<PAGE>
The
Benchmark Funds
Money Market Portfolios
Shares
PROSPECTUS APRIL 1, 1998
<PAGE>
THE BENCHMARK FUNDS
(Advised by The Northern Trust Company)
THE NORTHERN TRUST COMPANY INVESTMENT ADVISER, TRANSFER
50 S. LaSalle Street AGENT AND CUSTODIAN
Chicago, Illinois 60675
312-630-6000 --------------------
This Prospectus describes a class of shares ("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 April 1, 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 April 1, 1998.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS 3
- ----------
Description of Trust 3
Summary of Expenses 3
FINANCIAL HIGHLIGHTS 5
- --------------------
INVESTMENT INFORMATION 10
- ----------------------
Government Select Portfolio 10
Government Portfolio 11
Diversified Assets Portfolio 11
Tax-Exempt Portfolio 11
Description of Securities and Com-
mon Investment Techniques 12
Investment Restrictions 18
TRUST INFORMATION 18
- -----------------
Board of Trustees 18
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Adviser, Transfer Agent
and Custodian 19
Year 2000 19
Administrator and Distributor 20
Expenses 20
INVESTING 21
---------
Purchase of Shares 21
Redemption of Shares 23
Distributions 26
Taxes 26
NET ASSET VALUE 28
---------------
PERFORMANCE INFORMATION 28
-----------------------
ORGANIZATION 29
------------
MISCELLANEOUS 30
-------------
</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 Shares" and "Investing--Redemption of 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 certain information regarding the annualized
operating expenses of the shares of the Portfolios incurred during the Trust's
last fiscal year. Hypothetical examples based on the table are also shown.
<TABLE>
<CAPTION>
GOVERNMENT DIVERSIFIED TAX-
SELECT GOVERNMENT ASSETS EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
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 Reduc-
tions.......................... .10% .25% .25% .25%
12b-1 Fees...................... None None None None
Other Expenses After Expense Re-
imbursements and Fee Reduc-
tions.......................... .10% .10% .10% .10%
---- ---- ---- ----
Total Operating Expenses.......... .20% .35% .35% .35%
==== ==== ==== ====
</TABLE>
EXAMPLE OF EXPENSES. Based on the foregoing table, you would pay the following
expenses on a hypothetical $1,000 investment in shares, assuming a 5% annual
return and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Select Portfolio..................... $2 $ 6 $11 $26
Government Portfolio............................ $4 $11 $20 $44
Diversified Assets Portfolio.................... $4 $11 $20 $44
Tax-Exempt Portfolio............................ $4 $11 $20 $44
</TABLE>
The costs and expenses included in the table and hypothetical example above are
based on actual amounts incurred for the fiscal year ended November 30, 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 charged an
administration fee 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 average daily net assets. 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 the
fiscal year, Goldman Sachs reimbursed each 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 extraordinary expenses) which
exceeded on an annualized basis .10% of the Portfolio's average daily net
assets for such fiscal year. The expense information in the table has,
accordingly, been presented to reflect these fee reductions and reimbursements.
Without the undertakings of Northern and Goldman Sachs, for the fiscal year
ended November 30, 1997, "Other Expenses" of the Government Select, Government,
Diversified Assets and Tax-Exempt Portfolios would have been .14%, .12%, .11%
and .14%, respectively; and "Total Operating Expenses" of the Government
Select, Government, Diversified Assets and Tax-Exempt Portfolios would have
been .39%, .37%, .36% and .39%, respectively. On April 1, 1998 upon the
offering of the Portfolios' Service Shares and Premier Shares, Goldman Sachs
will reimburse each Portfolio's expenses (including fees payable to Goldman
Sachs as administrator, but excluding the fees payable to Northern for its
duties as adviser and transfer agent, payments under the service plan for the
Portfolios' Service Shares and Premier Shares and certain extraordinary
expenses) which exceed on an annualized basis .10% of the Portfolio's average
daily
4
<PAGE>
net assets. For a more complete description of the Portfolios' expenses, see
"Financial Highlights" and "Trust Information" in this Prospectus and the
financial statements and related notes incorporated by reference into the
Additional Statement.
---------------------
THE PURPOSE OF THE FOREGOING TABLE IS TO ASSIST YOU IN UNDERSTANDING THE
VARIOUS 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 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.
FINANCIAL HIGHLIGHTS
The following information has been audited by Ernst & Young LLP, independent
auditors, as indicated in their report incorporated by reference into the
Additional Statement from the annual report to shareholders for the fiscal year
ended November 30, 1997 (the "Annual Report"), and should be read in
conjunction with the financial statements and related notes incorporated by
reference and attached to the Additional Statement. The Annual Report also
contains additional performance information and is available upon request and
without charge by calling the telephone number or writing to the address on the
first page of this Prospectus.
5
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
GOVERNMENT SELECT PORTFOLIO
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990(a)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.05 0.05 0.06 0.04 0.03 0.04 0.06 0.01
- ------------------------------------------------------------------------------------------------------------
Total income from
investment operations 0.05 0.05 0.06 0.04 0.03 0.04 0.06 0.01
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (0.05) (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.01)
- ------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.05) (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.01)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------
Total return (b) 5.41% 5.31% 5.82%(c) 3.84% 3.00% 3.71% 5.82% 0.50%
Ratio to average net
assets of (d):
Expenses, net of
waivers and
reimbursements 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Expenses, before
waivers and
reimbursements 0.39% 0.40% 0.41% 0.43% 0.49% 0.52% 0.60% 1.33%
Net investment income,
net of waivers and
reimbursements 5.30% 5.19% 5.67% 3.83% 2.99% 3.70% 5.78% 7.65%
Net investment income,
before waivers and
reimbursements 5.11% 4.99% 5.46% 3.60% 2.70% 3.38% 5.38% 6.52%
Net assets at end of
year (in thousands) $1,239,393 $836,349 $685,142 $493,718 $386,507 $264,756 $160,750 $44,215
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period November 7, 1990 (commencement of operations) through
November 30, 1990.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete
redemption of the investment at net asset value at the end of the year.
Total return is not annualized for periods less than one year.
(c) Total return for the year ended November 30, 1995 would have been 5.80%
absent the effect of a capital contribution equivalent to $.0002 per
share received from Northern Trust Corporation.
(d) Annualized for periods less than one year.
6
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
GOVERNMENT PORTFOLIO
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income 0.05 0.05 0.06 0.04 0.03 0.04 0.06 0.08 0.09
- --------------------------------------------------------------------------------------------------------------------------
Total income from
investment
operations 0.05 0.05 0.06 0.04 0.03 0.04 0.06 0.08 0.09
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment
income (0.05) (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.08) (0.09)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders (0.05) (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.08) (0.09)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------------------
Total return (a) 5.31% 5.20% 5.64%(b) 3.78% 2.91% 3.91% 6.18% 7.89% 8.63%
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements 0.35% 0.35% 0.35% 0.34% 0.34% 0.34% 0.35% 0.37% 0.50%
Expenses, before
waivers and
reimbursements 0.37% 0.38% 0.40% 0.41% 0.38% 0.40% 0.40% 0.46% 0.50%
Net investment
income, net of
waivers and
reimbursements 5.18% 5.08% 5.49% 3.60% 2.92% 3.71% 6.03% 7.88% 8.63%
Net investment
income, before
waivers and
reimbursements 5.16% 5.05% 5.44% 3.53% 2.88% 3.65% 5.98% 7.79% 8.63%
Net assets at end of
year (in thousands) $1,051,401 $1,268,515 $850,664 $787,816 $1,065,705 $1,163,905 $895,405 $971,720 $423,517
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1988
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.00
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income 0.07
- --------------------------------------------------------------------------------------------------------------------------
Total income from
investment
operations 0.07
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment
income (0.07)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders (0.07)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF YEAR $1.00
- --------------------------------------------------------------------------------------------------------------------------
Total return (a) 6.83%
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements 0.54%
Expenses, before
waivers and
reimbursements 0.55%
Net investment
income, net of
waivers and
reimbursements 6.83%
Net investment
income, before
waivers and
reimbursements 6.82%
Net assets at end of
year (in thousands) $335,301
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year.
(b) Total return for the year ended November 30, 1995 would have been 5.53%
absent the effect of a capital contribution equivalent to $.0011 per share
received from Northern Trust Corporation.
7
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
DIVERSIFIED ASSETS PORTFOLIO
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income 0.05 0.05 0.06 0.04 0.03 0.04 0.06 0.08 0.09
- ---------------------------------------------------------------------------------------------------------------------------------
Total income from
investment
operations 0.05 0.05 0.06 0.04 0.03 0.04 0.06 0.08 0.09
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
FROM:
Net investment
income (0.05) (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.08) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Total
distributions to
shareholders (0.05) (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.08) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (a) 5.42% 5.30% 5.78%(b) 3.92% 3.00% 3.80% 6.19% 8.01% 8.98%
Ratio to average
net assets of:
Expenses, net of
waivers and
reimbursements 0.35% 0.34% 0.34% 0.35% 0.34% 0.34% 0.35% 0.35% 0.37%
Expenses, before
waivers and
reimbursements 0.36% 0.34% 0.34% 0.35% 0.36% 0.35% 0.36% 0.36% 0.37%
Net investment
income, net of
waivers and
reimbursements 5.30% 5.18% 5.63% 3.74% 3.00% 3.79% 6.18% 8.01% 8.98%
Net investment
income, before
waivers and
reimbursements 5.29% 5.18% 5.63% 3.74% 2.98% 3.78% 6.17% 8.00% 8.98%
Net assets at end
of year (in
thousands) $3,941,586 $3,179,529 $2,610,347 $2,891,880 $3,200,288 $2,801,744 $2,784,485 $2,192,756 $1,871,713
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1988
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.00
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income 0.07
- ---------------------------------------------------------------------------------------------------------------------------------
Total income from
investment
operations 0.07
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
FROM:
Net investment
income (0.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Total
distributions to
shareholders (0.07)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF YEAR $1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (a) 7.15%
Ratio to average
net assets of:
Expenses, net of
waivers and
reimbursements 0.39%
Expenses, before
waivers and
reimbursements 0.39%
Net investment
income, net of
waivers and
reimbursements 7.15%
Net investment
income, before
waivers and
reimbursements 7.15%
Net assets at end
of year (in
thousands) $1,528,203
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete
redemption of the investment at net asset value at the end of the year.
(b) Total return for the year ended November 30, 1995 would have been 5.73%
absent the effect of a capital contribution equivalent to $.0005 per
share received from Northern Trust Corporation.
8
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
TAX-EXEMPT PORTFOLIO
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.03 0.03 0.04 0.02 0.02 0.03 0.05 0.06 0.06 0.05
- --------------------------------------------------------------------------------------------------------------------------------
Total income from
investment operations 0.03 0.03 0.04 0.02 0.02 0.03 0.05 0.06 0.06 0.05
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (0.03) (0.03) (0.04) (0.02) (0.02) (0.03) (0.05) (0.06) (0.06) (0.05)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.03) (0.03) (0.04) (0.02) (0.02) (0.03) (0.05) (0.06) (0.06) (0.05)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------------------------
Total return (a) 3.44% 3.37% 3.71% 2.62% 2.27% 2.97% 4.57% 5.71% 6.04% 4.92%
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements 0.35% 0.35% 0.35% 0.35% 0.34% 0.34% 0.35% 0.36% 0.49% 0.48%
Expenses, before
waivers and
reimbursements 0.39% 0.40% 0.41% 0.36% 0.38% 0.39% 0.40% 0.43% 0.49% 0.48%
Net investment income,
net of waivers and
reimbursements 3.38% 3.32% 3.63% 2.40% 2.27% 2.95% 4.57% 5.71% 6.03% 4.92%
Net investment income,
before waivers and
reimbursements 3.34% 3.27% 3.57% 2.39% 2.23% 2.90% 4.52% 5.64% 6.03% 4.92%
Net assets at end of
year (in thousands) $585,159 $638,507 $803,730 $853,103 $1,191,932 $1,226,480 $872,405 $752,257 $545,215 $529,680
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete
redemption of the investment at net asset value at the end of the year.
9
<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 include, generally, (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 issued or guaranteed by a person with such ratings, and (ii) securities
that are unrated (including securities of issuers that have long-term but not
short-term ratings) but are determined to be of comparable quality. Securities
that are in the highest short-term rating category as described above (and
unrated securities determined to be of comparable quality) 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 and the Federal
Farm Credit Banks Funding Corp. The Portfolio intends to limit investments to
exempt U.S. Government securities. However, under extraordinary circumstances,
such as when appropriate exempt securities are unavailable, the Portfolio may
make investments in non-exempt U.S. Government securities and cash equivalents,
and may hold uninvested cash. See "Investing--Taxes" below for certain tax
considerations.
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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 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) U.S. 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
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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 and the International Bank for Reconstruction
and Development (also known as the World Bank)) designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies. Investments
by the Diversified Assets Portfolio in foreign issuer obligations will not
exceed 50% of the Portfolio's total assets measured at the time of purchase.
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
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foreign governmental restrictions which might adversely affect the payment of
principal and interest on such 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 subject to
applicable SEC regulations. 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. 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.
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
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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, Government and
Diversified Assets Portfolios 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 segregate 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.
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
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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 segregate
liquid assets until three days prior to the settlement date, having a value
(determined daily) at least equal to the amount of the Portfolio's purchase
commitments, or to otherwise cover its position. 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"), and may invest in
securities issued by other investment companies consistent with their
investment objectives and policies. Investments by a Portfolio in other money
market funds and investment companies will be subject to the limitations of the
1940 Act as described in more detail in the Additional Statement. Although the
Portfolios do not expect to do so in the foreseeable future, 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. 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.
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
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obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Municipal bonds with a series of maturity dates are called Serial Bonds. The
Portfolio may purchase Serial Bonds and other long-term securities provided
that they have a remaining maturity meeting the Tax-Exempt Portfolio's maturity
requirements. The Portfolio may also purchase long-term variable and floating
rate bonds (sometimes referred to as "Put Bonds") where the Portfolio obtains
at the time of purchase the right to put the bond back to the issuer or a third
party at par at least every thirteen months. Put Bonds with conditional puts
(that is, puts which cannot be exercised if the issuer defaults on its payment
obligations) will present risks that are different than those of other
Municipal Instruments because of the possibility that the Portfolio might hold
a long-term Put Bond on which a default occurs following its acquisition by the
Portfolio.
The Tax-Exempt Portfolio may acquire securities in the form of custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment or both on certain municipal obligations. Such obligations
are held in custody by a bank on behalf of the holders of the receipts. These
custodial receipts are known by various names, including "Municipal Receipts,"
"Municipal Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and
"Municipal Zero-Coupon Receipts." The Portfolio may also purchase certificates
of participation that, in the opinion of counsel to the issuer, are exempt from
regular Federal income tax. Certificates of participation are a type of
floating or variable rate obligation that represents interests in a pool of
municipal obligations held by a bank.
The Tax-Exempt Portfolio may acquire "standby commitments" with respect to the
Municipal Instruments it holds. Under a standby commitment, a dealer agrees to
purchase at the Portfolio's option specified Municipal Instruments at a
specified price. The acquisition of a standby commitment may increase the cost,
and thereby reduce the yield, of the Municipal Instruments to which the
commitment relates. The Portfolio will acquire standby commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
Municipal Instruments purchased by the Tax-Exempt Portfolio may be backed by
letters of credit or other forms of credit enhancement issued by foreign (as
well as domestic) banks and other financial institutions. The credit quality of
these banks and financial institutions could, therefore, cause loss to a
Portfolio that invests in Municipal Instruments. Letters of credit and other
obligations of foreign financial institutions may involve certain risks in
addition to those of domestic obligations. (See "Foreign Obligations" above.)
As stated, the Tax-Exempt Portfolio expects to invest primarily in Municipal
Instruments. However, the Portfolio may from time to time hold uninvested cash
or invest a portion of its assets in Taxable Investments. The Portfolio does
not intend to invest more than 25% of the value of its total assets in
industrial development 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
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economic, business or political development affecting one such instrument would
likewise affect the other related instruments.
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
shareholders 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 shareholders.
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 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 by SEC regulations.
DERIVATIVE INSTRUMENTS. Each Portfolio may also purchase certain "derivative"
instruments. "Derivative" instruments are instruments that derive value from
the performance of underlying assets, interest rates or indices, and include
(but are not limited to) various structured debt obligations (including certain
variable and floating rate instruments). Derivative instruments present, to
varying degrees, market risk that the performance of the underlying assets,
interest rates or indices will decline; credit risk that the dealer or other
counterparty to the transaction will fail to pay its obligations; volatility
risk that, if interest rates change adversely, the value of the derivative
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Portfolio will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument will not correlate
exactly to the value of the underlying assets, rates or indices on which it is
based; and operations risk that loss will occur as a result of inadequate
systems and controls, human error or otherwise. Some derivative instruments are
more complex than others, and for those instruments that have been developed
recently, information 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
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market and certain securities which are subject to trading restrictions because
they are not registered under the Securities Act of 1933 (the "1933 Act").
If otherwise consistent with their investment objectives 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.
Pursuant to an SEC order, each Portfolio may engage in principal transactions
effected in the ordinary course of business with Goldman Sachs.
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.
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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.
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 .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.
Northern also receives compensation as the Trust's custodian and transfer agent
under separate agreements. The fees payable by the Portfolios for these
services are described in the Additional Statement. Different transfer agency
fees are payable with respect to the Portfolios' different share classes.
YEAR 2000
Like every other business dependent upon computerized information processing,
Northern Trust Corporation ("Northern Trust") must deal with "Year 2000"
issues, which stem from using two digits to reflect the year in computer
programs and data. Computer programmers and other designers of equipment that
use microprocessors have long abbreviated dates by eliminating the first two
digits of the year under the assumption that those two digits will always be
19. As the Year 2000 approaches, many systems may be unable to accurately
process certain date-based information, which could cause a variety of
operational problems for businesses.
Northern Trust's data processing software and hardware provide essential
support to virtually all of its business units, including the units that
provide services to the Trust, so successfully addressing Year 2000 issues is
of the highest importance. Failure to complete renovation of the critical
systems used by Northern
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on a timely basis could have a materially adverse effect on its ability to
provide such services -- as could Year 2000 problems experienced by others.
Although the nature of the problem is such that there can be no complete
assurance it will be successfully resolved, Northern Trust has indicated that a
renovation and risk mitigation program is well under way and that it has a
dedicated Year 2000 Project Team whose members have significant systems
development and maintenance experience. Northern Trust's Year 2000 Project
includes a comprehensive testing plan. Northern Trust has advised the Trust
that it expects to complete work on its critical systems by December 31, 1998,
so that testing with outside parties may be conducted during 1999.
Northern Trust also will have a program to monitor and assess the efforts of
other parties. However, it cannot control the success of those efforts.
Contingency plans are being established where appropriate to provide Northern
Trust with alternatives in case these entities experience significant Year 2000
difficulties which impact Northern Trust.
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
its 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, payments under the service plan for the Portfolios' Service
Share and Premier Share classes 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
of the date of this Prospectus, Northern will continue to voluntarily reduce
its advisory fee for the Government Select Portfolio. The result of these
reimbursements and fee reductions will be to increase the yields of the
Portfolios during the periods for which the reimbursements and reductions are
made.
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, 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.
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INVESTING
PURCHASE OF SHARES
Shares are offered to Northern, its affiliates and other institutions and
organizations, including certain defined contribution plans having at least $30
million in assets or annual contributions of at least $5 million (the
"Institutions"), acting on behalf of their customers, clients, employees,
participants and others (the "Customers") and for their own account. Shares of
the Portfolios are sold on a continuous basis by the Trust's distributor,
Goldman Sachs, to Institutions that either maintain certain institutional
accounts with Northern or its affiliates or invest an aggregate of at least $5
million in one or more Portfolios of the Trust. Goldman Sachs has established
procedures for purchasing shares in order to accommodate different types of
Institutions.
PURCHASE OF SHARES THROUGH INSTITUTIONAL ACCOUNTS. Any Institution maintaining
an institutional account at Northern or an affiliate may make purchases through
such institutional 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 an institutional 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 institutional accounts with Northern or its
affiliates.
PURCHASE OF SHARES DIRECTLY FROM THE TRUST. An Institution that purchases
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 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, or other acceptable evidence of authority. If an
Institution desires to purchase the 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
Trust shares.
PURCHASE BY TELEPHONE. An Institution desiring to purchase 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 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
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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
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 Shareholder's Name)
For other information concerning requirements for the purchase of shares,
call the Transfer Agent at 1-800-637-1380.
EFFECTIVE TIME OF PURCHASES. Except as provided below under "Miscellaneous," a
purchase order for 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.,
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 an institutional 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
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charges such as asset allocation fees, account maintenance fees, compensating
balance requirements or other charges based upon account transactions, assets
or income, which will have the effect of reducing the net return on an
investment in a Portfolio. The exercise of voting rights and the delivery to
Customers of 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.
Payment for shares of the Portfolio may, in the discretion of Northern, be made
in the form of securities that are permissible investments for the Portfolio.
For further information about the terms of such purchases, see the Additional
Statement.
In the interests of economy and convenience, certificates representing 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 SHARES
Institutions may redeem shares of a Portfolio through procedures established by
Northern and its affiliates in connection with the requirements of their
institutional accounts or through procedures set forth herein with respect to
Institutions that invest directly.
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REDEMPTION OF SHARES THROUGH INSTITUTIONAL ACCOUNTS. Institutions may redeem
shares in their institutional accounts at Northern or its affiliates. For
Institutions that participate in an automatic investment service described
above under "Purchase of 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
institutional 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 an
"institutional 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."
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."
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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), (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
shares of a Portfolio having a value of at least $1,000 for 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.
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 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 an institutional 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 institutional 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
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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).
Net income of each Portfolio includes interest accrued on the assets of such
Portfolio less the estimated expenses charged to such Portfolio. Net realized
short-term capital gains of each Portfolio will be distributed at least
annually. The Portfolios do not expect to realize net long-term capital gains.
Dividends declared during a calendar month will be paid as soon as practicable
following the end of the month, except that such dividends will be paid
promptly upon a total redemption of shares in any account not subject to a
standing order for the purchase of additional shares. All distributions are
paid by each Portfolio in cash or are automatically reinvested (without any
sales charge) in additional 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,
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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.
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.
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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 a Portfolio is calculated may be advanced on days on
which Northern or the securities markets close early. See "Miscellaneous"
below. Currently, each Portfolio offers three separate classes of shares. Net
asset value per share of each class of each Portfolio is calculated by adding
the value of all securities and other assets belonging to the Portfolio that
are allocated to such class, subtracting the liabilities charged to that class
and dividing by the number of outstanding shares of that class.
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.
PERFORMANCE INFORMATION
From time to time the Portfolios may advertise their "yields" and "effective
yields" and the Government Select Portfolio and Tax-Exempt Portfolio may
advertise their "tax-equivalent yields." These yield figures will fluctuate,
are based on historical earnings and are not intended to indicate future
performance. "Yield" refers to the net investment income generated by an
investment in the Portfolio over a seven-day period identified in the
advertisement. This net investment income is then "annualized." That is, the
amount of net investment income generated by the investment during that week
is assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. "Effective yield" is calculated similarly but,
when annualized, the net investment income earned by an investment in the
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. The "tax-equivalent yield" demonstrates the level of taxable
yield necessary to produce an after-tax yield equivalent to a Portfolio's tax-
free yield. It is calculated by taking that portion of the seven-day "yield"
which is tax-exempt and adjusting it to reflect the tax savings associated
with a stated tax rate. The "tax-equivalent yield" will always be higher than
the Portfolio's yield.
The Portfolios' yields may not provide a basis for comparison with bank
deposits and other investments which provide a fixed yield for a stated period
of time. Yield will be affected by portfolio quality, composition, maturity,
market conditions and the level of the Portfolio's operating expenses.
Each Portfolio may also quote from time to time its total return in accordance
with SEC regulations.
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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 has created 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 classes within a series. Pursuant to such authority, the Board of Trustees
has classified three classes of shares in each Portfolio: Service Shares,
Premier Shares and the shares described in this Prospectus. Service Shares and
Premier Shares are described in separate Prospectuses.
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 amounts payable under the service plan
that has been adopted for the Portfolios' Service and Premier Share classes and
transfer agency fees. Because of these class-specific expenses, the performance
of the shares of a Portfolio described in this Prospectus is expected to be
higher than the performance of both the Service and Premier Share classes of
the same Portfolio, and the performance of a Portfolio's Service Share class is
expected to be higher than the performance of the same Portfolio's Premier
Share class. For further information regarding the Trust's other share classes,
contact Goldman Sachs at 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, except
as otherwise required by law or when the matter to be voted on affects only the
interests of shareholders of a particular series. The Additional Statement
gives examples of situations in which the law requires voting by series. Voting
rights are not cumulative and, accordingly, the holders of more than 50% of the
aggregate voting power of the Trust may elect all of the Trustees irrespective
of the vote of the other shareholders. In addition, holders of all shares
(regardless of class) 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 February 28, 1998, 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. 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.
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MISCELLANEOUS
The address of the Trust is 4900 Sears Tower, Chicago, Illinois 60606 and the
telephone number is 1-800-621-2550.
When a shareholder moves, the shareholder is responsible for sending written
notice to the Trust of any new mailing address. The Trust and its transfer
agent may charge a shareholder their reasonable costs in locating a
shareholder's current address in accordance with SEC regulations.
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. On those days when Northern or the Exchange closes early as a
result of unusual weather or other circumstances, the Portfolios reserve the
right 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
Bond Market Association recommends that the securities markets close or 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. Purchase, redemption and exchange requests received after the advanced
closing time will be effected on the next Business Day. Each Portfolio
reserves, however, the right to reject any purchase order and also 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 would
adversely affect such Portfolio. See "Investing--Purchase of Shares" and
"Investing--Redemption of Shares" above for more information.
---------------------
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.
30
<PAGE>
Investment Adviser, Transfer Agent and Custodian:
The Northern Trust Company
50 South LaSalle Street
Chicago, Illinois 60675
Administrator and Distributor
Goldman, Sachs & Co.
4900 Sears Tower
Chicago, IL 60606
<PAGE>
The
Benchmark Funds
FIXED INCOME AND
EQUITY PORTFOLIOS
PROSPECTUS APRIL 1, 1998
<PAGE>
THE BENCHMARK FUNDS
(Advised by The Northern Trust Company and Northern Trust Quantitative
Advisors, Inc.)
This Prospectus describes six fixed income, one balanced, one global asset and
six equity portfolios (the "Portfolios") offered by The Benchmark Funds (the
"Trust") to institutional investors.
The U.S. GOVERNMENT SECURITIES PORTFOLIO seeks to maximize total return with
reasonable risk by investing in a broad range of U.S. Government securities
and maintaining a dollar-weighted average maturity of between 1 and 5 years.
The SHORT-INTERMEDIATE BOND PORTFOLIO seeks to maximize total return
consistent with reasonable risk by investing in a broad range of bonds and
other fixed income securities and maintaining a dollar-weighted average
maturity of between 2 and 5 years.
The U.S. TREASURY INDEX PORTFOLIO seeks to provide investment results
approximating the performance of the Lehman Brothers Treasury Bond Index (the
"Lehman Index") by investing primarily in securities represented in the
Lehman Index.
The BOND PORTFOLIO seeks to maximize total return consistent with reasonable
risk by investing in a broad range of bonds and other fixed income securities
and maintaining a dollar-weighted average maturity of between 5 and 15 years.
The INTERMEDIATE BOND PORTFOLIO seeks to maximize total return consistent
with reasonable risk by investing in a broad range of bonds and other fixed
income securities and maintaining a dollar-weighted average maturity of
between 3 and 10 years.
The INTERNATIONAL BOND PORTFOLIO seeks to maximize total return consistent
with reasonable risk by investing primarily in a broad range of bonds and
other fixed income securities of foreign issuers while maintaining a dollar-
weighted average maturity of between 3 and 11 years.
The BALANCED PORTFOLIO seeks to provide long-term capital appreciation and
current income by investing in stocks, bonds and cash equivalents.
The GLOBAL ASSET PORTFOLIO seeks to provide long-term capital appreciation
and current income by allocating its assets for investment among four market
segments: domestic equity, domestic fixed-income, foreign equity and foreign
fixed-income securities. The Portfolio will pursue its objective by investing
a substantial portion of its assets in shares of the Trust's other investment
portfolios and unaffiliated investment companies.
The EQUITY INDEX PORTFOLIO seeks to provide investment results approximating
the aggregate price and dividend performance of the securities included in
the Standard & Poor's 500 Composite Stock Price Index (the "S&P Index") by
investing substantially all of its assets in securities comprising the S&P
Index.
The DIVERSIFIED GROWTH PORTFOLIO seeks to provide long-term capital
appreciation with income a secondary consideration by investing principally
in common and preferred stocks and securities convertible into common stock
of growth companies.
The FOCUSED GROWTH PORTFOLIO seeks to provide long-term capital appreciation
by investing primarily in common stocks of growth companies. Any income
received is incidental to the objective of capital appreciation.
The SMALL COMPANY INDEX PORTFOLIO seeks to provide investment results
approximating the aggregate price and dividend performance of the securities
included in the Russell 2000 Small Stock Index (the "Russell Index") by
investing substantially all of its assets in securities represented in the
Russell Index.
The INTERNATIONAL EQUITY INDEX PORTFOLIO seeks to provide investment results
approximating the aggregate price and dividend performance of the securities
in the Morgan Stanley Capital International (MSCI) Europe, Australia and Far
East Index (the "EAFE Index").
The INTERNATIONAL GROWTH PORTFOLIO seeks to provide long-term capital
appreciation by investing principally in common and preferred stocks and
securities convertible into common stock of foreign issuers. Any income
received is incidental to the objective of capital appreciation.
This Prospectus provides information about the Portfolios that you should
know before investing. It should be read and retained for future reference.
If you would like more detailed information, a Statement of Additional
Information (the "Additional Statement") dated April 1, 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. INVESTMENT IN THE PORTFOLIOS
INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is April 1, 1998.
