As filed with the Securities and Exchange Commission on October 14, 1999
Securities Act of 1933 Registration No. 2-80543
Investment Company Act of 1940 Registration No. 811-3605
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 41 [X]
and/or
REGISRTATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 42 [X]
(Check appropriate box or boxes)
NORTHERN INSTITUTIONAL FUNDS
(Exact name of registrant as specified in charter)
50 South LaSalle Street
Chicago, Illinois 60675
(Address of principal executive offices)
(Registrant's Telephone Number, including Area Code)
800-637-1380
Linda Hoard, Secretary with a copy to:
First Data Investor Services Group, Inc. W. Bruce McConnel, III
101 Federal Street, 6th Floor Drinker Biddle & Reath LLP
Boston, Massachusetts 02110 One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania
19103-6996
(name and address of agent for service)
Approximate Date of Proposed Public Offering: A soon as practicable after this
Registration Statement becomes effective.
It Is Proposed That This Filing Become Effective (Check Appropriate Box):
[ ] immediately upon filing pursuant to paragraph (b) [X] on October
20, 1999 pursuant to paragraph (b) [ ] 60 days after filing pursuant to
paragraph (a)(1) [ ] On (date)pursuant to paragraph (a)(1) [ ] 75 days
after filing pursuant to paragraph (a)(2) [ ] On [date] pursuant to
paragraph (a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
Northern Institutional Funds
SMALL COMPANY GROWTH PORTFOLIO
OCTOBER 20, 1999
<PAGE>
Northern Institutional Funds
Small Company Growth Portfolio
Prospectus dated October 20, 1999
Northern Institutional Funds (the "Trust") offers a selection of investment
portfolios to institutional investors, each with a distinct investment objective
and risk/reward profile.
This Prospectus describes the Small Company Growth Portfolio. Descriptions of
the six fixed income, five money market, one balanced and six equity portfolios
(the "Portfolios") that make up the remainder of the Portfolios currently
offered by the Trust are included in separate prospectuses. The Small Company
Growth Portfolio (as well as the other non-money market Portfolios) is
authorized to offer three classes of shares: Class A, Class C and Class D
Shares.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. An investment in the Portfolio involves investment risks,
including possible loss of principal.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
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Contents
RISK/RETURN SUMMARY SMALL COMPANY GROWTH PORTFOLIO ___
Information about the
objective, principal strategies Principal Investment Risks ___
and risk characteristics
of the Portfolio Portfolio Performance
- ---
Portfolio Fees and Expenses ___
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MANAGEMENT Investment Adviser ___
OF THE
PORTFOLIO Advisory Fees ___
Portfolio Management ___
Other Portfolio Management Information ___
Other Portfolio Services ___
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ABOUT YOUR Purchasing and Selling Shares ___
ACCOUNT
Purchasing Shares ___
How to open, maintain
and close an account Opening an Account ___
Selling Shares ___
Account Policies and Other Information ___
Purchase and Redemption Minimums ___
Calculating Share Price ___
Timing of Purchase Requests ___
Additional Transaction Fee ___
Tax Identification Number ___
In-Kind Purchases and Redemptions ___
Miscellaneous Purchase Information ___
Timing of Redemption and Exchange Requests ___
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Miscellaneous Redemption Information ___
Exchange Privileges ___
Telephone Transactions ___
Making Changes to Your Account Information ___
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Business Day ___
Early Closings ___
Authorized Intermediaries ___
Servicing Agents ___
Dividends and Distributions ___
Tax Considerations ___
Year 2000 Issues ___
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RISKS, SECURITIES AND TECHNIQUES Additional Information on Principal Investment Strategies and Related Risks
Additional Description of Securities and Common Investment Techniques ___
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FOR MORE INFORMATION Annual/Semi-annual Report
Statement of Additional Information
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<PAGE>
SMALL COMPANY GROWTH PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio seeks to provide long-term capital appreciation. Any income
received is incidental to this objective. The Portfolio's investment objective
may be changed without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking long-term capital appreciation, the Portfolio
will invest, under normal market conditions, at least 65% of its total assets in
the equity securities of companies with market capitalizations that are, at the
time of purchase, within the range of the Russell 2000 Small Stock Index
("Russell 2000 Index").
Using fundamental research and quantitative analysis, the investment management
team selects stocks of small companies that it believes have demonstrated above
average sales and earnings growth and return on equity relative to their peers.
In doing so, the investment management team considers factors such as a
company's:
o Financial condition (such as debt to equity ratio);
o Market share and product leadership;
o Earnings growth relative to relevant competitors;
o Market valuation in comparison to securities of other
small cap companies and the stock's own historical
norms; and
o Price trends.
As of September 30, 1999, the approximate market capitalization range of the
companies included in the Russell 2000 Index was between $330 million and $3.4
billion. However, the Portfolio is not limited to the stocks included in the
Russell 2000 index and may invest in other stocks that meet the Investment
Adviser's criteria discussed above.
Although the Portfolio primarily invests in the stocks of U.S. companies,
it may invest to a limited extent in the securities of
foreign issuers.
Russell does not endorse any stock in the Index. It is not a sponsor of the
Small Company Growth Portfolio and is not affiliated with the Portfolio in any
way.
Risks. These primary investment risks apply to the
Portfolio: market risk, management risk, liquidity risk,
Year 2000 risk, stock risk, small company risk and portfolio
turnover risk. These and other risks are summarized below.
In addition to the instruments described on the pages below, the Small Company
Growth Portfolio may use various investment techniques in seeking its investment
objective. You can learn more about these techniques and their related risks by
reading "Risks, Securities and Techniques" on page ___ of this Prospectus and
the Statement of Additional Information.
Please keep in mind that the Portfolio cannot guarantee it will meet its
investment objective, and that the Portfolio should not be relied upon as a
complete investment program.
PRINCIPAL INVESTMENT RISKS
All investments carry some degree of risk which will affect the value of the
Portfolio's investments, its investment performance and the price of its shares.
As a result, loss of money is a risk of investing in the Portfolio.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The following summarizes the principal risks that apply to the Portfolio and may
result in a loss of your investment.
o MARKET RISK is the risk that the value of the securities in which the
Portfolio invests may go up or down in response to the prospects of
individual companies and/or general economic conditions. Price
changes may be temporary or last for extended periods.
o MANAGEMENT RISK is the risk that a strategy used by the investment
management team may fail to produce the intended results.
o LIQUIDITY RISK is the risk that the Portfolio will not be able to pay
redemption proceeds within the time periods described in this
Prospectus because of unusual market conditions, an unusually high
volume of redemption requests or other reasons.
o YEAR 2000 RISK is the risk that the Portfolio's operations or value
will be adversely affected by the "Year 2000 Problem." This risk may
be of greater significance with respect to the Portfolio's
investments in the securities of foreign issuers. (For more
information, please see "Year 2000 Issues" on page __.)
o STOCK RISK is the risk that stock prices have historically risen and
fallen in periodic cycles. As of the date of this Prospectus, U.S.
stock markets and certain foreign stock markets were trading at or
close to record high levels. There is no guarantee that such levels
will continue.
o SMALL COMPANY STOCK RISK is the risk that stocks of smaller companies may
be subject to more abrupt or erratic market movements than stocks of
larger, more established companies. Small companies may have limited
product lines or financial resources, or may be dependent upon a small or
inexperienced management group. In addition, small company stocks typically
are traded in lower volume, and their issuers typically are subject to
greater degrees of changes in their earnings and prospects.
PORTFOLIO TURNOVER RISK is the risk that the Portfolio's annual
portfolio turnover rate (which is not expected to exceed 200%) may
result in increased Portfolio expenses and higher short-term capital
gains taxable to shareholders.
More information about the risks of investing in the Portfolio is provided in
"Risks, Securities and Techniques" beginning on page ____. You should carefully
consider the risks discussed in these sections before investing in the
Portfolio.
PORTFOLIO PERFORMANCE
The bar charts and the performance tables have been omitted because the
Portfolio has been in operation for less than one calendar year.
PORTFOLIO FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Class A, C or D Shares of the Portfolio. Each class of shares represents pro
rata interests in the Portfolio except that different shareholder servicing and
transfer agency fees are payable due to the varying levels of administrative
support and transfer agency services provided to each class.
Please note that the following information does not reflect any charges which
may be imposed by The Northern Trust Company, its affiliates, correspondent
banks and other institutions on their customers. (For more information, please
see "Account Policies and Other Information" on page __.)
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Class A Class C Class D
SMALL COMPANY GROWTH PORTFOLIO Shares Shares Shares
Shareholder Fees (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases None None None
Additional Transaction Fee (as a percentage of amount None None None
invested)
Deferred Sales Charge (Load) None None None
Sales Charge (Load) Imposed on Reinvested Distributions None None None
Redemption Fees None None None
Exchange Fees None None None
Class A Class C Class D
Shares Shares Shares
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio Assets)1
Management Fees2 1.10% 1.10% 1.10%
Distribution (12b-1) Fees None None None
Servicing Fees None 0.15% 0.25%
Transfer Agency Fees 0.01% 0.10% 0.15%
Other Operating Expenses3 0.18% 0.18% 0.18%
Total Other Operating Expenses 0.19% 0.43% 0.58%
Total Annual Portfolio Operating Expenses4 1.29% 1.53% 1.68%
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1 The Portfolio's annual operating expenses are based on actual fees and
estimated expenses for the current fiscal year.
2 As of the date of this Prospectus, the Northern Trust Company
("Northern") is voluntarily waiving a portion of its management fee for
the Portfolio. As a result of the fee waiver, actual management fees to
be paid by the Portfolio are 0.80% of the Portfolio's average daily net
assets. Fee waivers may be terminated at any time at the option of
Northern.
3 "Other Expenses" include co-administration fees and all other
ordinary operating expenses of the Portfolio not listed above. Northern
and First Data Investor Services Group, Inc. ("First Data Investor
Services Group") as co-administrators are entitled to a
co-administration fee from the Portfolio at an annual rate of 0.10% of
the Portfolio's average daily net assets. Under the Co-Administration
Agreement with the Trust, which may be amended without shareholder
approval, the co-administrators have agreed indefinitely to reimburse
expenses (including fees payable to Northern and First Data Investor
Services Group as co-administrators, but excluding management fees,
transfer agency fees, servicing fees and extraordinary expenses) which
exceed on an annualized basis 0.10% of the Portfolio's average daily
net assets. As a result of the expense reimbursement, estimated "Other
Expenses" are currently 0.10% of the Portfolio's average daily net
assets.
<PAGE>
4 As a result of the fee waivers and expense reimbursements, the
estimated actual management fees, distribution (12b-1) fees, other
expenses and total annual operating expenses for the Portfolio for the
current fiscal year are set forth below. Fee waivers (and voluntary
expense reimbursements, if applicable) may be terminated at any time
at the option of Northern. If this occurs, "Other Operating Expenses"
may increase without shareholder approval.
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Management Fees Distribution (12b-1) Fees Other Expenses Total Annual Operating Expenses
Class A 0.80% 0.00% 0.11% 0.91%
Class C 0.80% 0.00% 0.35% 1.15%
Class D 0.80% 0.00% 0.50% 1.30%
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EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Portfolio (without fee waivers and expense reimbursements) with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated (with reinvestment of all dividends and distributions) and
then redeem all of your shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that the Portfolio's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
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1 Year 3 Years
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Class A $131 $409
Class C $156 $483
Class D $171 $530
<PAGE>
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MANAGEMENT OF THE PORTFOLIO
Investment Adviser
The Northern Trust Company ("Northern"), an Illinois state-chartered bank and
member of the Federal Reserve System, serves as investment adviser for the
Portfolio.
Northern is referred to as the "Investment Adviser." The Investment Adviser, is
located at 50 S. LaSalle Street, Chicago, IL 60675 and is a wholly owned
subsidiary of Northern Trust Corporation, a bank holding company. As of
September 30, 1999, Northern Trust Corporation and its subsidiaries had
approximately $____ billion in assets, $____ billion in deposits and employed
over ______ persons.
Northern and its affiliates administered in various capacities (including as
master trustee, investment manager or custodian) approximately $___ trillion of
assets as of September 30, 1999, including approximately $____ billion of assets
for which Northern and its affiliates had investment management responsibility.
Under its Advisory Agreement with the Trust, the Investment Adviser subject to
the general supervision of the Trust's Board of Trustees, is responsible for
making investment decisions for the Portfolio and for placing purchase and sale
orders for portfolio securities.
Advisory Fees
As compensation for its advisory services and its assumption of related
expenses, the Investment Adviser is entitled to an advisory fee, computed daily
and payable monthly, at an annual contractual rate of 1.10% (expressed as a
percentage of the Portfolio's average daily net assets).
The difference, if any, between this contractual advisory fee and the actual
advisory fee that is paid by the Portfolio will reflect that the Investment
Adviser did not charge the full amount of the advisory fee to which it was
entitled. The Investment Adviser may discontinue or modify its voluntary
limitation in the future at its discretion.
Portfolio Management
The Investment Adviser employs a team approach to the investment management of
the Portfolio, relying upon investment professionals under the leadership of
James M. Snyder, Chief Investment Officer and Executive Vice President of
Northern.
The management team leader for the Small Company Growth Portfolio will be
David H. Burshtan, Vice President of Northern, when it commences operation. Mr.
Burshtan joined Northern in 1999. From 1995 to 1999, Mr. Burshtan was a
portfolio manager for various small cap mutual funds with Scudder Kemper
Investments, Inc. From 1993 to 1995, Mr. Burshtan held a variety of analyst and
portfolio management positions with Northern.
Other Portfolio Services
Northern also serves as transfer agent ("Transfer Agent") and custodian for
the Portfolio. As Transfer Agent, Northern performs various administrative
servicing functions, and any shareholder inquiries should be directed to it. The
fees that Northern receives for its services in those capacities are described
on page ____ under "Portfolio Fees and Expenses" and in the Statement of
Additional Information. Northern and First Data Investor Services Group, Inc.
("First Data Investor Services"), a wholly-owned subsidiary of First Data
Corporation, serve as co-administrators for the Portfolio. The fees that
Northern and First Data Investor Services receive for their services in these
capacities are described on page ___ under "Portfolio Fees and Expenses."
ABOUT YOUR ACCOUNT
Purchasing and Selling Shares
PURCHASING SHARES
Institutional investors, acting on their own behalf or on behalf of their
customers, clients, employees, participants and others ("Customers"), may
purchase shares of the Portfolio through their institutional accounts at
Northern or an affiliate. They may also purchase shares directly from the Trust.
There is no sales charge imposed on purchases of shares. Institutional investors
include:
Northern and its affiliates;
Defined contribution plans having at least $30 million in assets or annual
contributions of at least $5 million; and Other institutions and
organizations.
The Portfolio currently offers a choice of three classes of shares to meet the
special needs of institutional investors ("Institutions").
Class A Shares are designed for Institutions that can obtain information about
their shareholder accounts and do not require the additional services available
to other classes.
Class C Shares are designed for Institutions that require the Transfer Agent and
a Servicing Agent to provide certain account-related services incident to
Customers being the beneficial owners of shares.
Class D Shares are designed for Institutions that require the Transfer Agent and
a Servicing Agent to provide them and their Customers with certain
account-related services and other information.
Shares of each class bear their pro rata portion of all operating expenses
paid by the Portfolio, except amounts payable to Institutions for their
account-related and support services and transfer agency fees. Institutions
receive fees from the Portfolio for their services at an annual rate of up to
0.15% and 0.25% of the average daily net asset value of Class C and Class D
Shares, respectively. Because of these class-specific expenses, the performance
of Class A Shares of the Portfolio is expected to be higher than the performance
of both Class C and Class D Shares of the Portfolio, and the performance of the
Portfolio's Class C Shares is expected to be higher than the performance of
Class D Shares.
OPENING AN ACCOUNT
You may purchase shares of the Portfolio through your institutional account at
Northern (or an affiliate) or you may open an account directly with the Trust
with a minimum initial investment of $5 million in the Portfolio and one or more
other investment Portfolios of the Trust. There is no minimum for subsequent
investments.
Through an Institutional Account. If you are opening an institutional account at
Northern, a Northern representative can assist you with all phases of your
investment. To purchase shares through your account, contact your Northern
representative for further information.
Directly from the Trust. An Institution may open a shareholder account and
purchase shares directly from the Trust as described in this Prospectus.
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By Mail
Read this Prospectus carefully.
Complete and sign the new account application.
Include a certified corporate resolution (or other acceptable evidence of
authority).
Enclose a check or Federal Reserve draft payable to the Portfolio.
Mail your check, corporate resolution and completed application to:
Northern Institutional Funds
c/o The Northern Trust Company
P.O. Box 75943
Chicago, Illinois 60675-5943
All checks must be payable in U.S. dollars and drawn on a bank located in the
United States. Cash and third party checks are not
acceptable.
- --------------------------------------------------------------------------------
By Telephone
Read this Prospectus carefully.
Call the Transfer Agent at 1-800-637-1380.
<PAGE>
To open a new account please provide:
The name of the Portfolio
The number of shares or dollar amount to be invested
The method of payment
To add to an existing account, please provide:
The Institution's name
Your Account Number
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By Wire or Automated Clearing House Transfer ("ACH Transfer")
To open a new account:
Call the Transfer Agent at 1-800-637-1380 for instructions.
For more information about the purchase of shares, call the Transfer Agent at
1-800-637-1380.
To add to an existing account:
Have your bank 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 No.)
(Reference Shareholder's Name)
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SELLING SHARES
Through an Institutional Account.
Institutions may sell (redeem) shares through their institutional account by
contacting their Northern account representative.
Directly through the Trust. Institutions that purchase shares directly from the
Trust may redeem their shares through the Transfer Agent in one of the following
ways:
- --------------------------------------------------------------------------------
By Mail
Send a written request to:
Northern Institutional Funds
c/o The Northern Trust Company
P.O. Box 75943
Chicago, Illinois 60675-5943
The letter of instruction must include:
The signature of a duly authorized person
Your account number
The name of the Portfolio
The number of shares or the dollar amount to be redeemed
- --------------------------------------------------------------------------------
<PAGE>
By Telephone
Call the Transfer Agent at 1-800-637-1380 for instructions
During periods of unusual economic or market activity, telephone
redemptions may be difficult to implement. In such event, shareholders
should follow the procedures outlined above under "Selling Shares - By
Mail."
- --------------------------------------------------------------------------------
By Wire
Call the Transfer Agent at 1-800-637-1380 for instructions. You must have
given prior authorization for expedited wire redemption. The minimum
amount that may be redeemed by this method is $10,000.
Account Policies and Other Information
Purchase and Redemption Minimums. There is a minimum initial investment of $5
million in the Portfolio and one or more other investment Portfolios of the
Trust. There is no minimum for subsequent investments. A $10,000 minimum applies
for redemptions by wire. The Trust reserves the right to waive purchase and
redemption minimums and to determine the manner in which a minimum is satisfied.
Calculating Share Price. The Trust issues shares and redeems shares at net asset
value ("NAV"). The NAV for each share class of the Portfolio is calculated by
dividing the value of the Portfolio's net assets attributed to that class by the
number of outstanding shares of that class. The NAV for each class is calculated
as of 3:00 p.m., Chicago time, each Business Day. The NAV used in determining
the price of your shares is the one calculated after your purchase, exchange or
redemption order is received and accepted as described below.
U.S. and foreign securities held by the Portfolio generally are valued at their
market prices. Shares of an investment company held by the Portfolio are valued
at their net asset value. Any securities, including restricted securities, for
which market prices are not readily available are valued at fair value as
determined by the Investment Adviser. Short-term obligations held by the
Portfolio are valued at their amortized cost which, according to the Investment
Adviser, approximates market value.
The Portfolio may hold foreign securities that trade on weekends or other days
when the Portfolio does not price its shares. Therefore, the value of such
securities may change on days when shareholders will not be able to purchase or
redeem shares.
Timing of Purchase Requests. Requests accepted by the Transfer Agent or other
authorized intermediary by 3:00 p.m., Chicago time, on any Business Day will be
executed the same day, at that day's closing share price (plus any additional
transaction fee) provided that either:
The Transfer Agent receives the purchase price in Federal or other
immediately available funds prior to 3:00 p.m., Chicago time, on the same
Business Day;
The order is accepted by an authorized intermediary and payment in Federal
or other immediately available funds is made on the next Business Day
according to procedures authorized by the Trust; or
Payment in Federal or other immediately available funds is received on the
next Business Day in an institutional account maintained with Northern or
an affiliate.
Orders received by the Transfer Agent or other authorized intermediary on a
non-Business Day or after 3:00 p.m. on a Business Day will be executed on the
next Business Day, at that day's closing share price (plus any additional
transaction fee), provided that payment is made as noted above. If an
Institution pays for shares by check, Federal funds generally will become
available within two Business Days after a purchase order is received.
In certain circumstances, the Trust may advance the time by which purchase
orders must be received. See "Early Closings" on page --.
Tax Identification Number. Federal regulations require you to provide to the
Transfer Agent a taxpayer identification number when you open an account.
Purchase orders without such a number or an indication that a number has been
applied for will not be accepted. If you have applied for a number, you must
provide it to the Transfer Agent within 60 days of the date of the order.
<PAGE>
In-Kind Purchases and Redemptions. The Trust reserves the right to accept
payment for shares in the form of securities that are permissible investments
for the Portfolio. The Trust also reserves the right to pay redemptions by a
distribution "in-kind" of securities (instead of cash) from the Portfolio. See
the Statement of Additional Information for further information about the terms
of these purchases and redemptions.
Miscellaneous Purchase Information.
Institutions are responsible for transmitting purchase orders to the
Transfer Agent and delivering required funds on a timely basis.
Institutions are responsible for all losses and expenses of the Portfolio
in the event of any failure to make payment according to the procedures
outlined in this Prospectus. Northern may redeem shares from any account it
maintains to protect the Portfolio and Northern against loss. In addition,
a $20 charge will be imposed if a check does not clear.
The Trust reserves the right to reject any purchase order. The Trust also
reserves the right to change or discontinue any of its purchase procedures.
Timing of Redemption and Exchange Requests. Redemption and exchange requests
received in good order by the Transfer Agent or other authorized intermediary by
3:00 p.m., Chicago time, on a Business Day will be executed on the same day. The
redemption or exchange will be effected at that day's closing share price (plus
any additional transaction fee, in the case of an exchange into certain
Portfolios). Redemption proceeds will normally be sent or credited on the next
Business Day.
Orders received in good order on a non-Business Day or after 3:00 p.m., Chicago
time, on a Business Day will be executed the next Business Day, at that day's
closing share price (plus any additional transaction fee, in the case of an
exchange into certain Portfolios). The proceeds will normally be sent or
credited the second Business Day. We consider requests to be in "good order"
when all required documents are properly completed, signed and received,
including a certified corporate resolution or other acceptable evidence of
authority.
In certain circumstances, the Trust may advance the time by which redemption and
exchange orders must be received. See "Early Closings" on page __.
Miscellaneous Redemption Information. All redemption proceeds will be sent by
check unless the Transfer Agent is directed otherwise. Redemption proceeds may
also be wired. A redemption request may not be processed if a shareholder has
failed to submit a completed and properly executed new account application,
including a corporate resolution or other acceptable evidence of authority.
The Trust reserves the right to defer crediting, sending or wiring
redemption proceeds for up to 7 days after receiving the redemption order
if, in its judgment, an earlier payment could adversely affect the
Portfolio.
If you are redeeming recently purchased shares, your redemption request
may not be honored until your check or electronic transaction has cleared.
This may delay your transaction for up to 15 days.
Institutions are responsible for transmitting redemption orders to the
Transfer Agent and crediting their Customers' accounts with redemption
proceeds on a timely basis.
Redemption requests by mail must be signed by a person authorized by
acceptable documentation on file with the Transfer Agent.
The Trust 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.
The Trust may require any information reasonably necessary to ensure that
a redemption has been duly authorized. The Trust reserves the right to
change or discontinue any of its redemption procedures.
Exchange Privileges. Institutions and their Customers (to the extent permitted
by their account agreements) may exchange shares of the Portfolio for the same
class of shares of another Portfolio. The registration of both accounts involved
must be identical. A $1,000 minimum investment applies. An exchange is a
redemption of shares of one Portfolio and the purchase of shares of another
Portfolio. It is considered a taxable event and may result in a gain or loss.
The Trust reserves the right to change or discontinue the exchange privilege at
any time upon 60 days written notice to shareholders and to reject any exchange
request. Exchanges are only available in states where an exchange can legally be
made.
Before making an exchange you should read the prospectus for the shares you are
acquiring.
<PAGE>
Telephone Transactions. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, the Transfer Agent has adopted
procedures in an effort to establish reasonable safeguards against fraudulent
telephone transactions. If reasonable measures are taken to verify that
telephone instructions are genuine, the Trust and its service providers will not
be responsible for any loss resulting from fraudulent or unauthorized
instructions received over the telephone. In these circumstances, shareholders
will bear the risk of loss. During periods of unusual market activity, you may
have trouble placing a request by telephone. In this event, consider sending
your request in writing.
The proceeds of redemption orders received by telephone will be sent by check,
wire or transfer according to proper instructions. All checks will be made
payable to the shareholder of record and mailed only to the shareholder's
address of record.
The Trust reserves the right to refuse a telephone redemption.
Making Changes to Your Account Information. You may make changes to wiring
instructions, address of record, or other account information only in writing.
These instructions must be accompanied by a certified corporate resolution,
signature guarantee from an institution participating in the Stock Transfer
Agency Medallion Program ("STAMP"), or other acceptable evidence of authority.
In accordance with SEC regulations, the Trust and Transfer Agent may charge a
shareholder reasonable costs in locating a shareholder's current address.
Business Day. A "Business Day" is each Monday through Friday when the New York
Stock Exchange (the "Exchange") is open for business. A "Business Day" does not
include a holiday observed by the Exchange. In 1999 these days are: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas Day.
Early Closings. The Portfolio reserves the right to cease, or to advance the
time for, accepting purchase, redemption or exchange orders for same Business
Day credit when Northern or the Exchange closes early as a result of unusual
weather or other conditions. It also reserves this right when The Bond Market
Association recommends that securities markets close or close early.
Authorized Intermediaries. The Trust may authorize certain financial
intermediaries (including banks, trust companies, brokers and investment
advisers), which provide recordkeeping, reporting and processing services, to
accept purchase, redemption and exchange orders from their Customers on behalf
of the Trust. They may also designate other intermediaries to accept such
orders, if approved by the Trust. Authorized intermediaries are responsible for
transmitting orders and delivering funds on a timely basis. The Portfolio will
be deemed to have received an order when the order is accepted by the authorized
intermediary on a Business Day, and the order will be priced at the Portfolio's
per share NAV next determined.
Servicing Agents. Certain Institutions may perform (or arrange to have
performed) various administrative support services for Customers who are the
beneficial owners of Class C or D shares through agreements with the Trust
("Servicing Agents"). These agreements are permitted under the Trust's
Shareholder Servicing Plan. The level of support services required by an
Institution and its Customers generally will determine whether they purchase
Class A, C or D shares.
Administrative support services may include:
processing purchase and redemption requests from investors;
placing net purchase and redemption orders with the 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.
The fees paid to Servicing Agents with respect to Class C and Class D Shares
will be borne exclusively by the beneficial owners of Class C and D shares,
respectively. Please note that Northern may also 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 the Portfolio's shares. 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 earned by Northern as Investment Adviser (after adjustments). This
additional compensation will be paid by Northern or its affiliates and will not
represent an additional expense to the Trust or its shareholders.
Customers purchasing shares through an Institution should read their account
agreements carefully. An Institution's requirements may differ from those listed
in this Prospectus. An Institution may also impose account charges, such as
asset allocation fees, account maintenance fees, and other charges that will
reduce the net return on an investment in the Portfolio. If a Customer has
agreed with a particular Institution to maintain a minimum balance with the
Institution and the balance falls below this minimum, the Customer may be
required to redeem all or a part of his investment in the Portfolio.
Conflict of interest restrictions may apply to the receipt of compensation paid
by the Trust to a Servicing Agent in connection with the investment of fiduciary
funds in Portfolio 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.
State securities laws regarding the registration of dealers may differ from
Federal law. As a result, Institutions investing in the Portfolio on behalf of
their Customers may be required to register as dealers.
Dividends and Distributions
Dividends and capital gain distributions of the Portfolio are automatically
reinvested in additional shares of the Portfolio without any sales charge or
additional purchase price amount.
You may, however, elect 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. If you would like to receive
dividends or distributions in cash or have them reinvested in another Portfolio,
you must notify the Transfer Agent in writing at least two days before the
dividend or distribution record date. Dividends and distributions may only be
reinvested in the Portfolio in which you maintain an account.
The Portfolio will declare and pay dividends and capital gains, if any,
annually. The Portfolio may, in some years, make additional dividends or
distributions to the extent necessary for it to avoid incurring unnecessary tax
liabilities.
TAX CONSIDERATIONS
The Portfolio intends to qualify as a regulated investment company for Federal
tax purposes, and to distribute to shareholders substantially all of its net
investment income and net capital gain. The Portfolio's dividends and
distributions will be taxable to you for Federal, state and local income tax
purposes, unless you have a tax-advantaged account. Dividends and distributions
are taxable whether they are received in cash or reinvested in Portfolio shares.
In general, distributions attributable to interest, dividend, certain foreign
exchange gain and short-term capital gain income of the Portfolio are taxable to
you as ordinary income. Distributions attributable to long-term capital gains of
the Portfolio are generally taxable to you as capital gains. This is true no
matter how long you own your shares.
There are certain tax requirements that the Portfolio must follow in order to
avoid Federal taxation. In its efforts to adhere to these requirements, the
Portfolio may have to limit its investment activity in some types of
instruments.
A portion of the dividends paid by the Portfolio may qualify for the
dividends-received deduction for corporations.
The sale of Portfolio shares is a taxable event on which a gain or loss may be
recognized. For tax purposes, an exchange is considered the same as a sale. The
amount of gain or loss is based on the difference between your tax basis in the
Portfolio shares and the amount you receive for them upon disposition.
Generally, you will recognize a long-term capital gain or loss if you have held
your Portfolio shares for over twelve months at the time you sell or exchange
them. Shares held six months or less may also generate a long-term capital loss
to the extent of any capital gains distributions received on the shares while
they were held by you.
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TIMING
Dividends and distributions from the Portfolio will generally be taxable to you
in the tax year in which they are paid, with one exception. Dividends and
distributions declared by the Portfolio in October, November or December and
paid in January are taxed as though they were paid by December 31.
Every year, the Trust will send you information detailing the amount of ordinary
income and capital gains distributed to your account for the previous year.
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<PAGE>
TAX EFFECT
OF "BUYING
A DIVIDEND"
The Portfolio's share price may, at any time, reflect undistributed capital
gains or income and unrealized appreciation. When these amounts are distributed,
they will be taxable to you. For this reason, you should be especially mindful
that if you buy shares on or just before the record date of a dividend or
capital gains distribution, you will pay the full price for the shares and then
receive back a portion of the money you have just invested in the form of a
taxable dividend or capital gain.
Your investment in the Portfolio could have additional tax consequences. You
should consult your tax professional for information regarding all tax
consequences applicable to your investments in the Portfolio. More tax
information is provided in the Statement of Additional Information. This short
summary is not intended as a substitute for careful tax planning.
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Year 2000 Issues
Like every other business dependent upon computerized information processing,
Northern Trust Corporation ("Northern Trust") must deal with "Year 2000" issues.
Many computer systems use two digits rather than four to identify the year.
Unless adapted, these systems may not be able to correctly distinguish the Year
2000 from the Year 1900. 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. This could have a negative
effect on the companies in which the Portfolio invests, thus decreasing the
Portfolio's investment returns.
Northern Trust has implemented steps to prepare its critical computer systems
and processes for Year 2000 processing. It has established 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 of its critical systems. Northern Trust has advised the Trust that it has
substantially completed work on its critical systems and testing with outside
parties.
Northern Trust also has a program to monitor and assess the efforts of other
parties, such as other service providers to the Portfolio. However, it cannot
control the success of those other parties' efforts. Contingency plans are being
established to provide Northern Trust with alternatives in case these entities
experience significant Year 2000 difficulties that impact Northern Trust.
Furthermore, even if the actions taken by Northern Trust are successful, the
normal operations of the Portfolio may, in any event, be disrupted significantly
by the failure of communications and public utility companies, governmental
entities, financial processors or others to perform their services as a result
of Year 2000 problems.
Efforts in foreign countries to remediate potential Year 2000 problems are
not as extensive as those in the United States. As a result, the operations of
foreign markets, foreign issuers, and foreign governments may be disrupted by
the Year 2000 problem and the investment holdings of the Portfolio may be
adversely affected.
<PAGE>
RISKS, SECURITIES AND TECHNIQUES
This section takes a closer look at some of the Portfolio's principal
investment strategies and related risks. It also explores the various investment
securities and techniques that the investment management team may, but is not
required to, use. The Portfolio may invest in other securities and are subject
to further restrictions and risks which are described in the Statement of
Additional Information. You should note that the Portfolio's investment
objective may be changed by the Trust's Board of Trustees without shareholder
approval. Shareholders will, however, be notified of any changes. Any such
change may result in the Portfolio having an investment objective different from
the objective which the shareholder considered appropriate at the time of
investment in the Portfolio.
ADDITIONAL INFORMATION ON PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS
PORTFOLIO TURNOVER. The investment management team will not consider the
Portfolio turnover rate a limiting factor in making investment decisions for the
Portfolio. The Portfolio's annual portfolio turnover rate is not expected to
exceed 200%. A high portfolio turnover rate (100% or more) may involve higher
brokerage commissions and other transaction costs, which could reduce the
Portfolio's return. It may also result in higher short-term capital gains that
are taxable to shareholders. The Trust expects that the annual turnover rate of
the Portfolio will generally not exceed 400%.
SMALL COMPANY INVESTMENTS. Investments in small capitalization companies involve
greater risk and portfolio price volatility than investments in larger
capitalization stocks. Among the reasons for the greater price volatility of
these investments are the less certain growth prospects of smaller firms and the
lower degree of liquidity in the markets for such securities. Small
capitalization companies may be thinly traded and may have to be sold at a
discount from current market prices or in small lots over an extended period of
time. Because of the lack of sufficient market liquidity, the Portfolio may
incur losses because it will be required to effect sales at a disadvantageous
time and only then at a substantial dip in price. Small capitalization companies
include "unseasoned" issuers that do not have an established financial history;
often have limited product lines, markets or financial resources; may depend on
or use a few key personnel for management; and may be susceptible to losses and
risks of bankruptcy. Transaction costs for these investments are often higher
than those of larger capitalization companies. Investments in small
capitalization companies may be more difficult to price precisely than other
types of securities because of their characteristics and lower trading volumes.
TEMPORARY INVESTMENTS. Short-term obligations refer to U.S. government
securities, high-quality money market instruments (including commercial paper
and obligations of foreign and domestic banks such as certificates of deposit,
bank and deposit notes, bankers' acceptances and fixed time deposits) and
repurchase agreements with maturities of 13 months or less. Generally, these
obligations are purchased to provide stability and liquidity to the Portfolio.
INVESTMENT STRATEGY. The Portfolio may invest all or any portion of
its assets in short-term obligations pending investment, to meet
anticipated redemption requests or as a temporary defensive measure
in response to adverse market or economic conditions.
SPECIAL RISKS. The Portfolio may not achieve its investment
objective when its assets are invested in short-term obligations.
ADDITIONAL DESCRIPTION OF SECURITIES AND COMMON INVESTMENT TECHNIQUES
ASSET-BACKED SECURITIES. Asset-backed securities are sponsored by entities such
as government agencies, banks, financial companies and commercial or industrial
companies. They represent interests in pools of mortgages or other cash-flow
producing assets such as automobile loans, credit card receivables and other
financial assets. In effect, these securities "pass through" the monthly
payments that individual borrowers make on their mortgages or other assets net
of any fees paid to the issuers. Examples of these include guaranteed mortgage
pass-through certificates, collateralized mortgage obligations ("CMOs") and real
estate mortgage investment conduits ("REMICs").
INVESTMENT STRATEGY. The Portfolio may purchase various types of
asset-backed securities. The Portfolio will invest in asset-backed
securities rated investment grade (rated "BBB" or better by S&P,
Duff, Fitch or Moody's) at the time of purchase. The Portfolio may
also invest in unrated mortgage-backed securities which the
Investment Adviser believes are of comparable quality.
<PAGE>
SPECIAL RISKS. In addition to credit and market risk, asset-backed
securities involve prepayment risk because the underlying assets
(loans) may be prepaid at any time. The value of these securities may
also change because of actual or perceived changes in the
creditworthiness of the originator, the servicing agent, and the
financial institution providing the credit support or the
counterparty. 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. 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.
Automobile receivables are subject to the risk that the trustee for
the holders of the automobile receivables may not have an effective
security interest in all of the obligations backing the receivables.
BORROWINGS AND REVERSE REPURCHASE AGREEMENTS. The Portfolio can borrow money
from banks and enter into reverse repurchase agreements with banks and other
financial institutions. Reverse repurchase agreements involve the sale of
securities held by the Portfolio subject to the Portfolio's agreement to
repurchase them at a mutually agreed upon date and price (including interest).
INVESTMENT STRATEGY. The Portfolio may borrow in amounts not
exceeding one-third of its total assets (including the amount
borrowed). These transactions may be entered into as a temporary
measure for emergency purposes or to meet redemption requests. The
Portfolio may utilize reverse repurchase agreements when the
investment management team expects that the interest income to be
earned from the investment of the transaction proceeds will be
greater than the related interest expense. The Portfolio's reverse
repurchase agreements, together with any other borrowings, will not
exceed, in the aggregate, 33 1/3% of the value of its total assets.
In addition, whenever borrowings exceed 5% of the Portfolio's total
assets, the Portfolio will not make any investments.
SPECIAL RISKS. Borrowings and reverse repurchase agreements involve
leveraging. If the securities held by the Portfolio decline in value
while these transactions are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by
proportionately more than the decline in value of the securities. In
addition, reverse repurchase agreements involve the risks that the
interest income earned by the Portfolio (from the investment of the
proceeds) will be less than the interest expense of the transaction,
that the market value of the securities sold by the Portfolio will
decline below the price the Portfolio is obligated to pay to
repurchase the securities, and that the securities may not be
returned to the Portfolio.
CONVERTIBLE SECURITIES. A convertible security is a bond or preferred stock that
may be converted (exchanged) into the common stock of the issuing company within
a specified time period for a specified number of shares. They offer the
Portfolio a way 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.
INVESTMENT STRATEGY. The Portfolio may acquire convertible securities.
These securities are subject to the same rating requirements as fixed
income securities held by the Portfolio.
.
<PAGE>
INVESTMENT GRADE SECURITIES. A security is considered investment grade if, at
the time of purchase, it is rated:
BBB or higher by S&P; Baa or higher by Moody's; BBB or higher by Duff;
or BBB or higher by Fitch.
A security will be considered investment grade if it receives one of the above
ratings, even if it receives a lower rating from other rating organizations.
INVESTMENT STRATEGY. Except as stated below, fixed income and convertible
securities purchased by the Portfolio will generally be rated investment
grade. The Portfolio may also invest in unrated securities if the
Investment Adviser believes they are comparable in quality.
SPECIAL RISKS. Although securities rated BBB by Standard and Poor's
Rating Services ("S&P"), Duff & Phelps Credit Rating Co. ("Duff"), Fitch
IBCA Inc. ("Fitch"), or Baa by Moody's Investors Service, Inc.
("Moody's") are considered investment grade, they have certain
speculative characteristics. Therefore, they may be subject to a higher
risk of default than obligations with higher ratings. Subsequent to its
purchase by the Portfolio, a rated security may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by
the Portfolio. The Investment Adviser will consider such an event in
determining whether the Portfolio should continue to hold the security.
DERIVATIVES. The Portfolio may purchase certain "derivative" instruments. A
derivative is a financial instrument whose value is derived from---or based
upon---the performance of underlying assets, interest or currency exchange rates
or indices. Many types of instruments representing a wide range of potential
risks and rewards are derivatives, including futures contracts, options, equity
swaps, structured securities, 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).
INVESTMENT STRATEGY. The Portfolio will invest in derivatives only if
the potential risks and rewards are consistent with the Portfolio's
objective, strategies and overall risk profile. The Portfolio may use
derivatives for hedging purposes to offset a potential loss in one
position by establishing an interest in an opposite position. The
Portfolio may also use derivatives for speculative purposes to invest
for potential income or capital gain.
SPECIAL RISKS. Engaging in derivative transactions involves special
risks, including (a) market risk that the Portfolio's derivatives
position will lose value; (b) credit risk that the counterparty to
the transaction will default; (c) leveraging risk that the value of
the derivative instrument will decline more than the value of the
assets on which it is based; (d) illiquidity risk that the Portfolio
will be unable to sell its position because of lack of market depth
or disruption; (e) pricing risk that the value of a derivative
instrument will be difficult to determine; and (f) operations risk
that loss will occur as a result of inadequate systems or human
error. Many types of derivatives have been recently developed and
have not been tested over complete market cycles. For these reasons,
the Portfolio may suffer a loss whether or not the analysis of the
investment management team is accurate.
