Exempt Portfolio did not invest 25% or more of its assets
in any of these categories during the year ended November 30, 1997, except for
industrial development obligations.
So long as other suitable Municipal Instruments are available for investment,
the Tax-Exempt Portfolio does not intend to invest in "private activity bonds"
the interest from which may be treated as an item of tax preference to
unitholders under the Federal alternative minimum tax.
The Diversified Assets Portfolio may also invest up to 5% of its net assets
from time to time in municipal instruments or other securities issued by state
and local governmental bodies when, as a result of prevailing economic,
regulatory or other circumstances, the yield of such securities, on a pre-tax
basis, is comparable to that of other permitted short-term taxable investments.
Dividends paid on such investments will be taxable to unitholders.
ISSUER DIVERSIFICATION. In accordance with current SEC regulations, each
Portfolio intends to limit investments in the securities of any single issuer
(excluding cash, cash items, certain repurchase agreements, U.S. Government
securities or securities of other investment companies) to not more than 5% of
the value of its total assets at the time of purchase, except that (a) 25% of
the value of the total assets of each Portfolio may be invested in the
securities of any one issuer (limited to repurchase agreements, certificates of
deposit and bankers' acceptances in the case of the Government Select,
Government and Diversified Assets Portfolios) for a period of up to three
Business Days; and (b) securities subject to certain unconditional guarantees
are subject to different diversification requirements as described in the
Additional Statement. In addition, the Portfolios will limit their investments
in securities that are not First Tier Securities as prescribed in Rule 2a-7.
DERIVATIVE INSTRUMENTS. Each Portfolio may also purchase certain "derivative"
instruments. "Derivative" instruments are instruments that derive value from
the performance of underlying assets, interest rates or indices, and include
(but are not limited to) various structured debt obligations (including certain
variable and floating rate instruments). Derivative instruments present, to
varying degrees, market risk that the performance of the underlying assets,
interest rates or indices will decline; credit risk that the dealer or other
counterparty to the transaction will fail to pay its obligations; volatility
risk that, if interest rates change adversely, the value of the derivative
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Portfolio will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument will not
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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.
ILLIQUID OR RESTRICTED SECURITIES. A Portfolio will not invest more than 10% of
its net assets in securities which are illiquid, including repurchase
agreements and time deposits that do not provide for payment to the Trust
within seven days after notice and certificates of participation for which
there is no readily available secondary market and certain securities which are
subject to trading restrictions because they are not registered under the
Securities Act of 1933 (the "1933 Act"). In accordance with the current
position of the staff of the SEC, municipal custodial receipts representing
rights only to either future interest or to future principal payments will be
considered illiquid.
If otherwise consistent with its investment objective and policies, the
Portfolios may purchase commercial paper issued pursuant to Section 4(2) of the
1933 Act and securities that are not registered under the 1933 Act but can be
sold to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act. These securities will not be considered illiquid so long as Northern
determines, under guidelines approved by the Trust's Board of Trustees, that an
adequate trading market exists. This practice could increase the level of
illiquidity during any period that qualified institutional buyers become
uninterested in purchasing these securities.
MISCELLANEOUS. Although the Portfolios will generally not seek profits through
short-term trading, each Portfolio may dispose of any portfolio security prior
to its maturity if, on the basis of a revised credit evaluation of the issuer
or other considerations, Northern believes such disposition is advisable.
Subsequent to its purchase, a portfolio security may be assigned a lower rating
or cease to be rated. Such an event would not necessarily require the
disposition of the security, if the continued holding of the security is
determined to be in the best interest of the Portfolio and its shareholders.
In determining the creditworthiness of the issuers of portfolio securities that
may be purchased and held by the Portfolios, Northern gathers and reviews
historical financial data and, through the use of a proprietary software
computer program, analyzes and attempts to assess the fundamental strengths and
weaknesses of individual issuers, industries and market sectors. Exposure
limits are established by Northern for each security in conformance with the
objectives and policies stated in this Prospectus, and are thereafter adjusted
periodically in response to changes in relevant credit factors.
The Portfolios do not intend to purchase certificates of deposit of Northern or
its affiliate banks, commercial paper issued by Northern's parent holding
company or other securities issued or guaranteed by Northern, its parent
holding company or their subsidiaries or affiliates.
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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
shares of a Portfolio. Each Portfolio will limit its investments so that less
than 25% of the Portfolio's total assets will be invested in the securities of
issuers in any one industry (with certain limited exceptions). Each Portfolio
may borrow money from banks for temporary or emergency purposes or to meet
redemption requests, provided that the Portfolio maintains asset coverage of at
least 300% for all such borrowings.
TRUST INFORMATION
BOARD OF TRUSTEES
The business and affairs of the Trust and each Portfolio are managed under the
direction of the Trust's Board of Trustees. The Additional Statement contains
the name of each Trustee and background information regarding the Trustees.
INVESTMENT ADVISER, TRANSFER AGENT AND CUSTODIAN
Northern, which has offices at 50 S. LaSalle Street, Chicago, Illinois 60675,
serves as investment adviser, transfer agent and custodian for each Portfolio.
As transfer agent, Northern performs various shareholder servicing functions,
and any shareholder 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, 1997, Northern Trust
Corporation and its subsidiaries had approximately $25.3 billion in assets,
$16.4 billion in deposits and employed over 7,553 persons.
Northern and its affiliates administered in various capacities (including as
master trustee, investment manager or custodian) approximately $1 trillion of
assets as of December 31, 1997, including approximately $196.5 billion of
assets for which Northern and its affiliates had investment management
responsibility. Included in managed assets were approximately $ billion of
money market instruments.
Under its Advisory Agreement with the Trust, Northern, subject to the general
supervision of the Trust's Board of Trustees, is responsible for making
investment decisions for the Portfolios and placing purchase and sale orders
for portfolio securities. Northern is also responsible for monitoring and
preserving the records required to be maintained under the regulations of the
SEC (with certain exceptions unrelated to its activities for the Trust). As
compensation for its advisory services and its assumption of related expenses,
Northern is entitled to a fee, computed daily and payable monthly, at an annual
rate of .25% of the average daily net assets of each Portfolio.
For serving as investment adviser during the fiscal year ended November 30,
1997, Northern earned fees paid by the Government Portfolio, the Diversified
Assets Portfolio and the Tax-Exempt Portfolio at the rate of
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.25% (per annum) of each Portfolio's average daily net assets. For serving as
investment adviser during the fiscal year ended November 30, 1997, Northern
earned fees (after waivers) paid by the Government Select Portfolio at the rate
of .10% (per annum) of its average daily net assets.
ADMINISTRATOR AND DISTRIBUTOR
Goldman Sachs, 85 Broad Street, New York, New York 10004, acts as administrator
and distributor for the Portfolios. Subject to the limitations described below,
as compensation for its administrative services (which include supervision with
respect to the Trust's non-investment advisory operations) and the assumption
of related expenses, Goldman Sachs is entitled to a fee from each Portfolio,
computed daily and payable monthly, at an annual rate of .10% of the average
daily net assets of each Portfolio. No compensation is payable by the Trust to
Goldman Sachs for its distribution services.
In addition, Goldman Sachs has agreed that it will reimburse each Portfolio for
all expenses (including the fees payable to Goldman Sachs as Administrator, but
excluding the fees payable to Northern for its duties as investment adviser and
transfer agent and extraordinary expenses such as interest, taxes and
indemnification expenses) which exceed on an annualized basis .10% of such
Portfolio's average daily net assets for any fiscal year. In addition, as
stated under "Highlights--Summary of Expenses," Northern intends to voluntarily
reduce its advisory fee for the Government Select Portfolio during the Trust's
current fiscal year. The result of these reimbursement and fee reductions will
be to increase the yields of the Portfolios during the periods for which the
reimbursements and reductions are made.
SERVICE PLAN
Pursuant to a Service Plan ("Service Plan") adopted by the Board of Trustees of
the Trust with respect to the Premier Shares, banks, trust companies and other
financial institutions which may include Northern and its affiliates
("Servicing Agents") may enter into agreements ("Servicing Agreements") under
which they will render (or arrange for the rendering of) administrative support
services and personal and account maintenance services for Premier Share
investors for the fees described below ("Service Fees").
The administrative support services to be provided by Servicing Agents, which
are described more fully in the Additional Statement, may include establishing
and maintaining individual accounts and records with respect to Premier Shares
owned by their customers, processing purchase, redemption and exchange orders
for their customers, placing net purchase and redemption orders with Northern
acting as the Trust's transfer agent and providing cash management or sweep
accounts and similar programs and services for their customers. For these
administrative support services, the Service Plan provides for the payment of
fees to Servicing Agents at an annual rate of up to .25% of the average daily
net asset value of the Premier Shares beneficially owned by their customers. In
addition, the Service Plan provides for the payment of fees to Goldman Sachs or
other institutions at an annual rate of up to .08% of the average daily net
asset value of Premier Shares serviced by such institutions for ongoing
consulting services, technology and systems support services relating to cash
management or sweep account services. Personal and account maintenance services
provided under the Service Plan, which are described more fully in the
Additional Statement, may include providing information to investors regarding
the Portfolios or relating to the status of their accounts and acting as
liaison between investors and the Trust. For these liaison services, the
Service Plan provides for the payment of fees to Servicing Agents at an annual
rate of up to .25% of the average daily net asset value of Premier Shares
beneficially owned by their customers.
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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 Premier Shares. Conflict of interest restrictions may apply to
the receipt of compensation by the Trust to a Servicing Agent in connection
with the investment of fiduciary funds in Premier Shares. 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.
EXPENSES
Except as set forth above and in the Additional Statement under "Additional
Trust Information," each Portfolio is responsible for the payment of its
expenses. Such expenses include, without limitation, the fees and expenses
payable to Northern and Goldman Sachs, fees for the registration or
qualification of Portfolio shares under Federal or state securities laws,
expenses of the organization of the Portfolio, taxes, interest, costs of
liability insurance, fidelity bonds, indemnification or contribution, any
costs, expenses or losses arising out of any liability of, or claim for damages
or other relief asserted against, the Trust for violation of any law, legal,
tax and auditing fees and expenses, Servicing Fees, expenses of preparing and
printing prospectuses, statements of additional information, proxy materials,
reports and notices and the printing and distributing of the same to the
Trust's shareholders and regulatory authorities, compensation and expenses of
its Trustees, expenses of industry organizations such as the Investment Company
Institute, miscellaneous expenses and extraordinary expenses incurred by the
Trust.
INVESTING
PURCHASE OF PREMIER SHARES
Premier Shares 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"). Premier Shares of the
Portfolios are sold on a continuous basis by the Trust's distributor, Goldman
Sachs, to Institutions that have agreed to render (or arrange for the rendering
of) administration support and shareholder liaison services to customers
pursuant to a Servicing Agreement and either maintain certain qualified
accounts with Northern or its affiliates or invest an aggregate of at least $5
million in one or more Portfolios of the Trust. See "Trust Information--
Servicing Plan" above. The Trust has established procedures for purchasing
Premier Shares in order to accommodate different types of Institutions.
PURCHASE OF PREMIER SHARES THROUGH QUALIFIED ACCOUNTS. Any Institution
maintaining a qualified account at Northern or an affiliate may make purchases
through such qualified account either by directing automatic investment of cash
balances in excess of certain agreed upon amounts or by directing investments
from time to time on a non-automatic basis. The nature of an Institution's
relationship with Northern or an affiliate will determine whether the
Institution maintains a qualified account as well as the procedures available
for purchases. Institutions should contact Northern or an affiliate for further
information in this regard. There is no minimum initial investment for
Institutions that maintain qualified accounts with Northern or its affiliates.
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PURCHASE OF PREMIER SHARES DIRECTLY FROM THE TRUST. An Institution that
purchases Premier Shares directly may do so by means of one of the following
procedures, provided it makes an aggregate minimum initial investment of $5
million in one or more Portfolios of the Trust:
PURCHASE BY MAIL. An Institution desiring to purchase Premier Shares of a
Portfolio by mail should mail a check or Federal Reserve draft payable to
the specific Portfolio together with a completed and signed new account
application to The Benchmark Funds, c/o The Northern Trust Company, P.O.
Box 75943, Chicago, Illinois 60675-5943. An application will be incomplete
if it does not include a corporate resolution with the corporate seal and
secretary's certification within the preceding 30 days, or other acceptable
evidence of authority. If an Institution desires to purchase the Premier
Shares of more than one Portfolio, the Institution should send a separate
check for each Portfolio. All checks must be payable in U.S. dollars and
drawn on a bank located in the United States. A $20 charge will be imposed
if a check does not clear. The proceeds of redemptions of shares purchased
by check may be delayed up to 15 days to allow the Trust to determine that
the check has cleared and been paid. Cash and third party checks are not
acceptable for the purchase of Premier Shares.
PURCHASE BY TELEPHONE. An Institution desiring to purchase Premier Shares
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 Premier Shares 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
Premier Shares of a Portfolio by wire or ACH Transfer should call the
Transfer Agent at 1-800-637-1380 for instructions if it is not making an
additional payment to an existing account. An Institution that wishes to
add to an existing account should wire Federal funds or effect an ACH
Transfer to:
The Northern Trust Company
Chicago, Illinois
ABA Routing No. 0710-00152
(Reference 10 Digit Portfolio Account Number)
(Reference Unitholder's Name)
For other information concerning requirements for the purchase of Premier
Shares, call the Transfer Agent at 1-800-637-1380.
EFFECTIVE TIME OF PURCHASES. A purchase order for Portfolio Premier Shares
placed with the Transfer Agent by 1:00 p.m., Chicago time, on a Business Day
(as defined under "Miscellaneous") will be effected on that Business Day at the
net asset value next determined on that day with respect to a Portfolio,
provided that the Transfer Agent receives the purchase price in Federal funds
or other immediately available funds prior to
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1:00 p.m., Chicago time, on the same Business Day such order is received.
Orders received after 1:00 p.m. on a Business Day will be effected at the net
asset value next determined on the following Business Day, provided that
payment is received as provided herein. Purchase orders received on a non-
Business Day will not be executed until the following Business Day in
accordance with the foregoing procedures. An order generated pursuant to an
automatic investment direction of an Institution that has a qualified account
with Northern or its affiliates will normally be placed either on the Business
Day that funds are available in such account or on the first Business Day
thereafter, depending upon the terms of the Institution's automatic investment
arrangements. Shares of a Portfolio are entitled to the dividends declared by
the Portfolio beginning on the Business Day the purchase order is executed.
MISCELLANEOUS PURCHASE INFORMATION. Shares are purchased without a sales
charge imposed by the Trust. The minimum initial investment is $5 million for
Institutions that invest directly in one or more investment portfolios of the
Trust. The Trust reserves the right to waive this minimum and to determine the
manner in which the minimum investment is satisfied. There is no minimum for
subsequent investments.
Institutions intending to place a purchase order of $5 million or more directly
with the Trust through the Transfer Agent are requested to give advance notice
to the Transfer Agent no later than 11:00 a.m. Chicago Time on a Business Day
in order to assist in the processing of the order.
See "Miscellaneous" below for information on when the Trust may advance the
time by which purchase requests must be received.
Institutions may impose minimum investment and other requirements on Customers
purchasing shares 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,
Institutions will enter into Servicing Agreements whereby they will perform (or
arrange to have performed) various administrative support services and
shareholder liaison services for customers who are the beneficial owners of
Premier Shares. These services may include providing sweep accounts or similar
programs to their customers. See "Trust Information--Service Plan." The
exercise of voting rights and the delivery to Customers of shareholder
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 shares on behalf of Customers are responsible for
transmitting purchase orders to the Transfer Agent and delivering required
Federal funds on a timely basis. An Institution will be responsible for all
losses and expenses of a Portfolio as a result of a check that does not clear,
an ACH transfer that is rejected, or any other failure to make payment in the
time and manner described above, and Northern may redeem shares from an account
it maintains to protect the Portfolio and Northern against loss. The Trust
reserves the right to reject any purchase order. In those cases in which an
Institution pays for shares by check, Federal funds will generally become
available two Business Days after a purchase order is received. Federal
regulations require that the Transfer Agent be furnished with a taxpayer
identification number upon opening or reopening an account. Purchase orders
without such a number or an indication that a number has been applied for will
not be accepted. If a number has been applied for, the number must be provided
and certified within sixty days of the date of the order.
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Payment for shares of a Portfolio may, in the discretion of Northern, be made
in the form of securities that are permissible investments for the Portfolio.
For further information about the terms of such purchases, see the Additional
Statement.
In the interests of economy and convenience, certificates representing shares
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 and
other financial intermediaries who provide services to their customers who
invest in the Trust or whose customers purchase significant amounts of shares
of a Portfolio. The amount of such compensation may be made on a one-time
and/or periodic basis, and may represent all or a portion of the annual fees
that are earned by Northern as investment adviser to such Portfolio (after
adjustments) and are attributable to shares held by such customers. Such
compensation will not represent an additional expense to the Trust or its
shareholders, since it will be paid from assets of Northern or its affiliates.
REDEMPTION OF PREMIUM SHARES
Institutions may redeem shares of a Portfolio through procedures established by
Northern and its affiliates in connection with the requirements of their
qualified accounts or through procedures set forth herein with respect to
Institutions that invest directly.
REDEMPTION OF SHARES THROUGH QUALIFIED ACCOUNTS. Institutions may redeem shares
in their qualified accounts at Northern or its affiliates. For Institutions
that participate in an automatic investment service described above under
"Purchase of Premier Shares," Northern or its affiliates will calculate on each
Business Day the number of shares that need to be redeemed in order to bring
the Institution's account up to any agreed upon minimum amount. Redemption
requests on behalf of an Institution will normally be placed either on the
Business Day the redemption amount is calculated or on the first Business Day
thereafter, depending upon the terms of the Institution's automatic investment
arrangements. In the latter case, however, Northern or its affiliates normally
will provide funds by provisionally crediting the qualified account of the
Institution on the Business Day on which the calculation is made. The nature of
an Institution's relationship with Northern or an affiliate will determine
whether the Institution maintains a "qualified account" as well as the
procedures available for redemptions. Institutions should contact Northern or
an affiliate for further information in this regard.
REDEMPTION OF SHARES DIRECTLY. Institutions that purchase shares directly from
the Trust through the Transfer Agent may redeem all or part of their Portfolio
shares in accordance with the procedures set forth below.
REDEMPTION BY MAIL. An Institution may redeem shares 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 shares or the dollar
amount to be redeemed and identify the Portfolio Account Number. See "Other
Requirements."
REDEMPTION BY TELEPHONE. An Institution may redeem shares 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, shareholders
should follow procedures outlined above under "Redemption by Mail."
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REDEMPTION BY WIRE. If an Institution has given authorization for expedited
wire redemption, shares 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 shares 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 shareholder 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 instruments.
All checks will be made payable to the shareholder of record and mailed
only to the shareholder's address of record. See "Other Requirements."
Additionally, the Transfer Agent utilizes recorded lines for telephone
transactions and retains such tape recordings for six months, and will
request a form of identification if such identification has been furnished
to the Transfer Agent or the Trust.
OTHER REQUIREMENTS. A change of wiring instructions and a change of the
address of record may be effected only by a written request to the Transfer
Agent accompanied by (i) a corporate resolution which evidences authority
to sign on behalf of the Institution (including the corporate seal and
secretary's certification within the preceding 30 days), (ii) a signature
guarantee by a financial institution that is a participant in the Stock
Transfer Agency Medallion Program ("STAMP") in accordance with rules
promulgated by the SEC (a signature notarized by a notary public is not
acceptable) or (iii) such other means or evidence of authority as may be
acceptable to the Transfer Agent. A redemption request by mail will not be
effective unless signed by a person authorized by the corporate resolution
or other acceptable evidence of authority on file with the Transfer Agent.
EXCHANGE PRIVILEGE. Institutions and, to the extent permitted by their account
agreements, Customers, may, after appropriate prior authorization, exchange
Premier Shares of a Portfolio having a value of at least $1,000 for Premier
Shares of certain other portfolios of the Trust as to which the Institution or
Customer maintains an existing account with an identical title.
Exchanges will be effected by a redemption of shares of the portfolio held and
the purchase of shares of the portfolio acquired. Customers of Institutions
should contact their Institutions for further information regarding the Trust's
exchange privilege and Institutions should contact the Transfer Agent as
appropriate. Customers and Institutions exercising the exchange privilege
should read the relevant Prospectus prior to making an exchange. The Trust
reserves the right to modify or terminate the exchange privilege at any time
upon 60 days' written notice to shareholders of record and to reject any
exchange request. Exchanges are only available in states where an exchange can
legally be made.
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EFFECTIVE TIME OF REDEMPTIONS AND EXCHANGES. Redemption orders of Portfolio
shares are effected at the net asset value per share 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 shares); and the signature of a
duly authorized person (except for telephone and wire redemptions). See
"Investing--Redemption of Premier Shares--Other Requirements." Exchange orders
are effected at the net asset value per share next determined after receipt in
good order by the Transfer Agent. Payment for redeemed shares for which a
redemption order is received by Northern with respect to a qualified account it
maintains or the Transfer Agent as of 1:00 p.m., Chicago time, on a Business
Day normally will be made in Federal funds or other immediately available funds
wired or sent by check to the redeeming shareholder or, if selected, the
shareholder's qualified account with Northern on that Business Day. Redemption
orders received after 1:00 p.m. will be effected the next Business Day.
Proceeds for redemption orders received on a non-Business Day will normally be
sent on the next Business Day after receipt in good order.
MISCELLANEOUS REDEMPTION AND EXCHANGE 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 shares may not be effected if a shareholder has failed to submit a completed
and properly executed (with corporate resolution or other acceptable evidence
of authority) new account application. Institutions intending to place exchange
and redemption orders for same day proceeds of $5 million or more directly with
the Trust through the Transfer Agent are requested to give advance notice to
the Transfer Agent no later than 11:00 a.m. Chicago Time on a Business Day. The
proceeds of redemptions of shares purchased by check may be delayed up to 15
days to allow the Trust to determine that the check has cleared and been paid.
The Trust reserves the right to defer crediting, sending or wiring redemption
proceeds for up to seven days after receiving a redemption order if, in its
judgment, an earlier payment could adversely affect a Portfolio.
See "Miscellaneous" below for information on when the Trust may advance the
time by which redemption and exchange requests must be received.
The Trust may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Dividends on shares are earned through and
including the day prior to the day on which they are redeemed.