<PAGE>
Investment Advisers
THE NORTHERN TRUST COMPANY NORTHERN TRUST QUANTITATIVE ADVISORS,
50 S. LaSalle Street INC.
Chicago, Illinois 60675 50 S. LaSalle Street
312-630-6000 Chicago, Illinois 60675
312-661-5866
Each Portfolio other than the U.S. Treasury Index, the Equity Index, the Small
Company Index and the International Equity Index Portfolios, is advised by The
Northern Trust Company ("Northern"), a wholly-owned subsidiary of Northern
Trust Corporation. The U.S. Treasury Index, Equity Index, Small Company Index
and International Equity Index Portfolios are advised by Northern Trust
Quantitative Advisors, Inc., a wholly-owned subsidiary of Northern Trust
Corporation ("NTQA", and, collectively with Northern, the "Investment
Advisers"). Shares of all Portfolios other than the Small Company Index and
International Equity Index Portfolios are sold and redeemed without any
purchase or redemption charge imposed by the Trust, although Northern and
other institutions may charge their customers for services provided in
connection with their investments. The Small Company Index and International
Equity Index Portfolios require the payment of an additional transaction fee
with respect to purchase transactions equal to 0.50% and 1.00%, respectively,
of the amount invested.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF EXPENSES 3
- -------------------
FINANCIAL HIGHLIGHTS 10
- --------------------
INVESTMENT INFORMATION 32
- ----------------------
Introduction 32
U.S. Government Securities Portfo-
lio 32
Short-Intermediate Bond Portfolio 32
U.S. Treasury Index Portfolio 33
Bond Portfolio 33
Intermediate Bond Portfolio 34
International Bond Portfolio 34
Balanced Portfolio 35
Global Asset Portfolio 36
Equity Index Portfolio 38
Diversified Growth Portfolio 39
Focused Growth Portfolio 39
Small Company Index Portfolio 39
International Equity Index Portfo-
lio 41
International Growth Portfolio 42
Special Risks and Other Considera-
tions 42
Description of Securities and
Common Investment Techniques 46
Investment Restrictions 59
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TRUST INFORMATION 59
- -----------------
Board of Trustees 59
Investment Advisers, Transfer Agent
and Custodian 59
Portfolio Managers 61
Year 2000 62
Administrator and Distributor 63
Shareholder Servicing Plan 63
Service Information 64
Expenses 64
INVESTING 65
- ---------
Purchase of Shares 65
Redemption of Shares 68
Distributions 70
Taxes 71
NET ASSET VALUE 73
- ---------------
PERFORMANCE INFORMATION 73
- -----------------------
ORGANIZATION 75
- ------------
MISCELLANEOUS 76
- -------------
</TABLE>
2
<PAGE>
SUMMARY OF EXPENSES
The following table sets forth certain information regarding the shareholder
transaction expenses imposed by the Trust and the annualized operating
expenses of the Portfolios (except the Intermediate Bond, Global Asset and
International Equity Index Portfolios) incurred during the Trust's last fiscal
year, and the estimated annualized operating expenses that the Intermediate
Bond, Global Asset and International Equity Index Portfolios expect to incur
during the current fiscal year. Hypothetical examples based on the table are
also shown. Investors should note that shares of each Portfolio have been
classified into four separate classes, Class A, B, C and D Shares. Each class
is distinguished by the level of administrative support and transfer agency
services provided. Class A, B, C and D Shares represent pro rata interests in
a Portfolio except that different shareholder servicing fees and transfer
agency fees are payable by Class A, B, C and D Shares. See "Trust
Information--Shareholder Servicing Plan."
The Global Asset Portfolio may invest up to 100% of its assets in shares of
other investment companies. Accordingly, an investor in the Global Asset
Portfolio will bear a proportionate share of the expenses of such underlying
funds in addition to the expenses of the Portfolio. The information on
shareholder transaction expenses and estimated annual operating expenses in
the table below relates solely to the Global Asset Portfolio and does not
include the expenses associated with the Portfolio's investments in other
investment companies.
<TABLE>
<CAPTION>
U.S. Government Securities Short-Intermediate Bond
------------------------------- --------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Additional Transaction
Fee (as a percentage
of amount invested)... None None None None None None None None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
Annual Operating
Expenses After Expense
Reimbursements and Fee
Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .25% .25% .25% .25% .25% .25% .25% .25%
12b-1 Fees............. None None None None None None None None
Other Operating Ex-
penses
Servicing Fees(2)..... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(2).............. .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(3,4).. .10% .10% .10% .10% .10% .10% .10% .10%
---- ---- ---- ---- ---- ---- ---- ----
Total Other Operating
Expenses(3,4)........ .11% .25% .35% .50% .11% .25% .35% .50%
---- ---- ---- ---- ---- ---- ---- ----
Total Operating
Expenses(1,2,3,4)..... .36% .50% .60% .75% .36% .50% .60% .75%
==== ==== ==== ==== ==== ==== ==== ====
Example of Expenses.
Based on the foregoing
table, you would pay
the following expenses
on a hypothetical
$1,000 investment,
assuming a 5% annual
return and redemption
at the end of each time
period:
One Year............... $4 $5 $6 $8 $4 $5 $6 $8
Three Years............ $12 $16 $19 $24 $12 $16 $19 $24
Five Years............. $20 $28 $33 $42 $20 $28 $33 $42
Ten Years.............. $46 $63 $75 $93 $46 $63 $75 $93
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
U.S. Treasury Index Bond
------------------------------- -------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Additional Transaction
Fee (as a percentage
of amount invested)... None None None None None None None None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
Annual Operating
Expenses After Expense
Reimbursements and Fee
Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .15% .15% .15% .15% .25% .25% .25% .25%
12b-1 Fees............. None None None None None None None None
Other Operating Ex-
penses
Servicing Fees(2)..... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(2).............. .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(3,4).. .10% .10% .10% .10% .10% .10% .10% .10%
---- ---- ---- ---- ---- ---- ---- ----
Total Other Operating
Expenses(3,4)........ .11% .25% .35% .50% .11% .25% .35% .50%
---- ---- ---- ---- ---- ---- ---- ----
Total Operating
Expenses(1,2,3,4)..... .26% .40% .50% .65% .36% .50% .60% .75%
==== ==== ==== ==== ==== ==== ==== ====
Example of Expenses.
Based on the foregoing
table, you would pay
the following expenses
on a hypothetical
$1,000 investment,
assuming a 5% annual
return and redemption
at the end of each time
period:
One Year............... $3 $4 $5 $7 $4 $5 $6 $8
Three Years............ $8 $13 $16 $21 $12 $16 $19 $24
Five Years............. $15 $22 $28 $36 $20 $28 $33 $42
Ten Years.............. $33 $51 $63 $81 $46 $63 $75 $93
</TABLE>
<TABLE>
<CAPTION>
Intermediate Bond(7)
-------------------------------
Class A Class B Class C Class D
Shares Shares Shares Shares
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases.... None None None None
Additional Transaction Fee (as a percentage
of the amount invested)..................... None None None None
Deferred Sales Charge Imposed on Reinvested
Distributions............................... None None None None
Deferred Sales Charge Imposed on Redemptions. None None None None
Redemption Fees.............................. None None None None
Exchange Fees................................ None None None None
Annual Operating Expenses After Expense
Reimbursements and
Fee Reductions (as a percentage of average
daily net assets).
Management Fees After Fee Reductions(1)...... .25% .25% .25% .25%
12b-1 Fees................................... None None None None
Other Operating Expenses
Servicing Fees(2)........................... None .10% .15% .25%
Transfer Agency Fees(2)..................... .01% .05% .10% .15%
Other Expenses (After Expense Reimbursements
and
Fee Reductions(3,4)........................ .10% .10% .10% .10%
---- ---- ---- ----
Total Other Operating Expenses(3,4)......... .11% .25% .35% .50%
---- ---- ---- ----
Total Operating Expenses(1,2,3,4)............ .36% .50% .60% .75%
==== ==== ==== ====
Example of Expenses. Based on the foregoing
table, you would pay the following expenses
on a hypothetical $1,000 investment, assuming
a 5% annual return and redemption at the end
of each time period:
One Year..................................... $4 $5 $6 $8
Three Years.................................. $12 $16 $19 $24
Five Years................................... $20 $28 $33 $42
Ten Years.................................... $46 $63 $75 $93
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
International Bond Balanced
------------------------------- -------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Additional Transaction
Fee (as a percentage
of amount invested)... None None None None None None None None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
Annual Operating
Expenses After Expense
Reimbursements and Fee
Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .70% .70% .70% .70% .50% .50% .50% .50%
12b-1 Fees............. None None None None None None None None
Other Operating Ex-
penses
Servicing Fees(2)..... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(2).............. .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(3,4).. .25% .25% .25% .25% .10% .10% .10% .10%
---- ----- ----- ----- ---- ---- ---- -----
Total Other Operating
Expenses(3,4)........ .26% .40% .50% .65% .11% .25% .35% .50%
---- ----- ----- ----- ---- ---- ---- -----
Total Operating
Expenses(1,2,3,4)..... .96% 1.10% 1.20% 1.35% .61% .75% .85% 1.00%
==== ===== ===== ===== ==== ==== ==== =====
Example of Expenses.
Based on the foregoing
table, you would pay
the following expenses
on a hypothetical
$1,000 investment,
assuming a 5% annual
return and redemption
at the end of each time
period:
One Year............... $10 $11 $12 $14 $6 $8 $9 $10
Three Years............ $31 $35 $38 $43 $20 $24 $27 $32
Five Years............. $53 $61 $66 $74 $34 $42 $47 $55
Ten Years.............. $118 $134 $145 $162 $76 $93 $105 $122
<CAPTION>
Equity Index Diversified Growth
------------------------------- -------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Additional Transaction
Fee (as a percentage
of amount invested)... None None None None None None None None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
Annual Operating
Expenses After Expense
Reimbursements and Fee
Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .10% .10% .10% .10% .55% .55% .55% .55%
12b-1 Fees............. None None None None None None None None
Other Operating Ex-
penses
Servicing Fees(2)..... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(2).............. .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee
Reductions(3,4,5).... .11% .11% .11% .11% .11% .11% .11% .11%
---- ----- ----- ----- ---- ---- ---- -----
Total Other Operating
Expenses(3,4,5)...... .12% .26% .36% .51% .12% .26% .36% .51%
---- ----- ----- ----- ---- ---- ---- -----
Total Operating
Expenses(1,2,3,4,5)... .22% .36% .46% .61% .67% .81% .91% 1.06%
==== ===== ===== ===== ==== ==== ==== =====
Example of Expenses.
Based on the foregoing
table, you would pay
the following expenses
on a hypothetical
$1,000 investment,
assuming a 5% annual
return and redemption
at the end of each time
period:
One Year............... $2 $4 $5 $6 $7 $8 $9 $11
Three Years............ $7 $12 $15 $20 $21 $26 $29 $34
Five Years............. $12 $20 $26 $34 $37 $45 $50 $58
Ten Years.............. $28 $46 $58 $76 $83 $100 $112 $129
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Focused Growth Small Company Index
------------------------------- -------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Additional Transaction
Fee (as a percentage
of amount
invested)(6).......... None None None None .50% .50% .50% .50%
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
Annual Operating
Expenses After Expense
Reimbursements and
Fee Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .80% .80% .80% .80% .20% .20% .20% .20%
12b-1 Fees............. None None None None None None None None
Other Operating Ex-
penses
Servicing Fees(2)..... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(2).............. .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee
Reductions(3,4,5).... .11% .11% .11% .11% .11% .11% .11% .11%
----- ----- ----- ----- ----- ----- ----- -----
Total Other Operating
Expenses(3,4,5)...... .12% .26% .36% .51% .12% .26% .36% .51%
----- ----- ----- ----- ----- ----- ----- -----
Total Operating
Expenses(1,2,3,4,5)... .92% 1.06% 1.16% 1.31% .31% .46% .56% .71%
===== ===== ===== ===== ===== ===== ===== =====
Example of Expenses.
Based on the foregoing
table, you would pay
the following expenses
on a hypothetical
$1,000 investment,
assuming a 5% annual
return and redemption
at the end of each time
period*:
One Year............... $9 $11 $12 $13 $8 $10 $11 $12
Three Years............ $29 $34 $37 $42 $15 $20 $23 $28
Five Years............. $51 $58 $64 $72 $23 $31 $36 $44
Ten Years.............. $113 $129 $141 $158 $45 $63 $75 $93
<CAPTION>
International Equity Index(7) International Growth
------------------------------- -------------------------------
Class A Class B Class C Class D Class A Class B Class C Class D
Shares Shares Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None None None None None
Additional Transaction
Fee (as a percentage
of amount
invested)(6).......... 1.00% 1.00% 1.00% 1.00% None None None None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None None None None None
Redemption Fees........ None None None None None None None None
Exchange Fees.......... None None None None None None None None
Annual Operating
Expenses After Expense
Reimbursements and
Fee Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .25% .25% .25% .25% .80% .80% .80% .80%
12b-1 Fees............. None None None None None None None None
Other Operating Ex-
penses
Servicing Fees(2)..... None .10% .15% .25% None .10% .15% .25%
Transfer Agency
Fees(2).............. .01% .05% .10% .15% .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(3,4).. .25% .25% .25% .25% .25% .25% .25% .25%
----- ----- ----- ----- ----- ----- ----- -----
Total Other Operating
Expenses(3,4)........ .26% .40% .50% .65% .26% .40% .50% .65%
----- ----- ----- ----- ----- ----- ----- -----
Total Operating
Expenses(1,2,3,4)..... .51% .65% .75% .90% 1.06% 1.20% 1.30% 1.45%
===== ===== ===== ===== ===== ===== ===== =====
Example of Expenses.
Based on the foregoing
table, you would pay
the following expenses
on a hypothetical
$1,000 investment,
assuming a 5% annual
return and redemption
at the end of each time
period*:
One Year............... $15 $17 $18 $19 $11 $12 $13 $15
Three Years............ $26 $31 $34 $38 $34 $38 $41 $46
Five Years............. $38 $46 $51 $59 $58 $66 $71 $79
Ten Years.............. $73 $90 $102 $120 $129 $145 $157 $174
</TABLE>
- -------
* Total expenses include a .50% and 1.00% transaction fee on purchases of the
shares of Small Company Index and International Equity Index Portfolios,
respectively.
6
<PAGE>
<TABLE>
<CAPTION>
Global Asset(7)
-------------------------------
Class A Class B Class C Class D
Shares Shares Shares Shares
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Charge
Imposed on Purchases.. None None None None
Additional Transaction
Fee (as a percentage
of amount
invested)(6).......... None None None None
Deferred Sales Charge
Imposed on Reinvested
Distributions......... None None None None
Deferred Sales Charge
Imposed on
Redemptions........... None None None None
Redemption Fees........ None None None None
Exchange Fees.......... None None None None
Annual Operating
Expenses After Expense
Reimbursements and Fee
Reductions (as a
percentage of average
daily net assets).
Management Fees After
Fee Reductions(1)..... .35% .35% .35% .35%
12b-1 Fees............. None None None None
Other Operating Ex-
penses
Servicing Fees(2)..... None .10% .15% .25%
Transfer Agency
Fees(2).............. .01% .05% .10% .15%
Other Expenses After
Expense
Reimbursements and
Fee Reductions(3,4).. .10% .10% .10% .10%
---- ---- ---- ----
Total Other Operating
Expenses(3,4)........ .11% .25% .35% .50%
---- ---- ---- ----
Total Operating
Expenses(1,2,3,4)..... .46% .60% .70% .85%
==== ==== ==== ====
</TABLE>
The Global Asset Portfolio will invest a substantial portion of its assets in
Class A Shares of other investment portfolios of the Trust (collectively, the
"Benchmark Portfolios"), including the Trust's money market portfolios, the
Government Select Portfolio, Government Portfolio, Diversified Assets
Portfolio, and Tax-Exempt Portfolio, which are offered under a separate
prospectus. The total expense ratios of Class A Shares of the equity and fixed
income Benchmark Portfolios are set forth above. Based on a hypothetical mix
of Benchmark Portfolio shares that the Global Asset Portfolio may hold under
current market conditions, the weighted average expense ratio associated with
the Portfolio's investment in Class A Shares of the Benchmark Portfolios would
be 0.34%, and excludes the effect of any transaction fee associated with
investment in a Benchmark Portfolio. The actual allocation of the Global Asset
Portfolio's assets among the Benchmark Portfolios will vary with changing
market conditions. In addition, the weighted average expense ratio of the
Portfolio's investments in the Benchmark Portfolios does not reflect the
expenses associated with the Portfolio's investments in unaffiliated
investment companies, which could increase or decrease this weighted average
expense ratio. Based on the foregoing, the estimated cumulative total expense
ratio of Class A, B, C and D Shares of the Global Asset Portfolio, including
both the expenses associated with the Portfolio and the expenses relating to
its investments in other Benchmark Portfolios, would be .80%, .94%, 1.04% and
1.19%, respectively.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Example of Expenses.
Based on the cumulative
total expense ratios
set forth in the
preceding paragraph,
you would pay the
following expenses on a
hypothetical $1,000
investment in the
Global Asset Portfolio,
assuming a 5% annual
total return and
redemption at the end
of each time period:
One Year............... $8 $10 $11 $12
Three Years............ $26 $30 $33 $38
Five Years............. N/A N/A N/A N/A
Ten Years.............. N/A N/A N/A N/A
</TABLE>
- ----------
(1) For the fiscal year ending November 30, 1997, Northern voluntarily reduced
its advisory fee for the U.S. Government Securities, Short-Intermediate
Bond, U.S. Treasury Index, Bond, Intermediate Bond, International Bond,
Balanced, Equity Index, Diversified Growth, Focused Growth, Small Company
Index, International Equity Index, and International Growth Portfolios.
Advisory fees are otherwise payable at the annual rate of .60%, .60%,
.40%, .60%, .60%, .90%, .80%, .30%, .80%, 1.10%, .40%, .50% and 1.00%,
respectively, of the Portfolios' respective average daily net assets. In
addition, Northern has voluntarily agreed to reduce its advisory fee for
the Global Asset Portfolio to .35% of the Portfolio's average daily net
assets for the current fiscal year (advisory fees are otherwise payable at
the annual rate of .60% of the Global Asset Portfolio's average daily net
assets).
(2) The Trust has adopted a Shareholder Servicing Plan pursuant to which the
Trust may enter into agreements with Institutions or other financial
intermediaries under which they render (or arrange to have rendered)
certain shareholder administrative support services for
7
<PAGE>
their Customers or other Investors who beneficially own Class B, C and D
Shares in return for a fee ("Servicing Fee") of up to .10%, .15%, and .25%,
respectively, per annum of the value of each Portfolio's outstanding Class
B, C and D Shares, respectively. The Trust also allocates transfer agency
fees, which are attributable to the Class A, B, C and D Shares in a
Portfolio, separately to such Shares, as reflected in the table. For further
information, see "Investment Adviser, Transfer Agent and Custodian" and
"Shareholder Servicing Plan" under the heading "Trust Information" in this
Prospectus.
(3) 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
average daily net assets) to .10% of each Portfolio's average daily net
assets. For the fiscal period May 1, 1997 through November 30, 1997,
Goldman Sachs was entitled to an administration fee from each Portfolio at
an annual rate of .15% of the average daily net assets of each of the
International Bond, International Equity Index and International Growth
Portfolios and .10% of the average daily net assets of each other
Portfolio. In addition, during the fiscal year ended November 30, 1997
Goldman Sachs reimbursed each 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 transfer agent, servicing fees
and certain extraordinary expenses) which exceeded on an annualized basis
.25% of the International Bond, International Equity Index and
International Growth Portfolios' average daily net assets and .10% of each
other Portfolio's average daily net assets for such period. The expense
information in the table has, accordingly, been presented to reflect these
fee reductions and expense reimbursements (estimated in the case of the
Intermediate Bond, Global Asset and International Equity Index
Portfolios).
(4) Without the undertakings of Northern and Goldman Sachs, and had all
classes of shares been outstanding during the year ending November 30,
1997, "Other Expenses" in the foregoing table would have been as follows:
U.S. Government Securities Portfolio--.24%; Short-Intermediate Bond
Portfolio--.20%; U.S. Treasury Index Portfolio--.41%; Bond Portfolio--
.16%; International Bond Portfolio--.61%; Balanced Portfolio--.30%; Equity
Index Portfolio--.15%; Diversified Growth Portfolio--.22%; Focused Growth
Portfolio--.23%; Small Company Index Portfolio--.27%; and International
Growth Portfolio--.36%; and the total annual operating expenses would have
been as follows for Class A, B, C and D Shares, respectively: U.S.
Government Securities Portfolio--.85%, .99%, 1.09% and 1.24%; Short-
Intermediate Bond Portfolio--.81%, .95%, 1.05% and 1.20%; U.S. Treasury
Index Portfolio--.82%, .96%, 1.06% and 1.21%; Bond Portfolio--.77%, .91%,
1.01% and 1.16%; International Bond Portfolio--1.52%, 1.66%, 1.76% and
1.91%; Balanced Portfolio--1.11%, 1.25%, 1.35% and 1.50%; Equity Index
Portfolio--.46%, .60%, .70% and .85%; Diversified Growth Portfolio--1.03%,
1.17%, 1.27% and 1.42%; Focused Growth Portfolio--1.34%, 1.48%, 1.58% and
1.73%; Small Company Index Portfolio--.68%, .82%, .92% and 1.07%; and
International Growth Portfolio--1.37%, 1.51%, 1.61% and 1.76%, based on
actual expenses incurred during the fiscal year ended November 30, 1997.
Without the undertakings of Northern and Goldman Sachs, it is estimated
that "Other Expenses" would be .57% for the Intermediate Bond Portfolio,
.43% for the Global Asset Portfolio and .39% for the International Equity
Index Portfolio, and total annual operating expenses for each of the
Intermediate Bond, Global Asset and International Equity Index Portfolio's
Class A, B, C and D Shares would be 1.18%, 1.32%, 1.42% and 1.57%; 1.04%,
1.18%, 1.28% and 1.43%; and .90%, 1.04%, 1.14% and 1.29%, respectively,
for the current fiscal year. See note (7) below. For a more complete
description of the Portfolios' expenses, see "Trust Information" in this
Prospectus.
(5) The actual expense ratios reflected in the above table for each class of
the Equity Index, Diversified Growth, Focused Growth and Small Company
Index Portfolios include interest expense of .01%, associated with
temporary borrowings. Interest expense is not subject to voluntary expense
limitations. Had the Portfolios not experienced such temporary borrowings,
the total annual operating expense ratios would have been as follows:
Equity Index Class A, B, C and D Shares--.21%, .35%, .45% and .60%,
respectively; Diversified Growth Class A, B, C and D Shares--.66%, .80%,
.90% and 1.05%, respectively; Focused Growth Class A, B, C and D Shares--
.91%, 1.05%, 1.15% and 1.30%, respectively; and Small Company Index Class
A, B, C and D Shares--.31%, .45%, .55% and .70%, respectively. Whether
such borrowings will occur in any given year and the actual amount of such
borrowings is difficult to predict.
(6) To prevent the Small Company Index Portfolio and International Equity
Index Portfolio from being adversely affected by the transaction costs
associated with share purchases, the Portfolios will sell shares at a
price equal to the net asset value of the shares plus an additional
transaction fee equal to .50% and 1.00%, respectively, of such value. Such
amounts are not sales charges, but are retained by the Portfolios for the
benefit of all shareholders (see "Investment Information--Small Company
Index Portfolio," "Investment Information--International Equity Index
Portfolio," "Investing--Purchase of Shares" and "Investing--Redemption of
Shares"). The Global Asset Portfolio may invest in these Portfolios and
will be subject to the respective transaction fees.
(7) The costs and expenses included in the table and hypothetical example
above are based on estimated fees and expenses for the current fiscal year
and should not be considered as representative of past or future expenses.
Actual fees and expenses may be greater or less than those indicated.
8
<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 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.
9
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following information has been audited by Ernst & Young LLP, independent
auditors, as indicated in their report incorporated by reference into the
Additional Statement from the annual report to shareholders for the fiscal
year ended November 30, 1997 (the "Annual Report"), and should be read in
conjunction with the financial statements and related notes incorporated by
reference and attached to the Additional Statement. No information is
presented with respect to Class C Shares of the Short-Intermediate Bond, U.S.
Treasury Index, Intermediate Bond, International Bond, Diversified Growth,
Small Company Index, International Growth and International Equity Index
Portfolios, Class D Shares of the Intermediate Bond and International Equity
Index Portfolios, and Class B Shares of the Portfolios because no such shares
were outstanding during the periods presented. In addition, as of the date of
this Prospectus, the Global Asset Portfolio had not commenced investment
operations. The Annual Report also contains additional performance information
and is available upon request and without charge by calling the telephone
number or writing to the address on the first page of this Prospectus.
10
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
Class A
--------------------------------------------------
1997 1996 1995 1994 1993 (a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $ 20.07 $ 20.08 $ 19.05 $ 20.07 $ 20.00
Income (loss) from invest-
ment operations:
Net investment income 1.21 1.02 1.05 0.91 0.55
Net realized and
unrealized gain (loss) (0.07) (0.01) 1.02 (1.02) 0.05
- --------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.14 1.01 2.07 (0.11) 0.60
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLD-
ERS FROM:
Net investment income (1.22) (1.02) (1.04) (0.91) (0.53)
- --------------------------------------------------------------------------------
Total distributions to
shareholders (1.22) (1.02) (1.04) (0.91) (0.53)
- --------------------------------------------------------------------------------
Net increase (decrease) (0.08) (0.01) 1.03 (1.02) 0.07
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $ 19.99 $ 20.07 $ 20.08 $ 19.05 $ 20.07
- --------------------------------------------------------------------------------
Total return (b) 5.93% 5.15% 11.18% (0.57)% 3.00%
Ratio to average net assets
of (c):
Expenses, net of waivers
and reimbursements 0.36% 0.36% 0.36% 0.36% 0.43%
Expenses, before waivers
and reimbursements 0.85% 0.94% 1.09% 1.12% 1.18%
Net investment income, net
of waivers and reimburse-
ments 5.86% 5.22% 5.43% 4.62% 4.18%
Net investment income, be-
fore waivers and reim-
bursements 5.37% 4.64% 4.70% 3.86% 3.43%
Portfolio turnover rate 95.73% 119.75% 141.14% 45.55% 20.59%
Net assets at end of year
(in thousands) $43,073 $92,351 $56,329 $25,293 $32,479
- --------------------------------------------------------------------------------
</TABLE>
(a) For the period April 5, 1993 (commencement of operations) through November
30, 1993.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(c) Annualized for periods less than a full year.
11
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
U.S. GOVERNMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
Class C Class D
---------------- -------------------------------
1997 1996 (A) 1997 1996 1995 1994 (B)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $20.06 $20.13 $20.03 $20.04 $19.05 $19.43
Income (loss) from invest-
ment operations:
Net investment income 1.14 0.91 1.16 0.96 0.96 0.22
Net realized and unrealized
gain (loss) (0.04) (0.12) (0.10) (0.03) 1.00 (0.38)
- --------------------------------------------------------------------------------
Total income (loss) from in-
vestment operations 1.10 0.79 1.06 0.93 1.96 (0.16)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLD-
ERS FROM:
Net investment income (1.18) (0.86) (1.15) (0.94) (0.97) (0.22)
- --------------------------------------------------------------------------------
Total distributions to
shareholders (1.18) (0.86) (1.15) (0.94) (0.97) (0.22)
- --------------------------------------------------------------------------------
Net increase (decrease) (0.08) (0.07) (0.09) (0.01) 0.99 (0.38)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $19.98 $20.06 $19.94 $20.03 $20.04 $19.05
- --------------------------------------------------------------------------------
Total return (c) 5.67% 4.05% 5.52% 4.77% 10.66% (0.90)%
Ratio to average net assets
of (d):
Expenses, net of waivers
and reimbursements 0.60% 0.60% 0.75% 0.75% 0.75% 0.75%
Expenses, before waivers
and reimbursements 1.09% 1.18% 1.24% 1.33% 1.48% 1.51%
Net investment income, net
of waivers and reimburse-
ments 5.63% 4.97% 5.50% 4.83% 5.08% 4.65%
Net investment income, be-
fore waivers and reim-
bursements 5.14% 4.39% 5.01% 4.25% 4.35% 3.89%
Portfolio turnover rate 95.73% 119.75% 95.73% 119.75% 141.14% 45.55%
Net assets at end of year
(in thousands) $3,118 $3,535 $ 312 $ 225 $ 67 $ 13
- --------------------------------------------------------------------------------
</TABLE>
(a) For the period December 29, 1995 (Class C Shares issue date) through
November 30, 1996.
(b) For the period September 15, 1994 (Class D Shares issue date) through
November 30, 1994.
(c) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
12
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
SHORT-INTERMEDIATE BOND PORTFOLIO
<TABLE>
<CAPTION>
Class A Class D
----------------------------------------------- -------------------------------
1997 1996 1995 1994 1993 (a) 1997 1996 1995 1994 (b)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $ 20.70 $ 20.73 $ 19.53 $ 20.33 $ 20.00 $20.66 $20.71 $19.53 $19.82
Income (loss) from in-
vestment
operations:
Net investment income 1.46 1.14 1.02 0.97 0.85 1.43 1.07 0.94 0.23
Net realized and
unrealized gain (loss) (0.29) (0.01) 1.19 (0.80) 0.31 (0.34) (0.02) 1.18 (0.29)
- -----------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.17 1.13 2.21 0.17 1.16 1.09 1.05 2.12 (0.06)
- -----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM:
Net investment income (1.46) (1.16) (1.01) (0.97) (0.83) (1.39) (1.10) (0.94) (0.23)
Net realized gain (0.05) -- -- -- -- (0.05) -- -- --
- -----------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (1.51) (1.16) (1.01) (0.97) (0.83) (1.44) (1.10) (0.94) (0.23)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) (0.34) (0.03) 1.20 (0.80) 0.33 (0.35) (0.05) (1.18) (0.29)
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $ 20.36 $ 20.70 $ 20.73 $ 19.53 $ 20.33 $20.31 $20.66 $20.71 $19.53
- -----------------------------------------------------------------------------------------------------------
Total return (c) 5.95% 5.68% 11.58% 0.84% 5.90% 5.54% 5.22% 11.09% (0.30)%
Ratio to average net as-
sets of (d):
Expenses, net of waiv-
ers and
reimbursements 0.36% 0.36% 0.36% 0.36% 0.36% 0.75% 0.75% 0.75% 0.75%
Expenses, before waiv-
ers and
reimbursements 0.81% 0.88% 0.91% 0.95% 1.00% 1.20% 1.27% 1.30% 1.34%
Net investment income,
net of waivers and re-
imbursements 7.68% 5.83% 5.14% 4.84% 4.79% 7.48% 4.96% 4.85% 4.42%
Net investment income,
before waivers and re-
imbursements 7.23% 5.31% 4.59% 4.25% 4.15% 7.03% 4.44% 4.30% 3.83%
Portfolio turnover rate 48.49% 47.68% 54.68% 48.67% 19.48% 48.49% 47.68% 54.68% 48.67%
Net assets at end of
year (in
thousands) $201,457 $153,675 $158,678 $96,209 $107,550 $ 891 $ 343 $ 13 $ 1
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period January 11, 1993 (commencement of operations) through
November 30, 1993.
(b) For the period September 14, 1994 (Class D Shares issue date) through
November 30, 1994.