EQUITY SWAPS. Equity swaps allow the parties to the swap agreement to exchange
components of return on one equity investment (e.g., a basket of equity
securities or an index) for a component of return on another non-equity or
equity investment, including an exchange of differential rates of return.
INVESTMENT STRATEGY. The Portfolio may invest in equity swaps. Equity
swaps may be used to invest in a market without owning or taking
physical custody of securities in circumstances where direct
investment may be restricted for legal reasons or is otherwise
impractical. Equity swaps may also be used for other purposes, such
as hedging or seeking to increase total return.
SPECIAL RISKS. Equity swaps are derivative instruments and their
values can be very volatile. To the extent that the investment
management team does not accurately analyze and predict the potential
relative fluctuation on the components swapped with the other party,
the Portfolio may suffer a loss. The value of some components of an
equity swap (such as the dividends on a common stock) may also be
sensitive to changes in interest rates. Furthermore, during the
period a swap is outstanding, the Portfolio may suffer a loss if the
counterparty defaults.
<PAGE>
NON-INVESTMENT GRADE SECURITIES. Non-investment grade fixed income and
convertible securities (sometimes referred to as "junk bonds") are generally
rated BB or below by S&P, Duff or Fitch, or Ba by Moody's.
INVESTMENT STRATEGY. The Portfolio may invest up to 15% of its total
assets in non-investment grade securities when the investment management
team determines that such securities are desirable in light of the
Portfolio's investment objective and portfolio mix.
SPECIAL RISKS. Non-investment grade securities are subject to greater
risk than investment grade securities. The market value of these
low-rated securities tends to be more sensitive to individual corporate
developments and changes in interest rates and economic conditions than
higher-rated securities. In addition, they generally present a higher
degree of credit risk. Issuers of low-rated securities are often highly
leveraged, so their ability to repay their debt during an economic
downturn or periods of rising interest rates may be impaired. The risk of
loss due to default by these issuers is also greater because low-rated
securities generally are unsecured and are generally less liquid than
higher quality securities. If an issuer defaulted, the Portfolio could
incur additional expenses seeking recovery of its investment.
FOREIGN INVESTMENTS. Foreign securities include direct investments in non-U.S.
dollar-denominated securities traded outside of the United States and
dollar-denominated securities of foreign issuers. Foreign securities also
include indirect investments such as American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs").
ADRs are U.S. dollar-denominated receipts representing shares of foreign-based
corporations. ADRs are issued by U.S. banks or trust companies, and entitle the
holder to all dividends and capital gains that are paid out on the underlying
foreign shares. EDRs and GDRs are receipts issued by non-U.S. financial
institutions that often trade on foreign exchanges. They represent ownership in
an underlying foreign or U.S. security and are generally denominated in a
foreign currency.
INVESTMENT STRATEGY. The Portfolio may invest up to 25% of its
total assets in foreign securities, including ADRs, EDRs and GDRs.
SPECIAL RISKS. Foreign securities involve special risks and costs.
Foreign securities, and in particular foreign debt securities, are
sensitive to changes in interest rates. In addition, investment in
the securities of foreign governments involves the risk that foreign
governments may default on their obligations or may otherwise not
respect the integrity of their debt. 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 results in an increase in value of a foreign
currency-denominated security in terms of U.S. dollars. A decline in
the value of the foreign currency relative to the U.S. dollar
generally results in a decrease in value of a foreign
currency-denominated security.
Investment in foreign securities may involve 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.
Additional risks are involved when 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. 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. In addition, because the securities settlement
procedures are less developed in these countries, the Portfolio may
be required to deliver securities receiving payment and may also be
unable to complete transactions during market disruptions. As a
result of these and other risks, investments in these countries
generally present a greater risk of loss to the Portfolio.
While the Portfolio's investments may, as permitted, be denominated
in foreign currencies, the portfolio securities and other assets held
by the Portfolio are valued in U.S. dollars. Currency exchange rates
may fluctuate significantly over short periods of time causing the
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. To the extent that the Portfolio is invested in foreign
securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Portfolio's net currency
positions may expose it to risks independent of its securities
positions.
The introduction of a single currency, the euro, on January 1, 1999
for participating nations in the European Economic and Monetary Union
presents unique uncertainties, including the legal treatment of
certain outstanding financial contracts after January 1, 1999 that
refer to existing currencies rather than the euro; the establishment
and maintenance of exchange rates for currencies being converted into
the euro; the fluctuation of the euro relative to non-euro currencies
during the transition period from January 1, 1999 to December 31,
2001 and beyond; whether the interest rate, tax and labor regimes of
European countries participating in the euro will converge over time;
and whether the conversion of the currencies of other countries in
the European Union ("EU"), such as the United Kingdom and Denmark,
into the euro and the admission of other non-EU countries such as
Poland, Latvia and Lithuania as members of the EU may have an impact
on the euro. These or other factors, including political and economic
risks, could cause market disruptions, and could adversely affect the
value of securities held by the Portfolio.
FORWARD CURRENCY EXCHANGE CONTRACTS. A forward currency exchange contract is an
obligation to exchange one currency for another on a future date at a specified
exchange rate.
INVESTMENT STRATEGY. The Portfolio may enter into forward currency
exchange contracts for hedging purposes and to help reduce the risks
and volatility caused by changes in foreign currency exchange rates.
Foreign currency exchange contracts will be used at the discretion of
the investment management team, and the Portfolio is not required to
hedge its foreign currency positions.
SPECIAL RISKS. Forward foreign currency contracts are privately
negotiated transactions, and can have substantial price volatility.
As a result, they offer less protection against default by the other
party than is available for instruments traded on an exchange. When
used for hedging purposes, they tend to limit any potential gain that
may be realized if the value of the Portfolio's foreign holdings
increases because of currency fluctuations. When used for speculative
purposes, forward currency exchange contracts may result in
additional losses that would not otherwise be incurred.
FUTURES CONTRACTS AND RELATED OPTIONS. A futures contract is a type of
derivative instrument that obligates the holder to buy or sell an asset in the
future at an agreed upon price. For example, a futures contract may obligate the
Portfolio, at maturity, to take or make delivery of certain domestic or foreign
securities, the cash value of a securities index or a stated quantity of a
foreign currency. When the Portfolio purchases an option on a futures contract,
it has the right to assume a position as a purchaser or seller of a futures
contract at a specified exercise price during the option period. When the
Portfolio sells an option on a futures contract, it becomes obligated to
purchase or sell a futures contract if the option is exercised.
INVESTMENT STRATEGY. To the extent consistent with its investment
objective, the Portfolio may invest in futures contracts and options
on futures contacts on domestic or foreign exchanges or boards of
trade. They may be used for hedging purposes, to increase total
return or to maintain liquidity to meet potential shareholder
redemptions, invest cash balances or dividends or minimize trading
costs.
The value of the Portfolio's futures contacts may equal up to 100% of
its total assets. However, the Portfolio will not purchase or sell a
futures contract unless, after the transaction, the sum of the
aggregate amount of margin deposits on its existing futures positions
and the amount of premiums paid for related options used for
non-hedging purposes is 5% or less of its total assets.
SPECIAL RISKS. Futures contracts and options present the following
risks: imperfect correlation between the change in market value of
the Portfolio's securities and the price of futures contracts and
options; the possible inability to close a futures contract when
desired; losses due to unanticipated market movements which are
potentially unlimited; and the possible inability of the investment
management team to correctly predict the direction of securities
prices, interest rates, currency exchange rates and other economic
factors. Foreign exchanges or boards of trade generally do not offer
the same protections as U.S. exchanges.
ILLIQUID OR RESTRICTED SECURITIES. Illiquid securities include repurchase
agreements and time deposits with notice/termination dates of more than seven
days, certain variable amount master demand notes that cannot be called within
seven days, certain insurance funding agreements (see below), certain unlisted
over-the-counter options and other securities that are traded in the U.S. but
are subject to trading restrictions because they are not registered under the
Securities Act of 1933, as amended (the "1933 Act").
INVESTMENT STRATEGY. The Portfolio may invest up to 15% of its net
assets in securities that are illiquid. If otherwise consistent with
its investment objective and policies, the Portfolio may purchase
commercial paper issued pursuant to Section 4(2) of the 1933 Act and
domestically traded 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 ("Rule 144A Securities"). These
securities will not be considered illiquid so long as the Investment
Adviser determines, under guidelines approved by the Trust's Board of
Trustees, that an adequate trading market exists.
SPECIAL RISKS. Because illiquid and restricted securities may be
difficult to sell at an acceptable price, they may be subject to
greater volatility and may result in a loss to the Portfolio. The
practice of investing in Rule 144A Securities could increase the
level of the Portfolio's illiquidity during any period that qualified
institutional buyers become uninterested in purchasing these
securities.
INSURANCE FUNDING AGREEMENTS. An insurance funding agreement ("IFA") is an
agreement that requires the Portfolio to make cash contributions to a deposit
fund of an insurance company's general account. The insurance company then
credits interest to the Portfolio for a set time period.
INVESTMENT STRATEGY. The Portfolio may invest in IFAs issued by
insurance companies that meet quality and credit standards
established by the Investment Adviser.
SPECIAL RISKS. IFAs are not insured by a government agency--they are
backed only by the insurance company that issues them. As a result,
they are subject to default risk. In addition, an active secondary
market in IFAs does not currently exist. This means that it may be
difficult to sell an IFA at an appropriate price.
INVESTMENT COMPANIES. To the extent consistent with its investment objective and
policies, the Portfolio may invest in securities issued by other investment
companies, including money market funds and index funds, "country funds" (i.e.,
funds that invest primarily in issuers located in a specific foreign country or
region), S&P's Depository Receipts ("SPDRs") and similar securities of other
issuers.
INVESTMENT STRATEGY. Investments by the Portfolio in other
investment companies will be subject to the limitations of
the 1940 Act.
SPECIAL RISKS. As a shareholder of another investment company, the
Portfolio would be subject to the same risks as any other investor in
that company. In addition, it would bear a proportionate share of any
fees and expenses paid by that company. These would be in addition to
the advisory and other fees paid directly by the Portfolio.
OPTIONS. An option is a type of derivative instrument that gives the holder the
right (but not the obligation) to buy (a "call") or sell (a "put") an asset in
the future at an agreed upon price prior to the expiration date of the option.
INVESTMENT STRATEGY. To the extent consistent with its investment
objective, the Portfolio may write (sell) covered call options, buy
put options, buy call options and write secured put options for
hedging purposes or to earn additional income. Options may relate to
particular securities, foreign or domestic securities indices,
financial instruments and foreign currencies. The Portfolio will not
purchase put and call options in an amount that exceeds 5% of its net
assets at the time of purchase. The total value of the Portfolio's
assets subject to options written by the Portfolio will not be
greater than 25% of its net assets at the time the option is written.
The Portfolio may "cover" a call option by owning the security
underlying the option or through other means. Put options written by
the Portfolio are "secured" if the Portfolio maintains liquid assets
in a segregated account in an amount at least equal to the exercise
price of the option up until the expiration date.
SPECIAL RISKS. Options trading is a highly specialized activity that
involves investment techniques and risks different from those
associated with ordinary Portfolio securities transactions. The value
of options can be highly volatile, and their use can result in loss
if the investment management team is incorrect in its expectation of
price fluctuations. The successful use of options for hedging
purposes also depends in part on the ability of the investment
management team to predict future price fluctuations and the degree
of correlation between the options and securities markets.
The Portfolio will invest and trade in unlisted over-the-counter
options only with firms deemed creditworthy by the Investment
Adviser. 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.
REAL ESTATE INVESTMENT TRUSTS (REITS). REITs are pooled investment vehicles that
invest primarily in either real estate or real estate related loans.
INVESTMENT STRATEGY. The Portfolio may invest in REITs.
SPECIAL RISKS. The value of a REIT is affected by changes in the
value of the properties owned by the REIT or securing mortgage loans
held by the REIT. REITs are dependent upon cash flow from their
investments to repay financing costs and the ability of a REIT's
manager. REITs are also subject to risks generally associated with
investments in real estate. The Portfolio will indirectly bear its
proportionate share of any expenses, including management fees, paid
by a REIT in which it invests.
REPURCHASE AGREEMENTS. Repurchase agreements involve the purchase of securities
by the Portfolio subject to the seller's agreement to repurchase them at a
mutually agreed upon date and price.
INVESTMENT STRATEGY. The Portfolio may enter into repurchase
agreements with financial institutions such as banks and
broker-dealers that are deemed to be creditworthy by the Investment
Adviser. Although the securities subject to a repurchase agreement
may have maturities exceeding one year, settlement of the agreement
will never occur more than one year after the Portfolio acquires the
securities.
SPECIAL RISKS. In the event of a default, the Portfolio will
suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral are less than the
repurchase price and the Portfolio's costs associated with delay and
enforcement of the repurchase agreement. In addition, in the event of
bankruptcy, the Portfolio could suffer additional losses if a court
determines that the Portfolio's interest in the collateral is
unenforceable.
SECURITIES LENDING. In order to generate additional income, the Portfolio may
lend securities on a short-term basis to banks, brokers-dealers or other
qualified institutions. In exchange, the Portfolio will receive collateral equal
to at least 100% of the value of the securities loaned.
INVESTMENT STRATEGY. Securities lending may represent no more than
one-third the value of the Portfolio's total assets (including the
loan collateral). Any cash collateral received by the Portfolio in
connection with these loans may be invested in U.S. government
securities and other liquid high-grade debt obligations.
SPECIAL RISKS. The main risk when lending portfolio securities is
that the borrower might become insolvent or refuse to honor its
obligation to return the securities. In this event, the Portfolio
could experience delays in recovering its securities and may incur a
capital loss. In addition, the Portfolio may incur a loss in
reinvesting the cash collateral it receives.
STRUCTURED SECURITIES. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.
INVESTMENT STRATEGY. The Portfolio may invest in structured
securities to the extent consistent with its investment
objective.
SPECIAL RISKS. The terms of some structured securities may provide
that in certain circumstances no principal is due at maturity and,
therefore, the Portfolio could suffer a total loss of its investment.
Structured securities may be positively or negatively indexed, so
that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity.
In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater
degree of market risk than other types of securities. Structured
securities may also be more volatile, less liquid and more difficult
to accurately price than less complex securities due to their
derivative nature.
UNITED STATES GOVERNMENT OBLIGATIONS. These include U.S. Treasury obligations,
such as bills, notes and bonds, which generally differ only in terms of their
interest rates, maturities and time of issuance. These also include obligations
issued or guaranteed by the U.S. government or its agencies and
instrumentalities. 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.
INVESTMENT STRATEGY. To the extent consistent with its investment
objective, the Portfolio may invest in a variety of U.S. Treasury
obligations and also may invest in obligations issued or guaranteed by
the U.S. government or its agencies and instrumentalities.
SPECIAL RISKS. Not all U.S. government obligations carry the same
credit support. Some, such as those of the Government National
Mortgage Association ("GNMA"), are supported by the full faith and
credit of the United States Treasury. Other obligations, such as
those of the Federal Home Loan Banks, are supported by the right of
the issuer to borrow from the United States Treasury; and others,
such as those issued by 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 instrumentality. 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. In addition, the secondary market for
certain participations in loans made to foreign governments or their
agencies may be limited.
VARIABLE AND FLOATING RATE INSTRUMENTS. Variable and floating rate instruments
have interest rates that are periodically adjusted either at set intervals or
that float at a margin above a generally recognized index rate. These
instruments include 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 a
specified date.
INVESTMENT STRATEGY. The Portfolio may invest in rated and unrated
variable and floating rate instruments to the extent consistent with
its investment objective. Unrated instruments may be purchased by the
Portfolio if they are determined by the Investment Adviser to be of
comparable quality to rated instruments eligible for purchase by the
Portfolio.
SPECIAL RISKS. The market values of inverse floaters are subject
to greater volatility than other variable and floating rate
instruments due to their higher degree of leverage. Because there is
no active secondary market for certain variable and floating rate
instruments, they may be more difficult to sell if the issuer
defaults on its payment obligations or during periods when the
Portfolio is not entitled to exercise its demand rights. As a result,
the Portfolio could suffer a loss with respect to these
instruments.
WARRANTS. A warrant represents the right to purchase a security at a
predetermined price for a specified period of time.
INVESTMENT STRATEGY. The Portfolio may invest up to 5% of its net
assets at the time of purchase in warrants and similar rights. The
Portfolio may also purchase bonds that are issued in tandem with
warrants.
SPECIAL RISKS. Warrants are derivative instruments that present
risks similar to options.
WHEN-ISSUED SECURITIES, DELAYED DELIVERY TRANSACTIONS AND FORWARD COMMITMENTS. A
purchase of "when-issued" securities refers to a transaction made conditionally
because the securities, although authorized, have not yet been issued. A delayed
delivery or forward commitment transaction involves a contract to purchase or
sell securities for a fixed price at a future date beyond the customary
settlement period.
INVESTMENT STRATEGY. The Portfolio may purchase or sell securities on
a when-issued, delayed delivery or forward commitment basis. Although
the Portfolio will generally purchase securities in these
transactions with the intention of acquiring the securities, the
Portfolio may dispose of such securities prior to settlement if the
investment management team deems it appropriate to do so.
SPECIAL RISKS. Purchasing securities on a when-issued, delayed
delivery or forward commitment basis involves the risk that the value
of the securities may decrease by the time they are actually issued
or delivered. Conversely, selling securities in these transactions
involves the risk that the value of the securities may increase by
the time they are actually issued or delivered. These transactions
also involve the risk that the seller may fail to deliver the
security or cash on the settlement date.
ZERO COUPON, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS. These are securities
issued at a discount from their face value because interest payments are
typically postponed until maturity. Interest payments on pay-in-kind securities
are payable by the delivery of additional securities. The amount of the discount
rate varies depending on factors such as the time remaining until maturity,
prevailing interest rates, a security's liquidity and the issuer's credit
quality. These securities also may take the form of debt securities that have
been stripped of their interest payments.
<PAGE>
INVESTMENT STRATEGY. The Portfolio may invest in zero coupon,
pay-in-kind and capital appreciation bonds to the extent
consistent with its investment objective.
SPECIAL RISKS. The market prices of zero coupon, pay-in-kind and
capital appreciation bonds generally are more volatile than the
market prices of interest-bearing securities and are likely to
respond to a greater degree to changes in interest rates than
interest-bearing securities having similar maturities and credit
quality. The Portfolio's investments in zero coupon, pay-in-kind and
capital appreciation bonds may require the Portfolio to sell some of
its Portfolio securities to generate sufficient cash to satisfy
certain income distribution requirements.
For More Information
ANNUAL/
SEMIANNUAL
REPORT
Additional information about the Portfolio's investments will be available in
the Portfolio's annual and semiannual reports to shareholders. In the
Portfolio's annual reports, you will find a discussion of the market conditions
and investment strategies that significantly affected the Portfolio's
performance during its last fiscal year.
STATEMENT OF
ADDITIONAL
INFORMATION
Additional information about the Portfolio and its policies is also available in
the Portfolio's Statement of Additional Information ("SAI"). The SAI is
incorporated by reference into this Prospectus (is legally considered part of
this Prospectus).
The Portfolio's annual and semiannual reports (when they become available), and
the SAI, are available free upon request by calling 1-800-637-1380.
To obtain other information and for shareholder inquiries:
By telephone -- Call 1-800-637-1380
By mail -- Northern Institutional Funds
P.O. Box 75943
Chicago, IL 60675
On the Internet -- Text-only versions of the Portfolio's documents are
available on the SEC's website at http://www.sec.gov
You may review and obtain copies of Trust documents by visiting the SEC's Public
Reference Room in Washington, D.C. You may also obtain copies of Trust documents
by sending your request and a duplicating fee to the SEC's Public Reference
Section, Washington, D.C. 20549-6009. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Northern
Institutional Funds
811-3605
INVESTMENT ADVISER
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
TRANSFER AGENT
AND CUSTODIAN
The Northern Trust Company
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
NORTHERN INSTITUTIONAL FUNDS
SMALL COMPANY GROWTH PORTFOLIO
This Statement of Additional Information dated October 20, 1999 (the
"Additional Statement") is not a prospectus. Copies of the prospectus dated
October 20, 1999 for the Small Company Growth Portfolio (the "Portfolio") of
Northern Institutional Funds (the "Prospectus") may be obtained without charge
by calling 1-800-637-1380 (toll-free). Capitalized terms not otherwise defined
have the same meaning as in the Prospectus.
<PAGE>
INDEX
Page
ADDITIONAL INVESTMENT INFORMATION....................................
Classification and History..................................
Investment Objective, Strategies and Risks..................
Investment Restrictions.....................................
ADDITIONAL TRUST INFORMATION.........................................
Trustees and Officers.......................................
Investment Adviser, Transfer Agent and Custodian............
Portfolio Transactions......................................
Portfolio Valuation.........................................
Co-Administrators and Distributor...........................
Shareholder Servicing Plan..................................
Counsel and Auditors........................................
In-Kind Purchases and Redemptions...........................
PERFORMANCE INFORMATION..............................................
TAXES................................................................
General.....................................................
Foreign Investors...........................................
Conclusion..................................................
DESCRIPTION OF SHARES................................................
OTHER INFORMATION....................................................
FINANCIAL STATEMENTS.................................................
APPENDIX A...........................................................
APPENDIX B...........................................................
No person has been authorized to give any information or to make any
representations not contained in this Additional Statement or in the Prospectus
in connection with the offering made by the Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Trust or its distributor. The Prospectus does not constitute
an offering by the Trust or by the distributor in any jurisdiction in which such
offering may not lawfully be made.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. An investment in the Portfolio involves investment risks,
including possible loss of principal.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
Classification and History
Northern Institutional Funds (the "Trust") is an open-end, management
investment company. The Portfolio is classified as diversified under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Portfolio is a series of the Trust, which was formed as a Delaware
business trust on July 1, 1997 under an Agreement and Declaration of Trust (the
"Trust Agreement"). The Trust is the result of a reorganization of a
Massachusetts business trust known as The Benchmark Funds on March 31, 1998. The
Trust's name was changed from The Benchmark Funds to the Northern Institutional
Funds on July 15, 1998. The Trust also offers six fixed income, five money
market, one balanced and six other equity portfolios, which are not described in
this document.
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
The following supplements the investment objective, strategies and
risks of the Portfolio as set forth in the Prospectus. Except as expressly noted
below, the Portfolio's investment objective and policies may be changed without
shareholder approval.
Commercial Paper, Bankers' Acceptances, Certificates of Deposit, Time
Deposits and Bank Notes. Commercial paper represents short-term unsecured
promissory notes issued in bearer form by banks or bank holding companies,
corporations and finance companies. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers' acceptances are
negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Fixed time deposits are bank obligations payable
at a stated maturity date and bearing interest at a fixed rate. Fixed time
deposits may be withdrawn on demand by the investor, but may be subject to early
withdrawal penalties that vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party. Bank notes and bankers' acceptances rank junior to deposit liabilities of
the bank and pari passu with other senior, unsecured obligations of the bank.
Bank notes are classified as "other borrowings" on a bank's balance sheet, while
deposit notes and certificates of deposit are classified as deposits. Bank notes
are not insured by the Federal Deposit Insurance Corporation or any other
insurer. Deposit notes are insured by the Federal Deposit Insurance Corporation
only to the extent of $100,000 per depositor per bank.
The Portfolio may invest a portion of its net assets in the obligations
of foreign banks and foreign branches of domestic banks. Such obligations
include Eurodollar Certificates of Deposit ("ECDs"), which are U.S.
dollar-denominated certificates of deposit issued by offices of foreign and
domestic banks located outside the United States; Eurodollar Time Deposits
("ETDs"), which are U.S. dollar-denominated deposits in a foreign branch of a
U.S. bank or a foreign bank; Canadian Time Deposits ("CTDs"), which are
essentially the same as ETDs except they are issued by Canadian offices of major
Canadian banks; Schedule Bs, which are obligations issued by Canadian branches
of foreign or domestic banks; Yankee Certificates of Deposit ("Yankee Cds"),
which are U.S. dollar-denominated certificates of deposit issued by a U.S.
branch of a foreign bank and held in the United States; and Yankee Bankers'
Acceptances ("Yankee Bas"), which are U.S. dollar-denominated bankers'
acceptances issued by a U.S. branch of a foreign bank and held in the United
States.
Insurance Funding Agreements. An insurance funding agreement ("IFA") is
normally a general obligation of the issuing insurance company and not a
separate account. The purchase price paid for an IFA becomes part of the general
assets of the insurance company, and the contract is paid from the company's
general assets. Generally, IFAs are not assignable or transferable without the
permission of the issuing insurance companies, and an active secondary market in
IFAs may not exist. Therefore, IFAs will be subject to the Portfolio's
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.
Zero Coupon, Pay-In-Kind and Capital Appreciation Bonds. To the extent
consistent with its investment objective, the Portfolio may invest in zero
coupon bonds, capital appreciation bonds and pay-in-kind ("PIK") securities.
Zero coupon and capital appreciation bonds are debt securities issued or sold at
a discount from their face value and which do not entitle the holder to any
periodic payment of interest prior to maturity or a specified date. The original
issue discount varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, the liquidity of the security and the
perceived credit quality of the issuer. These securities also may take the form
of debt securities that have been stripped of their unmatured interest coupons,
the coupons themselves or receipts or certificates representing interests in
such stripped debt obligations or coupons. The market prices of zero coupon
bonds, capital appreciation bonds and PIK securities generally are more volatile
than the market prices of interest bearing securities and are likely to respond
to a greater degree to changes in interest rates than interest bearing
securities having similar maturities and credit quality.
PIK securities may be debt obligations or preferred shares that
provide the issuer with the option of paying interest or dividends on
such obligations in cash or in the form of additional securities
rather than cash. Similar to zero coupon bonds, PIK securities are
designed to give an issuer flexibility in managing cash flow. PIK
securities that are debt securities can either be senior or
subordinated debt and generally trade flat (i.e., without accrued
interest). The trading price of PIK debt securities generally
reflects the market value of the underlying debt plus an amount
representing accrued interest since the last interest payment.
Zero coupon bonds, capital appreciation bonds and PIK securities
involve the additional risk that, unlike securities that periodically pay
interest to maturity, the Portfolio will realize no cash until a specified
future payment date unless a portion of such securities is sold and, if the
issuer of such securities defaults, the Portfolio may obtain no return at all on
its investment. In addition, even though such securities do not provide for the
payment of current interest in cash, the Portfolio is nonetheless required to
accrue income on such investments for each taxable year and generally is
required to distribute such accrued amounts (net of deductible expenses, if any)
to avoid being subject to tax. Because no cash is generally received at the time
of the accrual, the Portfolio may be required to liquidate other portfolio
securities to obtain sufficient cash to satisfy federal tax distribution
requirements applicable to the Portfolio.
Repurchase Agreements. The Portfolio may 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"). Repurchase agreements are considered to be loans under the
Investment Company Act of 1940 (the "1940 Act"). Although the securities subject
to a repurchase agreement may bear maturities exceeding one year, settlement for
the repurchase agreement will never be more than one year after the Portfolio's
acquisition of the securities and normally will be within a shorter period of
time. Securities subject to repurchase agreements are held either by the Trust's
custodian or subcustodian (if any), or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
maintain the value of the securities subject to the agreement in an amount
exceeding the repurchase price (including accrued interest). Default by the
seller would, however, expose the Portfolio to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.
Reverse Repurchase Agreements. The Portfolio may borrow funds by
selling portfolio securities to financial institutions such as banks and
broker/dealers and agreeing to repurchase them at a mutually specified date and
price ("reverse repurchase agreements"). The Portfolio may use the proceeds of
reverse repurchase agreements to purchase other securities either maturing, or
under an agreement to resell, on a date simultaneous with or prior to the
expiration of the reverse repurchase agreement. Reverse repurchase agreements
are considered to be borrowings under the 1940 Act. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Portfolio may decline below the repurchase price. The Portfolio will pay
interest on amounts obtained pursuant to a reverse repurchase agreement. While
reverse repurchase agreements are outstanding, the Portfolio will segregate
liquid assets in an amount at least equal to the market value of the securities,
plus accrued interest, subject to the agreement.
Variable and Floating Rate Instruments. With respect to the variable
and floating rate instruments that may be acquired by the Portfolio as described
in the Prospectus, the Investment Adviser will consider the earning power, cash
flows and other liquidity ratios of the issuers and guarantors of such
instruments and, if the instruments are subject to demand features, will monitor
their financial status and ability to meet payment on demand. In determining
weighted average portfolio maturity, an instrument may, subject to applicable
Securities and Exchange Commission ("SEC") regulations, be deemed to have a
maturity shorter than its nominal maturity based on the period remaining until
the next interest rate adjustment or the time the Portfolio can recover payment
of principal as specified in the instrument. Where necessary to ensure that a
variable or floating rate instrument is of the minimum required credit quality
for the Portfolio, the issuer's obligation to pay the principal of the
instrument will be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend.
The Portfolio 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. Unrated variable and floating
rate instruments will be determined by the Investment Adviser to be of
comparable quality at the time of purchase to rated instruments which may be
purchased by the Portfolio.
Variable and floating rate instruments including inverse floaters held
by the Portfolio will be subject to the Portfolio's limitation on illiquid
investments when the Portfolio may not demand payment of the principal amount
within seven days absent a reliable trading market.
Forward Commitments, When-Issued Securities and Delayed-Delivery
Transactions. The Portfolio may purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment (sometimes called delayed
delivery) basis. These transactions involve a commitment by the Portfolio to
purchase or sell securities at a future date. The price of the underlying
securities (usually expressed in terms of yield) and the date when the
securities will be delivered and paid for (the settlement date) are fixed at the
time the transaction is negotiated. When-issued purchases and forward commitment
transactions are normally negotiated directly with the other party.
The Portfolio will purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, the
Portfolio may dispose of or negotiate a commitment after entering into it. The
Portfolio also may sell securities it has committed to purchase before those
securities are delivered to the Portfolio on the settlement date.
When the Portfolio purchases securities on a when-issued,
delayed-delivery or forward commitment basis, the Portfolio will segregate
liquid assets having a value (determined daily) at least equal to the amount of
the Portfolio's purchase commitments until three days prior to the settlement
date, or will otherwise cover its position. These procedures are designed to
ensure that the Portfolio will maintain sufficient assets at all times to cover
its obligations under when-issued purchases, forward commitments and
delayed-delivery transactions. For purposes of determining the Portfolio's
average dollar-weighted maturity, the maturity of when-issued, delayed-delivery
or forward commitment securities will be calculated from the commitment date.
United States Government Obligations. Examples of the types of U.S.
Government obligations that may be acquired by the Portfolio include U.S.
Treasury Bills, Treasury Notes and Treasury Bonds and the obligations of Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Federal National Mortgage
Association ("FNMA"), Government National Mortgage Association ("GNMA"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks and Maritime
Administration.
Supranational Bank Obligations. The Portfolio may invest in obligations
of supranational banks. Supranational banks are international banking
institutions designed or supported by national governments to promote economic
reconstruction, development or trade among nations (e.g., the International Bank
for Reconstruction and Development). Obligations of supranational banks may be
supported by appropriated but unpaid commitments of their member countries and
there is no assurance that these commitments will be undertaken or met in the
future.
Stripped Obligations. The Treasury Department has facilitated transfers
of ownership of zero coupon securities by accounting separately for the
beneficial ownership of particular interest coupon and principal payments on
Treasury securities through the Federal Reserve book-entry record-keeping
system. The Federal Reserve program as established by the Treasury Department is
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." The Portfolio may purchase securities registered in the STRIPS
program. Under the STRIPS program, the Portfolio is able to have its beneficial
ownership of zero coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
In addition, the Portfolio may acquire U.S. Government obligations and
their unmatured interest coupons that have been separated ("stripped") by their
holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury
Securities" ("CATS"). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. The underlying
U.S. Treasury bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are ostensibly owned by the bearer or holder), in trust on
behalf of the owners. Counsel to the underwriters of these certificates or other
evidences of ownership of U.S. Treasury securities have stated that, in their
opinion, purchasers of the stripped securities most likely will be deemed the
beneficial holders of the underlying U.S. Government obligations for federal tax
purposes. The Trust is unaware of any binding legislative, judicial or
administrative authority on this issue.
Other types of stripped securities that may be purchased by the
Portfolio include stripped mortgage-backed securities ("SMBS"). SMBS are usually
structured with two or more classes that receive different proportions of the
interest and principal distributions from a pool of mortgage-backed obligations.
A common type of SMBS will have one class receiving all of the interest, while
the other class receives all of the principal. However, in some instances, one
class will receive some of the interest and most of the principal while the
other class will receive most of the interest and the remainder of the
principal. If the underlying obligations experience greater than anticipated
prepayments of principal, the Portfolio may fail to fully recoup its initial
investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are also volatile
and there is a risk that the initial investment will not be fully recouped. SMBS
issued by the U.S. Government (or a U.S. Government agency or instrumentality)
may be considered liquid under guidelines established by the Trust's Board of
Trustees if they can be disposed of promptly in the ordinary course of business
at a value reasonably close to that used in the calculation of the net asset
value per share.
Asset-Backed Securities. To the extent described in the Prospectus, the
Portfolio may purchase asset-backed securities, which are securities backed by
mortgages, installment contracts, credit card receivables or other assets.
Asset-backed securities represent interests in "pools" of assets in which
payments of both interest and principal on the securities are made periodically,
thus in effect "passing through" such payments made by the individual borrowers
on the assets that underlie the securities, net of any fees paid to the issuer
or guarantor of the securities. The average life of asset-backed securities
varies with the maturities of the underlying instruments, and the average life
of a mortgage-backed instrument, in particular, is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as a result of mortgage prepayments. For this and other reasons, an asset-backed
security's stated maturity may be shortened, and the security's total return may
be difficult to predict precisely.
If an asset-backed security is purchased at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if an asset-backed security is
purchased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore, prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments.
Asset-backed securities acquired by the Portfolio may include
collateralized mortgage obligations ("CMOs") issued by private companies. CMOs
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
ordinarily elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in a variety of ways. The Portfolio will not purchase "residual" CMO interests,
which normally exhibit greater price volatility.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes"), which are guaranteed as to the timely payment of principal and interest
by GNMA and backed by the full faith and credit of the United States. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA certificates also are supported by the authority of GNMA
to borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-backed securities issued by FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes"), which are solely the
obligations of FNMA and are not backed by or entitled to the full faith and
credit of the United States, but are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-related securities
issued by the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC
Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs").
FHLMC is a corporate instrumentality of the United States, created pursuant to
an Act of Congress, which is owned entirely by Federal Home Loan Banks. Freddie
Macs are not guaranteed and do not constitute a debt or obligation of the United
States or of any Federal Home Loan Bank. Freddie Macs entitle the holder to
timely payment of interest, which is guaranteed by FHLMC. FHLMC guarantees
either ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the underlying collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
Warrants. The Portfolio may purchase warrants and similar rights, which
are privileges issued by corporations enabling the owners to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying shares. The purchase of warrants
involves the risk that the Portfolio could lose the purchase value of a warrant
if the right to subscribe to additional shares is not exercised prior to the
warrant's expiration. Also, the purchase of warrants involves the risk that the
effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
Foreign Securities. The Portfolio may invest a portion of its assets in
the securities of foreign issuers, including eurodollar convertible securities,
which are fixed income securities that are issued in U.S. dollars outside the
United States and are convertible into or exchangeable for equity securities of
the same or a different issuer.
Investment in foreign securities involves special risks. These include
market risk, interest rate risk and the risks of investing in securities of
foreign issuers and of companies whose securities are principally traded outside
the United States and in investments denominated in foreign currencies. Market
risk involves the possibility that stock prices will decline over short or even
extended periods. The stock markets tend to be cyclical, with periods of
generally rising prices and periods of generally declining prices. These cycles
will affect the value of the Portfolio to the extent that it invests in foreign
stocks. The holdings of the Portfolio, to the extent that it invests in fixed
income securities, will be sensitive to changes in interest rates and the
interest rate environment. Generally, the prices of bonds and debt securities
fluctuate inversely with interest rate changes. In addition, the performance of
investments in securities denominated in a foreign currency will depend 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.
There are other risks and costs involved in investing in foreign
securities which are in addition to the usual risks inherent in domestic
investments. Investment in foreign securities 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 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 the adoption of other
governmental restrictions might adversely affect an investment in foreign
securities. Additionally, foreign banks and foreign branches of domestic banks
are subject to less stringent reserve requirements, and to different accounting,
auditing and recordkeeping requirements.
The Portfolio may invest in foreign debt, including the securities of
foreign governments. Several risks exist concerning such investments, 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.
To the extent consistent with its investment objective, the Portfolio
may also invest in obligations of the International Bank for Reconstruction and
Development (also known as the World Bank) which are supported by subscribed,
but unpaid, commitments of its member countries. There is no assurance that
these commitments will be undertaken or complied with in the future.
The end of the Cold War, the reunification of Germany, the accession of
new Western European members to the European Economic and Monetary 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 social and
political developments there have affected Japanese securities and currency
markets, and have disrupted the relationship of the Japanese yen with other
currencies and with the U.S. dollar. Future political, economic and social
developments in Japan and in the Asia/Pacific regional context can be expected
to produce continuing effects on securities and currency markets.
Although the Portfolio may invest in securities denominated in foreign
currencies, its portfolio securities and other assets are valued in U.S.
dollars. Currency exchange rates may fluctuate significantly over short periods
of time causing, together with other factors, the 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. To the extent that the Portfolio's total assets, adjusted to reflect the
Portfolio's net position after giving effect to currency transactions, are
denominated in the currencies of foreign countries, the Portfolio will be more
susceptible to the risk of adverse economic and political developments within
those countries. The Portfolio is also subject to the possible imposition of
exchange control regulations or freezes on the convertibility of currency.
Dividends and interest payable on the Portfolio's foreign portfolio
securities may be subject to foreign withholding taxes. To the extent such taxes
are not offset by credits or deductions allowed to investors under U.S. federal
income tax law, they may reduce the net return to the shareholders. See "Taxes."
American Depository Receipts. The Portfolio can invest in ADRs. 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. Some institutions issuing ADRs 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.
European Depository Receipts. The Portfolio can also invest in EDRs and
GDRs. EDRs and GDRs are receipts issued by a non-U.S. financial institution
evidencing ownership of underlying foreign or U.S. securities and are usually
denominated in foreign currencies. EDRs and GDRs may not be denominated in the
same currency as the securities they represent. Generally, EDRs and GDRs are
designed for use in the foreign securities markets.
Foreign Currency Transactions. In order to protect against a possible
loss on investments resulting from a decline or appreciation in the value of a
particular foreign currency against the U.S. dollar or another foreign currency
or for other reasons, the Portfolio is authorized to enter into forward currency
exchange contracts. These contracts involve an obligation to purchase or sell a
specified currency at a future date at a price set at the time of the contract.
Forward currency contracts do not eliminate fluctuations in the values of
portfolio securities but rather may allow the Portfolio to establish a rate of
exchange for a future point in time.
When entering into a contract for the purchase or sale of a security,
the Portfolio may enter into a forward foreign currency exchange contract for
the amount of the purchase or sale price to protect against variations, between
the date the security is purchased or sold and the date on which payment is made
or received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.
In addition, when the Investment Adviser anticipates that a particular
foreign currency may decline substantially relative to the U.S. dollar or other
leading currencies, in order to reduce risk, the Portfolio may enter into a
forward contract to sell, for a fixed amount, the amount of foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. Similarly, when the securities held by the Portfolio
create a short position in a foreign currency, the Portfolio may enter into a
forward contract to buy, for a fixed amount, an amount of foreign currency
approximating the short position. The Portfolio's net long and short foreign
currency exposure will not exceed its total asset value. With respect to any
forward foreign currency contract, it will not generally be possible to match
precisely the amount covered by that contract and the value of the securities
involved due to the changes in the values of such securities resulting from
market movements between the date the forward contract is entered into and the
date it matures. While forward contracts may offer protection from losses
resulting from declines or appreciation in the value of a particular foreign
currency, they also limit potential gains which might result from changes in the
value of such currency. The Portfolio will also incur costs in connection with
forward foreign currency exchange contracts and conversions of foreign
currencies and U.S. dollars.
Liquid assets equal to the amount of the Portfolio's assets that could
be required to consummate forward contracts will be segregated except to the
extent the contracts are otherwise "covered." The segregated assets will be
valued at market or fair value. If the market or fair value of such assets
declines, additional liquid assets will be segregated daily so that the value of
the segregated assets will equal the amount of such commitments by the
Portfolio. A forward contract to sell a foreign currency is "covered" if the
Portfolio owns the currency (or securities denominated in the currency)
underlying the contract, or holds a forward contract (or call option) permitting
the Portfolio to buy the same currency at a price that is (i) no higher than the
Portfolio's price to sell the currency or (ii) greater than the Portfolio's
price to sell the currency provided the Portfolio segregates liquid assets in
the amount of the difference. A forward contract to buy a foreign currency is
"covered" if the Portfolio holds a forward contract (or put option) permitting
the Portfolio to sell the same currency at a price that is (i) as high as or
higher than the Portfolio's price to buy the currency or (ii) lower than the
Portfolio's price to buy the currency provided the Portfolio segregates liquid
assets in the amount of the difference.