It is the responsibility of Institutions acting on behalf of Customers to
transmit redemption orders to the Transfer Agent and to credit Customers'
accounts with the redemption proceeds on a timely basis. If a Customer has
agreed with a particular Institution to maintain a minimum balance in his
account at such Institution and the balance in such account falls below that
minimum, such Customer may be obliged to redeem all or part of his shares to
the extent necessary to maintain the required minimum balance.
DISTRIBUTIONS
Shareholders of each Portfolio are entitled to dividends and distributions
arising from the net income and capital gains, if any, earned on investments
held by the particular Portfolio. Dividends from each Portfolio's net income
are declared daily as a dividend to shareholders of record at the close of
business on the days the dividends are declared (or 3:00 p.m., Chicago time, on
non-Business Days).
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Net income of the Premier Shares of each Portfolio includes interest accrued on
the assets of such Portfolio and allocated to its Premier Shares less the
estimated expenses charged to the Premier Shares of such Portfolio. Net
realized short-term capital gains of each Portfolio will be distributed at
least annually. The Portfolios do not expect to realize net long-term capital
gains.
Dividends declared during a calendar month (including dividends with respect to
shares redeemed at any time during the month) will be paid as soon as
practicable following the end of the month. All distributions are paid by each
Portfolio in cash or are automatically reinvested (without any sales charge) in
additional Premier Shares of the same Portfolio. Arrangements may be made for
the crediting of such distributions to a shareholder's account with Northern,
its affiliates or its correspondent banks.
TAXES
Management of the Trust intends that each Portfolio will qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code") as long as such qualification is in the best interest of
the Portfolio's shareholders. Such qualification generally relieves each
Portfolio of liability for Federal income taxes to the extent its earnings are
distributed in accordance with the Code, but shareholders, unless otherwise
exempt, will pay income taxes on amounts so distributed (except distributions
that constitute "exempt-interest dividends" or that are treated as a return of
capital). Dividends paid from net short-term capital gains are treated as
ordinary income dividends. None of the Portfolios' distributions will be
eligible for the corporate dividends received deduction.
The Tax-Exempt Portfolio intends to pay substantially all of its dividends as
"exempt-interest dividends." Investors in the Portfolio should note, however,
that taxpayers are required to report the receipt of tax-exempt interest and
"exempt-interest dividends" on their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
taxable to persons subject to alternative minimum taxes. First, tax-exempt
interest and "exempt-interest dividends" derived from certain private activity
bonds issued after August 7, 1986 generally will constitute an item of tax
preference for corporate and noncorporate taxpayers in determining alternative
minimum tax liability. Second, all tax-exempt interest and "exempt-interest
dividends" must be taken into account by corporate taxpayers in determining
certain adjustments for alternative minimum tax purposes. Shareholders who are
recipients of Social Security Act or Railroad Retirement Act benefits should
note that tax-exempt interest and "exempt-interest dividends" will be taken
into account in determining the taxability of their benefit payments. To the
extent, if any, that dividends paid by the Tax-Exempt Portfolio to its
shareholders are derived from taxable interest or from capital gains, such
dividends will be subject to Federal income tax, whether received in cash or
reinvested in additional shares.
The Tax-Exempt Portfolio will determine annually the percentages of its net
investment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for purposes of the Federal alternative
minimum tax, and which are fully taxable and will apply such percentages
uniformly to all distributions declared from net investment income during that
year. These percentages may differ significantly from the actual percentages
for any particular day.
23
<PAGE>
The Trust will send written notices to shareholders annually regarding the tax
status of distributions made by each Portfolio. Dividends declared in October,
November or December of any year payable to shareholders of record on a
specified date in those months will be deemed for Federal tax purposes to have
been paid by a Portfolio and to have been received by the shareholders on
December 31 of that year, if the dividends are actually paid during the
following January.
The foregoing discussion is only a brief summary of some of the important tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, investors
should consult their tax advisers with specific reference to their own Federal,
state and local tax situation. In particular, although the Government Select
Portfolio intends to invest primarily in U.S. Government securities the
interest on which is generally exempt from state income taxation, an investor
should consult his or her own tax adviser to determine whether distributions
from the Portfolio are exempt from state income taxation in the investor's own
situation. Similarly, dividends paid by the Portfolios may be taxable to
investors under state or local law as dividend income even though all or a
portion of such dividends may be derived from interest on obligations which, if
realized directly, would be exempt from such income taxes. Future legislative
or administrative changes or court decisions may materially affect the tax
consequences of investing in one or more of the Portfolios.
NET ASSET VALUE
The net asset value per share of each Portfolio for purposes of purchases and
redemptions is calculated by Northern as of 3:00 p.m., Chicago time,
immediately after the declaration of net income earned by shareholders of
record, on each Business Day (as defined below under "Miscellaneous"), except
for days during which no shares are tendered to the Portfolio for redemption
and no orders to purchase or sell shares are received by the Portfolio and
except for days on which there is an insufficient degree of trading in the
Portfolio's securities for changes in the value of such securities to
materially affect the net asset value per share. The time at which the net
asset value per share of each Portfolio is calculated may be advanced on days
on which Northern or the securities markets close early. See "Miscellaneous"
below. Net asset value per share of each Portfolio is calculated by adding the
value of all securities and other assets belonging to the Portfolio that are
allocated to the Premier Shares, subtracting the liabilities charged to the
Premier Shares and dividing by the number of Premier Shares of the Portfolio
outstanding.
In seeking to maintain a net asset value of $1.00 per share with respect to
each Portfolio for purposes of purchases and redemptions, the Trust values the
portfolio securities held by a Portfolio pursuant to the amortized cost method.
Under this method, investments purchased at a discount or premium are valued by
amortizing the difference between the original purchase price and maturity
value of the issue over the period of maturity. See "Amortized Cost Valuation"
in the Additional Statement. There can be no assurance that a Portfolio will be
able at all times to maintain a net asset value per share of $1.00.
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<PAGE>
PERFORMANCE INFORMATION
From time to time the Portfolios may advertise the "yields" and "effective
yields", and the Government Select Portfolio and Tax-Exempt Portfolio may
advertise the "tax-equivalent yields", of Premier Shares. These yield figures
will fluctuate, are based on historical earnings and are not intended to
indicate future performance. "Yield" refers to the net investment income
generated by an investment in the Portfolio over a seven-day period identified
in the advertisement. This net investment income is then "annualized." That
is, the amount of net investment income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. "Effective yield" is calculated
similarly but, when annualized, the net investment income earned by an
investment in the Portfolio is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment. The "tax-equivalent yield" demonstrates the level
of taxable yield necessary to produce an after-tax yield equivalent to a
Portfolio's tax-free yield. It is calculated by taking that portion of the
seven-day "yield" which is tax-exempt and adjusting it to reflect the tax
savings associated with a stated tax rate. The "tax-equivalent yield" will
always be higher than the Portfolio's yield.
The Portfolios' yields may not provide a basis for comparison with bank
deposits and other investments which provide a fixed yield for a stated period
of time. Yield will be affected by portfolio quality, composition, maturity,
market conditions and the level of the Portfolio's operating expenses.
Each Portfolio may also quote from time to time the total return on its
Premier Shares in accordance with SEC regulations.
ORGANIZATION
Each Portfolio is a series of The Benchmark Funds, which was formed as a
Delaware business trust on July 1, 1997 under an Agreement and Declaration of
Trust. The Portfolios were formerly series of The Benchmark Funds, a
Massachusetts business trust, and were reorganized into the Trust on March 31,
1998. As of the date of this Prospectus, the Trust offers eighteen separate
series of shares of beneficial interest representing interests in eighteen
investment portfolios, four of which are described in this prospectus; the
other series of shares are described in a separate prospectus. The business
and affairs of the Trust are managed by or under the direction of its Board of
Trustees. The Declaration of Trust of the Trust authorizes the Board of
Trustees to classify or reclassify any unissued shares into additional series
or subseries within a series. Pursuant to such authority, the Board of
Trustees has classified three subseries of shares in each Portfolio, the
Shares, Service Shares and Premier Shares. This Prospectus relates only to
Premier Shares of the Portfolios described herein.
Each share of a Portfolio is without par value, represents an equal
proportionate interest in that Portfolio with each other share 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. Shares of each class bear their pro rata portion of all operating
expenses paid by a Portfolio, except transfer agency fees and amounts payable
under the Trust's Service Plan relating to the Service Shares and the Premier
Shares. Because of these class-specific expenses, the performance of a
Portfolio's Shares is expected to be higher than the
25
<PAGE>
performance of the Portfolio's Service Shares, and the performance of the
Portfolio's Shares and Service Shares are expected to be higher than the
performance of the Portfolio's Premier Shares. Any person entitled to receive
compensation for selling or servicing shares of a Portfolio may receive
different compensation with respect to one particular class of shares over
another in the same Portfolio. The Trust offers various services in connection
with the Service and Premier Shares in the Portfolios, including an automatic
investment plan. For further information regarding the Trust's Shares and
Service Shares, contact 1-800-621-2550.
The Trust's shareholders are entitled at the discretion of the Board of
Trustees to vote either on the basis of the number of shares held or the
aggregate net asset value represented by such shares. Each series entitled to
vote on a matter will vote thereon in the aggregate and not by series or class,
except as otherwise required by law or when the matter to be voted on affects
only the interests of shareholders of a particular series or class. The
Additional Statement gives examples of situations in which the law requires
voting by series or class. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of the Trust may elect all
of the Trustees irrespective of the vote of the other shareholders. In
addition, holders of Shares, Service Shares and Premier Shares representing
interests in the same Portfolio have equal voting rights except that only
shares of a particular class within the Portfolio will be entitled to vote on
matters submitted to a vote of shareholders (if any) relating to class-specific
expenses that are payable by that class of shares.
As of December 31, 1997, Northern possessed sole or shared voting or investment
power for its customer accounts with respect to more than 50% of the
outstanding shares of the Trust.
The Trust does not presently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. Pursuant to the
Trust Agreement, the Trustees will promptly call a meeting of shareholders to
vote upon the removal of any Trustee when so requested in writing by the record
holders of 10% or more of the outstanding shares. To the extent required by
law, the Trust will assist in shareholder communications in connection with
such a meeting.
The Trust Agreement provides that each shareholder, by virtue of becoming such,
will be held to have expressly assented and agreed to the terms of the Trust
Agreement and to have become a party thereto.
MISCELLANEOUS
The address of the Trust is 4900 Sears Tower, Chicago, Illinois 60606 and the
telephone number is 1-800-621-2550.
As used in this Prospectus, the term "Business Day" refers to each day when
Northern and the New York Stock Exchange are open, which is Monday through
Friday, except for holidays observed by Northern and/or the Exchange other than
Good Friday. For 1998, the holidays of Northern and/or the Exchange are: New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving and
Christmas Day. Notice of purchase, redemption or exchange orders to be executed
on Good Friday, or any other day Northern is open for business and the Exchange
is closed must be received by the Transfer Agent no later than 11:00 a.m.
Chicago time on the prior Business Day if the amount of the order is in excess
of $1,000,000. On those days when Northern or the Exchange closes early as a
result of unusual weather or other circumstances, the right is reserved to
advance the time on that day by which purchase, redemption and exchange
requests must be received. In
26
<PAGE>
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, redemption
and exchange orders for same Business Day credit up to one hour before the PSA
recommended closing time. Purchase, redemption and exchange requests received
after the advanced closing time will be effected on the next Business Day.
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
27
<PAGE>
SUBJECT TO COMPLETION - DATED JANUARY 30, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information does not constitute a
prospectus.
PART B
STATEMENT OF ADDITIONAL INFORMATION
SERVICE SHARES
PREMIER SHARES
THE BENCHMARK FUNDS
4900 Sears Tower
Chicago, Illinois 60606
GOVERNMENT SELECT PORTFOLIO
GOVERNMENT PORTFOLIO
DIVERSIFIED ASSETS PORTFOLIO
TAX-EXEMPT PORTFOLIO
This Statement of Additional Information (the "Additional Statement") dated
April 1, 1998 is not a prospectus. This Additional Statement relates solely to
the offering of Service Shares and Premier Shares of the Government Select,
Government, Diversified Assets and Tax-Exempt Portfolios of the Benchmark Funds.
This Additional Statement should be read in conjunction with the Prospectuses
for the Service Shares and Premier Shares of the Government Select, Government,
Diversified Assets and Tax-Exempt Portfolios each a "Prospectus") dated April 1,
1998. 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.
----------------
<TABLE>
<CAPTION>
INDEX
Page
----
<S> <C>
ADDITIONAL INVESTMENT INFORMATION B-3
Investment Objectives and Policies B-3
Investment Restrictions B-9
ADDITIONAL TRUST INFORMATION B-12
Trustees and Officers B-12
Investment Adviser,
Transfer Agent and Custodian B-19
Administrator and Distributor B-24
Counsel and Auditors B-26
In-Kind Purchases B-26
PERFORMANCE INFORMATION B-26
</TABLE>
<PAGE>
<TABLE>
<S> <C>
AMORTIZED COST VALUATION B-27
DESCRIPTION OF SERVICE SHARES AND PREMIER SHARES B-28
ADDITIONAL INFORMATION CONCERNING TAXES B-31
General B-31
Special Tax Considerations B-32
Pertaining to the
Tax-Exempt Portfolio B-33
Foreign Investors B-33
Conclusion B-34
SERVICE PLAN B-34
OTHER INFORMATION B-36
FINANCIAL STATEMENTS B-37
APPENDIX A (Description of Securities Ratings) 1-A
</TABLE>
----------------
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.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR OTHERWISE SUPPORTED BY, THE NORTHERN TRUST COMPANY, ITS PARENT
COMPANY OR ITS AFFILIATES AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. THERE CAN BE NO ASSURANCE THAT ANY
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN A PORTFOLIO INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS
OF PRINCIPAL.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
Investment Objectives and Policies
. The following supplements the investment objectives and policies of the
Government Select, Government, Diversified Assets and Tax-Exempt Portfolios
(the "Portfolios") of The Benchmark Funds (the "Trust") as set forth in the
Prospectus.
Description of Commercial Paper, Bankers' Acceptances, Certificates of Deposit
and Time Deposits
Commercial paper represents short-term unsecured promissory notes issued in
bearer form by banks or bank holding companies, corporations and finance
companies. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties that vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party.
As stated in the Prospectus, the Diversified Assets Portfolio may invest a
portion of its assets in the obligations of foreign banks and foreign branches
of domestic banks. Such obligations include Eurodollar Certificates of Deposit
("ECDs") which are U.S. dollar-denominated certificates of deposit issued by
offices of foreign and domestic banks located outside the United States;
Eurodollar Time Deposits ("ETDs") which are U.S. dollar-denominated deposits in
a foreign branch of a U.S. bank or a foreign bank; Canadian Time Deposits
("CTDs") which are essentially the same as ETDs except they are issued by
Canadian offices of major Canadian banks; Schedule Bs, which are obligations
issued by Canadian branches of foreign or domestic banks; Yankee Certificates of
Deposit ("Yankee CDs") which are U.S. dollar-denominated certificates of deposit
issued by a U.S. branch of a foreign bank and held in the United States; and
Yankee Bankers' Acceptances ("Yankee BAs") which are U.S. dollar-denominated
bankers' acceptances issued by a U.S. branch of a foreign bank and held in the
United States.
B-3
<PAGE>
Description of Asset-Backed Securities
The Diversified Assets Portfolio may purchase asset-backed securities, which are
securities backed by mortgages, installment contracts, credit card receivables
or other assets. The average life of asset-backed securities varies with the
maturities of the underlying instruments, and the average life of a mortgage-
backed instrument, in particular, is likely to be substantially less than the
original maturity of the mortgage pools underlying the securities as a result of
mortgage prepayments. For this and other reasons, an asset-backed security's
stated maturity may be shortened, and the security's total return may be
difficult to predict precisely. Such difficulties are not, however, expected to
have a significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 13 months or less. Asset-backed
securities acquired by the Portfolio may include collateralized mortgage
obligations ("CMOs") issued by private companies.
U.S. Government Obligations
Examples of the types of U.S. Government obligations that may be acquired by the
Portfolios include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, and the Maritime Administration.
Custodial Receipts for Treasury Securities
The Portfolios (other than the Government Select Portfolio) may acquire U.S.
Government obligations and their unmatured interest coupons that have been
separated ("stripped") by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government obligations, the holder will resell the
stripped securities in custodial receipt programs with a number of different
names, including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate of
Accrual on Treasury Securities" ("CATS"). The stripped coupons are sold
separately from the underlying principal, which is usually sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are ostensibly owned by the
bearer or holder), in trust on behalf of the owners. Counsel to the underwriters
of these certificates or other evidences of ownership of U.S. Treasury
securities have stated that, in their opinion, purchasers of the stripped
securities most likely will be
B-4
<PAGE>
deemed the beneficial holders of the underlying U.S. Government obligations for
Federal tax purposes. The Trust is not aware of any binding legislative,
judicial or administrative authority on this issue.
U.S. Treasury STRIPS
The Treasury Department has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and principal payments on Treasury securities through the
Federal Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program, a
Portfolio will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities. All Portfolios, including the Government Select
Portfolio, may acquire securities registered under the STRIPS program.
Bank and Deposit Notes
The Diversified Assets Portfolio may purchase bank and deposit notes. Bank notes
rank junior to deposit liabilities of banks and pari passu with other senior,
unsecured obligations of the bank. Bank notes are classified as "other
borrowings" on a bank's balance sheet, while deposit notes and certificates of
deposit are classified as deposits. Bank notes are not insured by the Federal
Deposit Insurance Corporation or any other insurer. Deposit notes are insured by
the Federal Deposit Insurance Corporation only to the extent of $100,000 per
depositor per bank.
Variable and Floating Rate Instruments
With respect to the variable and floating rate instruments that may be acquired
by the Portfolios as described in the Prospectus, Northern will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and, if the instruments are subject to demand
features, will continuously monitor their financial status and ability to meet
payment on demand. Where necessary to ensure that a variable or floating rate
instrument is of "high quality," the issuer's obligation to pay the principal of
the instrument will be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend. The Portfolios will invest in variable and
floating rate instruments only when Northern deems the investment to involve
minimal credit risk. In determining weighted average portfolio maturity, an
instrument may, subject to SEC regulations, be deemed to have a maturity shorter
than its nominal maturity based on the period remaining until the next interest
rate adjustment or the time the Portfolio involved can recover payment of
principal as specified in the instrument.
B-5
<PAGE>
Investment Companies
Each Portfolio may invest all or substantially all of its assets in a single
open-end investment company or series thereof with substantially the same
investment objective, policies and restrictions as the Portfolio. However, each
Portfolio currently intends to limit its investments in securities issued by
other investment companies to the extent described in the Prospectus. A
Portfolio may adhere to more restrictive limitations with respect to its
investments in securities issued by other investment companies if required by
the SEC or deemed to be in the best interests of the Trust, and will comply with
any fundamental investment restriction than may otherwise be applicable to such
investments.
Unaffiliated money market funds whose securities are purchased by the Portfolios
are not obligated to redeem such securities in an amount exceeding 1% of their
total outstanding securities during any period of less than 30 days. Therefore,
such securities that exceed this amount may be illiquid.
To the extent required by the 1940 Act, each Portfolio expects to vote the
shares of other investment companies that are held by it in the same proportion
as the vote of all other holders of such securities.
Repurchase Agreements
Each Portfolio may enter into repurchase agreements with financial institutions,
such as banks and broker-dealers, as are deemed creditworthy by Northern under
guidelines approved by the Trust's Board of Trustees. The repurchase price under
the repurchase agreements will generally equal the price paid by a Portfolio
plus interest negotiated on the basis of current short-term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). Securities subject to repurchase agreements will be held by the
Trust's custodian (or subcustodian), in the Federal Reserve/Treasury book-entry
system or by another authorized securities depository. Repurchase agreements are
considered to be loans by a Portfolio under the 1940 Act.
Reverse Repurchase Agreements
Each Portfolio (except the Tax-Exempt Portfolio) may borrow funds for temporary
or emergency purposes by selling portfolio securities to financial institutions
such as banks and broker/dealers and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements"). Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Portfolio may decline below the repurchase price. The Portfolios will pay
interest 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,
B-6
<PAGE>
subject to the agreement. Reverse repurchase agreements are considered to be
borrowings by a Portfolio under the 1940 Act.
Securities Lending
Collateral for loans of portfolio securities made by a Portfolio may consist of
cash, securities issued or guaranteed by the U.S. Government or its agencies or
irrevocable bank letters of credit (or any combination thereof). The borrower of
securities will be required to maintain the market value of the collateral at
not less than the market value of the loaned securities, and such value will be
monitored on a daily basis. When a Portfolio lends its securities, it continues
to receive interest on the securities loaned and may simultaneously earn
interest on the investment of the cash collateral which will be invested in
readily marketable, high-quality, short-term obligations. Although voting
rights, or rights to consent, attendant to securities on loan pass to the
borrower, such loans will be called so that the securities may be voted by a
Portfolio if a material event affecting the investment is to occur.
Forward Commitments and When-Issued Securities
Each Portfolio may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment (sometimes called delayed delivery)
basis. These transactions involve a commitment by the Portfolio to purchase or
sell securities at a future date. The price of the underlying securities
(usually expressed in terms of yield) and the date when the securities will be
delivered and paid for (the settlement date) are fixed at the time the
transaction is negotiated. When-issued purchases and forward commitment
transactions are normally negotiated directly with the other party.
A Portfolio will purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis only with the intention of completing
the transaction and actually purchasing or selling the securities. If deemed
advisable as a matter of investment strategy, however, a Portfolio may dispose
of or negotiate a commitment after entering into it. A Portfolio also may sell
securities it has committed to purchase before those securities are delivered to
the Portfolio on the settlement date. The Portfolio may realize a capital gain
or loss in connection with these transactions. For purposes of determining a
Portfolio's average dollar-weighted maturity, the maturity of when-issued or
forward commitment securities will be calculated from the commitment date. When
a Portfolio purchases securities on a when-issued or forward commitment basis,
the Portfolio's custodian (or subcustodian) will maintain in a segregated
account liquid assets having a value (determined daily) at least equal to the
amount of the Portfolio's purchase commitments. In the case of a forward
commitment to sell portfolio securities, the custodian or subcustodian will hold
the portfolio securities themselves in a segregated account while the commitment
is outstanding. These procedures are designed to ensure that the Portfolio will
maintain sufficient assets at all times to cover its obligations under when-
issued purchases and forward commitments.