(c) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
13
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
U.S. TREASURY INDEX PORTFOLIO
<TABLE>
<CAPTION>
Class A Class D
--------------------------------------------- --------------------------------
1997 1996 1995 1994 1993 (a) 1997 1996 1995 1994 (b)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $ 20.60 $ 20.78 $ 18.77 $ 21.05 $ 20.00 $20.57 $20.75 $18.77 $18.80
Income (loss) from in-
vestment operations:
Net investment income 1.26 1.19 1.11 1.15 0.95 1.20 1.17 1.00 0.09
Net realized and
unrealized gain (loss) 0.20 (0.18) 2.01 (1.93) 1.02 0.18 (0.24) 2.03 (0.03)
- ---------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.46 1.01 3.12 (0.78) 1.97 1.38 0.93 3.03 0.06
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM:
Net investment income (1.25) (1.19) (1.11) (1.14) (0.92) (1.18) (1.11) (1.05) (0.09)
Net realized gain -- -- -- (0.36) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (1.25) (1.19) (1.11) (1.50) (0.92) (1.18) (1.11) (1.05) (0.09)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) 0.21 (0.18) 2.01 (2.28) 1.05 0.20 (0.18) 1.98 (0.03)
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $ 20.81 $ 20.60 $ 20.78 $ 18.77 $ 21.05 $20.77 $20.57 $20.75 $18.77
- ---------------------------------------------------------------------------------------------------------
Total return (c) 7.44% 5.10% 16.95% (3.80)% 9.94% 7.03% 4.72% 16.43% 0.37%
Ratio to average net as-
sets of (d):
Expenses, net of waiv-
ers and reimbursements 0.26% 0.26% 0.26% 0.26% 0.26% 0.65% 0.65% 0.65% 0.65%
Expenses, before waiv-
ers and reimbursements 0.82% 1.04% 0.89% 0.79% 0.83% 1.21% 1.43% 1.28% 1.18%
Net investment income,
net of waivers and
reimbursements 6.36% 5.93% 5.09% 5.60% 5.11% 6.07% 5.57% 5.41% 6.05%
Net investment income,
before waivers and
reimbursements 5.80% 5.15% 4.46% 5.07% 4.54% 5.51% 4.79% 4.78% 5.52%
Portfolio turnover rate 72.61% 42.49% 80.36% 52.80% 77.75% 72.61% 42.49% 80.36% 52.80%
Net assets at end of
year (in thousands) $33,839 $26,273 $17,674 $37,305 $71,456 $1,707 $ 848 $ 286 $ --
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period January 11, 1993 (commencement of operations) through
November 30, 1993.
(b) For the period November 16, 1994 (Class D Shares issue date) through
November 30, 1994.
(c) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
14
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
BOND PORTFOLIO
<TABLE>
<CAPTION>
Class A
-------------------------------------------------
1997 1996 1995 1994 1993 (a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $ 20.77 $ 20.96 $ 18.29 $ 20.70 $ 20.00
Income (loss) from invest-
ment operations:
Net investment income 1.34 1.29 1.17 1.42 1.42
Net realized and unrealized
gain (loss) 0.29 (0.19) 2.66 (2.21) 0.66
- --------------------------------------------------------------------------------
Total income (loss) from in-
vestment operations 1.63 1.10 3.83 (0.79) 2.08
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLD-
ERS FROM:
Net investment income (1.32) (1.26) (1.14) (1.46) (1.38)
Net realized gain -- -- -- (0.15) --
Return of capital -- (0.03) (0.02) (0.01) --
- --------------------------------------------------------------------------------
Total distributions to
shareholders (1.32) (1.29) (1.16) (1.62) (1.38)
- --------------------------------------------------------------------------------
Net increase (decrease) 0.31 (0.19) 2.67 (2.41) 0.70
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 21.08 $ 20.77 $ 20.96 $ 18.29 $ 20.70
- --------------------------------------------------------------------------------
Total return (b) 8.17% 5.57% 21.55% (4.04)% 10.60%
Ratio to average net assets
of (c):
Expenses, net of waivers
and reimbursements 0.36% 0.36% 0.36% 0.36% 0.36%
Expenses, before waivers
and reimbursements 0.77% 0.84% 0.84% 0.87% 0.92%
Net investment income, net
of waivers and reimburse-
ments 6.66% 6.39% 5.94% 7.31% 7.84%
Net investment income, be-
fore waivers and reim-
bursements 6.25% 5.91% 5.46% 6.80% 7.28%
Portfolio turnover rate 76.30% 101.38% 74.19% 103.09% 89.06%
Net assets at end of year
(in thousands) $460,514 $366,850 $286,301 $257,391 $245,112
- --------------------------------------------------------------------------------
</TABLE>
(a)For the period January 11, 1993 (commencement of operations) through
November 30, 1993.
(b)Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(c)Annualized for periods less than a full year.
15
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
BOND PORTFOLIO
<TABLE>
<CAPTION>
Class C Class D
------------------------- -------------------------------
1997 1996 1995 (a) 1997 1996 1995 1994 (b)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $ 20.78 $ 20.96 $ 20.21 $20.76 $20.94 $18.29 $18.74
Income (loss) from in-
vestment operations:
Net investment income 1.29 1.25 0.47 1.24 1.22 1.08 0.28
Net realized and
unrealized gain (loss) 0.28 (0.18) 0.74 0.30 (0.18) 2.66 (0.45)
- -------------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.57 1.07 1.21 1.54 1.04 3.74 (0.17)
- -------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM:
Net investment income (1.28) (1.22) (0.45) (1.25) (1.19) (1.09) (0.28)
Return of capital -- (0.03) (0.01) -- (0.03) - -
- -------------------------------------------------------------------------------------
Total distributions to
shareholders (1.28) (1.25) (0.46) (1.25) (1.22) (1.09) (0.28)
- -------------------------------------------------------------------------------------
Net increase (decrease) 0.29 (0.18) 0.75 0.29 (0.18) 2.65 (0.45)
- -------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $ 21.07 $ 20.78 $ 20.96 $21.05 $20.76 $20.94 $18.29
- -------------------------------------------------------------------------------------
Total return (c) 7.88% 5.33% 6.08% 7.74% 5.17% 21.06% (0.94)%
Ratio to average net as-
sets of (d):
Expenses, net of waiv-
ers and reimbursements 0.60% 0.60% 0.60% 0.75% 0.75% 0.75% 0.75%
Expenses, before waiv-
ers and reimbursements 1.01% 1.08% 1.08% 1.16% 1.23% 1.23% 1.26%
Net investment income,
net of waivers and re-
imbursements 6.39% 6.09% 5.59% 6.27% 5.99% 5.48% 6.31%
Net investment income,
before waivers and re-
imbursements 5.98% 5.61% 5.11% 5.86% 5.51% 5.00% 5.80%
Portfolio turnover rate 76.30% 101.38% 74.19% 76.30% 101.38% 74.19% 103.09%
Net assets at end of
year (in thousands) $50,554 $ 7,342 $ 3,704 $ 601 $ 220 $ 120 $ 15
- -------------------------------------------------------------------------------------
</TABLE>
(a)For the period July 3, 1995 (Class C Shares issue date) through November
30, 1995.
(b)For the period September 14, 1994 (Class D Shares issue date) through
November 30, 1994.
(c)Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(d)Annualized for periods less than a full year.
16
<PAGE>
FINANCIAL HIGHLIGHTS
For the Year Ended November 30,
INTERMEDIATE BOND PORTFOLIO
<TABLE>
<CAPTION>
Class A
--------
1997 (a)
- ------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 20.00
Income (loss) from investment operations:
Net investment income 0.38
Net realized and unrealized loss (0.15)
- ------------------------------------------------------------------
Total income from investment operations 0.23
- ------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.34)
- ------------------------------------------------------------------
Total distributions to shareholders (0.34)
- ------------------------------------------------------------------
Net decrease (0.11)
- ------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 19.89
- ------------------------------------------------------------------
Total return (b) 1.17%
Ratio to average net assets of (c):
Expenses, net of waivers and reimbursements 0.36%
Expenses, before waivers and reimbursements 2.28%
Net investment income, net of waivers and reimbursements 5.87%
Net investment income, before waivers and reimbursements 3.95%
Portfolio turnover rate 56.99%
Net assets at end of year (in thousands) $11,997
- ------------------------------------------------------------------
</TABLE>
(a) For the period August 1, 1997 (commencement of operations) through November
30, 1997.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(c) Annualized.
17
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
INTERNATIONAL BOND PORTFOLIO
<TABLE>
<CAPTION>
Class A Class D
----------------------------------- -----------------------
1997 1996 1995 1994(a) 1997 1996 1995(b)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $ 22.16 $ 21.74 $ 19.93 $ 20.00 $22.14 $21.74 $22.17
Income (loss) from in-
vestment operations:
Net investment income 1.02 1.54 1.26 0.79 0.97 1.37 0.02
Net realized and
unrealized gain (loss) (1.70) 0.43 2.28 0.01 (1.72) 0.51 (0.08)
- ---------------------------------------------------------------------------------------
Total income (loss) from
investment operations (0.68) 1.97 3.54 0.80 (0.75) 1.88 (0.06)
- ---------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM:
Net investment income
(c) (1.01) (1.55) (1.73) (0.87) (0.99) (1.48) (0.37)
Net realized gain (0.34) -- -- -- (0.34) -- --
- ---------------------------------------------------------------------------------------
Total distributions to
shareholders (1.35) (1.55) (1.73) (0.87) (1.33) (1.48) (0.37)
- ---------------------------------------------------------------------------------------
Net increase (decrease) (2.03) 0.42 1.81 (0.07) (2.08) 0.40 (0.43)
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $ 20.13 $ 22.16 $ 21.74 $ 19.93 $20.06 $22.14 $21.74
- ---------------------------------------------------------------------------------------
Total return (d) (3.02)% 9.47% 18.20% 4.03% (3.38)% 9.04% (0.30)%
Ratio to average net as-
sets of (e):
Expenses, net of waiv-
ers and reimbursements 0.96% 0.96% 0.96% 0.96% 1.35% 1.35% 1.35%
Expenses, before waiv-
ers and reimbursements 1.52% 1.58% 1.47% 1.49% 1.91% 1.97% 1.86%
Net investment income,
net of waivers and re-
imbursements 5.61% 5.91% 5.92% 5.93% 5.36% 5.67% 3.26%
Net investment income,
before waivers and re-
imbursements 5.05% 5.29% 5.41% 5.40% 4.80% 5.05% 2.75%
Portfolio turnover rate 29.29% 33.89% 54.46% 88.65% 29.29% 33.89% 54.46%
Net assets at end of
year (in thousands) $26,383 $34,183 $32,673 $26,947 $ 91 $ 52 $ 9
- ---------------------------------------------------------------------------------------
</TABLE>
(a) For the period March 28, 1994 (commencement of operations) through November
30, 1994.
(b) For the period November 20, 1995 (Class D Shares issue date) through
November 30, 1995.
(c) Distributions to shareholders from net investment income include amounts
relating to foreign currency transactions which are treated as ordinary
income for Federal income tax purposes.
(d) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(e) Annualized for periods less than a full year.
18
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Class A
--------------------------------------------
1997 1996 1995 1994 1993 (a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $ 12.24 $ 11.05 $ 9.50 $ 10.22 $ 10.00
Income (loss) from investment op-
erations:
Net investment income 0.38 0.34 0.34 0.24 0.09
Net realized and unrealized gain
(loss) 1.66 1.19 1.55 (0.72) 0.22
- --------------------------------------------------------------------------------
Total income (loss) from invest-
ment operations 2.04 1.53 1.89 (0.48) 0.31
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (0.38) (0.34) (0.34) (0.22) (0.09)
Net realized gain (0.31) -- -- (0.02) --
- --------------------------------------------------------------------------------
Total distributions to sharehold-
ers (0.69) (0.34) (0.34) (0.24) (0.09)
- --------------------------------------------------------------------------------
Net increase (decrease) 1.35 1.19 1.55 (0.72) 0.22
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 13.59 $ 12.24 $ 11.05 $ 9.50 $ 10.22
- --------------------------------------------------------------------------------
Total return (b) 17.29% 14.07% 20.22% (4.76)% 3.12%
Ratio to average net assets of
(c):
Expenses, net of waivers and re-
imbursements 0.61% 0.61% 0.61% 0.61% 0.61%
Expenses, before waivers and re-
imbursements 1.11% 1.20% 1.28% 1.50% 1.62%
Net investment income, net of
waivers and reimbursements 2.99% 3.03% 3.36% 2.56% 2.20%
Net investment income, before
waivers and reimbursements 2.49% 2.44% 2.69% 1.68% 1.19%
Portfolio turnover rate 59.06% 104.76% 93.39% 75.69% 35.03%
Average commission rate per share $0.0652 $0.0718 NA NA NA
Net assets at end of year (in
thousands) $51,475 $45,157 $38,897 $31,462 $15,928
- --------------------------------------------------------------------------------
</TABLE>
(a) For the period July 1, 1993 (commencement of operations) through November
30, 1993.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(c) Annualized for periods less than a full year.
NA--Disclosure not applicable to these periods.
19
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Class C Class D
---------------- ----------------
1997 1996 (a) 1997 1996 (b)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 12.24 $ 11.12 $ 12.23 $ 11.34
Income from investment operations:
Net investment income 0.36 0.29 0.34 0.22
Net realized and unrealized gain 1.64 1.12 1.64 0.96
- ------------------------------------------------------------------------------
Total income from investment operations 2.00 1.41 1.98 1.18
- ------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.37) (0.29) (0.36) (0.29)
Net realized gain (0.31) -- (0.31) --
- ------------------------------------------------------------------------------
Total distributions to shareholders (0.68) (0.29) (0.67) (0.29)
- ------------------------------------------------------------------------------
Net increase 1.32 1.12 1.31 0.89
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 13.56 $ 12.24 $ 13.54 $ 12.23
- ------------------------------------------------------------------------------
Total return (c) 17.00% 12.72% 16.82% 10.55%
Ratio to average net assets of (d):
Expenses, net of waivers and reimburse-
ments 0.85% 0.85% 1.00% 1.00%
Expenses, before waivers and reimburse-
ments 1.35% 1.44% 1.50% 1.59%
Net investment income, net of waivers and
reimbursements 2.75% 2.80% 2.60% 2.78%
Net investment income, before waivers and
reimbursements 2.25% 2.21% 2.10% 2.19%
Portfolio turnover rate 59.06% 104.76% 59.06% 104.76%
Average commission rate per share $0.0652 $0.0718 $0.0652 $0.0718
Net assets at end of year (in thousands) $ 4,587 $ 5,997 $ 322 $ 232
- ------------------------------------------------------------------------------
</TABLE>
(a) For the period December 29, 1995 (Class C Shares issue date) through
November 30, 1996.
(b) For the period February 20, 1996 (Class D Shares issue date) through
November 30, 1996.
(c) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
20
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
1997 1996 1995 1994 1993 (a)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $ 16.79 $ 13.86 $ 10.60 $ 10.78 $ 10.00
Income (loss) from in-
vestment operations:
Net investment income 0.30 0.31 0.30 0.27 0.22
Net realized and
unrealized gain (loss) 4.13 3.36 3.47 (0.18) 0.78
- ---------------------------------------------------------------------------------
Total income from in-
vestment operations 4.43 3.67 3.77 0.09 1.00
- ---------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM:
Net investment income (0.30) (0.31) (0.30) (0.27) (0.22)
Net realized gain (0.83) (0.43) (0.21) -- --
- ---------------------------------------------------------------------------------
Total distributions to
shareholders (1.13) (0.74) (0.51) (0.27) (0.22)
- ---------------------------------------------------------------------------------
Net increase (decrease) 3.30 2.93 3.26 (0.18) 0.78
- ---------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $ 20.09 $ 16.79 $ 13.86 $ 10.60 $ 10.78
- ---------------------------------------------------------------------------------
Total return (b) 27.93% 27.53% 36.60% 0.87% 10.08%
Ratio to average net as-
sets of (c):
Expenses, net of waiv-
ers and reimbursements 0.22% 0.22% 0.22% 0.23% 0.21%
Expenses, before waiv-
ers and reimbursements 0.46% 0.50% 0.54% 0.59% 0.66%
Net investment income,
net of waivers and re-
imbursements 1.66% 2.12% 2.54% 2.62% 2.62%
Net investment income,
before waivers and re-
imbursements 1.42% 1.84% 2.22% 2.25% 2.17%
Portfolio turnover rate 18.96% 18.02% 15.27% 71.98% 2.06%
Average commission rate
per share $ 0.0264 $ 0.0228 NA NA NA
Net assets at end of
year (in thousands) $844,065 $675,804 $479,763 $281,817 $219,282
- ---------------------------------------------------------------------------------
</TABLE>
(a) For the period January 11, 1993 (commencement of operations) through
November 30, 1993.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(c) Annualized for periods less than a full year.
NA--Disclosure not applicable to these periods.
21
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
Class C Class D
-------------------------- ---------------------------------
1997 1996 1995 (a) 1997 1996 1995 1994 (b)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR $ 16.79 $ 13.86 $ 13.43 $ 16.77 $ 13.83 $10.60 $10.96
Income (loss) from in-
vestment operations:
Net investment income 0.26 0.28 0.05 0.26 0.27 0.25 0.02
Net realized and
unrealized gain (loss) 4.11 3.35 0.45 4.07 3.36 3.47 (0.31)
- ----------------------------------------------------------------------------------------
Total income (loss) from
investment operations 4.37 3.63 0.50 4.33 3.63 3.72 (0.29)
- ----------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM:
Net investment income (0.28) (0.27) (0.07) (0.27) (0.26) (0.28) (0.07)
Net realized gain (0.83) (0.43) -- (0.83) (0.43) (0.21) --
- ----------------------------------------------------------------------------------------
Total distributions to
shareholders (1.11) (0.70) (0.07) (1.10) (0.69) (0.49) (0.07)
- ----------------------------------------------------------------------------------------
Net increase (decrease) 3.26 2.93 0.43 3.23 2.94 3.23 (0.36)
- ----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $ 20.05 $ 16.79 $ 13.86 $ 20.00 $ 16.77 $13.83 $10.60
- ----------------------------------------------------------------------------------------
Total return (c) 27.64% 27.24% 3.94% 27.45% 27.20% 36.20% (2.68)%
Ratio to average net as-
sets of (d):
Expenses, net of waiv-
ers and reimbursements 0.46% 0.46% 0.46% 0.61% 0.61% 0.61% 0.60%
Expenses, before waiv-
ers and reimbursements 0.70% 0.74% 0.78% 0.85% 0.89% 0.93% 0.96%
Net investment income,
net of waivers and re-
imbursements 1.42% 1.89% 2.29% 1.27% 1.78% 2.07% 2.67%
Net investment income,
before waivers and re-
imbursements 1.18% 1.61% 1.97% 1.03% 1.50% 1.75% 2.31%
Portfolio turnover rate 18.96% 18.02% 15.27% 18.96% 18.02% 15.27% 71.98%
Average commission rate
per share $0.0264 $0.0228 NA $0.0264 $0.0228 NA NA
Net assets at end of
year (in thousands) $82,982 $53,929 $18,390 $30,650 $ 8,005 $ 810 $ 3
- ----------------------------------------------------------------------------------------
</TABLE>
(a) For the period September 28, 1995 (Class C Shares issue date) through
November 30, 1995.
(b) For the period September 14, 1994 (Class D Shares issue date) through
November 30, 1994.
(c) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
NA--Disclosure not applicable to these periods.
22
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
DIVERSIFIED GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Class A
-------------------------------------------------
1997 1996 1995 1994 1993 (a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $ 14.36 $ 12.20 $ 9.88 $ 10.65 $ 10.00
Income (loss) from invest-
ment operations:
Net investment income 0.11 0.14 0.15 0.09 0.09
Net realized and unrealized
gain (loss) 3.33 2.33 2.26 (0.83) 0.65
- --------------------------------------------------------------------------------
Total income (loss) from in-
vestment operations 3.44 2.47 2.41 (0.74) 0.74
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLD-
ERS FROM:
Net investment income (0.14) (0.15) (0.09) (0.01) (0.09)
Net realized gain (1.46) (0.16) -- (0.02) --
- --------------------------------------------------------------------------------
Total distributions to
shareholders (1.60) (0.31) (0.09) (0.03) (0.09)
- --------------------------------------------------------------------------------
Net increase (decrease) 1.84 2.16 2.32 (0.77) 0.65
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 16.20 $ 14.36 $ 12.20 $ 9.88 $ 10.65
- --------------------------------------------------------------------------------
Total return (b) 27.06% 20.83% 24.55% (6.98)% 7.38%
Ratio to average net assets
of (c):
Expenses, net of waivers
and reimbursements 0.67% 0.66% 0.69% 0.67% 0.71%
Expenses, before waivers
and reimbursements 1.03% 1.10% 1.12% 1.08% 1.13%
Net investment income, net
of waivers and reimburse-
ments 0.76% 0.98% 1.16% 0.77% 1.04%
Net investment income, be-
fore waivers and reim-
bursements 0.40% 0.54% 0.73% 0.35% 0.62%
Portfolio turnover rate 45.53% 59.99% 81.65% 78.94% 140.88%
Average commission rate per
share $ 0.0669 $ 0.0655 NA NA NA
Net assets at end of year
(in thousands) $158,383 $142,055 $146,731 $164,963 $199,053
- --------------------------------------------------------------------------------
</TABLE>
(a) For the period January 11, 1993 (commencement of operations) through
November 30, 1993.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(c) Annualized for periods less than a full year.
NA--Disclosure not applicable to these periods.
23
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
DIVERSIFIED GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Class D
----------------------------------
1997 1996 1995 1994 (a)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 14.26 $ 12.16 $ 9.88 $10.41
Income (loss) from investment operations:
Net investment income 0.09 0.11 0.11 0.01
Net realized and unrealized gain (loss) 3.27 2.29 2.25 (0.54)
- -------------------------------------------------------------------------------
Total income (loss) from investment opera-
tions 3.36 2.40 2.36 (0.53)
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.13) (0.14) (0.08) --
Net realized gain (1.46) (0.16) -- --
- -------------------------------------------------------------------------------
Total distributions to shareholders (1.59) (0.30) (0.08) --
- -------------------------------------------------------------------------------
Net increase (decrease) 1.77 2.10 2.28 (0.53)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 16.03 $ 14.26 $12.16 $ 9.88
- -------------------------------------------------------------------------------
Total return (b) 26.60% 20.39% 24.19% (5.14)%
Ratio to average net assets of (c):
Expenses, net of waivers and reimburse-
ments 1.06% 1.05% 1.08% 1.05%
Expenses, before waivers and reimburse-
ments 1.42% 1.49% 1.51% 1.46%
Net investment income, net of waivers and
reimbursements 0.37% 0.59% 0.73% 0.94%
Net investment income, before waivers and
reimbursements 0.01% 0.15% 0.30% 0.53%
Portfolio turnover rate 45.53% 59.99% 81.65% 78.94%
Average commission rate per share $0.0669 $0.0655 NA NA
Net assets at end of year (in thousands) $ 696 $ 433 $ 221 $ 40
- -------------------------------------------------------------------------------
</TABLE>
(a) For the period September 14, 1994 (Class D Shares issue date) through
November 30, 1994.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(c) Annualized for periods less than a full year.
NA--Disclosure not applicable to these periods.
24
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
FOCUSED GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Class A
--------------------------------
1997 1996 1995 1994 1993 (a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $ 14.48 $ 12.53 $ 9.79 $ 10.43 $ 10.00
Income (loss) from invest-
ment operations:
Net investment income 0.05 0.02 0.05 0.02 0.01
Net realized and
unrealized gain (loss) 3.37 2.17 2.71 (0.66) 0.43
- --------------------------------------------------------------------------------
Total income (loss) from
investment operations 3.42 2.19 2.76 (0.64) 0.44
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLD-
ERS FROM:
Net investment income (0.02) (0.05) (0.02) -- (0.01)
Net realized gain (1.68) (0.19) -- -- --
- --------------------------------------------------------------------------------
Total distributions to
shareholders (1.70) (0.24) (0.02) -- (0.01)
- --------------------------------------------------------------------------------
Net increase (decrease) 1.72 1.95 2.74 (0.64) 0.43
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $ 16.20 $ 14.48 $ 12.53 $ 9.79 $ 10.43
- --------------------------------------------------------------------------------
Total return (b) 27.05% 17.82% 28.38% (6.15)% 4.33%
Ratio to average net assets
of (c):
Expenses, net of waivers
and reimbursements 0.92% 0.91% 0.91% 0.91% 0.91%
Expenses, before waivers
and reimbursements 1.34% 1.43% 1.47% 1.55% 1.88%
Net investment income, net
of waivers and reimburse-
ments 0.30% 0.12% 0.46% 0.24% 0.14%
Net investment loss, be-
fore waivers and reim-
bursements (0.12)% (0.40)% (0.10)% (0.39)% (0.83)%
Portfolio turnover rate 108.29% 116.78% 85.93% 74.28% 27.48%
Average commission rate per
share $ 0.0681 $ 0.0730 NA NA NA
Net assets at end of year
(in thousands) $115,802 $106,250 $86,099 $57,801 $32,099
- --------------------------------------------------------------------------------
</TABLE>
(a) For the period July 1, 1993 (commencement of operations) through November
30, 1993.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(c) Annualized for periods less than a full year.
NA--Disclosure not applicable to these periods.
25
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
FOCUSED GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Class C Class D
------------------
-----------------
1997 1996 (a) 1997 1996 1995 (b)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR $ 14.47 $ 13.46 $ 14.37 $ 12.48 $ 9.55
Income (loss) from invest-
ment operations:
Net investment income
(loss) 0.01 (0.01) 0.03 (0.03) 0.02
Net realized and unrealized
gain 3.37 1.02 3.30 2.15 2.93
- --------------------------------------------------------------------------------
Total income from investment
operations 3.38 1.01 3.33 2.12 2.95
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLD-
ERS FROM:
Net investment income (0.01) -- (0.01) (0.04) (0.02)
Net realized gain (1.68) -- (1.68) (0.19) --
- --------------------------------------------------------------------------------
Total distributions to
shareholders (1.69) -- (1.69) (0.23) (0.02)
- --------------------------------------------------------------------------------
Net increase 1.69 1.01 1.64 1.89 2.93
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 16.16 $ 14.47 $ 16.01 $ 14.37 $12.48
- --------------------------------------------------------------------------------
Total return (c) 26.75% 7.51% 26.52% 17.42% 30.97%
Ratio to average net assets
of (d):
Expenses, net of waivers
and reimbursements 1.16% 1.15% 1.31% 1.30% 1.30%
Expenses, before waivers
and reimbursements 1.58% 1.67% 1.73% 1.82% 1.86%
Net investment income
(loss), net of waivers and
reimbursements 0.06% (0.12)% (0.09)% (0.28)% (0.11)%
Net investment loss, before
waivers and reimbursements (0.36)% (0.64)% (0.51)% (0.80)% (0.67)%
Portfolio turnover rate 108.29% 116.78% 108.29% 116.78% 85.93%
Average commission rate per
share $0.0681 $0.0730 $0.0681 $0.0730 NA
Net assets at end of year
(in thousands) $ 8,325 $ 6,993 $ 1,206 $ 656 $ 489
- --------------------------------------------------------------------------------
</TABLE>
(a) For the period June 14, 1996 (Class C Shares issue date) through November
30, 1996.
(b) For the period December 8, 1994 (Class D Shares issue date) through
November 30, 1995.
(c) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(d) Annualized for periods less than a full year.
NA--Disclosure not applicable to these periods.
26
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
SMALL COMPANY INDEX PORTFOLIO
<TABLE>
<CAPTION>
Class A
-----------------------------------------------
1997 1996 1995 1994 1993 (a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $ 13.97 $ 12.98 $ 10.86 $ 11.29 $ 10.00
Income (loss) from investment
operations:
Net investment income 0.15 0.19 0.16 0.14 0.11
Net realized and unrealized
gain (loss) 2.69 1.75 2.67 (0.30) 1.29
- --------------------------------------------------------------------------------
Total income (loss) from in-
vestment operations 2.84 1.94 2.83 (0.16) 1.40
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (0.17) (0.14) (0.15) (0.02) (0.11)
Net realized gain (1.59) (0.81) (0.56) (0.25) --
- --------------------------------------------------------------------------------
Total distributions to share-
holders (1.76) (0.95) (0.71) (0.27) (0.11)
- --------------------------------------------------------------------------------
Net increase (decrease) 1.08 0.99 2.12 (0.43) 1.29
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 15.05 $ 13.97 $ 12.98 $ 10.86 $ 11.29
- --------------------------------------------------------------------------------
Total return (b) 23.06% 15.96% 27.76% (1.54)% 14.09%
Ratio to average net assets of
(c):
Expenses, net of waivers and
reimbursements 0.32% 0.32% 0.32% 0.33% 0.31%
Expenses, before waivers and
reimbursements 0.68% 0.79% 0.81% 0.86% 1.02%
Net investment income, net of
waivers and reimbursements 1.22% 1.36% 1.31% 1.27% 1.25%
Net investment income, before
waivers and reimbursements 0.86% 0.89% 0.82% 0.74% 0.54%
Portfolio turnover rate 42.66% 46.26% 38.46% 98.43% 26.31%
Average commission rate per
share $ 0.0319 $ 0.0257 NA NA NA
Net assets at end of year (in
thousands) $147,887 $112,856 $94,899 $ 77,120 $54,763
- --------------------------------------------------------------------------------
</TABLE>
(a) For the period January 11, 1993 (commencement of operations) through
November 30, 1993.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year and does not
reflect the .75% additional transaction fee that was in effect prior to
April 1, 1998 which would reduce total return. Effective April 1, 1998,
the additional transaction fee has been reduced to .50%.
(c) Annualized for periods less than a full year.
NA--Disclosure not applicable to these periods.
27
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
SMALL COMPANY INDEX PORTFOLIO
<TABLE>
<CAPTION>
Class D
-------------------------
1997 1996 1995 (a)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 13.96 $ 12.95 $10.51
Income from investment operations:
Net investment income 0.17 0.13 0.18
Net realized and unrealized gain 2.62 1.83 2.96
- ---------------------------------------------------------------------------
Total income from investment operations 2.79 1.96 3.14
- ---------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.15) (0.14) (0.14)
Net realized gain (1.59) (0.81) (0.56)
- ---------------------------------------------------------------------------
Total distributions to shareholders (1.74) (0.95) (0.70)
- ---------------------------------------------------------------------------
Net increase 1.05 1.01 2.44
- ---------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 15.01 $ 13.96 $12.95
- ---------------------------------------------------------------------------
Total return (b) 22.68% 16.20% 31.62%
Ratio to average net assets of (c):
Expenses, net of waivers and reimbursements 0.71% 0.71% 0.71%
Expenses, before waivers and reimbursements 1.07% 1.18% 1.20%
Net investment income, net of waivers and reim-
bursements 0.76% 1.02% 0.90%
Net investment income, before waivers and reim-
bursements 0.40% 0.55% 0.41%
Portfolio turnover rate 42.66% 46.26% 38.46%
Average commission rate per share $0.0319 $0.0257 NA
Net assets at end of year (in thousands) $ 690 $ 269 $ 44
- ---------------------------------------------------------------------------
</TABLE>
(a) For the period December 8, 1994 (Class D Shares issue date) through
November 30, 1995.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year and does not
reflect the .75% additional transaction fee that was in effect prior to
April 1, 1998 which would reduce total return. Effective April 1, 1998,
the additional transaction fee has been reduced to .50%.