Options. The Portfolio may buy put options and buy call options and
write covered call and secured put options. Such options may relate to
particular securities, foreign and domestic securities indices, financial
instruments or foreign currencies, and may or may not be listed on a domestic or
foreign securities exchange and may or may not be issued by the Options Clearing
Corporation. A call option for a particular security gives the purchaser of the
option the right to buy, and a writer the obligation to sell, the underlying
security at the stated exercise price prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligation under the option contract. A
put option for a particular security gives the purchaser the right to sell the
security at the stated exercise price prior to the expiration date of the
option, regardless of the market price of the security. Options on indices and
yield curve options provide the holder with the right to make or receive a cash
settlement upon exercise of the option. With respect to options on indices, the
amount of the settlement will equal 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. With respect to yield curve options, the
amount of the settlement will equal the difference between the yields of
designated securities.
Options trading is a highly specialized activity which entails greater
than ordinary investment risk. Options may be more volatile than the underlying
instruments and, therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in the underlying
instruments themselves.
The Portfolio will write call options only if they are "covered." In
the case of a call option on a security or currency, the option is "covered" if
the Portfolio owns the instrument underlying the call or has an absolute and
immediate right to acquire that instrument without additional cash consideration
(or, if additional cash consideration is required, liquid assets in such amount
are segregated) upon conversion or exchange of other securities held by it. For
a call option on an index, the option is covered if the Portfolio maintains with
its custodian securities comprising the index or liquid assets equal to the
contract value. A call option is also covered if the Portfolio holds a call on
the same instrument 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
Portfolio segregates liquid assets in the amount of the difference. The
Portfolio will write put options only if they are "secured" by segregated liquid
assets in an amount not less than the exercise price of the option at all times
during the option period.
The Portfolio's obligation to sell an instrument subject to a covered
call option written by it, or to purchase an instrument subject to a secured put
option written by it, may be terminated prior to the expiration date of the
option by the Portfolio's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying instrument, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding option, to prevent an underlying instrument from being
called, to permit the sale of the underlying instrument or to permit the writing
of a new option containing different terms on such underlying instrument. The
cost of such a liquidation purchase plus transaction costs may be greater than
the premium received upon the original option, in which event the Portfolio will
have incurred a loss in the transaction. There is no assurance that a liquid
secondary market will exist for any particular option. An option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying instrument (in the case of a covered call option) or liquidate the
segregated assets (in the case of a secured put option) until the option expires
or the optioned instrument or currency is delivered upon exercise with the
result that the writer in such circumstances will be subject to the risk of
market decline or appreciation in the instrument during such period.
When the Portfolio purchases an option, the premium paid by it is
recorded as an asset of the Portfolio. When the Portfolio writes an option, an
amount equal to the net premium (the premium less the commission) received by
the Portfolio is included in the liability section of the Portfolio's statement
of assets and liabilities as a deferred credit. The amount of this asset or
deferred credit will be subsequently marked-to-market to reflect the current
value of the option purchased or written. The current value of the traded option
is the last sale price or, in the absence of a sale, the current bid price. If
an option purchased by the Portfolio expires unexercised, the Portfolio realizes
a loss equal to the premium paid. If the Portfolio enters into a closing sale
transaction on an option purchased by it, the Portfolio will realize a gain if
the premium received by the Portfolio on the closing transaction is more than
the premium paid to purchase the option, or a loss if it is less. If an option
written by the Portfolio expires on the stipulated expiration date or if the
Portfolio enters into a closing purchase transaction, it will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the net premium
received when the option is sold) and the deferred credit related to such option
will be eliminated. If an option written by the Portfolio is exercised, the
proceeds of the sale will be increased by the net premium originally received
and the Portfolio will realize a gain or loss.
There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded
over-the-counter or on an exchange may be absent for reasons which include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities or currencies; unusual or unforeseen circumstances may interrupt
normal operations on an exchange; the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
value; or one or more exchanges could, for economic or other reasons, decide or
be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
Futures Contracts and Related Options. The Portfolio may purchase and
sell futures contracts and may purchase and sell call and put options on futures
contracts for hedging purposes, for speculative purposes (to seek to increase
total return), or for liquidity management purposes. When used as a hedge, the
Portfolio may sell a futures contract in order to offset a decrease in the
market value of its portfolio securities that might otherwise result from a
market decline or currency exchange fluctuations. The Portfolio may do so either
to hedge the value of its portfolio of securities as whole, or to protect
against declines, occurring prior to sales of securities, in the value of the
securities to be sold. Conversely, the Portfolio may purchase a futures contract
as a hedge in anticipation of purchases of securities. In addition, the
Portfolio may utilize futures contracts in anticipation of changes in the
composition of its portfolio holdings. For a detailed description of futures
contracts and related options, see Appendix B to this Additional Statement.
Participation in foreign futures and foreign options transactions
involves the execution and clearing of trades on or subject to the rules of a
foreign board of trade. Neither the National Futures Association nor any
domestic exchange regulates activities of any foreign boards of trade, including
the execution, delivery and clearing of transactions, or has the power to compel
enforcement of the rules of a foreign board of trade or any applicable foreign
law. This is true even if the exchange is formally linked to a domestic market
so that a position taken on the market may be liquidated by a transaction on
another market. Moreover, such laws or regulations will vary depending on the
foreign country in which the foreign futures or foreign options transaction
occurs. For these reasons, persons who trade foreign futures or foreign options
contracts may not be afforded certain of the protective measures provided by the
Commodity Exchange Act, the Commodity Futures Trading Commission's ("CFTC")
regulations and the rules of the National Futures Association and any domestic
exchange, including the right to use reparations proceedings before the CFTC and
arbitration proceedings provided them by the National Futures Association or any
domestic futures exchange. In particular, the Portfolio's investments in foreign
futures or foreign options transactions may not be provided the same protections
in respect of transactions on United States futures exchanges. In addition, the
price of any foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance in the foreign
exchange rate between the time an order is placed and the time it is liquidated,
offset or exercised. For a detailed description of futures contracts and related
options, see Appendix B to this Additional Statement.
In connection with the Portfolio's position in a futures contract or
related option, the Portfolio will segregate liquid assets or will otherwise
cover its position in accordance with applicable SEC requirements.
The Trust intends to comply with the regulations of the Commodity
Futures Trading Commission exempting the Portfolio from registration as a
"commodity pool operator."
Real Estate Investment Trusts. The Portfolio may invest in equity real
estate investment trusts ("REITs"). REITs pool investors' funds for investment
primarily in commercial real estate properties. Investments in REITs may subject
the Portfolio to certain risks. REITs may be affected by changes in the value of
the underlying property owned by the trusts. REITs are dependent upon
specialized management skill, may not be diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for the beneficial tax treatment available to REITs under the
Internal Revenue Code of 1986, as amended, and to maintain exemption from the
1940 Act. As a shareholder in a REIT, the Portfolio would bear, along with other
shareholders, its pro rata portion of the REIT's operating expenses. These
expenses would be in addition to the advisory and other expenses the Portfolio
bears directly in connection with its own operations.
Securities Lending. Collateral for loans of portfolio securities made
by the Portfolio may consist of cash, cash equivalents, securities issued or
guaranteed by the U.S. Government or its agencies or irrevocable bank letters of
credit (or any combination thereof). The borrower of securities will be required
to maintain the market value of the collateral at not less than the market value
of the loaned securities, and such value will be monitored on a daily basis.
When the Portfolio lends its securities, it continues to receive dividends and
interest on the securities loaned and may simultaneously earn interest on the
investment of the cash collateral. Although voting rights, or rights to consent,
attendant to securities on loan pass to the borrower, such loans will be called
so that the securities may be voted by the Portfolio if a material event
affecting the investment is to occur.
Equity Swaps. The Portfolio may enter into equity swap contracts to
invest in a market without owning or taking physical custody of securities in
circumstances in which direct investment is restricted for legal reasons or is
otherwise impracticable. Equity swaps may also be used for hedging purposes or
to seek to increase total return. The counterparty to an equity swap contract
will typically be a bank, investment banking firm or broker/dealer. Equity swap
contracts may be structured in different ways. For example, a counterparty may
agree to pay the Portfolio the amount, if any, by which the notional amount of
the equity swap contract would have increased in value had it been invested in
particular stocks (or an index of stocks), plus the dividends that would have
been received on those stocks. In these cases, the Portfolio may agree to pay to
the counterparty the amount, if any, by which that notional amount would have
decreased in value had it been invested in the stocks. Therefore, the return to
the Portfolio on any equity swap contract should be the gain or loss on the
notional amount plus dividends on the stocks less the interest paid by the
Portfolio on the notional amount. In other cases, the counterparty and the
Portfolio may each agree to pay the other the difference between the relative
investment performances that would have been achieved if the notional amount of
the equity swap contract had been invested in different stocks (or indices of
stocks).
The Portfolio will enter into equity swaps only on a net basis, which
means that the two payment streams are netted out, with the Portfolio receiving
or paying, as the case may be, only the net amount of the two payments. Payments
may be made at the conclusion of an equity swap contract or periodically during
its term. Equity swaps do not involve the delivery of securities or other
underlying assets. Accordingly, the risk of loss with respect to equity swaps is
limited to the net amount of payments that the Portfolio is contractually
obligated to make. If the other party to an equity swap defaults, the
Portfolio's risk of loss consists of the net amount of payments that the
Portfolio is contractually entitled to receive, if any. Inasmuch as these
transactions are entered into for hedging purposes or are offset by segregated
cash or liquid assets to cover the Portfolio's potential exposure, the Portfolio
and the Investment Adviser believe that transactions do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to the Portfolio's borrowing restrictions.
<PAGE>
The Portfolio will not enter into any equity swap transactions 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 Standard & Poor's, Duff &
Phelps or Fitch IBCA, or A or P-1 or better by Moody's Investors Service. If
there is a default by the other party to such a transaction, the Portfolio will
have contractual remedies pursuant to the agreements related to the transaction.
The use of equity swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Investment Adviser is incorrect in its
forecasts of market values, the investment performance of the Portfolio would be
less favorable than it would have been if this investment technique were not
used.
Convertible Securities. Convertible securities entitle the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible securities mature or are redeemed, converted or exchanged.
Prior to conversion, convertible securities have characteristics similar to
ordinary debt securities in that they normally provide a stable stream of income
with generally higher yields than those of common stock of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure and therefore generally entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security.
In selecting convertible securities, the Investment Adviser will
consider, among other factors: an evaluation of the creditworthiness of the
issuers of the securities; the interest or dividend income generated by the
securities; the potential for capital appreciation of the securities and the
underlying common stocks; the prices of the securities relative to other
comparable securities and to the underlying common stocks; whether the
securities are entitled to the benefits of sinking funds or other protective
conditions; diversification of the Portfolio securities as to issuers; and
whether the securities are rated by a rating agency and, if so, the ratings
assigned.
The value of convertible securities is a function of their investment
value (determined by yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
their conversion value (their worth, at market value, if converted into the
underlying common stock). The investment value of convertible securities is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline, and by the
credit standing of the issuer and other factors. The conversion value of
convertible securities is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible securities is governed principally by their
investment value. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
securities will be increasingly influenced by their conversion value. In
addition, convertible securities generally sell at a premium over their
conversion value determined by the extent to which investors place value on the
right to acquire the underlying common stock while holding fixed income
securities.
Capital appreciation for the Portfolio may result from an improvement
in the credit standing of an issuer whose securities are held in the Portfolio
or from a general lowering of interest rates, or a combination of both.
Conversely, a reduction in the credit standing of an issuer whose securities are
held by the Portfolio or a general increase in interest rates may be expected to
result in capital depreciation to the Portfolio.
In general, investments in lower quality convertible securities are
subject to a significant risk of a change in the credit rating or financial
condition of the issuing entity. Investments in convertible securities of medium
or lower quality are also likely to be subject to greater market fluctuation and
to greater risk of loss of income and principal due to default than investments
of higher quality fixed-income securities. Such lower quality securities
generally tend to reflect short-term corporate and market developments to a
greater extent than higher quality securities, which react more to fluctuations
in the general level of interest rates. The Portfolio will generally reduce risk
to the investor by diversification, credit analysis and attention to current
developments in trends of both the economy and financial markets. However, while
diversification reduces the effect on the Portfolio of any single investment, it
does not reduce the overall risk of investing in lower quality securities.
Risks Related to Small Company Securities. While the Investment Adviser
believes that smaller companies can provide greater growth potential than
larger, more mature firms, investing in the securities of such companies also
involves greater risk, portfolio price volatility and cost. Historically, small
capitalization stocks, which will be the Portfolio's primary investments, and
stocks of recently organized companies, in which the Portfolio may also invest,
have been more volatile in price than the larger capitalization stocks included
in the S&P 500 Index. Among the reasons for this greater price volatility are
the lower degree of market liquidity (the securities of companies with small
stock market capitalizations may trade less frequently and in limited volume)
and the greater sensitivity of small companies to changing economic conditions.
For example, these companies are associated with higher investment risk due to
the greater business risks of small size and limited product lines, markets,
distribution channels and financial and managerial resources.
The values of small company stocks will frequently fluctuate
independently of the values of larger company stocks. Small company stocks may
decline in price as large company stock prices rise, or rise in price as large
company stock prices decline. You should, therefore, expect that the net asset
value of the Portfolio's shares will be more volatile than, and may fluctuate
independently of, broad stock market indices such as the S&P 500 Index.
The additional costs associated with the acquisition of small company
stocks include brokerage costs, market impact costs (that is, the increase in
market prices which may result when the Portfolio purchases thinly traded stock)
and the effect of the "bid-ask" spread in small company stocks. These costs will
be borne by all shareholders and may negatively impact investment performance.
Risks Related to Medium and Lower Quality Securities. Investments in
medium and lower quality securities present special risk considerations. Medium
quality securities, although considered investment grade, are also considered to
have speculative characteristics. Lower quality securities are considered
predominately speculative by traditional investment standards. In some cases,
these obligations may be highly speculative and have poor prospects for reaching
investment grade standard. While any investment carries some risk, certain risks
associated with lower quality securities are different from those for
investment-grade securities. The risk of loss through default is greater because
lower quality securities are usually unsecured and are often subordinate to an
issuer's other obligations. Additionally, the issuers of these securities
frequently have high debt levels and are thus more sensitive to difficult
economic conditions, individual corporate developments and rising interest
rates. Consequently, the market price of these securities may be quite volatile
and may result in wider fluctuations of the Portfolio's net asset value per
share.
There remains some uncertainty about the performance level of the
market for lower quality securities under adverse market and economic
environments. An economic downturn or increase in interest rates could have a
negative impact on both the markets for lower quality securities (resulting in a
greater number of bond defaults) and the value of lower quality securities held
in a portfolio of investments.
The economy and interest rates can affect lower quality securities
differently than other securities. For example, the prices of lower quality
securities are more sensitive to adverse economic changes or individual
corporate developments than are the prices of higher quality investments. In
addition, during an economic downturn or period in which interest rates are
rising significantly, highly leveraged issuers may experience financial
difficulties, which, in turn, would adversely affect their ability to service
their principal and interest payment obligations, meet projected business goals
and obtain additional financing.
The market value of lower quality securities tends to reflect
individual corporate developments to a greater extent than that of higher
quality securities which react primarily to fluctuations in the general level of
interest rates. Lower quality securities are often issued in connection with a
corporate reorganization or restructuring or as a part of a merger, acquisition,
takeover or similar event. They are also issued by less established companies
seeking to expand. Such issuers are often highly leveraged, may not have
available to them more traditional methods of financing and are generally less
able than more established or less leveraged entities to make scheduled payments
of principal and interest in the event of adverse economic developments or
business conditions.
A holder's risk of loss from default is significantly greater for lower
quality securities than is the case for holders of other debt securities because
such securities are generally unsecured and are often subordinated to the rights
of other creditors of the issuers of such securities. Investment by the
Portfolio in defaulted securities poses additional risk of loss should
nonpayment of principal and interest continue in respect of such securities.
Even if such securities are held to maturity, recovery by the Portfolio of its
initial investment and any anticipated income or appreciation will be uncertain.
The Portfolio may also incur additional expenses in seeking recovering on
defaulted securities. If an issuer of a security defaults, the Portfolio may
incur additional expenses to seek recovery. In addition, periods of economic
uncertainty would likely result in increased volatility for the market prices of
lower quality securities as well as the Portfolio's net asset value. In general,
both the prices and yields of lower quality securities will fluctuate.
The secondary market for lower quality securities is concentrated in
relatively few market makers and is dominated by institutional investors,
including mutual funds, insurance companies and other financial institutions.
Accordingly, the secondary market for such securities is not as liquid as, and
is more volatile than, the secondary market for higher quality securities. In
addition, market trading volume for high yield fixed income securities is
generally lower and the secondary market for such securities could contract
under adverse market or economic conditions, independent of any specific adverse
changes in the condition of a particular issuer. These factors may have an
adverse effect on the market price and the Portfolio's ability to dispose of
particular portfolio investments. A less developed secondary market may also
make it more difficult for the Portfolio to obtain precise valuations of the
high yield securities in its portfolio.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the value and liquidity of lower quality
convertible securities held by the Portfolio, especially in a thinly traded
market. Illiquid or restricted securities held by the Portfolio may involve
special registration responsibilities, liabilities and costs, and could involve
other liquidity and valuation difficulties.
The credit ratings assigned by a rating agency evaluate the safety of a
rated security's principal and interest payments, but do not address market
value risk and, therefore, may not fully reflect the true risks of an
investment. Because the ratings of the rating agencies may not always reflect
current conditions and events, in addition to using recognized rating agencies
and other sources, the Investment Adviser performs its own analysis of the
issuers whose lower quality securities the Portfolio holds. Because of this, the
Portfolio's performance may depend more on its Investment Adviser's credit
analysis than is the case of mutual funds investing in higher quality
securities.
Investment Companies. With respect to the investments of the Portfolio
in the securities of other investment companies, such investments will be
limited so that, as determined after a purchase is made, either (a) not more
than 3% of the total outstanding stock of such investment company will be owned
by the Portfolio, the Trust as a whole and their affiliated persons (as defined
in the 1940 Act) or (b) (i) not more than 5% of the value of the total assets of
the Portfolio will be invested in the securities of any one investment company;
(ii) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and (iii) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Portfolio.
Certain investment companies whose securities are purchased by the
Portfolio may not be obligated to redeem such securities in an amount exceeding
1% of the investment company's total outstanding securities during any period of
less than 30 days. Therefore, such securities that exceed this amount may be
illiquid. Notwithstanding the foregoing, the Portfolio may adhere to more
restrictive limitations with respect to its investments in securities issued by
other investment companies if required by the SEC or deemed to be in the best
interests of the Trust. If required by the 1940 Act, the Portfolio expects to
vote the shares of other investment companies that are held by it in the same
proportion as the vote of all other holders of such securities.
<PAGE>
Yields and Ratings. The yields on certain obligations, including the
money market instruments in which the Portfolio invests, are dependent on a
variety of factors, including general economic conditions, conditions in the
particular market for the obligation, financial condition of the issuer, size of
the offering, maturity of the obligation and ratings of the issue. The ratings
of Standard & Poor's, Moody's, Duff, Fitch and Thomson BankWatch, Inc. represent
their respective opinions as to the quality of the obligations they undertake to
rate. Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate may
have different market prices. For a more complete discussion of ratings, see
Appendix A to this Additional Statement.
Subject to the limitations stated in the Prospectus, if a security held
by the Portfolio undergoes a rating revision, the Portfolio may continue to hold
the security if the Investment Adviser determines such retention is warranted.
Stock Indices. The Russell 2000 Small Stock Index is a market
value-weighted index composed of the stocks of the smallest 2000 companies in
the Russell 3000 Index, which is composed of the stocks of 3000 large U.S.
domiciled companies (based on market capitalization) that represent
approximately 98% of the investable U.S. equity markets. Because of its emphasis
on the smallest 2000 companies, the Russell Index represents approximately 10%
of the total market capitalization of the Russell 3000 Index. As of September
30, 1999, the average market capitalization of the companies included in the
Russell Index was approximately $540 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 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.
Calculation Of Portfolio Turnover Rate. The portfolio turnover rate for
the Portfolio is calculated by dividing the lesser of purchases or sales of
portfolio investments for the reporting period by the monthly average value of
the portfolio investments owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration dates
at the time of acquisition are one year or less. Portfolio turnover may vary
greatly from year to year as well as within a particular year, and may be
affected by, changes in the holdings of specific issuers, changes in country and
currency weightings, cash requirements for redemption of shares and by
requirements which enable the Portfolio to receive favorable tax treatment. The
Portfolio had not commenced operations during the fiscal year ended November 30,
1998. The Portfolio is not restricted by policy with regard to portfolio
turnover and will make changes in its investment portfolio from time to time as
business and economic conditions as well as market prices may dictate.
Illiquid or Restricted Securities. The Portfolio may invest up to 15% of its
net assets in securities that are illiquid. 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 will not be considered illiquid so long as the
Investment Adviser 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. Securities may be purchased on margin only to obtain
such short-term credits as are necessary for the clearance of purchases and
sales of securities. The Portfolio will not engage in selling securities short.
The Portfolio may, however, make short sales against the box although the
Portfolio has no current intention to do so in the coming year. "Selling short
against the box" involves selling a security that the Portfolio owns for
delivery at a specified date in the future.
INVESTMENT RESTRICTIONS
The Portfolio is subject to the fundamental investment restrictions
enumerated below which may be changed only by a vote of the holders of a
majority of the Portfolio's outstanding shares.
The Portfolio may not:
(1) Make loans, except (a) through the purchase of debt
obligations in accordance with the Portfolio's investment
objective and policies, (b) through repurchase agreements
with banks, brokers, dealers and other financial
institutions, and (c) loans of securities.
(2) Mortgage, pledge or hypothecate any assets (other than
pursuant to reverse repurchase agreements) except to
secure permitted borrowings.
(3) Purchase or sell real estate or real estate limited
partnerships, but this restriction shall not prevent the
Portfolio from investing directly or indirectly in
portfolio instruments secured by real estate or interests
therein or acquiring securities of real estate investment
trusts or other issuers that deal in real estate.
(4) Purchase or sell commodities or commodity contracts or
oil or gas or other mineral exploration or development
programs or leases, except that the Portfolio may, to the
extent appropriate to its investment policies, purchase
securities of companies engaging in whole or in part in
such activities, and may enter into futures contracts and
related options and forward currency exchange contracts in
accordance with its investment objective and policies.
(5) Invest in companies for the purpose of
exercising control.
(6) Act as underwriter of securities, except as the
Portfolio may be deemed to be an underwriter under the
Securities Act of 1933 (the "1933 Act") in connection with
the purchase and sale of portfolio instruments in
accordance with its investment objective and portfolio
management policies.
(7) Write puts, calls or combinations thereof, except for
transactions in options on securities, financial
instruments, currencies and indices of securities; futures
contracts; options on futures contracts; forward currency
contracts; short sales of securities against the box;
interest rate swaps; and pair-off transactions. (This
restriction does not apply to any type of option, futures
contract, forward contract, short sale, swap or pair-off
transaction unless it involves a put, call or combination
thereof written by the Portfolio.)
(8) Make any investment inconsistent with the Portfolio's
classification as a diversified investment company under
the 1940 Act.
(9) Purchase securities (other than obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities and securities of other investment
companies) if such purchase would cause more than 25% in
the aggregate of the market value of the total assets of
the Portfolio to be invested in the securities of one or
more issuers having their principal business activities in
the same industry. For the purposes of this restriction,
as to utility companies, the gas, electric, water and
telephone businesses are considered separate industries;
personal credit finance companies and business credit
finance companies are deemed to be separate industries;
and wholly-owned finance companies are considered to be in
the industries of their parents if their activities are
primarily related to financing the activities of their
parents.
(10) Borrow money (other than pursuant to reverse
repurchase agreements), except (a) as a temporary measure,
and then only in amounts not exceeding 5% of the value of
the Portfolio's total assets or (b) from banks, provided
that immediately after any such borrowing all borrowings
of the Portfolio do not exceed one-third of the
Portfolio's total assets. No purchases of securities will
be made if borrowings subject to this restriction exceed
5% of the value of the Portfolio's assets. The exceptions
in (a) and (b) to this restriction are not for investment
leverage purposes but are solely for extraordinary or
emergency purposes or to facilitate management of the
Portfolio by enabling the Trust to meet redemption
requests when the liquidation of Portfolio instruments is
deemed to be disadvantageous or not possible. If due to
market fluctuations or other reasons the total assets of
the Portfolio fall below 300% of its borrowings, the Trust
will promptly reduce the borrowings of the Portfolio in
accordance with the 1940 Act.
(11) Notwithstanding any of the Trust's other fundamental
investment restrictions (including, without limitation,
those restrictions relating to issuer diversification,
industry concentration and control), the Portfolio may
purchase securities of other investment companies to the
full extent permitted under Section 12 of the 1940 Act (or
any successor provision thereto) or under any regulation
or order of the Securities and Exchange Commission; and
the Portfolio may invest all or substantially all of its
assets in a single open-end investment company or series
thereof with substantially the same investment objective,
policies and fundamental restrictions as the Portfolio.
In applying Restriction No. 9 above, a security is considered to be
issued by the entity, or entities, whose assets and revenues back the security.
A guarantee of a security is not deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the guarantor, and
owned by the Portfolio, does not exceed 10% of the value of the Portfolio's
total assets.
Except to the extent otherwise provided in Investment Restriction No. 9 for
the purpose of such restriction, in determining industry classification the
Trust intends to use the industry classification titles in the Bloomberg
Industry Group Classifications. Securities held in escrow or separate accounts
in connection with the Portfolio's investment practices described in this
Additional Statement and in the Prospectus are not deemed to be mortgaged,
pledged or hypothecated for purposes of the foregoing Investment Restrictions.
In addition, as a matter of fundamental policy, the Portfolio will not
issue senior securities except as stated in the Prospectus or this Additional
Statement.
Any restriction which involves a maximum percentage will not be
considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of, or borrowings by, the Portfolio.
ADDITIONAL TRUST INFORMATION
TRUSTEES AND OFFICERS
The business and affairs of the Trust and the Portfolio are managed
under the direction of the Trust's Board of Trustees. Information pertaining to
the Trustees and officers of the Trust is set forth below.
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
NAME POSITION(S) PRINCIPAL OCCUPATION(S)
AND ADDRESS AGE WITH TRUST DURING PAST 5 YEARS
- ----------- --- ---------- -------------------
William H. Springer 69 Chairman Director of Walgreen Co. (a retail drug
701 Morningside Drive and store business) since April 1988; Director
Lake Forest, IL 60045 Trustee of Baker, Fentress & Co. (a closed-end,
non-diversified management investment
company) from April 1992 to present; Trustee
of Goldman Sachs Trust (a registered investment
company) from 1989 to present.
Richard Gordon Cline 64 Trustee Chairman and Director of Hussman
4200 Commerce Court, International Inc. (commercial refrigeration
Suite 300 company) since January 1998; Chairman of
Lisle, IL 60532 Hawthorne Inc. (a management advisory
services
and
private
investment
company)
since
January
1996;
Chairman,
President
and
CEO
of
NICOR
Inc.
(a
diversified
public
utility
holding
company)
from
1985
to
1996;
Chairman
and
Director
of
the
Federal
Reserve
Bank
of
Chicago
from
1992
to
1995;
Director
of
Central
DuPage
Health
System,
Pet
Incorporated
(a
commercial
food
company),
Whitman
Corporation
(a
diversified
holding
company),
Kmart
Corporation
(a
retailing
company),
Ryerson
Tull,
Inc.
(a
metals
distribution
company)
and
University
of
Illinois
Foundation.
NAME POSITION(S) PRINCIPAL OCCUPATION(S)
AND ADDRESS AGE WITH TRUST DURING PAST 5 YEARS
- ----------- --- ---------- -------------------
Edward J. Condon, Jr. 58 Trustee Chairman and CEO of The Paradigm Group, Ltd.
Sears Tower, Suite 9650 (a financial advisor) since July 1993; within the
233 S. Wacker Drive. last five years he has served as Vice Chairman and
Chicago, IL 60606 Director of Energenics L.L.C. (a waste recycling
company);
Director
of
Financial
Pacific
Company
(an
equipment
leasing
company);
Member
of
the
Board
of
Managers
of
The
Liberty
Hampshire
Company,
LLC
(a
receivable
securitization
company),
Member
of
Advisory
Board
of
Real-Time
U.S.A.,
Inc.
(a
software
company);
Member
of
the
Board
of
Directors
of
University
Elder
Care,
Inc.;
Member
of
the
Board
of
Directors
of
the
Girl
Scouts
of
Chicago;
Member
of
the
Board
of
Trustees
of
Dominican
University.
John W. English 66 Trustee Private Investor since 1993; Vice President
50-H New England Ave. and Chief Investment Officer of The Ford
P.O. Box 640 Foundation (a charitable trust) from 1981 until
Summit, NJ 07902-0640 1993; Trustee of The China Fund, Inc. (a registered
investment
company),
American
Red
Cross
in
Greater
New
York,
Mote
Marine
Laboratory
(a
non-profit
marine
research
facility),
State
Street's
Select
Sector
SPDR
Trust
(a
registered
investment
company),
Washington
Mutual's
WM
Funds
(a
registered
investment
company)
and
United
Board
for
Christian
Higher
Education
in
Asia.
Director
of
University
of
Iowa
Foundation,
Blanton-Peale
Institutes
of
Religion
and
Health,
Community
Foundation
of
Sarasota
County,
and
Duke
Management
Company
(an
investment
adviser).
Sandra Polk Guthman 55 Trustee President and CEO of Polk Bros. Foundation
420 N. Wabash Avenue (an Illinois not-for-profit corporation)
Suite 204 from 1993 to present; Director of Business
Chicago, IL 60611 Transformation from 1992-1993 and Midwestern
Director
of
Marketing
from
1988-1992
for
IBM
(a
technology
company);
Director
of
MBIA
Insurance
Corporation
of
Illinois
(bank
holding
company)
since
1994
and
Avondale
Financial
Corporation
(a
stock
savings
and
loan
holding
company)
since
1995.
<PAGE>
NAME POSITION(S) PRINCIPAL OCCUPATION(S)
AND ADDRESS AGE WITH TRUST DURING PAST 5 YEARS
- ----------- --- ---------- -------------------
Frederick T. Kelsey 71 Trustee Consultant to Goldman Sachs (an investment
3133 Laughing Gull Court adviser) from December 1985 through February
Johns Island, SC 29455 1988; Director of Goldman Sachs Funds Group
(a
financial
services
provider)
and
Vice
President
of
Goldman
Sachs
from
May
1981
until
his
retirement
in
November
1985;
President
and
Treasurer
of
the
Trust
and
other
investment
companies
affiliated
with
Goldman
Sachs
through
August
1985;
President
from
1983
to
1985
and
Trustee
from
1983
to
1994
of
The
Centerland
Funds
and
its
successor,
The
Pilot
Funds
(a
registered
investment
company);
Trustee
of
various
management
investment
companies
affiliated
with
Zurich
Kemper
Investments
(an
investment
adviser).
Richard P. Strubel 59 Trustee Managing Director of Tandem Partners, Inc.
737 N. Michigan Avenue (a privately held management services firm)
Suite 1405 since 1990; President and CEO of Microdot,
Chicago, IL 60611 Inc. (a privately held manufacturing firm)
from
January
1984
to
October
1994;
Trustee
of
Goldman
Sachs
Trust
(a
registered
investment
company)
from
1987
to
present;
Director
of
Kaynar
Technologies
Inc.
(a
leading
manufacturer
of
aircraft
fasteners)
since
March
1997;
Trustee
of
the
University
of
Chicago;
Director
of
Children's
Memorial
Medical
Center.
Jylanne M. Dunne 39 President Senior Vice President for Distribution
4400 Computer Drive Services at First Data Investor Services
Westborough, MA 01581 Group, Inc. ("FDISG") (since 1988).
Richard H. Rose 43 Vice Vice President and Division Manager of
4400 Computer Drive President Mutual Fund Administration at FDISG (since
Westborough, MA 01581 1994); Senior Vice President at The Boston
Company Advisors, Inc. (a financial services
provider) (prior thereto).
Brian R. Curran 31 Treasurer Director of Fund Administration and
4400 Computer Drive Accounting at FDISG (since 1997); Director
Westborough, MA 01581 of Fund Administration at State Street Bank and
Trust Company (February 1997 to October 1997);
Senior Auditor at Price Waterhouse L.L.P. (February
1994 to February 1997); Manager of Fund Accounting
at State Street Bank and Trust Company (prior
thereto).
Linda J. Hoard 51 Secretary Counsel at FDISG (since 1998); Attorney
4400 Computer Drive Consultant for Fidelity Investments (an investment
Westborough,
MA
01581
adviser),
Investors
Bank
&
Trust
Company
(a
financial
service
provider)
and
FDISG
(September
1994
to
June
1998);
Vice
President
and
Assistant
General
Counsel
at
MFS
Investment
Management
(an
investment
adviser)
(prior
thereto).
<PAGE>
110
NAME POSITION(S) PRINCIPAL OCCUPATION(S)
AND ADDRESS AGE WITH TRUST DURING PAST 5 YEARS
- ----------- --- ---------- -------------------
Teresa M.R. Hamlin 34 Assistant Counsel at FDISG
(since 1994); Paralegal
4400 Computer Drive Secretary Manager at The Boston
Company Advisors, Inc.
Westborough, MA 01581 (an investment adviser)
(prior thereto).
Therese Hogan 36 Assistant Director of the State
Regulation Department
4400 Computer Drive Secretary at FDISG (since 1994);
Senior Legal
Westborough, MA 01581 Assistant at Palmer and
Dodge (a Massachusetts law
firm) (prior thereto).
</TABLE>
Certain of the Trustees and officers and the organizations with which
they are associated have had in the past, and may have in the future,
transactions with the Investment Adviser, First Data Investor Services Group,
Inc. ("FDISG"), a wholly-owned subsidiary of First Data Corporation, First Data
Distributors, Inc., a subsidiary of FDISG, ("FDDI" and collectively with FDISG,
"First Data") and their respective affiliates. The Trust has been advised by
such Trustees and officers that all such transactions have been and are expected
to be in the ordinary course of business and the terms of such transactions,
including all loans and loan commitments by such persons, have been and are
expected to be substantially the same as the prevailing terms for comparable
transactions for other customers. As a result of the responsibilities assumed by
the Investment Adviser under the Advisory Agreement for the Portfolio, by
Northern under its Transfer Agency Agreement, Custodian Agreement, and
Co-Administration Agreement with the Trust, by FDISG under its Co-Administration
Agreement with the Trust and by FDDI under its Distribution Agreement with the
Trust, the Trust itself requires no employees.
Each officer holds comparable positions with certain other investment
companies of which First Data or an affiliate thereof is the investment adviser,
administrator and/or distributor.
Each Trustee earns a quarterly retainer of $6,750 and the Chairman of
the Board earns a quarterly retainer of $10,125. Each Trustee, including the
Chairman of the Board, earns an additional fee of $2,500 for each meeting
attended, plus reimbursement of expenses incurred as a Trustee.
In addition, the Trustees have established an Audit Committee
consisting of three members including a Chairman of the Committee. The Audit
Committee members are Messrs. Condon, Kelsey and Strubel (Chairman). Each member
earns a fee of $2,500 for each meeting attended and the Chairman earns a
quarterly retainer of $1,500.
Each Trustee will hold office for an indefinite term until the earliest
of (1) the next meeting of shareholders if any, called for the purpose of
considering the election or re-election of such Trustee and until the election
and qualification of his or her successor, if any, elected at such meeting; (2)
the date a Trustee resigns or retires, or a Trustee is removed by the Board of
Trustees or shareholders, in accordance with the Trust's Agreement and
Declaration of Trust, or (3) in accordance with the current resolutions of the
Board of Trustees (which may be changed without shareholder vote), on the last
day of the fiscal year of the Trust in which he or she attains the age of 72
years.
The Trust's officers do not receive fees from the Trust for services in
such capacities, although FDISG, of which they are also officers, receives fees
from the Trust for administrative services.
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended November
30, 1998:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
Aggregate Compensation Pension or Retirement Benefits Total Compensation From Trust
from the Trust Accrued as a Part of Trust's Paid
Name of Trustee Expenses to Trustees
William H. Springer $46,750 N/A $46,750
Richard G. Cline $34,000 N/A $34,000
Edward J. Condon, Jr. $37,000 N/A $37,000
John W. English $32,500 N/A $32,500
Sandra Polk Guthman $34,000 N/A $34,000
Frederick T. Kelsey $37,000 N/A $37,000
Richard P. Strubel $42,250 N/A $42,250
</TABLE>
Investment Adviser, Transfer Agent and Custodian
Northern, a wholly-owned subsidiary of Northern Trust Corporation, a
bank holding company, is one of the nation's leading providers of trust and
investment management services (the "Investment Adviser"). Northern is one of
the strongest banking organizations in the United States. Northern believes it
has built its organization by serving clients with integrity, a commitment to
quality, and personal attention. Its stated mission with respect to all its
financial products and services is to achieve unrivaled client satisfaction.
With respect to such clients, the Trust is designed to assist (i) defined
contribution plan sponsors and their employees by offering a range of diverse
investment options to help comply with 404(c) regulation and may also provide
educational material to their employees, (ii) employers who provide
post-retirement Employees' Beneficiary Associations ("VEBA") and require
investments that respond to the impact of federal regulations, (iii) insurance
companies with the day-to-day management of uninvested cash balances as well as
with longer-term investment needs, and (iv) charitable and not-for-profit
organizations, such as endowments and foundations, demanding investment
management solutions that balance the requirement for sufficient current income
to meet operating expenses and the need for capital appreciation to meet future
investment objectives. As of September 30, 1999, the Investment Adviser and its
affiliates had approximately $___ billion in assets under management for clients
including public and private retirement funds, endowments, foundations, trusts,
corporations, other investment companies and individuals.
Subject to the general supervision of the Board of Trustees, the
Investment Adviser makes decisions with respect to, and place orders for, all
purchases and sales of portfolio securities for the Portfolio. The Advisory
Agreement with the Trust provides that in selecting brokers or dealers to place
orders for transactions (a) on common and preferred stocks, the Investment
Adviser shall use its best judgment to obtain the best overall terms available,
and (b) on bonds and other fixed income obligations, the Investment Adviser
shall attempt to obtain best net price and execution. In assessing the best
overall terms available for any transaction, the Investment Adviser is to
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. In evaluating
the best overall terms available and in selecting the broker or dealer to
execute a particular transaction, the Investment Adviser may consider the
brokerage and research services provided to the Portfolio and/or other accounts
over which the Investment Adviser or an affiliate of Northern exercises
investment discretion. A broker or dealer providing brokerage and/or research
services may receive a higher commission than another broker or dealer would
receive for the same transaction. These brokerage and research services may
include industry and company analyses, portfolio services, quantitative data,
market information systems and economic and political consulting and analytical
services.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment for brokerage commissions which are generally
fixed. Over-the-counter issues, including corporate debt and government
securities, are normally traded on a "net" basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. With respect to over-the-counter transactions, the Investment
Adviser will normally deal directly with dealers who make a market in the
instruments involved except in those circumstances where more favorable prices
and execution are available elsewhere. The cost of foreign and domestic
securities purchased from underwriters includes an underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down.
The Portfolio may participate, if and when practicable, in bidding for
the purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Portfolio will engage in this practice, however, only when the Investment
Adviser believes such practice to be in the Portfolio's interests.
On occasions when the Investment Adviser deems the purchase or sale of
a security to be in the best interests of the Portfolio as well as other
fiduciary or agency accounts managed by it (including any other portfolio,
investment company or account for which the Investment Adviser act as adviser),
the Advisory Agreement provides that the Investment Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased for the Portfolio with those to be sold or purchased for such
other accounts in order to obtain best overall terms available with respect to
common and preferred stock, and best net price and execution with respect to
bonds and other fixed income obligations. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Investment Adviser in the manner it considers
to be most equitable and consistent with its fiduciary obligations to the
Portfolio and other accounts involved. In some instances, this procedure may
adversely affect the size of the position obtainable for the Portfolio or the
amount of the securities that are able to be sold for the Portfolio.
The Advisory Agreement provides that the Investment Adviser may render
similar services to others so long as its services under such Agreement are not
impaired thereby. The Advisory Agreement also provides that the Trust will
indemnify the Investment Adviser against certain liabilities (including
liabilities under the Federal securities laws relating to untrue statements or
omissions of material fact and actions that are in accordance with the terms of
the Agreement) or, in lieu thereof, contribute to resulting losses.