B-7
<PAGE>
Yields and Ratings
The yields on certain obligations, including the money market instruments in
which the Portfolios invest (such as commercial paper and bank obligations), are
dependent on a variety of factors, including general money market conditions,
conditions in the particular market for the obligation, financial condition of
the issuer, size of the offering, maturity of the obligation and ratings of the
issue. The ratings of S&P, Moody's, D&P, Fitch and TBW represent their
respective opinions as to the quality of the obligations they undertake to rate.
Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate may
have different market prices.
Municipal Instruments
Opinions relating to the validity of Municipal Instruments and to the exemption
of interest thereon from regular Federal income tax are rendered by bond counsel
to the respective issuing authorities at the time of issuance. Neither the Trust
nor Northern will review the proceedings relating to the issuance of Municipal
Instruments or the bases for such opinions.
An issuer's obligations under its Municipal Instruments are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its Municipal Instruments may be materially
adversely affected by litigation or other conditions.
From time to time proposals have been introduced before Congress for the purpose
of restricting or eliminating the Federal income tax exemption for interest on
Municipal Instruments. For example, under the Tax Reform Act of 1986 interest on
certain private activity bonds must be included in an investor's Federal
alternative minimum taxable income, and corporate investors must include all
tax-exempt interest in their Federal alternative minimum taxable income. The
Trust cannot predict what legislation, if any, may be proposed in the future in
Congress as regards the Federal income tax status of interest on Municipal
Instruments. Future proposals could materially adversely affect the availability
of Municipal Instruments for investment by the Tax-Exempt Portfolio and the
liquidity and value of the Portfolio. In such an event the Board of Trustees
would reevaluate the Portfolio's investment objective and policies and consider
changes in its structure or possible dissolution.
Interest earned by the Tax-Exempt Portfolio on private activity bonds (if any)
that is treated as a specific tax preference item under the Federal alternative
minimum tax will not be deemed to have been
B-8
<PAGE>
derived from Municipal Instruments for purposes of determining whether that
Portfolio meets its fundamental policy that at least 80% of its annual gross
income be derived from Municipal Instruments.
Standby Commitments
The Tax-Exempt Portfolio may enter into standby commitments with respect to
Municipal Instruments held by it. Under a standby commitment, a dealer agrees to
purchase at the Portfolio's option a specified Municipal Instrument at its
amortized cost value to the Portfolio plus accrued interest, if any. Standby
commitments may be exercisable by the Portfolio at any time before the maturity
of the underlying Municipal Instruments and may be sold, transferred or assigned
only with the instruments involved.
The Tax-Exempt Portfolio expects that standby commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Portfolio may pay for a standby commitment either
separately in cash or by paying a higher price for Municipal Instruments which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding standby commitments held by the Portfolio will not exceed
1/2 of 1% of the value of the Portfolio's total assets calculated immediately
after each standby commitment is acquired.
The Portfolio intends to enter into standby commitments only with dealers, banks
and broker-dealers which, in Northern's opinion, present minimal credit risks.
The Portfolio will acquire standby commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a standby commitment will not affect the valuation
or assumed maturity of the underlying Municipal Instrument. The actual standby
commitment will be valued at zero in determining net asset value. Accordingly,
where the Portfolio pays directly or indirectly for a standby commitment, its
cost will be reflected as an unrealized loss for the period during which the
commitment is held by the Portfolio and will be reflected in realized gain or
loss when the commitment is exercised or expires.
Investment Restrictions
Each Portfolio is subject to the fundamental investment restrictions enumerated
below which may be changed with respect to a particular Portfolio only by a vote
of the holders of a majority of such Portfolio's outstanding shares.
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-9
<PAGE>
(2) Mortgage, pledge or hypothecate any assets (other than pursuant to
reverse repurchase agreements for the Diversified Assets, Government and
Government Select Portfolios) except to secure permitted borrowings.
(3) Purchase or sell real estate or securities issued by real estate
investment trusts, but this restriction shall not prevent a Portfolio from
investing directly or indirectly in portfolio instruments secured by real
estate or interests therein.
(4) Purchase or sell commodities or commodity contracts or oil or gas or
other mineral exploration or development programs.
(5) Invest in companies for the purpose of exercising control or
management.
(6) Act as underwriter of securities (except as a Portfolio may be deemed
to be an underwriter under the Securities Act of 1933 in connection with
the purchase and sale of portfolio instruments in accordance with its
investment objective and portfolio management policies), purchase
securities on margin (except for delayed delivery or when-issued
transactions or such short-term credits as are necessary for the clearance
of transactions), make short sales of securities or maintain a short
position, or write puts, calls or combinations thereof.
(7) The Portfolio may not make any investment inconsistent with the
Portfolio's classification as a diversified investment company under the
1940 Act.
(8) Purchase securities if such purchase would cause more than 25% in the
aggregate of the market value of the total assets of a Portfolio to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no
limitation with respect to, and each Portfolio reserves freedom of action,
when otherwise consistent with its investment policies, to concentrate its
investments in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, obligations (other than commercial paper)
issued or guaranteed by U.S. banks and U.S. branches of foreign banks and
repurchase agreements and securities loans collateralized by such U.S.
Government obligations or such bank obligations. For the purposes of this
restriction, state and municipal governments and their agencies and
authorities are not deemed to be industries; as to utility companies, the
gas, electric, water and telephone businesses are considered separate
industries; personal credit finance companies and business credit finance
companies are deemed to be separate industries; and wholly-owned finance
companies are considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents.
(9) Borrow money (other than pursuant to reverse repurchase agreements for
the Portfolios described above), except (a) as a
B-10
<PAGE>
temporary measure, and then only in amounts not exceeding 5% of the value
of the Portfolio's total assets or (b) from banks, provided that
immediately after any such borrowing all borrowings of the Portfolio do not
exceed one-third of the Portfolio's total assets. No purchases of
securities will be made if borrowings subject to this restriction exceed 5%
of the value of the Portfolio's assets. The exceptions in (a) and (b) to
this restriction are not for investment leverage purposes but are solely
for extraordinary or emergency purposes or to facilitate management of the
Trust's Portfolios by enabling the Trust to meet redemption requests when
the liquidation of portfolio instruments is deemed to be disadvantageous or
not possible. If due to market fluctuations or other reasons the total
assets of a Portfolio fall below 300% of its borrowings, the Trust will
promptly reduce the borrowings of such Portfolio in accordance with the
1940 Act.
(10) Notwithstanding any of the Trust's other fundamental investment
restrictions (including, without limitation, those restrictions relating to
issuer diversification, industry concentration and control), each Portfolio
may (a) purchase securities of other investment companies to the full
extent permitted under Section 12 of the 1940 Act (or any successor
provision thereto) or under any regulation or order of the Securities and
Exchange Commission; and (b) invest all or substantially all of its assets
in a single open-end investment company or series thereof with
substantially the same investment objective, policies and fundamental
restrictions as the Portfolio.
* * *
The freedom of action reserved in Restriction No. 8 with respect to U.S.
branches of foreign banks is subject to the requirement that they are subject to
the same regulation as domestic branches of U.S. banks.
In addition, as matters of fundamental policy, the Government Select Portfolio,
Government Portfolio and Diversified Assets Portfolio may not enter into reverse
repurchase agreements exceeding in the aggregate one-third of the applicable
Portfolio's total assets; and the Tax-Exempt Portfolio may not acquire direct
ownership of industrial development bonds if, as a result of such acquisition,
more than 5% of the value of its total assets would be invested in industrial
development bonds where payment of principal and interest is the responsibility
of companies (including their predecessors) with less than three years of
operating history and such bonds are not guaranteed as to principal and interest
by companies (including their predecessors) with three years or more of
operating history.
Except to the extent otherwise provided in Investment Restriction (8) 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.
B-11
<PAGE>
In applying Restriction No. 8 above, a security is considered to be issued by
the entity, or entities, whose assets and revenues back the security. A
guarantee of a security is not deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the guarantor, and
owned by a Portfolio, does not exceed 10% of the value of the Portfolio's total
assets.
Any restriction which involves a maximum percentage will not be considered
violated unless an excess over the percentage occurs immediately after, and is
caused by, an acquisition or encumbrance of securities or assets of, or
borrowings by, a Portfolio.
B-12
<PAGE>
ADDITIONAL TRUST INFORMATION
Trustees and Officers
Information pertaining to the Trustees and officers of the Trust is set forth
below.
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------------------- ---------- -----------------------------------------------
<S> <C> <C>
William H. Springer, 68 Chairman Vice Chairman of Ameritech
701 Morningside Drive and (a telecommunications holding
Lake Forest, IL 60045 Trustee company), from February 1987 to
retirement in August 1992; Vice
Chairman, Chief Financial
and Administrative Officer of Ameritech
prior to 1987; Director, Walgreen Co. (a
retail drug store business); Director of
Baker, Fentress & Co. (a closed-end, non-
diversified management investment company)
from April 1992 to present; Trustee,
Goldman Sachs Trust from 1989 to present.
Richard Gordon Cline, 62 Trustee Chairman, Hawthorne Investors,
4200 Commerce Court Inc. (a management advisory
Suite 300 services and private
Lisle, IL 60532 investment company) since January 1996;
Chairman and CEO of NICOR Inc. (a
diversified public utility holding
company) from 1986 to 1995, and President,
1992-1993; Director: Whitman Corporation
(a diversified holding company); Kmart
Corporation (a retailing company); Ryerson
Tull, Inc. (metals distribution company);
and University of Illinois Foundation.
Edward J. Condon, Jr., 57 Trustee Chairman of The Paradigm Group,
Sears Tower, Suite 9650 Ltd. (a financial advisor)
233 S. Wacker Dr. since July 1993; Chairman,
Chicago, IL 60606 Hussman International, Inc.
(commercial refridgeration
company) since and 1998; Vice
President 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:
</TABLE>
B-13
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------------------- ---------- -----------------------------------------------
<S> <C> <C>
Sears Roebuck Acceptance Corp.; Discover
Credit Corp.; Sears Receivables Financing
Group,Inc.; Sears Credit Corp.; and Sears
Overseas Finance N.V; Member of the Board
of Managers of The Liberty Hampshire
Company, LLC; Vice Chairman and Director of
Energenics LLC; Director of University
Eldercare, Inc.; Director of the Girl
Scouts of Chicago; and Trustee of Dominican
University.
John W. English, 64 Trustee Private Investor; Vice President
50-H New England Avenue and Chief Investment Officer of The Ford
P.O. Box 640 Foundation (a charitable trust) from 1981 until
Summit, NJ 07902-0640 1993; Trustee: The China Fund, Inc.; Retail
Property Trust; Sierra Trust; American
Red Cross in Greater New York; Mote Marine
Laboratory; and Shareed Board for Christian
Higher Education in Asia. Director: University
of Iowa Foundation; Blanton-Peale
Institutes of Religion and Health;
Commsharey Foundation of Sarasota
County; Duke Management Company; and John
Ringling Centre Foundation.
Sandra Polk Guthman, 53 Trustee President and CEO of Polk
420 N. Wabash Avenue Bros. Foundation (an Illinois
Suite 204 not-for-profit corporation)
Chicago, IL 60611 from 1993 to present; Director of
Business Transformation from 1992-1993,
and Midwestern Director of
Marketing from 1988-1992, IBM Corporation;
Director:MBIA Insurance Corporation of
Illinois (bank holding company) since 1994
and Avondale Financial Corporation (a
stock savings and loan holding company)
since 1995.
</TABLE>
B-14
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------------------- ---------- -----------------------------------------------
<S> <C> <C>
Frederick T. Kelsey, 70 Trustee Consultant to Goldman Sachs
4010 Arbor Lane #102 from December 1985 through
Northfield, IL 60093 February 1988; Director of
Goldman Sachs Funds Group and
Vice President of Goldman Sachs
from May 1981 until his retirement
in November 1985; President and Treasurer
of the Trust and other investment companies
affiliated with Goldman Sachs through August
1985; President from 1983 to 1985, and Trustee
from 1983 to 1994, The Centerland Funds and
its successor, The Pilot Funds; Trustee, various
management investment companies affiliated with
Zurich Kemper Investments.
Richard P. Strubel, 58 Trustee Managing Director, Tandem
70 West Madison St Partners, Inc. (a privately
Suite 1400 held management services firm)
Chicago, IL 60602 since 1990; President and CEO, Microdot,
Inc. (a privately held manufacturing firm)
from 1984 to 1994; Trustee, Goldman Sachs
Trust from 1987 to present; Director of
Kaynar Technologies Inc. (a leading
manufacturer of aircraft fasteners);
Trustee of the University of Chicago;
Director of Children's Memorial Medical
Center.
Frank E. Polefrone 41 President Director of Financial
4900 Sears Tower Institutions Sales and
Chicago, IL 60606 Marketing of Goldman, Sachs
Asset Management ("GSAM") since March
1997.Marketing/Product Development of
Federated Investors from August 1982
through December 1996.
James A. Fitzpatrick 38 Vice Vice President, GSAM (since A April 1997);
President Vice President and General Manager, First Data
Corporation - Investors Services Group prior
thereto.
Gordon Linke [age] Vice [bio to come]
President
</TABLE>
B-15
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------------------- ---------- -----------------------------------------------
<S> <C> <C>
Nancy L. Mucker, 47 Vice Vice President, Goldman Sachs
4900 Sears Tower President (since April 1985); Manager,
Chicago, IL 60606 Shareholder Servicing of GSAM (since
November 1989).
John W. Mosior, 58 Vice Vice President, Goldman Sachs;
4900 Sears Tower President Manager of Shareholder
Chicago, IL 60606 Servicing of GSAM (since November 1989).
Scott M. Gilman, 37 Treasurer Director, Mutual Fund Administration, GSAM
One New York Plaza (since April 1994); Assistant Treasurer of Goldman
New York, NY 10004 Sachs Funds Management, Inc. (since March 1993);
Vice President, Goldman Sachs (since
March 1990)
John Perlowski, 32 Assistant Vice President, Goldman Sachs
One New York Plaza Treasurer (since July 1995); Director,
New York, NY 10004 Investors Bank and Trust Company (November
1993 to July 1995); Audit Manager of Arthur
Anderson, LLP (prior thereto).
Michael J. Richman, 36 Secretary Associate General Counsel,
85 Broad Street GSAM (since February 1994);
New York, NY 10004 Vice President and Assistant General
Counsel of Goldman Sachs (since June 1992);
Counsel to the Funds Group of GSAM (since
June 1992); Partner of Hale and Dorr
(September 1991 to June 1992).
Howard B. Surloff, 32 Assistant Vice President and Assistant
85 Broad Street Secretary General Counsel, Goldman Sachs
New York, NY 10004 (since November 1993 and May 1994,
respectively); Counsel to the Funds
Group, GSAM (since November 1993); Associate
of Shereff, Friedman, Hoffman & Goodman,
LLP (prior thereto).
Valerie A. Zondorak, 32 Assistant Vice President, Goldman Sachs
85 Broad Street Secretary (since March 1997); Counsel to
New York, NY 10004 the Funds Group, GSAM (since
March 1997); Associate,
</TABLE>
B-16
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------------------- ---------- -----------------------------------------------
<S> <C> <C>
Shereff, Friedman, Hoffman & Goodman, LLP
(prior thereto).
Steven E. Hartstein, 33 Assistant Legal Products Analyst,
85 Broad Street Secretary Goldman Sachs (since June 1993);
New York, NY 10004 Funds Compliance Officer, Citibank Global
Asset Management (August 1991 to June 1993).
Deborah A. Farrell, 26 Assistant Legal Assistant, Goldman Sachs
85 Broad Street Secretary (since January 1994;)
New York, NY 10004 Formerly at Cleary,
Gottlieb, Steen & Hamilton.
</TABLE>
Certain of the Trustees and officers and the organizations with which they are
associated have had in the past, and may have in the future, transactions with
Northern, Goldman Sachs and their respective affiliates. The Trust has been
advised by such Trustees and officers that all such transactions have been and
are expected to be in the ordinary course of business and the terms of such
transactions, including all loans and loan commitments by such persons, have
been and are expected to be substantially the same as the prevailing terms for
comparable transactions for other customers. Messrs. Springer, Kelsey, Strubel,
Mosior, Gilman, Richman, Surloff and Hartstein and Mmes. Farrell, Mucker and
Zondorak hold similar positions with one or more investment companies that are
advised by Goldman Sachs. As a result of the responsibilities assumed by
Northern under its Advisory Agreement, Transfer Agency Agreement and Custodian
Agreement and Foreign Custody Agreement with the Trust and by Goldman Sachs
under its Administration Agreement and Distribution Agreement with the Trust,
the Trust itself requires no employees.
Each officer holds comparable positions with certain other investment companies
of which Goldman Sachs, GSAM or an affiliate thereof is the investment adviser,
administrator and/or distributor.
Each Trustee earns a quarterly retainer of $6,250 and the Chairman of the Board
earns a quarterly retainer of $9,375. Each Trustee, including the Chairman of
the Board, earns an additional fee of $1,500 for each meeting attended, plus
reimbursement of expenses incurred as a Trustee.
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.
B-17
<PAGE>
Each Trustee will hold office for an indefinite term until the earliest of (1)
the next meeting of Shareholders if any, called for the purpose of considering
the election or re-election of such Trustee and until the election and
qualification of his or her successor, if any, elected at such meeting; (2) the
date a Trustee resigns or retires, or a Trustee is removed by the Board of
Trustees or Shareholders, in accordance with the Trust's Agreement and
Declaration of Trust, or (3) in accordance with the current resolutions of the
Board of Trustees (which may be changed without Shareholder vote), on the last
day of the fiscal year of the Trust in which he or she attains the age of 72
years.
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-18
<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, 1997:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation from
Aggregate Accrued as Registrant and
Compensation Part of Fund Complex Paid
Name of Trustee from the Registrant Trust's Expenses to Trustees
- --------------- ------------------- ---------------- -----------------
<S> <C> <C> <C>
William H. Springer $45,000 $0 $45,000
Richard G. Cline ***
Edward J. Condon, Jr. $32,500 $0 $32,500
John W. English $31,000 $0 $31,000
James J. Gavin* $35,500 $0 $35,500
Sandra Polk Guthman ***
Frederick T. Kelsey $35,500 $5,325** $40,825
Richard P. Strubel $40,500 $0 $40,500
</TABLE>
* Retired as of November 30, 1997.
** Interest from deferred compensation.
*** Mr. Cline and Ms. Guthman were elected as Trustees of the Trust in
September 1997.
B-19
<PAGE>
Investment Adviser, Transfer Agent and Custodian
Northern, a wholly-owned subsidiary of Northern Trust Corporation, a bank
holding company, is one of the nation's leading providers of trust and
investment management services. As of December 31, 1997, Northern and its
affiliates had over $[ ] billion in assets under management for clients
including public and private retirement funds, endowments, foundations, trusts,
corporations, and individuals. Northern is one of the strongest banking
organizations in the United States. Northern believes it has built its
organization by serving clients with integrity, a commitment to quality, and
personal attention. Its stated mission with respect to all its financial
products and services is to achieve unrivaled client satisfaction. With respect
to such clients, the Trust is designed to assist (i) defined contribution plan
sponsors and their employees by offering a range of diverse investment options
to help comply with 404(c) regulation and may also provide educational material
to their employees, (ii) employers who provide post-retirement Employees'
Beneficiary Associations ("VEBA") and require investments that respond to the
impact of federal regulations, (iii) insurance companies with the day-to-day
management of uninvested cash balances as well as with longer-term investment
needs, and (iv) charitable and not-for-profit organizations, such as endowments
and foundations, demanding investment management solutions that balance the
requirement for sufficient current income to meet operating expenses and the
need for capital appreciation to meet future investment objectives.
Under its Advisory Agreement with the Trust, Northern, subject to the general
supervision of the Trust's Board of Trustees, is responsible for making
investment decisions for each Portfolio and placing purchase and sale orders for
the portfolio transactions of the Portfolios. In connection with portfolio
transactions for the Portfolios, which are generally done at a net price without
a broker's commission, Northern's Advisory Agreement provides that Northern
shall attempt to obtain the best net price and execution. In assessing the best
overall terms available for any transaction, Northern is to consider all factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. In evaluating the best overall
terms available and in selecting the broker or dealer to execute a particular
transaction, Northern may consider the brokerage and research services provided
to the Portfolios and/or other accounts over which Northern or an affiliate of
Northern exercises investment discretion. These brokerage and research services
may include industry and company analyses, portfolio services, quantitative
data, market information systems and economic and political consulting and
analytical services.
For the fiscal years ended November 30, 1997, 1996 and 1995, all portfolio
transactions for the Portfolios were executed on a principal basis and,
therefore, no brokerage commissions were paid by the Portfolios. Purchases by
the Portfolios from underwriters of
B-20
<PAGE>
portfolio securities, however, normally include a commission or concession paid
by the issuer to the underwriter, and purchases from dealers include the spread
between the dealer's cost for a given security and the resale price of the
security.
Northern's investment advisory duties for the Trust are carried out through its
Trust Department. On occasions when Northern deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other fiduciary
or agency accounts managed by it (including any other Portfolio, investment
company or account for which Northern acts as adviser), the Agreement provides
that Northern, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be sold or purchased for such Portfolio with those
to be sold or purchased for such other accounts in order to obtain best net
price and execution. In such event, allocation of the securities so purchased
or sold, as well as the expenses incurred in the transaction, will be made by
Northern in the manner it considers to be most equitable and consistent with its
fiduciary obligations to the Portfolio and other accounts involved. In some
instances, this procedure may adversely affect the size of the position
obtainable for a Portfolio or the amount of the 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 its discretion but subject to applicable law, to select the
executing broker or dealer on the basis of Northern's opinion of the reliability
and quality of such broker or dealer.
The Advisory Agreement provides that Northern may render similar services to
others so long as its services under such Agreement are not impaired thereby.
The Advisory Agreement also provides that the Trust will indemnify Northern
against certain liabilities (including liabilities under the Federal securities
laws relating to untrue statements or omissions of material fact and actions
that are in accordance with the terms of the Agreement) or, in lieu thereof,
contribute to resulting losses.