(c) Annualized for periods less than a full year.
NA--Disclosure not applicable to these periods.
28
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
INTERNATIONAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Class A
----------------------------------------
1997 1996 1995 1994 (a)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.63 $ 9.88 $ 10.21 $ 10.00
Income (loss) from investment opera-
tions:
Net investment income 0.11 0.10 0.12 0.05
Net realized and unrealized gain
(loss) 0.31 0.87 (0.36) 0.16
- -------------------------------------------------------------------------------
Total income (loss) from investment
operations 0.42 0.97 (0.24) 0.21
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.08) (0.22) (0.05) --
Net realized gain (0.45) -- (0.04) --
- -------------------------------------------------------------------------------
Total distributions to shareholders (0.53) (0.22) (0.09) --
- -------------------------------------------------------------------------------
Net increase (decrease) (0.11) 0.75 (0.33) 0.21
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 10.52 $ 10.63 $ 9.88 $ 10.21
- -------------------------------------------------------------------------------
Total return (b) 4.21% 9.96% (2.32)% 2.11%
Ratio to average net assets of (c):
Expenses, net of waivers and reim-
bursements 1.06% 1.06% 1.06% 1.04%
Expenses, before waivers and reim-
bursements 1.37% 1.43% 1.38% 1.47%
Net investment income, net of waiv-
ers and reimbursements 0.97% 0.73% 1.22% 0.76%
Net investment income, before waiv-
ers and reimbursements 0.66% 0.36% 0.90% 0.33%
Portfolio turnover rate 154.62% 202.47% 215.31% 77.79%
Average commission rate per share $ 0.0265 $ 0.0292 NA NA
Net assets at end of year (in thou-
sands) $106,774 $138,182 $148,704 $133,212
- -------------------------------------------------------------------------------
</TABLE>
(a) For the period March 28, 1994 (commencement of operations) through November
30, 1994.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(c) Annualized for periods less than a full year.
NA--Disclosure not applicable to these periods.
29
<PAGE>
FINANCIAL HIGHLIGHTS
For the Years Ended November 30,
INTERNATIONAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Class D
-----------------------------------
1997 1996 1995 1994 (a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.54 $ 9.83 $10.21 $10.47
Income (loss) from investment operations:
Net investment income 0.09 0.01 0.19 --
Net realized and unrealized gain (loss) 0.29 0.92 (0.48) (0.26)
- --------------------------------------------------------------------------------
Total income (loss) from investment opera-
tions 0.38 0.93 (0.29) (0.26)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.08) (0.22) (0.05) --
Net realized gain (0.45) -- (0.04) --
- --------------------------------------------------------------------------------
Total distributions to shareholders (0.53) (0.22) (0.09) --
- --------------------------------------------------------------------------------
Net increase (decrease) (0.15) 0.71 (0.38) (0.26)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 10.39 $ 10.54 $ 9.83 $10.21
- --------------------------------------------------------------------------------
Total return (b) 3.79% 9.59% (2.78)% (2.56)%
Ratio to average net assets of (c):
Expenses, net of waivers and reimburse-
ments 1.45% 1.45% 1.45% 1.35%
Expenses, before waivers and reimburse-
ments 1.76% 1.82% 1.77% 1.78%
Net investment income, net of waivers and
reimbursements 0.58% 0.44% 2.01% --
Net investment income (loss), before
waivers and reimbursements 0.27% 0.07% 1.69% (0.43)%
Portfolio turnover rate 154.62% 202.47% 215.31% 77.79%
Average commission rate per share $0.0265 $0.0292 NA NA
Net assets at end of year (in thousands) $ 234 $ 94 $ 20 --
- --------------------------------------------------------------------------------
</TABLE>
(a) For the period November 16, 1994 (Class D Shares issue date) through
November 30, 1994.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year.
(c) Annualized for periods less than a full year.
NA--Disclosure not applicable to these periods.
30
<PAGE>
FINANCIAL HIGHLIGHTS
For the Year Ended November 30,
INTERNATIONAL EQUITY INDEX
<TABLE>
<CAPTION>
Class A
--------
1997 (a)
- ------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 10.00
Income from investment operations:
Net investment income 0.10
Net realized and unrealized gain 0.45
- ------------------------------------------------------------------
Total income from investment operations 0.55
- ------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income --
Net realized gain --
- ------------------------------------------------------------------
Total distributions to shareholders --
- ------------------------------------------------------------------
Net increase 0.55
- ------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 10.55
- ------------------------------------------------------------------
Total return (b) 5.45%
Ratio to average net assets of (c):
Expenses, net of waivers and reimbursements 0.51%
Expenses, before waivers and reimbursements 1.08%
Net investment income, net of waivers and reimbursements 1.75%
Net investment income, before waivers and reimbursements 1.18%
Portfolio turnover rate 8.16%
Average commission rate per share $0.0207
Net assets at end of year (in thousands) $34,244
- ------------------------------------------------------------------
</TABLE>
(a) For the period April 1, 1997 (commencement of operations) through November
30, 1997.
(b) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at the net asset value at the end of the year. Total
return is not annualized for periods less than one year and does not
reflect the 1.00% additional transaction fee which would reduce total
return.
(c) Annualized.
31
<PAGE>
INVESTMENT INFORMATION
INTRODUCTION
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). Each Portfolio consists of a
separate pool of assets with separate investment objectives and policies, as
described below. Each Portfolio, other than the International Bond Portfolio,
is classified as a diversified investment company. The International Bond
Portfolio is classified as a non-diversified investment company. Shares of
each Portfolio have been classified into four classes--Class A Shares, Class B
Shares, Class C Shares and Class D Shares. Northern serves as investment
adviser to all Portfolios other than the U.S. Treasury Index, Equity Index,
Small Company Index and International Equity Index Portfolios, which are
advised by NTQA. Northern serves as the transfer agent and custodian for all
Portfolios. Goldman Sachs serves as distributor and administrator. With the
exception of the Intermediate Bond Portfolio and the Global Asset Portfolio,
the investment objective of a Portfolio may not be changed without the vote of
the majority of the outstanding shares of the particular Portfolio. Except as
expressly noted below, however, each Portfolio's investment policies may be
changed without a vote of shareholders. The U.S. Government Securities, Short-
Intermediate Bond, U.S. Treasury Index, Bond, Intermediate Bond and
International Bond Portfolios may collectively be referred to as the "Fixed
Income Portfolios," and the Balanced, Global Asset, Equity Index, Diversified
Growth, Focused Growth, Small Company Index, International Equity Index and
International Growth Portfolios may collectively be referred to as the "Equity
Portfolios."
U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Portfolio's investment objective is to seek to maximize
total return with minimal reasonable risk. In pursuing its investment
objective, the U.S. Government Securities Portfolio will, under normal market
conditions, invest at least 65% of its total assets in a broad range of
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities and repurchase agreements relating to such securities,
including mortgage-related securities issued by agencies of the U.S.
Government. The Portfolio's dollar-weighted average maturity will be between
one and five years.
The Portfolio may enter into interest rate swaps and may invest in options and
futures contracts and related options. The Portfolio may also invest in
certain short-term fixed income securities as cash reserves. See "Description
of Securities and Common Investment Techniques" below for more information.
SHORT-INTERMEDIATE BOND PORTFOLIO
The investment objective of the Short-Intermediate Bond Portfolio is to seek
to maximize total return consistent with reasonable risk. In pursuing its
investment objective, the Short-Intermediate Bond Portfolio invests in a broad
range of bonds and other fixed income securities. The Portfolio's dollar-
weighted average maturity will be between two and five years. The Portfolio
will invest primarily in fixed income securities of all types and in any
proportion that generally are investment grade at the time of purchase, and
may include obligations of the U.S. Government, its agencies or
instrumentalities, obligations of foreign governments, obligations of U.S. and
foreign corporations and obligations of U.S. and foreign banks. The
obligations of a foreign issuer will not be purchased by the Short-
Intermediate Bond Portfolio if, as a result of the purchase, more than 20% of
the total assets of the Portfolio will be invested in the obligations of
issuers within a single foreign country. The Portfolio
32
<PAGE>
may also invest up to 10% of its total assets in non-investment grade
securities. Under normal market conditions, at least 65% of the Portfolio's
total assets will be invested in bonds, debentures, mortgage and other asset-
related securities, zero coupon bonds and convertible debentures. The
Portfolio may also invest in short-term notes, bills, commercial paper and
certificates of deposit.
The Portfolio may enter into forward currency contracts and interest rate
swaps and may invest in options and futures contracts and related options. The
Portfolio may also invest in certain short-term fixed income securities as
cash reserves. See "Description of Securities and Common Investment
Techniques" below for more information.
U.S. TREASURY INDEX PORTFOLIO
The investment objective of the U.S. Treasury Index Portfolio is to seek to
provide investment results approximating the performance of the Lehman Index.
In pursuing its investment objective, the U.S. Treasury Index Portfolio under
normal conditions will invest directly or indirectly at least 80% of its total
assets in a representative sample of the U.S. Treasury obligations included in
the Lehman Index. The Lehman Index is comprised of all public obligations of
the U.S. Treasury, excluding flower bonds and foreign-targeted issues. The
Investment Adviser will select securities for the Portfolio based on their
expected contribution to its overall duration, quality and total return as
compared to the Lehman Index and comparable investment characteristics. Lehman
Brothers ("Lehman") makes no representation or warranty, implied or express,
to purchasers of Portfolio units or any member of the public regarding the
advisability of investing in the Portfolio or the ability of the Lehman Index
to track general bond market performance.
The Portfolio is managed through the use of a "passive" or "indexing"
investment approach, which attempts to duplicate the investment composition
and performance of the Lehman Index through statistical procedures. As a
result, the Investment Adviser does not employ traditional methods of fund
investment management, such as selecting securities on the basis of economic,
financial and market analysis.
The Portfolio may invest in options and futures contracts and related options.
The Portfolio may also invest in certain short-term fixed income securities as
cash reserves. See "Description of Securities and Common Investment
Techniques" and "Special Risks and Other Considerations" below for more
information.
BOND PORTFOLIO
The investment objective of the Bond Portfolio is to seek to maximize total
return consistent with reasonable risk. In pursuing its investment objective,
the Bond Portfolio invests in a broad range of bonds and other fixed income
securities. The Portfolio's dollar-weighted average maturity will range
between five and fifteen years.
The Portfolio will invest primarily in fixed income securities of all types
and in any proportion that generally are investment grade at the time of
purchase, and may include obligations of the U.S. Government, its agencies or
instrumentalities, obligations of foreign, state and local governments,
obligations of U.S. and foreign corporations and obligations of U.S. and
foreign banks. The obligations of a foreign issuer will not be purchased by
the Bond Portfolio if, as a result of the purchase, more than 20% of the total
assets of the Portfolio will be invested in the obligations of issuers within
a single foreign country. The Portfolio may also invest up to 10% of its total
assets in non-investment grade securities. Under normal market conditions, at
least 65% of the Portfolio's
33
<PAGE>
total assets will be invested in bonds, debentures, mortgage and other asset-
related securities, zero coupon bonds and convertible debentures. The
Portfolio may also invest in short-term notes, bills, commercial paper and
certificates of deposits.
The Portfolio may enter into forward currency contracts and interest rate
swaps and may invest in options and futures contracts and related options. The
Portfolio may also invest in certain short-term fixed income securities as
cash reserves. See "Description of Securities and Common Investment
Techniques" below for more information.
INTERMEDIATE BOND PORTFOLIO
The investment objective of the Intermediate Bond Portfolio is to seek to
maximize total return consistent with reasonable risk. In pursuing its
investment objective, the Intermediate Bond Portfolio invests in a broad range
of bonds and other fixed income securities. The Portfolio's dollar-weighted
average maturity will range between three and ten years. The Portfolio will
invest primarily in fixed income securities of all types and in any proportion
that generally are investment grade at the time of purchase, and may include
obligations of the U.S. Government, its agencies or instrumentalities,
obligations of foreign, state and local governments, obligations of U.S. and
foreign corporations and obligations of U.S. and foreign banks. The Portfolio
may invest up to 25% of its total assets in foreign securities, including up
to 15% of its total assets in securities of issuers in countries with emerging
economies or securities markets. The obligations of a foreign issuer will not
be purchased by the Portfolio if, as a result of the purchase, more than 20%
of the total assets of the Portfolio will be invested in the obligations of
issuers within a single foreign country. The Portfolio may also invest up to
10% of its total assets in non-investment grade securities. Under normal
market conditions, at least 65% of the Portfolio's total assets will be
invested in bonds, debentures, mortgage and other asset-related securities,
zero coupon bonds and convertible debentures. The Portfolio may also invest in
short-term notes, bills, commercial paper and certificates of deposits.
The Portfolio may enter into forward currency contracts and interest rate
swaps and may invest in options and futures contracts and related options. The
Portfolio may also invest in certain short-term fixed income securities as
cash reserves. See "Description of Securities and Common Investment
Techniques" below for more information.
INTERNATIONAL BOND PORTFOLIO
The investment objective of the International Bond Portfolio is to seek to
maximize total return consistent with reasonable risk. In pursuing its
investment objective, the International Bond Portfolio invests primarily (at
least 65% of its total assets under normal market conditions) in a broad range
of bonds and other fixed income securities of foreign issuers. The Portfolio's
dollar-weighted average maturity will range between three and eleven years.
The Portfolio will be invested at all times in the securities of issuers
located in at least three different foreign countries. These countries may
include, but are not limited to: Argentina, Australia, Austria, Belgium,
Brazil, Canada, Chile, Colombia, Denmark, Finland, France, Germany, Greece,
Hong Kong, Hungary, Indonesia, Ireland, Israel, Italy, Japan, Luxembourg,
Malaysia, Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines,
Poland, Portugal, Singapore, South Africa, South Korea, Spain, Sweden,
Switzerland, Taiwan,
34
<PAGE>
Thailand, Turkey, the United Kingdom and Venezuela. Criteria for determining
the appropriate distribution of investments among various countries and
regions include prospects for relative economic growth, expected levels of
inflation, government policies influencing business conditions, the outlook
for currency relationships, and the range of investment opportunities
available to international investors.
The Portfolio will invest primarily in fixed income securities of all types as
set forth below and in any proportion that generally are investment grade at
the time of purchase, although a portion of its assets may be invested in non-
investment grade securities. These securities may include obligations of
foreign governments, their agencies, instrumentalities and political
subdivisions; supranational organizations (e.g., European Investment Bank,
Inter-American Development Bank and the World Bank); and foreign corporations
and banks. These obligations may consist of bonds, debentures, mortgage and
other asset-related securities, zero coupon bonds and convertible debentures.
The Portfolio may also invest in obligations of the U.S. Government, its
agencies and instrumentalities (including repurchase agreements collateralized
by such obligations) and of U.S. corporations and banks as well as short-term
notes, bills, commercial paper and certificates of deposit. It is expected
that during the current fiscal year a substantial portion of the Portfolio's
assets will be invested in foreign governmental obligations.
The International Bond Portfolio is classified as a non-diversified portfolio
under the 1940 Act. Investment return on a non-diversified portfolio typically
is dependent upon the performance of the securities of a smaller number of
issuers relative to the number held in a diversified portfolio. Consequently,
the change in value of any one security may affect the overall value of a non-
diversified portfolio more than it would a diversified portfolio.
The Portfolio may enter into forward currency exchange contracts and currency
and interest rate swaps and utilize options and futures contracts. Pending
investment, as a temporary defensive measure and to meet anticipated
redemption requests, the Portfolio may invest, in accordance with its
investment policies, in various short-term obligations, such as U.S.
Government obligations, high quality money market investments and repurchase
agreements. See "Description of Securities and Common Investment Techniques"
and "Special Risks and Other Considerations" below for more information.
BALANCED PORTFOLIO
The investment objective of the Balanced Portfolio is to seek to provide long-
term capital appreciation and current income. The Portfolio will invest at
least 25% of the value of its total assets in fixed income senior securities
and no more than 75% in equity securities under normal market conditions. The
actual percentage of assets invested in equity and fixed income securities
will vary from time to time, depending upon Northern's judgment as to general
market and economic conditions, trends and yields, interest rates and changes
in fiscal and monetary policies. The Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and short-
term obligations (having remaining maturities of 18 months or less) at such
times and in such proportions as, in the opinion of Northern, is warranted.
For purposes of determining the percentages of the Portfolio's assets that are
invested in equity and fixed income securities, respectively, only that
portion of the value of convertible securities attributable to their fixed
income characteristics will be deemed to be a fixed income investment.
The Portfolio may invest in common and preferred stocks, securities
convertible into common stock and other types of equity or equity-related
securities ("equity securities"). The Portfolio selects equity securities
based on such factors as growth of sales, return on equity, growth and
consistency of earnings, financial condition, market
35
<PAGE>
share, product leadership and other investment criteria. The Portfolio will
normally limit its equity investments to the securities of companies which
together with their predecessors have been in continuous operation for at
least five years and have stock market capitalization in excess of $200
million. The Portfolio may also purchase warrants and rights which entitle the
holder to buy equity securities at a specified price for a specified period of
time.
The Portfolio will invest in fixed income securities of all types as set forth
below and in any proportions that generally are investment-grade at the time
of purchase. These securities may include bonds, debentures, mortgage and
other asset-related securities, zero coupon bonds, convertible debentures, and
other obligations issued by the U.S. Government, its agencies or
instrumentalities, foreign governments, U.S. and foreign corporations and U.S.
and foreign banks. The Portfolio may also purchase bonds that are issued in
tandem with warrants which entitle the holder to purchase certain common stock
at a specified price during a specified period of time. The Portfolio may also
invest in short-term notes, bills, commercial paper and certificates of
deposit. The dollar-weighted average maturity of the fixed income portion of
the Portfolio will, under normal market conditions, range between two and ten
years.
The Portfolio may also enter into forward currency contracts and utilize
options and futures contracts and related options. Pending investment, as a
temporary defensive measure and to meet anticipated redemption requests, the
Portfolio may also invest in various short-term obligations. See "Description
of Securities and Common Investment Techniques" and "Special Risks and Other
Considerations" below for more information.
GLOBAL ASSET PORTFOLIO
The investment objective of the Global Asset Portfolio is to seek to provide
long-term capital appreciation and current income. In pursuing its investment
objective, the Portfolio allocates its assets for investment among four market
segments: domestic equity securities, domestic fixed-income securities,
foreign equity securities and foreign fixed-income securities. To achieve this
allocation, the Portfolio will generally invest a substantial portion (up to
100%) of its assets in shares of one or more other investment portfolios of
the Trust ("Benchmark Portfolios") which invest in such segments. By investing
in shares of the Benchmark Portfolios, the Global Asset Portfolio expects to
be able to achieve greater diversification within these market segments than
through direct investments in individual securities. The Portfolio may also
make direct investments in domestic and foreign equity or fixed-income
securities or purchase shares of unaffiliated investment companies, including
World Equity Benchmark SharesSM issued by The Foreign Fund, Inc. ("WEBS")
whenever it is deemed advisable to do so in order to achieve the desired
exposure to any of the four market segments and to achieve the Portfolio's
investment objective. See "International Equity Index Portfolio" below for
more information on WEBS. The Portfolio's investments in unaffiliated
investment companies will be limited in accordance with the provisions of the
1940 Act.
Northern will allocate the assets of the Portfolio among the market segments
identified above, and, within each segment, among the various Benchmark
Portfolios, unaffiliated investment companies and individual securities.
Under normal market conditions, it is anticipated that the Portfolio will
invest at least 20% of its assets directly or indirectly in fixed income
senior securities, and at least 65% of its total assets directly or indirectly
in securities of issuers in at least three different countries.
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Subject to the foregoing, the Portfolio may allocate 0%-100% of its assets to
any market segment. The table below identifies the Benchmark Portfolios
represented in each market segment:
<TABLE>
<CAPTION>
CORRESPONDING
BENCHMARK
MARKET SEGMENT PORTFOLIO
--------------------- ------------------------------------
<S> <C>
Domestic Equity Balanced Portfolio
Equity Index Portfolio
Diversified Growth Portfolio
Focused Growth Portfolio
Small Company Index Portfolio
Domestic Fixed Income Government Select Portfolio
Government Portfolio
Diversified Assets Portfolio
Tax-Exempt Portfolio
U.S. Government Securities Portfolio
Short-Intermediate Bond Portfolio
U.S. Treasury Index Portfolio
Bond Portfolio
Intermediate Bond Portfolio
Foreign Equity International Equity Index Portfolio
International Growth Portfolio
Foreign Fixed Income International Bond Portfolio
</TABLE>
In making decisions regarding the appropriate exposure to each segment,
Northern will consider general market and economic conditions and factors such
as the relative market capitalization weightings of these segments, stock and
bond index price changes, fluctuations in interest and currency exchange
rates, and political events which may impact market performance for specific
countries or regions, as well as the liquidity needs of the Portfolio. By
allocating its investments in this manner, Northern believes that the
Portfolio will not be exposed to the same degree of market risk as a portfolio
which, for example, invests in only one market segment.
In allocating the Portfolio's assets among the Benchmark Portfolios and
unaffiliated investment companies, Northern will consider their investment
objectives and policies, expenses, performance history and other factors it
deems relevant. The allocation of the Portfolio's assets among investment
companies may be changed from time to time without the approval of the
Portfolio's shareholders. Although the Portfolio may invest in each Benchmark
Portfolio, it is expected that the Portfolio will normally be invested in only
some of the Benchmark Portfolios at any particular time and will most
typically select from among the Equity Index, Diversified Growth, Focused
Growth, Small Company Index, Bond, Short-Intermediate Bond, Intermediate Bond,
International Equity Index, International Growth and International Bond
Portfolios. The Portfolio's investment in any particular Benchmark Portfolio
may exceed 25% of the Portfolio's assets and it is expected that such a
concentration may most typically occur with respect to investments in the
Equity Index, Diversified Growth, Focused Growth and Bond Portfolios.
In addition to its investments in other investment companies, the Portfolio
may make direct investments in equity securities based on such factors as
growth of sales, return on equity, growth and consistency of earnings,
financial
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condition, market share, product leadership and other investment criteria. In
addition, the Portfolio may purchase warrants and rights which entitle the
holder to buy equity securities at a specified price for a specified period of
time. The Portfolio may also invest directly in fixed income securities of all
types as set forth below and in any proportions that generally are investment
grade at the time of purchase, and may purchase bonds that are issued in
tandem with warrants which entitle the holder to purchase certain common
stocks at a specified price during a specified period of time. The Portfolio
may also invest in short-term notes, bills, commercial paper and certificates
of deposit.
The Portfolio may enter into forward currency contracts and utilize options
and future contracts and related options. Pending investment, as a temporary
defensive measure and to meet anticipated redemption requests, the Portfolio
may also invest in shares of money market funds or directly in other short-
term obligations. See "Description of Securities and Common Investment
Techniques" and "Special Risks and Other Considerations" below for more
information.
Prospective investors should note that the Trust has filed an application with
the Securities and Exchange Commission (the "SEC") requesting an exemption
from certain provisions of the 1940 Act to allow the Portfolio to conduct its
investment operations as described in this Prospectus. As of the date of this
Prospectus, the requested exemption had not been granted, and there is no
assurance that it will be. No shares of the Portfolio will be sold unless and
until the requested exemption is granted.
EQUITY INDEX PORTFOLIO
The investment objective of the Equity Index Portfolio is to seek to provide
investment results approximating the aggregate price and dividend performance
of the securities included in the S&P Index. Under normal market conditions
the Portfolio will invest directly or indirectly at least 80% of the
Portfolio's total assets in the common stocks of the companies that constitute
the S&P Index, in approximately the same proportions as they are represented
in the S&P Index. The S&P Index is a market value-weighted index consisting of
500 common stocks which are traded on the New York Stock Exchange, American
Stock Exchange and the NASDAQ National Market System and selected by Standard
& Poor's Corporation ("S&P") through a detailed screening process starting on
a macro-economic level and working toward a micro-economic level dealing with
company-specific information such as market value, industry group
classification, capitalization and trading activity. S&P's primary objective
for the S&P Index is to be the performance benchmark for the U.S. equity
markets. The companies chosen for inclusion in the S&P Index tend to be
leaders in important industries within the U.S. economy. However, companies
are not selected by S&P for inclusion because they are expected to have
superior stock price performance relative to the market in general or other
stocks in particular. S&P makes no representation or warranty, implied or
express, to purchasers of Portfolio shares or any member of the public
regarding the advisability of investing in the Portfolio or the ability of the
S&P Index to track general stock market performance.
The Equity Index Portfolio is managed through the use of a "passive" or
"indexing" investment approach, which attempts to duplicate the investment
composition and performance of the S&P Index through statistical procedures.
As a result, the Investment Adviser does not employ traditional methods of
fund investment management for this Portfolio, such as selecting securities on
the basis of economic, financial and market analysis.
The Portfolio may invest in options and futures contracts and related options.
The Portfolio may also invest in certain short-term fixed income securities as
cash reserves. However, it is not anticipated that the Portfolio will
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<PAGE>
invest in cash reserves, options or futures contracts and related options as
part of a temporary defensive strategy such as lowering its investment in
common stocks to protect against potential stock market declines. See
"Description of Securities and Common Investment Techniques" and "Special
Risks and Other Considerations" below for more information.
DIVERSIFIED GROWTH PORTFOLIO
The investment objective of the Diversified Growth Portfolio is to seek to
provide long-term capital appreciation with income a secondary consideration.
The Portfolio invests principally in common and preferred stocks and
securities convertible into common stock. The Portfolio will, under normal
market conditions, invest at least 65% of its assets in equity securities of
domestic and foreign issuers. The Portfolio selects investments based on such
factors as growth of sales, return on equity, growth and consistency of
earnings, financial condition, market share, product leadership and other
investment criteria. The Portfolio may also purchase warrants and rights which
entitle the holder to buy equity securities at a specific price for a specific
period of time.
The Portfolio may also enter into forward currency contracts and utilize
options and futures contracts and related options. Pending investment, as a
temporary defensive measure and to meet anticipated redemption requests, the
Portfolio may also invest in various short-term obligations. See "Description
of Securities and Common Investment Techniques" below for more information.
FOCUSED GROWTH PORTFOLIO
The investment objective of the Focused Growth Portfolio is to seek to provide
long-term capital appreciation. Any income received is incidental to the
objective of capital appreciation. The Portfolio invests in common and
preferred stocks and securities convertible into common stock of companies
believed by Northern to have superior quality and growth characteristics.
Under normal market conditions at least 65% of the Portfolio's total assets
will be invested in equity securities of domestic and foreign issuers. The
Portfolio selects equity securities based on such factors as growth of sales,
return on equity, growth and consistency of earnings, financial condition,
market share, product leadership and other investment criteria. In attempting
to achieve the Portfolio's investment objective, Northern may, from time to
time, emphasize particular companies or market segments, subject to the
Portfolio's policies on security and industry diversification as described
under "Investment Restrictions." Companies in which the Portfolio invests
often retain their earnings to finance current and future growth and generally
pay little or no dividends. The Portfolio may also purchase warrants and
rights which entitle the holder to buy equity securities at a specific price
for a specific period of time. The Portfolio intends to invest in the
securities of companies which together with their predecessors have been in
continuous operation for at least five years and have stock market
capitalization in excess of $200 million.
The Portfolio may also enter into forward currency contracts and utilize
options and futures contracts and related options. Pending investment, as a
temporary defensive measure and to meet anticipated redemption requests, the
Portfolio may also invest in various short-term obligations. See "Description
of Securities and Common Investment Techniques" below for more information.
SMALL COMPANY INDEX PORTFOLIO
The investment objective of the Small Company Index Portfolio is to seek to
provide investment results approximating the aggregate price and dividend
performance of the securities included in the Russell Index.
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<PAGE>
Under normal market conditions, the Portfolio will invest directly or
indirectly at least 80% of its total assets in the stocks included in the
Russell Index. The Russell Index is a market value-weighted index comprised of
the stocks of the smallest 2,000 companies in the Russell 3000 Index which is
comprised of the stocks of the 3,000 largest U.S. domiciled companies (based
on market capitalization) that represent approximately 83% of the investable
U.S. equity markets. Because of its emphasis on the smallest 2,000 companies,
the Russell Index represents approximately 10% of the total market
capitalization of the Russell 3000 Index. As of January 31, 1998, the average
market capitalization of the companies included in the Russell Index, adjusted
for cross-holdings, was approximately $570 million. The Russell Index is
reconstituted annually to reflect changes in market capitalization. The
primary criteria used by Frank Russell & Company ("Russell") to determine the
initial list of securities eligible for inclusion in the Russell 3000 Index
(and, accordingly, the Russell Index) is total market capitalization adjusted
for large private holdings and cross-ownership. However, companies are not
selected by Russell for inclusion in the Russell Index because they are
expected to have superior stock price performance relative to the stock market
in general or other stocks in particular. Russell makes no representation or
warranty, implied or express, to purchasers of Portfolio shares or any member
of the public regarding the advisability of investing in the Portfolio or the
ability of the Russell Index to track general market performance of small
capitalization stocks.
The Portfolio will be constructed to have aggregate investment characteristics
similar to those of the Russell Index as a whole. The Portfolio will invest in
securities which will be selected on the basis of such factors as
market capitalization, beta, industry sectors and economic factors. The number
of issues included will be a function of the Portfolio's liquidity and size.
The Portfolio will be restructured annually when the Russell Index is
reconstituted.
It should be noted that small companies in which the Portfolio may invest may
have limited product lines, markets, or financial resources, or may be
dependent upon a small management group, and their securities may be subject
to more abrupt or erratic market movements than larger, more established
companies, both because their securities typically are traded in lower volume
and because the issuers typically are subject to a greater degree of changes
in their earnings and prospects.
The Small Company Index Portfolio is managed through the use of a "passive" or
"indexing" investment approach, which attempts to duplicate the investment
composition and performance of the Russell Index through statistical
procedures. As a result, the Investment Adviser does not employ traditional
methods of fund investment management, such as selecting securities on the
basis of economic, financial and market analysis.
The Portfolio may invest in options and futures contracts and related options.
The Portfolio may also invest in certain short-term fixed income securities as
cash reserves. However, it is not anticipated that the Portfolio will invest
in cash reserves, options or futures contracts and related options as part of
a temporary defensive strategy such as lowering its investment in common
stocks to protect against potential stock market declines. See "Description of
Securities and Common Investment Techniques" and "Special Risks and Other
Considerations" below for more information.