Under its Transfer Agency Agreement with the Trust, with respect to
shares held by Institutions, Northern has undertaken to perform some or all of
the following services: (1) establish and maintain an omnibus account in the
name of each Institution; (2) process purchase orders and redemption requests
from an Institution, and furnish confirmations and disburse redemption proceeds;
(3) act as the income disbursing agent of the Trust; (4) answer inquiries from
Institutions; (5) provide periodic statements of account to each Institution;
(6) process and record the issuance and redemption of shares in accordance with
instructions from the Trust or its administrator; (7) if required by law,
prepare and forward to Institutions shareholder communications (such as proxy
statements and proxies, annual and semi-annual financial statements, and
dividend, distribution and tax notices); (8) preserve all records; and (9)
furnish necessary office space, facilities and personnel. Under the Transfer
Agency Agreement, with respect to shares held by investors, Northern has also
undertaken to perform some or all of the following services: (1) establish and
maintain separate accounts in the name of the investors; (2) process purchase
orders and redemption requests, and furnish confirmations in accordance with
applicable law; (3) disburse redemption proceeds; (4) process and record the
issuance and redemption of shares in accordance with instructions from the Trust
or its administrator; (5) act as income disbursing agent of the Trust in
accordance with the terms of the Prospectus and instructions from the Trust or
its administrator; (6) provide periodic statements of account; (7) answer
inquiries (including requests for prospectuses and statements of additional
information, and assistance in the completion of new account applications) from
investors and respond to all requests for information regarding the Trust (such
as current price, recent performance, and yield data) and questions relating to
accounts of investors (such as possible errors in statements, and transactions);
(8) respond to and seek to resolve all complaints of investors with respect to
the Trust or their accounts; (9) furnish proxy statements and proxies, annual
and semi-annual financial statements, and dividend, distribution and tax notices
to investors; (10) furnish the Trust with all pertinent Blue Sky information;
(11) perform all required tax withholding; (12) preserve records; and (13)
furnish necessary office space, facilities and personnel. Northern may appoint
one or more sub-transfer agents in the performance of its services.
As compensation for the services rendered by Northern under the
Transfer Agency Agreement and the assumption by Northern of related expenses,
Northern is entitled to a fee from the Trust, payable monthly, at an annual rate
of .01%, .10% and .15% of the average daily net asset value of the Class A, C
and D Shares, respectively, of the Portfolio.
Under its Custodian Agreement with the Trust, Northern (1) holds the
Portfolio's cash and securities, (2) maintains such cash and securities in
separate accounts in the name of the Portfolio, (3) makes receipts and
disbursements of funds on behalf of the Portfolio, (4) receives, delivers and
releases securities on behalf of the Portfolio, (5) collects and receives all
income, principal and other payments in respect of the Portfolio's investments
held by Northern under the Agreement, and (6) maintains the accounting records
of the Trust. Northern may employ one or more subcustodians, provided that
Northern, subject to certain monitoring responsibilities, shall have no more
responsibility or liability to the Trust on account of any action or omission of
any subcustodian so employed than such subcustodian has to Northern and that the
responsibility or liability of the subcustodian to Northern shall conform to the
resolution of the Trustees of the Trust authorizing the appointment of the
particular subcustodian (or, in the case of foreign securities, to the terms of
any agreement entered into between Northern and such subcustodian to which such
resolution relates). In addition, the Trust's custodial arrangements provide,
with respect to foreign securities, that Northern shall not be: (i) responsible
for the solvency of any subcustodian appointed by it with reasonable care; (ii)
responsible for any act, omission, default or for the solvency of any eligible
foreign securities depository; and (iii) liable for any loss, damage, cost,
expense, liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where the
subcustodian has otherwise exercised reasonable care. Northern may also appoint
agents to carry out such of the provisions of the Custodian Agreement as
Northern may from time to time direct, provided that the appointment of an agent
shall not relieve Northern of any of its responsibilities under the Agreement.
Northern has entered into agreements with financial institutions and
depositories located in foreign countries with respect to the custody of the
Portfolio's foreign securities.
As compensation for the services rendered to the Trust by Northern as
custodian with respect to the Portfolio, and the assumption by Northern of
certain related expenses, Northern is entitled to payment from the Trust as
follows: (i) $18,000 annually for the Portfolio, plus (ii) 1/100th of 1%
annually of the Portfolio's average daily net assets to the extent it exceeds
$100 million, plus (iii) a fixed dollar fee for each trade in portfolio
securities, plus (iv) a fixed dollar fee for each time that Northern as
Custodian receives or transmits funds via wire, plus (v) reimbursement of
expenses incurred by Northern as custodian for telephone, postage, courier fees,
office supplies and duplicating. The fees referred to in clauses (iii) and (iv)
are subject to annual upward adjustments based on increases in the Consumer
Price Index for All Urban Consumers, provided that Northern may permanently or
temporarily waive all or any portion of any upward adjustment.
Northern's fees under the Custodian Agreement are subject to reduction
based on the Portfolio's daily uninvested cash balances (if any).
Unless sooner terminated, the Advisory Agreement, the Custodian
Agreement and the Transfer Agency Agreement will continue in effect with respect
to the Portfolio until April 30, 2000 and thereafter for successive 12-month
periods, provided that the continuance is approved at least annually (1) by the
vote of a majority of the Trustees who are not parties to the agreement or
"interested persons" (as such term is defined in the 1940 Act) of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval, and (2) by the Trustees or by the vote of a majority of the
outstanding shares of the Portfolio (as defined below under "Other
Information"). Each agreement is terminable at any time without penalty by the
Trust (by specified Trustee or shareholder action) on 60 days' written notice to
Northern and by Northern on 60 days' written notice to the Trust.
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. Northern believes that it may perform the services
contemplated by its agreements with the Trust without violation of such banking
laws or regulations, which are applicable to it. It should be noted, however,
that future changes in either Federal or state statutes and regulations relating
to the permissible activities of banks and their subsidiaries or affiliates, as
well as future judicial or administrative decisions or interpretations of
current and future statutes and regulations, could prevent Northern from
continuing to perform such services for the Trust.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of Northern in connection with the provision of
services on behalf of the Trust, the Trust might be required to alter materially
or discontinue its arrangements with Northern and change its method of
operations. It is not anticipated, however, that any change in the Trust's
method of operations would affect the net asset value per share of the Portfolio
or result in a financial loss to any shareholder. Moreover, if current
restrictions preventing a bank from legally sponsoring, organizing, controlling
or distributing shares of an open-end investment company were relaxed, the Trust
expects that Northern and its affiliates would consider the possibility of
offering to perform some or all of the services now provided by First Data. It
is not possible, of course, to predict whether or in what form such restrictions
might be relaxed or the terms upon which Northern and its affiliates might offer
to provide services for consideration by the Trustees.
Under a Service Mark License Agreement with the Trust, Northern Trust
Corporation has agreed that the name "Northern Institutional Funds" may be used
in connection with the Trust's business on a royalty-free basis. Northern Trust
Corporation has reserved to itself the right to grant the non-exclusive right to
use the name "Northern Institutional Funds" to any other person. The Agreement
provides that at such time as the Agreement is no longer in effect, the Trust
will cease using the name "Northern Institutional Funds."
Portfolio Transactions
To the extent that the Portfolio effects brokerage transactions with
First Data or any broker/dealer affiliated directly or indirectly with the
Investment Adviser, such transactions, including the frequency thereof, the
receipt of any commissions payable in connection therewith, and the selection of
the affiliated broker/dealer effecting such transactions, will be fair and
reasonable to the shareholders of the Portfolio.
Portfolio Valuation
U.S. and foreign investments held by the Portfolio are valued at the
last quoted sales price on the exchange on which such securities are primarily
traded, except that securities listed on an exchange in the United Kingdom are
valued at the average of the closing bid and ask prices. If any securities
listed on a U.S. securities exchange are not traded on a valuation date, they
will be valued at the last quoted bid price. If securities listed on a foreign
securities exchange are not traded on a valuation date, they will be valued at
the most recent quoted trade price. Securities which are traded in the U.S.
over-the-counter markets are valued at the last quoted bid price. Securities
which are traded in the foreign over-the-counter markets are valued at the last
sales price, except that such securities traded in the United Kingdom are valued
at the average of the closing bid and ask prices. Shares of investment companies
held by the Portfolio 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.
Co-Administrators and Distributor
Northern and FDISG, 4400 Computer Drive, Westborough, Massachusetts
01581, act as co-administrators for the Portfolio under a Co-Administration
Agreement with the Trust. Subject to the general supervision of the Trust's
Board of Trustees, Northern and FDISG (the "Co-Administrators") provide
supervision of all aspects of the Trust's non-investment advisory operations and
perform various corporate secretarial, treasury and blue sky services, including
but not limited to: (a) maintaining office facilities and furnishing corporate
officers for the Trust; (b) furnishing data processing services, clerical
services, and executive and administrative services and standard stationery and
office supplies; (c) performing all functions ordinarily performed by the office
of a corporate treasurer, and furnishing the services and facilities ordinarily
incident thereto, such as expense accrual monitoring and payment of the Trust's
bills, preparing monthly reconciliation of the Trust's expense records, updating
projections of annual expenses, preparing materials for review by the Board of
Trustees and compliance testing; (d) preparing and submitting reports to the
Trust's shareholders and the SEC; (e) preparing and printing financial
statements; (f) preparing monthly Portfolio profile reports; (g) preparing and
filing the Trust's federal and state tax returns (other than those required to
be filed by the Trust's custodian and transfer agent) and providing shareholder
tax information to the Trust's transfer agent; (h) assisting in marketing
strategy and product development; (i) performing oversight/management
responsibilities, such as the supervision and coordination of certain of the
Trust's service providers; (j) effecting and maintaining, as the case may be,
the registration of shares of the Trust for sale under the securities laws of
various jurisdictions; (k) assisting in maintaining corporate records and good
standing status of the Trust in its state of organization; and (l) monitoring
the Trust's arrangements with respect to services provided by Servicing Agents
to their customers who are the beneficial owners of shares, pursuant to
servicing agreements between the Trust and such Servicing Agents.
Subject to the limitations described below, as compensation for their
administrative services and the assumption of related expenses, the
Co-Administrators are entitled to a fee from the Portfolio, computed daily and
payable monthly, at an annual rate of .10% of the average daily net assets of
the Portfolio. The Co-Administrators will reimburse each Portfolio for its
expenses (including administration fees payable to the Co-Administrators, but
excluding advisory fees, transfer agency fees, servicing fees and extraordinary
expenses) which exceed on an annualized basis .10% of the Portfolio's average
daily net assets.
Unless sooner terminated, the Co-Administration Agreement will continue
in effect until April 30, 2001, and thereafter for successive one-year terms
with respect to the Portfolio, provided that the Agreement is approved annually
(1) by the Board of Trustees or (2) by the vote of a majority of the outstanding
shares of the Portfolio (as defined below under "Other Information"), provided
that in either event the continuance is also approved by a majority of the
Trustees who are not parties to the Agreement and who are not interested persons
(as defined in the 1940 Act) of any party thereto, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Co-Administration
Agreement is terminable at any time after April 30, 2001, without penalty by the
Trust on at least 60 days written notice to the Co-Administrators. Each
Co-Administrator may terminate the Co-Administration Agreement with respect to
itself at any time after April 30, 2001 without penalty on at least 60 days
written notice to the Trust and the other Co-Administrator.
The Trust may terminate the Co-Administration Agreement prior to April
30, 2001, in the event that the Trust or its shareholders incur damages in
excess of $100,000 as a result of the willful misfeasance, bad faith or
negligence of the Co-Administrators, or the reckless disregard of their duties
under the Agreement. The Trust may also terminate the Co-Administration
Agreement prior to April 30, 2001, in the event that the Co-Administrators fail
to meet one of the performance standards set forth in the Agreement.
The Trust has entered into a Distribution Agreement with FDDI, under
which FDDI, as agent, sells shares of the Portfolio on a continuous basis. FDDI
pays the cost of printing and distributing prospectuses to persons who are not
shareholders of the Trust and of sales presentations, advertising and other
distribution efforts. No compensation is payable by the Trust to FDDI for such
distribution services.
The Co-Administration Agreement provides that the Co-Administrators may
render similar services to others so long as their services under such Agreement
are not impaired thereby. The Co-Administration Agreement also provides that the
Trust will indemnify each Co-Administrator against all claims except those
resulting from the willful misfeasance, bad faith or negligence of such
Co-Administrator, or the Co-Administrator's breach of confidentiality. The
Distribution Agreement provides that the Trust will indemnify FDDI against
certain liabilities relating to untrue statements or omissions of material fact
except those resulting from the reliance on information furnished to the Trust
by FDDI, or those resulting from the willful misfeasance, bad faith or
negligence of FDDI, or FDDI's breach of confidentiality. FDDI is a wholly-owned
subsidiary of FDISG, which is a wholly-owned subsidiary of First Data
Corporation.
Shareholder Servicing Plan
As stated in the Portfolio's Prospectus, Servicing Agents may enter
into servicing agreements with the Trust under which they provide (or arrange to
have provided) support services to their Customers or other investors who
beneficially own such shares in consideration of the Portfolio's payment of not
more than .15% and .25% (on an annualized basis) of the average daily net asset
value of the Class C and D Shares, respectively, beneficially owned by such
Customers or investors.
Services provided by or arranged to be provided by Servicing Agents
under their servicing agreements may include: (1) establishing and maintaining
separate account records of Customers or other investors; (2) providing
Customers or other investors with a service that invests their assets in shares
of certain classes pursuant to specific or pre-authorized instructions, and
assistance with new account applications; (3) aggregating and processing
purchase and redemption requests for shares of certain classes from Customers or
other investors, and placing purchase and redemption orders with the Transfer
Agent; (4) issuing confirmations to Customers or other investors in accordance
with applicable law; (5) arranging for the timely transmission of funds
representing the net purchase price or redemption proceeds; (6) processing
dividend payments on behalf of Customers or other investors; (7) providing
information periodically to Customers or other investors showing their positions
in shares; (8) responding to Customer or other investor inquiries (including
requests for prospectuses), and complaints relating to the services performed by
the Servicing Agents; (9) acting as liaison with respect to all inquiries and
complaints from Customers and other investors relating to errors committed by
the Trust or its agents, and other matters pertaining to the Trust; (10)
providing or arranging for another person to provide subaccounting with respect
to shares of certain classes beneficially owned by Customers or other investors;
(11) if required by law, forwarding shareholder communications from the Trust
(such as proxy statements and proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Customers and other investors; (12) providing such office space, facilities and
personnel as may be required to perform their services under the servicing
agreements; (13) maintaining appropriate management reporting and statistical
information; (14) paying expenses related to the preparation of educational and
other explanatory materials in connection with the development of investor
services; (15) developing and monitoring investment programs; and (16) providing
such other similar services as the Trust may reasonably request to the extent
the Servicing Agents are permitted to do so under applicable statutes, rules and
regulations.
The Trust's agreements with Servicing Agents are governed by a Plan
(called the "Shareholder Servicing Plan"), which has been adopted by the Board
of Trustees. Pursuant to the Shareholder Servicing Plan, the Board of Trustees
will review, at least quarterly, a written report of the amounts expended under
the Trust's agreements with Servicing Agents and the purposes for which the
expenditures were made. In addition, the arrangements with Servicing Agents must
be approved annually by a majority of the Board of Trustees, including a
majority of the Trustees who are not "interested persons" of the Trust, as
defined in the 1940 Act, and have no direct or indirect financial interest in
such arrangements.
The Board of Trustees has approved the arrangements with Servicing
Agents based on information provided by the Trust's service contractors that
there is a reasonable likelihood that the arrangements will benefit the
Portfolio and its shareholders by affording the Portfolio greater flexibility in
connection with the servicing of the accounts of the beneficial owners of its
shares in an efficient manner.
Counsel and Auditors
Drinker Biddle & Reath LLP, with offices at One Logan Square, 18th and
Cherry Streets, Philadelphia, Pennsylvania 19103-6996, serve as counsel to the
Trust.
Ernst & Young LLP, independent auditors, 233 S. Wacker Drive, Chicago,
Illinois 60606, have been selected as auditors of the Trust. In addition to
audit services, Ernst & Young LLP reviews the Trust's Federal and state tax
returns, and provides consultation and assistance on accounting, internal
control and related matters.
In-Kind Purchases and Redemptions
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 as described in the Prospectus. For further information about this
form of payment, contact Northern. In connection with an in-kind securities
payment, the Portfolio will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by the
Portfolio and that the Portfolio receive satisfactory assurances that it will
have good and marketable title to the securities received by it; that the
securities be in proper form for transfer to the Portfolio; and that adequate
information be provided concerning the basis and other tax matters relating to
the securities.
Although the Portfolio generally will redeem shares in cash, it
reserves the right to pay redemptions by a distribution in-kind of securities
(instead of cash) from the Portfolio. The securities distributed in-kind would
be readily marketable and would be valued for this purpose using the same method
employed in calculating the Portfolio's net asset value per share. If a
shareholder receives redemption proceeds in-kind, the shareholder should expect
to incur transaction costs upon the disposition of the securities received in
the redemption.
PERFORMANCE INFORMATION
The performance of a class of shares of the 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 Russell 2000 Index or the Dow Jones Industrial Average. 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 the Portfolio.
The Portfolio calculates its total return on an "average annual total
return" basis for various periods. Average annual total return reflects the
average annual percentage change in value of an investment in the Portfolio over
the measuring period. Total return for the Portfolio 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 during the period are reinvested in the shares of the Portfolio. When
considering average total return figures for periods longer than one year, it is
important to note that the annual total return of the Portfolio for any one year
in the period might have been more or less than the average for the entire
period. The Portfolio may also advertise from time to time the total return on a
year-by-year or other basis for various specific periods by means of quotations,
charts, graphs or schedules.
The Portfolio calculates its "average annual total return" for a class
of shares by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
redeemable value of such investment according to the following formula:
T = (ERV/P)1/n -1
Where: T = average annual total return;
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year
(or other) periods at the end of the
applicable period (or a fractional
portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed
in years.
The Portfolio calculates its "aggregate total return" for a class of
shares by determining the aggregate compounded rates of return during specified
periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate total
return is as follows:
Aggregate Total Return = T = (ERV/P) - 1
The calculations of "aggregate total return" will be made assuming that
(1) all dividends and capital gain distributions are reinvested on the
reinvestment dates at the price per share existing on the reinvestment date and
(2) all recurring fees charged to all shareholder accounts are included. The
ending redeemable value (variable "ERV" in the formula) is determined by
assuming complete redemption of the hypothetical investment after deduction of
all nonrecurring charges at the end of the measuring period.
The yield of a class of shares of the 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 quotations). More specifically, the Portfolio's yield for a
class of shares is computed by dividing the per share net income of
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 Portfolio's 30-day (or one month) standard yield is calculated for
each class in accordance with the method prescribed by the SEC for mutual funds:
Yield = 2[(a-b/cd+1)6 - 1]
Where: a = dividends and interest earned during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = average daily number of shares
outstanding during the period
entitled to receive dividends; and
d = net asset value per share on the
last day of the period.
Because of the different servicing fees and transfer agency fees
payable with respect to Class A, C and D Shares in the Portfolio, performance
quotations for shares of Class C and D of the Portfolio will be lower than the
quotations for Class A Shares of the Portfolio, which will not bear any fees for
shareholder support services and will bear minimal transfer agency fees.
The performance of each class of shares of the Portfolio is based on
historical earnings, will fluctuate and is not intended to indicate future
performance. The investment return and principal value of an investment in a
class will fluctuate so that when redeemed, shares may be worth more or less
than their original cost. Performance information may not provide a basis for
comparison with bank deposits and other investments which provide a fixed yield
for a stated period of time. Total return data should also be considered in
light of the risks associated with the Portfolio's composition, quality,
maturity, operating expenses and market conditions. Any fees charged by
Institutions directly to their Customer accounts in connection with investments
in the Portfolio will not be included in calculations of performance
information.
TAXES
The following summarizes certain additional tax considerations
generally affecting the Portfolio and its shareholders that are not described in
the Portfolio's Prospectus. No attempt is made to present a detailed explanation
of the tax treatment of the Portfolio or its shareholders, and the discussion
here and in the applicable Prospectus is not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisers with
specific reference to their own tax situations.
GENERAL
The Portfolio will elect to be taxed separately as a regulated
investment company (a "RIC"). To qualify as a RIC, the Portfolio generally must
distribute an amount equal to at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for each year (the "Distribution
Requirement") and satisfy certain other requirements. The Portfolio must derive
at least 90% of its gross income from dividends, interest, certain payments with
respect to securities loans and gains from the sale or other disposition of
stock or securities or foreign currencies, or from other income derived with
respect to its business of investing in such stock, securities or currencies.
Also, at the close of each quarter of the taxable year, it is generally required
that at least 50% of the value of the Portfolio's assets must consist of cash
and cash items, U.S. Government securities, securities of other RICs and
securities of other issuers (as to which the Portfolio has not invested more
than 5% of the value of its total assets in securities of such issuer and as to
which the Portfolio does not hold more than 10% of the outstanding voting
securities of such issuer), and no more than 25% of the value of the Portfolio's
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Portfolio controls and which are
engaged in the same or similar trades or businesses. The Portfolio intends to
comply with these RIC requirements.
If for any taxable year the Portfolio were not to qualify as a RIC, all
of its taxable income would be subject to tax at regular corporate rates without
any deduction for distributions to shareholders. In such event, all
distributions by the Portfolio would be taxable to shareholders as ordinary
income to the extent of the Portfolio's current and accumulated earnings and
profits, and would be eligible for the dividends-received deduction in the case
of corporate shareholders .
The Internal Revenue Code imposes a nondeductible 4% excise tax on RICs
that fail currently to distribute an amount equal to specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). The Portfolio intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and capital
gain net income each calendar year to avoid liability for this excise tax. The
Portfolio also intends to make sufficient distributions or deemed distributions
each year to avoid liability for corporate income tax. If the Portfolio were to
fail to make sufficient distributions, it could be liable for corporate income
tax and for excise tax.
The Trust will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends or 31% of gross
sale proceeds paid to any shareholder (i) who has provided either an
incorrect tax identification number or no number at all, (ii) who is
subject to backup withholding by the Internal Revenue Service for
prior failure to report the receipt of taxable interest or dividend
income properly, or (iii) who has failed to certify to the Trust,
when required to do so, that he is not subject to backup withholding
or that he is an "exempt recipient."
Foreign Investors
Foreign shareholders generally will be subject to U.S. withholding tax
at a rate of 30% (or a lower treaty rate, if applicable) on distributions by the
Portfolio of net investment income, other ordinary income, and the excess, if
any, of net short-term capital gain over net long-term capital loss for the
year, regardless of the extent, if any, to which the income or gain is derived
from non-U.S. investments of the Portfolio. For this purpose, foreign
shareholders include individuals other than U.S. citizens, residents and certain
nonresident aliens, and foreign corporations, partnerships, trusts and estates.
A foreign shareholder generally will not be subject to U.S. income or
withholding tax in respect of proceeds from or gain on the redemption of shares
or in respect of capital gain dividends (i.e., dividends attributable to long-
term capital gains of the Portfolio), provided such shareholder submits a
statement, signed under penalties of perjury, attesting to such shareholder's
exempt status. Different tax consequences apply to a foreign shareholder engaged
in a U.S. trade or business or present in the U.S. for 183 days or more in a
year. Foreign shareholders should consult their tax advisers regarding the U.S.
and foreign tax consequences of investing in the Portfolio.
Conclusion
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Additional Statement. Such laws and
regulations may be changed by legislative or administrative action. No attempt
is made to present a detailed explanation of the tax treatment of the Portfolio
or its shareholders, and the discussion here and in the Prospectus is not
intended as a substitute for careful tax planning. Shareholders are advised to
consult their tax advisers with specific reference to their own tax situation,
including the application of state and local taxes.
Although the Portfolio expects to qualify as a RIC and to be relieved
of all or substantially all Federal taxes, depending upon the extent of its
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located or in which it is
otherwise deemed to be conducting business, the Portfolio may be subject to the
tax laws of such states or localities.
DESCRIPTION OF SHARES
The Trust Agreement permits the Trust's Board of Trustees to issue an
unlimited number of full and fractional shares of beneficial interest
of one or more separate series representing interests in one or more
investment portfolios. The Trustees may hereafter create series in
addition to the Trust's nineteen existing series, which represent
interests in the Trust's nineteen respective portfolios. The Trust
Agreement also permits the Board of Trustees to classify or
reclassify any unissued shares into classes within a series. Pursuant
to such authority, the Trustees have authorized the issuance of an
unlimited number of shares of beneficial interest in three separate
classes of shares in the Portfolio: Class A, C and D Shares.
Under the terms of the Trust Agreement, each share of the Portfolio is
without par value, represents an equal proportionate interest in the Portfolio
with each other share of its class in the same Portfolio and is entitled to such
dividends and distributions out of the income belonging to the Portfolio as are
declared by the Trustees. Upon any liquidation of the Portfolio, shareholders of
each class of the Portfolio are entitled to share pro rata in the net assets
belonging to that class available for distribution. Shares do not have any
preemptive or conversion rights. The right of redemption is described under
"About Your Account -- Selling Shares" in the Prospectus. In addition, pursuant
to the terms of the 1940 Act, the right of a shareholder to redeem shares and
the date of payment by the Portfolio may be suspended for more than seven days
(a) for any period during which the New York Stock Exchange is closed, other
than the customary weekends or holidays, or trading in the markets the Portfolio
normally utilizes is closed or is restricted as determined by the SEC, (b)
during any emergency, as determined by the SEC, as a result of which it is not
reasonably practicable for the Portfolio to dispose of instruments owned by it
or fairly to determine the value of its net assets, or (c) for such other period
as the SEC may by order permit for the protection of the shareholders of the
Portfolio. The Trust may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.
In addition, shares of the Portfolio are redeemable at the unilateral option of
the Trust if the Trustees determine in their sole discretion that failure to so
redeem may have material adverse consequences to the shareholders of the
Portfolio. Shares when issued as described in the Prospectus are validly issued,
fully paid and nonassessable, except as stated below. In the interests of
economy and convenience, certificates representing shares of the Portfolio are
not issued.
The proceeds received by the Portfolio for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to and constitute the underlying assets of the Portfolio. The underlying assets
of the Portfolio will be segregated on the books of account, and will be charged
with the liabilities and with a share of the general liabilities of the Trust.
Expenses with respect to the Portfolio are normally allocated in proportion to
the net asset value of the Portfolio except where allocations of direct expenses
can otherwise be fairly made.
Rule 18f-2 under the 1940 Act provides that any matter required by the
provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each investment portfolio affected by such matter. Rule 18f-2 further provides
that an investment portfolio shall be deemed to be affected by a matter unless
the interests of each investment portfolio in the matter are substantially
identical or the matter does not affect any interest of the investment
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to an investment portfolio only if approved by a majority of the
outstanding shares of such investment portfolio. However, the Rule also provides
that the ratification of the appointment of independent accountants, the
approval of principal underwriting contracts and the election of Trustees are
exempt from the separate voting requirements stated above. In addition,
shareholders of each of the classes in a particular investment portfolio have
equal voting rights except that only shares of a particular class of an
investment portfolio will be entitled to vote on matters submitted to a vote of
shareholders (if any) relating to shareholder servicing expenses and transfer
agency fees that are payable by that class.
The Trust is not required to hold annual meetings of shareholders and
does not intend to hold such meetings. In the event that a meeting of
shareholders is held, each share of the Trust will be entitled, as determined by
the Trustees without the vote or consent of shareholders, either to one vote for
each share or to one vote for each dollar of net asset value represented by such
shares on all matters presented to shareholders, including the election of
Trustees (this method of voting being referred to as "dollar-based voting").
However, to the extent required by the 1940 Act or otherwise determined by the
Trustees, series and classes of the Trust will vote separately from each other.
Shareholders of the Trust do not have cumulative voting rights in the election
of Trustees 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. Meetings of shareholders of the Trust, or any
series or class thereof, may be called by the Trustees, certain officers or upon
the written request of holders of 10% or more of the shares entitled to vote at
such meeting. To the extent required by law, the Trust will assist in
shareholder communications in connection with a meeting called by shareholders.
The shareholders of the Trust will have voting rights only with respect to the
limited number of matters specified in the Trust Agreement and such other
matters as the Trustees may determine or may be required by law.
The Trust Agreement authorizes the Trustees, without shareholder
approval (except as stated in the next paragraph), to cause the Trust, or any
series thereof, to merge or consolidate with any corporation, association, trust
or other organization or sell or exchange all or substantially all of the
property belonging to the Trust, or any series thereof. In addition, the
Trustees, without shareholder approval, may adopt a "master-feeder" structure by
investing substantially all of the assets of a series of the Trust in the
securities of another open-end investment company or pooled portfolio.
The Trust Agreement also authorizes the Trustees, in connection with
the merger, consolidation, termination or other reorganization of the Trust or
any series or class, to classify the shareholders of any class into one or more
separate groups and to provide for the different treatment of shares held by the
different groups, provided that such merger, consolidation, termination or other
reorganization is approved by a majority of the outstanding voting securities
(as defined in the 1940 Act) of each group of shareholders that are so
classified.
The Trust Agreement permits the Trustees to amend the Trust Agreement
without a shareholder vote. However, shareholders of the Trust have the right to
vote on any amendment (i) that would adversely affect the voting rights of
shareholders; (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Trust Agreement; or (iv) that the
Trustees determine to submit to shareholders.
The Trust Agreement permits the termination of the Trust or of any
series or class of the Trust (i) by a majority of the affected shareholders at a
meeting of shareholders of the Trust, series or class; or (ii) by a majority of
the Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust or its shareholders. The factors and
events that the Trustees may take into account in making such determination
include (i) the inability of the Trust or any series or class to maintain its
assets at an appropriate size; (ii) changes in laws or regulations governing the
Trust, or any series or class thereof, or affecting assets of the type in which
it invests; or (iii) economic developments or trends having a significant
adverse impact on their business or operations.
Under the Delaware Business Trust Act (the "Delaware Act"),
shareholders are not personally liable for obligations of the Trust. The
Delaware Act entitles shareholders of the Trust to the same limitation of
liability as is available to shareholders of private for-profit corporations.
However, no similar statutory or other authority limiting business trust
shareholder liability exists in many other states. As a result, to the extent
that the Trust or a shareholder is subject to the jurisdiction of courts in such
other states, those courts may not apply Delaware law and may subject the
shareholders to liability. To offset this risk, the Trust Agreement (i) contains
an express disclaimer of shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in each agreement,
obligation and instrument entered into or executed by the Trust or its Trustees
and (ii) provides for indemnification out of the property of the applicable
series of the Trust of any shareholder held personally liable for the
obligations of the Trust solely by reason of being or having been a shareholder
and not because of the shareholder's acts or omissions or for some other reason.
Thus, the risk of a shareholder incurring financial loss beyond his or her
investment because of shareholder liability is limited to circumstances in which
all of the following factors are present: (1) a court refuses to apply Delaware
law; (2) the liability arises under tort law or, if not, no contractual
limitation of liability is in effect; and (3) the applicable series of the Trust
is unable to meet its obligations.
The Trust Agreement provides that the Trustees will not be liable to
any person other than the Trust or a shareholder and that a Trustee will not be
liable for any act as a Trustee. However, nothing in the Trust Agreement
protects a Trustee against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
The Trust Agreement provides for indemnification of Trustees, officers and
agents of the Trust unless the recipient is liable by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office.
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.
In addition to the requirements of Delaware law, the Trust Agreement
provides that a shareholder of the Trust may bring a derivative action on behalf
of the Trust only if the following conditions are met: (a) shareholders eligible
to bring such derivative action under Delaware law who hold at least 10% of the
outstanding shares of the Trust, or 10% of the outstanding shares of the series
or class to which such action relates, must join in the request for the Trustees
to commence such action; and (b) the Trustees must be afforded a reasonable
amount of time to consider such shareholder request and to investigate the basis
of such claim. The Trust Agreement also provides that no person, other than the
Trustees, who is not a shareholder of a particular series or class shall be
entitled to bring any derivative action, suit or other proceeding on behalf of
or with respect to such series or class. The Trustees will be entitled to retain
counsel or other advisers in considering the merits of the request and may
require an undertaking by the shareholders making such request to reimburse the
Trust for the expense of any such advisers in the event that the Trustees
determine not to bring such action.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). To the extent
provided by the Trustees in the appointment of Series Trustees, Series Trustees
(a) may, but are not required to, serve as Trustees of the Trust or any other
series or class of the Trust; (b) may have, to the exclusion of any other
Trustee of the Trust, all the powers and authorities of Trustees under the Trust
Agreement with respect to such series or class; and/or (c) may have no power or
authority with respect to any other series or class. The Trustees are not
currently considering the appointment of Series Trustees for the Trust.
As of July 31, 1999, substantially all of the Trust's portfolios'
outstanding shares were held of record by Northern for the benefit of its
customers and the customers of its affiliates and correspondent banks that have
invested in the portfolios. As of the same date, Northern possessed sole or
shared voting and/or investment power for its customer accounts with respect to
less than [10%] of the Trust's outstanding shares. As of the same date, the
Trust's Trustees and officers as a group owned beneficially less than 1% of the
outstanding shares of each class of each portfolio.
OTHER INFORMATION
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
Securities Act of 1933 with respect to the securities offered by the Trust's
Prospectus. Certain portions of the Registration Statement have been omitted
from the Prospectus and this Additional Statement pursuant to the rules and
regulations of the SEC. The Registration Statement including the exhibits filed
therewith may be examined at the office of the SEC in Washington, D.C.
The Portfolio is responsible for the payment of its expenses. Such
expenses include, without limitation, the fees and expenses payable to Northern
and First Data, 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 for industry organizations such as the Investment Company
Institute, miscellaneous expenses and extraordinary expenses incurred by the
Trust.
The term "majority of the outstanding shares" of either the Trust or
the Portfolio means, with respect to the approval of an investment advisory
agreement or a change in a fundamental investment policy, the vote of the lesser
of (i) 67% or more of the shares of the Trust or the Portfolio present at a
meeting, if the holders of more than 50% of the outstanding shares of the Trust
or the Portfolio are present or represented by proxy, or (ii) more than 50% of
the outstanding shares of the Trust or the Portfolio.
Statements contained in the Prospectus or in this Additional Statement
as to the contents of any contract or other documents referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement of
which the Prospectus and this Additional Statement form a part, each such
statement being qualified in all respects by such reference.
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The following summarizes the rating categories used by Standard
and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's
capacity to meet its financial commitment on these obligations is
extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to
meet its financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even
if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The "D"
rating will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are
jeopardized.
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually senior debt obligations not having an original maturity in excess of
one year, unless explicitly noted. The following summarizes the rating
categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structure with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate
liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect
of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade commercial
paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps employs
three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is
expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt
service. Operating factors and market access may be subject to a high
degree of variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time horizons
of less than 12 months for most obligations, or up to three years for U.S.
public finance securities. The following summarizes the rating categories used
by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally
strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of
the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
payment of principal and interest of debt instruments with original maturities
of one year or less. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is
more susceptible to adverse developments (both internal and external)
than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest rating
category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for corporate and
municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the capacity to
meet its financial commitment on the obligation. Adverse business,
financial or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and
economic conditions for the obligor to meet its financial commitment on
the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to
meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken,
but payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
S&P believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
"r" - This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and municipal
long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risk appear
somewhat larger than the "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the
future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" are of poor standing;
"Ca" represents obligations which are speculative in a high degree; and
"C" represents the lowest rated class of bonds). "Caa," "Ca" and "C"
bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from "Aa" through "Caa". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff & Phelps for
corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent
investment. Considerable variability in risk is present during economic
cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations
when due. Debt rated "B" possesses the risk that obligations will not
be met when due. Debt rated "CCC" is well below investment grade and
has considerable uncertainty as to timely payment of principal,
interest or preferred dividends. Debt rated "DD" is a defaulted debt
obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A," "BBB,"
"BB" and "B" ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate and
municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments.
This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or
financial alternatives may be available to allow financial commitments
to be met. Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however,
capacity for continued payment is contingent upon a sustained,
favorable business and economic environment.
"CCC", "CC" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments.
"CC" ratings indicate that default of some kind appears probable, and
"C" ratings signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not meeting
obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities
involved and "D" represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA ratings
from and including "AA" to "B" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of principal
or interest over the term to maturity of long term debt and preferred stock
which are issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the rating
categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood
of timely payment of principal and interest. "BB" indicates the lowest
degree of speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a plus
or minus sign designation which indicates where within the respective category
the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and market access
risks unique to notes due in three years or less. The following summarizes the
ratings used by Standard & Poor's Ratings Group for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity
to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade ("MIG") and variable rate demand obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such ratings
recognize the differences between short-term credit risk and long-term risk. The
following summarizes the ratings by Moody's Investors Service, Inc. for
short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection that are ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with all
security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow
and market access for refinancing is likely to be less well
established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is
present and although not distinctly or predominantly speculative, there
is specific risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
<PAGE>
APPENDIX B
To the extent stated in the Prospectus, the Portfolio may enter into certain
futures transactions. Such transactions are described in this Appendix.
I. Interest Rate Futures Contracts
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Portfolio may use interest rate
futures contracts as a defense, or hedge, against anticipated interest rate
changes. As described below, this would include the use of futures contract
sales to protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate declines.
The Portfolio presently could accomplish a similar result to that which
it hopes to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest rates
are expected to increase, or conversely, selling short-term bonds and investing
in long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Portfolio, by using futures contracts.
Interest rate future contracts can also be used by the Portfolio for
non-hedging (speculative) purposes to increase total return.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by the Portfolio, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Portfolio, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Portfolio's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, the Portfolio is
immediately paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sale price, the Portfolio pays the difference and
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the Portfolio entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the Portfolio realizes a gain,
and if the purchase price exceeds the offsetting sale price, the Portfolio
realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term U.S. Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month U.S. Treasury Bills; and ninety-day commercial
paper. The Portfolio may trade in any interest rate futures contracts for which
there exists a public market, including, without limitation, the foregoing
instruments.
II. Index Futures Contracts
General. A stock or bond index assigns relative values to the stocks or
bonds included in the index, which fluctuates with changes in the market values
of the stocks or bonds included. Some stock index futures contracts are based on
broad market indexes, such as Standard & Poor's 500 or the New York Stock
Exchange Composite Index. In contrast, certain exchanges offer futures contracts
on narrower market indexes, such as the Standard & Poor's 100 or indexes based
on an industry or market indexes, such as Standard & Poor's 100 or indexes based
on an industry or market segment, such as oil and gas stocks. Futures contracts
are traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
To the extent consistent with its investment objective, the Portfolio may also
engage in transactions, from time to time, in foreign stock index futures such
as the ALL-ORDS (Australia), CAC-40 (France), TOPIX (Japan) and the FTSE-100
(United Kingdom).
The Portfolio may sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might
otherwise result from a market decline. The Portfolio may do so
either to hedge the value of its portfolio as a whole, or to protect
against declines, occurring prior to sales of securities, in the
value of the securities to be sold. Conversely, the Portfolio will
purchase index futures contracts in anticipation of purchases of
securities. A long futures position may be terminated without a
corresponding purchase of securities.
In addition, the Portfolio may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that the Portfolio expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
The Portfolio may also sell futures contracts in connection with this strategy,
in order to protect against the possibility that the value of the securities to
be sold as part of the restructuring of the portfolio will decline prior to the
time of sale.
Index futures contracts may also be used by the Portfolio for
non-hedging (speculative) purposes to increase total return.
III. Futures Contracts on Foreign Currencies
A futures contract on foreign currency creates a binding obligation on
one party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of foreign currency, for an amount fixed in U.S.
dollars. Foreign currency futures may be used by the Portfolio to hedge against
exposure to fluctuations in exchange rates between the U.S. dollar and other
currencies arising from multinational transactions.
IV. Margin Payments
Unlike purchases or sales of portfolio securities, no price is paid or
received by the Portfolio upon the purchase or sale of a futures contract.
Initially, the Portfolio will be required to deposit with the broker or in a
segregated account with a custodian or sub-custodian an amount of liquid assets,
known as initial margin, based on the value of the contract. The nature of
initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Portfolio upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." For example, when the Portfolio has
purchased a futures contract and the price of the contract has risen in response
to a rise in the underlying instruments, that position will have increased in
value and the Portfolio will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Portfolio
has purchased a futures contract and the price of the future contract has
declined in response to a decrease in the underlying instruments, the position
would be less valuable and the Portfolio would be required to make a variation
margin payment to the broker. Prior to expiration of the futures contract,
Investment Adviser may elect to close the position by taking an opposite
position, subject to the availability of a secondary market, which will operate
to terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or
gain.
V. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by the
Portfolio. One risk arises because of the imperfect correlation between
movements in the price of the futures and movements in the price of the
instruments which are the subject of the hedge. The price of the future may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, the
Portfolio would be in a better position than if it had not hedged at all. If the
price of the instruments being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the futures. If the price of
the futures moves more than the price of the hedged instruments, the Portfolio
involved will experience either a loss or gain on the futures which will not be
completely offset by movements in the price of the instruments which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of instruments being hedged and movements in the price of futures
contracts, the Portfolio may buy or sell futures contracts in a greater dollar
amount than the dollar amount of instruments being hedged if the volatility over
a particular time period of the prices of such instruments has been greater than
the volatility over such time period of the futures, or if otherwise deemed to
be appropriate by the Investment Adviser. Conversely, the Portfolio may buy or
sell fewer futures contracts if the volatility over a particular time period of
the prices of the instruments being hedged is less than the volatility over such
time period of the futures contract being used, or if otherwise deemed to be
appropriate by the Investment Adviser. It is also possible that, where the
Portfolio has sold futures to hedge its portfolio against a decline in the
market, the market may advance and the value of instruments held in the
Portfolio may decline. If this occurred, the Portfolio would lose money on the
futures and also experience a decline in value in its portfolio securities.