Under its Transfer Agency Agreement with the Trust, Northern has undertaken to
(1) answer customer inquiries regarding the current yield of, and certain other
matters (e.g. account status information) pertaining to, the Trust, (2) process
purchase and redemption transactions, including transactions generated by any
service provided outside of the Agreement by Northern, its affiliates or
correspondent banks whereby customer account cash balances are automatically
invested in shares of the Portfolios, and the disbursement of the proceeds of
redemptions, (3) establish and maintain separate omnibus accounts with respect
to shareholders investing through Northern or any of its affiliates and
correspondent banks and act as transfer agent and perform sub-accounting
services with respect to each such account, (4) provide periodic statements
showing account balances, (5) mail reports and proxy materials to shareholders,
(6) provide information in connection with the preparation by the Trust of
various regulatory reports and prepare reports to the Trustees and management,
(7) answer inquiries (including requests for prospectuses and Additional
Statements, and assistance in the
B-21
<PAGE>
completion of new account applications) from investors and respond to all
requests for information regarding the Trust (such as current price, recent
performance, and yield data) and questions relating to accounts of investors
(such as possible errors in statements, and transactions), (8) respond to and
seek to resolve all complaints of investors with respect to the Trust or their
accounts, (9) furnish proxy statements and proxies, annual and semi-annual
financial statements, and dividend, distribution and tax notices to investors,
(10) furnish the Trust all pertinent Blue Sky information, (11) perform all
required tax withholding, (12) preserve records, and (13) furnish necessary
office space, facilities and personnel. Northern may appoint one or more sub-
transfer agents in the performance of its services.
As compensation for the services rendered by Northern under the Transfer Agency
Agreement and the assumption by Northern of related expenses, Northern is
entitled to a fee from the Trust, payable monthly, at an annual rate equal to
$18 for each subaccount relating to shares of the Trust. This fee is subject to
annual upward adjustments based on increases in the Consumer Price Index for All
Urban Consumers, provided that Northern may permanently or temporarily waive all
or any portion of any upward adjustment. Northern's affiliates and correspondent
banks may receive compensation for performing the services described in the
preceding paragraph that Northern would otherwise receive. Conflict-of-interest
restrictions under state and Federal law (including the Employee Retirement
Income Security Act of 1974) may apply to the receipt by such affiliates or
correspondent banks of such compensation in connection with the investment of
fiduciary funds in Portfolio shares.
Under its Custodian Agreement with the Trust, Northern (1) holds each
Portfolio's cash and securities, (2) maintains such cash and securities in
separate accounts in the name of the Portfolio, (3) makes receipts and
disbursements of funds on behalf of the Portfolio, (4) receives, delivers and
releases securities on behalf of the Portfolio, (5) collects and receives all
income, principal and other payments in respect of the Portfolio's securities
held by Northern under the Agreement, and (6) maintains the accounting records
of the Trust. Northern may employ one or more subcustodians, provided that
Northern shall have no more responsibility or liability to the Trust on account
of any action or omission of any subcustodian so employed than such subcustodian
has to Northern and that the responsibility or liability of the subcustodian to
Northern shall conform to the resolution of the Trustees of the Trust
authorizing the appointment of the particular subcustodian. Northern may also
appoint agents to carry out such of the provisions of the Custodian Agreement as
Northern may from time to time direct, provided that the appointment of an agent
shall not relieve Northern of any of its responsibilities under the Agreement.
As compensation for the services rendered to the Trust by Northern as custodian,
and the assumption by Northern of certain related expenses, Northern is entitled
to payment from the Trust as follows: (i) $18,000 annually for each Portfolio,
plus (ii) 1/100th of 1% annually of each Portfolio's average daily net assets to
the extent
B-22
<PAGE>
they exceed $100 million, plus (iii) a fixed dollar fee for each trade in
portfolio securities, plus (iv) a fixed dollar fee for each time that Northern
as custodian receives or transmits funds via wire, plus (v) reimbursement of
expenses incurred by Northern as custodian for telephone, postage, courier fees,
office supplies and duplicating. The fees referred to in clauses (iii) and (iv)
are subject to annual upward adjustments based on increases in the Consumer
Price Index for All Urban Consumers, provided that Northern may permanently or
temporarily waive all or any portion of any upward adjustment.
Unless sooner terminated, each of the Advisory Agreement, Transfer Agency
Agreement and Custodian Agreement between Northern and the Trust will continue
in effect with respect to a particular Portfolio until April 30, 1999, 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 shares of such Portfolio (as defined below under
"Other Information"). Each agreement is terminable at any time without penalty
by the Trust (by specified Trustee or shareholder action) on 60 days' written
notice to Northern and by Northern on 60 days' written notice to the Trust.
For the fiscal periods ended November 30, as indicated, the amount of the
Advisory Fee (after fee waivers) incurred by each Portfolio was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Government Select Portfolio $ 772,113 $ 569,065
Government Portfolio 2,617,746 1,938,878
Diversified Assets Portfolio 7,832,358 7,080,710
Tax-Exempt Portfolio 1,885,156 1,687,136
</TABLE>
In addition, for the fiscal periods ended November 30, as indicated, Northern
waived additional advisory fees with respect to the Government Select Portfolio
in the amounts of $1,157,788, $853,605 and $622,131. Northern waived additional
advisory fees with respect to the Government Portfolio for the period from June
1, 1994 through July 31, 1994 in the amount of $69,721.
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>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Government Select Portfolio $22,274 $ 25,000
Government Portfolio 31,048 32,000
Diversified Assets Portfolio 64,579 110,000
Tax-Exempt Portfolio 14,883 32,000
</TABLE>
B-23
<PAGE>
For the fiscal periods ended November 30, as indicated, the amount of the
Custodian Fees incurred by each Portfolio was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Government Select Portfolio $ 96,787 $ 75,122
Government Portfolio 131,957 101,086
Diversified Assets Portfolio 360,387 317,635
Tax-Exempt Portfolio 105,936 97,551
</TABLE>
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. Northern believes that it may perform the services
contemplated by its agreements with the Trust without violation of such banking
laws or regulations, which are applicable to it. It should be noted, however,
that future changes in either Federal or state statutes and regulations relating
to the permissible activities of banks and their subsidiaries or affiliates, as
well as future judicial or administrative decisions or interpretations of
current and future statutes and regulations, could prevent Northern from
continuing to perform such services for the Trust.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of Northern in connection with the provision of services
on behalf of the Trust, the Trust might be required to alter materially or
discontinue its arrangements with Northern and change its method of operations.
It is not anticipated, however, that any change in the Trust's method of
operations would affect the net asset value per share of any Portfolio or result
in a financial loss to any shareholder. Moreover, if current restrictions
preventing a bank from legally sponsoring, organizing, controlling or
distributing shares 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.
Northern is active as an underwriter of municipal instruments. Under the 1940
Act the Portfolios are precluded, subject to certain exceptions, from purchasing
in the primary market those municipal instruments with respect to which Northern
is serving as a principal underwriter. In the opinion of Northern, this
limitation will not significantly affect the ability of the Portfolios to pursue
their respective investment objectives. Goldman Sachs is also an active
investor, dealer and/or underwriter in many types of money market instruments.
Its activities in this regard could have some effect on
B-24
<PAGE>
the market for those instruments which the Portfolios acquire, hold or sell.
In the Advisory Agreement, Northern agrees that the name "The Benchmark" may be
used in connection with the Trust's business on a royalty-free basis. Northern
has reserved to itself the right to grant the non-exclusive right to use the
name "The Benchmark" to any other person. The Advisory Agreement provides that
at such time as the Agreement is no longer in effect, the Trust will cease using
the name "The Benchmark." (This undertaking by the Trust may be subject to
certain legal limitations.)
Portfolio Transactions
During the fiscal year ended November 30, 1997, the Diversified Assets Portfolio
acquired and sold securities of [Bear Stearns & Co., Donaldson Lufkin & Jenrette
Securities, Inc., J.P. Morgan Securities, Inc., Merrill Lynch & Co., Inc. and
Swiss Bank,] each a regular broker/dealer. At November 30, 1997, the Diversified
Assets Portfolio owned the following amounts of securities of its regular
broker/dealers, as defined in Rule 10b-1 under the 1940 Act, or their parents:
[Bear Stearns & Co., with an approximate aggregate market value of $270,101,000,
Donaldson, Lufkin & Jenrette Securities, Inc., with an approximate aggregate
market value of $200,000,000, J.P. Morgan Securities, Inc., with an approximate
aggregate market value of $131,063,000, Merrill Lynch & Co., Inc., with an
approximate aggregate market value of $50,000,000 and Swiss Bank, with an
approximate aggregate market value of $10,001,000.]
During the fiscal year ended November 30, 1997, the Government Portfolio
acquired and sold securities of [Bear Stearns & Co., J.P. Morgan Securities,
Inc., Nomura Securities and UBS Securities,] each a regular broker/dealer. At
November 30, 1997, the Government Portfolio owned the following amounts of
securities of its regular broker/dealers, as defined in Rule 10b-1 under the
1940 Act, or their parents: [Bear Stearns & Co., with an approximate aggregate
market value of $140,000,000, J.P. Morgan Securities, Inc., with an approximate
aggregate market value of $8,704,000, Nomura Securities, with an approximate
aggregate market value of $200,000,000 and UBS Securities, with an approximate
aggregate market value of $50,000,000.]
Administrator and Distributor
Under its Administration Agreement with the Trust, Goldman Sachs, subject to the
general supervision of the Trust's Board of Trustees, acts as the Trust's
Administrator. In this capacity, Goldman Sachs (1) provides supervision of all
aspects of the Trust's non-investment advisory operations (the parties giving
due recognition to the fact that certain of such operations are performed by
Northern pursuant to the Trust's agreements with Northern), (2) provides the
Trust, to the extent not provided pursuant to such agreements, with such
personnel as are reasonably necessary for the conduct of the Trust's affairs,
(3) arranges, to the extent not provided pursuant to such agreements,
B-25
<PAGE>
for the preparation at the Trust's expense of its tax returns, reports to
shareholders, 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 shares),
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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Government Select Portfolio $ 897,049 $ 751,804
Government Portfolio 1,036,172 895,112
Diversified Assets Portfolio 2,079,083 1,928,672
Tax-Exempt Portfolio 885,446 828,163
</TABLE>
For the fiscal periods ended November 30, as indicated, and prior to May 1,
1997, Goldman Sachs voluntarily agreed to waive a portion of its Administration
Fee for each Portfolio resulting in an effective fee of .10% of the average
daily net assets for each Portfolio. The effect of these waivers by Goldman
Sachs was to reduce administration fees by the following amounts:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C>
Government Select Portfolio $364,826 $346,936
Government Portfolio 305,696 369,546
Diversified Assets Portfolio 0 0
Tax-Exempt Portfolio 382,218 389,481
</TABLE>
In addition, pursuant to an undertaking that commenced August 1, 1992, Goldman
Sachs agreed that, if its administration fees (less expense reimbursements paid
by Goldman Sachs to the Trust and less certain marketing expenses paid by
Goldman Sachs) exceed a specified amount ($1 million for the Trust's first
twelve investment portfolios plus $50,000 for each additional portfolio) during
the current fiscal year, Goldman Sachs will waive a portion of its
administration fees during the following fiscal year. This undertaking may be
terminated by Goldman Sachs at any time without the consent of the Trust or the
shareholders. There have been no waivers pursuant to this agreement during the
last three fiscal periods.
Goldman Sachs has agreed for the current fiscal year to reimburse each Portfolio
for all expenses (including fees payable to Goldman Sachs as administrator, but
excluding the fees payable to Northern for its duties as investment adviser or
transfer agent, servicing fees and extraordinary expenses) which exceed on an
annualized basis .10% of each Portfolio's average net assets. Prior to May 1,
1997, this undertaking was voluntary with respect to the Portfolios. As of May
1, 1997, this undertaking is contractual with respect to all Portfolios. For the
fiscal periods ended November 30, 1996, 1995 and 1994, there were no reductions
in the administration fee.
Unless sooner terminated the Administration Agreement will continue in effect
with respect to a particular Portfolio until April 30, 1999, and thereafter for
successive 12-month periods, provided that
B-26
<PAGE>
the agreement is approved annually (1) by the vote of a majority of the Trustees
who are not parties to the agreement or "interested persons" (as such term is
defined by the 1940 Act) of any party thereto, cast in person at a meeting
called for the purpose of voting on such approval, and (2) by the Trustees or by
the vote of a majority of the outstanding shares of such Portfolio (as defined
below under "Other Information"). The Administration Agreement is terminable at
any time without penalty by the Trust (upon specified Trustee or shareholder
action) on 60 days' written notice to Goldman Sachs and by Goldman Sachs on 60
days' written notice to the Trust.
The Trust has entered into a Distribution Agreement under which Goldman Sachs,
as agent, sells shares of each Portfolio on a continuous basis. Goldman Sachs
pays the cost of printing and distributing prospectuses to persons who are not
shareholders of Trust shares (excluding preparation and typesetting expenses)
and of all other sales presentations, mailings, advertising and other
distribution efforts. No compensation is payable by the Trust to Goldman Sachs
for such distribution services.
The Administration Agreement and the Distribution Agreement provide that Goldman
Sachs may render similar services to others so long as its services under such
Agreements are not impaired thereby. The Administration Agreement provides that
the Trust will indemnify Goldman Sachs against certain liabilities (including
liabilities under the Federal securities laws relating to untrue statements or
omissions of material fact and actions that are in accordance with the terms of
the Administration Agreement and Distribution Agreement) or, in lieu thereof,
contribute to resulting losses.
Counsel and Auditors
Drinker Biddle & Reath LLP, with offices at 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107, serve as counsel to the Trust.
Ernst & Young LLP, independent auditors, 233 S. Wacker Drive, Chicago, Illinois
60606, have been selected as auditors of the Trust. In addition to audit
services, Ernst & Young LLP prepares the Trust's Federal and state tax returns,
and provides consultation and assistance on accounting, internal control and
related matters.
In-Kind Purchases
Payment for shares of a Portfolio may, in the discretion of Northern, be made in
the form of securities that are permissible investments for the Portfolio as
described in the Prospectus. For further information about this form of payment,
contact Northern. In connection with an in-kind securities payment, a Portfolio
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Portfolio and that
the Portfolio receive satisfactory assurances that it will have good and
marketable title to the securities received by it; that the securities be in
proper form for transfer to the Portfolio; and that adequate information be
provided concerning the basis and other tax matters relating to the securities.
B-27
<PAGE>
PERFORMANCE INFORMATION
From time to time the Trust may advertise quotations of "yields" and "effective
yields" with respect to each Portfolio's Service Shares and Premier Shares, and
"tax-equivalent yields" with respect to Service Shares and Premier Shares of the
Government Select Portfolio and Tax-Exempt Portfolio computed in accordance with
a standardized method, based upon the seven-day period ended on the date of
calculation. Yield, effective yield and tax equivalent yield are computed
separately for each class of shares. Each class of shares has different fees and
expenses, and consequently, may have different yields for the same period. In
arriving at such quotations as to "yield," the Trust first determines the net
change during the period in the value of a hypothetical pre-existing account
having a balance of one Service Share or Premier Share at the beginning of the
period (such net change being inclusive of the value of any additional shares of
the same class issued in connection with distributions of net investment income
as well as net investment income accrued on both the original share and any such
additional shares, but exclusive of realized gains and losses from the sale of
securities and unrealized appreciation and depreciation), then divides such net
change by the value of the account at the beginning of the period to obtain the
base period return, and then multiplies the base period return by 365/7.
The "effective yield" with respect to the Service Shares and Premier Shares of a
Portfolio is computed by adding 1 to the base period return (calculated as
above), raising the sum to a power equal to 365 divided by 7, and subtracting 1
from the result.
"Tax-equivalent yield" is computed by dividing the tax-exempt portion of the
yield by 1 minus a stated income tax rate, and then adding the product to the
taxable portion of the yield, if any. There may be more than one tax-equivalent
yield, if more than one stated income tax rate is used.
Quotations of yield, effective yield and tax-equivalent yield provided by the
Trust are carried to at least the nearest hundredth of one percent. Any fees
imposed by Northern, its affiliates or correspondent banks on their customers in
connection with investments in shares of the Portfolios are not reflected in the
calculation of yields for the Portfolios.
Each Portfolio's yield fluctuates, unlike bank deposits or other investments
which pay a fixed yield for a stated period of time. The annualization of one
week's income is not necessarily indicative of future actual yields. Actual
yields will depend on such variables as portfolio quality, average portfolio
maturity, the type of portfolio instruments acquired, changes in money market
interest rates, portfolio expenses and other factors. Yields are one basis
investors may use to analyze a class of shares of the Portfolio as compared to
comparable classes of shares of other money market funds and other investment
vehicles. However, yields of comparable classes of shares of other money market
funds and other investment vehicles may not be comparable because of the
foregoing variables, and differences in the
B-28
<PAGE>
methods used in valuing their portfolio instruments, computing net asset value
and determining yield.
Each Portfolio may also quote from time to time the total return of its Service
Shares or Premier Shares in accordance with SEC regulations.
AMORTIZED COST VALUATION
As stated in the Prospectus, each Portfolio seeks to maintain a net asset value
of $1.00 per share and, in this connection, values its instruments on the basis
of amortized cost pursuant to Rule 2a-7 under the 1940 Act. This method values a
security at its cost on the date of purchase and thereafter assumes a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a
Portfolio would receive if the Portfolio sold the instrument. During such
periods the yield to investors in the Portfolio may differ somewhat from that
obtained in a similar entity which uses available indications as to market value
to value its portfolio instruments. For example, if the use of amortized cost
resulted in a lower (higher) aggregate Portfolio value on a particular day, a
prospective investor in the Portfolio would be able to obtain a somewhat higher
(lower) yield and ownership interest than would result from investment in such
similar entity and existing investors would receive less (more) investment
income and ownership interest. However, the Trust expects that the procedures
and limitations referred to in the following paragraphs of this section will
tend to minimize the differences referred to above. Under Rule 2a-7, the Trust's
Board of Trustees, in supervising the Trust's operations and delegating special
responsibilities involving portfolio management to Northern, has established
procedures that are intended, taking into account current market conditions and
the Portfolios' investment objectives, to stabilize the net asset value of each
Portfolio, as computed for the purposes of purchases and redemptions, at $1.00
per share. The Trustees' procedures include periodic monitoring of the
difference (the "Market Value Difference") between the amortized cost value per
share and the net asset value per share based upon available indications of
market value. Available indications of market value used by the Trust consist of
actual market quotations or appropriate substitutes which reflect current market
conditions and include (a) quotations or estimates of market value for
individual portfolio instruments and/or (b) values for individual portfolio
instruments derived from market quotations relating to varying maturities of a
class of money market instruments. In the event the Market Value Difference of a
given Portfolio exceeds certain limits or Northern believes that the Market
Value Difference may result in material dilution or other unfair results to
investors or existing shareholders, the Trust will take action in accordance
with the 1940 Act and the Trustees will take such steps as they consider
appropriate (e.g., selling portfolio instruments to shorten average portfolio
maturity or to realize capital gains or losses, reducing or suspending
shareholder income accruals, redeeming
B-29
<PAGE>
shares in kind, or utilizing a net asset value per share based upon available
indications of market value which under such circumstances would vary from
$1.00) to eliminate or reduce to the extent reasonably practicable any material
dilution or other unfair results to investors or existing shareholders which
might arise from Market Value Differences. In particular, if losses were
sustained by a Portfolio, the number of outstanding shares might be reduced in
order to maintain a net asset value per share of $1.00. Such reduction would be
effected by having each shareholder proportionately contribute to the
Portfolio's capital the necessary shares to restore such net asset value per
share. Each shareholder will be deemed to have agreed to such contribution in
these circumstances by investing in the Portfolio.
Rule 2a-7 requires that each Portfolio limit its investments to instruments
which Northern determines (pursuant to guidelines established by the Board of
Trustees) to present minimal credit risks and which are "Eligible Securities" as
defined by the SEC and described in the Prospectus. The Rule also requires that
each Portfolio maintain a dollar-weighted average portfolio maturity (not more
than 90 days) appropriate to its policy of maintaining a stable net asset value
per share and precludes the purchase of any instrument deemed under the Rule to
have a remaining maturity of more than 13 months. Should the disposition of a
portfolio security result in a dollar-weighted average portfolio maturity of
more than 90 days, the Rule requires a Portfolio to invest its available cash in
such a manner as to reduce such maturity to the prescribed limit as soon as
reasonably practicable.
DESCRIPTION OF SERVICE SHARES AND PREMIER SHARES
The Trust Agreement permits the Trust's Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of one or more
separate series representing interests in different investment portfolios. The
Trustees may hereafter create series in addition to the Trust's existing
eighteen series which represent interests in the eighteen respective Portfolios.
The Prospectuses and this Additional Statement relate only to the Service Shares
and Premier Shares of the Government Select, Government, Diversified Assets and
Tax-Exempt Portfolios. For information on the other class of shares in the
Portfolios and on the Trust's other investment portfolios call Goldman Sachs at
the toll-free number on page 1.
The Trust Agreement further permits the Board of Trustees to classify or
reclassify any unissued shares into additional series or subseries within a
series. Pursuant to such authority, the Trustees have authorized the issuance of
an unlimited number of shares of beneficial interest in three separate subseries
(sometimes referred to as "classes") of shares in each of the Portfolios:
Shares, Service Shares and Premier Shares. Under the terms of the Trust
Agreement, each share of each Portfolio is without par value, represents an
equal proportionate interest in the particular Portfolio with each other share
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
B-30
<PAGE>
Portfolio, shareholders of each class of a Portfolio are entitled to share pro
rata in the net assets belonging to that class available for distribution.
Shares do not have any preemptive or conversion rights. The right of redemption
is described under "Investing-Redemption of Shares" in the Prospectus and under
"Amortized Cost Valuation" in this Additional Statement. In addition, pursuant
to the terms of the 1940 Act, the right of a shareholder to redeem shares 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 shareholders of the
Portfolio. The Trust may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.
In addition, shares 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 shareholders of the
Portfolio. Shares when issued as described in 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 shares,
and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to and constitute the underlying assets of that Portfolio. The underlying assets
of each Portfolio will be segregated on the books of account, and will be
charged with the liabilities in respect to that Portfolio and with a share of
the general liabilities of the Trust. Expenses with respect to the Portfolios
are normally allocated in proportion to the net asset value of the respective
Portfolios except where allocations of direct expenses can otherwise be fairly
made.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each
Portfolio affected by the matter. A Portfolio is affected by a matter unless it
is clear that the interests of each Portfolio in the matter are substantially
identical or that the matter does not affect any interest of the Portfolio.
Under the Rule, the approval of an investment advisory agreement or any change
in a fundamental investment policy would be effectively acted upon with respect
to a Portfolio only if approved by a majority of the outstanding shares of such
Portfolio. However, the Rule also provides that the ratification of the
appointment of independent accountants, the approval of principal underwriting
contracts and the election of Trustees may be effectively acted upon by
shareholders of the Trust voting together in the aggregate without regard to a
particular Portfolio. In addition, shareholders of each of the
B-31
<PAGE>
classes in a particular investment portfolio have equal voting rights except
that only shares of a particular class of an investment portfolio will be
entitled to vote on matters submitted to a vote of shareholders (if any)
relating to shareholder 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
shareholders. This is because the Trust Agreement provides for shareholder
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 shareholders, if any, called for the purpose of
considering the election or reelection of such Trustee or of a successor to such
Trustee, and until the election and qualification of his successor, if any,
elected at such meeting, or until such Trustee sooner dies, resigns, retires or
is removed by the shareholders or two-thirds of the Trustees.