The Portfolio requires the payment of an additional transaction fee on the
purchase of shares equal to 0.50% of the dollar amount invested. See
"Investing--Purchase of Shares" and "Investing--Redemption of Shares" below
for more information.
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<PAGE>
INTERNATIONAL EQUITY INDEX PORTFOLIO
The investment objective of the International Equity Index Portfolio is to
seek to provide investment results approximating the aggregate price and
dividend performance of the securities in the EAFE Index. The EAFE Index is a
broad-based market capitalization weighted index currently composed of more
than 1,100 securities in twenty countries. Fourteen European countries
(Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the
Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom)
constitute approximately 55% of the EAFE Index. Six Asian/Pacific countries
(Australia, Hong Kong, Japan, Malaysia, New Zealand and Singapore) account for
the remaining 45%. Under normal market conditions, the Portfolio will invest,
directly or indirectly, at least 65% of its total assets in the securities
that constitute the EAFE Index.
The International Equity Index Portfolio is managed through the use of a
"passive" or "indexing" investment approach, which attempts to duplicate the
investment composition and performance of the EAFE Index through statistical
procedures. As a result, the Investment Adviser does not employ traditional
methods of fund investment management for this Portfolio, such as selecting
securities on the basis of economic, financial and market analysis. The
Portfolio will be constructed to have aggregate investment characteristics
similar to those of the EAFE Index as a whole. The proportion of assets
invested in each country will approximate the weight of each country in the
EAFE Index, and the Portfolio will invest in securities selected on the basis
of such factors as country exposure, market capitalization, beta, industry
sectors and economic factors. The number of issuers included will be a
function of the Portfolio's liquidity and size.
Because the Portfolio will invest in countries according to their weights in
the EAFE Index, more than 25% of the Portfolio's assets may be invested in a
single country. In particular, Japan currently constitutes approximately one-
third of the EAFE Index and would comprise a similar percentage of the
Portfolio's assets, making the Portfolio's performance more dependent upon the
political and economic circumstances in Japan than a portfolio that is more
widely diversified among the issuers in different countries.
It is anticipated that, in seeking to achieve its investment objective, the
Portfolio may invest a significant portion (i.e., more than 10%) of its total
assets in instruments such as World Equity Benchmark Shares SM issued by The
Foreign Fund, Inc. ("WEBS") and similar securities of other issuers. Absent
unusual circumstances, these investments are not expected to exceed 35% of the
Portfolio's assets during the current fiscal year. WEBS are shares of an
investment company that invests substantially all of its assets in securities
included in the MSCI indices for specific countries. Because the expense
associated with an investment in WEBS can be substantially lower than the
expense of small investments directly in the securities comprising the indices
they seek to track, the Investment Adviser believes that investments in WEBS
of countries that are included in the EAFE Index can provide a cost-effective
means of diversifying the Portfolio's assets across a broad range of equity
securities. See the Additional Statement for further information about WEBS.
The Portfolio may invest in convertible securities and may enter into forward
currency contracts and utilize options, futures contracts and related options
and currency swaps. The Portfolio may also purchase warrants and rights which
entitle the holder to buy equity securities at a specific price for a specific
period of time. In addition, the Portfolio may also invest in certain short-
term fixed income securities as cash reserves. However, it is not anticipated
that the Portfolio will invest in cash reserves, options or futures contracts
and related options as part of a temporary defensive strategy such as lowering
its investment in equity securities to protect against potential market
declines. See "Description of Securities and Common Investment Techniques" and
"Special Risks and Other Considerations" for more information.
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<PAGE>
The Portfolio requires the payment of an additional transaction fee on the
purchase of shares equal to 1.00% of the dollar amount invested. See
"Investing--Purchase of Shares" and "Investing--Redemption of Shares" below
for more information.
INTERNATIONAL GROWTH PORTFOLIO
The investment objective of the International Growth Portfolio is to seek to
provide long-term capital appreciation. Any income received is incidental to
the objective of capital appreciation. The Portfolio invests principally in
common and preferred stocks and securities convertible into common stock of
foreign issuers. The Portfolio will, under normal market conditions, invest
directly or indirectly at least 65% of its total assets in equity securities
of foreign issuers. The Portfolio selects investments based on such factors as
growth of sales, return on equity, growth and consistency of earnings,
financial condition, market share, product leadership and other investment
criteria. The Portfolio will normally limit its equity investments to the
securities of companies which together with their predecessors have been in
continuous operation for at least five years and have stock market
capitalizations in excess of $200 million. The Portfolio invests in securities
listed on foreign and domestic securities exchanges and securities traded in
foreign and domestic over-the-counter markets, and may invest in unlisted
securities. Securities issued in certain countries are currently accessible to
the Portfolio only through investment in other investment companies that are
specifically authorized to invest in such securities.
The Portfolio will be invested at all times in the securities of issuers
located in at least three different foreign countries. These countries may
include, but are not limited to: Argentina, Australia, Austria, Belgium,
Brazil, Canada, Chile, Colombia, Czech Republic, Denmark, Finland, France,
Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland, Israel, Italy, Japan,
Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Peru, the
Philippines, Poland, Portugal, Singapore, South Africa, South Korea, Spain,
Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and
Venezuela. Criteria for determining the appropriate distribution of
investments among various countries and regions include prospects for relative
economic growth, expected levels of inflation, government policies influencing
business conditions, the outlook for currency relationships, and the range of
investment opportunities available to international investors.
The Portfolio may also enter into forward currency contracts, purchase
convertible bonds, and utilize options, futures contracts and currency swaps.
In addition, the Portfolio may purchase warrants and rights which entitle the
holder to buy equity securities at a specific price for a specific period of
time. Pending investment, as a temporary defensive measure and to meet
anticipated redemption requests, the Portfolio may invest, in accordance with
its investment policies, in various short-term obligations, such as U.S.
Government obligations, high quality money market instruments and repurchase
agreements. See "Description of Securities and Common Investment Techniques"
and "Special Risks and Other Considerations" below for more information.
SPECIAL RISKS AND OTHER CONSIDERATIONS
FOREIGN SECURITIES. The Short-Intermediate Bond, Bond, Intermediate Bond,
Balanced, Diversified Growth and Focused Growth Portfolios may invest up to
25% of their total assets, and the Global Asset, International Bond,
International Equity Index and International Growth Portfolios will invest a
substantial portion of their total assets as described above, directly or
indirectly in the securities of foreign issuers, whether or not U.S. dollar-
denominated. In addition, each such Portfolio may acquire the obligations of
foreign banks and foreign branches of U.S. banks as stated below under
"Description of Securities and Common Investment Techniques--Short-Term
Obligations." There are certain risks and costs involved in investing in
securities of companies and
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governments of foreign nations, which are in addition to the usual risks
inherent in U.S. investments. Foreign securities, and in particular foreign
debt securities, are sensitive to changes in interest rates and the interest
rate environment. In addition, investment in foreign debt, or the securities
of foreign governments, will subject a Portfolio to risks, including the risk
that foreign governments may default on their obligations, may not respect the
integrity of such debt, may attempt to renegotiate the debt at a lower rate,
and may not honor investments by United States entities or citizens. The
performance of investments in securities denominated in a foreign currency
will also depend, in part, on the strength of the foreign currency against the
U.S. dollar and the interest rate environment in the country issuing the
currency. Absent other events which could otherwise affect the value of a
foreign security (such as a change in the political climate or an issuer's
credit quality), appreciation in the value of the foreign currency generally
can be expected to increase the value of a foreign currency-denominated
security in terms of U.S. dollars. A rise in foreign interest rates or decline
in the value of the foreign currency relative to the U.S. dollar generally can
be expected to depress the value of a foreign currency-denominated security.
Investment in foreign securities also involves higher costs than investment in
U.S. securities, including higher transaction and custody costs as well as the
imposition of additional taxes by foreign governments. Foreign investments may
also involve risks associated with the level of currency exchange rates, less
complete financial information about the issuers, less market liquidity, more
market volatility and political instability. Future political and economic
developments, the possible imposition of withholding taxes on dividend income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls or freezes on the convertibility of
currency, or the adoption of other governmental restrictions might adversely
affect an investment in foreign securities. Additionally, foreign banks and
foreign branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
In addition, there are other risks of investing in countries with emerging
economies or securities markets. These countries are located in the
Asia/Pacific region, Eastern Europe, Latin and South America and Africa.
Political and economic structures in many such countries may be undergoing
significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristic of more developed
countries. Some of these countries may have in the past failed to recognize
private property rights and may have at times nationalized or expropriated the
assets of private companies. In general, the securities markets of these
countries are less liquid, are subject to greater price volatility, have
smaller market capitalizations and have problems with securities registration
and custody. As a result, the risks presented by investments in these
countries are heightened.
While the Portfolios' investments may, if permitted, be denominated in foreign
currencies, the portfolio securities and other assets held by the Portfolios
are valued in U.S. dollars. Currency exchange rates may fluctuate
significantly over short periods of time causing, together with other factors,
a Portfolio's net asset value to fluctuate as well. Currency exchange rates
can be affected unpredictably by the intervention or the failure to intervene
by U.S. or foreign governments or central banks, or by currency controls or
political developments in the U.S. or abroad. A Portfolio's net long and short
foreign currency exposure will not exceed its total asset value. To the extent
that a Portfolio is invested in foreign securities while also maintaining
currency positions, it may be exposed to greater combined risk. The
Portfolios' respective net currency positions may expose them to risks
independent of their securities positions.
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Because the securities markets in the following countries are highly
developed, liquid and subject to extensive regulation, the International
Growth Portfolio and International Bond Portfolio may invest more than 25% of
their total assets in the securities of issuers located in Japan, the United
Kingdom, France, Germany or Switzerland. Because the International Equity
Index Portfolio invests in countries according to their weightings in the EAFE
Index, more than 25% of such Portfolio's assets may also be invested in the
securities of issuers in a single country. Investment in a particular country
of 25% or more of the Portfolio's total assets will make the Portfolio's
performance more dependent upon the political and economic circumstances of a
particular country than a mutual fund that is more widely diversified among
issuers in different countries. Although the five foreign countries listed
above have developed economies, they are not immune from these risks. For
example, the expected introduction of a single currency, the euro, on January
1, 1999 for participating nations in the European Economic and Monetary Union
presents unique risks and uncertainties, including: whether the payment and
operational systems of banks and other financial institutions will be ready by
the scheduled launch date; the treatment of outstanding financial contracts
after January 1, 1999 that refer to existing currencies rather than the euro;
the establishment of exchange rates for existing currencies and the euro; and
the creation of suitable clearing and settlement payment systems for the new
currency. These or other factors, including political risks, could cause
market disruptions before or after the introduction of the euro, and could
adversely affect the value of securities held by the Portfolios. Moreover, the
end of the Cold War, the reunification of Germany, the accession of new
Western European members to the European Union and the aspirations of Eastern
European states to join and other political and social events in Europe have
caused considerable economic, social and political dislocation. In addition,
events in the Japanese economy, as well as political and social developments
there have affected Japanese securities and currency markets, and the
relationship of the Japanese yen with other currencies and with the U.S.
dollar. Future political, economic and social developments in Japan and in the
Asia/Pacific regional context can be expected to produce continuing effects on
securities and currency markets.
DERIVATIVE INSTRUMENTS. Each Portfolio may also purchase certain "derivative"
instruments. "Derivative" instruments are instruments that derive value from
the performance of underlying assets, interest or currency exchange rates, or
indices, and include interest rate and currency swaps, futures contracts,
options, forward currency contracts and structured debt obligations (including
collateralized mortgage obligations and other types of asset-backed
securities, "stripped" securities and various floating rate instruments,
including "inverse floaters"). Derivative instruments present, to varying
degrees, market risk that the performance of the underlying assets, exchange
rates or indices will decline; credit risk that the dealer or other
counterparty to the transaction will fail to pay its obligations; volatility
and leveraging risk that, if interest or exchange rates change adversely, the
value of the derivative instrument will decline more than the assets, rates or
indices on which it is based; liquidity risk that a Portfolio will be unable
to sell a derivative instrument when it wants because of lack of market depth
or market disruption; pricing risk that the value of a derivative instrument
(such as an option) will not correlate exactly to the value of the underlying
assets, rates or indices on which it is based; and operations risk that loss
will occur as a result of inadequate systems and controls, human error or
otherwise. Some derivative instruments are more complex than others, and for
those instruments that have been developed recently, data is lacking regarding
their actual performance over complete market cycles. The Investment Advisers
will evaluate the risks presented by the derivative instruments purchased by
the Portfolios, and will determine, in connection with their day-to-day
management of the Portfolios, how they will be used in furtherance of the
Portfolios' investment objectives. It is possible, however, that the
Investment Advisers' evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Portfolios will,
because of the risks discussed above, incur loss as a result of their
investments in derivative instruments.
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AVERAGE MATURITIES. The Fixed Income Portfolios will normally maintain the
dollar-weighted average maturities of their portfolios within the specified
ranges previously described. The maturities of certain instruments, however,
such as variable and floating rate instruments as well as instruments subject
to prepayment or redemption by the issuers, are subject to estimation. There
can be no assurance that the estimates used by the Fixed Income Portfolios for
such instruments will, in fact, be accurate or that, if inaccurate, a Fixed
Income Portfolio's dollar-weighted average maturity will remain within the
specified limits.
TRACKING VARIANCE. The Investment Adviser believes that under normal market
conditions, the quarterly performance of the Equity Index, Small Company
Index, International Equity Index and U.S. Treasury Index Portfolios, before
Portfolio expenses, will be within a .95 correlation with the S&P Index,
Russell Index, EAFE Index and Lehman Index, respectively. However, there is no
assurance that a Portfolio will be able to do so on a consistent basis.
Deviations from the performance of its designated Index ("tracking variance")
may result from purchases and redemptions of shares of a Portfolio that occur
daily, as well as from the expenses borne by a Portfolio. Such purchases and
redemptions may necessitate the purchase and sale of securities by the
Portfolio and the resulting transaction costs which may be substantial because
of the number and the characteristics of the securities held. In addition,
transaction costs are incurred because sales of securities received in
connection with spin-offs and other corporate reorganizations are made to
conform the Portfolio's holdings with its investment objective. Tracking
variance may also occur due to factors such as the size of a Portfolio, the
maintenance of a cash reserve pending investment or to meet expected
redemptions, changes made in the Portfolio's designated Index or the manner in
which the Index is calculated or because the indexing and investment approach
of the Investment Adviser does not produce the intended goal of the Portfolio.
In the event the performance of a Portfolio is not comparable to the
performance of its designated Index, the Board of Trustees will evaluate the
reasons for the deviation and the availability of corrective measures. If
substantial deviation in a Portfolio's performance were to continue for
extended periods, it is expected that the Board of Trustees would consider
recommending to shareholders possible changes to the Portfolio's investment
objective.
SPECIAL RISKS AND OTHER CONSIDERATIONS RELATING TO THE GLOBAL ASSET PORTFOLIO.
Because the Global Asset Portfolio may invest up to 100% of its assets in
shares of other investment companies, the expenses associated with investing
in the Portfolio may be higher than those associated with a portfolio that
invests primarily in the securities of issuers that are not themselves
investment companies. An investor in the Global Asset Portfolio will incur not
only a proportionate share of the expenses of the Portfolio, but also a
proportionate share of expenses of the other Benchmark Portfolios and
unaffiliated investment companies in which the Portfolio invests
(collectively, the "underlying funds"). Investors in the Global Asset
Portfolio should realize that they can invest directly in the underlying
funds. However, investors who purchase shares of these underlying funds
directly would not benefit from the asset allocation services provided by
Northern in managing the Global Asset Portfolio, nor from the Portfolio's
direct investments in individual securities. While the Global Asset Portfolio
offers a greater level of diversification than many other types of mutual
funds, the Portfolio should not be considered a complete investment program
for an investor.
The Global Asset Portfolio will seek to avoid duplicative fees and the
layering of expenses to a meaningful extent. The Portfolio will only invest in
the class of shares of each Benchmark Portfolio which is currently offered
with no sales or redemption charges, distribution fees or shareholder
servicing fees. The advisory fees payable to Northern under the Portfolio's
advisory contract are for services that are in addition to, rather than
duplicative of, services provided under the advisory contract for any other
Benchmark Portfolio or unaffiliated
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investment company in which the Portfolio invests, including but not limited
to asset allocation and portfolio selection. The administration, custody and
transfer agency fees borne by the Portfolio are also for services that are in
addition to, and not duplicative of, services provided to the underlying
funds. Although the Benchmark Portfolios will not impose sales loads or
distribution fees on investments by the Global Asset Portfolio, it is possible
that the Global Asset Portfolio may pay distribution fees in connection with
its investments in unaffiliated investment companies. These would be
indirectly borne by the Portfolio's investors. In addition, the Global Asset
Portfolio will bear the additional transaction fees payable in connection with
investments in the Small Company Index and International Equity Index
Portfolios.
As a fund that may invest a substantial portion of its assets in other
investment companies, the Global Asset Portfolio will be subject to certain
investment risks. The Global Asset Portfolio's performance is directly related
to the performance of the investment companies in which it invests.
Accordingly, the ability of the Portfolio to meet its investment objective is
directly related to the ability of the underlying funds to meet their
objectives, as well as the allocation among those funds by Northern. There can
be no assurance that the investment objective of any underlying fund will be
achieved. To the extent that one or more underlying funds invest more than 25%
of their total assets in one industry, the Portfolio may, through its
investments in such funds, invest more than 25% of its total assets in such
industry. This indirect concentration may subject the Portfolio to more
volatile price movements than would be the case in the absence of such
concentration. In addition, the structure of the Portfolio may give rise to
"wash" transactions which occur when one underlying fund purchases the same
securities that another underlying fund is selling. These transactions would
cause the Global Asset Portfolio to indirectly incur transaction costs with no
corresponding investment benefit. Because the Portfolio will pursue its global
strategy by investing in underlying funds that invest in different types of
securities, Northern believes that the risk associated with wash transactions
is minimal.
From time to time, the underlying Benchmark Portfolios may experience
relatively large purchases or redemptions due to asset allocation decisions
made by Northern in managing the Global Asset Portfolio. While it is
impossible to predict the overall impact of these transactions over time,
there could be adverse effects on the Benchmark Portfolios to the extent that
they may be required to sell securities at times when they would not otherwise
do so or receive cash that cannot be invested in an expeditious manner. There
may be tax consequences associated with purchases and sales of securities, and
such sales may also increase transaction costs. Northern is committed to
minimizing the impact of these transactions on the underlying Benchmark
Portfolios to the extent it is consistent with pursuing the Global Asset
Portfolio's investment objective and will monitor the impact of the Global
Asset Portfolio's asset allocation decisions on the underlying Benchmark
Portfolios. Northern will nevertheless face conflicts in fulfilling its
responsibilities because of the possible differences between the interests of
the Global Asset Portfolio and the interests of the underlying Benchmark
Portfolios. In addition, Northern is subject to conflicts of interest in
allocating Global Asset Portfolio assets among the various Benchmark
Portfolios because the fees payable to it or NTQA by some Benchmark Portfolios
are higher than the fees payable by other Benchmark Portfolios.
DESCRIPTION OF SECURITIES AND COMMON INVESTMENT TECHNIQUES
UNITED STATES GOVERNMENT OBLIGATIONS. Each Portfolio may invest, to the extent
consistent with its investment policies, in a variety of U.S. Treasury
obligations consisting of bills, notes and bonds, which principally differ
only in their interest rates, maturities and time of issuance. Each Portfolio
(other than the U.S. Treasury Index
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Portfolio) may also invest in other securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities consisting of bills, notes
and bonds, which principally differ only in their interest rates, maturities
and time of issuance. Obligations of certain agencies and instrumentalities,
such as the Government National Mortgage Association ("GNMA"), are supported
by the full faith and credit of the U.S. Treasury; others, such as those of
the Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others are supported only by the credit of the instrumentalities. No assurance
can be given that the U.S. Government would provide financial support to its
agencies or instrumentalities if it is not obligated to do so by law. There is
no assurance that these commitments will be undertaken or complied with in the
future.
Securities guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities are deemed to include (a) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. Government or an agency or instrumentality thereof,
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. The secondary market for certain of these
participations is limited. Such participations will therefore be regarded as
illiquid.
CONVERTIBLE SECURITIES. The Short-Intermediate Bond, Bond, Intermediate Bond,
International Bond, Balanced, Global Asset, Diversified Growth, Focused
Growth, International Growth and International Equity Index Portfolios may
each acquire convertible securities. A convertible security is a security that
may be converted either at a stated price or rate within a specified period of
time into a specified number of shares of common stock. By investing in
convertible securities, a Portfolio seeks the opportunity, through the
conversion feature, to participate in the capital appreciation of the common
stock into which the securities are convertible, while earning higher current
income than is available from the common stock. Convertible securities
acquired by the Portfolios will be subject to the same rating requirements as
a Portfolio's investments in its fixed income securities, or if unrated, will
be of comparable quality as determined by the Investment Advisers in
accordance with guidelines approved by the Board of Trustees, except that a
Portfolio may acquire convertible securities rated below investment grade so
long as a Portfolio's investments in all non-investment grade securities does
not exceed the limitations set forth below under "Non-Investment Grade
Securities." The Fixed Income Portfolios will ordinarily sell units of common
stock received upon conversion.
CORPORATE OBLIGATIONS. A Portfolio (other than the U.S. Government Securities
and U.S. Treasury Index Portfolios) may purchase debt obligations of domestic
or foreign corporations subject to the Portfolio's minimum rating requirements
for purchases of debt securities. See discussion of "Investment Grade
Securities" and "Non-Investment Grade Securities" below.
INVESTMENT GRADE SECURITIES. The Fixed Income, Balanced and Global Asset
Portfolios may invest in fixed income securities of all types, and the Short-
Intermediate Bond, Bond, Intermediate Bond, International Bond, Balanced,
Global Asset, Diversified Growth, Focused Growth, International Growth and
International Equity Index Portfolios may invest a portion of their assets in
convertible securities. Such securities will generally be investment grade.
Investment grade securities include those securities which are rated BBB or
higher by Standard and Poor's Ratings Group ("S&P"), Baa or higher by Moody's
Investors Service, Inc. ("Moody's"), BBB or higher by Duff & Phelps Credit
Rating Co. ("Duff") or BBB or higher by Fitch IBCA Inc. ("Fitch") at the time
of purchase, or if unrated, are of comparable quality as determined by the
Investment Advisers. A security will be considered investment grade if it
receives a rating as described above from either S&P, Moody's, Duff or
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Fitch, even though it has received a lower rating from other rating
organizations. Securities rated BBB by S&P, Duff or Fitch, or Baa by Moody's
have certain speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher rated securities.
Commercial paper and other short-term obligations acquired by a Portfolio will
be rated A-2 or higher by S&P, P-2 or higher by Moody's, D-2 or higher by
Duff, or F-2 or higher by Fitch at the time of purchase or, if unrated,
determined to be of comparable quality by the Investment Advisers. Subsequent
to its purchase by a Portfolio, a rated security may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Portfolio. The Investment Adviser will consider such an event in determining
whether the Portfolio should continue to hold such security. In addition,
certain Portfolios may acquire fixed income securities rated below investment
grade when the Investment Adviser believes that the investment characteristics
of such securities make them desirable acquisitions. In either case, a
Portfolio's total investment in non-investment grade securities will not
exceed the limitations set forth below under "Non-Investment Grade
Securities."
NON-INVESTMENT GRADE SECURITIES. Although the fixed income securities in which
the Fixed Income, Balanced and Global Asset Portfolios may invest and the
convertible securities in which the Short-Intermediate Bond, Bond,
Intermediate Bond, International Bond, Balanced, Global Asset, Diversified
Growth, Focused Growth, International Growth and International Equity Index
Portfolios may invest will normally be rated investment grade at the time of
purchase, the Portfolios (other than the U.S. Government Securities and U.S.
Treasury Index Portfolios) may invest in non-investment grade or convertible
securities when the Investment Advisers believe that the investment
characteristics of such securities make them desirable in light of the
Portfolios' investment objectives and current portfolio mix, so long as under
normal market and economic conditions, (i) no more than 5% of the respective
total assets of the International Bond, International Growth and International
Equity Index Portfolios and no more than 10% of the respective total assets of
the Short-Intermediate Bond, Bond, Intermediate Bond, Balanced, Global Asset,
Diversified Growth and Focused Growth Portfolios are invested in non-
investment grade securities and (ii) such securities are rated "B" or higher
at the time of purchase by at least one major rating agency, or if unrated
will be of comparable quality as determined by the Investment Advisers. Non-
investment grade securities (those that are rated "Ba" or lower by Moody's or
"BB" or lower by S&P, Duff or Fitch) are commonly referred to as "junk bonds."
To the extent that securities, including convertible securities, acquired by a
Portfolio are not rated investment grade, there is a greater risk as to the
timely repayment of the principal on, and timely payment of interest or
dividends with respect to, such securities. Particular risks associated with
lower-rated securities are (a) the relative youth and growth of the market for
such securities, (b) the sensitivity of such securities to interest rate and
economic changes, (c) the lower degree of protection of principal and interest
payments, (d) the relatively low trading market liquidity for the securities,
(e) the impact that legislation may have on the high yield bond market (and,
in turn, on a Portfolio's net asset value and investment practices), and (f)
the creditworthiness of the issuers of such securities. During an economic
downturn or substantial period of rising interest rates, leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. An economic downturn could
also disrupt the market for lower-rated securities and adversely affect the
value of outstanding securities and the ability of the issuers to repay
principal and interest. If the issuer of a security held by a Portfolio
defaulted, the Portfolio could incur additional expenses to seek recovery.
FORWARD CURRENCY EXCHANGE CONTRACTS. The Short-Intermediate Bond, Bond,
Intermediate Bond, International Bond, Balanced, Global Asset, Diversified
Growth, Focused Growth, International Growth and International
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Equity Index Portfolios may enter into forward currency exchange contracts for
hedging purposes and in an effort to reduce the level of volatility caused by
changes in foreign currency exchange rates or where such transactions are
economically appropriate for the reduction of risks inherent in the ongoing
management of the Portfolios. The Global Asset, International Bond and
International Growth Portfolios may also enter into forward currency exchange
contracts for speculative purposes (to seek to increase total return). In
addition, the Global Asset, International Growth and International Bond
Portfolios may engage in cross-hedging by using forward contracts in one
currency to hedge against fluctuations in the value of securities denominated
in a different currency if Northern believes that there is a pattern of
correlation between the two currencies.
A forward currency exchange contract is an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the
time of contract. Although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
tend to limit any potential gain that might be realized should the value of
such currency increase. Consequently, a Portfolio may choose to refrain from
entering into such contracts. In connection with forward currency exchange
contracts, the Portfolios will segregate liquid assets in accordance with
applicable requirements of the SEC or will otherwise cover their positions.
The International Bond Portfolio may also invest in debt securities
denominated in the European Currency Unit ("ECU"), which is a "basket"
consisting of specified amounts in the currencies of certain of the twelve
member states of the European Community. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministries of the
European Community from time to time to reflect changes in relative values of
the underlying currencies. In addition, the Portfolio may invest in securities
denominated in other currency "baskets."
OPTIONS. Each Portfolio may write covered call options, buy put options, buy
call options and write secured put options for hedging (or cross-hedging)
purposes or for the purpose of earning additional income. Such options may
relate to particular securities, foreign or domestic securities indices,
financial instruments or foreign currencies and may or may not be listed on a
foreign or domestic securities exchange and issued by the Options Clearing
Corporation. The Portfolios will not purchase put and call options in an
amount that exceeds 5% of their respective net assets at the time of purchase.
The aggregate value of a Portfolio's assets that will be subject to options
written by the Portfolio will not exceed 25% of its net assets at the time the
option is written.
In the case of a call option on a security or currency, the option is
"covered" if a Portfolio owns the security or currency underlying the call or
has an absolute and immediate right to acquire that security or currency
without additional cash consideration (or, if additional cash consideration is
required, liquid assets in such amount are held in a segregated account by its
custodian) upon conversion or exchange of other securities or instruments held
by it. For a call option on an index, the option is covered if a Portfolio
maintains with its custodian a portfolio of securities substantially
replicating the movement of the index, or liquid assets equal to the contract
value. A call option is also covered if a Portfolio holds a call on the same
security, currency or index as the call written where the exercise price of
the call held is (i) equal to or less than the exercise price of the call
written, or (ii) greater than the exercise price of the call written provided
the difference is maintained by the Portfolio in liquid assets in a segregated
account with its custodian. Put options written by a Portfolio are "secured"
if the Portfolio maintains liquid assets in a segregated account with its
custodian in an amount not less than the exercise price of the option at all
times during the option period.
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Options trading is a highly specialized activity which entails greater than
ordinary investment risks. A call option for a particular security or currency
gives the purchaser of the option the right to buy, and a writer the
obligation to sell, the underlying security or currency at the stated exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security or currency. The premium paid to the writer is in
consideration for undertaking the obligation under the option contract. A put
option for a particular security or currency gives the purchaser the right to
sell the security or currency at the stated exercise price to the expiration
date of the option, regardless of the market price of the security or
currency. In contrast to an option on a particular security, an option on an
index provides the holder with the right to make or receive a cash settlement
upon exercise of the option. The amount of this settlement will be equal to
the difference between the closing price of the index at the time of exercise
and the exercise price of the option expressed in dollars, times a specified
multiple.
Each Portfolio will invest and trade in unlisted over-the-counter options only
with firms deemed creditworthy by the Investment Advisers. However, unlisted
options are not subject to the protections afforded purchasers of listed
options by the Options Clearing Corporation, which performs the obligations of
its members which fail to perform them in connection with the purchase or sale
of options.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Portfolio may invest in futures
contracts and options on futures contracts for hedging purposes, to increase
total return (i.e., for speculative purposes) or to maintain liquidity to meet
potential shareholder redemptions, invest cash balances or dividends or
minimize trading costs. The value of a Portfolio's contracts may equal up to
100% of its total assets, although a Portfolio will not purchase or sell a
futures contract unless immediately after any such transaction the sum of the
aggregate amount of margin deposits on its existing futures positions and the
amount of premiums paid for related options entered into for other than bona
fide hedging purposes is 5% or less of its total assets.
Futures contracts obligate a Portfolio, at maturity, to take or make delivery
of certain domestic or foreign securities, the cash value of a securities
index or, in the case of the International Bond, International Growth,
International Equity Index and Global Asset Portfolios, a stated quantity of a
foreign currency. When used as a hedge, a Portfolio may sell a futures
contract in order to offset a decrease in the market value of its portfolio
securities that might otherwise result from a market decline or currency
exchange fluctuations. A Portfolio may do so either to hedge the value of its
portfolio of securities as a whole, or to protect against declines, occurring
prior to sales of securities, in the value of the securities to be sold.
Conversely, a Portfolio may purchase a futures contract as a hedge in
anticipation of purchases of securities. In addition, a Portfolio may utilize
futures contracts in anticipation of changes in the composition of its
portfolio holdings.