When futures are purchased to hedge against a possible increase in the
price of securities or a currency before the Portfolio is able to invest its
cash (or cash equivalents) in an orderly fashion, it is possible that the market
may decline instead; if the Portfolio then concludes not to invest its cash at
that time because of concern as to possible further market decline or for other
reasons, the Portfolio will realize a loss on the futures contract that is not
offset by a reduction in the price of the instruments that were to be purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Investment Adviser may
still not result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Portfolio
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful use of futures by the Portfolio is also subject to the
Investment Adviser's ability to predict correctly movements in the direction of
the market. For example, if the Portfolio has hedged against the possibility of
a decline in the market adversely affecting securities held by it and securities
prices increase instead, the Portfolio will lose part or all of the benefit to
the increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Portfolio has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but will
not necessarily be, at increased prices which reflect the rising market. The
Portfolio may have to sell securities at a time when it may be disadvantageous
to do so.
VI. Options on Futures Contracts
The Portfolio may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. The Portfolio will be required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those described
above. Net option premiums received will be included as initial margin deposits.
As an example, in anticipation of a decline in interest rates, the Portfolio may
purchase call options on futures contracts as a substitute for the purchase of
futures contracts to hedge against a possible increase in the price of
securities which the Portfolio intends to purchase. Similarly, if the value of
the securities held by the Portfolio is expected to decline as a result of an
increase in interest rates, the Portfolio might purchase put options or sell
call options on futures contracts rather than sell futures contracts.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Portfolio because the maximum amount at risk
is the premium paid for the options (plus transaction costs). The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.
VII. Other Matters
Accounting for futures contracts will be in accordance with generally
accepted accounting principles.
<PAGE>
Northern Institutional Funds
MUNICIPAL PORTFOLIO
SHARES
OCTOBER 20, 1999
<PAGE>
Northern Institutional Funds
MUNICIPAL PORTFOLIO
SHARES
Prospectus dated October 20, 1999
Northern Institutional Funds (the "Trust") offers five money market
portfolios to institutional investors. This Prospectus describes the Municipal
Portfolio (the "Portfolio"). Descriptions of the four other money market
portfolios are included in separate prospectuses. The Portfolio is authorized to
offer three classes of shares: Shares, Service Shares and Premier Shares.
Service Shares and Premier Shares are described in a separate prospectus. The
Trust's six fixed income, one balanced and seven equity portfolios are also
described in separate prospectuses.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Portfolio.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
<TABLE>
<CAPTION>
<S><C> <C> <C>
Contents
RISK/RETURN MUNICIPAL PORTFOLIO
SUMMARY
Information about the Principal Investment Risks
objective, principal
strategies and risk Portfolio Performance
characteristics of the Portfolio
Portfolio Fees and Expenses
- ----------------------------------------------------------------------------------------------------------------
MANAGEMENT Investment Adviser
OF THE
PORTFOLIO Advisory Fees
Portfolio Management
Other Portfolio Services
- ----------------------------------------------------------------------------------------------------------------
ABOUT YOUR Purchasing and Selling Shares
ACCOUNT
Investors
How to open, maintain
and close an account Share Classes
Opening an Account
Selling Shares
Account Policies and Other Information
Automatic Investment Arrangements
Purchase and Redemption Minimums
Calculating Share Price
Timing of Purchase Requests
Tax Identification Number
In-Kind Purchases and Redemptions
Miscellaneous Purchase Information
Timing of Redemption and Exchange Requests
Miscellaneous Redemption Information
Exchange Privileges
Telephone Transactions
Advance Notification of Large Transactions
Making Changes to Your Account Information
Business Day
Early Closings
Authorized Intermediaries
Information About Institutions
Distributions and Taxes
Distributions
Taxes
Other Tax Information
Year 2000 Issues
- ----------------------------------------------------------------------------------------------------------------
RISKS, SECURITIES AND TECHNIQUES Risks, Securities and Techniques
- ----------------------------------------------------------------------------------------------------------------
FOR MORE Statement of Additional Information
INFORMATION
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio seeks to provide, to the extent consistent with the
preservation of capital, a high level of income exempt from regular Federal
income tax by investing primarily in municipal instruments.
This objective may be changed without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. The Portfolio seeks to achieve its objective by
investing primarily in high-quality short-term municipal instruments. The high
level of income sought by the Portfolio is relative to yields currently
available in the tax-exempt market place. Municipal instruments are debt
instruments, the interest on which is exempt from regular Federal income tax.
These may include:
- - Fixed, variable and floating rate notes and bonds;
- - Asset-backed securities;
- - Tax-exempt commercial paper;
- - Municipal bonds, notes, paper or other instruments; and
- - Municipal bonds and notes which are guaranteed as to principal
and interest or backed by the U.S. government or its agencies or
instrumentalities.
Under normal circumstances, at least 80% of the Portfolio's annual gross income
will be derived from municipal instruments. Under normal market conditions,
uninvested cash holdings and investments in taxable instruments will not exceed
20% of the value of the total assets of the Portfolio. During temporary
defensive periods, however, all or any portion of the Portfolio's assets may be
held uninvested or invested in taxable instruments.
The Portfolio is not limited in the amount of its assets that may be invested
in AMT obligations ("private activity bonds") the interest on which may be
treated as an item of tax preference to shareholders under the Federal
alternative minimum tax. For shareholders subject to AMT, a significant portion
of the Portfolio's dividends will be subject to the Federal tax to the extent
the Portfolio invests in AMT obligations.
Taxable investments will normally consist of U.S. dollar-denominated
obligations of U.S. banks, foreign commercial banks and securities issued or
guaranteed by foreign governments; high quality commercial paper, other
obligations; high quality corporate bonds and notes; securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
custodial receipts with respect thereto; and repurchase agreements relating to
the above instruments.
Risks. These primary investment risks apply to the Portfolio: stable NAV
risk, interest rate risk, credit (or default) risk, prepayment (or call) risk,
debt extension risk, guarantor (or credit enhancement) risk, liquidity risk,
management risk and tax risk. These and other risks are summarized below.
In addition to the instruments described above, the Portfolio may use various
investment techniques in seeking its investment objective. You can learn more
about these techniques and related risks by reading "Risks, Securities and
Techniques" beginning on page ____of this Prospectus and the Statement of
Additional Information.
Please keep in mind that the Portfolio cannot guarantee it will meet its
investment objective and it should not be relied upon as a complete investment
program.
ADDITIONAL INFORMATION
The Portfolio seeks to maintain a stable net asset value of $1.00 per share.
Consistent with this policy, the Portfolio:
o Limits its dollar-weighted average portfolio maturity to 90 days or
less;
o Buys securities with remaining maturities of 397 days or less (except
for certain variable and floating rate instruments and securities
collateralizing repurchase agreements); and
o Invests only in U.S. dollar-denominated securities that represent
minimal credit risks.
In addition, the Portfolio limits its investments to "Eligible Securities" as
defined by the Securities and Exchange Commission ("SEC"). Eligible Securities
include, generally, securities that either (a) have short-term debt ratings at
the time of purchase in the two highest rating categories or (b) are issued or
guaranteed by, or otherwise allow the Portfolio to demand payment from, an
issuer with those ratings. Securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) may be deemed to be
Eligible Securities if determined to be of comparable quality by The Northern
Trust Company under the direction of the Board of Trustees. Securities that are
in the highest short-term rating category (and comparable unrated securities)
are called "First Tier Securities." Securities in which the Portfolio may 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.
In accordance with current SEC Regulations, the Portfolio will not invest more
than 5% of the value of its total assets at the time of purchase in the
securities of any single issuer. However, the Portfolio may invest up to 25% of
its total assets in the securities of a single issuer for up to three Business
Days. These limitations do not apply to cash, certain repurchase agreements,
U.S. government securities or securities of other investment companies. In
addition, certain securities subject to unconditional guarantees and securities
that are not "First Tier Securities" as defined by the SEC are subject to
different diversification requirements as described in the Statement of
Additional Information.
PRINCIPAL INVESTMENT RISKS
All investments carry some degree of risk which will affect the value of the
Portfolio's investments, investment performance, yield and the price of its
shares.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Portfolio.
The following summarizes the principal risks that may affect the Portfolio.
STABLE NAV RISK is the risk that the Portfolio will not be able to maintain a
net asset value per share of $1.00 at all times.
INTEREST RATE RISK is the risk that during periods of rising interest rates, the
Portfolio's yield (and the market value of its securities) will tend to be lower
than prevailing market rates; in periods of falling interest rates, the
Portfolio's yield (and the market value of its securities) will tend to be
higher.
CREDIT (OR DEFAULT) RISK is the risk that an issuer of fixed income securities
held by the Portfolio may default on its obligation to pay interest and repay
principal. Generally, the lower the credit rating of a security, the greater the
risk that the issuer of the security will default on its obligation. High
quality securities are generally believed to have relatively low degrees of
credit risk.
PREPAYMENT (OR CALL) RISK is the risk that an issuer will exercise its right
to pay principal on an obligation held by the Portfolio (such as an asset-backed
security) earlier than expected. This may happen during a period of declining
interest rates. Under these circumstances, the Portfolio may be unable to recoup
all of its initial investment and will suffer from having to reinvest in lower
yielding securities. The loss of higher yielding securities and the reinvestment
at lower interest rates can reduce the Portfolio's income.
DEBT EXTENSION RISK is the risk that an issuer will exercise its right to pay
principal on an obligation held by the Portfolio (such as an asset-backed
security) later than expected. This may happen during a period of rising
interest rates. Under these circumstances, the value of the obligation will
decrease and the Portfolio will suffer from the inability to invest in higher
yielding securities.
GUARANTOR (OR CREDIT ENHANCEMENT) RISK is the risk that changes in credit
quality of a U.S. or foreign bank, insurance company or other financial
institution could cause the Portfolio's investments in securities backed by
letters of credit or other credit enhancements issued by such bank or
institution to decline in value.
MANAGEMENT RISK is the risk that a strategy used by the investment management
team may fail to produce the intended results.
LIQUIDITY RISK is the risk that the Portfolio will not be able to pay redemption
proceeds on the same Business Day that shares are redeemed, because of unusual
market conditions, an unusually high volume of redemption requests or other
reasons.
YEAR 2000 RISK is the risk that the Portfolio's operations or value will be
adversely affected by the "Year 2000 Problem." (For more information, please see
"Year 2000 Issues" on page __.)
TAX RISK is the risk that future legislative or administrative changes or court
decisions may materially affect the ability of the Portfolio to pay tax-exempt
dividends.
More information about the risks of investing in the Portfolio is provided in
"Risks, Securities and Techniques" beginning on page ___. You should carefully
consider the risks discussed in these sections before investing in the
Portfolio.
PORTFOLIO PERFORMANCE
The bar charts and the performance tables have been omitted because the
Portfolio has been in operation for less than one calendar year.
PORTFOLIO FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Portfolio. Please note that it does not reflect any charges which
may be imposed by The Northern Trust Company, its affiliates, correspondent
banks and other institutions on their Customers (as defined on page __). (For
more information, please see "Account Policies and Other Information" on page
__.)
<TABLE>
<CAPTION>
<S><C> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Municipal Portfolio
Shares
Sales Charge (Load) Imposed on Purchases................. None
Deferred Sales Charge (Load)............................. None
Sales Charge (Load) Imposed on Reinvested
Distributions........................................ None
Redemption Fees.......................................... None
Exchange Fees............................................ None
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)1
Management Fees2......................................... 0.25%
Distribution (12b-1) Fees................................ None
Other Expenses3.......................................... 0.14%
Total Annual Portfolio Operating Expenses4............... 0.39%
</TABLE>
1 The Portfolio's annual operating expenses are based on actual fees and
estimated expenses for the current fiscal year.
2 As of the date of this Prospectus, the Northern Trust Company
("Northern") is voluntarily waiving a portion of its management fees
for the Portfolio. As a result of the fee waiver, actual management
fees to be paid by the Portfolio are 0.10% of the Portfolio's average
daily net assets. Fee waivers may be terminated at any time at the
option of Northern.
<PAGE>
3 "Other Expenses" include co-administration fees and all other
ordinary operating expenses of the Portfolio not listed above. Northern
and First Data Investor Services Group, Inc. ("First Data Investor
Services Group") as co-administrators are entitled to a
co-administration fee from the Portfolio at an annual rate of 0.10% of
the Portfolio's average daily net assets. Under their Co-Administration
Agreement with the Trust, which may be amended without shareholder
approval, the co-administrators have agreed indefinitely to reimburse
expenses (including fees payable to Northern and First Data Investor
Services Group as co-administrators, but excluding management fees,
transfer agency fees, servicing fees and extraordinary expenses) which
exceed on an annualized basis 0.10% of the Portfolio's average daily
net assets. As a result of the expense reimbursement, estimated "Other
Expenses" are currently 0.10% of the Portfolio's average daily net
assets.
4 As a result of the fee waivers and expense reimbursements, the
estimated actual management fees, distribution (12b-1) fees,
other expenses and total annual operating expenses for the
Portfolio for the current fiscal year are set forth below. Fee
waivers (and voluntary expense reimbursements, if applicable) may
be terminated at any time at the option of Northern. If this
occurs, "Other Operating Expenses" may increase without
shareholder approval.
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C>
Management Fees Distribution (12b-1) Fees Other Expenses Total Annual Portfolio Operating Expenses
Municipal Portfolio Shares 0.10% 0.00% 0.10% 0.20%
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
Shares of the Portfolio (without fee waivers and expense reimbursements) with
the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated (with reinvestment of all dividends and distributions) and
then redeem all of your Shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that the Portfolio's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year 3 Years
MUNICIPAL PORTFOLIO SHARES $40 $125
MANAGEMENT OF THE PORTFOLIO
Investment Adviser
The Northern Trust Company ("Northern" or the "Investment Adviser"), an Illinois
state-chartered bank and member of the Federal Reserve System, serves as
investment adviser for the Portfolio. The Investment Adviser is located at 50
South LaSalle Street, Chicago, Illinois 60675 and is a wholly-owned subsidiary
of Northern Trust Corporation, a bank holding company. As of September 30, 1999,
Northern Trust Corporation and its subsidiaries had approximately $____ billion
in assets, $____ billion in deposits and employed over _____ persons.
<PAGE>
Northern and its affiliates administrated in various capacities (including as
master trustee, investment manager or custodian) approximately $____ trillion of
assets as of September 30, 1999, including approximately $___ billion of assets
for which Northern and its affiliates had investment management responsibility.
Under its Advisory Agreement with the Trust, the Investment Adviser, subject to
the general supervision of the Trust's Board of Trustees, is responsible for
making investment decisions for the Portfolio and for placing purchase and sale
orders for portfolio securities.
Advisory Fees
As compensation for its advisory services and its assumption of related
expenses, the Investment Adviser is entitled to an advisory fee from the
Portfolio, computed daily and payable monthly, at an annual contractual rate of
0.25% (expressed as a percentage of the Portfolio's average daily net assets).
The difference, if any, between the contractual advisory fee and the actual
advisory fee that is paid by the Portfolio will reflect that the Investment
Adviser did not charge the full amount of the advisory fee to which it was
entitled. The Investment Adviser may discontinue or modify its voluntary
limitation in the future at its discretion.
Portfolio Management
The Investment Adviser employs a team approach to the investment management of
the Portfolio, relying upon investment professionals under the leadership of
James M. Snyder, Chief Investment Officer and Executive Vice President of
Northern. Mr. Snyder oversees the management of all fixed income, equity and
money market assets managed by the Investment Adviser. Mr. Snyder joined
Northern Trust in 1980.
Other Portfolio Services
Northern also serves as transfer agent ("Transfer Agent") and custodian for
the Portfolio. As Transfer Agent, Northern performs various administrative
servicing functions, and any shareholder inquiries should be directed to it. The
fees that Northern receives for its services in those capacities are described
in the Statement of Additional Information. Northern and First Data Investor
Services Group, Inc. ("First Data Investor Services"), a wholly-owned subsidiary
of First Data Corporation, serve as co-administrators for the Portfolio. The
fees that Northern and First Data Investor Services receive for their services
in these capacities are described on page ___ under "Portfolio Fees and
Expenses."
<PAGE>
PURCHASING AND SELLING SHARES
- ------------------------------------------------------------------------
Investors
Institutional investors, which are acting on their own behalf or on behalf of
their customers, clients, employees, participants and others ("Customers"), may
invest in the Portfolio through their institutional accounts at Northern or an
affiliate. They may also establish accounts directly with the Trust. There is no
sales charge imposed on investments. Institutional investors ("Institutions")
include:
Northern and its affiliates;
Defined contribution plans having at least $30 million in assets or annual
contributions of at least $5 million; and
Other institutions and organizations.
- ------------------------------------------------------------------------
Share Classes
The Portfolio offers three classes of shares to meet the special needs of
institutional investors:
Shares (described in this Prospectus)
Service Shares (described in a separate Prospectus)
Premier Shares (described in a separate Prospectus)
Shares of each class bear their pro rata portion of all operating expenses paid
by the Portfolio, except amounts payable under the Service Plan that has been
adopted for the Portfolio's Service Shares and Premier Shares and transfer
agency fees. Because of these class-specific expenses, the performance of the
Shares of the Portfolio described in this Prospectus is expected to be higher
than the performance of both the Service Shares and Premier Shares of the
Portfolio and the performance of the Portfolio's Service Shares is expected to
be higher than the performance of the Premier Shares.
- ------------------------------------------------------------------------
Opening An Account
You may purchase Shares of the Portfolio through your institutional account at
Northern (or an affiliate) or you may open an account directly with the Trust
with a minimum initial investment of $5 million in one or more portfolios of the
Trust. This minimum does not apply, however, to Shares purchased through a
Northern cash sweep program. There is no minimum for subsequent investments.
<PAGE>
Through an Institutional Account. If you are opening an institutional account at
Northern, a Northern representative can assist you with all phases of your
investment. To purchase Shares through your account, contact your Northern
representative for further information.
Directly from the Trust. An Institution may open a shareholder account and
purchase Shares directly from the Trust as described in this Prospectus.
- ------------------------------------------------------------------------
By Mail.
Read this Prospectus carefully.
Complete and sign the new account application.
Include a certified corporate resolution (or other acceptable evidence of
authority).
Enclose a check or Federal Reserve draft payable to the Portfolio.
Mail your check, corporate resolution and completed application to:
Northern Institutional Funds
c/o The Northern Trust Company
P.O. Box 75943
Chicago, Illinois 60675-5943
All checks must be payable in U.S. dollars and drawn on a bank located in the
United States. Cash and third party checks are not acceptable.
- ------------------------------------------------------------------------
By Telephone.
Read this Prospectus carefully.
Call the Transfer Agent at 1-800-637-1380.
To open a new account please provide:
o The name of the Portfolio in which you'd like to invest
o The number of Shares or dollar amount to be invested
o The method of payment
To add to an existing account, please provide:
o The Institution's name
o Your Account Number
By Wire or Automated Clearing House Transfer ("ACH Transfer").
To open a new account:
Call the Transfer Agent at 1-800-637-1380 for instructions.
For more information about the purchase of Shares, call the Transfer Agent at
1-800-637-1380.
To add to an existing account:
Have your bank 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 No.)
(Reference Shareholder's Name)
- ------------------------------------------------------------------------
Selling Shares
Through an Institutional Account. Institutions may sell (redeem) Shares through
their institutional account by contacting their Northern account representative.
Directly through the Trust. Institutions that purchase Shares directly from the
Trust may redeem their Shares through the Transfer Agent in one of the following
ways:
By Mail.
Send a written request to:
Northern Institutional Funds
c/o The Northern Trust Company
P.O. Box 75943
Chicago, Illinois 60675-5943
The letter of instruction must include:
o The signature of a duly authorized person
o Your account number
o The name of the Portfolio
o The number of Shares or the dollar amount to be redeemed
<PAGE>
By Telephone.
Call the Transfer Agent at 1-800-637-1380 for instructions.
During periods of unusual economic or market activity, telephone
redemptions may be difficult to implement. In such event, shareholders
should follow the procedures outlined above under "Selling Shares By Mail."
By Wire.
o Call the Transfer Agent at 1-800-637-1380 for instructions.
You must have given authorization for expedited wire redemption.
o The minimum amount that may be redeemed by this method is $10,000.
ACCOUNT POLICIES AND OTHER INFORMATION
Automatic Investment Arrangements. Institutions may purchase Shares through
their institutional accounts at Northern 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. Northern will
place a purchase order generated under an automatic investment direction either
on the Business Day that funds are available in the account or on the next
Business Day, depending upon the terms of the automatic investment arrangement.
Similarly, Northern will place a redemption order generated under an automatic
investment direction either on the Business Day Northern calculates the
redemption amount needed to bring the account balance up to the agreed upon
amount or on the next Business Day, depending upon the terms of the automatic
investment arrangement. If a redemption order is placed on the next Business
Day, Northern will normally provide funds by provisionally crediting the
Institution's account on the day the calculation is made. Institutions should
contact Northern for more information about their automatic investment
arrangements.
Purchase and Redemption Minimums. There is a minimum initial investment of $5
million in the Portfolio and one or more other investment portfolios of the
Trust. This minimum does not apply, however, to Shares purchased through a
Northern cash sweep program. There is no minimum for subsequent investments. A
$10,000 minimum applies for redemptions by wire. The Trust reserves the right to
waive purchase and redemption minimums and to determine the manner in which a
minimum is satisfied.
Calculating Share Price. The Trust issues Shares and redeems Shares at net asset
value ("NAV"). The NAV for each share class of the Portfolio is calculated by
dividing the value of net assets attributed to that class by the number of
outstanding shares of the class. The NAV for the Portfolio and class is
calculated as of 3:00 p.m., Chicago time, each Business Day. The NAV used in
determining the price of your Shares is the one calculated after your purchase,
exchange or redemption order is received or accepted as described below.
The Portfolio seeks to maintain an NAV of $1.00 per share by valuing the
obligations held by it at amortized cost in accordance with SEC regulations.
Amortized cost will normally approximate market value.
Timing of Purchase Requests. Requests accepted by the Transfer Agent or other
authorized intermediary by 1:00 p.m., Chicago time, on any Business Day will be
executed the same day, provided that either:
o The Transfer Agent receives the purchase price in Federal or other
immediately available funds prior to 1:00 p.m., Chicago time, the same
Business Day;
o The order is accepted by an authorized intermediary and payment is to
be made by the close of the same Business Day in Federal or other
immediately available funds according to procedures authorized by the
Trust; or
o Payment in Federal or other immediately available funds is received by
the close of the same Business Day in an institutional account
maintained with Northern or an affiliate.
Orders received by the Transfer Agent or other authorized intermediary on a
non-Business Day or after 1:00 p.m., Chicago time, on a Business Day will be
executed on the next Business Day, provided that payment is made as noted above.
We consider requests to be in "good order" when all required documents are
properly completed, signed and received, including a certified corporate
resolution or other acceptable evidence of authority. If an Institution pays for
Shares by check, Federal funds generally will become available within two
Business Days after a purchase order is received.
If payment is not received as described above from an authorized intermediary on
the same Business Day of acceptance of an order by the authorized intermediary,
the authorized intermediary may be liable for fees and losses and the
transaction may be cancelled.
In certain circumstances, the Trust may advance the time by which purchase
orders must be received. See "Early Closings" on page __.
Tax Identification Number. Federal regulations require you to provide to the
Transfer Agent a taxpayer identification number when you open an account.
Purchase orders without such a number or an indication that a number has been
applied for will not be accepted. If you have applied for a number, you must
provide it to the Transfer Agent within 60 days of the date of the order.
In-Kind Purchases and Redemptions. The Trust reserves the right to accept
payment for Shares in the form of securities that are permissible investments
for the Portfolio. The Trust also reserves the right to pay redemptions by a
distribution "in-kind" of securities (instead of cash) from the Portfolio. See
the Statement of Additional Information for further information about the terms
of these purchases and redemptions.
Miscellaneous Purchase Information.
o Institutions are responsible for transmitting purchase orders to the
Transfer Agent and delivering required funds on a timely basis.
o Institutions are responsible for all losses and expenses of the
Portfolio in the event of any failure to make payment according to the
procedures outlined in this Prospectus. Northern may redeem shares from
any account it maintains to protect the Portfolio and Northern against
loss. In addition, a $20 charge will be imposed if a check does not
clear.
o Shares of the Portfolio are entitled to the dividends declared by the
Portfolio beginning on the Business Day the purchase order is executed,
provided payment in Federal or other immediately available funds is
received by the Transfer Agent by the time designated above.
o The Trust reserves the right to reject any purchase order. The Trust
also reserves the right to change or discontinue any of its purchase
procedures.
Timing of Redemption and Exchange Requests. Redemption and exchange requests
will be effected at the NAV next determined after your exchange or redemption
order is received in good order. 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 "Account Policies and
Other Information -- Making Changes to Your Account Information."
If either the Transfer Agent or Northern (with respect to your institutional
account) receives a redemption order by 1:00 p.m., Chicago time, on a Business
Day, redemption proceeds will normally be paid in Federal funds or other
immediately available funds wired or sent by check to you or, if you so choose,
to your institutional account with Northern, on the same Business Day.
Redemption orders received after 1:00 p.m., Chicago time, 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.
In certain circumstances, the Trust may advance the time by which redemption and
exchange orders must be received. See "Early Closings" on page __.
Miscellaneous Redemption Information. All redemption proceeds will be sent by
check unless the Transfer Agent is directed otherwise. Redemption proceeds may
also be wired. A redemption request may not be processed if a shareholder has
failed to submit a completed and properly executed new account application,
including a corporate resolution or other acceptable evidence of authority.
o The Trust reserves the right to defer crediting, sending or wiring
redemption proceeds for up to 7 days after receiving the redemption
order if, in its judgment, an earlier payment could adversely affect
the Portfolio.
o If you are redeeming recently purchased Shares, your redemption request
may not be honored until your check or electronic transaction has
cleared. This may delay your transaction for up to 15 days.
o Institutions are responsible for transmitting redemption orders to the
Transfer Agent and crediting their Customers' accounts with redemption
proceeds on a timely basis.
o Redemption requests by mail must be signed by a person authorized by
acceptable documentation on file with the Transfer Agent.
o Dividends on Shares are earned through and including the day prior to
the day on which they are redeemed.
o The Trust 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.
o The Trust may require any information reasonably necessary to ensure
that a redemption request has been duly authorized.
o The Trust reserves the right to change or discontinue any of its
redemption procedures.
Exchange Privileges. Institutions and their Customers (to the extent permitted
by their account agreements) may exchange Shares of the Portfolio for Shares of
another portfolio. The registration of both accounts involved must be identical.
A $1,000 minimum investment applies. An exchange is a redemption of shares you
own and the purchase of shares you are acquiring. It is considered a taxable
event and may result in a gain or loss.
The Trust reserves the right to change or discontinue the exchange privilege at
any time upon 60 days' written notice to shareholders and to reject any exchange
request. Exchanges are only available in states where an exchange can legally be
made. Before making an exchange you should read the prospectus for the shares
you are acquiring.
Telephone Transactions. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, the Transfer Agent has adopted
procedures in an effort to establish reasonable safeguards against fraudulent
telephone transactions. If reasonable measures are taken to verify that
telephone instructions are genuine, the Trust and its service providers will not
be responsible for any loss resulting from fraudulent or unauthorized
instructions received over the telephone. In these circumstances, shareholders
will bear the risk of loss. During periods of unusual market activity, you may
have trouble placing a request by telephone. In this event, consider sending
your request in writing.
The proceeds of redemption orders received by telephone will be sent by check,
wire or transfer according to proper instructions. All checks will be made
payable to the shareholder of record and mailed only to the shareholder's
address of record.
The Trust reserves the right to refuse a telephone redemption.
Advance Notification of Large Transactions. The Trust requests that an
Institution give advance notice to the Transfer Agent by 11:00 a.m., Chicago
time, if it intends to place a purchase or redemption order of $5 million or
more on a Business Day.
Making Changes to Your Account Information. You may make changes to wiring
instructions, address of record, or other account information only in writing.
These instructions must be accompanied by a certified corporate resolution,
signature guarantee from an institution participating in the Stock Transfer
Agency Medallion Program ("STAMP"), or other acceptable evidence of authority.
In accordance with SEC regulations, the Trust and Transfer Agent may charge a
shareholder reasonable costs in locating a shareholder's current address.
Business Day. A "Business Day" is each Monday through Friday when Northern or
the New York Stock Exchange is open for business. A "Business Day" does not
include a holiday observed by Northern and the Exchange. In 1999 these holidays
are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas Day.
Early Closings. The Portfolio reserves the right to cease, or to advance the
time for, accepting purchase, redemption or exchange orders for same Business
Day credit when Northern or the Exchange closes early as a result of unusual
weather or other conditions. It also reserves this right when The Bond Market
Association recommends that securities markets close or close early.
Authorized Intermediaries. The Trust may authorize certain financial
intermediaries (including banks, trust companies, brokers and investment
advisers), which provide recordkeeping, reporting and processing services, to
accept purchase, redemption and exchange orders from their Customers on behalf
of the Trust. They may also designate other intermediaries to accept such
orders, if approved by the Trust. Authorized intermediaries are responsible for
transmitting orders and delivering funds on a timely basis. The Portfolio will
be deemed to have received an order when the order is accepted by the authorized
intermediary on a Business Day, and the order will be priced at the Portfolio's
per share NAV next determined.
Information About Institutions. Customers purchasing Shares through an
Institution should read their account agreements carefully. An Institution's
requirements may differ from those listed in this Prospectus. An Institution may
impose account charges, such as asset allocation fees, account maintenance fees,
and other charges that will reduce the net return on an investment in the
Portfolio. If a Customer has agreed with a particular Institution to maintain a
minimum balance with the Institution and the balance falls below this minimum,
the Customer may be required to redeem all or a part of his investment in the
Portfolio.
Northern may 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 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 earned by Northern as
Investment Adviser (after adjustments). This compensation will be paid by
Northern or its affiliates and will not represent an additional expense to the
Trust or its shareholders.
State securities laws regarding the registration of dealers may differ from
Federal law. As a result, Institutions investing in the Portfolio on behalf of
their Customers may be required to register as dealers.
<PAGE>
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
Dividends from net income are declared daily and paid monthly by the Portfolio
to its shareholders. Net income includes the interest accrued on the Portfolio's
assets less estimated expenses. The Portfolio's net realized short-term capital
gains, if any, are distributed at least annually. The Portfolio does not expect
to realize net long-term capital gain.
Dividends are paid as soon as practical following the end of each month, except
in the case of a total redemption of Shares in an account that is not subject to
a standing order for the purchase of additional Shares. In that event, dividends
will be paid promptly along with the redemption proceeds.
All distributions are automatically reinvested (without any sales charge) in
additional Shares of the Portfolio, unless you elect to receive distributions in
cash by notifying the Transfer Agent in writing. You may make
arrangements to credit these distributions to your account with Northern, its
affiliates or its correspondent banks.
There are no fees or sales charges on reinvestments.
TAXES
The Portfolio intends to qualify as a regulated investment company for Federal
tax purposes, and to distribute to shareholders substantially all of its net
investment income and net capital gain. There are certain tax requirements that
the Portfolio must follow in order to avoid Federal taxation. In its efforts to
adhere to these requirements, the Portfolio may have to limit its investment
activity in some types of instruments.
The Portfolio expects to pay "exempt-interest dividends" that are generally
exempt from regular Federal income tax. However, a significant portion of the
exempt-interest dividends paid by the Portfolio will be an item of tax
preference for purposes of determining Federal alternative minimum tax
liability. Exempt-interest dividends will also be considered along with other
adjusted gross income in determining whether any Social Security or railroad
retirement payments received by you are subject to Federal income taxes.
If you receive an exempt-interest dividend with respect to any share and the
share is held for six months or less, any loss on the sale or exchange of the
share will be disallowed to the extent of the dividend amount. Interest on
indebtedness incurred by a shareholder to purchase or carry shares of the
Portfolio generally will not be deductible for federal income tax purposes.
Except as stated below, you may be subject to state and local taxes on Portfolio
distributions. State income taxes may not apply, however, to the portions of the
Portfolio's distributions, if any, that are attributable to interest on certain
types of Federal securities or interest on securities issued by the particular
state or municipalities within the state.
In all cases, distributions, if any, derived from net long-term capital gains
will generally be taxable to you as long-term capital gains, and any dividends
derived from short-term capital gains and taxable interest income will be
taxable to you as ordinary income.
OTHER TAX INFORMATION
Dividends and distributions from the Portfolio will generally be reportable by
you in the tax year in which they are paid, with one exception. Dividends and
distributions declared by the Portfolio in October, November or December and
paid in January are taxed as though they were paid by December 31.
Every year, the Trust will send you information detailing the amount of ordinary
income and capital gains distributed to your account for the previous year.
Your investment in the Portfolio could have additional tax consequences. You
should consult your tax professional for information regarding all the tax
consequences applicable to your investment in the Portfolio. More information is
provided in the Statement of Additional Information. This short summary is not
intended as a substitute for careful tax planning.
Dividends paid by the Portfolio may be taxable 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.
Year 2000 Issues
Like every other business dependent upon computerized information processing,
Northern Trust Corporation ("Northern Trust") must deal with "Year 2000" issues.
Many computer systems use two digits rather than four to identify the year.
Unless adapted, these systems may not be able to correctly distinguish the Year
2000 from the Year 1900. 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. This could have a negative
effect on the companies in which the Portfolio invests, thus decreasing the
Portfolio's investment returns.
Northern Trust has implemented steps to prepare its critical computer systems
and processes for Year 2000 processing. It has established 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 of its critical systems. Northern Trust has advised the Trust that it has
substantially completed work on its critical systems and testing with outside
parties.
Northern Trust also has a program to monitor and assess the efforts of other
parties, such as other service providers to the Portfolio. However, it cannot
control the success of those other parties' efforts. Contingency plans are being
established to provide Northern Trust with alternatives in case these entities
experience significant Year 2000 difficulties that impact Northern Trust.
Furthermore, even if the actions taken by Northern Trust are successful, the
normal operations of the Portfolio may, in any event, be disrupted significantly
by the failure of communications and public utility companies, governmental
entities, financial processors or others to perform their services as a result
of Year 2000 problems.
<PAGE>
Efforts in foreign countries to remediate potential Year 2000 problems are
not as extensive as those in the United States. As a result, the operations of
foreign markets, foreign issuers and foreign governments may be disrupted by the
Year 2000 problem and the investment holdings of the Portfolio may be adversely
affected.
RISKS, SECURITIES AND TECHNIQUES
This section takes a closer look at some of the types of securities in which
the Portfolio may invest and their related risks. It also explores the various
investment techniques that the investment management team may, but is not
required to, use. The Portfolio may invest in other securities and are subject
to further restrictions and risks which are described in the Statement of
Additional Information.
ASSET-BACKED SECURITIES. Asset-backed securities are sponsored by entities such
as government agencies, banks, financial companies and commercial or industrial
companies. Asset-backed securities represent participations in, or are secured
by and payable from, pools of various types of real and personal property and
other financial assets. Such asset pools are securitized through the use of
privately formed trusts or special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pooled insurance policy
issued by a financial institution, or other credit enhancements.
INVESTMENT STRATEGY. The Portfolio may purchase various types of
asset-backed securities that are "Eligible Securities" as defined
by the SEC.
SPECIAL RISKS. In addition to credit and market risk, asset-backed
securities involve prepayment risk because the underlying assets (loans)
may be prepaid at any time. The value of these securities may also change
because of actual or perceived changes in the creditworthiness of the
originator, the servicing agent, the financial institution providing the
credit support, or the counterparty. 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. In addition, non-mortgage
asset-backed securities involve certain risks not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of the same security interest in the underlying collateral.
BORROWINGS AND REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow money
from banks and may enter into reverse repurchase agreements with banks and other
financial institutions. Reverse repurchase agreements involve the sale of money
market securities held by the Portfolio subject to its agreement to repurchase
them at a mutually agreed upon date and price (including interest).
INVESTMENT STRATEGY. The Portfolio may borrow and enter into reverse
repurchase agreements in amounts not exceeding one-third of its total
assets (including the amount borrowed). These transactions may be entered
into as a temporary measure for emergency purposes or to meet redemption
requests. Reverse repurchase agreements may also be entered into when the
investment management team expects that the interest income to be earned
from the investment of the transaction proceeds will be greater than the
related interest expense.
<PAGE>
165
SPECIAL RISKS. Borrowings and reverse repurchase agreements involve
leveraging. If the securities held by the Portfolio decline in value
while these transactions are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately
more than the decline in value of the securities. In addition, reverse
repurchase agreements involve the risks that the interest income earned
by the Portfolio (from the investment of the proceeds) will be less than
the interest expense of the transaction, that the market value of the
securities sold by the Portfolio will decline below the price the
Portfolio is obligated to pay to repurchase the securities, and that the
securities may not be returned to the Portfolio.
DERIVATIVES. The Portfolio may purchase certain "derivative" instruments. A
derivative is a financial instrument whose value is derived from -- or based
upon -- the performance of underlying assets, interest rates, or indices.
Derivatives include structured debt obligations such as asset-backed securities,
"stripped" securities and various floating rate instruments.
INVESTMENT STRATEGY. The Portfolio will invest in derivatives only if the
potential risks and rewards are consistent with the Portfolio's
objective, strategies and overall risk profile.
SPECIAL RISKS. Engaging in derivative transactions involves special
risks, including (a) market risk that the Portfolio's derivatives
position will lose value; (b) credit risk that the counterparty to the
transaction will default; (c) leveraging risk that the value of the
derivative instrument will decline more than the value of the assets on
which it is based; (d) illiquidity risk that the Portfolio will be unable
to sell its position because of lack of market depth or disruption; (e)
pricing risk that the value of a derivative instrument will be difficult
to determine; and (f) operations risk that loss will occur as a result of
inadequate systems or human error. Many types of derivatives have been
recently developed and have not been tested over complete market cycles.
For these reasons, the Portfolio may suffer a loss whether or not the
analysis of the investment management team is accurate.
DOWNGRADED SECURITIES. After its purchase, the portfolio security may be
assigned a lower rating or cease to be rated. If this occurs, the Portfolio may
continue to hold the issue if the Investment Adviser believes it is in the best
interest of the Portfolio and its shareholders.
ILLIQUID OR RESTRICTED SECURITIES. Illiquid securities include certain variable
amount master demand notes that cannot be called within seven days and other
securities that are traded in the U.S. but are subject to trading restrictions
because they are not registered under the Securities Act of 1933, as amended
(the "1933 Act").
INVESTMENT STRATEGY. The Portfolio may invest up to 10% of its net assets
in securities that are illiquid. A domestically traded security which is
not registered under the 1933 Act will not be considered illiquid if the
Investment Adviser determines that an adequate trading market exists for
that security. If otherwise consistent with their investment objectives
and policies, the Portfolio 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 the Investment Adviser determines,
under guidelines approved by the Trust's Board of Trustees, that an
adequate trading market exists.
SPECIAL RISKS. Because illiquid and restricted securities may be
difficult to sell at an acceptable price, they may be subject to greater
volatility and may result in a loss to the Portfolio. The practice of
investing in Rule 144A Securities could increase the level of the
Portfolio's illiquidity during any period that qualified institutional
buyers become uninterested in purchasing these securities.
INVESTMENT COMPANIES. In connection with the management of its daily cash
positions, the Portfolio may invest in shares of other money market funds which
invest in short-term, high quality debt securities and securities issued by
other investment companies consistent with its investment objectives and
policies.
INVESTMENT STRATEGY. Investments by the Portfolio in other money market
funds will be subject to the limitations of the Investment Company Act of
1940. Although the Portfolio does not expect to do so in the foreseeable
future, the Portfolio is authorized to invest substantially all of its
assets in an open-end investment company that has the same investment
objective, policies and fundamental restrictions as the Portfolio.
SPECIAL RISKS. As a shareholder of another investment company, the
Portfolio would be subject to the same risks as any other investor in
that company. It would also bear a proportionate share of any fees or
expenses paid by that company. These expenses would be in addition to the
advisory fees and other expenses the Portfolio bears directly in
connection with its own operations.
MUNICIPAL AND RELATED INSTRUMENTS. Municipal instruments 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 include both "general" and "revenue" bonds and may be
issued to obtain funds for various public purposes. General obligations are
secured by the issuer's pledge of its full faith, credit and taxing power.
Revenue obligations are payable only from the revenues derived from a particular
facility or class of facilities. In some cases, revenue bonds are also payable
from the proceeds of a special excise or other specific revenue source such as
lease payments from the user of a facility being financed. Some municipal
instruments, known as private activity bonds, are issued to finance projects for
private companies. Private activity bonds are usually revenue obligations since
they are typically payable by the private user of the facilities financed by the
bonds.