Under the Delaware Business Trust Act (the "Delaware Act"), shareholders are not
personally liable for obligations of the Trust. The Delaware Act entitles a
shareholder of the Trust to the same limitation of liability as is available to
shareholders of private for-profit corporations. However, no similar statutory
or other authority limiting business trust shareholder liability exists in many
other states. As a result, to the extent that the Trust or a shareholder is
subject to the jurisdiction of courts in such other states, those courts may not
apply Delaware law and may subject the Shareholders to liability. To offset this
risk, the Trust Agreements (i) contains an express disclaimer of Shareholder
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation and instrument entered into or
executed by the Trust or its Trustees and (ii) provides for indemnification out
of the property of the applicable series of the Trust of any shareholder held
personally liable for the obligations of the Trust solely by reason of being or
having been a shareholder and not because of the shareholder's acts or omissions
or for some other reason. Thus, the risk of a shareholder incurring financial
loss beyond his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (1) a court
refuses to apply Delaware law; (2) the liability arises under tort law or, if
not, no contractual limitation of liability is in effect; and (3) the applicable
series of the Trust is unable to meet its obligations.
The Trust Agreement provides that the Trustees will not be liable to any person
other than the Trust or a shareholder and that a Trustee will not be liable for
any act as a Trustee. However, nothing in the Trust Agreements protect a Trustee
against any liability to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
Shares are held of record by Northern for the benefit of its customers and the
customers of its affiliates and correspondent banks who have invested in the
Portfolios. As of December 30, 1997, the
B-32
<PAGE>
trustees and officers of the Trust as a group owned less than 1% of the
outstanding shares of beneficial interest of each Portfolio. Northern has
advised the Trust that the following persons (whose mailing address is: c/o The
Northern Trust Company, 50 South LaSalle, Chicago, IL 60675) beneficially owned
five percent or more of the outstanding shares of the Portfolios as of December
30, 1997:
<TABLE>
<CAPTION>
Percentage
of
Number of Outstanding
Shares Shares
---------- -----------
<S> <C> <C>
GOVERNMENT SELECT PORTFOLIO
Midway National Bank 79,149,010 6.07%
Arcadia Trust, N.A. 75,537,254 5.80%
TAX-EXEMPT PORTFOLIO
Lor, Inc. Pooled Investment
Partnership 36,592,940 5.74%
</TABLE>
ADDITIONAL INFORMATION CONCERNING TAXES
General
Each Portfolio is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to qualify as a
regulated investment company. By following this policy, each Portfolio expects
to eliminate or reduce to a nominal amount the Federal income taxes to which it
may be subject. If for any taxable year a Portfolio does not qualify for the
special Federal tax treatment afforded regulated investment companies, all of
the Portfolio's taxable income would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders. In such event,
the Portfolio's distributions (including amounts derived from interest on
Municipal Instruments in the case of the Tax-Exempt Portfolio) would be taxable
as ordinary income for Federal income tax purposes to the Portfolio's
shareholders, to the extent of its current and accumulated earnings and profits,
and would be eligible for the dividends received deduction in the case of
corporate shareholders.
In order to qualify as a regulated investment company for a taxable year under
the Code, each Portfolio must comply with certain requirements. First, each
Portfolio must distribute to its shareholders an amount equal to at least the
sum of 90% of its investment company taxable income and 90% of its net tax-
exempt interest income (if any) (the "Distribution Requirement"). At least 90%
of the gross income of each Portfolio must be derived from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to the Portfolio's business of investing in such
stock, securities or currencies (the "Income Requirement"). Finally, at the
close of each
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<PAGE>
quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which the Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which the Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer) and
no more than 25% of the value of each Portfolio's total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Portfolio controls and which are engaged in the same or similar
trades or businesses.
Each Portfolio will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to shareholders within 60 days after the close of the
Portfolio's taxable year.
Ordinary income of individuals (including short-term capital gains) is taxable
at a maximum marginal rate of 39.6%, but because of limitations on itemized
deductions otherwise allowable and the phase-out of personal exemptions, the
maximum effective marginal rate of tax for some taxpayers may be higher. Under
the Taxpayer Relief Act of 1997, for capital gains on securities recognized
after July 28, 1997, the maximum tax rate for individuals is 20% if the property
was held more than 18 months; for property held for more than 12 months, but no
longer than 18 months, the maximum tax rate on capital gains continues to be
28%. For corporations, long-term capital gains and ordinary income are both
taxable at a maximum marginal rate of 35%.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute specified percentages of their ordinary taxable
income and capital gain net income (excess of capital gains over capital
losses). Each Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
The Trust will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends and gross sale proceeds paid to any
shareholder (i) who has provided either an incorrect tax identification number
or no number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of taxable interest or
dividend income properly, or (iii) who has failed to certify to the Trust, when
required to do so, that he or she is not subject to backup withholding or that
he or she is an "exempt recipient."
Special Tax Considerations Pertaining to the Tax-Exempt Portfolio
As described above and in the Prospectus, the Tax-Exempt Portfolio is designed
to provide investors with current tax-exempt interest income. The Portfolio is
not intended to constitute a balanced investment program and is not designed for
investors seeking capital
B-34
<PAGE>
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Portfolio would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R.10 plans and individual retirement accounts because
such plans and accounts are generally tax-exempt and, therefore, would not gain
any additional benefit from the Portfolio's dividends being tax-exempt. In
addition, the Portfolio may not be an appropriate investment for persons or
entities that are "substantial users" of facilities financed by private activity
bonds or "related persons" thereof. "Substantial user" is defined under U.S.
Treasury Regulations to include a non-exempt person which regularly uses a part
of such facilities in its trade or business and whose gross revenues derived
with respect to the facilities financed by the issuance of bonds are more than
5% of the total revenues derived by all users of such facilities, or which
occupies more than 5% of the usable area of such facilities or for which such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, partnerships and its partners and an S corporation and its
shareholders.
In order for the Tax-Exempt Portfolio to pay Federal exempt-interest dividends
with respect to any taxable year, at the close of each taxable quarter at least
50% of the aggregate value of the Portfolio must consist of tax-exempt
obligations. An exempt-interest dividend is any dividend or part thereof (other
than a capital gain dividend) paid by the Portfolio and designated as an exempt-
interest dividend in a written notice mailed to shareholders not later than 60
days after the close of the Portfolio's taxable year. However, the aggregate
amount of dividends so designated by the Portfolio cannot exceed the excess of
the amount of interest exempt from tax under Section 103 of the Code received by
the Portfolio during the taxable year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. The percentage of total dividends
paid by the Portfolio with respect to any taxable year which qualifies as
Federal exempt-interest dividends will be the same for all shareholders
receiving dividends from the Portfolio with respect to such year.
Interest on indebtedness incurred by a shareholder to purchase or carry
Portfolio shares generally is not deductible for Federal income tax purposes if
the Portfolio's distributions are not subject to Federal income tax.
Foreign Investors
Foreign shareholders 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 shareholders include individuals other than U.S. citizens,
residents and certain nonresident aliens, and foreign corporations,
partnerships, trusts and estates. A foreign shareholder generally will not be
subject to U.S. income or withholding tax in respect of
B-35
<PAGE>
proceeds from or gain on the redemption of shares or in respect of capital gain
dividends, provided such shareholder submits a statement, signed under penalties
of perjury, attesting to such shareholder's exempt status. Different tax
consequences apply to a foreign shareholder engaged in a U.S. trade or business.
Foreign shareholders should consult their tax advisers regarding the U.S. and
foreign tax consequences of investing in the Trust.
Conclusion
The foregoing discussion is based on tax laws and regulations which are in
effect on the date of this Additional Statement. Such laws and regulations may
be changed by legislative or administrative action. No attempt is made to
present a detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Shareholders are advised to consult their
tax advisers with specific reference to their own tax situation, including the
application of state and local taxes.
SERVICE PLAN
The Trust, on behalf of the Government Select, Government, Diversified Assets
and Tax-Exempt Portfolio, has adopted a Service Plan (the "Plan") with respect
to the Service Shares and Premier Shares which authorizes the Portfolios to
compensate Northern for providing or contracting with banks, trust companies,
broker-dealers and other financial institutions "Servicing Agents") to provide
certain account administration and personal and account maintenance services to
their customers ("customers") who are beneficial owners of such shares, pursuant
to servicing agreements outlining such services ("Servicing Agreements").
The Trust, on behalf of the Service Shares and the Premier Shares of each
Portfolio, is authorized to pay to Northern a monthly or quarterly service fee
in respect of (i) administrative support services performed and expenses
incurred in connection with such Portfolio's Service Shares and Premier Shares
and (ii) personal and account maintenance services performed and expenses
incurred in connection with such Portfolio's Premier Shares as set forth below.
The fee paid for such services (the "Servicing Fee") during any one year shall
not exceed: (i) .33% of the average daily net asset value of the Service Shares
of such Portfolio and (ii) .58% of the average daily net asset value of the
Premier Shares of such Portfolio during such period; provided, however, that the
fee paid for personal and account maintenance services and expenses shall not
exceed .25% of the average daily net asset value of the Premier Shares of such
Portfolio for such period.
Payments of the Service Fee with respect to Service Shares and Premier
Shares will be used to compensate or reimburse Northern and the Servicing Agents
for administrative support services and
B-36
<PAGE>
expenses, which may include without limitation: (i) acting or arranging for
another party to act, as recordholder and nominee of all Service Shares and
Premier Shares of a Portfolio beneficially owned by Customers; (ii) establishing
and maintaining individual accounts and records with respect to Service Shares
and Premier Shares of a Portfolio owned by Customers; (iii) processing and
issuing confirmations concerning Customer orders to purchase, redeem and
exchange Service Shares and Premier Shares of a Portfolio; (iv) receiving and
transmitting funds representing the purchase price or redemption proceeds of
Service Shares and Premier Shares of a Portfolio; (v) processing dividend
payments on behalf of Customers; (vi) forwarding shareholder communications from
the Trust (such as proxy statements and proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices);
(vii) providing such statistical and other information as may be reasonably
requested by the Trust or necessary for the Trust to comply with applicable
federal or state law; (viii) facilitating the inclusion of a Portfolio in
investment, retirement, asset allocation, cash management or sweep accounts or
similar programs or services offered to their Customers or to Customers of other
Servicing Agents; (ix) facilitating electronic or computer trading and/or
processing in a Portfolio to their Customers or to Customers of other Servicing
Agents; and (x) performing any other similar administrative support services.
Payments of the Service Fee with respect to the Premier Shares will also be used
to compensate or reimburse Northern and the Servicing Agents for personal and
account maintenance services and expenses, which may include, without
limitation: (i) providing facilities to answer inquiries and respond to
correspondence with Customers and other investors about the status of their
accounts or about other aspects of the Trust or the applicable Portfolio; (ii)
assisting Customers in completing application forms, selecting dividend and
other account options and opening custody accounts with the Servicing Agents;
(iii) providing services to Customers intended to facilitate, or improve their
understanding of the benefits and risks of, a Portfolio to Customers, including
asset allocation and other similar services; (iv) acting as liaison between
Customers and the Trust, including obtaining information from the Trust and
assisting the Trust in correcting errors and resolving problems; and (v)
performing any similar personal and account maintenance services.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Agent's receipt of compensation
paid by the Trust in connection with the investment of fiduciary funds in
Service or Premier Shares. Servicing Agents, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult legal advisers before investing fiduciary
assets in Service or Premier Shares.
B-37
<PAGE>
The Trustees, including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of such Plan or the related Servicing Agreements, approved the
Plan and Servicing Agreements for each Fund at a meeting called for the purpose
of voting on such Plan and Servicing Agreements on January 27, 1998. The Plan
and Servicing Agreements will remain in effect until April 30, 1999 and will
continue in effect thereafter only if such continuance is specifically approved
annually by a vote of the Board of Trustees in the manner described above.
The Plan may not be amended to increase materially the amount to be spent for
the services described therein without approval of the Board of Trustees in the
manner described above. The Plan may be terminated as to the Service Class and
the Premier Class at any time by a majority of the non-interested Board of
Trustees. The Servicing Agreements may be terminated at any time, without
payment of any penalty, by vote of a majority of the Board of Trustees as
described above or by any party to the Agreements on not more than sixty (60)
days' written notice to any other party to the Agreement. The Servicing
Agreements shall terminate automatically if assigned. As long as the Plan is in
effect, the selection and nomination of those Trustees who are not interested
persons shall be committed to the discretion of the Trust's Nominating
Committee, which consists of all of the non-interested members of the Board of
Trustees. The Board of Trustees has determined that, in its judgment, there is a
reasonable likelihood that the Plan will benefit each Fund and holders of
Service and Premier Shares of such Portfolio. In the Board of Trustees'
quarterly review of the Plan and Servicing Agreements, the Board will consider
their continued appropriateness and the level of compensation provided therein.
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 shares under Federal or state
securities laws, expenses of the organization of the Portfolio, taxes, interest,
costs of
B-38
<PAGE>
liability insurance, fidelity bonds, indemnification or contribution, any costs,
expenses or losses arising out of any liability of or claim for damages or other
relief asserted against the Trust for violation of any law, legal, tax services
and auditing fees and expenses, 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
shareholders and regulatory authorities, compensation and expenses of its
Trustees, expenses for industry organizations such as the Investment Company
Institute, miscellaneous expenses and extraordinary expenses incurred by the
Trust.
The term "majority of the outstanding shares" of either the Trust or a
particular Portfolio means, with respect to the approval of an investment
advisory agreement or a change in a fundamental investment restriction, the vote
of the lesser of (i) 67% or more of the shares of the Trust or such Portfolio
present at a meeting, if the holders of more than 50% or the outstanding shares
of the Trust or such Portfolio are present or represented by proxy, or (ii) more
than 50% of the outstanding shares of the Trust or such Portfolio.
Statements contained in the Prospectus or in this Additional Statement as to the
contents of any contract or other documents referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement of which the
Prospectus and this Additional Statement form a part, each such statement being
qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements and related report of __________ LLP,
independent auditors, contained in the annual report to shareholders for the
fiscal year ended November 30, 1997 (the "Annual Report") will be filed by
amendment.
B-39
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group, Inc., a division of
McGraw Hill ("S&P"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch IBCA, Inc.
("Fitch") and Thomson BankWatch, Inc. ("TBW").
Long-Term Corporate and Tax-Exempt Debt Ratings
The two highest ratings of Moody's for tax-exempt and corporate bonds are Aaa
and Aa. Tax-exempt and corporate bonds rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to bonds which are of "high quality by
all standards." Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements which make the long-term risks
appear somewhat larger. Moody's may modify a rating of Aa by adding numerical
modifiers of 1, 2 or 3 to show relative standing within the Aa category. The
foregoing ratings for tax-exempt bonds are sometimes presented in parentheses
preceded with a "con" indicating the bonds are rated conditionally. Such
parenthetical rating denotes the probable credit stature upon completion of
construction or elimination of the basis of the condition. The notation (P) when
applied to forward delivery bonds indicates that the rating is provisional
pending delivery of the bonds. The rating may be revised prior to delivery if
changes occur in the legal documents or the underlying credit quality of the
bonds. In addition, Moody's has advised that the short-term credit risk of a
long-term instrument sometimes carries a MIG rating or one of the commercial
paper ratings described below.
The two highest ratings of S&P for tax-exempt and corporate bonds are AAA and
AA. Bonds rated AAA bear the highest rating assigned by S&P to a debt obligation
and the AAA rating indicates in its opinion an extremely strong capacity to pay
interest and repay principal. Bonds rated AA by S&P are judged by it to have a
very strong capacity to pay interest and repay principal, and differ from AAA
issues only in small degree. The AA rating may be modified by an addition of a
plus (+) or minus (-) sign to show relative standing within the major rating
category. S&P may attach the rating "r" to highlight derivative, hybrid and
certain other obligations that S&P believes may experience high volatility or
high variability in expected returns due to non-credit risks.
The two highest ratings of D&P for tax-exempt and corporate fixed-income
securities are AAA and AA. Securities rated AAA are of the highest credit
quality. The risk factors are considered to be negligible, being only slightly
more than for risk-free U.S. Treasury debt. Securities rated AA are of high
credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. The AA rating may be
modified by an addition of a plus (+) or minus (-) sign to show relative
standing within the major rating category.
1-A
<PAGE>
The two highest ratings of Fitch for tax-exempt and corporate bonds are AAA and
AA. AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor is judged to have an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. AA bonds are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. Plus (+) and minus (-) signs are used with the AA rating symbol to
indicate relative standing within the rating category.
The two highest ratings of TBW for corporate bonds are AAA and AA. Bonds rated
AAA are of the highest credit quality. The ability of the obligor to repay
principal and interest on a timely basis is considered to be extremely high.
Bonds rated AA indicate a very strong ability on the part of the obligor to
repay principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category. These ratings may be modified by
the addition of a plus (+) or minus (-) sign to show relative standing within
the rating categories. TBW does not rate tax-exempt bonds.
Tax-Exempt Note Ratings
Moody's ratings for state and municipal notes and other short-term obligations
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade. MIG-1/VMIG-1
denotes best quality. There is present strong protection by established cash
flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. MIG-2/VMIG-2 denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
S&P describes its SP-1 rating of municipal notes as follows: "Very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus (+)
designation." Municipal notes rated SP-2 are deemed to have satisfactory
capacity to pay principal and interest.
D&P uses the fixed-income ratings described above under "Corporate and Tax-
Exempt Bond Ratings" for tax-exempt notes and other short-term obligations.
Fitch's short-term ratings apply to tax-exempt and corporate debt obligations
that are payable on demand or have original maturities of up to three years,
including commercial paper and municipal and investment notes. The highest
ratings of Fitch for short-term securities are F-1+, F-1 and F-2. F-1+
securities possess exceptionally strong credit quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for timely
payment. F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+. F-2 securities
2-A
<PAGE>
possess good credit quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the F-1+ and F-1 ratings.
TBW does not rate tax-exempt notes.
Short-Term Corporate and Tax-Exempt Debt Ratings
Short-term ratings, set forth below (except TBW's), are applied to tax-exempt as
well as taxable debt.
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Issuers rated Prime-1 (or related supporting institutions) in the
opinion of Moody's have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of short-
term promissory obligations.
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market. The A-1
designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics will be denoted with a plus (+) sign designation. The A-2
designation indicates that capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated A-1.
The two highest ratings of D&P for commercial paper are D1 and D2. D&P employs
three designations, D1 plus, D1 and D1 minus, within the highest rating
category. D1 plus indicates highest certainty of timely payment. Short-term
liquidity including internal operating factors, and/or ready access to
alternative sources of funds, is judged to be outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations. D1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
strong fundamental protection factors. Risk factors are considered to be minor.
D1 minus indicates high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small. D2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Fitch uses the short-term ratings described above under "Tax-Exempt Note
Ratings" for commercial paper.
TBW's short-term ratings assess the likelihood of an untimely or incomplete
payment of principal or interest of unsubordinated debt instruments having a
maturity of one year or less which are issued by Shareed States commercial
banks, thrifts and non-bank banks; non-Shareed States banks; and broker-dealers
and other financial institutions. The two highest short-term ratings of TBW are
TBW-1 and TBW-2. Debt rated TBW-1 indicates a very high degree of likelihood
3-A
<PAGE>
that principal and interest will be paid on a timely basis. The TBW-2
designation indicates that while the degree of safety regarding timely payment
of principal and interest is strong, the relative degree of safety is not as
high as for issues rated TBW-1.
4-A
<PAGE>
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
Included in the Prospectus:
None
Included in the Statement of Additional Information:
None
(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 (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), to Post-Effective Amendment No. 31
to such Registration Statement (Accession No. 0000950130-96-001086), to Post-
Effective Amendment No. 32 to such Registration Statement (Accession No.
0000950130-97-000170), to Post-Effective Amendment No. 33 to such Registration
Statement (Accession No. 0000950130-97-001306), to Post-Effective Amendment No.
34 to such Registration Statement (Accession No. 0000950130-97-002471), to Post-
Effective Amendment No. 35 to such Registration Statement (Accession No.
0000950131-97-005862) and to Post-Effective Amendment No. 36 to such
Registration Statement (Accession No. 0000950131-98-00216).
1- Agreement and Declaration of Trust dated July 1, 1997 (Accession
No. 0000950131-98-00216).
<PAGE>
2- By-Laws of the Registrant dated July 8, 1997 (Accession No.
0000950131-98-00216).
4- Instruments Defining Rights of Shareholders (Articles IV, V and VII of
the Agreement and Declaration of Trust dated July 1, 1997, is
incorporated by reference to Exhibit 1 hereof) (Accession No. 0000950131-
98-00216).
5- Advisory Agreement dated October 5, 1990 between Registrant and The
Northern Trust Company (Accession No. 0000950130-96-001086).
5(a)- Addendum No. 1 to Advisory Agreement between Registrant and The Northern
Trust 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 (Accession No. 0000950130-96-001086).
5(c)- Addendum No. 2 to Investment Advisory Agreement between the Registrant
and The Northern Trust Company (Accession No. 0000950130-96-001086).
5(d)- Addendum No. 3 to Investment Advisory Agreement between the Registrant
and The Northern Trust Company (Accession No. 0000950130-96-001086).
5(e)- Addendum No. 4 to Investment Advisory Agreement between the Registrant
and The Northern Trust Company (Accession No. 0000950130-96-001086).
5(f)- Addendum No. 5 to Investment Advisory Agreement between the Registrant
and The Northern Trust Company (Accession No. 0000950130-97-002471).
5(g)- Addendum No. 6 to Investment Advisory Agreement between the Registrant
and The Northern Trust Company (Accession No. 0000950131-97-005862).
5(h)- Form of Addendum No. 7 to Investment Advisory Agreement between the
Registrant and The Northern Trust Company (Accession No. 0000950131-98-
00216).
5(i)- Form of Assumption Agreement between The Northern Trust Company and
Northern Trust Quantitative Advisors, Inc. (Accession No. 0000950131-98-
00216).
6- Distribution Agreement dated June 8, 1992 between Registrant and Goldman,
Sachs & Co. (Reference I).