The Portfolios may purchase and sell call and put options on futures contracts
traded on a domestic or foreign exchange or board of trade. When a Portfolio
purchases an option on a futures contract, it has the right to assume a
position as a purchaser or seller of a futures contract at a specified
exercise price during the option period. When a Portfolio sells an option on a
futures contract, it becomes obligated to purchase or sell a futures contract
if the option is exercised. In connection with a Portfolio's position in a
futures contract or option thereon, the Portfolio will segregate liquid assets
in accordance with applicable requirements of the SEC or otherwise cover its
position.
The primary risks associated with the use of futures contracts and options
are: (i) imperfect correlation between the change in market value of the
securities held by a Portfolio and the price of futures contracts and options;
(ii) the possible inability to close a futures contract when desired; (iii)
losses due to unanticipated market movements which are potentially unlimited;
and (iv) the Investment Adviser's ability to predict correctly the
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direction of securities prices, interest rates, currency exchange rates and
other economic factors. For a further discussion see "Additional Investment
Information--Futures Contracts and Related Options" and Appendix B in the
Additional Statement.
The Portfolios intend to comply with the regulations of the Commodity Futures
Trading Commission exempting the Portfolios from registration as a "commodity
pool operator."
INTEREST RATE SWAPS, FLOORS AND CAPS AND CURRENCY SWAPS. Each Fixed Income
Portfolio (other than the U.S. Treasury Index Portfolio) and each of the
Global Asset and Balanced Portfolios may, in order to protect its value from
interest rate fluctuations and to hedge against fluctuations in the floating
rate market, enter into interest rate swaps or purchase interest rate floors
or caps. The Portfolios expect to enter into these hedging transactions
primarily to preserve a return or spread of a particular investment or portion
of its holdings and to protect against an increase in the price of securities
the Portfolios anticipate purchasing at a later date. Interest rate swaps
involve the exchange by a Portfolio with another party of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments). The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor. The purchase
of an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments of interest
on a notional principal amount from the party selling such interest rate cap.
In order to protect against currency fluctuations, the International Bond,
International Growth, International Equity Index and Global Asset Portfolios
may enter into currency swaps. Currency swaps involve the exchange of the
rights of a Portfolio and another party to make or receive payments in
specified currencies.
The net amount of the excess, if any, of a Portfolio's obligations over its
entitlements with respect to each interest rate or currency swap will be
accrued on a daily basis and the Portfolio will segregate an amount of liquid
assets having an aggregate net asset value at least equal to such accrued
excess. If the other party to an interest rate swap defaults, a Portfolio's
risk of loss consists of the net amount of interest payments that the
Portfolio is contractually entitled to receive. In contrast, currency swaps
usually involve the delivery of the entire principal value of one designated
currency in exchange for the other designated currency. Therefore, the entire
principal value of a currency swap is subject to the risk that the other party
to the swap will default on its contractual delivery obligations. A Portfolio
will not enter into any interest rate swap, floor or cap transaction or any
currency swap unless the unsecured commercial paper, senior debt, or claims
paying ability of the other party is rated either A or A-1 or better by S&P,
Duff or Fitch, or A or P-1 or better by Moody's.
SECURITIES LENDING. The Portfolios may seek additional income from time to
time by lending their respective portfolio securities on a short-term basis to
banks, brokers and dealers under agreements requiring that the loans be
secured by collateral in the form of cash, cash equivalents, U.S. Government
securities or irrevocable bank letters of credit maintained on a current basis
equal in value to at least the market value of the securities loaned. A
Portfolio may not make such loans in excess of 33 1/3% of the value of the
Portfolio's total assets (including the loan collateral). Loans of securities
involve risks of delay in receiving additional collateral or in recovering the
securities loaned, or possible loss of rights in the collateral should the
borrower of the securities become insolvent. The proceeds received by a
Portfolio in connection with loans of portfolio securities may be invested in
U.S. Government securities and other liquid high grade debt obligations.
FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS.
The Portfolios may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell
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securities for a fixed price at a future date beyond customary settlement
time. Securities purchased on a when-issued, delayed-delivery or forward
commitment basis involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Conversely, securities sold
on a delayed-delivery or forward commitment basis involve the risk that the
value of the security to be sold may increase prior to the settlement date.
Securities purchased on a forward commitment basis also involve the risk that
the seller may fail to deliver the security on the agreed upon future date. A
Portfolio is required to segregate liquid assets until three days prior to the
settlement date having a value (determined daily) at least equal to the amount
of the Portfolio's purchase commitments, or to otherwise cover its position.
Although the Portfolios would generally purchase securities on a when-issued,
delayed-delivery or a forward commitment basis with the intention of acquiring
the securities, the Portfolios may dispose of such securities prior to
settlement if the Investment Advisers deem it appropriate to do so.
BORROWINGS. The Portfolios are authorized to make limited borrowings for
temporary purposes to the extent described below under "Investment
Restrictions." If the securities held by the Portfolios should decline in
value while borrowings are outstanding, the net asset value of the Portfolios'
outstanding shares will decline in value by proportionately more than the
decline in value suffered by the Portfolios' securities. Borrowings may be
effected through reverse repurchase agreements under which the Portfolios
would sell portfolio securities to financial institutions such as banks and
broker-dealers and agree to repurchase them at a particular date and price.
The Fixed Income, Balanced and Global Asset Portfolios may utilize reverse
repurchase agreements 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. See "Description
of Securities and Common Investment Techniques--Reverse Repurchase Agreements"
below for additional information concerning reverse repurchase agreements. For
additional information on borrowings, see "Additional Investment Information--
Investment Restrictions" in the Additional Statement.
SHORT-TERM OBLIGATIONS. Subject to each Portfolio's investment objective and
policies, a Portfolio may also invest in short-term U.S. government
obligations, high quality money market instruments and repurchase agreements,
pending investment, to meet anticipated redemption requests, or as a temporary
defensive measure. Such obligations may include those issued by foreign banks
and foreign branches of U.S. banks. See "Special Risks and Other
Considerations--Foreign Securities" above.
REPURCHASE AGREEMENTS. The Portfolios may agree to purchase portfolio
securities from financial institutions such as banks and broker/dealers which
are deemed to be creditworthy by the Investment Advisers under guidelines
approved by the Board of Trustees subject to the seller's agreement to
repurchase them at a mutually agreed upon date and price ("repurchase
agreements"). Although the securities subject to a repurchase agreement may
bear maturities exceeding one year, settlement for the repurchase agreement
will never be more than one year after a Portfolio's acquisition of the
securities and normally will be within a shorter period of time. Securities
subject to repurchase agreements are held either by the Trust's custodian or
subcustodian (if any), or in the Federal Reserve/Treasury Book-Entry System.
The seller under a repurchase agreement will be required to maintain the value
of the securities which are subject to the agreement and held by a Portfolio
in an amount that exceeds the agreed upon repurchase price (including accrued
interest). Default by or bankruptcy of the seller would, however, expose a
Portfolio to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
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REVERSE REPURCHASE AGREEMENTS. The Portfolios may enter into reverse
repurchase agreements which involve the sale of securities held by them, with
an agreement to repurchase the securities at an agreed upon price (including
interest) and date. The Portfolios will use the proceeds of reverse repurchase
agreements to purchase other securities either maturing, or under an agreement
to resell, at a date simultaneous with or prior to the expiration of the
reverse repurchase agreement. The Portfolios will utilize reverse repurchase
agreements, which may be viewed as borrowings (or leverage), when it is
anticipated that the interest income to be earned from the investment of the
proceeds of the transaction is greater than the interest expense of the
reverse repurchase transaction. Reverse repurchase agreements involve the
risks that the interest income earned from the investment of the proceeds of
the transaction will be less than the interest expense of the reverse
repurchase agreement, that the market value of the securities sold by the
Portfolio may decline below the price of the securities the Portfolio is
obligated to repurchase and that the securities may not be returned to the
Portfolio. During the time a reverse repurchase agreement is outstanding, a
Portfolio will segregate liquid assets having a value at least equal to the
repurchase price. A Portfolio may enter into reverse repurchase agreements
with banks, brokers and dealers, and has the authority to enter into reverse
repurchase agreements in amounts not exceeding in the aggregate one-third of
the Portfolio's total assets. See "Additional Investment Information--
Investment Restrictions" in the Additional Statement.
VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolios may purchase rated and
unrated variable and floating rate instruments. These instruments may include
variable amount master demand notes that permit the indebtedness thereunder to
vary in addition to providing for periodic adjustments in the interest rate.
The Portfolios may also invest in leveraged inverse floating rate debt
instruments ("inverse floaters"). The interest rate on an inverse floater
resets in the opposite direction from the market rate of interest to which the
inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
degree of leverage inherent in inverse floaters is associated with greater
volatility in their market values. Accordingly, the duration of an inverse
floater may exceed its stated final maturity. The Portfolios may deem the
maturity of variable and floating rate instruments to be less than their
stated maturities based on their variable and floating rate features and/or
their put features subject to applicable SEC regulations. Unrated variable and
floating rate instruments will be determined by the Investment Advisers to be
of comparable quality at the time of the purchase to rated instruments which
may be purchased by the Portfolios.
The absence of an active secondary market with respect to particular variable
and floating rate instruments could make it difficult for the Portfolios to
dispose of the instruments if the issuer defaulted on its payment obligation
or during periods that the Portfolios are not entitled to exercise their
demand rights, and the Portfolios could, for these or other reasons, suffer a
loss with respect to such instruments. Variable and floating rate instruments
including inverse floaters held by a Portfolio will be subject to the
Portfolio's 15% limitation on illiquid investments when the Portfolio may not
demand payment of the principal amount within seven days absent a reliable
trading market.
INVESTMENT COMPANIES. In connection with the management of their daily cash
positions, the Portfolios may invest in securities issued by other investment
companies which invest in short-term, high-quality debt securities and which
determine their net asset value per share based on the amortized cost or
penny-rounding method of valuation. The U.S. Treasury Index, Equity Index,
Small Company Index and International Equity Index Portfolios may also invest
in shares of other investment companies that are structured to seek a similar
correlation to the performance of the Lehman Index, S&P Index, Russell Index
or EAFE Index, respectively. The International Bond, International Growth,
International Equity Index and Global Asset Portfolios may also
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<PAGE>
purchase shares of investment companies investing primarily in foreign
securities, including "country funds." Country funds have portfolios
consisting primarily of securities of issuers located in one foreign country
or region. As stated above, the International Equity Index and Global Asset
Portfolios may invest in WEBS and similar securities of investment companies
that invest in securities included in foreign securities indices. In addition,
the Portfolios may invest in securities issued by other investment companies
if otherwise consistent with their respective investment objectives and
policies. As a shareholder of another investment company, a Portfolio would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses including advisory fees. These expenses would be
in addition to the advisory fees and other expenses the Portfolio bears
directly in connection with its own operations.
Investments by a Portfolio in other investment companies will be subject to
the limitations of the 1940 Act or, in the case of the Global Asset Portfolio,
any exemptive order that may be granted by the SEC to the Trust. These
limitations are discussed in the Additional Statement. Although the Portfolios
do not expect to do so in the foreseeable future, a 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.
MONEY MARKET BENCHMARK PORTFOLIOS. The Global Asset Portfolio may also invest
in shares of the money market investment portfolios offered by the Trust and
advised by Northern. Each of the Government Select, Government and Diversified
Assets Portfolios seek 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.
The money market Benchmark Portfolios attempt to maintain a stable net asset
value of $1.00 per share and value their assets using the amortized cost
method in accordance with SEC regulations. There is no assurance, however,
that the money market Benchmark Portfolios will be successful in maintaining
their per share value at $1.00 on a continuous basis.
ILLIQUID OR RESTRICTED SECURITIES. Each Portfolio may invest up to 15% of its
net assets in securities which are illiquid. Illiquid securities would
generally include repurchase agreements and time deposits with
notice/termination dates in excess of seven days, certain unlisted over-the-
counter options, certain guaranteed investment contracts ("GICs") and other
securities that are traded in the United States but are subject to trading
restrictions because they are not registered under the Securities Act of 1933
(the "1933 Act").
If otherwise consistent with their respective investment objectives and
policies, the Portfolios may purchase domestically-traded securities which are
not registered under the 1933 Act but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act. Any
such security will not be considered illiquid so long as it is determined by
the Investment Advisers, under guidelines approved by the Trust's Board
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<PAGE>
of Trustees, that an adequate trading market exists for that security. This
investment practice could have the effect of increasing the level of
illiquidity in a Portfolio during any period that qualified institutional
buyers become uninterested in purchasing these restricted securities.
STRIPPED OBLIGATIONS. To the extent consistent with their investment
objectives, the Fixed Income, Balanced and Global Asset Portfolios may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other domestic and foreign obligations. These
participations, which may be issued by the U.S. Government (or a U.S.
Government agency or instrumentality), foreign governments or by private
issuers such as banks and other financial institutions, are issued at a
discount to their "face value," and may include stripped mortgage-backed
securities ("SMBS"), which are derivative multi-class mortgage securities.
Stripped securities, particularly SMBS, may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal
and interest are returned to investors.
CUSTODIAL RECEIPTS FOR TREASURY SECURITIES. Each Fixed Income Portfolio (other
than the U.S. Treasury Index and International Bond Portfolios), the Balanced
Portfolio and the Global Asset Portfolio may also purchase participations in
trusts that hold U.S. Treasury securities (such as TIGRs and CATS) where the
trust participations evidence ownership in either the future interest payments
or the future principal payments on the U.S. Treasury obligations. Like other
stripped securities, these participations are also normally issued at a
discount to their "face value," and may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors. Investments by a Portfolio in such
receipts will not exceed 5% of the value of the Portfolio's total assets.
BANK OBLIGATIONS. The Portfolios may invest in domestic and foreign bank
obligations, including certificates of deposit, bank and deposit notes,
bankers' acceptances and fixed time deposits. Such obligations may be general
obligations of the parent bank or may be limited to the issuing branch or
subsidiary by the terms of the specific obligation or by government
regulation.
ASSET-BACKED SECURITIES. The U.S. Government Securities Portfolio may purchase
securities that are secured or backed by mortgages and issued by an agency of
the U.S. Government. The Short-Intermediate Bond, Bond, Intermediate Bond,
International Bond, Balanced and Global Asset Portfolios may purchase asset-
backed securities that are secured or backed by mortgages or other assets
(e.g., automobile loans, credit card receivables and other financial assets)
and are issued by entities such as GNMA, FNMA, FHLMC, commercial banks,
financial companies, finance subsidiaries of industrial companies, savings and
loan associations, mortgage banks, investment banks and certain special
purpose entities. Asset-backed securities acquired by such Portfolios will be
rated BBB or better by S&P, Duff or Fitch, or Baa or better by Moody's at the
time of purchase or, if not rated, will be determined by Northern to be of
comparable quality. The Portfolios will not purchase non-mortgage asset-backed
securities that are not rated by S&P, Duff, Fitch or Moody's.
Presently there are several types of mortgage-backed securities that may be
acquired by the Short-Intermediate Bond, Bond, Intermediate Bond,
International Bond, Balanced and Global Asset Portfolios, including guaranteed
mortgage pass-through certificates, which provide the holder with a pro rata
interest in the underlying mortgages, and collateralized mortgage obligations
("CMOs"), which provide the holder with a specified interest in the cash flow
of a pool of underlying mortgages or other mortgage-backed securities. Issuers
of CMOs ordinarily elect to be taxed as pass-through entities known as real
estate mortgage investment conduits ("REMICs"). CMOs are issued in multiple
classes, each with a specified fixed or floating interest rate and a final
distribution date. The
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<PAGE>
relative payment rights of the various CMO classes may be structured in a
variety of ways. The Portfolios will not purchase "residual" CMO interests,
which normally exhibit greater price volatility.
The yield characteristics of asset-backed securities differ from traditional
debt securities. A major difference is that the principal amount of the
obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster
than expected prepayments will increase, while slower than expected
prepayments will decrease, yield to maturity. In calculating the average
weighted maturity of the U.S. Government Securities, Short-Intermediate Bond,
Bond, Intermediate Bond and International Bond Portfolios or the fixed income
portion of the Balanced Portfolio, the maturity of asset-backed securities
will be based on estimates of average life.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore,
prepayment rates are influenced by a variety of economic and social factors.
In general, the collateral supporting non-mortgage asset-backed securities is
of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. Like other fixed income securities, when interest
rates rise the value of an asset-backed security generally will decline;
however, when interest rates decline, the value of an asset-backed security
with prepayment features may not increase as much as that of other fixed
income securities.
The value of asset-backed securities may change because of actual or perceived
changes in the creditworthiness of the originator, servicing agent, or the
financial institution providing credit support. In addition, non-mortgage
asset-backed securities involve certain risks not presented by mortgage-backed
securities. Primarily, these securities do not have the benefit of the same
security interest in the underlying collateral. Credit card receivables are
generally unsecured, and the debtors are entitled to the protection of a
number of state and Federal consumer credit laws many of which give debtors
the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of automobile receivables permit the
servicers to retain possession of the underlying obligations. If the servicer
were to sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have
an effective security interest in all of the obligations backing such
receivables. Therefore, there is a possibility that recoveries on repossessed
collateral may not, in some cases, be able to support payment on these
securities.
EXCHANGE RATE-RELATED SECURITIES. The Short-Intermediate Bond, Bond,
Intermediate Bond, International Bond, Balanced, and Global Asset Portfolios
may invest in securities for which the principal repayment at maturity, while
paid in U.S. dollars, is determined by reference to the exchange rate between
the U.S. dollar and the currency of one or more foreign countries ("Exchange
Rate-Related Securities"). The interest payable on these securities is
denominated in U.S. dollars and is not subject to foreign currency risk and,
in most cases, is paid at rates higher than most other similarly rated
securities in recognition of the foreign currency risk component of Exchange
Rate-Related Securities. Investments in Exchange Rate-Related Securities
entail certain risks. There is the possibility of significant changes in rates
of exchange between the U.S. dollar and any foreign currency to which an
Exchange Rate-Related Security is linked. In addition, potential illiquidity
in the forward foreign
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<PAGE>
exchange market and the high volatility of the foreign exchange market may
from time to time combine to make it difficult to sell an Exchange Rate-
Related Security prior to maturity without incurring a significant price loss.
GUARANTEED INVESTMENT CONTRACTS. The Short-Intermediate Bond, Bond,
Intermediate Bond, Balanced and Global Asset Portfolios may make limited
investments in guaranteed investment contracts ("GICs") issued by U.S.
insurance companies. Pursuant to such contracts, a Portfolio makes cash
contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Portfolio on a monthly basis
interest which is based on an index (in most cases this index is expected to
be the Salomon Brothers CD Index), but is guaranteed not to be less than a
certain minimum rate. A GIC is normally a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a
GIC becomes part of the general assets of the insurance company, and the
contract is paid from the company's general assets. A Portfolio will only
purchase GICs from insurance companies which, at the time of purchase, have
assets of $1 billion or more and meet quality and credit standards established
by Northern. Generally, GICs are not assignable or transferable without the
permission of the issuing insurance companies, and an active secondary market
in GICs does not currently exist. Therefore, GICs will be subject to a
Portfolio's limitation on investments in illiquid securities when a Portfolio
may not demand payment of the principal amount within seven days and a
reliable trading market is absent.
WARRANTS. The Balanced, Global Asset, Diversified Growth, Focused Growth,
International Growth, Small Company Index and International Equity Index
Portfolios may invest up to 5% of their respective assets at the time of
purchase in warrants and similar rights (other than those that have been
acquired in units or attached to other securities). Warrants represent rights
to purchase securities at a specific price valid for a specific period of
time. The Balanced, Global Asset, Diversified Growth, Focused Growth and
International Growth Portfolios may also purchase bonds that are issued in
tandem with warrants. The prices of warrants do not necessarily correlate with
the prices of the underlying securities.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS. The Balanced, Global Asset,
Diversified Growth, Focused Growth, International Growth and International
Equity Index Portfolios may invest in securities of foreign issuers in the
form of American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") and Global Depository Receipts ("GDRs") or similar securities
representing securities of foreign issuers. These securities may not be
denominated in the same currency as the securities they represent. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying foreign securities and are denominated in U.S.
dollars. EDRs and GDRs are receipts issued by a non-U.S. financial institution
evidencing ownership of the underlying foreign or U.S. securities and are
generally denominated in foreign currencies. ADRs may be listed on a national
securities exchange or may be traded in the over-the-counter market. EDRs and
GDRs are generally designed for use in a foreign securities exchange and over-
the-counter markets. Investments in ADRs, EDRs and GDRs involve risks similar
to those accompanying direct investments in foreign securities. See "Special
Risks and Other Considerations--Foreign Securities" above.
Certain such institutions issuing ADRs, EDRs and GDRs may not be sponsored by
the issuer. A non-sponsored depository may not provide the same shareholder
information that a sponsored depository is required to provide under its
contractual arrangement with the issuer. The Balanced, Diversified Growth and
Focused Growth Portfolios will limit investments in ADRs to 20% of their
respective assets and will limit investments in EDRs and GDRs to 5% of their
respective assets.
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<PAGE>
FIXED INCOME INVESTMENTS. Even though interest-bearing securities are
investments which often offer a stable stream of income, the prices of fixed
income securities will vary inversely with changes in the prevailing level of
interest rates. These securities experience appreciation when interest rates
decline and depreciation when interest rates rise. An investment portfolio
consisting of fixed income securities will react in a similar manner.
Generally, the longer the maturity of a fixed income security, the higher its
yield and the greater its price volatility. Conversely, the shorter the
maturity, the lower the yield but the greater the price stability. The values
of fixed income securities also may be affected by changes in the credit
rating or financial condition of the issuing entities. A security's rating
normally depends on the likelihood that the borrower will meet each interest
and principal installment on a timely basis. As a result, lower-rated bonds
typically yield more than higher-rated bonds of the same maturity. Credit
ratings evaluate the safety of principal and interest payments, not market
risk, and rating agencies may or may not make timely changes in a rating to
reflect economic or company conditions that affect a security's market value.
As a result, the ratings of rating services are used by the Investment
Advisers only as indicators of investment quality. For a more complete
discussion of ratings, see Appendix A to the Additional Statement.
In addition, fixed income securities may be subject to both call risk and
extension risk. Call risk (i.e., where the issuer exercises its right to pay
principal on an obligation earlier than scheduled) causes cash flow to be
returned earlier than expected. This typically results when interest rates
have declined, and a Portfolio may be unable to recoup all of its initial
investment and will also suffer from having to reinvest in lower yielding
securities. Extension risk (i.e., where the issuer exercises its right to pay
principal on an obligation later than scheduled) causes cash flows to be
returned later than expected. This typically results when interest rates have
increased and a Portfolio will suffer from the inability to invest in higher
yielding securities.
PORTFOLIO TURNOVER. The portfolio turnover rate of the Global Asset,
International Bond, International Growth and International Equity Index
Portfolios will be affected by changes in country and currency weightings, as
well as changes in the holdings of specific issuers and investments in issuers
in smaller or emerging markets. In addition, the portfolio turnover rate of
the Global Asset Portfolio will be affected by Northern's decisions to
reallocate the Portfolio's assets from time to time among and within the
market segments discussed above in response to economic and market conditions.
The Trust cannot accurately predict the turnover rate for any Portfolio, which
may vary from year to year. The portfolio turnover rate of each Portfolio for
the last fiscal year or fiscal period, as the case may be, except the Global
Asset Portfolio, which had not commenced operations during the periods
reported, is stated above under "Financial Highlights." It is expected that
the portfolio turnover rate for the Global Asset Portfolio will not exceed
200% during the current fiscal year. High portfolio turnover (in excess of
100%) may result in the realization of short-term capital gains which are
taxable to unitholders as ordinary income (see "Taxes"). In addition, high
portfolio turnover rates may result in corresponding increases in brokerage
commissions and other transaction costs. The Portfolios will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with their respective objectives and policies.
MISCELLANEOUS. The Equity Index, Small Company Index and International Equity
Index Portfolios may experience higher custody costs than other stock funds
because they maintain large portfolios of securities consistent with their
respective investment objectives.
Each Portfolio may also purchase other types of financial instruments, however
designated, whose investment and credit quality characteristics are determined
by the Investment Advisers to be substantially similar to those of any other
investment otherwise permitted by the investment policies described above.
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<PAGE>
Pursuant to an SEC order, each Portfolio may engage in principal transactions
effected in the ordinary course of business with Goldman Sachs.
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. These fundamental policies relate, among other things,
to the classification of each Portfolio (except the International Bond
Portfolio) as a diversified investment company under the 1940 Act, and to the
policy of each Portfolio not to invest more than 25% of its total assets in
securities of issuers in any one industry (with certain limited exceptions).
In addition, each Portfolio may borrow money from banks for temporary or
emergency purposes or to meet redemption requests, provided that the Portfolio
maintains asset coverage of at least 300% for all such borrowings.
As a non-fundamental investment restriction that can be changed without
shareholder approval, the International Bond Portfolio may not, at the end of
any tax quarter, invest more than 5% of the total value of its assets in the
securities of any one issuer (except U.S. Government securities), except that
up to 50% of the total value of the Portfolio's assets may be invested in any
securities without regard to this 5% limitation so long as no more than 25% of
the total value of its assets is invested in the securities of any one issuer
(except U.S. Government securities).
TRUST INFORMATION
BOARD OF TRUSTEES
The business and affairs of the Trust and each Portfolio are managed under the
direction of the Trust's Board of Trustees. The Additional Statement contains
the name of each Trustee and background information regarding the Trustees.
INVESTMENT ADVISERS, TRANSFER AGENT AND CUSTODIAN
Northern, which has offices at 50 S. LaSalle Street, Chicago, Illinois 60675,
serves as investment adviser for all Portfolios except the U.S. Treasury
Index, Equity Index, Small Company Index and International Equity Index
Portfolios. Northern Trust Quantitative Advisors, Inc. ("NTQA"), an affiliate
of Northern which also has offices at 50 S. LaSalle Street, Chicago, IL 60675,
acts as investment adviser to the U.S. Treasury Index, Equity Index, Small
Company Index and International Equity Index Portfolios. Northern also serves
as transfer agent and custodian for each Portfolio. As transfer agent,
Northern performs various administrative 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. NTQA is an Illinois state-chartered trust
company formed in 1988. On December 31, 1997, NTQA became a wholly-owned
subsidiary of Northern Trust Corporation. NTQA serves as investment adviser
principally to defined benefit and defined contribution plans and manages over
60 equity and bond commingled and common trust funds. 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.
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<PAGE>
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.
Under its Advisory Agreement with the Trust, each Investment Adviser, subject
to the general supervision of the Trust's Board of Trustees, is responsible
for making investment decisions for the Portfolios for which it serves as
adviser and for placing purchase and sale orders for portfolio securities.
Each Investment Adviser 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, each
Investment Adviser is entitled to a fee from the Portfolios for which it
serves as adviser, computed daily and payable monthly, at annual rates set
forth in the table below (expressed as a percentage of the Portfolio's
respective average daily net assets). The table also reflects the advisory
fees (after voluntary fee waivers) paid by the Portfolios for the fiscal year
ended November 30, 1997.
<TABLE>
<CAPTION>
MAXIMUM
ANNUAL ADVISORY FEE PAID
ADVISORY FOR FISCAL YEAR
FEE* ENDED 11/30/97
-------- -----------------
<S> <C> <C>
U.S. Government Securities Portfolio.............. .60% .25%
Short-Intermediate Bond Portfolio................. .60% .25%
U.S. Treasury Index Portfolio..................... .40% .15%
Bond Portfolio.................................... .60% .25%
Intermediate Bond Portfolio....................... .60% .25%
International Bond Portfolio...................... .90% .70%
Balanced Portfolio................................ .80% .50%
Global Asset Portfolio............................ .60% N/A
Equity Index Portfolio............................ .30% .10%
Diversified Growth Portfolio...................... .80% .55%
Focused Growth Portfolio.......................... 1.10% .80%
Small Company Index Portfolio..................... .40% .20%
International Equity Index Portfolio.............. .50% .25%
International Growth Portfolio.................... 1.00% .80%
</TABLE>
- --------
* Northern has voluntarily agreed to reduce its advisory fee for the Global
Asset Portfolio to .35% of the Portfolio's average daily net assets for the
current fiscal year.
Prior to April 1, 1998, Northern served as investment adviser to the U.S.
Treasury Index, Equity Index, Small Company Index and International Equity
Index Portfolios pursuant to advisory agreements substantially identical to
those currently in effect for such Portfolios.
The difference between the stated advisory fee and the actual advisory fees
paid by the Portfolios reflects the fact that the Investment Adviser did not
charge the full amount of the advisory fees to which it would have been
entitled.
Northern also receives compensation as the Trust's custodian and transfer
agent under separate agreements. The fees payable by the Portfolios for these
services are described in this Prospectus under "Summary of Expenses"
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<PAGE>
and in the Additional Statement. Different transfer agency fees are payable
with respect to the Class A, B, C and D Shares in the Portfolios.
On September 2, 1997, the shareholders of the International Growth Portfolio
approved a new investment advisory agreement which would allow this Portfolio
to implement a "manager of managers" structure with Northern and one of its
affiliates, and would allow the Portfolio's investment advisers to enter into
sub-advisory agreements with respect to the Portfolio with other firms in the
future without further shareholder approval. This structure cannot be
implemented, however, without an exemptive order of the SEC and final
authorization by the Board of Trustees, and at present it is uncertain when,
or if, this structure will become effective.
PORTFOLIO MANAGERS
The table below sets forth information on the persons primarily responsible
for the day-to-day management of the actively-managed Fixed Income and Equity
Portfolios.
<TABLE>
<CAPTION>
YEARS PRIMARILY FIVE YEAR
NAME AND TITLE PORTFOLIO RESPONSIBLE EMPLOYMENT HISTORY
- ---------------------- -------------------- --------------- ------------------
<S> <C> <C> <C>
Jon D. Brorson Balanced Since 1996 Mr. Brorson joined Northern
Senior Vice President, Diversified Growth Since 1996 in 1996. From 1990 to 1996,
Northern Focused Growth Since 1996 he was with Hardline
Global Asset Since 1998 Investment Corp. where his
primary responsibilities
included portfolio
management, investment
research, sales and trading.
Robert A. LaFleur International Growth Since 1994 Mr. LaFleur joined Northern
Senior Vice President, in 1982. During the past
Northern five years, Mr. LaFleur has
managed international equity
portfolios, including common
and collective trust funds
invested principally in
foreign securities.