Municipal instruments also include "moral obligation" bonds, municipal leases,
certificates of participation and custodial receipts. Moral obligation bonds are
supported by a moral commitment but not a legal obligation of a state or
municipality. Municipal leases and participation certificates present the risk
that the state or municipality involved will not appropriate the monies to meet
scheduled payments on an annual basis. Custodial receipts represent interests in
municipal instruments held by a trustee.
The Portfolio may acquire "stand-by commitments" relating to the municipal
instruments it holds. Under a stand-by commitment, a dealer agrees to purchase,
at the Portfolio's option, specified municipal instruments at a specified price.
A stand-by commitment may increase the cost, and thereby reduce the yield, of
the municipal instruments to which the commitment relates. The Portfolio will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights for trading purposes.
INVESTMENT STRATEGY. Although it is not the Portfolio's current
policy to do so on a regular basis, in connection with its
investments in municipal instruments, the Portfolio may invest more
than 25% of its total assets in municipal instruments the interest
upon which is paid solely by governmental issuers from revenues of
similar projects. However, 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 to be paid are in the same
industry.
SPECIAL RISKS. Municipal instruments purchased by the Portfolio
may be backed by letters of credit, insurance or other forms of
credit enhancement issued by foreign (as well as domestic) banks,
insurance companies and other financial institutions. If the credit
quality of these banks, insurance companies and financial
institutions declines, the Portfolio could suffer a loss to the
extent that the Portfolio is relying upon this credit support.
Foreign institutions can present special risks relating to higher
transaction and custody costs, the imposition of additional taxes by
foreign governments, less complete financial information, less market
liquidity, more market volatility and political instability. Foreign
banks, insurance companies and financial institutions may be subject
to less stringent reserve requirements, and to different accounting,
auditing and recordkeeping requirements than U.S banks.
In addition, when a substantial portion 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 instrument
would likewise affect the related instrument.
SECURITIES LENDING. In order to generate additional income, the Portfolio may
lend securities on a short-term basis to banks, brokers and dealers or other
qualified institutions. In exchange, the Portfolio will receive collateral equal
to at least 100% of the value of the securities loaned.
INVESTMENT STRATEGY. Securities lending may represent no more than
one-third the value of the Portfolio's total assets (including the loan
collateral). Any cash collateral received by the Portfolio in connection
with these loans may be invested in U.S. government securities and other
liquid high-grade debt obligations.
SPECIAL RISKS. The main risk when lending portfolio securities is that
the borrower might become insolvent or refuse to honor its obligation to
return the securities. In this event, the Portfolio could experience
delays in recovering its securities and may possibly incur a capital
loss. In addition, the Portfolio may incur a loss in reinvesting the cash
collateral it receives.
STRIPPED OBLIGATIONS. These securities are issued by governmental entities,
banks and other financial institutions. They entitle the holder to receive
either interest payments or principal payments that have been "stripped" from a
debt obligation.
INVESTMENT STRATEGY. To the extent consistent with its investment
objective, the Portfolio may purchase stripped securities.
SPECIAL RISKS. Stripped securities are very sensitive to interest rate
changes and to the rate of principal prepayments. A rapid or unexpected
increase in prepayments could depress the price of certain stripped
securities and adversely affect the Portfolio's total return.
TAXABLE INVESTMENTS. Taxable investments include U.S. dollar-denominated
obligations of U.S. banks, foreign commercial banks and securities issued or
guaranteed by foreign governments; high quality commercial paper and other
obligations; high quality corporate bonds and notes; asset-backed securities;
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities and related custodial receipts; and repurchase agreements
relating to the above instruments.
INVESTMENT STRADEGY. The Portfolio may invest from time to
time, on a temporary basis or for temporary defensive
purposes, in short-term taxable instruments that are
"Eligible Securities" as defined by the SEC for money
market funds.
SPECIAL RISKS. Dividends paid by the Portfolio that are
derived from interest paid on taxable investments will
generally be taxable to the Portfolio's shareholders as
ordinary income for Federal income tax purposes. The
Portfolio may not achieve its investment objective when
its assets are invested in taxable obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS. Variable and floating rate instruments
have interest rates that are periodically adjusted either at set intervals or
that float at a margin above a generally recognized index rate. These
instruments include 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 a
specified date.
INVESTMENT STRATEGY. The Portfolio may invest in rated and unrated
variable and floating rate instruments to the extent consistent
with its investment objective. Unrated instruments may be purchased
by the Portfolio if they are determined by the Investment Adviser
to be of comparable quality to rated instruments eligible for
purchase by the Portfolio.
SPECIAL RISKS. Because there is no active secondary market for
certain variable and floating rate instruments, they may be more
difficult to sell if the issuer defaults on its payment obligations
or during periods when the Portfolio is not entitled to exercise
its demand rights.
<PAGE>
WHEN-ISSUED SECURITIES, DELAYED DELIVERY TRANSACTIONS AND FORWARD COMMITMENTS. A
purchase of "when-issued" securities refers to a transaction made conditionally
because the securities, although authorized, have not yet been issued. A delayed
delivery or forward commitment transaction involves a contract to purchase or
sell securities for a fixed price at a future date beyond the customary
settlement period.
INVESTMENT STRATEGY. The Portfolio may purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis. Although the
Portfolio would generally purchase securities in these transactions with
the intention of acquiring the securities, the Portfolio may dispose of
such securities prior to settlement if the investment management team
deems it appropriate to do so.
SPECIAL RISKS. Purchasing securities on a when-issued, delayed delivery
or forward commitment basis involves the risk that the securities may
decrease in value by the time they are actually issued or delivered.
Conversely, selling securities in these transactions involves the risk
that the value of the securities may increase before the time they are
actually issued or delivered. These transactions also involve the risk
that the seller may fail to deliver the security or cash on the
settlement date.
<PAGE>
For More Information
ANNUAL/
SEMIANNUAL
REPORT
Additional information about the Portfolio's investments will be available in
the Portfolio's annual and semiannual reports to shareholders.
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Portfolio and its policies is also available in
the Portfolio's Statement of Additional Information ("SAI"). The SAI is
incorporated by reference into this Prospectus (is legally considered part of
this Prospectus).
The Portfolio's annual and semiannual reports (when they become available) and
the SAI are available free upon request by calling 1-800-637-1380.
To obtain other information and for shareholder inquiries:
By telephone -- Call 1-800-637-1380
By mail -- Northern Institutional Funds
P.O. Box 75943
Chicago, IL 60675
On the Internet -- Text-only versions of the Portfolio's documents are available
on the SEC's website at http://www.sec.gov.
You may review and obtain copies of Trust documents by visiting the SEC's Public
Reference Room in Washington, D.C. You may also obtain copies of Trust documents
by sending your request and a duplicating fee to the SEC's Public Reference
Section, Washington, D.C. 20549-6009. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Northern
Institutional Funds
SHARES PROSPECTUS
811-3605
<PAGE>
INVESTMENT ADVISER
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
TRANSFER AGENT
AND CUSTODIAN
The Northern Trust Company
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
SHARES
NORTHERN INSTITUTIONAL FUNDS
MUNICIPAL PORTFOLIO
This Statement of Additional Information dated October 20 (the
"Additional Statement") is not a prospectus. Copies of the prospectus dated
October 20, 1999 for the Shares of the Municipal Portfolio (the "Portfolio") of
Northern Institutional Funds (the "Prospectus") may be obtained without charge
by calling 1-800-637-1380 (toll-free). The Portfolio also offers two additional
share classes, Service Shares and Premier Shares, which are described in a
separate statement of additional information. Capitalized terms not otherwise
defined have the same meaning as in the Prospectus.
<PAGE>
INDEX
Page
ADDITIONAL INVESTMENT INFORMATION.........................................
Classification and History...................................
Investment Objective, Strategies and Risks...................
Investment Restrictions......................................
ADDITIONAL TRUST INFORMATION..............................................
Trustees and Officers........................................
Investment Adviser, Transfer Agent and Custodian.............
Portfolio Transactions.......................................
Co-Administrators and Distributor............................
Counsel and Auditors.........................................
In-Kind Purchases and Redemptions............................
Third-Party Fees and Requirements............................
PERFORMANCE INFORMATION...................................................
AMORTIZED COST VALUATION..................................................
DESCRIPTION OF SHARES.....................................................
ADDITIONAL INFORMATION CONCERNING TAXES...................................
General......................................................
Foreign Investors............................................
Conclusion...................................................
OTHER INFORMATION.........................................................
APPENDIX A................................................................
No person has been authorized to give any information or to make any
representations not contained in this Additional Statement or in the Prospectus
in connection with the offering of Shares made by the Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Trust or its distributor. The Prospectus does not
constitute an offering by the Trust or by the distributor in any jurisdiction in
which such offering may not lawfully be made.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Portfolio.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
Classification and History
Northern Institutional Funds (the "Trust") is an open-end, management
investment company. The Portfolio is classified as diversified under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Portfolio is a series of the Trust, which was formed as a Delaware
business trust on July 1, 1997 under an Agreement and Declaration of Trust (the
"Trust Agreement"). The Trust is the result of a reorganization of a
Massachusetts business trust known as The Benchmark Funds on March 31, 1998. The
Trust's name was changed from The Benchmark Funds to the Northern Institutional
Funds on July 15, 1998. The Trust also offers six fixed income, four money
market, one balanced, and seven equity portfolios, which are not described in
this document.
Investment Objective, Strategies and Risks
The following supplements the investment objective, strategies and
risks of the Portfolio as set forth in the Prospectus. Except as expressly noted
below, the investment objective and policies of the Portfolio may be changed
without shareholder approval.
Commercial Paper, Bankers' Acceptances, Certificates of Deposit and Time
Deposits
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by banks or bank holding companies, corporations and
finance companies. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers' acceptances are negotiable drafts or bills
of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties that vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party. Bank notes and bankers'
acceptances rank junior to deposit liabilities of the bank and pari passu with
other senior, unsecured obligations of the bank. Bank notes are classified as
"other borrowings" on a bank's balance sheet, while deposit notes and
certificates of deposit are classified as deposits. Bank notes are not insured
by the Federal Deposit Insurance Corporation or any other insurer. Deposit notes
are insured by the Federal Deposit Insurance Corporation only to the extent of
$100,000 per depositor per bank.
The Portfolio may invest a portion of its assets in the obligations of
foreign banks and foreign branches of domestic banks. Such obligations include
Eurodollar Certificates of Deposit ("ECDs") which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Eurodollar Time Deposits ("ETDs"), which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs"), which are essentially the same as ETDs
except they are issued by Canadian offices of major Canadian banks; Schedule Bs,
which are obligations issued by Canadian branches of foreign or domestic banks;
Yankee Certificates of Deposit ("Yankee CDs") which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in
the United States; and Yankee Bankers' Acceptances ("Yankee BAs"), which are
U.S. dollar-denominated bankers' acceptances issued by a U.S.
branch of a foreign bank and held in the United States.
Zero Coupon
To the extent consistent with its investment objective, the Portfolio
may invest in zero coupon bonds. Zero coupon bonds are debt securities issued or
sold at a discount from their face value and which do not entitle the holder to
any periodic payment of interest prior to maturity or a specified date. The
original issue discount varies depending on the time remaining until maturity or
cash payment date, prevailing interest rates, the liquidity of the security and
perceived credit quality of the issuer. These securities also may take the form
of debt securities that have been stripped of their unmatured interest coupons,
the coupons themselves or receipts or certificates representing interests in
such stripped debt obligations or coupons. The market prices of zero coupon
bonds generally are more volatile than the market prices of interest bearing
securities and are likely to respond to a greater degree of changes in interest
rates than interest bearing securities having similar maturities and credit
quality.
Zero coupon bonds involve the additional risk that, unlike securities
that periodically pay interest to maturity, the Portfolio will realize no cash
until a specified future payment date unless a portion of such securities is
sold and, if the issuer of such securities defaults, the Portfolio may obtain no
return at all on its investment. In addition, even though such securities do no
provide for the payment of current interest in cash, the Portfolio is
nonetheless required to accrue income on such investment for each taxable year
and generally is required to distribute such accrued amounts (net of deductible
expenses, if any) to avoid being subject to tax. Because no cash is generally
received at the time of the accrual, the Portfolio may be required to liquidate
other portfolio securities to obtain sufficient cash to satisfy Federal tax
distribution requirements applicable to the Portfolio.
U.S. Government Obligations
Examples of the types of U.S. Government obligations that may be
acquired by the Portfolio include U.S. Treasury Bills, Treasury Notes and
Treasury Bonds and the obligations of Federal Home Loan Banks, Federal Farm
Credit Banks, Federal Land Banks, the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, Federal National Mortgage Association ("FNMA"), Government
National Mortgage Association ("GNMA"), General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
Intermediate Credit Banks, and the Maritime Administration.
.........Securities guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities are also 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 any agency or
instrumentality thereof, and (b) participations in loans made to foreign
governments or their agencies that are so guaranteed.
.........To the extent consistent with its investment objective, the Portfolio
may invest in a variety of U.S. Treasury obligations and obligations issued by
or guaranteed by the U.S. Government or its agencies and instrumentalities. Not
all U.S. Government obligations carry the same credit support. 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. In
addition, the secondary market for certain participations in loans made to
foreign governments or their agencies may be limited.
Asset-Backed Securities
To the extent described in the Prospectus, the Portfolio may purchase
asset-backed securities, which are securities backed by mortgages, installment
contracts, credit card receivables or other assets. Asset-backed securities
represent interests in "pools" of assets in which payments of both interest and
principal on the securities are made periodically, thus in effect "passing
through" such payments made by the individual borrowers on the assets that
underlie the securities, net of any fees paid to the issuer or guarantor of the
securities. The average life of asset-backed securities varies with the
maturities of the underlying instruments, and the average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgage pools underlying the securities as a
result of mortgage prepayments. For this and other reasons, an asset-backed
security's stated maturity may be shortened, and the security's total return may
be difficult to predict precisely.
If an asset-backed security is purchased at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if an asset-backed security is
purchased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore, prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments.
Asset-backed securities acquired by the Portfolio may include
collateralized mortgage obligations ("CMOs") issued by private companies. CMOs
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
ordinarily elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in a variety of ways. The Portfolio will not purchase "residual" CMO interests,
which normally exhibit greater price volatility.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the GNMA include GNMA Mortgage Pass-Through Certificates (also known as
"Ginnie Maes"), which are guaranteed as to the timely payment of principal and
interest by GNMA and backed by the full faith and credit of the United States.
GNMA is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-backed securities issued by FNMA include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes"), which are
solely the obligations of FNMA and are not backed by or entitled to full faith
and credit of the United States, but are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-related securities
issued by the FHLMC include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the
United States, created pursuant to an Act of Congress, which is owned entirely
by Federal Home Loan Banks. Freddie Macs are not guaranteed and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the underlying collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and Federal consumer credit laws, many of which
have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
Supranational Bank Obligations
The Portfolio may invest in obligations of supranational banks.
Supranational banks are international banking institutions designed or supported
by national governments to promote economic reconstruction, development or trade
among nations (e.g., the International Bank for Reconstruction and Development).
Obligations of supranational banks may be supported by appropriated but unpaid
commitments of their member countries and there is no assurance that these
commitments will be undertaken or met in the future.
Custodial Receipts for Treasury Securities
The Portfolio may acquire U.S. Government obligations and their
unmatured interest coupons that have been separated ("stripped") by their
holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury
Securities" ("CATS"). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. The underlying
U.S. Treasury bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are ostensibly owned by the bearer or holder), in trust on
behalf of the owners. Counsel to the underwriters of these certificates or other
evidences of ownership of U.S. Treasury securities have state that, in their
opinion, purchasers of the stripped securities most likely will be deemed the
beneficial holders of the underlying U.S. Government obligations for Federal tax
purposes. The Trust is unaware of any binding legislative, judicial or
administrative authority on this issue.
U.S. Treasury STRIPS
The Treasury Department has facilitated transfers of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and principal payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." The
Portfolio may purchase securities registered in the STRIPS program. Under the
STRIPS program, the Portfolio will be able to have its beneficial ownership of
zero coupon securities recorded directly in the book-entry record-keeping system
in lieu of having to hold certificates or other evidences of ownership of the
underlying U.S. Treasury securities.
The Portfolio may acquire securities registered under the STRIPS program.
Variable and Floating Rate Instruments
With respect to the variable and floating rate instruments that may be
acquired by the Portfolio as described in the Prospectus, the Investment Adviser
will consider the earning power, cash flows and other liquidity ratios of the
issuers and guarantors of such instruments and, if the instruments are subject
to demand features, will monitor their financial status and ability to meet
payment on demand. In determining weighted average portfolio maturity, an
instrument may, subject to the Securities and Exchange Commission (the "SEC")
regulations, be deemed to have a maturity shorter than its nominal maturity
based on the period remaining until the next interest rate adjustment or the
time the Portfolio can recover payment of principal as specified in the
instrument. Where necessary to ensure that a variable or floating rate
instrument is of the minimum required credit quality, the issuer's obligation to
pay the principal of the instrument will be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend.
Variable and floating rate instruments eligible for purchase by the
Portfolio include variable amount master demand notes, which permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate.
Variable and floating rate instruments held by the Portfolio will be
subject to the Portfolio's 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
With respect to the investments of the Portfolio in the securities of
other investment companies, such investments will be limited so that, as
determined after a purchase is made, either (a) not more than 3% of the total
outstanding stock of such investment company will be owned by the Portfolio, the
Trust as a whole and their affiliated persons (as defined in the 1940 Act) or
(b) (i) not more than 5% of the value of the total assets of the Portfolio will
be invested in the securities of any one investment company; (ii) not more than
10% of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Portfolio.
Certain investment companies whose securities are purchased by the
Portfolio may not be obligated to redeem such securities in an amount exceeding
1% of the investment company's total outstanding securities during any period of
less than 30 days. Therefore, such securities that exceed this amount may be
illiquid. Notwithstanding the foregoing, the Portfolio may adhere to more
restrictive limitations with respect to its investments in securities issued by
other investment companies if required by the SEC or deemed to be in the best
interests of Investment Adviser. If required by the 1940 Act, the Portfolio
expects to vote the shares of other investment companies that are held by it in
the same proportion as the vote of all other holders of such securities.
Yields and Ratings
The yields on certain obligations, including the money market
instruments in which the Portfolio invests, are dependent on a variety of
factors, including general economic conditions, conditions in the particular
market for the obligation, financial condition of the issuer, size of the
offering, maturity of the obligation and ratings of the issue. The ratings of
Standard & Poor's Ratings Group, Inc. ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Rating Co. ("Duff"), Fitch IBCA, Inc.
("Fitch") and Thomson BankWatch, Inc. represent their respective opinions as to
the quality of the obligations they undertake to rate. Ratings, however, are
general and are not absolute standards of quality. Consequently, obligations
with the same rating, maturity and interest rate may have different market
prices. For a more complete discussion of ratings, see Appendix A to this
Additional Statement.
Subject to the limitations stated in the Prospectus, if a security held
by the Portfolio undergoes a rating revision, the Portfolio may continue to hold
the security if the Investment Adviser determine such retention is warranted.
Repurchase Agreements
The Portfolio may agree to purchase portfolio securities from financial
institutions subject to the seller's agreement to repurchase them a mutually
agreed upon date and price ("repurchase agreements"). Repurchase agreements are
considered to be loans under the 1940 Act. Although the securities subject to a
repurchase agreement may bear maturities exceeding one year, settlement for the
repurchase agreement will never be more than one year after the Portfolio's
acquisition of the securities and normally will be within a shorter period of
time. Securities subject to repurchase agreements are held either by the Trust's
custodian or subcustodian (if any), or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
maintain the value of the securities subject to the agreement in an amount
exceeding the repurchase price (including accrued interest). Default by the
seller would, however, expose the Portfolio to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.
Reverse Repurchase Agreements
The Portfolio may borrow funds by selling portfolio securities to
financial institutions such as banks and broker/dealers and agreeing to
repurchase them at a mutually specified date and price ("reverse repurchase
agreements"). The Portfolio may use the proceeds of reverse repurchase
agreements to purchase other securities either maturing, or under an agreement
to resell, at a date simultaneous with or prior to the expiration of the reverse
repurchase agreement. Reverse repurchase agreements are considered to be
borrowing under the 1940 Act. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the repurchase price. The Portfolio will pay interest on amounts obtained
pursuant to a reverse repurchase agreement. While reverse repurchase agreements
are outstanding, the Portfolio will segregate liquid assets in an amount at
least equal to the market value of the securities, plus accrued interest,
subject to the agreement.
Securities Lending
Collateral for loans of portfolio securities made by the Portfolio may
consist of cash, cash equivalents, securities issued or guaranteed by the U.S.
Government or its agencies or irrevocable bank letters of credit (or any
combination thereof). The borrower of securities will be required to maintain
the market value of the collateral at not less than the market value of the
loaned securities, and such value will be monitored on a daily basis. When the
Portfolio lends its securities, it continues to receive dividends and interest
on the securities loaned and may simultaneously earn interest on the investment
of the cash collateral. Although voting rights, or rights to consent, attendant
to securities on loan pass to the borrower, such loans will be called so that
the securities may be voted by the Portfolio if a material event affecting the
investment is to occur.
Forward Commitments, When-Issued Securities and Delayed-Delivery Transactions
The Portfolio may purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment (sometimes called delayed
delivery) basis. These transactions involve a commitment by the Portfolio to
purchase or sell securities at a future date. The price of the underlying
securities (usually expressed in terms of yield) and the date when the
securities will be delivered and paid for (the settlement date) are fixed at the
time the transaction is negotiated. When-issued purchases and forward commitment
transactions are normally negotiated directly with the other party.
The Portfolio will purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, the
Portfolio may dispose of or negotiate a commitment after entering into it. The
Portfolio also may sell securities it has committed to purchase before those
securities are delivered to the Portfolio on the settlement date. The Portfolio
may realize a capital gain or loss in connection with these transactions.
When the Portfolio purchases securities on a when-issued or forward
commitment basis, the Portfolio will segregate liquid assets having a value
(determined daily) at least equal to the amount of the Portfolio's purchase
commitments until three days prior to the settlement date, or otherwise cover
its position. These procedures are designed to ensure that the Portfolio will
maintain sufficient assets at all times to cover its obligations under
when-issued purchases, forward commitments and delayed-delivery transactions.
For purposes of determining the Portfolio's average dollar-weighted maturity,
the maturity of when-issued or forward commitment securities will be calculated
from the commitment date.
Municipal Instruments
Opinions relating to the validity of municipal instruments and to
Federal and state tax issues relating to these securities are rendered by
counsel to the respective issuing authorities at the time of issuance. Such
opinions may contain various assumptions, qualifications or exceptions that are
reasonably acceptable to Investment Adviser. Neither Trust nor the Investment
Adviser will review the proceedings relating to the issuance of municipal
instruments or the bases for such opinions.
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 tax or
other specific revenue source such as lease revenue 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 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 (if such a fund has been established),
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Within the principal classifications of municipal instruments described
above there are a variety of categories, including municipal bonds, municipal
notes, municipal leases, custodial receipts and participation certificates.
Municipal notes include tax, revenue and bond anticipation notes of short
maturity, generally less than three years, which are issued to obtain temporary
funds for various public purposes. Municipal leases and participation
certificates are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities.
Participation certificates may represent participation in a lease, an
installment purchase contract, or a conditional sales contract. Certain
municipal lease obligations (and related participation certificates) may include
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in futures years
unless money is appropriated for such purpose on a yearly basis. Custodial
receipts are underwritten by securities dealers or banks and evidence ownership
of future interest payments, principal payments or both on certain municipal
securities. Municipal leases (and participations in such leases) present the
risk that a municipality will not appropriate funds for the lease payments. The
Investment Adviser, under the supervision of the Trust's Board of Trustees, will
determine the credit quality of any unrated municipal leases on an ongoing
basis, including an assessment of the likelihood that the leases will not be
cancelled.
An issuer's obligations under its municipal instruments are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its municipal instruments may be materially
adversely affected by litigation or other conditions.
From time to time proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal instruments. For example, under the Tax Reform Act of 1986
interest on certain private activity bonds must be included in an investor's
Federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their Federal alternative minimum taxable income. The
Trust cannot predict what legislation, if any, may be proposed in the future in
Congress as regards the Federal income tax status of interest on municipal
instruments or which proposals, if any, might be enacted. Such proposals, if
enacted, might materially and adversely affect the availability of municipal
instruments for investment by the Portfolio and its liquidity and value. In such
an event the Board of Trustees would reevaluate the Portfolio's investment
objective and policies and consider changes in their structure or possible
dissolution.
Certain of the municipal instruments held by the Portfolio may be
insured as to the timely payment of principal and interest. The insurance
policies will usually be obtained by the issuer of the Municipal Instrument at
the time of its original issuance. In the event that the issuer defaults on an
interest or principal payment, the insurer will be notified and will be required
to make payment to the bondholders. There is, however, no guarantee that the
insurer will meet its obligations. In addition, such insurance will not protect
against market fluctuations caused by changes in interest rates and other
factors. The Portfolio may invest more than 25% of its total assets in municipal
instruments covered by insurance policies.
As described in the Prospectus, the Portfolio may invest in municipal
leases, which may be considered liquid under guidelines established by the
Trust's Board of Trustees. The guidelines will provide for determination of the
liquidity of a municipal lease obligation based on factors including the
following: (1) the frequency of trades and quotes for the obligation; (2) the
number of dealers willing to purchase or sell the security and the number of
other potential buyers; (3) the willingness of dealers to undertake to make a
market in the security; and (4) the nature of the marketplace trades, including
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of transfer. The Investment Adviser, under the supervision of the
Trust's Board of Trustees, will also consider the continued marketability of a
municipal lease obligation based upon an analysis of the general credit quality
of the municipality issuing the obligation and the essentiality to the
municipality of the property covered by the lease.
......... Currently, it is not the intention of the Portfolio to invest more
than 25% of the value of its total assets in municipal instruments whose issuers
are in the same state.
Standby Commitments
The Portfolio may enter into standby commitments with respect to
municipal instruments held by it. Under a standby commitment, a dealer agrees to
purchase at the Portfolio's option a specified Municipal Instrument. Standby
commitments may be exercisable by the Portfolio at any time before the maturity
of the underlying municipal instruments and may be sold, transferred or assigned
only with the instruments involved.
The Portfolio expects that standby commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Portfolio may pay for a standby commitment either
separately in cash or by paying a higher price for municipal instruments which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding standby commitments held by the Portfolio will not exceed
1/2 of 1% of the value of the Portfolio's total assets calculated immediately
after each standby commitment is acquired.
The Portfolio intends to enter into standby commitments only with
dealers, banks and broker-dealers which, in Investment Adviser's opinion,
present minimal credit risks. The Portfolio will acquire standby commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The acquisition of a standby commitment
will not affect the valuation of the underlying Municipal Instrument. The actual
standby commitment will be valued at zero in determining net asset value.
Accordingly, where the Portfolio pays directly or indirectly for a standby
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by the Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
Illiquid or Restricted Securities
The Portfolio may invest up to 10% of its net assets in securities
that are illiquid. 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
will not be considered illiquid so long as the Investment Adviser 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.
Investment Restrictions
The Portfolio is subject to the fundamental investment restrictions
enumerated below which may be changed only by a vote of the holders of a
majority of the Portfolio's outstanding shares.
The Portfolio may not:
(1) Make loans, except (a) through the purchase of debt obligations in
accordance with the Portfolio's investment objective and policies, (b)
through repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities.
(2) Mortgage, pledge or hypothecate any assets (other than pursuant to
reverse repurchase agreements) except to secure permitted borrowings.
(3) Purchase or sell real estate or securities issued by real estate
investment trusts, but this restriction shall not prevent the Portfolio
from investing directly or indirectly in portfolio instruments secured by
real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts or oil or gas or
other mineral exploration or development programs.
(5) Invest in companies for the purpose of exercising control or
management.
(6) Act as underwriter of securities (except as the Portfolio may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the purchase and sale of portfolio instruments in
accordance with its investment objective and portfolio management
policies), purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for
the clearance of transactions), make short sales of securities or
maintain a short position, or write puts, calls or combinations thereof.
(7) Make any investment inconsistent with the Portfolio's classification
as a diversified investment company under the 1940 Act.
(8) Purchase securities if such purchase would cause more than 25% in the
aggregate of the market value of the total assets of the Portfolio to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no
limitation with respect to, and the Portfolio reserves freedom of action,
when otherwise consistent with its investment policies, to concentrate
its investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, obligations (other than
commercial paper) issued or guaranteed by U.S. banks and U.S. branches of
foreign banks and repurchase agreements and securities loans
collateralized by such U.S. Government obligations or such bank
obligations. For the purposes of this restriction, state and municipal
governments and their agencies and authorities are not deemed to be
industries; as to utility companies, the gas, electric, water and
telephone businesses are considered separate industries; personal credit
finance companies and business credit finance companies are deemed to be
separate industries; and wholly-owned finance companies are considered to
be in the industries of their parents if their activities are primarily
related to financing the activities of their parents.
(9) Borrow money (other than pursuant to reverse repurchase agreements
for the Portfolio described above), except (a) as a temporary measure,
and then only in amounts not exceeding 5% of the value of the Portfolio's
total assets or (b) from banks, provided that immediately after any such
borrowing all borrowings of the Portfolio do not exceed one-third of the
Portfolio's total assets. No purchases of securities will be made if
borrowings subject to this restriction exceed 5% of the value of the
Portfolio's assets. The exceptions in (a) and (b) to this restriction are
not for investment leverage purposes but are solely for extraordinary or
emergency purposes or to facilitate management of the Trust's Portfolio
by enabling the Trust to meet redemption requests when the liquidation of
portfolio instruments is deemed to be disadvantageous or not possible. If
due to market fluctuations or other reasons the total assets of the
Portfolio fall below 300% of its borrowings, the Trust will promptly
reduce the borrowings of such Portfolio in accordance with the 1940 Act.
(10) Notwithstanding any of the Trust's other fundamental investment
restrictions (including, without limitation, those restrictions relating
to issuer diversification, industry concentration and control), the
Portfolio may (a) purchase securities of other investment companies to
the full extent permitted under Section 12 of the 1940 Act (or any
successor provision thereto) or under any regulation or order of the
Securities and Exchange Commission; and (b) invest all or substantially
all of its assets in a single open-end investment company or series
thereof with substantially the same investment objective, policies and
fundamental restrictions as the Portfolio.
* * *
The freedom of action reserved in Restriction No. 8 with respect to
U.S. branches of foreign banks is subject to the requirement that they are
subject to the same regulation as domestic branches of U.S. banks. Obligations
of U.S. branches of foreign banks may include certificates of deposit, bank and
deposit notes, bankers' acceptances and fixed time deposits. These obligations
may be general obligations of the parent bank or may be limited to the issuing
branch. Such obligations will meet the criteria for "Eligible Securities" as
described in the Prospectus.
In addition, as a matter of fundamental policy, the Portfolio may not
enter into reverse repurchase agreements exceeding in the aggregate one-third of
its total assets.
Also, as a matter of fundamental policy, changeable only with the
approval of the holders of a majority of the outstanding shares of the
Portfolio, at least 80% of the annual gross income of the Portfolio will be
derived from debt instruments, the interest on which is, in the opinion of bond
counsel or counsel for issuers, exempt from regular Federal income tax, except
in extraordinary circumstances such as when the Investment Adviser believes that
market conditions indicate that the Portfolio should adopt a temporary defensive
posture by holding uninvested cash or investing in taxable securities. Interest
earned by the Portfolio on "private activity bonds" that is treated as an item
of tax preference under the Federal alternative minimum tax will be deemed to be
exempt from regular Federal income tax for purposes of determining whether the
Portfolio meets this fundamental policy.
Securities held in escrow or separate accounts in connection with the
Portfolio's investment practices described in this Additional Statement and in
the Prospectus are not deemed to be mortgaged, pledged or hypothecated for
purposes of the foregoing Investment Restrictions.
Except to the extent otherwise provided in Investment Restriction No. 8, for the
purpose of such restriction in determining industry classification the Trust
intends to use the industry classification titles in the Bloomberg Industry
Group Classifications.
In applying Restriction No. 8 above, a security is considered to be
issued by the entity, or entities, whose assets and revenues back the security.
A guarantee of a security is not deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the guarantor, and
owned by the Portfolio, does not exceed 10% of the value of the Portfolio's
total assets.
Any restriction which involves a maximum percentage will not be
considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of, or borrowings by, the Portfolio.
The Portfolio intends, as a non-fundamental policy, to diversify its
investments in accordance with current SEC regulations. Investments in the
securities of any single issuer (excluding cash, cash items, certain repurchase
agreements, U.S. Government securities and securities of other investment
companies) will be limited to not more than 5% of the value of the Portfolio's
total assets at the time of purchase, except that 25% of the value of the total
assets of the Portfolio may be invested in the securities of any one issuer for
a period of up to three Business Days. A security that has an unconditional
guarantee meeting special SEC requirements (a "Guarantee") does not need to
satisfy the foregoing issuer diversification requirements that would otherwise
apply, but the Guarantee is instead subject to the following diversification
requirements: immediately after the acquisition of the security, the Portfolio
may not have invested more than 10% of its total assets in securities issued by
or subject to Guarantees from the same person, except that the Portfolio may,
subject to certain conditions, invest up to 25% of its total assets in
securities issued or subject to Guarantees of the same person. This percentage
is 100% if the Guarantee is issued by the U.S. Government or an agency thereof.
In addition, the Portfolio will limit its investments in certain conduit
securities that are not rated in the highest short-term rating category as
determined by two nationally recognized statistical rating organizations (each
an "NRSRO") (or one NRSRO if the security is rated by only one NRSRO) or, if
unrated, are not of comparable quality to First Tier Securities ("Second Tier
Securities"), to 5% of its total assets, with investments in any one such issuer
being limited to no more than 1% of the Portfolio's total assets or $1 million,
whichever is greater, measured at the time of purchase. Conduit securities
subject to this limitation are municipal instruments that are not subject to a
Guarantee and involve an arrangement whereunder a person, other than a municipal
issuer, provides for or secures repayment of the security and are not: (i) fully
and unconditionally guaranteed by a municipal issuer; or (ii) payable from the
general revenues of the municipal issuer or other municipal issuers; or (iii)
related to a project owned and operated by a municipal issuer; or (iv) related
to a facility leased to and under the control of an industrial or commercial
enterprise that is part of a public project which, as a whole, is owned and
under the control of a municipal issuer.
In addition to the foregoing, the Portfolio is subject to additional
diversification requirements imposed by SEC regulations on the acquisition of
securities subject to other types of demand features.
ADDITIONAL TRUST INFORMATION
TRUSTEES AND OFFICERS
The business and affairs of the Trust and the Portfolio are managed
under the direction of the Trust's Board of Trustees. Information pertaining to
the Trustees and officers of the Trust is set forth below.
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
NAME POSITION(S) PRINCIPAL OCCUPATION(S)
AND ADDRESS AGE WITH TRUST DURING PAST 5 YEARS
- ----------- --- ---------- -------------------
William H. Springer 69 Chairman Director of Walgreen Co. (a retail
drug
701 Morningside Drive and store business) since April 1988;
Director
Lake Forest, IL 60045 Trustee of Baker, Fentress & Co. (a closed-end,
non-diversified management investment
company) from April 1992 to present;
Trustee
of Goldman Sachs Trust (a registered
investment company) from 1989 to
present.
Richard Gordon Cline 64 Trustee Chairman and Director of Hussman
4200 Commerce Court, International Inc. (commercial
refrigeration
Suite 300 company) since January 1998; Chairman of
Lisle, IL 60532 Hawthorne Inc. (a management advisory
services and private investment company)
since January 1996; Chairman, President
and
CEO of NICOR Inc. (a diversified public
utility holding company) from 1985 to
1996;
Chairman and Director of the Federal
Reserve
Bank of Chicago from 1992 to 1995;
Director
of Central
DuPage Health
System, Pet
Incorporated (a
commercial food
company),
Whitman
Corporation (a
diversified
holding
company), Kmart
Corporation (a
retailing
company),
Ryerson Tull,
Inc. (a metals
distribution
company) and
University of
Illinois
Foundation.
Edward J. Condon, Jr. 58 Trustee Chairman and CEO of The Paradigm
Group, Ltd.
Sears Tower, Suite 9650 (a financial adviser) since July 1993;
within the
233 S. Wacker Drive. last five years he has served as Vice
Chairman and
Chicago, IL 60606 Director of Energenics L.L.C. (a waste
recycling company); Director of
Financial Pacific Company (an equipment
leasing company); Member of the Board of
Managers of The Liberty Hampshire
Company, LLC (a receivable
securitization company), Member of
Advisory Board of Real-Time U.S.A., Inc.
(a software company); Member of the
Board of Directors of University Elder
Care, Inc.; Member of the Board of
Directors of the Girl Scouts of Chicago;
Member of the Board of Trustees of
Dominican University.
<PAGE>
NAME POSITION(S) PRINCIPAL OCCUPATION(S)
AND ADDRESS AGE WITH TRUST DURING PAST 5 YEARS
- ----------- --- ---------- -------------------
John W. English 66 Trustee Private Investor since 1993; Vice
President
50-H New England Ave. and Chief Investment Officer of The Ford
P.O. Box 640 Foundation (a charitable trust) from
1981 until
Summit, NJ 07902-0640 1993; Trustee of The China Fund, Inc. (a
registered
investment
company),
American Red
Cross in
Greater New
York, Mote
Marine
Laboratory (a
non-profit
marine research
facility),
State Street's
Select Sector
SPDR Trust (a
registered
investment
company),
Washington
Mutual's WM
Funds (a
registered
investment
company) and
United Board
for Christian
Higher
Education in
Asia. Director
of University
of Iowa
Foundation,
Blanton-Peale
Institutes of
Religion and
Health,
Community
Foundation of
Sarasota
County, and
Duke Management
Company (an
investment
adviser).
Sandra Polk Guthman 55 Trustee President and CEO of Polk Bros.
Foundation
420 N. Wabash Avenue (an Illinois not-for-profit corporation)
Suite 204 from 1993 to present; Director of
Business
Chicago, IL 60611 Transformation from 1992-1993 and
Midwestern
Director of
Marketing from
1988-1992 for
IBM (a
technology
company);
Director of
MBIA Insurance
Corporation of
Illinois (bank
holding
company) since
1994 and
Avondale
Financial
Corporation (a
stock savings
and loan
holding
company) since
1995.
Frederick T. Kelsey 71 Trustee Consultant to Goldman Sachs (an
investment
3133 Laughing Gull Court advisor) from December 1985 through
February Johns Island, SC 29455 1988; Director of Goldman Sachs Funds
Group
(a financial
services
provider) and
Vice President
of Goldman
Sachs from May
1981 until his
retirement in
November 1985;
President and
Treasurer of
the Trust and
other
investment
companies
affiliated with
Goldman Sachs
through August
1985; President
from 1983 to
1985 and
Trustee from
1983 to 1994 of
The Centerland
Funds and its
successor, The
Pilot Funds (a
registered
investment
company);
Trustee of
various
management
investment
companies
affiliated with
Zurich Kemper
Investments (an
investment
adviser).
Richard P. Strubel 59 Trustee Managing Director of Tandem Partners,
Inc.
737 N. Michigan Avenue (a privately held management services
firm)
Suite 1405 since 1990; President and CEO of
Microdot,
Chicago, IL 60611 Inc. (a privately held manufacturing
firm)
from January 1984 to October 1994;
Trustee
of Goldman Sachs Trust (a registered
investment company) from 1987 to
present; Director of Kaynar
Technologies Inc. (a leading
manufacturer of aircraft fasteners)
since March 1997; Trustee of the
University of Chicago; Director of
Children's Memorial Medical Center.
Jylanne M. Dunne 39 President Senior Vice President for Distribution
4400 Computer Drive Services at First Data Investor Services
Westborough, MA 01581 Group, Inc. ("FDISG") (since 1988).
Richard H. Rose 43 Vice Vice President and Division Manager of
4400 Computer Drive President Mutual Fund Administration at FDISG
(since
Westborough, MA 01581 1994); Senior Vice President at The
Boston
Company Advisors, Inc. (a financial
services provider) (prior thereto).
<PAGE>
NAME POSITION(S) PRINCIPAL OCCUPATION(S)
AND ADDRESS AGE WITH TRUST DURING PAST 5 YEARS
- ----------- --- ---------- -------------------
Brian R. Curran 31 Treasurer Director of Fund Administration and
4400 Computer Drive Accounting at FDISG (since 1997);
Director
Westborough, MA 01581 of Fund Administration at State Street
Bank and
Trust Company (February 1997 to October
1997); Senior Auditor at Price
Waterhouse L.L.P. (February 1994 to
February 1997); Manager of Fund
Accounting at State Street Bank and
Trust Company (prior thereto).
Linda J. Hoard 51 Secretary Counsel at FDISG (since 1998);
Attorney
4400 Computer Drive Consultant for Fidelity Investments (an
Westborough, MA 01581 investment adviser), Investors Bank & Trust
Company (a financial service provider) and FDISG
(September 1994 to June 1998); Vice President and
Assistant General Counsel at MFS Investment Management (an
investment adviser) (prior thereto).