6(a)- Addendum No. 1 to Distribution Agreement between the Registrant and
Goldman, Sachs & Co. (Accession No. 0000950130-96-001086).
2
<PAGE>
6(b)- Addendum No. 2 to Distribution Agreement between the Registrant
and Goldman, Sachs & Co. (Accession No. 0000950130-96-001086).
6(c)- Addendum No. 3 to Distribution Agreement between the Registrant and
Goldman, Sachs & Co. (Reference T).
6(d)- Addendum No. 4 to Distribution Agreement between the Registrant and
Goldman, Sachs & Co (Accession No. 0000950130-97-002471).
6(e)- Addendum No. 5 to Distribution Agreement between the Registrant and
Goldman, Sachs & Co. (Accession No. 0000950131-97-005862).
6(f)- Form of Addendum No. 6 to Distribution Agreement between the Registrant
and Goldman, Sachs & Co. (Accession No. 0000950131-98-00216).
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 (Accession No. 0000950130-96-001086).
8(b)- Addendum No. 2 to Custodian Agreement between Registrant and The Northern
Trust Company (Accession No. 0000950130-96-001086).
8(c)- Addendum No. 3 to Custodian Agreement between Registrant and The Northern
Trust Company (Accession No. 0000950130-97-002471).
8(d)- Addendum No. 4 to Custodian Agreement between Registrant and The Northern
Trust Company (Accession No. 0000950131-97-005862).
8(e)- Form of Addendum No. 5 to Custodian Agreement between Registrant and The
Northern Trust Company (Accession No. 0000950131-98-00216).
8(f)- Form of Addendum No.6 to Custodian Agreement between the Registrant and
The Northern Trust Company (Accession No. 0000950131-98-00216).
8(e)- Foreign Custody Agreement between the Registrant and The Northern Trust
Company (Reference T).
8(g)- Form of Addendum No. 2 to Foreign Custody Agreement between the
Registrant and the Northern Trust Company (Accession No. 0000950131-98-
00216).
8(h)- Form of Foreign Custody Monitoring Agreements between Registrant and The
Northern Trust Company (Accession No. 0000950131-98-00216).
8(f)- Addendum No. 1 to Foreign Custody Agreement between the Registrant and
The Northern Trust Company (Accession No. 0000950130-97-002471).
9 - Agreement and Plan of Reorganization between Registrant and The
3
<PAGE>
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 (Accession No. 0000950130-96-001086).
9(c)- Addendum No. 2 to Transfer Agency Agreement between the Registrant and
The Northern Trust Company (Accession No. 0000950130-96-001086).
9(d)- Addendum No. 3 to Transfer Agency Agreement between the Registrant and
The Northern Trust Company (Accession No. 0000950130-97-002471).
9(e)- Addendum No. 4 to Transfer Agency Agreement between the Registrant and
The Northern Trust Company (Accession No. 0000950131-97-005862).
9(g)- Administration Agreement dated June 8, 1992 between Registrant
and Goldman, Sachs & Co. (Accession No. 0000950130-96-001086).
9(h)- Amendment dated August 1, 1992 to Administration Agreement dated June 8,
1992 between Registrant and Goldman, Sachs & Co. (Accession No.
0000950130-96-001086).
9(i)- Addendum No. 1 to Administration Agreement between the Registrant and
Goldman, Sachs & Co. (Accession No. 0000950130-96-001086).
9(j)- Addendum No. 2 to Administration Agreement between the Registrant and
Goldman, Sachs & Co. (Accession No. 0000950130-96-001086).
9(k)- Addendum No. 3 to Administration Agreement between the Registrant and
Goldman, Sachs & Co. (Accession No. 0000950130-96-001086).
9(l)- Addendum No. 4 to Administration Agreement between the Registrant and
Goldman, Sachs & Co(Accession No. 0000950130-97-002471).
9(m)- Addendum No. 5 to Administration Agreement between the Registrant and
Goldman, Sachs & Co (Accession No. 0000950131-97-005862).
9(n)- Form of Amended and Restated Administration Agreement between the
Registrant and Goldman Sachs & Co (Accession No. 0000950131-97-005862).
9(o)- Form of Addendum No.1 to Amended and Restated Administration Agreement
between the Registrant and Goldman Sachs & Co. (Accession No. 0000950131-
98-00216).
9(p)- Unitholder Servicing Plan for Subseries B,C, and D Units and Related Form
of Servicing Agreement for Subseries B,C, and D Units (Accession No.
0000950131-98-00216).
4
<PAGE>
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- Not Applicable.
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 (Reference N).
16(c)- 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).
The following exhibits relating to The Benchmark Funds are filed herewith
electronically pursuant to EDGAR rules:
9(f)- Form of Addendum No. 5 to Transfer Agency Agreement between the
Registrant and The Northern Trust Company.
9(q)- Service Plan for the Service Class and the Premier Class.
11- Consent of Counsel.
18- Amended and Restated Plan pursuant to Rule 18f-3 for Operation of a
Multi-Class System.
Item 25. Persons Controlled by or Under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
5
<PAGE>
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record
Holders as of
Title of Class January 12, 1998
- -------------- ----------------
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
Intermediate Bond Portfolio......................... 1 N/A N/A
Balanced Portfolio Units ........................... 1 1 1
International Growth Portfolio Units ............... 1 1 1
International Bond Portfolio Units ................. 1 N/A 1
International Equity Index Portfolio................ 4 N/A N/A
</TABLE>
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-1A 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 Form of Amended and Restated 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 9(m)
to Post-Effective Amendment No. 35 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,
6
<PAGE>
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.
Northern Trust Quantitative Advisors, Inc. ("NTQA") is an indirect wholly-owned
subsidiary of Northern Trust Corporation. The list required by this Item 28 of
officers and directors of NTQA, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of Form ADV, filed by NTQA pursuant to the
Investment Advisers Act of 1940 (SEC File No. 801-333580).
7
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Connection
Name and Position Business Address with
with Investment Adviser of Other Company Other Company
- ----------------------- ------------------ -------------
<S> <C> <C>
Duane L. Burnham Northern Trust Director
Director Corporation
50 S. LaSalle Street
Chicago, IL 60605
Abbott Laboratories Chairman and
100 Abbott Park Road Chief Executive
Abbott Park, IL 60064-3500 Officer
Dr. Dolores E. Cross Northern Trust Director
Director Corporation
50 S. LaSalle Street
Chicago, IL 60675
Chicago State Former President
University
95th Street at King Drive
Chicago, IL 60643
General Electric Company President,
3135 Easton Turnpike GE Fund
Fairfield, CT 06432
Susan Crown Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
Henry Crown and Company Vice President
222 N. LaSalle Street
Ste 2000
Chicago, IL 60601
John R. Goodwin None
Senior Vice President
Robert S. Hamada Northern Trust Director
Director Corporation
50 S. LaSalle Street
Chicago, IL 60675
The University Dean, Edward Eagle
of Chicago Brown
Graduate School of Distinguished
Business Service
1101 East 58th Street Professor of
Chicago, IL 60637 Finance
A.M. Castle & Co. Director
3400 North Wolf Road
Franklin Park, IL 60131
</TABLE>
8
<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 S. Hamada (cont'd) 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
355 S. Grand Avenue
Los Angeles, CA 90017
Northern Trust Vice Chairman
of Florida of the Board
Corporation & Director
700 Brickell Avenue
Miami, FL 33131
Nortrust Realty Director
Management, Inc.
50 South LaSalle Street
Chicago, IL 60675
Robert A. Helman Northern Trust Director
Director Corporation
50 S. LaSalle Street
Chicago, IL 60675
Mayer, Brown & Platt Partner
190 S. LaSalle Street, 38th Fl.
Chicago, IL 60603
Chicago Stock Exchange Governor
One Financial Plaza
440 S. LaSalle St.
Chicago, IL 60605
The Horsham Director
Corporation
24 Hazelton Avenue
Toronto, Ontario,
Canada
M5R 2E2
</TABLE>
9
<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 A. Helman Alberta Natural Gas Director
(cont'd) 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 Northern Trust Director
Director Corporation
50 S. LaSalle Street
Chicago, IL 60675
KEL Enterprises Ltd. Managing
Two First National Plaza Partner
20 S. Clark Street
Ste. 2222
Chicago, IL 60603
Bayerische Motoren Director
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
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
</TABLE>
10
<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
Director Northern Trust Director
Corporation
50 South LaSalle Street
Chicago, IL 60675
Molex Incorporated Chairman and
2222 Wellington Court Chief Executive
Lisle, IL 60532-1682 Officer, Former
Vice Chairman
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
40 Broad Street, 8th Fl.
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
President 40 Broad Street, 8th Fl.
New York, NY 10004
William G. Mitchell Northern Trust Director
Director Corporation
50 South LaSalle Street
Chicago, IL 60675
The Interlake Corporation Director
7701 Harger Road
Oak Brook, IL
60521-1488
Peoples Energy Director
Corporation
122 South Michigan
Avenue
Chicago, IL 60603
</TABLE>
11
<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 The Sherwin-Williams Director
(cont'd) Company
101 Prospect Avenue, N.W.
Cleveland, OH 44115-1075
Edward J. Mooney Northern Trust Corporation Director
50 S. LaSalle
Chicago, IL 60675
Nalco Chemical Company Chairman, Chief
One Nalco Center Executive
Naperville, IL Officer,
60563-1198 President &
Director
Morton International, Inc. Director
100 North Riverside Plaza
Chicago, Il 60605
William A. Osborn Northern Trust Director
Chairman and Corporation
Chief Executive 50 S. LaSalle Street
Officer, Chicago, IL 60675
Former President
and Chief Operating
Officer & Former Senior Northern Trust of Director
Executive Vice California Corporation and Former
President 355 S. Grand Avenue Chairman of
Los Angeles, CA 90017 the Board
Northern Trust Bank of Former Chairman
California N.A. of the Board
355 S. Grand Avenue
Los Angeles, CA 90017
Nortrust Realty Director
Management Inc.
50 S. LaSalle St.
Chicago, IL 60675
Northern Futures Director
Corporation
50 South LaSalle Street
Chicago, IL 60675
Sheila A. Penrose Northern Trust Global Director
Executive Vice Advisors, Inc.
President 29 Federal Street
Stamford, CT 06901
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Connection
Name and Position Business Address with
with Investment Adviser of Other Company Other Company
- ----------------------- ----------------- -------------
<S> <C> <C>
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
50 South LaSalle Street and Director
Chicago, IL 60675 Former Treasurer
Northern Trust Global Director
Advisors, 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
Executive Vice & Waite Partner
President and General 7200 Sears Tower
Counsel Chicago, IL 60606
Tanglewood Bancshares Former Vice
Inc President and
600 Bering Dr. Director
Houston, TX 77057
Consolidated Director
Communications Inc.
Illinois Consolidated
Telephone Company
121 S. 17th St.
Mattoon, IL 61938
Northern Trust Executive
Corporation Vice
50 South LaSalle President and
Street General
Chicago, IL 60675 Counsel
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Connection
Name and Position Business Address with
with Investment Adviser of Other Company Other Company
- ----------------------- ---------------- -------------
<S> <C> <C>
Harold B. Smith Illinois Tool Chairman of
Director Works Inc. the Executive
3600 West Lake Committee
Avenue
Glenview, IL
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 Retired Chairman
Director Company
321 North Clark Street
Chicago, IL 60610
Northern Trust Director
Corporation
50 South LaSalle Street
Chicago, IL 60675
Abbott Laboratories Director
One Abbott Park Road
Abbott Park, IL 60675
Corning Incorporated Director
Corning, NY 14831
Prime Capital Director
Corporation
P.O. Box 8460
Rolling Meadows,
IL 60008
James M. Snyder None
Executive Vice
President
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Connection
Name and Position Business Address with
with Investment Adviser of Other Company Other Company
- ----------------------- ------------------ -------------
<S> <C> <C>
Bide L. Thomas Northern Trust Director
Corporation
50 South LaSalle Street
Chicago, IL 60675
Commonwealth Edison Former
Company President
One First National and a
Plaza Former
Chicago, IL 60603 Director
MYR Group Inc. Director
*(formerly L.E. Myers
Company)
2550 W. Golf Rd.
Rolling Meadows, IL 60008
R. R. Donnelley Director
& Sons Company
77 West Wacker Drive
Chicago, IL 60601
</TABLE>
* Name change
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 & 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>
______________________
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
15
<PAGE>
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB,
England
(c) Not Applicable.
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 and NTQA, One S. LaSalle Street, Chicago IL 60690.
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.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registration Statement has duly caused this Post-
Effective Amendment No. 37 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 30th day of January, 1998.
THE BENCHMARK FUNDS
By: /s/ Michael J. Richman
------------------------
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>
SCOTT M. GILMAN * Treasurer January 30, 1998
- --------------------- and Chief
Scott M. Gilman Executive Officer
WILLIAM H. SPRINGER * Trustee January 30, 1998
- ---------------------
William H. Springer
RICHARD G. CLINE * Trustee January 30, 1998
- ---------------------
Richard G. Cline
EDWARD J.CONDON * Trustee January 30, 1998
- ---------------------
Edward J. Condon
JOHN W. ENGLISH * Trustee January 30, 1998
- ---------------------
John W. English
SANDRA P. GUTHMAN * Trustee January 30, 1998
- ---------------------
Sandra P. Guthman
FREDERICK T. KELSEY * Trustee January 30, 1998
- ---------------------
Frederick T. Kelsey
RICHARD P. STRUBEL * Trustee January 30, 1998
- ---------------------
Richard P. Strubel
</TABLE>
*By: /s/ Michael J. Richman January 30, 1998
- ---------------------------------
Michael J. Richman,
Attorney-in-fact
17
<PAGE>
EXHIBIT 9(f)
THE BENCHMARK FUNDS
ADDENDUM NO. 5 TO THE REVISED
AND RESTATED TRANSFER AGENCY AGREEMENT
--------------------------------------
This Addendum, dated as of the _______ day of ___________, is entered into
between THE BENCHMARK FUNDS (the "Trust"), a Massachusetts business trust, and
THE NORTHERN TRUST COMPANY, an Illinois state bank (the "Transfer Agent").
WHEREAS, the Trust and the Transfer Agent have entered into a Revised and
Restated Transfer Agency Agreement dated as of January 8, 1993, Addendum No. 1
dated July 1, 1993, Addendum No. 2 dated March 25, 1994, Addendum No. 3 dated
January 22, 1997 and Addendum No. 4 dated April 22, 1997 (the "Transfer Agency
Agreement"), pursuant to which the Trust appointed the Transfer Agent to act as
transfer agent with respect to each Class of Units in the Diversified Assets
Portfolio, Government Portfolio, Tax-Exempt Portfolio, Government Select
Portfolio, Equity Index Portfolio, Small Company Index Portfolio, Diversified
Growth Portfolio, Focused Growth Portfolio, U.S. Treasury Index Portfolio, U.S.
Government Securities Portfolio, Short-Intermediate Bond Portfolio, Bond
Portfolio, Intermediate Bond Portfolio, Balanced Portfolio, International Growth
Portfolio, International Bond Portfolio and International Equity Index
Portfolio;
WHEREAS, the Trust is establishing the Global Asset Portfolio (the
"Portfolio"), and it desires to retain the Transfer Agent to render transfer
agency and other services with respect to the Portfolio and each Class of Units
within the Portfolio and the record and/or beneficial owners thereof, and the
Transfer Agent is willing to render such services; and
WHEREAS, the Trust is establishing two additional classes of units in each
of the Diversified Assets Portfolio, the Government Portfolio, the Government
Select Portfolio and the Tax-Exempt Portfolio (collectively, the "Money Market
Portfolios"), currently known as the Service Class and the Premium Class (the
"New Classes"), and the Trust desires to retain the Transfer Agent to render
transfer agency and other services with respect to the New Classes and the
record and/or beneficial owners of Units of the New Classes, and the Transfer
Agent is willing to render such services;
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Appointment. The Trust hereby appoints the Transfer Agent as transfer
agent with respect to the Portfolio and each Class of Units thereof
and with respect to the New Classes of the Money Market Portfolios on
the terms and for the periods set forth in the Transfer Agency
1
<PAGE>
Agreement. The Transfer Agent hereby accepts such appointment and
agrees to render the services and perform the duties set forth in the
Transfer Agency Agreement for the compensation therein provided.
2. Compensation with Respect to the New Classes of the Money Market
Portfolios. For the services provided and the expenses assumed by
Northern in respect of each New Class, the Trust will pay Northern
transfer agency fees at the following annual rates: (i) .01% of the
average daily net asset value of the outstanding Service Class units
of each Money Market Portfolio; and (ii) .02% of the average daily net
asset value of the outstanding Premium Class units of each Money
Market Portfolio.
3. Capitalized Terms. From and after the date hereof, the term "Current
Portfolios" as used in the Transfer Agency Agreement shall be deemed
to include the Diversified Assets Portfolio, Government Portfolio,
Government Select Portfolio, Tax-Exempt Portfolio, Equity Index
Portfolio, Small Company Index Portfolio, Diversified Growth
Portfolio, Focused Growth Portfolio, U.S. Treasury Index Portfolio,
U.S. Government Securities Portfolio, Short-Intermediate Bond
Portfolio, Bond Portfolio, Intermediate Bond Portfolio, Balanced
Portfolio, International Growth Portfolio, International Bond
Portfolio, International Equity Index Portfolio and Global Asset
Portfolio; and the term "Non-Money Market Portfolios" as used in the
Transfer Agency Agreement shall be deemed to include the Equity Index
Portfolio, Small Company Index Portfolio, Diversified Growth
Portfolio, Focused Growth Portfolio, U.S. Treasury Index Portfolio,
U.S. Government Securities Portfolio, Short-Intermediate Bond
Portfolio, Bond Portfolio, Intermediate Bond Portfolio, Balanced
Portfolio, International Growth Portfolio, International Bond
Portfolio, International Equity Index Portfolio and Global Asset
Portfolio. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Transfer Agency
Agreement.
4. Miscellaneous. Except to the extent supplemented hereby, the Transfer
Agency Agreement shall remain unchanged and in full force and effect,
and is hereby ratified and confirmed in all respects as supplemented
hereby.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of the
date and year first above written.
THE BENCHMARK FUNDS
Attest:_________________________ By:_______________________________
Name: Nancy L. Mucker
Title: Vice President
THE NORTHERN TRUST COMPANY
Attest:_________________________ By:_______________________________
Name: Thomas L. Mallman
[SEAL] Title: Senior Vice President
3
<PAGE>
EXHIBIT 9(q)
THE BENCHMARK FUNDS
SERVICE PLAN FOR THE SERVICE CLASS
AND THE PREMIER CLASS
January 27, 1998
WHEREAS, The Benchmark Funds (the "Trust") engages in business as an open-
end management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, each of the Trust's money market investment portfolios (the
"Portfolios") are divided into three separate classes of shares: the Shares, the
Service Shares and the Premier Shares;
WHEREAS, the Trust, on behalf of the Service Shares and the Premier Shares
of each Portfolio, desires to adopt a Service Plan and the Board of Trustees of
the Trust has determined that there is a reasonable likelihood that adoption of
this Service Plan (the "Plan") will benefit the Trust and its shareholders; and
WHEREAS, institutions (including The Northern Trust Company ("Northern"))
may act directly or indirectly as nominees and recordholders of the Service
Shares and the Premier Shares of the Portfolios for their respective customers
who are or may become beneficial owners of such shares (the "Customers"),
provide service to other institutions intended to facilitate or improve such
other institutions' services to their Customers and/or perform certain account
administration and shareholder liaison services with respect to their Customers
pursuant to agreements under the Plan (the "Agreements").
NOW, THEREFORE, the Trust, on behalf of the Service Shares and the Premier
Shares of each Portfolio, hereby adopts this Plan on the following terms and
conditions:
1. (a) The Trust, on behalf of the Service Shares and the Premier Shares
of each Portfolio, is authorized to pay to Northern a monthly or quarterly
service fee in respect of (i) administrative support services performed and
expenses incurred in connection with such Portfolio's Service Shares and Premier
Shares and (ii) personal and account maintenance services performed and expenses
incurred in connection with such Portfolio's Premier Shares as set forth below.
The fee paid for such services (the "Service Fee") during any one year shall not
exceed: (i) .33% of the average daily net asset value of the Service Shares of
such Portfolio and (ii) .58% of the average
<PAGE>
daily net asset value of the Premier Shares of such Portfolio during such
period; provided, however, that the fee paid for personal and account
maintenance services and expenses shall not exceed .25% of the average daily net
asset value of the Service Shares or the Premier Shares of such Portfolio for
such period. Northern shall determine the amount of the Service Fee to be paid
to one or more brokers, dealers, other financial institutions or other industry
professionals (collectively, "Service Agents") and the basis on which such
payments will be made. Payments to a Service Agent will be subject to
compliance by the Service Agent with the terms of the related Plan agreement
entered into by the Service Agent. The Service Fees payable pursuant to this
Plan shall not pertain to services or expenses which are primarily intended to
result in the sale of Service Shares and Premier Shares.
(b) Payments of the Service Fee with respect to Service Shares and
Premier Shares shall be used to compensate or reimburse Northern and the Service
Agents for administrative support services and expenses, which may include
without limitation: (i) acting or arranging for another party to act, as
recordholder and nominee of all Service Shares and Premier Shares of a Portfolio
beneficially owned by Customers; (ii) establishing and maintaining individual
accounts and records with respect to Service Shares and Premier Shares of a
Portfolio owned by Customers; (iii) processing and issuing confirmations
concerning Customer orders to purchase, redeem and exchange Service Shares and
Premier Shares of a Portfolio; (iv) receiving and transmitting funds
representing the purchase price or redemption proceeds of Service Shares and
Premier Shares of a Portfolio; (v) processing dividend payments on behalf of
Customers; (vi) forwarding shareholder communications from the Trust (such as
proxy statements and proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices); (vii)
providing such statistical and other information as may be reasonably requested
by the Trust or necessary for the Trust to comply with applicable federal or
state law; (viii) facilitating the inclusion of a Portfolio in investment,
retirement, asset allocation, cash management or sweep accounts or similar
programs or services offered to their Customers or to Customers of other Service
Agents; (ix) facilitating electronic or computer trading and/or processing in a
Portfolio to their Customers or to Customers of other Service Agents; and (x)
performing any other similar administrative support services.