Michael J. Lannan International Bond Since 1994 Mr. Lannan joined Northern
Vice President, in 1986. During the past
Northern five years, Mr. Lannan has
managed various fixed income
portfolios, including common
and collective trust funds
and a portfolio of another
investment company invested
in obligations of domestic
and foreign issuers.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
YEARS PRIMARILY FIVE YEAR
NAME AND TITLE PORTFOLIO RESPONSIBLE EMPLOYMENT HISTORY
- ---------------------- -------------------------- --------------- ------------------
<S> <C> <C> <C>
Monty M. Memler Balanced Since 1993 Mr. Memler joined Northern
Vice President, in 1986. During the past
Northern five years, Mr. Memler has
managed various fixed income
portfolios, including common
and collective trust funds
and a mutual fund for
another investment company.
Steven Schafer U.S. Government Securities Since 1995 During the past five years,
Second Vice President, Intermediate Bond Since 1997 Mr. Schafer has managed
Northern various fixed income
portfolios, including common
and collective funds and a
portfolio of another
investment company, as
portfolio manager in
Northern's Fixed Income
Management Group. In
addition, Mr. Schafer served
as Credit Analyst at
Northern following both
industrial companies and
utilities prior thereto.
Mark J. Wirth Short-Intermediate Bond Since 1993 Mr. Wirth joined Northern in
Senior Vice President, Bond Since 1993 1986. During the past five
Northern years, Mr. Wirth has managed
various fixed income
portfolios, including common
and collective trust funds.
He is a senior strategist in
the taxable fixed income
group.
</TABLE>
YEAR 2000
Like every other business dependent upon computerized information processing,
Northern Trust Corporation ("Northern Trust") must deal with "Year 2000"
issues, which stem from using two digits to reflect the year in computer
programs and data. Computer programmers and other designers of equipment that
use microprocessors have long abbreviated dates by eliminating the first two
digits of the year under the assumption that those two digits will always be
19. As the Year 2000 approaches, many systems may be unable to accurately
process certain date-based information, which could cause a variety of
operational problems for businesses.
Northern Trust's data processing software and hardware provide essential
support to virtually all of its business units, including the units that
provide services to the Trust, so successfully addressing Year 2000 issues is
of the highest importance. Failure to complete renovation of the critical
systems used by Northern on a timely basis could have a materially adverse
effect on its ability to provide such services--as could Year 2000 problems
experienced by others. Although the nature of the problem is such that there
can be no complete assurance it will be successfully resolved, Northern Trust
has indicated that a renovation and risk mitigation program is well under way
and that it has a dedicated Year 2000 Project Team whose members have
significant systems
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<PAGE>
development and maintenance experience. Northern Trust's Year 2000 project
includes a comprehensive testing plan. Northern Trust has advised the Trust
that it expects to complete work on its critical systems by December 31, 1998,
so that testing with outside parties may be conducted during 1999.
Northern Trust also will have a program to monitor and assess the efforts of
other parties. However, it cannot control the success of those efforts.
Contingency plans are being established where appropriate to provide Northern
Trust with alternatives in case these entities experience significant Year
2000 difficulties which impact Northern Trust.
ADMINISTRATOR AND DISTRIBUTOR
Goldman Sachs, 85 Broad Street, New York, New York 10004, acts as
administrator and distributor for the Portfolios. As compensation for its
administrative services (which include supervision with respect to the Trust's
non-investment advisory operations) and the assumption of related expenses,
Goldman Sachs is entitled to a fee from each Portfolio, computed daily and
payable monthly, at an annual rate of .15% of the average daily net assets of
each of the International Equity Index, International Growth and International
Bond Portfolios, and .10% of the average daily net assets of each other
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 its expenses (including the fees payable is Goldman Sachs as
administrator, but excluding the fees payable in Northern for its duties as
investment adviser and transfer agent, servicing fees and extraordinary
expenses, such as interest, taxes and indemnification expenses) which exceed
on an annualized basis .25% of each of the International Bond, International
Growth and International Equity Index Portfolios' average daily net assets and
.10% of each other Portfolio's average daily net assets for any fiscal year.
In addition, Northern intends to voluntarily reduce its advisory fee for the
Portfolios during the Trust's current fiscal year. The result of these
reimbursements and fee reductions will be to increase the performance of the
Portfolios during the periods for which the reimbursements and reductions are
made.
SHAREHOLDER SERVICING PLAN
Pursuant to a Shareholder Servicing Plan ("Servicing Plan") adopted by the
Board of Trustees of the Trust, the Trust may enter into agreements
("Servicing Agreements") with banks, corporations, brokers, dealers and other
financial institutions which may include Northern and its affiliates
("Servicing Agents"), under which they will render (or arrange for the
rendering of) administrative support services for investors who beneficially
own Class B, C and D Shares of each Portfolio. Beneficial owners of Class C
and D Shares require extensive administrative support services while
beneficial owners of Class B Shares need only some of these services.
Administrative support services, which are described more fully in the
Additional Statement, may include processing purchase and redemption requests
from investors, placing net purchase and redemption orders with Northern
acting as the Trust's transfer agent, providing necessary personnel and
facilities to establish and maintain investor accounts and records, and
providing information periodically to investors showing their positions in
Portfolio shares.
For these services, fees are payable by the Trust to Servicing Agents at an
annual rate of up to .10%, .15% and .25% of the average daily net asset value
of Class B Shares, Class C Shares and Class D Shares, respectively, held or
serviced by such Servicing Agents for beneficial shareholders ("Servicing
Fees"). Conflict of interest restrictions may apply to the receipt of
compensation paid by the Trust to a Servicing Agent in connection with
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the investment of fiduciary funds in Portfolio 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.
SERVICE INFORMATION
Class A Shares are designed to be purchased by institutional investors or
others who can obtain information about their shareholder accounts and who do
not require the Transfer Agent or Servicing Agent services that are provided
for Class B, C and D shareholders.
Class B Shares are designed to be purchased by organizations maintaining
record ownership on behalf of beneficial owners where certain services of the
Transfer Agent and a Servicing Agent are required that are incident to the
separation of record and beneficial ownership.
Class C Shares are designed to be purchased by institutional investors who
require certain account related services of the Transfer Agent and a Servicing
Agent that are incident to the investor being the beneficial owner of shares.
Class D Shares are designed to be purchased by investors having a relationship
with an organization which requires that account related services and
information be provided to the investor and organization by the Transfer Agent
and a Servicing Agent.
Any person entitled to receive compensation for selling or servicing shares of
a Portfolio may receive different compensation with respect to one particular
class of shares over another in the same Portfolio.
EXPENSES
Except as set forth above and in the Additional Statement under "Additional
Trust Information," each Portfolio is responsible for the payment of its
expenses. Such expenses include, without limitation, the fees and expenses
payable to Northern and Goldman Sachs, brokerage fees and commissions, fees
for the registration or qualification of Portfolio 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.
Because the Global Asset Portfolio may invest a substantial portion of its
assets in shares of other investment companies, investors in the Portfolio
will indirectly bear a proportionate share of such investment companies'
operating expenses in addition to those of the Portfolio. See "Special Risks
and Other Considerations Relating to the Global Asset Portfolio" above.
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INVESTING
PURCHASE OF SHARES
Shares of the Portfolios are sold on a continuous basis by the Trust's
distributor, Goldman Sachs, to institutional investors that either maintain
certain institutional accounts at Northern or its affiliates or invest an
aggregate of at least $5 million in one or more Portfolios of the Trust.
Goldman Sachs has established several procedures for purchasing Portfolio
shares in order to accommodate different types of institutional investors.
PURCHASE OF SHARES THROUGH INSTITUTIONAL ACCOUNTS. Class A, B, C and D Shares
of each Portfolio are offered to Northern, its affiliates and other
institutions and organizations, including certain defined contribution plans
having at least $30 million in assets or annual contributions of at least $5
million (the "Institutions"), acting on behalf of their customers, clients,
employees, participants and others (the "Customers") and for their own
account. Institutions may purchase shares of a Portfolio through procedures
established in connection with the requirements of their institutional
accounts or through procedures set forth herein with respect to Institutions
that invest directly. Institutions should contact Northern or an affiliate for
further information regarding purchases through institutional accounts. There
is no minimum initial investment in the Portfolios for Institutions that
maintain institutional accounts with Northern or its affiliates.
PURCHASE OF SHARES DIRECTLY FROM THE TRUST. An Institution that purchases
shares directly may do so by means of one of the following procedures,
provided that it makes an aggregate minimum initial investment of $5 million
in one or more Portfolios of the Trust:
PURCHASE BY MAIL. An Institution desiring to purchase 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, or other acceptable evidence of authority. If an
Institution desires to purchase the 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 Trust
may delay transmittal of redemption proceeds for shares recently purchased
by check until such time as it has assured itself that good funds have been
collected for the purchase of such shares. This may take up to fifteen (15)
days. Cash and third party checks are not acceptable for the purchase of
Trust shares.
PURCHASE BY TELEPHONE. An Institution desiring to purchase 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 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
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
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additional payment to an existing account. An Institution that wishes to
add to an existing account should wire Federal funds or effect an ACH
Transfer to:
The Northern Trust Company
Chicago, Illinois
ABA Routing No. 0710-00152
(Reference 10 Digit Portfolio Account Number)
(Reference Shareholder's Name)
For more information concerning requirements for the purchase of shares,
call the Transfer Agent at 1-800-637-1380.
EFFECTIVE TIME OF PURCHASES. Except as provided below under "Miscellaneous," a
purchase order for shares received by the Transfer Agent by 3:00 p.m., Chicago
time, on a Business Day (as defined under "Miscellaneous") will be effected on
that Business Day at the net asset value determined on that day with respect
to each Portfolio (other than the Small Company Index and International Equity
Index Portfolios), and at the net asset value plus an additional transaction
fee of .50% and 1.00% of the net asset value determined on that day with
respect to the Small Company Index and International Equity Index Portfolios,
respectively, provided that either: (a) the Transfer Agent receives the
purchase price in Federal funds or other immediately available funds prior to
3:00 p.m., Chicago time, on the same Business Day such order is received; or
(b) payment is received on the next Business Day in the form of Federal funds
or other immediately available funds in an institutional account maintained by
an Institution with Northern or an affiliate. Orders received after 3:00 p.m.
will be effected at the next determined net asset value, provided that payment
is made as provided herein. If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by the Transfer Agent on a Business Day in accordance
with the foregoing procedures.
MISCELLANEOUS PURCHASE INFORMATION. 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.
The Small Company Index and International Equity Index Portfolios require the
payment of an additional transaction fee on purchases of shares of the
Portfolios equal to .50% and 1.00%, respectively, of the dollar amount
invested. The additional transaction fee is paid to the Portfolios, not to
Goldman Sachs or the Investment Adviser. It is not a sales charge. The amount
applies to initial investments in the Portfolios and subsequent purchases
(including purchases made by exchange from the other Portfolios of the Trust),
but not to reinvested dividends or capital gain distributions. The purpose of
the additional transaction fee is to indirectly allocate transaction costs
associated with new purchases to investors making those purchases, thus
protecting existing shareholders. These costs include: (1) brokerage costs;
(2) market impact costs--i.e., the increase in market prices which may result
when the Portfolios purchase thinly traded stocks; (3) sales charges relating
to the purchase of shares in certain unaffiliated investment companies; and,
most importantly, (4) the effect of the "bid-ask" spread in the over-the-
counter market. (Securities in the over-the-counter market are bought at the
"ask" or purchase price, but are valued in the Portfolios at the last quoted
bid price). The additional transaction fees represent the Investment Adviser's
estimate of the brokerage and other transaction costs which may be incurred by
the Small Company Index and International Equity Index Portfolios in acquiring
stocks of small capitalization or foreign
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companies. Without the additional transaction fee, the Portfolios would
generally be selling their shares at a price less than the cost to the
Portfolios of acquiring the portfolio securities necessary to maintain their
investment characteristics, thereby resulting in reduced investment
performance for all shareholders in the Portfolios. With the additional
transaction fee, the transaction costs of acquiring additional stocks are not
borne by all existing shareholders, but are defrayed by the transaction fees
paid by those investors making additional purchases of shares. Because these
transaction costs do not need to be paid out of their other assets, the Small
Company Index and International Equity Index Portfolios are expected to track
their designated indices more closely.
See "Miscellaneous" below for information on when the Trust may advance the
time by which purchase requests must be received.
Institutions may impose different 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, certain Institutions may enter into Servicing Agreements with the
Trust whereby they will perform (or arrange to have performed) various
administrative support services for Customers who are the beneficial owners of
Class B, C and D Shares and receive fees from the Portfolios for such
services; such fees will be borne exclusively by the beneficial owners of
Class B, C and D Shares, respectively. See "Trust Information--Shareholder
Servicing Plan." The level of administrative support services, as well as
transfer agency services, required by an Institution and its Customers
generally will determine whether they purchase shares of Class A, B, C or D.
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
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. Federal regulations require
that the Transfer Agent be furnished with a taxpayer identification number
upon opening or reopening an account. Purchase orders without such a number or
an indication that a number has been applied for will not be accepted. If a
number has been applied for, the number must be provided and certified within
sixty days of the date of the order.
Payment for 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.
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Northern and NTQA may, at their 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 the Trust. The amount of such compensation may be made on
a one-time and/or periodic basis, and may represent all or a portion of the
annual fees that are earned by Northern and NTQA as Investment Advisers (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, NTQA or their
affiliates.
REDEMPTION OF SHARES
REDEMPTION OF SHARES THROUGH INSTITUTIONAL ACCOUNTS. Institutions may redeem
shares of a class through procedures established by Northern and its
affiliates in connection with the requirements of their institutional
accounts. Institutions should contact Northern or an affiliate for further
information regarding redemptions through institutional accounts.
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 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."
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 instructions.
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.
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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, (ii) a signature guarantee by a financial
institution that is a participant in the Stock Transfer Agency Medallion
Program ("STAMP") in accordance with rules promulgated by the SEC (a
signature notarized by a notary public is not acceptable) or (iii) such
other evidence of authority as may be acceptable to the Transfer Agent. A
redemption request by mail will not be effective unless signed by a person
authorized by the corporate resolution or other acceptable evidence of
authority on file with the Transfer Agent.
EXCHANGE PRIVILEGE. Institutions and, to the extent permitted by their account
agreements, Customers, may, after appropriate prior authorization, exchange
Class A, B, C or D Shares of a Portfolio having a value of at least $1,000 for
Class A, B, C or D Shares, respectively, of other portfolios of the Trust as
to which the Institution or Customer maintains an existing account with an
identical title.
Exchanges will be effected by a redemption of Class A, B, C or D 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. 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 Shares--Other Requirements." Exchange orders
involving the purchase of shares of the Small Company Index Portfolio and
International Equity Index Portfolio are effected at the net asset value per
share next determined after receipt in good order by the Transfer Agent plus
an additional transaction fee equal to .50% and 1.00%, respectively, of such
value. See "Purchase of Shares--Miscellaneous Purchase Information" above.
Exchange orders of the other Portfolios are effected at the net asset value
per share next determined after receipt in good order by the Transfer Agent.
If received by Northern with respect to an institutional account it maintains
or the Transfer Agent by 3:00 p.m., Chicago time, on a Business Day, a
redemption request normally will result in proceeds being credited to such
account or sent on the next Business Day. Proceeds for redemption orders
received on a non-Business Day will normally be sent on the second Business
Day after receipt in good order.
MISCELLANEOUS REDEMPTION AND EXCHANGE INFORMATION. All redemption proceeds
will be sent by check unless Northern 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. If shares to be redeemed were recently purchased by
check, the Trust may delay transmittal of redemption proceeds until such time
as it has assured itself that good funds have been collected for the purchase
of such shares. This may take up to fifteen (15) days. The Trust reserves the
right to defer crediting, sending or wiring redemption proceeds for up to
seven days after receiving the redemption order if, in its judgment, an
earlier payment could adversely affect a Portfolio.
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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.
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. The Trust also
reserves the right to redeem shares held by any shareholder who provides
incorrect or incomplete account information or when such involuntary
redemptions are necessary to avoid adverse consequences to the Trust and its
shareholders.
DISTRIBUTIONS
Distributions from a Portfolio's net investment income and annualized capital
gains are made as follows:
<TABLE>
<CAPTION>
INVESTMENT INCOME
DIVIDENDS CAPITAL
------------------- GAINS
DECLARED PAID DISTRIBUTION
--------- --------- ------------
<S> <C> <C> <C>
U.S. Government Securities Portfolio........... Monthly Monthly Annually
Short-Intermediate Bond Portfolio.............. Monthly Monthly Annually
U.S. Treasury Index Portfolio.................. Monthly Monthly Annually
Bond Portfolio................................. Monthly Monthly Annually
Intermediate Bond Portfolio.................... Monthly Monthly Annually
International Bond Portfolio................... Quarterly Quarterly Annually
Balanced Portfolio............................. Quarterly Quarterly Annually
Global Asset Portfolio......................... Quarterly Quarterly Annually
Equity Index Portfolio......................... Quarterly Quarterly Annually
Diversified Growth Portfolio................... Annually Annually Annually
Focused Growth Portfolio....................... Annually Annually Annually
Small Company Index Portfolio.................. Annually Annually Annually
International Equity Index Portfolio........... Annually Annually Annually
International Growth Portfolio................. Annually Annually Annually
</TABLE>
Dividends and distributions will reduce a Portfolio's net asset value by the
amount of the dividend or distribution. All dividends and distributions are
automatically reinvested (without any sales charge or additional purchase
price amount) in additional shares of the same Portfolio at their net asset
value per share determined on the payment date. However, a holder may elect,
upon written notification to the Transfer Agent, to have dividends or capital
gain distributions (or both) paid in cash or reinvested in the same class of
shares of another Portfolio at their net asset value per share (plus an
additional purchase price amount equal to .50% and 1.00% of the amount
invested in the case of the Small Company Index Portfolio and International
Equity Index Portfolio, respectively) determined on the payment date (provided
the holder maintains an account in such Portfolio). Shareholders of record
must make such election, or any revocation thereof, in writing to the Transfer
Agent. The election will become effective with respect to dividends paid two
days after its receipt by the Transfer Agent.
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Net loss, if any, from certain foreign currency transactions or instruments
that is otherwise taken into account with respect to the Global Asset,
International Bond, International Growth and International Equity Index
Portfolios in calculating net investment income or net realized capital gains
for accounting purposes may not be taken into account in determining the
amount of dividends to be declared and paid, with the result that a portion of
the Portfolios' dividends may be treated as a return of capital, nontaxable to
the extent of a shareholder's tax basis in his shares.
Because of the different servicing fees and transfer agency fees payable with
respect to the Class A, B, C and D Shares in a Portfolio, the amount of such
Portfolio's net investment income available for distribution to the holders of
such shares will be effectively reduced by the amount of such fees. See
"Shareholder Service Plan" and "Investment Adviser, Transfer Agent and
Custodian" under the heading "Trust Information" in this Prospectus.
TAXES
Each Portfolio intends to qualify as a separate "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally will relieve the Portfolios of liability for Federal
income taxes to the extent their earnings are distributed in accordance with
the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that each Portfolio distribute to its
shareholders an amount equal to at least 90% of its investment company taxable
income for such year. In general, a Portfolio's investment company taxable
income will be its taxable income, subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Each Portfolio
intends to distribute as dividends substantially all of its investment company
taxable income each year. Such dividends will be taxable as ordinary income to
the Portfolio's shareholders who are not currently exempt from Federal income
taxes whether they are received in cash or reinvested in additional shares.
(Federal income taxes for distributions to an IRA or other qualified
retirement plan are deferred or eliminated under the Code.) Such ordinary
income distributions will qualify for the dividends received deduction for
corporations to the extent of the total qualifying dividends received by the
distributing Portfolio from domestic corporations for the taxable year. It is
not expected that any Fixed Income Portfolio distributions will qualify for
the dividends received deduction for corporations.
Substantially all of each Portfolio's net realized long-term capital gains
(including 28% rate gains) will be distributed at least annually to its
shareholders. The Portfolios generally will have no tax liability with respect
to such gains and the distributions will be taxable to Portfolio shareholders
who are not currently exempt from Federal income taxes as long-term capital
gains (20% or 28% rate gain, depending upon the breakdown of the Portfolio's
long-term capital gain), regardless of how long the shareholders have held the
shares and whether such gains are received in cash or reinvested in additional
shares. Shareholders should note that, upon sale or exchange of Portfolio
shares, if the shareholder has not held such shares for more than six months,
any loss on the sale or exchange of those shares will be treated as long term
capital loss to the extent of the capital gain dividends received with respect
to the shares.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed for
Federal tax purposes to have been paid by the Portfolio and received by the
shareholders on December 31 of such year if such dividends are paid during
January of the following year.
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An investor considering buying shares of a Portfolio on or just before the
record date of a dividend should be aware that the amount of the forthcoming
dividend payment, although in effect a return of capital, will be taxable.
A taxable gain or loss may be realized by a shareholder upon the redemption,
transfer or exchange of shares of a Portfolio depending upon the tax basis and
their price at the time of redemption, transfer or exchange.
It is expected that dividends and certain interest income earned by the
International Bond, International Growth and International Equity Index
Portfolios from foreign securities will be subject to foreign withholding
taxes or other taxes. So long as more than 50% of the value of the Portfolios'
total assets at the close of any taxable year consists of stock or securities
(including debt securities) of foreign corporations, the Portfolios may elect,
for Federal income tax purposes, to treat certain foreign taxes paid by them,
including generally any withholding taxes and other foreign income taxes, as
paid by their shareholders. Should the Portfolios make this election, the
amount of such foreign taxes paid by the Portfolios will be included in their
shareholders' income pro rata (in addition to taxable distributions actually
received by them), and such shareholders will be entitled either (a) to credit
their proportionate amounts of such taxes against their Federal income tax
liabilities, or (b) to deduct such proportionate amounts from their Federal
taxable income under certain circumstances.
The Global Asset Portfolio may invest in the International Bond, International
Equity Index and International Growth Portfolios which expect to be eligible
to make the above-described election. While the Global Asset Portfolio will be
able to deduct the foreign taxes that it will be treated as receiving if the
election is made, the Portfolio will not itself be able to elect to treat its
foreign taxes as paid by its shareholders. Accordingly, the shareholders of
the Global Asset Portfolio will not have the option of claiming a foreign tax
credit for foreign taxes paid by the International Bond, International Equity
Index and International Growth Portfolios, while persons who invest directly
in such underlying Portfolios may have that option.
If the Global Asset, International Bond, International Growth and
International Equity Index Portfolios invest in certain "passive foreign
investment companies" ("PFICs"), they will be subject to Federal income tax
(and possibly additional interest charges) on a portion of any "excess
distribution" or gain from the disposition of such investments, even if they
distribute such income to their shareholders. If a Portfolio elects to treat
the PFIC as a "qualified electing fund" ("QEF") and the PFIC furnishes certain
financial information in the required form, a Portfolio would instead be
required to include in income each year its allocable share of the ordinary
earnings and net capital gains of the QEF, regardless of whether such income
is received, and such amounts would be subject to the various distribution
requirements described above. In addition, effective for the tax years
beginning after 1997, a Portfolio may elect instead to recognize any
appreciation in the PFIC shares that it owns by marking them to market as of
the last Business Day of each taxable year. Again, gain recognized under this
"mark-to-market" approach would be subject to the various distribution
requirements described above, even if no cash is received currently from the
PFIC investment.
Shareholders of record will be advised by the Trust at least annually as to
the Federal income tax consequences of distributions made to them each year.
The foregoing discussion summarizes some of the important Federal tax
considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly,
potential investors in the Portfolios should consult their tax advisers with
specific reference to their own Federal, state and local tax situation.
72
<PAGE>
NET ASSET VALUE
The net asset value per share of each Portfolio for purposes of pricing
purchase and redemption orders is calculated by Northern as of 3:00 p.m.,
Chicago Time, on each Business Day. The time at which the net asset value per
share of a 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 a particular class in a Portfolio is calculated by dividing
the value of all securities and other assets belonging to a Portfolio that are
allocated to such class, less the liabilities charged to that class, by the
number of the outstanding shares of that class. Because the Global Asset
Portfolio expects to invest a substantial portion of its assets in the
Benchmark Portfolios and other funds, the Portfolio's net asset value per
share will fluctuate with changes in the per share value of such other
investment portfolios.
U.S. and foreign investments held by a Portfolio are valued at the last quoted
sales price on the exchange on which such securities are primarily traded,
except that securities listed on an exchange in the United Kingdom are valued
at the average of the closing bid and ask prices. If any securities listed on
a U.S. securities exchange are not traded on a valuation date, they will be
valued at the last quoted bid price. If securities listed on a foreign
securities exchange are not traded on a valuation date, they will be valued at
the most recent quoted trade price. Securities which are traded in the U.S.
over-the-counter markets are valued at the last quoted bid price. Securities
which are traded in the foreign over-the-counter markets are valued at the
last sales price, except that such securities traded in the United Kingdom are
valued at the average of the closing bid and ask prices. Shares of investment
companies held by the Portfolios will be valued at their respective net asset
values. Any securities, including restricted securities, for which current
quotations are not readily available are valued at fair value as determined in
good faith by the Investment Adviser under the supervision of the Board of
Trustees. Short-term investments are valued at amortized cost which the
Investment Adviser has determined, pursuant to Board authorization,
approximates market value. Securities may be valued on the basis of prices
provided by independent pricing services when such prices are believed to
reflect the fair market value of such securities.
PERFORMANCE INFORMATION
The performance of a class of shares of a Portfolio may be compared to those
of other mutual funds with similar investment objectives and to bond, stock
and other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of
mutual funds. For example, the performance of a class of shares may be
compared to data prepared by Lipper Analytical Services, Inc. or other
independent mutual fund reporting services. In addition, the performance of a
class may be compared to the Lehman Brothers Government/Corporate Bond Index
(or its components, including the Treasury Bond Index), S&P Index, S&P/Barra
Growth Index, the Russell Index, the EAFE Index or other unmanaged stock and
bond indices, including, but not limited to, the Merrill Lynch 1-5 Year
Government Bond Index, the Merrill Lynch 1-5 Year Corporate/Government Bond
Index, the 3-month LIBOR Index, the 91-day Treasury Bill Rate, the Composite
Index, the J.P. Morgan Non-U.S. Government Bond Index, and the Dow Jones
Industrial Average, a recognized unmanaged index of common stocks of 30
industry companies listed on the New York Stock Exchange. Performance data as
reported in national financial publications such as Money Magazine,
Morningstar, Forbes, Barron's, The Wall Street Journal and The New York Times,
or in publications of a local or regional nature, may also be used in
comparing the performance of a class of shares of a Portfolio.
73
<PAGE>
The Portfolios calculate their total returns for each class of shares on an
"average annual total return" basis for various periods from the dates the
respective Portfolios commenced investment operations and for other periods as
permitted under the rules of the SEC. Average annual total return reflects the
average annual percentage change in value of an investment in the class over
the measuring period. Total returns for each class of shares may also be
calculated on an "aggregate total return" basis for various periods. Aggregate
total return reflects the total percentage change in value over the measuring
period. Both methods of calculating total return reflect changes in the price
of the shares and assume that any dividends and capital gain distributions
made by the Portfolio with respect to a class during the period are reinvested
in the shares of that class. When considering average total return figures for
periods longer than one year, it is important to note that the annual total
return of a class for any one year in the period might have been more or less
than the average for the entire period. The Portfolios may also advertise from
time to time the total return of one or more classes of shares on a year-by-
year or other basis for various specified periods by means of quotations,
charts, graphs or schedules.
The yield of a class of shares in the Fixed Income Portfolios, the Balanced
Portfolio and the Global Asset Portfolio is computed based on the net income
of such class during a 30-day (or one month) period (which period will be
identified in connection with the particular yield quotation). More
specifically, a Portfolio's yield for a class of shares is computed by
dividing the per share net income for the class during a 30-day (or one month)
period by the net asset value per share on the last day of the period and
annualizing the result on a semi-annual basis.
The Small Company Index and International Equity Index Portfolios may
advertise total return data without reflecting the .50% and 1.00% portfolio
transaction fee in accordance with the rules of the SEC. Quotations which do
not reflect the fee will, of course, be higher than quotations which do.
Because of the different servicing fees and transfer agency fees payable with
respect to the Class A, B, C and D Shares in a Portfolio, the performance of
such shares will be effectively reduced by the amount of such fees. For
example, because Class A Shares bear the lowest servicing and transfer agency
fees, the return of Class A Shares will be more than the return of other
classes of shares of the same Portfolio. See "Shareholder Servicing Plan" and
"Investment Adviser, Transfer Agent and Custodian" under the heading "Trust
Information" in this Prospectus.
The performance of each class of shares of the Portfolios is based on
historical earnings, will fluctuate and is not intended to indicate future
performance. The investment return and principal value of an investment in a
class will fluctuate so that when redeemed, shares may be worth more or less
than their original cost. Performance data may not provide a basis for
comparison with bank deposits and other investments which provide a fixed
yield for a stated period of time. Total return data should also be considered
in light of the risks associated with a Portfolio's composition, quality,
maturity, operating expenses and market conditions. Any fees charged by
Institutions directly to their Customer accounts in connection with
investments in a Portfolio will not be included in calculations of performance
data.
74
<PAGE>
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, which were reorganized into the Trust on March
31, 1998. As of the date of this Prospectus, the Trust has created eighteen
separate series of shares of beneficial interest representing interests in
eighteen investment portfolios, fourteen of which are described in this
Prospectus; the other series of shares are described in separate prospectuses.
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 create and classify shares of beneficial interest in
separate series, without further action by shareholders. Additional series may
be added in the future. The Trustees also have authority to classify or
reclassify any unissued shares into additional series or classes within a
series. Pursuant to such authority, the Board of Trustees has classified four
classes of shares in each Portfolio: the Class A Shares, Class B Shares, Class
C Shares and Class D Shares. 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.
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, except
as otherwise required by law or when the matter to be voted on affects only
the interests of shareholders of a particular series. The Additional Statement
gives examples of situations in which the law requires voting by series.
Voting rights are not cumulative and, accordingly, the persons holding more
than 50% of the aggregate voting power of the Trust may elect all of the
Trustees irrespective of the vote of the other shareholders. In addition,
holders of each of the Class A, B, C and D 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 shareholder servicing
expenses and transfer agency fees that are payable by that class.
As of February 28, 1998, 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. 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.
75
<PAGE>
MISCELLANEOUS
The address of the Trust is 4900 Sears Tower, Chicago, Illinois 60606 and the
telephone number is (800) 621-2550.
When a shareholder moves, the shareholder is responsible for sending written
notice to the Trust of any new mailing address. The Trust and its transfer
agent may charge a shareholder their reasonable costs in locating a
shareholder's current address in accordance with SEC regulations.
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. On those days when Northern or the Exchange closes early as
a result of unusual weather or other circumstances, the Portfolios reserve the
right 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
Bond Market Association recommends that the securities markets close or 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. Purchase, redemption and exchange requests received after the advanced
closing time will be effected on the next Business Day. Each Portfolio
reserves, however, the right to reject any purchase order and also 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 would
adversely affect such Portfolio. See "Investing--Purchase of Shares" and
"Investing--Redemption of Shares" above for more information.