Teresa M.R. Hamlin 34 Assistant Counsel at FDISG (since 1994);
Paralegal
4400 Computer Drive Secretary Manager at The Boston Company Advisors,
Inc.
Westborough, MA 01581 (an investment adviser) (prior
thereto).
Therese Hogan 36 Assistant Director of the State Regulation
Department
4400 Computer Drive Secretary at FDISG (since 1994); Senior Legal
Westborough, MA 01581 Assistant at Palmer and Dodge (a
Massachusetts law firm) (prior
thereto).
</TABLE>
None of the Trustees is an "interested person" under the 1940 Act.
Certain of the Trustees and officers and the organizations with which they are
associated have had in the past, and may have in the future, transactions with
Northern, FDISG, First Data Distributors, Inc. ("FDDI" and collectively with
FDISG, "First Data") and their respective affiliates. The Trust has been advised
by such Trustees and officers that all such transactions have been and are
expected to be in the ordinary course of business and the terms of such
transactions, including all loans and loan commitments by such persons, have
been and are expected to be substantially the same as the prevailing terms for
comparable transactions for other customers. As a result of the responsibilities
assumed by Northern under its Advisory Agreement, Transfer Agency Agreement,
Custodian Agreement and Co-Administration Agreement with the Trust, by FDISG
under its Co-Administration Agreement with the Trust and by FDDI under its
Distribution Agreement with the Trust, the Trust itself requires no employees.
Each officer holds comparable positions with certain other investment
companies of which First Data or an affiliate thereof is the investment adviser,
administrator and/or distributor.
Each Trustee earns a quarterly retainer of $6,750 and the Chairman of
the Board earns a quarterly retainer of $10,125. Each Trustee, including the
Chairman of the Board, earns an additional fee of $2,500 for each meeting
attended, plus reimbursement of expenses incurred as a Trustee.
In addition, the Trustees established an Audit Committee consisting of
three members including a Chairman of the Committee. The Audit Committee members
are Messrs. Condon, Kelsey and Strubel (Chairman). Each member earns a fee of
$2,500 for each meeting attended and the Chairman earns a quarterly retainer of
$1,500.
Each Trustee will hold office for an indefinite term until the earliest
of (1) the next meeting of shareholders, if any, called for the purpose of
considering the election or re-election of such Trustee and until the election
and qualification of his or her successor, if any, elected at such meeting; (2)
the date a Trustee resigns or retires, or a Trustee is removed by the Board of
Trustees or shareholders, in accordance with the Trust's Agreement and
Declaration of Trust, or (3) in accordance with the current resolutions of the
Board of Trustees (which may be changed without shareholder vote), on the last
day of the fiscal year of the Trust in which he or she attains the age of 72
years.
The Trust's officers do not receive fees from the Trust for services in
such capacities, although FDISG, of which they are also officers, receives fees
from the Trust for administrative services.
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended November
30, 1998:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
Aggregate Pension or Retirement Total Compensation From
Compensation Benefits Accrued as a Part of Trust Paid
Name of Trustee from the Trust Trust's Expenses to Trustees
William H. Springer $46,750 N/A $46,750
Richard G. Cline $34,000 N/A $34,000
Edward J. Condon, Jr. $37,000 N/A $37,000
John W. English $32,500 N/A $32,500
Sandra Polk Guthman $34,000 N/A $34,000
Frederick T. Kelsey $37,000 N/A $37,000
Richard P. Strubel $42,250 N/A $42,250
</TABLE>
Investment Adviser, Transfer Agent and Custodian
Northern, a wholly-owned subsidiary of Northern Trust Corporation, a
bank holding company, is one of the nation's leading providers of trust and
investment management services. As of September 30, 1999, Northern and its
affiliates had over $____ billion in assets under management for clients
including public and private retirement funds, endowments, foundations, trusts,
corporations, and individuals. Northern is one of the strongest banking
organizations in the United States. Northern believes it has built its
organization by serving clients with integrity, a commitment to quality and
personal attention. Its stated mission with respect to all its financial
products and services is to achieve unrivaled client satisfaction. With respect
to such clients, the Trust is designed to assist (i) defined contribution plan
sponsors and their employees by offering a range of diverse investment options
to help comply with 404(c) regulation and may also provide educational material
to their employees, (ii) employers who provide post-retirement Employees'
Beneficiary Associations ("VEBA") and require investments that respond to the
impact of Federal regulations, (iii) insurance companies with the day-to-day
management of uninvested cash balances as well as with longer-term investment
needs, and (iv) charitable and not-for-profit organizations, such as endowments
and foundations, demanding investment management solutions that balance the
requirement for sufficient current income to meet operating expenses and the
need for capital appreciation to meet future investment objectives.
Northern employs a team approach to the investment management of the
Portfolio, relying upon investment professionals under the leadership of James
M. Snyder, Chief Investment Officer and Executive Vice President of Northern.
Under its Advisory Agreement with the Trust, Northern, subject to the
general supervision of the Trust's Board of Trustees, is responsible for making
investment decisions for the Portfolio and placing purchase and sale orders for
the portfolio transactions of the Portfolio. In connection with portfolio
transactions for the Portfolio, which are generally done at a net price without
a broker's commission, Northern's Advisory Agreement provides that Northern
shall attempt to obtain the best net price and execution.
Northern's investment advisory duties for the Trust are carried out
through its Trust Department. On occasions when Northern deems the purchase or
sale of a security to be in the best interests of the Portfolio as well as other
fiduciary or agency accounts managed by it (including any other portfolio,
investment company or account for which Northern acts as adviser), the
Investment Advisory Agreement provides that Northern, to the extent permitted by
applicable laws and regulations, may aggregate the securities to be sold or
purchased for the Portfolio with those to be sold or purchased for such other
accounts in order to obtain best net price and execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by Northern in the manner it considers
to be most equitable and consistent with its fiduciary obligations to the
Portfolio and other accounts involved. In some instances, this procedure may
adversely affect the size of the position obtainable for the Portfolio or the
amount of the securities that are able to be sold for the Portfolio. To the
extent that the execution and price available from more than one broker or
dealer are believed to be comparable, the Investment Advisory Agreement permits
Northern, at its discretion but subject to applicable law, to select the
executing broker or dealer on the basis of Northern's opinion of the reliability
and quality of such broker or dealer.
The Advisory Agreement provides that Northern may render similar
services to others so long as its services under such Agreement are not impaired
thereby. The Advisory Agreement also provides that the Trust will indemnify
Northern against certain liabilities (including liabilities under the Federal
securities laws relating to untrue statements or omissions of material fact and
actions that are in accordance with the terms of the Agreement) or, in lieu
thereof, contribute to resulting losses.
Under its Transfer Agency Agreement with the Trust, Northern has
undertaken to (1) answer customer inquiries regarding the current yield of, and
certain other matters (e.g. account status information) pertaining to, the
Trust, (2) process purchase and redemption transactions, including transactions
generated by any service provided outside of the Agreement by Northern, its
affiliates or correspondent banks whereby customer account cash balances are
automatically invested in shares of the Portfolio, and the disbursement of the
proceeds of redemptions, (3) establish and maintain separate omnibus accounts
with respect to shareholders investing through Northern or any of its affiliates
and correspondent banks and act as transfer agent and perform sub-accounting
services with respect to each such account, (4) provide periodic statements
showing account balances, (5) mail reports and proxy materials to shareholders,
(6) provide information in connection with the preparation by the Trust of
various regulatory reports and prepare reports to the Trustees and management,
(7) answer inquiries (including requests for prospectuses and statements of
additional information, and assistance in the completion of new account
applications) from investors and respond to all requests for information
regarding the Trust (such as current price, recent performance, and yield data)
and questions relating to accounts of investors (such as possible errors in
statements, and transactions), (8) respond to and seek to resolve all complaints
of investors with respect to the Trust or their accounts, (9) furnish proxy
statements and proxies, annual and semi-annual financial statements, and
dividend, distribution and tax notices to investors, (10) furnish the Trust all
pertinent Blue Sky information, (11) perform all required tax withholding, (12)
preserve records, and (13) furnish necessary office space, facilities and
personnel. Northern may appoint one or more sub-transfer agents in the
performance of its services.
As compensation for the services rendered by Northern under the
Transfer Agency Agreement with respect to the Shares described in this
Additional Statement and the assumption by Northern of related expenses,
Northern is entitled to a fee from the Trust, payable monthly, at an annual rate
equal to $18 for each subaccount relating to such Shares of the Portfolio. This
fee which is borne solely by the Shares described in this Additional Statement
and not by the Portfolio's other share classes, is subject to annual upward
adjustments based on increases in the Consumer Price Index for All Urban
Consumers, provided that Northern may permanently or temporarily waive all or
any portion of any upward adjustment. Different transfer agency fees are payable
with respect to the Portfolio's different share classes. Northern's affiliates
and correspondent banks may receive compensation for performing the services
described in the preceding paragraph that Northern would otherwise receive.
Conflict-of-interest restrictions under state and Federal law (including the
Employee Retirement Income Security Act of 1974) may apply to the receipt by
such affiliates or correspondent banks of such compensation in connection with
the investment of fiduciary funds in Shares of the Portfolio.
Under its Custodian Agreement with the Trust, Northern (1) holds the
Portfolio's cash and securities, (2) maintains such cash and securities in
separate accounts in the name of the Portfolio, (3) makes receipts and
disbursements of funds on behalf of the Portfolio, (4) receives, delivers and
releases securities on behalf of the Portfolio, (5) collects and receives all
income, principal and other payments in respect of the Portfolio's securities
held by Northern under the Custodian Agreement, and (6) maintains the accounting
records of the Trust. Northern may employ one or more subcustodians, provided
that Northern, subject to certain monitoring responsibilities, shall have no
more responsibility or liability to the Trust on account of any action or
omission of any subcustodian so employed than such subcustodian has to Northern
and that the responsibility or liability of the subcustodian to Northern shall
conform to the resolution of the Trustees of the Trust authorizing the
appointment of the particular subcustodian. Northern may also appoint agents to
carry out such of the provisions of the Custodian Agreement as Northern may from
time to time direct, provided that the appointment of an agent shall not relieve
Northern of any of its responsibilities under the Agreement.
As compensation for the services rendered to the Trust by Northern as
custodian, and the assumption by Northern of certain related expenses, Northern
is entitled to payment from the Trust as follows: (i) $18,000 annually for the
Portfolio, plus (ii) 1/100th of 1% annually of the Portfolio's average daily net
assets to the extent they exceed $100 million, plus (iii) a fixed dollar fee for
each trade in portfolio securities, plus (iv) a fixed dollar fee for each time
that Northern as custodian receives or transmits funds via wire, plus (v)
reimbursement of expenses incurred by Northern as custodian for telephone,
postage, courier fees, office supplies and duplicating. The fees referred to in
clauses (iii) and (iv) are subject to annual upward adjustments based on
increases in the Consumer Price Index for All Urban Consumers, provided that
Northern may permanently or temporarily waive all or any portion of any upward
adjustment. Northern's fees under the Custodian Agreement are subject to
reduction based on the Portfolio's daily uninvested cash balances (if any).
Unless sooner terminated, each of the Advisory Agreement, Transfer
Agency Agreement and Custodian Agreement between Northern and the Trust will
continue in effect with respect to the Portfolio until April 30, 2000, and
thereafter for successive 12-month periods, provided that the continuance is
approved at least annually (1) by the vote of a majority of the Trustees who are
not parties to the agreement or "interested persons" (as such term is defined in
the 1940 Act) of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval and (2) by the Trustees or by the vote of a
majority of the outstanding shares of the Portfolio (as defined below under
"Other Information"). Each agreement is terminable at any time without penalty
by the Trust (by specified Trustee or shareholder action) on 60 days' written
notice to Northern and by Northern on 60 days' written notice to the Trust.
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. Northern believes that it may perform the services
contemplated by its agreements with the Trust without violation of such banking
laws or regulations, which are applicable to it. It should be noted, however,
that future changes in either Federal or state statutes and regulations relating
to the permissible activities of banks and their subsidiaries or affiliates, as
well as future judicial or administrative decisions or interpretations of
current and future statutes and regulations, could prevent Northern from
continuing to perform such services for the Trust.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of Northern in connection with the provision of
services on behalf of the Trust, the Trust might be required to alter materially
or discontinue its arrangements with Northern and change its method of
operations. It is not anticipated, however, that any change in the Trust's
method of operations would affect the net asset value per share of the Portfolio
or result in a financial loss to any shareholder. Moreover, if current
restrictions preventing a bank from legally sponsoring, organizing, controlling
or distributing shares of an open-end investment company were relaxed, the Trust
expects that Northern and its affiliates would consider the possibility of
offering to perform some or all of the services now provided by First Data. It
is not possible, of course, to predict whether or in what form such restrictions
might be relaxed or the terms upon which Northern and its affiliates might offer
to provide services for consideration by the Trustees.
Northern is active as an underwriter of municipal instruments. Under
the 1940 Act, the Portfolio is precluded, subject to certain exceptions, from
purchasing in the primary market those municipal instruments with respect to
which Northern is serving as a principal underwriter. In the opinion of
Northern, this limitation will not significantly affect the ability of the
Portfolio to pursue its investment objective.
Under a Service Mark License Agreement with the Trust, Northern Trust
Corporation has agreed that the name "Northern Institutional Funds" may be used
in connection with the Trust's business on a royalty-free basis. Northern Trust
Corporation has reserved to itself the right to grant the non-exclusive right to
use the name "Northern Institutional Funds" to any other person. The Agreement
provides that at such time as the Agreement is no longer in effect, the Trust
will cease using the name "Northern Institutional Funds."
Portfolio Transactions
To the extent that the Portfolio effects brokerage transactions with
First Data or any broker/dealer affiliated directly or indirectly with the
Investment Adviser, such transactions, including the frequency thereof, the
receipt of any commissions payable in connection therewith, and the selection of
the affiliated broker/dealer effecting such transactions, will be fair and
reasonable to the shareholders of the Portfolio.
Co-Administrators and Distributor
Northern and FDISG, 4400 Computer Drive, Westborough, Massachusetts
01581, act as co-administrators for the Portfolio under a Co-Administration
Agreement with the Trust. Subject to the general supervision of the Trust's
Board of Trustees, Northern and FDISG (the "Co-Administrators") provide
supervision of all aspects of the Trust's non-investment advisory operations and
perform various corporate secretarial, treasury and blue sky services, including
but not limited to: (a) maintaining office facilities and furnishing corporate
officers for the Trust; (b) furnishing data processing services, clerical
services, and executive and administrative services and standard stationery and
office supplies; (c) performing all functions ordinarily performed by the office
of a corporate treasurer, and furnishing the services and facilities ordinarily
incident thereto, such as expense accrual monitoring and payment of the Trust's
bills, preparing monthly reconciliation of the Trust's expense records, updating
projections of annual expenses, preparing materials for review by the Board of
Trustees and compliance testing; (d) preparing and submitting reports to the
Trust's shareholders and the SEC; (e) preparing and printing financial
statements; (f) preparing monthly Portfolio profile reports; (g) preparing and
filing the Trust's Federal and state tax returns (other than those required to
be filed by the Trust's custodian and transfer agent) and providing shareholder
tax information to the Trust's transfer agent; (h) assisting in marketing
strategy and product development; (i) performing oversight/management
responsibilities, such as the supervision and coordination of certain of the
Trust's service providers; (j) effecting and maintaining, as the case may be,
the registration of shares of the Trust for sale under the securities laws of
various jurisdictions; (k) assisting in maintaining corporate records and good
standing status of the Trust in its state of organization; and (l) monitoring
the Trust's arrangements with respect to services provided by Servicing Agents
to their customers who are the beneficial owners of shares, pursuant to
servicing agreements between the Trust and such Servicing Agents.
Subject to the limitations described below, as compensation for their
administrative services and the assumption of related expenses, the
Co-Administrators are entitled to a fee from the Portfolio, computed daily and
payable monthly, at an annual rate of .10% of the average daily net assets of
the Portfolio. The Co-Administrators will reimburse the Portfolio for its
expenses (including administration fees payable to the Co-Administrators, but
excluding advisory fees, transfer agency fees, servicing fees and extraordinary
expenses) which exceed on an annualized basis .10% of the Portfolio's average
daily net assets.
Unless sooner terminated, the Co-Administration Agreement will continue
in effect until April 30, 2001, and thereafter for successive one-year terms
with respect to the Portfolio, provided that the agreement is approved annually
(1) by the Board of Trustees or (2) by the vote of a majority of the outstanding
shares of the Portfolio (as defined below under "Other Information"), provided
that in either event the continuance is also approved by a majority of the
Trustees who are not parties to the Agreement and who are not interested persons
(as defined in the 1940 Act) of any party thereto, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Co-Administration
Agreement is terminable at any time after April 30, 2001, without penalty by the
Trust on at least 60 days written notice to the Co-Administrators. Each
Co-Administrator may terminate the Co-Administration Agreement with respect to
itself at any time after April 30, 2001 without penalty on at least 60 days
written notice to the Trust and the other Co-Administrator.
The Trust may terminate the Co-Administration Agreement prior to April
30, 2001 in the event that the Trust or its shareholders incur damages in excess
of $100,000 as a result of the willful misfeasance, bad faith or negligence of
the Co-Administrators, or the reckless disregard of their duties under the
Agreement. The Trust may also terminate the Co-Administration Agreement prior to
April 30, 2001 in the event that the Co-Administrators fail to meet one of the
performance standards set forth in the Agreement.
The Trust has entered into a Distribution Agreement with FDDI, under
which FDDI, as agent, sells Shares of the Portfolio on a continuous basis. FDDI
pays the cost of printing and distributing prospectuses to persons who are not
shareholders of the Trust and of sales presentations, advertising and other
distribution efforts. No compensation is payable by the Trust to FDDI for such
distribution services.
The Co-Administration Agreement provides that the Co-Administrators may
render similar services to others so long as their services under such Agreement
are not impaired thereby. The Co-Administration Agreement also provides that the
Trust will indemnify each Co-Administrator against all claims except those
resulting from the willful misfeasance, bad faith or negligence of such
Co-Administrator, or the Co-Administrator's breach of confidentiality. The
Distribution Agreement provides that the Trust will indemnify FDDI against
certain liabilities relating to untrue statements or omissions of material fact
except those resulting from the reliance on information furnished to the Trust
by FDDI, or those resulting from the willful misfeasance, bad faith or
negligence of FDDI, or FDDI's breach of confidentiality. FDDI is a wholly-owned
subsidiary of FDISG, which is a wholly-owned subsidiary of First Data
Corporation.
Counsel and Auditors
Drinker Biddle & Reath LLP, with offices at One Logan Square, 18th and
Cherry Streets, Philadelphia, Pennsylvania 19103-6996, serve as counsel to the
Trust.
Ernst & Young LLP, independent auditors, 233 S. Wacker Drive, Chicago,
Illinois 60606, have been selected as auditors of the Trust. In addition to
audit services, Ernst & Young LLP reviews the Trust's Federal and state tax
returns, and provides consultation and assistance on accounting, internal
control and related matters.
In-Kind Purchases and Redemptions
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 as described in the Prospectus. For further information about this
form of payment, contact Northern. In connection with an in-kind securities
payment, the Portfolio will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by the
Portfolio and that the Portfolio receive satisfactory assurances that it will
have good and marketable title to the securities received by it; that the
securities be in proper form for transfer to the Portfolio; and that adequate
information be provided concerning the basis and other tax matters relating to
the securities.
Although the Portfolio generally will redeem Shares in cash, it
reserves the right to pay redemptions by a distribution in-kind of securities
(instead of cash) from the Portfolio. The securities distributed in-kind would
be readily marketable and would be valued for this purpose using the same method
employed in calculating the Portfolio's net asset value per share. If a
shareholder receives redemption proceeds in-kind, the shareholder should expect
to incur transaction costs upon the disposition of the securities received in
the redemption.
Third-Party Fees and Requirements
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.
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 the 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.
PERFORMANCE INFORMATION
The performance of a class of shares of the Portfolio may be compared
to those of other money market funds with similar investment objectives 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 IBC Financial Data, Inc. or other independent mutual fund reporting
services. 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 the Portfolio.
From time to time, the Portfolio may advertise its "yield,"
"effective yield," "tax-equivalent yield" and "tax-equivalent
effective yield." 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.
In arriving at quotations as to "yield," the Trust first determines the
net change, exclusive of capital changes, during the seven-day period in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, then divides such net change by the value of the
account at the beginning of the period to obtain the base period return, and
then multiplies the base period return by 365/7.
"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 "effective
yield" with respect to the Shares of the Portfolio is computed by adding 1 to
the base period return (calculated as above), raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
The "tax-equivalent yield" demonstrates the level of taxable yield
necessary to produce an after-tax yield equivalent to the 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 current yield" will always be higher than the
Portfolio's yield.
"Tax-equivalent yield" is computed by dividing the tax-exempt portion
of the yield by 1 minus a stated income tax rate and then adding the quotient to
the taxable portion of the yield, if any. There may be more than one
tax-equivalent yield if more than one stated income tax rate is used.
The "tax-equivalent effective yield" demonstrates the level of taxable
yield necessary to produce an after-tax yield equivalent to the Portfolio's
tax-free effective yield. It is calculated by taking that portion of the
seven-day "effective yield" which is tax-exempt and adjusting it to reflect the
tax savings associated with a stated tax rate. The "tax-equivalent effective
yield" will always be higher than the Portfolio's effective yield.
"Tax-equivalent effective yield" is computed by dividing the tax-exempt
portion of the effective yield by 1 minus a stated income tax-rate, and then
adding the quotient to the taxable portion of the effective yield, if any. There
may be more than one tax-equivalent effective yield, if more than one stated
income tax rate is used.
Quotations of yield, effective yield, tax-equivalent current yield and
tax-equivalent effective yield provided by the Trust are carried to at least the
nearest hundredth of one percent. Any fees imposed by Northern, its affiliates
or correspondent banks on their customers in connection with investments in
Shares of the Portfolio are not reflected in the calculation of yields of the
Portfolio.
The Portfolio's 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. The Portfolio's yields fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. The
annualization of one week's income is not necessarily indicative of future
actual yields. Actual yields will depend on such variables as portfolio quality,
average portfolio maturity, the type of portfolio instruments acquired, changes
in money market interest rates, portfolio expenses and other factors. Yields are
one basis investors may use to analyze the Portfolio as compared to other money
market funds and other investment vehicles. However, yields of other money
market funds and other investment vehicles may not be comparable because of the
foregoing variables, and differences in the methods used in valuing their
portfolio instruments, computing net asset value and determining yield.
The Portfolio may also quote from time to time its total return in
accordance with SEC regulations.
The yields and total returns of the Portfolio's Service Shares and
Premier Shares are calculated separately from the calculations of the yield and
total return of the Shares described in this Additional Statement.
AMORTIZED COST VALUATION
As stated in the Prospectus, the Portfolio seeks to maintain a net
asset value of $1.00 per share and, in this connection, values its instruments
on the basis of amortized cost pursuant to Rule 2a-7 under the 1940 Act. This
method values a security at its cost on the date of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Portfolio would receive if it sold the instrument.
During such periods the yield to investors in the Portfolio may differ somewhat
from that obtained in a similar entity which uses available indications as to
market value to value its portfolio instruments. For example, if the use of
amortized cost resulted in a lower (higher) aggregate Portfolio value on a
particular day, a prospective investor in the Portfolio would be able to obtain
a somewhat higher (lower) yield and ownership interest than would result from
investment in such similar entity and existing investors would receive less
(more) investment income and ownership interest. However, the Trust expects that
the procedures and limitations referred to in the following paragraphs of this
section will tend to minimize the differences referred to above.
Under Rule 2a-7, the Trust's Board of Trustees, in supervising the
Trust's operations and delegating special responsibilities involving portfolio
management to Northern, has established procedures that are intended, taking
into account current market conditions and the Portfolio's investment objective,
to stabilize the net asset value of the Portfolio, as computed for the purposes
of purchases and redemptions, at $1.00 per share. The Trustees' procedures
include periodic monitoring of the difference (the "Market Value Difference")
between the amortized cost value per share and the net asset value per share
based upon available indications of market value. Available indications of
market value used by the Trust consist of actual market quotations or
appropriate substitutes which reflect current market conditions and include (a)
quotations or estimates of market value for individual portfolio instruments
and/or (b) values for individual portfolio instruments derived from market
quotations relating to varying maturities of a class of money market
instruments. In the event the Market Value Difference of the Portfolio exceeds
certain limits or Northern believes that the Market Value Difference may result
in material dilution or other unfair results to investors or existing
shareholders, the Trust will take action in accordance with the 1940 Act and the
Trustees will take such steps as they consider appropriate (e.g., selling
portfolio instruments to shorten average portfolio maturity or to realize
capital gains or losses, reducing or suspending shareholder income accruals,
redeeming shares in-kind or utilizing a net asset value per share based upon
available indications of market value which under such circumstances would vary
from $1.00) to eliminate or reduce to the extent reasonably practicable any
material dilution or other unfair results to investors or existing shareholders
which might arise from Market Value Differences. In particular, if losses were
sustained by the Portfolio, the number of outstanding shares might be reduced in
order to maintain a net asset value per share of $1.00. Such reduction would be
effected by having each shareholder proportionately contribute to the
Portfolio's capital the necessary shares to restore such net asset value per
share. Each shareholder will be deemed to have agreed to such contribution in
these circumstances by investing in the Portfolio.
Rule 2a-7 requires that the Portfolio limit its investments to
instruments which Northern determines (pursuant to guidelines established by the
Board of Trustees) to present minimal credit risks and which are "Eligible
Securities" as defined by the SEC and described in the Prospectus. The Rule also
requires that the Portfolio maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to its policy of maintaining a
stable net asset value per share and precludes the purchase of any instrument
deemed under the Rule to have a remaining maturity of more than 397 calendar
days. Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Rule requires the Portfolio
to invest its available cash in such a manner as to reduce such maturity to the
prescribed limit as soon as reasonably practicable.
DESCRIPTION OF SHARES
The Trust Agreement permits the Trust's Board of Trustees to issue an
unlimited number of full and fractional shares of beneficial interest of one or
more separate series representing interests in one or more investment
portfolios. The Trustees may hereafter create series in addition to the Trust's
nineteen existing series, which represent interests in the Trust's nineteen
respective portfolios. The Trust Agreement also permits the Board of Trustees to
classify or reclassify any unissued shares into classes within a series.
Pursuant to such authority, the Trustees have authorized the issuance of an
unlimited number of shares of beneficial interest in three separate classes of
shares of the Portfolio: Shares, Service Shares and Premier Shares. This
Additional Statement (and the related Prospectus) relates only to the Shares of
the Portfolio discussed herein. For information on the other share classes in
the Portfolio and on the Trust's other investment portfolios, call the toll-free
number on page 1.
Under the terms of the Trust Agreement, each share of the Portfolio is
without par value, represents an equal proportionate interest in the Portfolio
with each other share of its class in the Portfolio and is entitled to such
dividends and distributions out of the income belonging to the Portfolio as are
declared by the Trustees. Upon the liquidation of the Portfolio, shareholders of
each class of the Portfolio are entitled to share pro rata in the net assets
belonging to that class available for distribution. Shares do not have any
preemptive or conversion rights. The right of redemption is described under
"About Your Account - Selling Shares and Account Policies and Other Information"
in the Prospectus and under "Amortized Cost Valuation" in this Additional
Statement. In addition, pursuant to the terms of the 1940 Act, the right of a
shareholder to redeem shares and the date of payment by the Portfolio may be
suspended for more than seven days (a) for any period during which the New York
Stock Exchange is closed, other than the customary weekends or holidays, or
trading in the markets the Portfolio normally utilizes is closed or is
restricted as determined by the SEC, (b) during any emergency, as determined by
the SEC, as a result of which it is not reasonably practicable for the Portfolio
to dispose of instruments owned by it or fairly to determine the value of its
net assets, or (c) for such other period as the SEC may by order permit for the
protection of the shareholders of the Portfolio. The Trust may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions. In addition, shares of the Portfolio are
redeemable at the unilateral option of the Trust if the Trustees determine in
their sole discretion that failure to so redeem may have material adverse
consequences to the shareholders of the Portfolio. Shares when issued as
described in the Prospectus are validly issued, fully paid and nonassessable,
except as stated below. In the interests of economy and convenience,
certificates representing Shares of the Portfolio are not issued.
The proceeds received by the Portfolio for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to and constitute the underlying assets of the Portfolio. The underlying assets
of the Portfolio will be segregated on the books of account, and will be charged
with the liabilities and with a share of the general liabilities of the Trust.
Expenses with respect to the Portfolio are normally allocated in proportion to
the net asset value of the Portfolio except where allocations of direct expenses
can otherwise be fairly made.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
the Portfolio, if it is affected by the matter. The Portfolio is affected by a
matter unless it is clear that the interests of the Portfolio in the matter are
substantially identical as the other investment portfolios or that the matter
does not affect any interest of the Portfolio. Under the Rule, the approval of
an investment advisory agreement or any change in a fundamental investment
policy would be effectively acted upon with respect to the Portfolio only if
approved by a majority of the outstanding shares of the Portfolio. However, the
Rule also provides that the ratification of the appointment of independent
accountants, the approval of principal underwriting contracts and the election
of Trustees are exempt from the separate voting requirements stated above. In
addition, shareholders of each of the classes in the Portfolio have equal voting
rights except that only shares of a particular class of 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.
The Trust is not required to hold annual meetings of shareholders and
does not intend to hold such meetings. In the event that a meeting of
shareholders is held, each share of the Trust will be entitled, as determined by
the Trustees without the vote or consent of shareholders, either to one vote for
each share or to one vote for each dollar of net asset value represented by such
shares on all matters presented to shareholders, including the election of
Trustees (this method of voting being referred to as "dollar-based voting").
However, to the extent required by the 1940 Act or otherwise determined by the
Trustees, series and classes of the Trust will vote separately from each other.
Shareholders of the Trust do not have cumulative voting rights in the election
of Trustees 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. Meetings of shareholders of the Trust, or any series
or class thereof, may be called by the Trustees, certain officers or upon the
written request of holders of 10% or more of the shares entitled to vote at such
meeting. The shareholders of the Trust will have voting rights only with respect
to the limited number of matters specified in the Trust Agreement and such other
matters as the Trustees may determine or may be required by law. 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 authorizes the Trustees, without shareholder
approval (except as stated in the next paragraph), to cause the Trust, or any
series thereof, to merge or consolidate with any corporation, association, trust
or other organization or sell or exchange all or substantially all of the
property belonging to the Trust, or any series thereof. In addition, the
Trustees, without shareholder approval, may adopt a "master-feeder" structure by
investing substantially all of the assets of a series of the Trust in the
securities of another open-end investment company or pooled portfolio.
The Trust Agreement also authorizes the Trustees, in connection with
the merger, consolidation, termination or other reorganization of the Trust or
any series or class, to classify the shareholders of any class into one or more
separate groups and to provide for the different treatment of shares held by the
different groups, provided that such merger, consolidation, termination or other
reorganization is approved by a majority of the outstanding voting securities
(as defined in the 1940 Act) of each group of shareholders that are so
classified.
The Trust Agreement permits the Trustees to amend the Trust Agreement
without a shareholder vote. However, shareholders of the Trust have the right to
vote on any amendment: (i) that would adversely affect the voting rights of
shareholders; (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Trust Agreement; or (iv) that the
Trustees determine to submit to shareholders.
The Trust Agreement permits the termination of the Trust or of any
series or class of the Trust (i) by a majority of the affected shareholders at a
meeting of shareholders of the Trust, series or class; or (ii) by a majority of
the Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust or its shareholders. The factors and
events that the Trustees may take into account in making such determination
include (i) the inability of the Trust or any series or class to maintain its
assets at an appropriate size; (ii) changes in laws or regulations governing the
Trust or any series or class thereof, or affecting assets of the type in which
it invests; or (iii) economic developments or trends having a significant
adverse impact on their business or operations.
Under the Delaware Business Trust Act (the "Delaware Act"),
shareholders are not personally liable for obligations of the Trust. The
Delaware Act entitles shareholders of the Trust to the same limitation of
liability as is available to shareholders of private for-profit corporations.
However, no similar statutory or other authority limiting business trust
shareholder liability exists in many other states. As a result, to the extent
that the Trust or a shareholder is subject to the jurisdiction of courts in such
other states, those courts may not apply Delaware law and may subject the
shareholders to liability. To offset this risk, the Trust Agreement (i) contains
an express disclaimer of shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in each agreement,
obligation and instrument entered into or executed by the Trust or its Trustees
and (ii) provides for indemnification out of the property of the applicable
series of the Trust of any shareholder held personally liable for the
obligations of the Trust solely by reason of being or having been a shareholder
and not because of the shareholder's acts or omissions or for some other reason.
Thus, the risk of a shareholder incurring financial loss beyond his or her
investment because of shareholder liability is limited to circumstances in which
all of the following factors are present: (1) a court refuses to apply Delaware
law; (2) the liability arises under tort law or, if not, no contractual
limitation of liability is in effect; and (3) the applicable series of the Trust
is unable to meet its obligations.
The Trust Agreement provides that the Trustees will not be liable to
any person other than the Trust or a shareholder and that a Trustee will not be
liable for any act as a Trustee. However, nothing in the Trust Agreement
protects a Trustee against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
The Trust Agreement provides for indemnification of Trustees, officers
and agents of the Trust unless the recipient is liable by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office. 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.
In addition to the requirements of Delaware law, the Trust Agreement
provides that a shareholder of the Trust may bring a derivative action on behalf
of the Trust only if the following conditions are met: (a) shareholders eligible
to bring such derivative action under Delaware law who hold at least 10% of the
outstanding shares of the Trust, or 10% of the outstanding shares of the series
or class to which such action relates, must join in the request for the Trustees
to commence such action; and (b) the Trustees must be afforded a reasonable
amount of time to consider such shareholder request and to investigate the basis
of such claim. The Trust Agreement also provides that no person, other than the
Trustees, who is not a shareholder of a particular series or class shall be
entitled to bring any derivative action, suit or other proceeding on behalf of
or with respect to such series or class. The Trustees will be entitled to retain
counsel or other advisers in considering the merits of the request and may
require an undertaking by the shareholders making such request to reimburse the
Trust for the expense of any such advisers in the event that the Trustees
determine not to bring such action.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). To the extent
provided by the Trustees in the appointment of Series Trustees, Series Trustees
(a) may, but are not required to, serve as Trustees of the Trust or any other
series or class of the Trust; (b) may have, to the exclusion of any other
Trustee of the Trust, all the powers and authorities of Trustees under the Trust
Agreement with respect to such series or class; and/or (c) may have no power or
authority with respect to any other series or class. The Trustees are not
currently considering the appointment of Series Trustees for the Trust.
As of July 30, 1999, substantially all of the Trust's portfolios'
outstanding shares were held of record by Northern for the benefit of its
customers and the customers of its affiliates and correspondent banks that have
invested in the portfolios. As of the same date, Northern possessed sole or
shared voting and/or investment power for its customer accounts with respect to
less than 10% of the Trust's outstanding shares. As of the same date, the
Trust's Trustees and officers as a group owned beneficially less than 1% of the
outstanding shares of each class of each portfolio.
ADDITIONAL INFORMATION CONCERNING TAXES
General
The Portfolio will elect to be taxed separately as a regulated
investment company (a "RIC"). To qualify as a RIC, the Portfolio generally must
distribute an amount equal to at least the sum of 90% of its investment company
taxable income and 90% of its net tax-exempt interest income (net income and the
excess of net short-term capital gain over net long-term capital loss), if any,
for each year (the "Distribution Requirement") and satisfy certain other
requirements.
The Portfolio must derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or from other income derived with respect to its business of investing in such
stock, securities or currencies. Also, at the close of each quarter of the
taxable year, it is generally required that at least 50% of the value of the
Portfolio's assets must consist of cash and cash items, U.S. Government
securities, securities of other RICs and securities of other issuers (as to
which the Portfolio has not invested more than 5% of the value of its total
assets in securities of such issuer and as to which the Portfolio does not hold
more than 10% of the outstanding voting securities of such issuer), and no more
than 25% of the value of the Portfolio's total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other RICs), or in two or more issuers which such Portfolio
controls and which are engaged in the same or similar trades or businesses. The
Portfolio intends to comply with these RIC requirements.
If for any taxable year the Portfolio was not to qualify as a RIC, all
of its taxable income would be subject to tax at regular corporate rates without
any deduction for distributions to shareholders. In such event, all
distributions by the Portfolio would be taxable to shareholders as ordinary
income to the extent of the Portfolio's current and accumulated earnings and
profits, and would be eligible for the dividends-received deduction in the case
of corporate shareholders.
The Internal Revenue Code imposes a nondeductible 4% excise tax on RICs
that fail currently to distribute an amount equal to specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). The Portfolio intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and capital
gain net income each calendar year to avoid liability for this excise tax. The
Portfolio also intends to make sufficient distributions or deemed distributions
each year to avoid liability for corporate income tax. If the Portfolio were to
fail to make sufficient distributions, it could be liable for corporate income
tax and for excise tax.
The Trust will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends and gross sale proceeds paid to any
shareholder (i) who has provided either an incorrect tax identification number
or no number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of taxable interest or
dividend income properly, or (iii) who has failed to certify to the Trust, when
required to do so, that he or she is not subject to backup withholding or that
he or she is an "exempt recipient."
Special Tax Considerations
As described in the Prospectus, the Portfolio is designed to provide
investors with Federally tax-exempt interest income. The Portfolio is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital appreciation or maximum tax-exempt income irrespective
of fluctuations in principal. Shares of the Portfolio would not be suitable for
tax-exempt institutions or for retirement plans qualified under Section 401 of
the Code, H.R. 10 plans and individual retirement accounts because such plans
and accounts are generally tax-exempt and, therefore, would not gain any
additional benefit from the Portfolio's dividends being tax-exempt. In addition,
the Portfolio may not be an appropriate investment for persons or entities that
are "substantial users" of facilities financed by private activity bonds or
"related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person which regularly uses a part of such
facilities in its trade or business and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, which occupies more
than 5% of the usable area of such facilities or for which such facilities or a
part thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.
In order for the Portfolio to pay Federal exempt-interest dividends
with respect to any taxable year, at the close of each taxable quarter at least
50% of the aggregate value of the Portfolio must consist of tax-exempt
obligations. An exempt-interest dividend is any dividend or part thereof (other
than a capital gain dividend) paid by the Portfolio and designated as an
exempt-interest dividend in a written notice mailed to shareholders not later
than 60 days after the close of the Portfolio's taxable year. However, the
aggregate amount of dividends so designated by the Portfolio cannot exceed the
excess of the amount of interest exempt from tax under Section 103 of the Code
received by the Portfolio during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code. The percentage of total
dividends paid by the Portfolio with respect to any taxable year which qualifies
as Federal exempt-interest dividends will be the same for all shareholders
receiving dividends from the Portfolio with respect to such year.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Portfolio generally is not deductible for Federal income tax
purposes to the extent attributable to exempt-interest-dividends. If a
shareholder holds Portfolio shares for six months or less, any loss on the sale
or exchange of those shares will be disallowed to the extent of the amount of
exempt-interest dividends earned with respect to the shares. The Treasury
Department, however, is authorized to issue regulations reducing the six-month
holding requirement to a period of not less than the greater of 31 days or the
period between regular distributions for investment companies that regularly
distribute at least 90% of its net tax-exempt interest. No such regulations had
been issued as of the date of this Additional Statement.
Corporate taxpayers will be required to take into account all
exempt-interest dividends from the Portfolio in determining certain adjustments
for alternative minimum tax purposes.
The Portfolio will determine annually the percentages of its net
investment income which is exempt from tax, which constitute an item of tax
preference for purposes of the Federal alternative minimum tax, and which is
fully taxable, and will apply these percentages uniformly to all dividends
declared from net investment income during that year. These percentages may
differ significantly from the actual percentages for any particular day.
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Portfolios.
Foreign Investors
Foreign shareholders generally will be subject to U.S. withholding tax
at a rate of 30% (or a lower treaty rate, if applicable) on distributions by the
Portfolio of net investment income, other ordinary income, and the excess, if
any, of net short-term capital gain over net long-term capital loss for the
year, regardless of the extent, if any, to which the income or gain is derived
from non-U.S. investments of the Portfolio. For this purpose, foreign
shareholders include individuals other than U.S. citizens, residents and certain
nonresident aliens, and foreign corporations, partnerships, trusts and estates.
Different tax consequences may apply to a foreign shareholder engaged in a U.S.
trade or business or present in the U.S. for 183 days or more in a year. Foreign
shareholders should consult their tax advisers regarding the U.S. and foreign
tax consequences of investing in the Portfolio.
Conclusion
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Additional Statement. Such laws and
regulations may be changed by legislative or administrative action. No attempt
is made to present a detailed explanation of the tax treatment of the Portfolio
or its shareholders, and the discussion here and in the Prospectus is not
intended as a substitute for careful tax planning. Shareholders are advised to
consult their tax advisers with specific reference to their own tax situation,
including the application of state and local taxes.
Although the Portfolio expects to qualify as a RIC and to be relieved
of all or substantially all Federal taxes, depending upon the extent of its
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located or in which it is
otherwise deemed to be conducting business, the Portfolio may be subject to the
tax laws of such states or localities.