(c) Payments of the Service Fee with respect to the Premier Shares
shall also be used to compensate or reimburse Northern and the Service Agents
for personal and account maintenance services and expenses, which may include,
without limitation: (i) providing facilities to answer inquiries and respond to
correspondence with Customers and other investors
-2-
<PAGE>
about the status of their accounts or about other aspects of the Trust or the
applicable Portfolio; (ii) assisting Customers in completing application forms,
selecting dividend and other account options and opening custody accounts with
the Service Agents; (iii) providing services to Customers intended to
facilitate, or improve their understanding of the benefits and risks of, a
Portfolio to Customers, including asset allocation and other similar services;
(iv) acting as liaison between Customers and the Trust, including obtaining
information from the Trust and assisting the Trust in correcting errors and
resolving problems; and (v) performing any similar personal and account
maintenance services.
2. This Plan shall not take effect as to any Portfolio until the Plan,
together with any related agreements, has been approved for such Portfolio by
votes of a majority of both (a) the Board of Trustees of the Trust and (b) those
Trustees of the Trust who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "non-interested Trustees") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
3. This Plan shall remain in effect until April 30, 1999 and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 2.
4. The Trust's Board of Trustees shall receive, and the Trustees shall
review, at least quarterly, a written report on the Service Fees paid by the
Service Shares and Premier Shares of the Portfolios and the purposes for which
those expenditures were made.
5. This Plan may be terminated as to the Service Shares and the Premier
Shares of any Portfolio at any time by vote of a majority of the non-interested
Trustees.
6. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in paragraph 2 hereof. No
material amendment to the Plan shall be made unless approved in the manner
provided in paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the non-
interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period of
not less than six years from the date of
-3-
<PAGE>
the Plan, any such agreement or any such report, as the case may be, the first
two years in an easily accessible place.
IN WITNESS WHEREOF, the Trust, on behalf of the Service Shares and Premier
Shares of each Portfolio, has executed this Service Plan as of the day and year
first written above.
THE BENCHMARK FUNDS
By:________________________________
Michael J. Richman
Secretary of the Trust
-4-
<PAGE>
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
Date
Service Agent
Address
RE: The Benchmark Funds (the "Trust")/Service Shares
Gentlemen:
The Trust is an open-end management investment company that includes the money
market investment portfolios (the "Portfolios") identified on Schedule A hereto.
Shares of each Portfolio are divided into three separate classes, including the
Service Shares.
You are a bank, a trust company or other financial institution (the "Service
Agent") with customers who are or may become the beneficial owners of Service
Shares of the Portfolios (the "Customers"). You are willing to perform certain
services with respect to the Customers investing in Service Shares of the
Portfolios that you have selected on Schedule A attached hereto. In addition,
you may wish to offer to your Customers an automated cash management sweep
program (hereinafter the "Program") under which funds in the Customers' accounts
over a specified minimum amount will be "swept" (i.e., automatically
transmitted) on a daily basis into Service Shares of one or more Portfolios.
Accordingly, the Service Agent and The Northern Trust Company ("Northern") agree
as follows:
1. With respect to Customers who beneficially own Service Shares, the
Service Agent hereby agrees to perform the following administrative support
services/1/: (a) establish and maintain individual accounts and records with
respect to Service Shares owned by each Customer; (b) process and issue
confirmations concerning Customer orders to purchase, redeem and exchange shares
promptly and in accordance with the then-effective prospectus for Service
Shares; (c) receive and transmit funds representing the purchase price or
redemption proceeds of Service Shares; (d) process dividend payments on behalf
of Customers; (e) forward to Customers shareholder communications from the Trust
(such as proxy statements and proxies, shareholder reports, annual and semi-
annual financial statements and dividend,
- ------------------
/1/ Services may be modified or omitted in a particular case and items
relettered or renumbered.
<PAGE>
distribution and tax notices); and (f) provide such statistical and other
information as may be reasonably requested by the Trust or necessary for the
Trust to comply with applicable federal or state laws.
2.1 The Service Agent may establish a Program for its Customers upon such
terms and conditions (including the types of accounts eligible to participate in
such a Program; the minimum account balances over which funds in such accounts
will be swept into Service Shares; the minimum excess balances in such accounts,
if any, which will be swept; and the frequency of sweeps of excess account
balances) as the Service Agent shall determine. No Customer account shall be
permitted to participate in the Program except upon the execution by the
Customer of (a) an account opening agreement, (b) authorization for the Service
Agent to effect the sweep of funds in such accounts in accordance with the terms
of the Program, and (c) all necessary Trust account application forms.
2.2 The Service Agent will be responsible for providing all electronic
data processing facilities as shall be necessary to establish and operate the
Program, and for the proper transmission of funds and appropriate instructions
to the Trust. The procedures for the purchase and redemption of Service Shares,
including all relevant time and notification requirements, specified in the
then-effective prospectus of the Service Shares, shall govern the purchase and
redemption of Service Shares for the accounts of Service Agent Customers under
this Agreement, including the purchase and redemption of Service Shares pursuant
to the Program.
2.3 The Service Agent will have exclusive responsibility for establishing
and operating the Program for its Customers. The Trust's responsibilities with
respect to the Program shall be limited to the proper handling of "swept" funds
properly transmitted by the Service Agent, and the proper implementation of
Customer and Service Agent share purchase and redemption instructions. The
Service Agent agrees that the Trust and its agents shall have no responsibility
or liability to review any purchase or redemption request which is presented by
the Service Agent to determine whether such request is genuine or authorized by
the Customer of the Service Agent. The Trust and its agents shall be entitled to
rely conclusively on any purchase or redemption request communicated by the
Service Agent, and shall have no liability whatsoever for any losses, claims or
damages to or against the Service Agent or any Customer resulting from a failure
of the Service Agent to transmit any such request, or from any errors contained
in any request.
3. The Service Agent shall furnish such office space, equipment,
facilities, computer hardware and software, and personnel as is necessary to
perform its duties hereunder. The
-2-
<PAGE>
Service Agent shall bear all costs incurred by it in performing such duties.
4. For the services provided and the expenses incurred by the Service
Agent hereunder, Northern on behalf of each Portfolio will pay to the Service
Agent a monthly fee equal on an annual basis to .25% of the average daily net
asset value of the Service Shares of such Portfolio which are owned beneficially
by Customers through the Service Agent during such period. If the total fees to
be accrued by a Portfolio on any day with respect to Service Shares of such
Portfolio exceed the net income, exclusive of such fees, to be accrued by such
Portfolio on Service Shares, the fee payable to the Service Agent with respect
to such Portfolio on such day will be reduced by an amount equal to the Service
Agent's proportionate share of such excess with respect to Service Shares, in
order to avoid adversely affecting the net asset value per share of such class.
5.1 In effecting the purchase or redemption of Service Shares in
accordance with the provisions of the Program or otherwise, the Service Agent
represents as follows: (a) it shall act solely as agent or fiduciary for the
account of its Customer; (b) each purchase or redemption of Service Shares on
behalf of its Customer shall be initiated solely upon the instruction and order
of the Customer or pursuant to the Service Agent's proper exercise of investment
discretion; and (c) the Customer will have full beneficial ownership of any
Service Shares purchased upon its authorization and order. Under no
circumstances will the Service Agent make any oral or written representations to
the contrary.
5.2 In performing its duties hereunder, the Service Agent will act in
conformity with the then-effective prospectuses and statements of additional
information of the Service Shares for the Portfolios selected on Schedule A, the
Investment Company Act of 1940 (the "1940 Act") and all other applicable federal
and state banking, securities and other laws, regulations and rulings and the
constitution, by-laws, and rules of any applicable self-regulatory organization.
The Service Agent will assume sole responsibility for its compliance with
applicable federal and state laws and regulations, and shall rely exclusively
upon its own determination, or that of its legal advisers, that the performance
of its duties hereunder complies with such laws and regulations. Under no
circumstances shall the Trust, Northern or any of their affiliates be held
responsible or liable in any respect for any statements or representations made
by them or their legal advisers to the Service Agent or any Customer of the
Service Agent concerning the applicability of any federal or state laws or
regulations to the activities described herein. The Service Agent shall perform
its duties hereunder in a manner consistent with the customs and practices of
other financial institutions that provide similar services.
-3-
<PAGE>
5.3 Representations and Warranties. The Service Agent represents and
warrants that:
(a) it is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, and that its execution
of this Agreement and provision of services hereunder has been duly
authorized and will not violate (i) its charter documents or by-laws,
(ii) any laws, rules or regulations, or (iii) any other agreement to
which it is a party;
(b) it will not engage in activities pursuant to this Agreement which
constitute acting as a broker or dealer under state law unless it has
obtained the licenses required by such law; and
(c) it will keep confidential any information acquired as a result of this
Agreement regarding the business and affairs of the Trust and
Northern, which requirements shall survive the term of this Agreement.
5.4 In addition to the foregoing, with respect to the purchase, redemption
or exchange of Service Shares for Customer accounts with respect to which the
Service Agent is a fiduciary under state or federal trust or comparable
fiduciary requirements, or, in the case of any such accounts which are subject
to the Employee Retirement Income Security Act of 1974, as amended, the Service
Agent is a fiduciary or party in interest, the Service Agent represents that the
purchase, redemption or exchange of Service Shares, and the Service Agent's
receipt of the relevant fee described in paragraph 4 hereof, is permissible
under all such applicable requirements and complies with any restrictions,
limitations or procedures under such requirements.
6.1 This Agreement shall become effective on the date hereof and, unless
sooner terminated, shall continue in effect until the next April 30, and
thereafter shall continue automatically for successive annual periods ending on
April 30, provided that it is approved annually by a vote of a majority of the
Trustees of the Trust, including a majority of those Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Service Plan for
the Service Class and the Premier Class, this Agreement or any related
agreements (the "Independent Trustees") cast in person at a meeting called for
the purpose of voting on this Agreement. This Agreement may be terminated at
any time, on not less than 60 days' notice to the Service Agent and without the
payment of any penalty by Northern or by vote of a majority of the Independent
Trustees. This Agreement may also be terminated by the Service Agent at any
time
-4-
<PAGE>
on 60 days' notice to Northern and will terminate automatically in the event of
its assignment. All material amendments to this Agreement must be in writing
and must be approved by the Independent Trustees in the manner described above
for continuing this Agreement. The term "assignment" shall have the meaning
given to it in the 1940 Act. Any notice furnished hereunder shall be in writing
and shall be mailed or delivered to the other party at its address set forth
above.
6.2 The Service Agent agrees to indemnify Northern and the Trust and each
person who controls (as defined in Section 2(a)(9) of the 1940 Act) the Trust
from and against any losses, claims, damages, expenses (including fees and
expenses of counsel) or liabilities ("Damages") to which Northern, the Trust or
such person may become subject in so far as such Damages arise out of the
failure of the Service Agent or its employees, agents or Customers to comply
with the Service Agent's obligations under this Agreement. Notwithstanding the
foregoing, neither Northern nor the Trust shall be entitled to be indemnified
for Damages arising out of its or its agent's or employee's gross negligence.
The foregoing indemnity agreement shall be in addition to any liability the
Service Agent may otherwise have.
7. The Service Agent shall be deemed to be an independent contractor and
not an agent of Northern or the Trust for all purposes hereunder and shall have
no authority to act for or represent Northern or the Trust. In addition, no
officer or employee of the Service Agent shall be deemed to be an employee or
agent of the Trust or Northern, nor will be subject, in any respect, to the
supervision of Northern or any affiliate thereof. Neither the Service Agent nor
any of its officers, employees or agents are authorized to make any
representations concerning the Trust or Service Shares except those contained in
the Trust's then-current prospectuses and statements of additional information
for Service Shares or in such supplemental literature or advertising as may be
authorized by the Trust. The fees payable to the Service Agent pursuant to this
Agreement shall not pertain to services or expenses which are primarily intended
to result in the sale of Service Shares.
8. This Agreement has been approved by vote of a majority of (i) the
Board of Trustees and (ii) the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval.
9. The Declaration of Trust establishing The Benchmark Funds, dated July
1, 1997, together with all amendments thereto (the "Declaration"), is on file in
the office of the Secretary of the State of Delaware. The name "The Benchmark
Funds" refers to the Trustees under the Declaration collectively as Trustees,
but not as individuals or personally; and the obligations of the Trust or a
Portfolio or class thereof are not binding upon any of
-5-
<PAGE>
the Trustees, officers or shareholders individually, but bind only the Trust
Property of the applicable Portfolio or class thereof.
10. If any provision of this Agreement shall be held or made invalid by a
decision in a judicial or administrative proceeding, statute, rule or otherwise,
the enforceability of the remainder of this Agreement will not be impaired
thereby. This Agreement shall be governed by the laws of Illinois (except with
respect to paragraph 9, which will be governed by the laws of Delaware) and
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors.
Very truly yours,
THE NORTHERN TRUST COMPANY
By:_________________________
[Authorized Officer]
Accepted and agreed to as of the date first above written:
SERVICE AGENT
By:_________________________
[Authorized Officer]
-6-
<PAGE>
SCHEDULE A
Please indicate ([x]) the appropriate Portfolios to which this Agreement
applies:
<TABLE>
<CAPTION>
Service
Portfolio Shares
--------- -------
<S> <C>
Government Select -------
Government -------
Diversified Assets -------
Tax-Exempt -------
</TABLE>
-7-
<PAGE>
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
Date
Service Agent
Address
RE: The Benchmark Funds (the "Trust")/Premier Shares
Gentlemen:
The Trust is an open-end management investment company that includes the money
market investment portfolios (the "Portfolios") identified on Schedule A hereto.
Shares of each Portfolio are divided into three separate classes, including the
Premier Shares.
You are a bank, a trust company or other financial institution (the "Service
Agent") with customers who are or may become the beneficial owners of Premier
Shares of the Portfolios (the "Customers"). You are willing to perform certain
services with respect to the Customers investing in the Premier Shares of the
Portfolios that you have selected on Schedule A attached hereto. In addition,
you may wish to offer to your Customers an automated cash management sweep
program (hereinafter the "Program") under which funds in the Customers' accounts
over a specified minimum amount will be "swept" (i.e., automatically
transmitted) on a daily basis into shares of one or more Portfolios.
Accordingly, the Service Agent and The Northern Trust Company ("Northern") agree
as follows:
1. With respect to Customers who beneficially own Premier Shares, the
Service Agent hereby agrees to perform the following administrative support
services/1/: (a) establish and maintain individual accounts and records with
respect to Premier Shares owned by each Customer; (b) process and issue
confirmations concerning Customer orders to purchase, redeem and exchange shares
promptly and in accordance with the then-effective prospectus for Premier
Shares; (c) receive and transmit funds representing the purchase price or
redemption proceeds of Premier Shares; (d) process dividend payments on behalf
of Customers; (e) forward to Customers shareholder communications from the Trust
(such as proxy statements and proxies, shareholder reports, annual and semi-
annual financial statements and dividend,
- -----------------
/1/ Services may be modified or omitted in a particular case and items
relettered or renumbered.
-8-
<PAGE>
distribution and tax notices); and (f) provide such statistical and other
information as may be reasonably requested by the Trust or necessary for the
Trust to comply with applicable federal or state laws. With respect to
Customers who beneficially own Premier Shares, the Service Agent hereby agrees
to perform the following personal and account maintenance services: (a) provide
facilities to answer inquiries and respond to correspondence with Customers and
other investors about the status of their accounts or about other aspects of the
Trust or the applicable Portfolio; (b) assist Customers in completing
application forms, selecting dividend and other account options and opening
custody accounts with the Service Agents; (c) provide services to Customers
intended to facilitate, or improve their understanding of the benefits and risks
of, a Portfolio to Customers, including asset allocation and other similar
services; (d) act as liaison between Customers and the Trust, including
obtaining information from the Trust and assisting the Trust in correcting
errors and resolving problems; and (e) perform any similar personal and account
maintenance services.
2.1 The Service Agent may establish a Program for its Customers upon such
terms and conditions (including the types of accounts eligible to participate in
such a Program; the minimum account balances over which funds in such accounts
will be swept into Premier Shares; the minimum excess balances in such accounts,
if any, which will be swept; and the frequency of sweeps of excess account
balances) as the Service Agent shall determine. No Customer account shall be
permitted to participate in the Program except upon the execution by the
Customer of (a) an account opening agreement, (b) authorization for the Service
Agent to effect the sweep of funds in such accounts in accordance with the terms
of the Program, and (c) all necessary Trust account application forms.
2.2 The Service Agent will be responsible for providing all electronic
data processing facilities as shall be necessary to establish and operate the
Program, and for the proper transmission of funds and appropriate instructions
to the Trust. The procedures for the purchase and redemption of Premier Shares,
including all relevant time and notification requirements, specified in the
then-effective prospectus of the Premier Shares, shall govern the purchase and
redemption of Premier Shares for the accounts of Service Agent Customers under
this Agreement, including the purchase and redemption of Premier Shares pursuant
to the Program.
2.3 The Service Agent will have exclusive responsibility for establishing
and operating the Program for its Customers. The Trust's responsibilities with
respect to the Program shall be limited to the proper handling of "swept" funds
properly transmitted by the Service Agent, and the proper implementation of
Customer and Service Agent share purchase and redemption
-9-
<PAGE>
instructions. The Service Agent agrees that the Trust and its agents shall have
no responsibility or liability to review any purchase or redemption request
which is presented by the Service Agent to determine whether such request is
genuine or authorized by the Customer of the Service Agent. The Trust and its
agents shall be entitled to rely conclusively on any purchase or redemption
request communicated by the Service Agent, and shall have no liability
whatsoever for any losses, claims or damages to or against the Service Agent or
any Customer resulting from a failure of the Service Agent to transmit any such
request, or from any errors contained in any request.
3. The Service Agent shall furnish such office space, equipment,
facilities, computer hardware and software, and personnel as is necessary to
perform its duties hereunder. The Service Agent shall bear all costs incurred
by it in performing such duties.
4. For the services provided and the expenses incurred by the Service
Agent hereunder, Northern on behalf of each Portfolio will pay to the Service
Agent a monthly fee equal on an annual basis to .50% of the average daily net
asset value of the Premier Shares of such Portfolio which are owned beneficially
by Customers through the Service Agent during such period. Of these fees, no
more than half of the fee payable with respect to Premier Shares will be for
personal and account maintenance services and expenses. If the total fees to be
accrued by a Portfolio on any day with respect to Premier Shares of such
Portfolio exceed the net income, exclusive of such fees, to be accrued by such
Portfolio on Premier Shares, the fee payable to the Service Agent with respect
to such Portfolio on such day will be reduced by an amount equal to the Service
Agent's proportionate share of such excess with respect to Premier Shares, in
order to avoid adversely affecting the net asset value per share of such class.
5.1 In effecting the purchase or redemption of Premier Shares in
accordance with the provisions of the Program or otherwise, the Service Agent
represents as follows: (a) it shall act solely as agent or fiduciary for the
account of its Customer; (b) each purchase or redemption of Premier Shares on
behalf of its Customer shall be initiated solely upon the instruction and order
of the Customer or pursuant to the Service Agent's proper exercise of investment
discretion; and (c) the Customer will have full beneficial ownership of any
Premier Shares purchased upon its authorization and order. Under no
circumstances will the Service Agent make any oral or written representations to
the contrary.
5.2 In performing its duties hereunder, the Service Agent will act in
conformity with the then-effective prospectuses and statements of additional
information of the Premier Shares for
-10-
<PAGE>
the Portfolios selected on Schedule A, the Investment Company Act of 1940 (the
"1940 Act") and all other applicable federal and state banking, securities and
other laws, regulations and rulings and the constitution, by-laws, and rules of
any applicable self-regulatory organization. The Service Agent will assume sole
responsibility for its compliance with applicable federal and state laws and
regulations, and shall rely exclusively upon its own determination, or that of
its legal advisers, that the performance of its duties hereunder complies with
such laws and regulations. Under no circumstances shall the Trust, Northern or
any of their affiliates be held responsible or liable in any respect for any
statements or representations made by them or their legal advisers to the
Service Agent or any Customer of the Service Agent concerning the applicability
of any federal or state laws or regulations to the activities described herein.
The Service Agent shall perform its duties hereunder in a manner consistent with
the customs and practices of other financial institutions that provide similar
services.
5.3 Representations and Warranties. The Service Agent represents and
warrants that:
(a) it is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, and that its execution
of this Agreement and provision of services hereunder has been duly
authorized and will not violate (i) its charter documents or by-laws,
(ii) any laws, rules or regulations, or (iii) any other agreement to
which it is a party;
(b) it will not engage in activities pursuant to this Agreement which
constitute acting as a broker or dealer under state law unless it has
obtained the licenses required by such law; and
(c) it will keep confidential any information acquired as a result of this
Agreement regarding the business and affairs of the Trust and
Northern, which requirements shall survive the term of this Agreement.
5.4 In addition to the foregoing, with respect to the purchase, redemption
or exchange of Premier Shares for Customer accounts with respect to which the
Service Agent is a fiduciary under state or federal trust or comparable
fiduciary requirements, or, in the case of any such accounts which are subject
to the Employee Retirement Income Security Act of 1974, as amended, the Service
Agent is a fiduciary or party in interest, the Service Agent represents that the
purchase, redemption or exchange of Premier Shares, and the Service Agent's
receipt of the relevant fee described in paragraph 4 hereof, is permissible
under all such applicable requirements and complies
-11-
<PAGE>
with any restrictions, limitations or procedures under such requirements.
6.1 This Agreement shall become effective on the date hereof and, unless
sooner terminated, shall continue in effect until the next April 30, and
thereafter shall continue automatically for successive annual periods ending on
April 30, provided that it is approved annually by a vote of a majority of the
Trustees of the Trust, including a majority of those Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Service Plan for
the Service Class and the Premier Class, this Agreement or any related
agreements (the "Independent Trustees") cast in person at a meeting called for
the purpose of voting on this Agreement. This Agreement may be terminated at
any time, on not less than 60 days' notice to the Service Agent and without the
payment of any penalty by Northern or by vote of a majority of the Independent
Trustees. This Agreement may also be terminated by the Service Agent at any
time on 60 days' notice to Northern and will terminate automatically in the
event of its assignment. All material amendments to this Agreement must be in
writing and must be approved by the Independent Trustees in the manner described
above for continuing this Agreement. The term "assignment" shall have the
meaning given to it in the 1940 Act. Any notice furnished hereunder shall be in
writing and shall be mailed or delivered to the other party at its address set
forth above.
6.2 The Service Agent agrees to indemnify Northern and the Trust and each
person who controls (as defined in Section 2(a)(9) of the 1940 Act) the Trust
from and against any losses, claims, damages, expenses (including fees and
expenses of counsel) or liabilities ("Damages") to which Northern, the Trust or
such person may become subject in so far as such Damages arise out of the
failure of the Service Agent or its employees, agents or Customers to comply
with the Service Agent's obligations under this Agreement. Notwithstanding the
foregoing, neither Northern nor the Trust shall be entitled to be indemnified
for Damages arising out of its or its agent's or employee's gross negligence.