---------------------
The U.S. Treasury Index Portfolio is not sponsored, endorsed, sold or promoted
by Lehman, nor does Lehman guarantee the accuracy and/or completeness of the
Lehman Index or any data included therein. Lehman makes no warranty, express
or implied, as to the results to be obtained by the Portfolio, owners of the
Portfolio, any person or any entity from the use of the Lehman Index or any
data included therein. Lehman makes no express or implied warranties and
expressly disclaims all such warranties of merchantability or fitness for a
particular purpose or use with respect to the Lehman Index or any data
included therein.
---------------------
The Equity Index Portfolio is not sponsored, endorsed, sold or promoted by
S&P, nor does S&P guarantee the accuracy and/or completeness of the S&P Index
or any data included therein. S&P makes no warranty, express or implied, as to
the results to be obtained by the Portfolio, owners of the Portfolio, any
person or any entity from the use of the S&P Index or any data included
therein. S&P makes no express or implied warranties and expressly disclaims
all such warranties of merchantability or fitness for a particular purpose for
use with respect to the S&P Index or any data included therein.
---------------------
The International Equity Index Portfolio is not sponsored, endorsed, sold or
promoted by MSCI, nor does MSCI guarantee the accuracy and/or completeness of
the EAFE Index or any data included therein. MSCI makes no warranty, express
or implied, as to the results to be obtained by the Portfolio, owners of the
Portfolio, any person or any entity from the use of the EAFE Index or any data
included therein. MSCI makes no express or implied
76
<PAGE>
warranties and expressly disclaims all such warranties of merchantability or
fitness for a particular purpose for use with respect to the EAFE Index or any
data included therein.
---------------------
The Small Company Index Portfolio is not sponsored, endorsed, sold or promoted
by Russell, nor does Russell guarantee the accuracy and/or completeness of the
Russell Index or any data included therein. Russell makes no warranty, express
or implied, as to the results to be obtained by the Portfolio, owners of the
Portfolio, any person or any entity from the use of the Russell Index or any
data included therein. Russell makes no express or implied warranties and
expressly disclaims all such warranties of merchantability or fitness for a
particular purpose for use with respect to the Russell Index or any data
included therein.
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
77
<PAGE>
Investment Advisers:
The Northern Trust Company
Northern Trust Quantitative Advisors, Inc.
50 South LaSalle Street
Chicago, Illinois 60675
Transfer Agent and Custodian:
The Northern Trust Company
Administrator and Distributor
Goldman, Sachs & Co.
4900 Sears Tower
Chicago, IL 60606
<PAGE>
The
Benchmark Funds
---------------
Money Market Portfolios
Premier Shares
Prospectus April 1, 1998
<PAGE>
THE BENCHMARK FUNDS
(Advised by The Northern Trust Company)
THE NORTHERN TRUST COMPANY INVESTMENT ADVISER, TRANSFER
50 S. LaSalle Street AGENT AND CUSTODIAN
Chicago, Illinois 60675
312-630-6000
--------------------
This Prospectus describes 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 April 1, 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 April 1, 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 14
TRUST INFORMATION 15
- -----------------
Board of Trustees 15
Investment Adviser, Transfer Agent
and Custodian 15
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Year 2000 15
Administrator and Distributor 16
Service Plan 16
Expenses 17
INVESTING 18
---------
Purchase of Premier Shares 18
Redemption of Premier Shares 20
Distributions 23
Taxes 23
NET ASSET VALUE 25
---------------
PERFORMANCE INFORMATION 25
-----------------------
ORGANIZATION 26
------------
MISCELLANEOUS 27
-------------
</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:
Servicing Agent Fees............ .50% .50% .50% .50%
Transfer Agency Fees............ .02% .02% .02% .02%
Other Expenses (After Expense
Reimbursements and Fee Reduc-
tions)(1)...................... .18% .18% .18% .18%
---- ---- ---- ----
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 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Select Portfolio..................... $ 8 $26 $44 $ 99
Government Portfolio............................ $10 $30 $53 $117
Diversified Assets Portfolio.................... $10 $30 $53 $117
Tax-Exempt Portfolio............................ $10 $30 $53 $117
</TABLE>
- --------
(1) "Other Expenses" include the payment of a fee to Northern, Goldman Sachs or
other institutions under the service plan equal to .08% of the average
daily net asset value of the Premier Shares. See "Trust Information--
Service Plan" for additional information.
The information with respect to Premier Shares is estimated and reflects the
expenses each Portfolio expects to incur with respect to such Shares during the
current fiscal year. The expense information included in the table and the
hypothetical example above relate only to Premier Shares (the class offered by
this Prospectus) and should not be considered as representative of past or
future performance. 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 charged an administration fee 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 average daily net assets. 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 the fiscal year, Goldman Sachs reimbursed each 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
extraordinary expenses) which exceeded on an annualized basis .10% of the
Portfolio's average daily net assets for such fiscal year. On April 1, 1998,
upon the offering of the Portfolios' Premier Shares and Service Shares, Goldman
Sachs will reimburse each Portfolio's expenses (including fees payable to
Goldman Sachs as administrator, but excluding the fees payable to Northern for
its duties as adviser and transfer agent, payments under the service plan for
4
<PAGE>
the Portfolios' Premier Shares and Service Shares and certain extraordinary
expenses) which exceed on an annualized basis .10% of the Portfolio's average
daily net assets. Without the undertakings of Northern and Goldman Sachs,
"Other Expenses" of the Government Select, Government, Diversified Assets and
Tax-Exempt Portfolios would be .22%, .20%, .19% and .22%, respectively; and
"Total Operating Expenses" of the Government Select, Government, Diversified
Assets and Tax-Exempt Portfolios would be .99%, .97%, .96% and .99%,
respectively. For a more complete description of the Portfolios' expenses, see
"Trust Information" in this Prospectus.
---------------------
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 include, generally, (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 issued or guaranteed by a person with such ratings, and (ii) securities
that are unrated (including securities of issuers that have long-term but not
short-term ratings) but are determined to be of comparable quality. Securities
that are in the highest short-term rating category as described above (and
unrated securities determined to be of comparable quality) 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 and the Federal
Farm Credit Banks Funding Corp. The Portfolio intends to limit investments to
exempt U.S. Government securities. However, under extraordinary circumstances,
such as when appropriate exempt securities are unavailable, the Portfolio may
make investments in non-exempt U.S. Government securities and cash equivalents,
and may hold uninvested cash. See "Investing--Taxes" below for certain tax
considerations.
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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 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) U.S. 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 Instruments"). Such
opinions may contain various assumptions, qualifications or exceptions that are
reasonably acceptable to Northern. In particular, the Portfolio may invest in:
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(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 and the International Bank for Reconstruction
and Development (also known as the World Bank)) designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies. Investments
by the Diversified Assets Portfolio in foreign issuer obligations will not
exceed 50% of the Portfolio's total assets measured at the time of purchase.
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
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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 subject to
applicable SEC regulations. 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. 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.
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
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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, Government and
Diversified Assets Portfolios 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 segregate 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.
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
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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 segregate liquid assets until three days prior to the settlement
date, having a value (determined daily) at least equal to the amount of the
Portfolio's purchase commitments, or to otherwise cover its position. 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"), and may invest in
securities issued by other types of investment companies consistent with their
investment objectives and policies. Investments by a Portfolio in other money
market funds and investment companies will be subject to the limitations of the
1940 Act as described in more detail in the Additional Statement. Although the
Portfolios do not expect to do so in the forseeable future, 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. 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.
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.
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The Tax-Exempt Portfolio may also invest in "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of a moral
obligation bond is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which
created the issuer.
Municipal bonds with a series of maturity dates are called Serial Bonds. The
Portfolio may purchase Serial Bonds and other long-term securities provided
that they have a remaining maturity meeting the Tax-Exempt Portfolio's maturity
requirements. The Portfolio may also purchase long-term variable and floating
rate bonds (sometimes referred to as "Put Bonds") where the Portfolio obtains
at the time of purchase the right to put the bond back to the issuer or a third
party at par at least every thirteen months. Put Bonds with conditional puts
(that is, puts which cannot be exercised if the issuer defaults on its payment
obligations) will present risks that are different than those of other
Municipal Instruments because of the possibility that the Portfolio might hold
a long-term Put Bond on which a default occurs following its acquisition by the
Portfolio.
The Tax-Exempt Portfolio may acquire securities in the form of custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment or both on certain municipal obligations. Such obligations
are held in custody by a bank on behalf of the holders of the receipts. These
custodial receipts are known by various names, including "Municipal Receipts,"
"Municipal Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and
"Municipal Zero-Coupon Receipts." The Portfolio may also purchase certificates
of participation that, in the opinion of counsel to the issuer, are exempt from
regular Federal income tax. Certificates of participation are a type of
floating or variable rate obligation that represents interests in a pool of
municipal obligations held by a bank.
The Tax-Exempt Portfolio may acquire "standby commitments" with respect to the
Municipal Instruments it holds. Under a standby commitment, a dealer agrees to
purchase at the Portfolio's option specified Municipal Instruments at a
specified price. The acquisition of a standby commitment may increase the cost,
and thereby reduce the yield, of the Municipal Instruments to which the
commitment relates. The Portfolio will acquire standby commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
Municipal Instruments purchased by the Tax-Exempt Portfolio may be backed by
letters of credit or other forms of credit enhancement issued by foreign (as
well as domestic) banks and other financial institutions. The credit quality of
these banks and financial institutions could, therefore, cause loss to a
Portfolio that invests in Municipal Instruments. Letters of credit and other
obligations of foreign financial institutions may involve certain risks in
addition to those of domestic obligations. (See "Foreign Obligations" above.)
As stated, the Tax-Exempt Portfolio expects to invest primarily in Municipal
Instruments. However, the Portfolio may from time to time hold uninvested cash
or invest a portion of its assets in Taxable Investments. The Portfolio does
not intend to invest more than 25% of the value of its total assets in
industrial development 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
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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.
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
shareholders 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 shareholders.
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 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 by SEC regulations.
DERIVATIVE INSTRUMENTS. Each Portfolio may also purchase certain "derivative"
instruments. "Derivative" instruments are instruments that derive value from
the performance of underlying assets, interest rates or indices, and include
(but are not limited to) various structured debt obligations (including certain
variable and floating rate instruments). Derivative instruments present, to
varying degrees, market risk that the performance of the underlying assets,
interest rates or indices will decline; credit risk that the dealer or other
counterparty to the transaction will fail to pay its obligations; volatility
risk that, if interest rates change adversely, the value of the derivative
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Portfolio will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument will not correlate
exactly to the value of the underlying assets, rates or indices on which it is
based; and operations risk that loss will occur as a result of inadequate
systems and controls, human error or otherwise. Some derivative instruments are
more complex than others, and for those instruments that have been developed
recently, information 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
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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").
If otherwise consistent with their investment objectives 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.
Pursuant to an SEC order, each Portfolio may engage in principal transactions
effected in the ordinary course of business with Goldman Sachs.
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.
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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.
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 .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.
Northern also receives compensation as the Trust's custodian and transfer agent
under separate agreements. The fees payable by the Portfolios for these
services are described in this Prospectus under "Summary of Expenses" and in
the Additional Statement. Different transfer agency fees are payable with
respect to a Portfolios' different share classes.
YEAR 2000
Like every other business dependent upon computerized information processing,
Northern Trust Corporation ("Northern Trust") must deal with "Year 2000"
issues, which stem from using two digits to reflect the year in computer
programs and data. Computer programmers and other designers of equipment that
use
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microprocessors have long abbreviated dates by eliminating the first two digits
of the year under the assumption that those two digits will always be 19. As
the Year 2000 approaches, many systems may be unable to accurately process
certain date-based information, which could cause a variety of operational
problems for businesses.
Northern Trust's data processing software and hardware provide essential
support to virtually all of its businesses, including the units that provide
services to the Trust, so successfully addressing Year 2000 issues is of the
highest importance. Failure to complete renovation of the critical systems used
by Northern on a timely basis could have a materially adverse effect on its
ability to provide such services -- as could Year 2000 problems experienced by
others. Although the nature of the problem is such that there can be no
complete assurance it will be successfully resolved, Northern Trust has
indicated that a renovation and risk mitigation program is well under way and
that it has a dedicated Year 2000 Project Team whose members have significant
systems development and maintenance experience. Northern Trust's Year 2000
project includes a comprehensive testing plan. Northern Trust has advised the
Trust that it expects to complete work on its critical systems by December 31,
1998, so that testing with outside parties may be conducted during 1999.
Northern Trust also will have a program to monitor and assess the efforts of
other parties. However, it cannot control the success of those efforts.
Contingency plans are being established where appropriate to provide Northern
Trust with alternatives in case these entities experience significant Year 2000
difficulties which impact Northern Trust.
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's
expenses (including the fees payable to Goldman Sachs as administrator, but
excluding the fees payable to Northern for its duties as investment adviser and
transfer agent, payments under the service plan for the Portfolios' Premier and
Service Share classes 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 of
the date of this Prospectus, Northern will continue to reduce its advisory fee
for the Government Select Portfolio. The result of these reimbursements 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
institutions and organizations including 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").
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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 (as defined below), 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. Personal and account maintenance services provided under the
Service Plan, which are also 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 additional 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. The Service Plan also provides for the payment of
fees to Northern, 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. All fees
payable under the Service Plan are borne solely by Premier Shares and not by
the Portfolios' other share classes.
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, Service 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.
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INVESTING
PURCHASE OF PREMIER SHARES
Premier Shares are offered to Northern, its affiliates and other institutions
and organizations, including certain defined contribution plans having at least
$30 million in assets or annual contributions of at least $5 million (the
"Institutions"), acting on behalf of their customers, clients, employees,
participants 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 institutional 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 INSTITUTIONAL ACCOUNTS. Any Institution
maintaining an institutional account at Northern or an affiliate may make
purchases through such institutional 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 an institutional 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 institutional accounts with Northern
or its affiliates.
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, 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
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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 Shareholder'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. Except as provided below under "Miscellaneous," a
purchase order for 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
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 an institutional
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
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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.
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 PREMIER SHARES
Institutions may redeem shares of a Portfolio through procedures established by
Northern and its affiliates in connection with the requirements of their
institutional accounts or through procedures set forth herein with respect to
Institutions that invest directly.
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REDEMPTION OF SHARES THROUGH INSTITUTIONAL ACCOUNTS. Institutions may redeem
shares in their institutional 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
institutional 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 an
"institutional 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."
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
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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), (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 other Portfolios 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.
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 an institutional
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 institutional 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
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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).
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 will be paid as soon as practicable
following the end of the month, except that such dividends will be paid
promptly upon a total redemption of shares in any account not subject to a
standing order for the purchase of shares. 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,
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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.
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.
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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 a Portfolio is calculated may be advanced on days on
which Northern or the securities markets close early. See "Miscellaneous"
below. Net asset value per Premier 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.
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.
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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 has created 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 classes within a series. Pursuant to such authority, the Board of Trustees
has classified three classes 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 Service Plan relating to Service Shares and Premier Shares. Because
of these class-specific expenses, the performance of a Portfolio's Premier
Shares is expected to be lower than the performance of the Portfolio's other
two share classes. 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. For
further information regarding the Trust's other share classes, contact Goldman
Sachs at 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, except
as otherwise required by law or when the matter to be voted on affects only the
interests of shareholders of a particular series. The Additional Statement
gives examples of situations in which the law requires voting by series. Voting
rights are not cumulative and, accordingly, the holders of more than 50% of the
aggregate voting power of the Trust may elect all of the Trustees irrespective
of the vote of the other shareholders. In addition, holders of all shares
(regardless of class) 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 February 28, 1998, 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. 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.
26
<PAGE>
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.
When a shareholder moves, the shareholder is responsible for sending written
notice to the Trust of any new mailing address. The Trust and its transfer
agent may charge a shareholder their reasonable costs in locating a
shareholder's current address in accordance with SEC regulations.
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. On those days when Northern or the Exchange closes early as a
result of unusual weather or other circumstances, the Portfolios reserve the
right 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
Bond Market Association recommends that the securities markets close or 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. Purchase, redemption and exchange requests received after the advanced
closing time will be effected on the next Business Day. Each Portfolio
reserves, however, the right to reject any purchase order and also 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 would
adversely affect such Portfolio. See "Investing--Purchase of Premier Shares"
and "Investing--Redemption of Premier Shares" above for more information.
---------------------
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>
Investment Adviser, Transfer Agent and Custodian:
The Northern Trust Company
50 South LaSalle Street
Chicago, Illinois 60675
Administrator and Distributor
Goldman, Sachs & Co.
4900 Sears Tower
Chicago, IL 60606
<PAGE>
The
Benchmark Funds
---------------
Money Market Portfolios
Service Shares
Prospectus April 1, 1998
<PAGE>
THE BENCHMARK FUNDS
(Advised by The Northern Trust Company)
THE NORTHERN TRUST COMPANY INVESTMENT ADVISER, TRANSFER
50 S. LaSalle Street AGENT AND CUSTODIAN
Chicago, Illinois 60675
312-630-6000
--------------------
This Prospectus describes the Service Class of 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 April 1, 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 April 1, 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 14
TRUST INFORMATION 15
- -----------------
Board of Trustees 15
Investment Adviser, Transfer Agent
and Custodian 15
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Year 2000 15
Administrator and Distributor 16
Service Plan 16
Expenses 17
INVESTING 18
---------
Purchase of Service Shares 18
Redemption of Service Shares 20
Distributions 23
Taxes 23
NET ASSET VALUE 25
---------------
PERFORMANCE INFORMATION 25
-----------------------
ORGANIZATION 26
------------
MISCELLANEOUS 27
-------------
</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
Servicing Agent Fees............ .25% .25% .25% .25%
Transfer Agency Fees............ .01% .01% .01% .01%
Other Expenses (After Expense
Reimbursements and Fee Reduc-
tions)(1)...................... .18% .18% .18% .18%
---- ---- ---- ----
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 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Select Portfolio..................... $6 $17 $30 $68
Government Portfolio............................ $7 $22 $38 $86
Diversified Assets Portfolio.................... $7 $22 $38 $86
Tax-Exempt Portfolio............................ $7 $22 $38 $86
</TABLE>
- --------
(1) "Other Expenses" include the payment of a fee to Northern, Goldman Sachs or
other institutions under the service plan equal to .08% of the average
daily net asset value of the Service Shares. See "Trust Information--
Service Plan" for additional information.
The information with respect to Service Shares is estimated and reflects the
expenses each Portfolio expects to incur with respect to such Shares during the
current fiscal year. The expense information included in the table and the
hypothetical example above relate only to Service Shares (the class offered by
this Prospectus) and should not be considered as representative of past or
future performance. 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 charged an administration fee 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 average daily net assets. 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 the fiscal year, Goldman Sachs reimbursed each 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
extraordinary expenses) which exceeded on an annualized basis .10% of the
Portfolio's average daily net assets for such fiscal year. On April 1, 1998,
upon the offering of the Portfolios' Service Shares and Premier Shares, Goldman
Sachs will reimburse each Portfolio's expenses (including fees payable to
Goldman Sachs as administrator, but
4
<PAGE>
excluding the fees payable to Northern for its duties as adviser and transfer
agent, payments under the service plan for the Portfolios' Premier Shares and
Service Shares and certain extraordinary expenses) which exceed on an
annualized basis .10% of the Portfolio's average daily net assets. Without the
undertakings of Northern and Goldman Sachs, "Other Expenses" of the Government
Select, Government, Diversified Assets and Tax-Exempt Portfolios would be .22%,
.20%, .19% and .22%, respectively; and "Total Operating Expenses" of the
Government Select, Government, Diversified Assets and Tax-Exempt Portfolios
would be .73%, .71%, .70% and .73%, respectively. For a more complete
description of the Portfolios' expenses, see "Trust Information" in this
Prospectus.
---------------------
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 include, generally, (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 issued or guaranteed by persons with such ratings, and (ii) securities that
are unrated (including securities of issuers that have long-term but not short-
term ratings) but are determined to be of comparable quality. Securities that
are in the highest short-term rating category as described above (and unrated
securities determined to be of comparable quality) 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 and the Federal
Farm Credit Banks Funding Corp. The Portfolio intends to limit investments to
exempt U.S. Government securities. However, under extraordinary circumstances,
such as when appropriate exempt securities are unavailable, the Portfolio may
make investments in non-exempt U.S. Government securities and cash equivalents,
and may hold uninvested cash. See "Investing--Taxes" below for certain tax
considerations.
6
<PAGE>
GOVERNMENT PORTFOLIO
The Government Portfolio seeks to achieve its investment objective by investing
exclusively in:
(A) Marketable securities issued or guaranteed as to principal and interest
by the U.S. Government or by any of its agencies or instrumentalities 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) U.S. 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 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;
7
<PAGE>
(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 and the International Bank for Reconstruction
and Development (also known as the World Bank)) designated or supported by
governmental entities to promote economic reconstruction or development and
international banking institutions and related government agencies. Investments
by the Diversified Assets Portfolio in foreign issuer obligations will not
exceed 50% of the Portfolio's total assets measured at the time of purchase.
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
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
8
<PAGE>
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 subject to
applicable SEC regulations. 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. 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.
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.
9
<PAGE>
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, Government and
Diversified Assets Portfolios 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 segregate 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.
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 segregate
liquid assets until three days prior to the settlement date, having a value
(determined daily) at least equal to the amount of the Portfolio's purchase
commitments, or to otherwise cover its position. Although a Portfolio would
generally purchase securities on a when-issued or forward
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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"), and may invest in
securities issued by other types of investment companies consistent with their
investment objectives and policies. Investments by a Portfolio in other money
market funds and investment companies will be subject to the limitations of the
1940 Act as described in more detail in the Additional Statement. Although the
Portfolios do not expect to do so in the forseeable future, 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. 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.
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.
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Municipal bonds with a series of maturity dates are called Serial Bonds. The
Portfolio may purchase Serial Bonds and other long-term securities provided
that they have a remaining maturity meeting the Tax-Exempt Portfolio's maturity
requirements. The Portfolio may also purchase long-term variable and floating
rate bonds (sometimes referred to as "Put Bonds") where the Portfolio obtains
at the time of purchase the right to put the bond back to the issuer or a third
party at par at least every thirteen months. Put Bonds with conditional puts
(that is, puts which cannot be exercised if the issuer defaults on its payment
obligations) will present risks that are different than those of other
Municipal Instruments because of the possibility that the Portfolio might hold
a long-term Put Bond on which a default occurs following its acquisition by the
Portfolio.
The Tax-Exempt Portfolio may acquire securities in the form of custodial
receipts evidencing rights to receive a specific future interest payment,
principal payment or both on certain municipal obligations. Such obligations
are held in custody by a bank on behalf of the holders of the receipts. These
custodial receipts are known by various names, including "Municipal Receipts,"
"Municipal Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and
"Municipal Zero-Coupon Receipts." The Portfolio may also purchase certificates
of participation that, in the opinion of counsel to the issuer, are exempt from
regular Federal income tax. Certificates of participation are a type of
floating or variable rate obligation that represents interests in a pool of
municipal obligations held by a bank.
The Tax-Exempt Portfolio may acquire "standby commitments" with respect to the
Municipal Instruments it holds. Under a standby commitment, a dealer agrees to
purchase at the Portfolio's option specified Municipal Instruments at a
specified price. The acquisition of a standby commitment may increase the cost,
and thereby reduce the yield, of the Municipal Instruments to which the
commitment relates. The Portfolio will acquire standby commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
Municipal Instruments purchased by the Tax-Exempt Portfolio may be backed by
letters of credit or other forms of credit enhancement issued by foreign (as
well as domestic) banks and other financial institutions. The credit quality of
these banks and financial institutions could, therefore, cause loss to a
Portfolio that invests in Municipal Instruments. Letters of credit and other
obligations of foreign financial institutions may involve certain risks in
addition to those of domestic obligations. (See "Foreign Obligations" above.)
As stated, the Tax-Exempt Portfolio expects to invest primarily in Municipal
Instruments. However, the Portfolio may from time to time hold uninvested cash
or invest a portion of its assets in Taxable Investments. The Portfolio does
not intend to invest more than 25% of the value of its total assets in
industrial development 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.
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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
shareholders 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 shareholders.
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 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 by SEC regulations.
DERIVATIVE INSTRUMENTS. Each Portfolio may also purchase certain "derivative"
instruments. "Derivative" instruments are instruments that derive value from
the performance of underlying assets, interest rates or indices, and include
(but are not limited to) various structured debt obligations (including certain
variable and floating rate instruments). Derivative instruments present, to
varying degrees, market risk that the performance of the underlying assets,
interest rates or indices will decline; credit risk that the dealer or other
counterparty to the transaction will fail to pay its obligations; volatility
risk that, if interest rates change adversely, the value of the derivative
instrument will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Portfolio will be unable to sell a derivative
instrument when it wants because of lack of market depth or market disruption;
pricing risk that the value of a derivative instrument will not correlate
exactly to the value of the underlying assets, rates or indices on which it is
based; and operations risk that loss will occur as a result of inadequate
systems and controls, human error or otherwise. Some derivative instruments are
more complex than others, and for those instruments that have been developed
recently, information 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").
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If otherwise consistent with their investment objectives 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.
Pursuant to an SEC order, each Portfolio may engage in principal transactions
effected in the ordinary course of business with Goldman Sachs.
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.
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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.
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 .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.
Northern also receives compensation as the Trust's custodian and transfer agent
under separate agreements. The fees payable by the Portfolios for these
services are described in this Prospectus under "Summary of Expenses" and in
the Additional Statement. Different transfer agency fees are payable with
respect to the Portfolios' different share classes.
YEAR 2000
Like every other business dependent upon computerized information processing,
Northern Trust Corporation ("Northern Trust") must deal with "Year 2000"
issues, which stem from using two digits to reflect the year in computer
programs and data. Computer programmers and other designers of equipment that
use microprocessors have long abbreviated dates by eliminating the first two
digits of the year under the
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assumption that those two digits will always be 19. As the Year 2000
approaches, many systems may be unable to accurately process certain date-based
information, which could cause a variety of operational problems for
businesses.
Northern Trust's data processing software and hardware provide essential
support to virtually all of its business units, including the units that
provide services to the Trust, so successfully addressing Year 2000 issues is
of the highest importance. Failure to complete renovation of the critical
systems used by Northern on a timely basis could have a materially adverse
effect on its ability to provide such services--as could Year 2000 problems
experienced by others. Although the nature of the problem is such that there
can be no complete assurance it will be successfully resolved, Northern Trust
has indicated that a renovation and risk mitigation program is well under way
and that it has a dedicated Year 2000 Project Team whose members have
significant systems development and maintenance experience. Northern Trust's
Year 2000 project includes a comprehensive testing plan. Northern Trust has
advised the Trust that it expects to complete work on its critical systems by
December 31, 1998, so that testing with outside parties may be conducted during
1999.
Northern Trust also will have a program to monitor and assess the efforts of
other parties. However, it cannot control the success of those efforts.
Contingency plans are being established where appropriate to provide Northern
Trust with alternatives in case these entities experience significant Year 2000
difficulties which impact Northern Trust.
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's
expenses (including the fees payable to Goldman Sachs as administrator, but
excluding the fees payable to Northern for its duties as investment adviser and
transfer agent, payments under the service plan for the Portfolios' Service and
Premier Share classes 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 of
the date of this Prospectus, Northern will continue to reduce its advisory fee
for the Government Select Portfolio. The result of these reimbursements 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
institutions and organizations including 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").
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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 (as defined below), 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 Service Shares beneficially owned by
their Customers. In addition, the Service Plan provides for the payment of fees
to Northern, 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. All fees
payable under the Service Plan are borne solely by Service Shares and not by
the Portfolios' other share classes.
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, Service 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.
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INVESTING
PURCHASE OF SERVICE SHARES
Service Shares are offered to Northern, its affiliates and other institutions
and organizations, including certain defined contribution plans having at least
$30 million in assets or annual contributions of at least $5 million (the
"Institutions"), acting on behalf of their customers, clients, employees,
participants 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 institutional 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 INSTITUTIONAL ACCOUNTS. Any Institution
maintaining an institutional account at Northern or an affiliate may make
purchases through such institutional 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 an institutional 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 institutional accounts with Northern
or its affiliates.
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 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
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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 Shareholder'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. Except as provided below under "Miscellaneous," 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., 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 an institutional
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
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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.
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
institutional accounts or through procedures set forth herein with respect to
Institutions that invest directly.
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REDEMPTION OF SHARES THROUGH INSTITUTIONAL ACCOUNTS. Institutions may redeem
shares in their institutional 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
institutional 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 an
"institutional 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."
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
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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), (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 other Portfolios 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.
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 an institutional
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 institutional 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
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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).
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 will be paid as soon as practicable
following the end of the month, except that such dividends will be paid
promptly upon a total redemption of shares in any account not subject to a
standing order for the purchase of shares. 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,
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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.
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.
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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 a Portfolio is calculated may be advanced on days on
which Northern or the securities markets close early. See "Miscellaneous"
below. Net asset value per Service 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.
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.
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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 has created 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 classes within a series. Pursuant to such authority, the Board of Trustees
has classified three classes 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 Service Plan relating to Service Shares and Premier Shares. Because
of these class-specific expenses, the performance of a Portfolio's Service
Shares is expected to be higher than the performance of the Portfolio's Premier
Shares but lower than that of the Portfolio's other class of 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. For further information regarding
the Trust's other share classes, contact Goldman Sachs at 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, except
as otherwise required by law or when the matter to be voted on affects only the
interests of shareholders of a particular series. The Additional Statement
gives examples of situations in which the law requires voting by series. Voting
rights are not cumulative and, accordingly, the holders of more than 50% of the
aggregate voting power of the Trust may elect all of the Trustees irrespective
of the vote of the other shareholders. In addition, holders of all shares
(regardless of class) 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 February 28, 1998, 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. 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.
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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.
When a shareholder moves, the shareholder is responsible for sending written
notice to the Trust of any new mailing address. The Trust and its transfer
agent may charge a shareholder their reasonable costs in locating a
shareholder's current address in accordance with SEC regulations.
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. On those days when Northern or the Exchange closes early as a
result of unusual weather or other circumstances, the Portfolios reserve the
right 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
Bond Market Association recommends that the securities markets close or 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. Purchase, redemption and exchange requests received after the advanced
closing time will be effected on the next Business Day. Each Portfolio
reserves, however, the right to reject any purchase order and also 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 would
adversely affect such Portfolio. See "Investing--Purchase of Service Shares"
and "Investing--Redemption of Service Shares" above for more information.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
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Investment Adviser, Transfer Agent and Custodian:
The Northern Trust Company
50 South LaSalle Street
Chicago, Illinois 60675
Administrator and Distributor
Goldman, Sachs & Co.
4900 Sears Tower
Chicago, IL 60606