The foregoing indemnity agreement shall be in addition to any liability the
Service Agent may otherwise have.
7. The Service Agent shall be deemed to be an independent contractor and
not an agent of Northern or the Trust for all purposes hereunder and shall have
no authority to act for or represent Northern or the Trust. In addition, no
officer or employee of the Service Agent shall be deemed to be an employee or
agent of the Trust or Northern, nor will be subject, in any respect, to the
supervision of Northern or any affiliate thereof. Neither the Service Agent nor
any of its officers, employees or agents are authorized to make any
representations concerning the Trust or Premier Shares except those contained in
the Trust's
-12-
<PAGE>
then-current prospectuses and statements of additional information for Premier
Shares or in such supplemental literature or advertising as may be authorized by
the Trust. The fees payable to the Service Agent pursuant to this Agreement
shall not pertain to services or expenses which are primarily intended to result
in the sale of Premier Shares.
8. This Agreement has been approved by vote of a majority of (i) the
Board of Trustees and (ii) the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval.
9. The Declaration of Trust establishing The Benchmark Funds, dated July
1, 1997, together with all amendments thereto (the "Declaration"), is on file in
the office of the Secretary of the State of Delaware. The name "The Benchmark
Funds" refers to the Trustees under the Declaration collectively as Trustees,
but not as individuals or personally; and the obligations of the Trust or a
Portfolio or class thereof are not binding upon any of the Trustees, officers or
shareholders individually, but bind only the Trust Property of the applicable
Portfolio or class thereof.
10. If any provision of this Agreement shall be held or made invalid by a
decision in a judicial or administrative proceeding, statute, rule or otherwise,
the enforceability of the remainder of this Agreement will not be impaired
thereby. This Agreement shall be governed by the laws of Illinois (except with
respect to paragraph 9, which will be governed by the laws of Delaware) and
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors.
Very truly yours,
THE NORTHERN TRUST COMPANY
By:_________________________
[Authorized Officer]
Accepted and agreed to as of the date first above written:
SERVICE AGENT
By:_________________________
[Authorized Officer]
-13-
<PAGE>
SCHEDULE A
Please indicate ([x]) the appropriate Portfolios to which this Agreement
applies:
<TABLE>
<CAPTION>
Premier
Portfolio Shares
--------- -------
<S> <C>
Government Select -------
Government -------
Diversified Assets -------
Tax-Exempt -------
</TABLE>
-14-
<PAGE>
EXHIBIT 11
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our Firm
under the caption "Additional Trust Information - Counsel and Auditors" in the
Statement of Additional Information included in Post-Effective Amendment No. 37
to the Registration Statement (1933 Act No. 2-80543; 1940 Act No. 811-3605) on
Form N-1A under the Securities Act of 1933, as amended, of The Benchmark Funds.
This consent does not constitute a consent under section 7 of the Securities Act
of 1933, and in consenting to the use of our name and the references to our Firm
under such caption we have not certified any part of the Registration Statement
and do not otherwise come within the categories of persons whose consent is
required under said section 7 or the rules and regulations of the Securities and
Exchange Commission thereunder.
/s/ Drinker Biddle & Reath LLP
----------------------------------
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
January 30, 1998
<PAGE>
EXHIBIT 18
THE BENCHMARK FUNDS
(the "Company")
AMENDED AND RESTATED PLAN PURSUANT TO
RULE 18f-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
----------------------------
I. INTRODUCTION
---------------
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") adopted Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which permits the creation and operation of a multi-
class distribution structure without the need to obtain an exemptive order under
Section 18 of the 1940 Act. Rule 18f-3, which became effective on April 3,
1995, requires an investment company to file with the Commission a written plan
specifying all of the differences among classes, including the various services
offered to shareholders, different distribution arrangements for each class,
methods for allocating expenses relating to those differences and any conversion
features or exchange privileges. Previously, the Company operated a multi-class
distribution structure pursuant to an exemptive order granted by the Commission
on May 26, 1993. On July 11, 1995 the Board of Trustees of the Company
authorized the Company to operate its current multi-class distribution structure
in compliance with Rule 18f-3. This Plan became effective upon its original
filing with the Securities and Exchange Commission.
II. ATTRIBUTES OF CLASSES
-------------------------
A. Generally
---------
The Company will offer three classes of units - Units (hereinafter
"Initial Class units"), Service Class units and Premier Class units -- in the
Diversified Assets, Government, Government Select and Tax-Exempt Portfolios
(each a "Portfolio," collectively, the "Money Market Portfolios").
The Company will offer four classes of units-- Class A, Class B, Class
C and Class D units -- in the U.S. Government Securities, Short-Intermediate
Bond, U.S. Treasury Index, Bond, International Bond and Intermediate Bond
Portfolios (each a "Portfolio," collectively, the "Fixed Income Portfolios") and
in the Balanced, Equity Index, Diversified Growth, Focused Growth, Small Company
Index, International Growth, International Equity Index and Global Asset
Portfolios (each a "Portfolio," collectively, the "Equity Portfolios" and,
collectively with the Fixed Income Portfolios, the "Non-Money Market
Portfolios").
<PAGE>
In general, shares of each class will be identical except for
different expense variables (which will result in different returns for each
class), certain related rights and certain transfer agency and shareholder
services as described below.
Initial Class, Service Class and Premier Class units of each Money
Market Portfolio will represent interests in the same portfolio of investments
of the particular Portfolio, and will be identical in all respects, except for:
(a) the impact of (i) expenses assessed to a class pursuant to the Service Plan
for the Service Class and the Premier Class (the "Money Market Non-12b-1 Plan")
adopted for that class, (ii) transfer agency fees and (iii) any other
incremental expenses identified from time to time that should be properly
allocated to one class so long as any changes in expense allocations are
reviewed and approved by a vote of the Board of Trustees, including a majority
of the independent Trustees; (b) the fact that a class will vote separately on
any matter submitted to shareholders that pertains to (i) the Money Market Non-
12b-1 Plan adopted for that class or (ii) class expenses borne by that class;
(c) the different exchange privileges of each class of units; (d) the
designation of each class of units of a Portfolio; and (e) the different
transfer agency and shareholder services relating to a class of units.
Class A, Class B, Class C and Class D units of each Non-Money Market
Portfolio will represent interests in the same portfolio of investments of the
particular Portfolio, and will be identical in all respects, except for: (a) the
impact of (i) expenses assessed to a class pursuant to the Unitholder Servicing
Plan (the "Non-12b-1 Plan") adopted for that class, (ii) transfer agency fees
and (iii) any other incremental expenses identified from time to time that
should be properly allocated to one class so long as any changes in expense
allocations are reviewed and approved by a vote of the Board of Trustees,
including a majority of the independent Trustees; (b) the fact that a class will
vote separately on any matter submitted to shareholders that pertains to (i) the
Non-12b-1 Plan adopted for that class or (ii) class expenses borne by that
class; (c) the different exchange privileges of each class of units; (d) the
designation of each class of units of a Portfolio; and (e) the different
transfer agency and shareholder services relating to a class of units.
B. Distribution Arrangements/Shareholder Services/Expenses. Sales Charges
----------------------------------------------------------------------
Initial Class units of the Money Market Portfolios
Initial Class units of the Money Market Portfolios will be available
for purchase by The Northern Trust Company, its
-2-
<PAGE>
affiliates and other institutions and organizations (collectively, the
"Institutions") acting on behalf of their customers, clients, employees and
others (the "Customers") and for their own account. Initial Class units of the
Portfolios will be available for purchase, as described from time to time in the
Company's Prospectuses and Statements of Additional Information, by Institutions
directly or through procedures established in connection with the requirements
of their qualified accounts.
Initial Class units of the Portfolios will not be subject to a sales
charge and will not be subject to fees payable pursuant to the Money Market Non-
12b-1 Plan.
Service Class and Premier Class units of the Money Market Portfolios
Service Class and Premier Class units of each Money Market Portfolio
will be available for purchase by Institutions as described from time to time in
the Company's Prospectuses and Statements of Additional Information.
Service Class units of each Portfolio will initially be designed to be
purchased by investors having a relationship with an organization which requires
that administrative support services be provided to the investors by a servicing
agent. Premier Class units of each Portfolio will initially be designed to be
purchased by investors having a relationship with an organization which requires
that administrative support services and unitholder liaison services be provided
to the investors by a servicing agent.
Service Class and Premier Class units will not be subject to a sales
charge. Services provided or arranged to be provided under the Money Market
Non-12b-1 Plan adopted for a Class of units may include: (i) acting or
arranging for another party to act, as recordholder and nominee of all Service
Class and Premier Class units of a Portfolio beneficially owned by Customers;
(ii) establishing and maintaining individual accounts and records with respect
to Service Class and Premier Class units of a Portfolio owned by Customers;
(iii) processing and issuing confirmations concerning Customer orders to
purchase, redeem and exchange Service Class and Premier Class units of a
Portfolio; (iv) receiving and transmitting funds representing the purchase price
or redemption proceeds of Service Class and Premier Class units of a Portfolio;
(v) processing dividend payments on behalf of Customers; (vi) forwarding
shareholder communications from the Company; (vii) providing such statistical
and other information as may be reasonably requested by the Company or necessary
for the Company to comply with applicable federal or state law; (viii)
facilitating the inclusion of a Portfolio in investment, retirement, asset
allocation, cash management or sweep accounts
-3-
<PAGE>
or similar products or services offered to Customers or to Customers of other
service agents; (ix) facilitating electronic or computer trading and/or
processing in a Portfolio to Customers or to Customers of other service agents;
(x) providing facilities to answer inquiries and respond to correspondence with
Customers and other investors about the status of their accounts or about other
aspects of the Company or the applicable Portfolio; (xi) assisting Customers in
completing application forms, selecting dividend and other account options and
opening custody accounts with the service agents; (xii) providing services to
Customers intended to facilitate, or improve their understanding of the benefits
and risks of, a Portfolio to Customers, including asset allocation and other
similar services; (xiii) acting as liaison between Customers and the Company,
including obtaining information from the Company and assisting the Company in
correcting errors and resolving problems; and (xiv) performing any similar
administrative or shareholder liaison services.
Class A units of the Non-Money Market Portfolios
Class A units of the Non-Money Market Portfolios will be available for
purchase by Institutions acting on behalf of their Customers and for their own
account. Class A units of the Portfolios will be available for purchase, as
described from time to time in the Company's Prospectuses and Statements of
Additional Information, by Institutions directly or through procedures
established in connection with the requirements of their qualified accounts.
Class A units of the Portfolios initially will be 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 to the holders of Class B, C and D units of the
Non-Money Market Portfolios.
Class A units of the Portfolios will not be subject to a sales charge;
but Class A units of the Small Company Index Portfolio and International Equity
Index Portfolio will be subject to an additional purchase price amount not
exceeding .50% and 1.00%, respectively, of the net asset value of the Class A
units purchased. Class A units will not be subject to a fee payable pursuant to
the Non-12b-1 Plan.
Class B, C and D units of the Non-Money Market Portfolios
Class B, C and D units of each Non-Money Market Portfolio will be
available for purchase by Institutions acting on behalf of Customers and for
their own account. Class B, C and D units will be available for purchase, as
described from time to time in the Company's Prospectuses and Statements of
Additional Information, by Institutions directly or through procedures
-4-
<PAGE>
established in connection with the requirements of their qualified accounts.
Class B units of each Portfolio initially will be designed to be
purchased by organizations maintaining record ownership on behalf of beneficial
owners where certain services of the Company's transfer agent and a servicing
agent are required that are incident to the separation of record and beneficial
ownership. Class C units of each Portfolio will initially be designed to be
purchased by institutional investors which require certain account-related
services of the Company's transfer agent and a servicing agent that are incident
to the investor being the beneficial owner of units. Class D units of each
Portfolio will initially be 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 Company's
transfer agent and a servicing agent.
Class B, C and D units of each Portfolio will not be subject to a
sales charge; but each class of units of the Small Company Index Portfolio and
International Equity Index Portfolio will be subject to an additional purchase
price amount not exceeding .50% and 1.00%, respectively, of the net asset value
of the units purchased. In addition, Class B, C and D units will be subject to
a fee payable pursuant to the Non-12b-1 Plan which will not exceed the annual
rate of .10%, .15% and .25% of the average daily net asset value of the
outstanding units of the respective classes which are held by or serviced by
certain servicing agents for beneficial owners of units.
Services provided or arranged to be provided under the Non-12b-1 Plan
adopted for a class of units may include: (i) establishing and maintaining
separate account records of Customers or other investors; (ii) 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; (iii) 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 Company's
transfer agent; (iv) issuing confirmations to Customers or other investors in
accordance with applicable law; (v) arranging for the timely transmission of
funds representing the net purchase price or redemption proceeds; (vi)
processing dividend payments on behalf of Customers or other investors; (vii)
providing information periodically to Customers or other investors showing their
positions in units; (viii) responding to Customer or other investor inquiries
(including requests for prospectuses), and complaints relating to the services
performed by the Institutions; (ix) acting as liaison with respect to all
inquiries and complaints from Customers and other investors
-5-
<PAGE>
relating to errors committed by the Company or its agents, and other matters
pertaining to the Company; (x) providing or arranging for another person to
provide subaccounting with respect to units of certain classes beneficially
owned by Customers or other investors; (xi) if required by law, forwarding
unitholder communications from the Company (such as proxy statements and
proxies, unitholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to Customers and other investors; (xii)
providing such office space, facilities and personnel as may be required to
perform its services under the Non-12b-1 Plan; (xiii) maintaining appropriate
management reporting and statistical information; (xiv) paying expenses related
to the preparation of educational and other explanatory materials in connection
with the development of investor services; (xv) developing and monitoring
investment programs; and (xvi) providing such other similar services as the
Company may reasonably request to the extent the Institutions are permitted to
do so under applicable statutes, rules and regulations.
C. Exchange Privileges
-------------------
Institutions and, to the extent permitted by their account agreements,
Customers generally will be permitted to exchange Initial Class units of a Money
Market Portfolio for Initial Class units of another Money Market Portfolio or
units of other portfolios of the Company (as provided for in the Prospectus for
Initial Class units) as to which the Institution or Customer maintains an
existing account with an identical title.
To the extent permitted by their account agreements, Customers
generally will be permitted to exchange Service Class and Premier Class units of
a Money Market Portfolio for Service Class and Premier Class units,
respectively, of another Money Market Portfolio or units of other portfolios of
the Company (as provided for in the Prospectuses for Service Class and Premier
Class units) as to which the Customer maintains an existing account with an
identical title.
Institutions and, to the extent permitted by their account agreements,
Customers generally will be permitted to exchange Class A, B, C and D units of a
Non-Money Market Portfolio for Class A, B, C or D units, respectively, of
another Non-Money Market Portfolio or units of other portfolios of the Company
(as provided for in the Prospectus for Class A, B, C and D units) as to which
the Institution or Customer maintains an existing account with an identical
title.
D. Methodology for Allocating Expenses Among Classes
-------------------------------------------------
-6-
<PAGE>
Expenses of a Portfolio are classified as being either joint or class-
specific.
Joint expenses of a Portfolio are allocated daily to each class of
units of such Portfolio in accordance with Rule 18f-3(c). Class-specific
expenses of a Portfolio are allocated to the specific class of units of such
Portfolio.
Originally Adopted: July 11, 1995
Amended and Restated: January 27, 1998
-7-
<PAGE>
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
Date
Consultant
Address
RE: The Benchmark Funds (the "Trust")
Gentlemen:
The Trust is an open-end management investment company that includes the money
market investment portfolios (the "Portfolios") identified on Schedule A hereto.
Shares of each Portfolio are divided into three separate classes, including the
Service Shares and the Premier Shares (together, the "Classes").
You are an institution (the "Consultant") that wishes to provide services to
facilitate the inclusion of the Service Shares and Premier Shares of the
Portfolios in cash management sweep programs ("Programs") offered by banks,
trust companies and other institutions (the "Service Agents") with customers who
are or may become the beneficial owners of such shares (the "Customers"). You
are willing to perform certain services with respect to the Programs and Classes
identified on Schedule A attached hereto (as amended from time to time).
Accordingly, the Consultant and The Northern Trust Company ("Northern") agree as
follows:
1. The Consultant hereby agrees to provide services to facilitate the
inclusion of the Portfolios in Programs offered to Customers by the Service
Agents, including, without limitation, the following services: (a) providing
ongoing consulting services, technology and systems support with respect to the
implementation and maintenance of the Programs; (b) training personnel of the
Service Agents or providing consulting services in connection with the training
of personnel of the Service Agents with respect to the implementation and
operation of the Programs; and (c) providing training and consultation services
concerning licensing and other regulatory requirements relating to the Programs.
2. The Consultant shall furnish such office space, equipment, facilities,
computer hardware and software, and personnel as is necessary to perform its
duties hereunder. The Consultant shall bear all costs incurred by it in
performing such duties.
3. For the services provided and the expenses incurred by the Consultant
hereunder, Northern on behalf of each Portfolio
<PAGE>
will pay to the Consultant a monthly fee equal on an annual basis to .08% of the
average daily net asset value of the Service Shares and the Premier Shares of
such Portfolio which are owned beneficially by Customers through the Programs
during such period. If the total fees to be accrued by a Portfolio on any day
with respect to such shares of such Portfolio exceed the net income, exclusive
of such fees, to be accrued by such Portfolio on such shares, the fee payable to
the Consultant with respect to such Portfolio on such day will be reduced by an
amount equal to the Consultant's proportionate share of such excess with respect
to such Class, in order to avoid adversely affecting the net asset value per
share of that Class.
4. Representations and Warranties. Consultant represents and warrants
that:
(a) it is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, and that its execution
of this Agreement and provision of services hereunder has been duly
authorized and will not violate (i) its charter documents or by-laws,
(ii) any laws, rules or regulations, or (iii) any other agreement to
which it is a party;
(b) it will keep confidential any information acquired as a result of this
Agreement regarding the business and affairs of the Trust and
Northern, which requirements shall survive the term of this Agreement.
5.1 This Agreement shall become effective on the date hereof and, unless
sooner terminated, shall continue in effect until the next April 30, and
thereafter shall continue automatically for successive annual periods ending on
April 30, provided that it is approved annually by a vote of a majority of the
Trustees of the Trust, including a majority of those Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Service Plan for
the Service Class and the Premier Class, this Agreement or any related
agreements (the "Independent Trustees") cast in person at a meeting called for
the purpose of voting on this Agreement. This Agreement may be terminated at any
time on not less than 60 days' notice to the Consultant and without the payment
of any penalty by Northern or by vote of a majority of the Independent Trustees.
This Agreement may also be terminated by the Consultant at any time on 60 days'
notice to Northern and will terminate automatically in the event of its
assignment. All material amendments to this Agreement must be in writing and
must be approved by the Independent Trustees in the manner described above for
continuing this Agreement. The term "assignment" shall have the meaning given to
it in the 1940 Act. Any notice furnished hereunder
<PAGE>
shall be in writing and shall be mailed or delivered to the other party at its
address set forth above.
5.2 The Consultant agrees to indemnify Northern and the Trust and each
person who controls (as defined in Section 2(a)(9) of the 1940 Act) the Trust
from and against any losses, claims, damages, expenses (including fees and
expenses of counsel) or liabilities ("Damages") to which Northern, the Trust or
such person may become subject in so far as such Damages arise out of the
failure of the Consultant or its employees or agents to comply with the
Consultant's obligations under this Agreement. Notwithstanding the foregoing,
neither Northern nor the Trust shall be entitled to be indemnified for Damages
arising out of its or its agent's or employee's gross negligence. The foregoing
indemnity agreement shall be in addition to any liability the Consultant may
otherwise have.
5. The Consultant shall be deemed to be an independent contractor and not
an agent of Northern or the Trust for all purposes hereunder. The fees payable
to the Consultant pursuant to this Agreement shall not pertain to services or
expenses which are primarily intended to result in the sale of Service Shares
and Premier Shares.
6. This Agreement has been approved by vote of a majority of (i) the
Board of Trustees and (ii) the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval.
7. The Declaration of Trust establishing The Benchmark Funds, dated July
1, 1997, together with all amendments thereto (the "Declaration"), is on file in
the office of the Secretary of the State of Delaware. The name "The Benchmark
Funds" refers to the Trustees under the Declaration collectively as Trustees,
but not as individuals or personally; and the obligations of the Trust or a
Portfolio or class thereof are not binding upon any of the Trustees, officers or
shareholders individually, but bind only the Trust Property of the applicable
Portfolio or class thereof.
8. If any provision of this Agreement shall be held or made invalid by a
decision in a judicial or administrative proceeding, statute, rule or otherwise,
the enforceability of the remainder of this Agreement will not be impaired
thereby. This Agreement shall be governed by the laws of Illinois (except with
respect to paragraph 7, which will be governed by the laws of Delaware) and
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors.
Very truly yours,
<PAGE>
THE NORTHERN TRUST COMPANY
By:
-------------------------
[Authorized Officer]
Accepted and agreed to as of the date first above written:
CONSULTANT
By:
-------------------------
[Authorized Officer]
<PAGE>
SCHEDULE A
Pursuant to the Agreement, the Consultant shall provide services to
facilitate the inclusion of the Service Shares and the Premier Shares of the
Portfolios in the Programs offered by the Service Agents identified below.
With respect to each Program listed below, please indicate ([x]) the appropriate
Class(es) for which this Agreement applies:
1. [INSERT NAME OF SERVICE AGENT]
<TABLE>
<CAPTION>
Service Premier
Portfolio Class Class
--------- ------- -------
<S> <C> <C>
Government Select ------- -------
Government ------- -------
Diversified Assets ------- -------
Tax-Exempt ------- -------
</TABLE>
2. [INSERT NAME OF SERVICE AGENT]
<TABLE>
<CAPTION>
Service Premier
Portfolio Class Class
--------- ------- -------
<S> <C> <C>
Government Select ------- -------
Government ------- -------
Diversified Assets ------- -------
Tax-Exempt ------- -------
</TABLE>
3. [INSERT NAME OF SERVICE AGENT]
<TABLE>
<CAPTION>
Service Premier
Portfolio Class Class
--------- ------- -------
<S> <C> <C>
Government Select ------- -------
Government ------- -------
Diversified Assets ------- -------
Tax-Exempt ------- -------
</TABLE>