OTHER INFORMATION
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
Securities Act of 1933 with respect to the securities offered by the Trust's
Prospectus. Certain portions of the Registration Statement have been omitted
from the Prospectus and this Additional Statement pursuant to the rules and
regulations of the SEC. The Registration Statement including the exhibits filed
therewith may be examined at the office of the SEC in Washington, D.C.
The Portfolio is responsible for the payment of its expenses. Such
expenses include, without limitation, the fees and expenses payable to Northern
and First Data, 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, expenses of preparing and printing prospectuses,
statements of additional information, proxy materials, reports and notices and
the printing and distributing of the same to the Trust's shareholders and
regulatory authorities, compensation and expenses of its Trustees, expenses for
industry organizations such as the Investment Company Institute, miscellaneous
expenses and extraordinary expenses incurred by the Trust.
The term "majority of the outstanding shares" of either the Trust or
the Portfolio means, with respect to the approval of an investment advisory
agreement or a change in a fundamental investment restriction, the vote of the
lesser of (i) 67% or more of the shares of the Trust or the Portfolio present at
a meeting, if the holders of more than 50% of the outstanding shares of the
Trust or the Portfolio are present or represented by proxy, or (ii) more than
50% of the outstanding shares of the Trust or the Portfolio.
Statements contained in the prospectus or in this Additional Statement
as to the contents of any contract or other documents referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement of
which the Prospectus and this Additional Statement form a part, each such
statement being qualified in all respects by such reference.
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The following summarizes the rating categories used by Standard
and Poor's for commercial paper that is a permissible investment for the
Portfolios:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's
capacity to meet its financial commitment on these obligations is
extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually senior debt obligations not having an original maturity in excess of
one year, unless explicitly noted. The following summarizes the rating
categories used by Moody's for commercial paper that is a permissible investment
for the Portfolios:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structure with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate
liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
The following summarizes the rating categories used by Duff & Phelps for
commercial paper that is a permissible investment for the Portfolios:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
Duff & Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the
highest rating category.
Fitch IBCA short-term ratings apply to debt obligations that have time horizons
of less than 12 months for most obligations, or up to three years for U.S.
public finance securities. The following summarizes the rating categories used
by Fitch IBCA for short-term obligations that are permissible investments for
the Portfolios:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally
strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of
the higher ratings.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
payment of principal and interest of debt instruments with original maturities
of one year or less. The following summarizes the ratings used by Thomson
BankWatch for short-term obligations that are permissible investments for the
Portfolios:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's second-
highest category and indicates that while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for corporate and
municipal debt that are permissible investments for the Portfolios:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong.
PLUS (+) OR MINUS (-) - The "AA" rating classification may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
"r" - This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and municipal
long-term debt that are permissible investments for the Portfolios:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high- grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risk appear
somewhat larger than the "Aaa" securities.
Con. (---) - Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in the rating
classification "Aa". The modifier 1 indicates that the obligation ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of its generic
rating category.
The following summarizes the long-term debt ratings used by Duff & Phelps for
corporate and municipal long-term debt that are permissible investments for the
Portfolios:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
To provide more detailed indications of credit quality, the "AA" and "A" ratings
may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate and
municipal bonds that are permissible investments for the Portfolio:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
To provide more detailed indications of credit quality, the Fitch IBCA rating
"AA" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standing within the major rating category.
Thomson BankWatch assesses the likelihood of an untimely repayment of principal
or interest over the term to maturity of long term debt and preferred stock
which are issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the rating
categories used by Thomson BankWatch for long-term debt ratings for those
investments which are permissible investments for the Portfolios:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
PLUS (+) OR MINUS (-) The ratings "AAA" and "AA" may include a plus or minus
sign designation which indicates where within the respective category the issue
is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and market access
risks unique to notes due in three years or less. The following summarizes the
ratings used by Standard & Poor's Ratings Group for municipal notes that are
permissible investments for the Portfolios:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity
to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade ("MIG") and variable rate demand obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such ratings
recognize the differences between short-term credit risk and long-term risk. The
following summarizes the ratings by Moody's Investors Service, Inc. for
short-term notes that are permissible investments for the Portfolios:
"MIG-1"/"VMIG-1" - This designation, denotes best quality. There is
present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - This designation, denotes high quality, with margins
of protection that are ample although not so large as in the preceding
group.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes that are permissible investments
for the Portfolios.
<PAGE>
Northern Institutional Funds
MUNICIPAL PORTFOLIO
SERVICE SHARES
PREMIER SHARES
OCTOBER 20, 1999
<PAGE>
Northern Institutional Funds
MUNICIPAL PORTFOLIO
SERVICE SHARES
PREMIER SHARES
Prospectus dated October 20, 1999
Northern Institutional Funds (the "Trust") offers five money market
portfolios to institutional investors. This Prospectus describes the Municipal
Portfolio (the "Portfolio"). Descriptions of the four other money market
portfolios are included in separate prospectuses. The Portfolio is authorized to
offer three classes of shares: Shares, Service Shares and Premier Shares. Shares
are included in a separate prospectus. The Trust's six fixed income, one
balanced and seven equity portfolios are also described in separate
prospectuses.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Portfolio.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
<TABLE>
<CAPTION>
<S><C> <C>
Contents
RISK/RETURN MUNICIPAL PORTFOLIO
SUMMARY
Information about the Principal Investment Risks
objective, principal
strategies and risk Portfolio Performance
characteristics of the Portfolio
Portfolio Fees and Expenses
- ----------------------------------------------------------------------------------------------------------------
MANAGEMENT Investment Adviser
OF THE
PORTFOLIO Advisory Fees
Portfolio Management
Other Portfolio Services
- ----------------------------------------------------------------------------------------------------------------
ABOUT YOUR Purchasing and Selling Service Shares and Premier Shares
ACCOUNT
Investors
How to open, maintain
and close an account Share Classes
Opening an Account
Selling Service Shares and Premier Shares
Account Policies and Other Information
Automatic Investment Arrangements
Purchase and Redemption Minimums
Calculating Share Price
Timing of Purchase Requests
Tax Identification Number
In-Kind Purchases and Redemptions
Miscellaneous Purchase Information
Timing of Redemption and Exchange Requests
Miscellaneous Redemption Information
Exchange Privileges
Telephone Transactions
Advance Notification of Large Transactions
Making Changes to Your Account Information
Business Day
Early Closings
Authorized Intermediaries
Servicing Agents
Distributions and Taxes
Distributions
Taxes
Other Tax Information
Year 2000 Issues
- ----------------------------------------------------------------------------------------------------------------
RISKS, SECURITIES AND TECHNIQUES Risks, Securities and Techniques
- ----------------------------------------------------------------------------------------------------------------
FOR MORE Statement of Additional Information
INFORMATION
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
MUNICIPAL PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio seeks to provide, to the extent consistent with the
preservation of capital, a high level of income exempt from regular Federal
income tax by investing primarily in municipal instruments.
This objective may be changed without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. The Portfolio seeks to achieve its objective by
investing primarily in high-quality short-term municipal instruments. The high
level of income sought by the Portfolio is relative to yields currently
available in the tax-exempt market place. Municipal instruments are debt
instruments, the interest on which is exempt from regular Federal income tax.
These may include:
- - Fixed, variable and floating rate notes and bonds;
- - Asset-backed securities;
- - Tax-exempt commercial paper;
- - Municipal bonds, notes, paper or other instruments; and
- - Municipal bonds and notes which are guaranteed as to principal
and interest or backed by the U.S. government or its agencies or
instrumentalities.
Under normal circumstances, at least 80% of the Portfolio's annual gross income
will be derived from municipal instruments. Under normal market conditions,
uninvested cash holdings and investments in taxable instruments will not exceed
20% of the value of the total assets of the Portfolio. During temporary
defensive periods, however, all or any portion of the Portfolio's assets may be
held uninvested or invested in taxable instruments.
The Portfolio is not limited in the amount of its assets that may be invested
in AMT obligations ("private activity bonds") the interest on which may be
treated as an item of tax preference to shareholders under the Federal
alternative minimum tax. For shareholders subject to AMT, a significant portion
of the Portfolio's dividends will be subject to the Federal tax to the extent
the Portfolio invests in AMT obligations.
Taxable investments will normally consist of U.S. dollar-denominated
obligations of U.S. banks, foreign commercial banks and securities issued or
guaranteed by foreign governments; high quality commercial paper; other
obligations, high quality corporate bonds and notes; securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
custodial receipts with respect thereto; and repurchase agreements relation to
the above instruments.
Risks. These primary investment risks apply to the Portfolio: stable NAV
risk, interest rate risk, credit (or default) risk, prepayment (or call) risk,
debt extension risk, guarantor (or credit enhancement) risk, management risk and
tax risk. These and other risks are summarized below.
In addition to the instruments described above, the Portfolio may use various
investment techniques in seeking its investment objective. You can learn more
about these techniques and related risks by reading "Risks, Securities and
Techniques" beginning on page ____ of this Prospectus and the Statement of
Additional Information.
Please keep in mind that the Portfolio cannot guarantee it will meet its
investment objective and it should not be relied upon as a complete investment
program.
ADDITIONAL INFORMATION
The Portfolio seeks to maintain a stable net asset value of $1.00 per share.
Consistent with this policy, the Portfolio:
o Limits its dollar-weighted average portfolio maturity to 90 days or
less;
o Buys securities with remaining maturities of 397 days or less (except
for certain variable and floating rate instruments and securities
collateralizing repurchase agreements); and
o Invests only in U.S. dollar-denominated securities that represent
minimal credit risks.
In addition, the Portfolio limits its investments to "Eligible Securities" as
defined by the Securities and Exchange Commission ("SEC"). Eligible Securities
include, generally, securities that either (a) have short-term debt ratings at
the time of purchase in the two highest rating categories or (b) are issued or
guaranteed by, or otherwise allow the Portfolio to demand payment from, an
issuer with those ratings. Securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) may be deemed to be
Eligible Securities if determined to be of comparable quality by The Northern
Trust Company under the direction of the Board of Trustees. Securities that are
in the highest short-term rating category (and comparable unrated securities)
are called "First Tier Securities." Securities in which the Portfolio may 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.
In accordance with current SEC Regulations, the Portfolio will not invest more
than 5% of the value of its total assets at the time of purchase in the
securities of any single issuer. However, the Portfolio may invest up to 25% of
its total assets in the securities of a single issuer for up to three Business
Days. These limitations do not apply to cash, certain repurchase agreements,
U.S. government securities or securities of other investment companies. In
addition, certain securities subject to unconditional guarantees and securities
that are not "First Tier Securities" as defined by the SEC are subject to
different diversification requirements as described in the Statement of
Additional Information.
PRINCIPAL INVESTMENT RISKS
All investments carry some degree of risk which will affect the value of the
Portfolio's investments, investment performance, yield and the price of its
shares.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Portfolio.
The following summarizes the principal risks that may affect the Portfolio.
STABLE NAV RISK is the risk that the Portfolio will not be able to maintain a
net asset value per share of $1.00 at all times.
INTEREST RATE RISK is the risk that during periods of rising interest rates, the
Portfolio's yield (and the market value of its securities) will tend to be lower
than prevailing market rates; in periods of falling interest rates, the
Portfolio's yield (and the market value of its securities) will tend to be
higher.
CREDIT (OR DEFAULT) RISK is the risk that an issuer of fixed income securities
held by the Portfolio may default on its obligation to pay interest and repay
principal. Generally, the lower the credit rating of a security, the greater the
risk that the issuer of the security will default on its obligation. High
quality securities are generally believed to have relatively low degrees of
credit risk.
PREPAYMENT (OR CALL) RISK is the risk that an issuer will exercise its right
to pay principal on an obligation held by the Portfolio (such as an asset-backed
security) earlier than expected. This may happen during a period of declining
interest rates. Under these circumstances, the Portfolio may be unable to recoup
all of its initial investment and will suffer from having to reinvest in lower
yielding securities. The loss of higher yielding securities and the reinvestment
at lower interest rates can reduce the Portfolio's income.
DEBT EXTENSION RISK is the risk that an issuer will exercise its right to pay
principal on an obligation held by the Portfolio (such as an asset-backed
security) later than expected. This may happen during a period of rising
interest rates. Under these circumstances, the value of the obligation will
decrease and the Portfolio will suffer from the inability to invest in higher
yielding securities.
GUARANTOR (OR CREDIT ENHANCEMENT) RISK is the risk that changes in credit
quality of a U.S. or foreign bank, insurance company or other financial
institution could cause the Portfolio's investments in securities backed by
letters of credit or other credit enhancements issued by such bank or
institution to decline in value.
MANAGEMENT RISK is the risk that a strategy used by the investment management
team may fail to produce the intended results.
LIQUIDITY RISK is the risk that the Portfolio will not be able to pay redemption
proceeds on the same Business Day that shares are redeemed, because of unusual
market conditions, an unusually high volume of redemption requests or other
reasons.
YEAR 2000 RISK is the risk that the Portfolio's operations or value will be
adversely affected by the "Year 2000 Problem." (For more information, please see
"Year 2000 Issues" on page __.)
TAX RISK is the risk that future legislative or administrative changes or court
decisions may materially affect the ability of the Portfolio to pay tax-exempt
dividends.
More information about the risks of investing in the Portfolio is provided in
"Risks, Securities and Techniques" beginning on page ____. You should carefully
consider the risks discussed in these sections before investing in the
Portfolio.
PORTFOLIO PERFORMANCE
The bar charts and the performance tables have been omitted because the
Portfolio has been in operation for less than one calendar year.
PORTFOLIO FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Service Shares and Premier Shares of the Portfolio. Please note that it does not
reflect any charges which may be imposed by The Northern Trust Company, its
affiliates, correspondent banks and other institutions on their Customers (as
defined on page __). (For more information, please see "Account Policies and
Other Information" on page __.)
<TABLE>
<CAPTION>
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Municipal Portfolio
Service Shares Premier Shares
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases................. None None
Deferred Sales Charge (Load)............................. None None
Sales Charge (Load) Imposed on Reinvested
Distributions............................................ None None
Redemption Fees.......................................... None None
Exchange Fees............................................ None None
Service Shares Premier Shares
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets) 1
Management Fees2......................................... 0.25% 0.25%
Distribution (12b-1) Fees................................ None None
Servicing Agent Fees..................................... 0.25% 0.50%
Transfer Agency Fees..................................... 0.01% 0.02%
Other Expenses3.......................................... 0.22% 0.22%
Total Annual Portfolio Operating Expenses4............... 0.73% 0.99%
</TABLE>
1 The Portfolio's annual operating expenses are based on actual fees and
estimated expenses for the current fiscal year.
2 As of the date of this Prospectus, the Northern Trust Company
("Northern") is voluntarily waiving a portion of its management fees
for the Portfolio. As a result of the fee waiver, actual management
fees to be paid by the Portfolio are 0.10% of the Portfolio's average
daily net assets. Fee waivers may be terminated at any time at the
option of Northern.
3 "Other Expenses" include (1) co-administration fees and all other
ordinary operating expenses of the Portfolio not listed above and (2)
the payment of a fee to Northern or other institutions under a Service
Plan equal to 0.08% of the average daily net asset value of the Service
Shares and Premier shares for systems support and related services.
Northern and First Data Investor Services Group, Inc. ("First Data
Investor Services Group") as co-administrators are entitled to a
co-administration fee from the Portfolio at an annual rate of 0.10% of
the Portfolio's average daily net assets. Under their Co-Administration
Agreement with the Trust, which may be amended without shareholder
approval, the co-administrators have agreed indefinitely to reimburse
expenses (including fees payable to Northern and First Data Investor
Services Group as co-administrators, but excluding management fees,
transfer agency fees, fees paid under the Service Plan for Service
Shares and Premier Shares and extraordinary expenses) which exceed on
an annualized basis 0.10% of the Portfolio's average daily net assets.
As a result of the expense reimbursement, estimated "Other Expenses"
are currently 0.18% of the Portfolio's average daily net assets.
4 As a result of the fee waivers and expense reimbursements, the
estimated actual management fees, distribution (12b-1) fees, other
expenses and total annual operating expenses for the Portfolio for
the current fiscal year are set forth below. Fee waivers (and voluntary
expense reimbursements, if applicable) may be terminated at any time at
the option of Northern. If this occurs, "Other Operating Expenses" may
increase without shareholder approval.
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C>
Management Fees Distribution (12b-1) Fees Other Expenses Total Annual Portfolio Operating Expenses
Service Shares 0.10% 0.00% 0.44% 0.54%
Premier Shares 0.10% 0.00% 0.70% 0.80%
</TABLE>
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Portfolio (without fee waivers and expense reimbursements) with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated (with reinvestment of all dividends and distributions) and
then redeem all of your shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that the Portfolio's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
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<S> <C> <C> <C>
1 Year 3 Years
====== =======
SERVICE SHARES $75 $233
PREMIER SHARES $101 $315
</TABLE>
<PAGE>
MANAGEMENT OF THE PORTFOLIO
Investment Adviser
The Northern Trust Company ("Northern" or the "Investment Adviser"), an Illinois
state-chartered bank and member of the Federal Reserve System, serves as
investment adviser for the Portfolio. The Investment Adviser is located at 50
South LaSalle Street, Chicago, Illinois 60675 and is a wholly-owned subsidiary
of Northern Trust Corporation, a bank holding company. As of September 30, 1999,
Northern Trust Corporation and its subsidiaries had approximately $____ billion
in assets, $____ billion in deposits and employed over _____ persons.
Northern and its affiliates administrated in various capacities (including as
master trustee, investment manager or custodian) approximately $____ trillion of
assets as of September 30, 1999, including approximately $___ billion of assets
for which Northern and its affiliates had investment management responsibility.
Under its Advisory Agreement with the Trust, the Investment Adviser, subject to
the general supervision of the Trust's Board of Trustees, is responsible for
making investment decisions for the Portfolio and for placing purchase and sale
orders for portfolio securities.
Advisory Fees
As compensation for its advisory services and its assumption of related
expenses, the Investment Adviser is entitled to an advisory fee from the
Portfolio, computed daily and payable monthly, at an annual contractual rate of
0.25% (expressed as a percentage of the Portfolio's average daily net assets).
The difference, if any, between the contractual advisory fee and the actual
advisory fee that is paid by the Portfolio will reflect that the Investment
Adviser did not charge the full amount of the advisory fee to which it was
entitled. The Investment Adviser may discontinue or modify its voluntary
limitation in the future at its discretion.
Portfolio Management
The Investment Adviser employs a team approach to the investment management of
the Portfolio, relying upon investment professionals under the leadership of
James M. Snyder, Chief Investment Officer and Executive Vice President of
Northern. Mr. Snyder oversees the management of all fixed income, equity and
money market assets managed by the Investment Adviser. Mr. Snyder joined
Northern Trust in 1980.
Other Portfolio Services
Northern also serves as transfer agent ("Transfer Agent") and custodian for the
Portfolio. As Transfer Agent, Northern performs various administrative servicing
functions, and any shareholder inquiries should be directed to it. The fees that
Northern receives for its services in those capacities are described in the
Statement of Additional Information. In addition, Northern and its affiliates,
banks, trust companies and other institutions and organizations may enter into
agreements for the provision of administrative support services for the Service
Share and Premier Share investors. Northern and other institutions may provide
consulting, technology and systems support services and receive fees relating to
cash management or sweep account services under a Service Plan described under
"Account Policies and Other Information - Servicing Agents" on page ___.
<PAGE>
Northern and First Data Investor Services Group, Inc. ("First Data Investor
Services"), a wholly-owned subsidiary of First Data Corporation, serve as
co-administrators for the Portfolio. The fees that Northern and First Data
Investor Services receive for their services in these capacities are described
on page ___ under "Portfolio Fees and Expenses."
PURCHASING AND SELLING SERVICE SHARES AND PREMIER SHARES
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Investors
Institutional investors, which are acting on their own behalf or on behalf of
their customers, clients, employees, participants and others ("Customers") and
enter into a servicing agreement with the Trust ("Servicing Agreement"), may
invest in the Service Shares and Premier Shares of the Portfolio through their
institutional accounts at Northern or an affiliate. They may also establish
accounts directly with the Trust. There is no sales charge imposed on
investments. Institutional investors ("Institutions") include:
Northern and its affiliates;
Defined contribution plans having at least $30 million in assets or
annual contributions of at least $5 million; and
Other institutions and organizations.
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Share Classes
The Portfolio offers three classes of shares to meet the special needs of
institutional investors: Shares, Service Shares and Premier Shares.
Shares are described in a separate prospectus and do not provide for
payments by the Portfolio to Institutions for administrative support or
shareholder liaison services.
Service Shares are designed for Institutions that agree with the Portfolio
to provide (or arrange for the provision of) administrative support
services to Customers.
Premier Shares are designed for Institutions that agree with the Portfolio
to provide (or arrange for the provision of) administrative support and
shareholder liaison services to Customers.
Shares of each class bear their pro rata portion of all operating expenses
paid by the Portfolio, except amounts payable under the Service Plan that has
been adopted for the Portfolio's Service Shares and Premier Shares and transfer
agency fees. The Service Plan provides for payments at an annual rate of up to
0.33% and 0.58% of the average daily net asset value of Service Shares and
Premier Shares, respectively. Because of these class-specific expenses, the
performance of the Shares of the Portfolio is expected to be higher than the
performance of both the Service Shares and Premier Shares and the performance of
the Portfolio's Service Shares is expected to be higher than the performance of
the Premier Shares.
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Opening An Account
You may purchase Service Shares and Premier Shares of the Portfolio through your
institutional account at Northern (or an affiliate) or you may open an account
directly with the Trust with a minimum initial investment of $5 million in one
or more portfolios of the Trust. This minimum does not apply, however, to
Service Shares and Premier Shares purchased through a Northern cash sweep
program. There is no minimum for subsequent investments.
Through an Institutional Account. If you are opening an institutional account at
Northern, a Northern representative can assist you with all phases of your
investment. To purchase Service Shares or Premier Shares through your account,
contact your Northern representative for further information.
Directly from the Trust. An Institution may open a shareholder account and
purchase Service Shares and Premier Shares directly from the Trust as described
in this Prospectus.
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By Mail.
Read this Prospectus carefully.
Complete and sign the new account application.
Include a certified corporate resolution (or other acceptable evidence of
authority).
Enclose a check or Federal Reserve draft payable to the Portfolio.
Mail your check, corporate resolution and completed application to:
Northern Institutional Funds
c/o The Northern Trust Company
P.O. Box 75943
Chicago, Illinois 60675-5943
All checks must be payable in U.S. dollars and drawn on a bank located in the
United States. Cash and third party checks are not acceptable.
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By Telephone.
Read this Prospectus carefully.
Call the Transfer Agent at 1-800-637-1380.
To open a new account please provide:
o The name of the Portfolio in which you'd like to invest
o The number of Service Shares or Premier Shares or dollar amount to be
invested
o The method of payment
To add to an existing account, please provide:
o The Institution's name
o Your Account Number
By Wire or Automated Clearing House Transfer ("ACH Transfer").
To open a new account:
Call the Transfer Agent at 1-800-637-1380 for instructions.
For more information about the purchase of Service Shares or Premier Shares,
call the Transfer Agent at 1-800-637-1380.
To add to an existing account:
Have your bank 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 No.)
(Reference Shareholder's Name)
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Selling Service Shares and Premier Shares
Through an Institutional Account. Institutions may sell (redeem) Service Shares
and Premier Shares through their institutional account by contacting their
Northern account representative.
Directly through the Trust. Institutions that purchase Service Shares and
Premier Shares directly from the Trust may redeem their Service Shares and
Premier Shares through the Transfer Agent in one of the following ways:
By Mail.
Send a written request to:
Northern Institutional Funds
c/o The Northern Trust Company
P.O. Box 75943
Chicago, Illinois 60675-5943
<PAGE>
The letter of instruction must include:
o The signature of a duly authorized person
o Your account number
o The name of the Portfolio
o The number of Service Shares or Premier Shares or the dollar amount to be
redeemed
By Telephone.
Call the Transfer Agent at 1-800-637-1380 for instructions.
During periods of unusual economic or market activity, telephone
redemptions may be difficult to implement. In such event, shareholders
should follow the procedures outlined above under "Selling Service Shares
and Premier Shares By Mail."
By Wire.
Call the Transfer Agent at 1-800-637-1380 for instructions.
You must have given authorization for expedited wire redemption.
The minimum amount that may be redeemed by this method is $10,000.
Account Policies and Other Information
Automatic Investment Arrangements. Institutions may purchase Service Shares and
Premier Shares through their institutional accounts at Northern 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.
Northern will place a purchase order generated under an automatic investment
direction either on the Business Day that funds are available in the account or
on the next Business Day, depending upon the terms of the automatic investment
arrangement. Similarly, Northern will place a redemption order generated under
an automatic investment direction either on the Business Day Northern calculates
the redemption amount needed to bring the account balance up to the agreed upon
amount or on the next Business Day, depending upon the terms of the automatic
investment arrangement. If a redemption order is placed on the next Business
Day, Northern will normally provide funds by provisionally crediting the
Institution's account on the day the calculation is made. Institutions should
contact Northern for more information about their automatic investment
arrangements.
Purchase and Redemption Minimums. There is a minimum initial investment of $5
million in the Portfolio and one or more other investment portfolios of the
Trust. This minimum does not apply, however, to Service Shares or Premier Shares
purchased through a Northern cash sweep program. There is no minimum for
subsequent investments. A $10,000 minimum applies for redemptions by wire. The
Trust reserves the right to waive purchase and redemption minimums and to
determine the manner in which a minimum is satisfied.
Calculating Share Price. The Trust issues and redeems Service Shares and Premier
Shares at net asset value ("NAV"). The NAV for each share class of the Portfolio
is calculated by dividing the value of net assets attributed to that class by
the number of outstanding shares of the class. The NAV for the Portfolio and
class is calculated as of 3:00 p.m., Chicago time, each Business Day. The NAV
used in determining the price of your Service Shares and Premier Shares is the
one calculated after your purchase, exchange or redemption order is received or
accepted as described below. The Portfolio seeks to maintain an NAV of $1.00 per
share by valuing the obligations held by it at amortized cost in accordance with
SEC regulations. Amortized cost will normally approximate market value.
Timing of Purchase Requests. Requests accepted by the Transfer Agent or other
authorized intermediary by 1:00 p.m., Chicago time, on any Business Day will be
executed the same day, provided that either:
o The Transfer Agent receives the purchase price in Federal or other
immediately available funds prior to 1:00 p.m., Chicago time, the same
Business Day;
o The order is accepted by an authorized intermediary and payment is to
be made by the close of the same Business Day in Federal or other
immediately available funds according to procedures authorized by the
Trust; or
o Payment in Federal or other immediately available funds is received by
the close of the same Business Day in an institutional account
maintained with Northern or an affiliate.
Orders received by the Transfer Agent or other authorized intermediary on a
non-Business Day or after 1:00 p.m., Chicago time, on a Business Day will be
executed on the next Business Day, provided that payment is made as noted above.
We consider requests to be in "good order" when all required documents are
properly completed, signed and received, including a certified corporate
resolution or other acceptable evidence of authority. If an Institution pays for
Service Shares or Premier Shares by check, Federal funds generally will become
available within two Business Days after a purchase order is received.
If payment is not received as described above from an authorized intermediary on
the same Business Day of acceptance of an order by the authorized intermediary,
the authorized intermediary may be liable for fees and losses and the
transaction may be cancelled.
In certain circumstances, the Trust may advance the time by which purchase
orders must be received. See "Early Closings" on page __.
Tax Identification Number. Federal regulations require you to provide to the
Transfer Agent a taxpayer identification number when you open an account.
Purchase orders without such a number or an indication that a number has been
applied for will not be accepted. If you have applied for a number, you must
provide it to the Transfer Agent within 60 days of the date of the order.
<PAGE>
In-Kind Purchases and Redemptions. The Trust reserves the right to accept
payment for Service Shares and Premier Shares in the form of securities that are
permissible investments for the Portfolio. The Trust also reserves the right to
pay redemptions by a distribution "in-kind" of securities (instead of cash) from
the Portfolio. See the Statement of Additional Information for further
information about the terms of these purchases and redemptions.
Miscellaneous Purchase Information.
o Institutions are responsible for transmitting purchase orders to the
Transfer Agent and delivering required funds on a timely basis.
o Institutions are responsible for all losses and expenses of the
Portfolio in the event of any failure to make payment according to the
procedures outlined in this Prospectus. Northern may redeem shares from
any account it maintains to protect the Portfolio and Northern against
loss. In addition, a $20 charge will be imposed if a check does not
clear.
o Service Shares and Premier Shares of the Portfolio are entitled to the
dividends declared by the Portfolio beginning on the Business Day the
purchase order is executed, provided payment in Federal or other
immediately available funds is received by the Transfer Agent by the
time designated above.
o The Trust reserves the right to reject any purchase order. The Trust
also reserves the right to change or discontinue any of its purchase
procedures.
Timing of Redemption and Exchange Requests. Redemption and exchange requests
will be effected at the NAV next determined after your exchange or redemption
order is received in good order. 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 "Account Policies and
Other Information -- Making Changes to Your Account Information."
If either the Transfer Agent or Northern (with respect to your institutional
account) receives a redemption order by 1:00 p.m., Chicago time, on a Business
Day, redemption proceeds will normally be paid in Federal funds or other
immediately available funds wired or sent by check to you or, if you so choose,
to your institutional account with Northern, on the same Business Day.
Redemption orders received after 1:00 p.m., Chicago time, 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.
In certain circumstances, the Trust may advance the time by which redemption and
exchange orders must be received. See "Early Closings" on page __.
Miscellaneous Redemption Information. All redemption proceeds will be sent by
check unless the Transfer Agent is directed otherwise. Redemption proceeds may
also be wired. A redemption request may not be processed if a shareholder has
failed to submit a completed and properly executed new account application,
including a corporate resolution or other acceptable evidence of authority.
o The Trust reserves the right to defer crediting, sending or wiring
redemption proceeds for up to 7 days after receiving the redemption
order if, in its judgment, an earlier payment could adversely affect
the Portfolio.
o If you are redeeming recently purchased Service Shares or Premier
Shares, your redemption request may not be honored until your check or
electronic transaction has cleared. This may delay your transaction for
up to 15 days.
o Institutions are responsible for transmitting redemption orders to the
Transfer Agent and crediting their Customers' accounts with redemption
proceeds on a timely basis.
o Redemption requests by mail must be signed by a person authorized by
acceptable documentation on file with the Transfer Agent.
o Dividends on Service Shares and Premier Shares are earned through and
including the day prior to the day on which they are redeemed.
o The Trust reserves the right to redeem Service Shares and Premier
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.
o The Trust may require any information reasonably necessary to ensure
that a redemption request has been duly authorized.
o The Trust reserves the right to change or discontinue any of its
redemption procedures.
Exchange Privileges. Institutions and their Customers (to the extent permitted
by their account agreements) may exchange Service Shares and Premier Shares of
the Portfolio for Service Shares and Premier Shares, respectively, of another
portfolio. The registration of both accounts involved must be identical. A
$1,000 minimum investment applies. An exchange is a redemption of shares you own
and the purchase of shares you are acquiring. It is considered a taxable event
and may result in a gain or loss.
The Trust reserves the right to change or discontinue the exchange privilege at
any time upon 60 days' written notice to shareholders and to reject any exchange
request. Exchanges are only available in states where an exchange can legally be
made. Before making an exchange you should read the prospectus for the shares
you are acquiring.
Telephone Transactions. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, the Transfer Agent has adopted
procedures in an effort to establish reasonable safeguards against fraudulent
telephone transactions. If reasonable measures are taken to verify that
telephone instructions are genuine, the Trust and its service providers will not
be responsible for any loss resulting from fraudulent or unauthorized
instructions received over the telephone. In these circumstances, shareholders
will bear the risk of loss. During periods of unusual market activity, you may
have trouble placing a request by telephone. In this event, consider sending
your request in writing.
The proceeds of redemption orders received by telephone will be sent by check,
wire or transfer according to proper instructions. All checks will be made
payable to the shareholder of record and mailed only to the shareholder's
address of record.
The Trust reserves the right to refuse a telephone redemption.
Advance Notification of Large Transactions. The Trust requests that an
Institution give advance notice to the Transfer Agent by 11:00 a.m., Chicago
time, if it intends to place a purchase or redemption order of $5 million or
more on a Business Day.
Making Changes to Your Account Information. You may make changes to wiring
instructions, address of record, or other account information only in writing.
These instructions must be accompanied by a certified corporate resolution,
signature guarantee from an institution participating in the Stock Transfer
Agency Medallion Program ("STAMP"), or other acceptable evidence of authority.
In accordance with SEC regulations, the Trust and Transfer Agent may charge a
shareholder reasonable costs in locating a shareholder's current address.
Business Day. A "Business Day" is each Monday through Friday when Northern or
the New York Stock Exchange is open for business. A "Business Day" does not
include a holiday observed by Northern and the Exchange. In 1999 these holidays
are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas Day.
Early Closings. The Portfolio reserves the right to cease, or to advance the
time for, accepting purchase, redemption or exchange orders for same Business
Day credit when Northern or the Exchange closes early as a result of unusual
weather or other conditions. It also reserves this right when The Bond Market
Association recommends that securities markets close or close early.
Authorized Intermediaries. The Trust may authorize certain financial
intermediaries (including banks, trust companies, brokers and investment
advisers), which provide recordkeeping, reporting and processing services, to
accept purchase, redemption and exchange orders from their Customers on behalf
of the Trust. They may also designate other intermediaries to accept such
orders, if approved by the Trust. Authorized intermediaries are responsible for
transmitting orders and delivering funds on a timely basis. The Portfolio will
be deemed to have received an order when the order is accepted by the authorized
intermediary on a Business Day, and the order will be priced at the Portfolio's
per share NAV next determined.
Servicing Agents. Institutions perform (or arrange to have performed) various
administrative support services for customers who are the beneficial owners of
either Service Shares or Premier Shares through Servicing Agreements with the
Trust ("Servicing Agents"). In addition, institutions perform (or arrange to
have performed) account maintenance services under their Servicing Agreements
for Premier Shares. These Servicing Agreements are permitted under the Trust's
Service Plan ("Service Plan"). For both Service Shares and Premier Shares, these
services may include:
establishing and maintaining individual accounts and records;
processing purchase, redemption and exchange orders;
<PAGE>
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.
Servicing Agents will receive fees from the Portfolio for these services at an
annual rate of up to 0.25% of the average daily net asset value of the Service
Shares and Premier Shares beneficially owned by their Customers.
Personal and account maintenance services provided under the Service Plan for
Premier Shares may include: providing information to investors regarding
the Portfolio or relating to the status of their accounts; and
acting as liaison between investors and the Trust.
Servicing Agents will receive additional fees from the Portfolio for these
services at an annual rate of up to 0.25% 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, First Data
Investor Services Group or other Institutions at an annual rate of up to 0.08%
of the average daily net asset value of Service Shares and Premier Shares
serviced by Institutions for ongoing consulting, technology and systems support
services relating to cash management or sweep account services. All fees payable
under the Service Plan are borne solely by the share class to which the services
are provided and not by the Portfolio's other share classes.
Northern may provide additional 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 Service Shares or
Premier Shares of the 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 earned by Northern as Investment Adviser (after adjustments). This
compensation will be paid by Northern or its affiliates and will not represent
an additional expense to the Trust or its shareholders.
You should read your account agreement with your Institution carefully. Your
Institution's requirements may differ from those listed in this Prospectus. An
Institution may impose account charges, such as asset allocation fees, account
maintenance fees, and other charges that will reduce the net return on an
investment in the Portfolio. If you have agreed to maintain a minimum balance
with your Institution and the balance falls below this minimum, you may be
required to redeem all or a part of your investment in the Portfolio.
Conflict of interest restrictions may apply to the receipt of compensation from
the Trust by an Institution in connection with the investment of fiduciary funds
in Service Shares or Premier Shares of the Portfolio. 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.
State securities laws regarding the registration of dealers may differ from
Federal law. As a result, Institutions investing in the Portfolio on behalf of
their Customers may be required to register as dealers.
DISTRIBTIONS AND TAXES
DISTRIBUTIONS
Dividends from net income are declared daily and paid monthly by the Portfolio
to its shareholders. Net income includes the interest accrued on the Portfolio's
assets less estimated expenses. The Portfolio's net realized short-term capital
gains, if any, are distributed at least annually. The Portfolio does not expect
to realize net long-term capital gain.
Dividends are paid as soon as practical following the end of each month, except
in the case of a total redemption of Service Shares or Premier Shares in an
account that is not subject to a standing order for the purchase of additional
shares of the same class. In that event, dividends will be paid promptly along
with the redemption proceeds.
All distributions are automatically reinvested (without any sales charge) in
additional Service Shares or Premier Shares of the Portfolio, respectively,
unless you elect to receive distributions in cash by notifying the Transfer
Agent in writing. You may make arrangements to credit these distributions to
your account with Northern, its affiliates or its correspondent banks.
There are no fees or sales charges on reinvestments.
TAXES
The Portfolio intends to qualify as a regulated investment company for Federal
tax purposes, and to distribute to shareholders substantially all of its net
investment income and net capital gain. There are certain tax requirements that
the Portfolio must follow in order to avoid Federal taxation. In its efforts to
adhere to these requirements, the Portfolio may have to limit its investment
activity in some types of instruments.
The Portfolio expects to pay "exempt-interest dividends" that are generally
exempt from regular Federal income tax. However, a significant portion of the
exempt-interest dividends paid by the Portfolio will be an item of tax
preference for purposes of determining Federal alternative minimum tax
liability. Exempt-interest dividends will also be considered along with other
adjusted gross income in determining whether any Social Security or railroad
retirement payments received by you are subject to Federal income taxes.
If you receive an exempt-interest dividend with respect to any share and the
share is held for six months or less, any loss on the sale or exchange of the
share will be disallowed to the extent of the dividend amount. Interest on
indebtedness incurred by a shareholder to purchase or carry shares of the
Portfolio generally will not be deductible for federal income tax purposes.
<PAGE>
Except as stated below, you may be subject to state and local taxes on Portfolio
distributions and redemptions. State income taxes may not apply, however, to the
portions of the Portfolio's distributions, if any, that are attributable to
interest on certain types of Federal securities or interest on securities issued
by the particular state or municipalities within the state.
In all cases, distributions, if any, derived from net long-term capital gains
will generally be taxable to you as long-term capital gains, and any dividends
derived from short-term capital gains and taxable interest income will be
taxable to you as ordinary income.
OTHER TAX INFORMATION
Dividends and distributions from the Portfolio will generally be reportable by
you in the tax year in which they are paid, with one exception. Dividends and
distributions declared by the Portfolio in October, November or December and
paid in January are taxed as though they were paid by December 31.
Every year, the Trust will send you information detailing the amount of ordinary
income and capital gains distributed to your account for the previous year.
Your investment in the Portfolio could have additional tax consequences. You
should consult your tax professional for information regarding all the tax
consequences applicable to your investment in the Portfolio. More information is
provided in the Statement of Additional Information. This short summary is not
intended as a substitute for careful tax planning.
Dividends paid by the Portfolio may be taxable 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.
Year 2000 Issues
Like every other business dependent upon computerized information processing,
Northern Trust Corporation ("Northern Trust") must deal with "Year 2000" issues.
Many computer systems use two digits rather than four to identify the year.
Unless adapted, these systems may not be able to correctly distinguish the Year
2000 from the Year 1900. 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. This could have a negative
effect on the companies in which the Portfolio invests, thus decreasing the
Portfolio's investment returns.
Northern Trust has implemented steps to prepare its critical computer systems
and processes for Year 2000 processing. It has established 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 of its critical systems. Northern Trust has advised the Trust that it has
substantially completed work on its critical systems and testing with outside
parties.
<PAGE>
Northern Trust also has a program to monitor and assess the efforts of other
parties, such as other service providers to the Portfolio. However, it cannot
control the success of those other parties' efforts. Contingency plans are being
established to provide Northern Trust with alternatives in case these entities
experience significant Year 2000 difficulties that impact Northern Trust.
Furthermore, even if the actions taken by Northern Trust are successful, the
normal operations of the Portfolio may, in any event, be disrupted significantly
by the failure of communications and public utility companies, governmental
entities, financial processors or others to perform their services as a result
of Year 2000 problems.
Efforts in foreign countries to remediate potential Year 2000 problems are
not as extensive as those in the United States. As a result, the operations of
foreign markets, foreign issuers and foreign governments may be disrupted by the
Year 2000 problem and the investment holdings of the Portfolio may be adversely
affected.
RISKS, SECURITIES AND TECHNIQUES
This section takes a closer look at some of the types of securities in which
the Portfolio may invest and their related risks. It also explores the various
investment techniques that the investment management team may, but is not
required to, use. The Portfolio may invest in other securities and are subject
to further restrictions and risks which are described in the Statement of
Additional Information.
ASSET-BACKED SECURITIES. Asset-backed securities are sponsored by entities such
as government agencies, banks, financial companies and commercial or industrial
companies. Asset-backed securities represent participations in, or are secured
by and payable from, pools of various types of real and personal property and
other financial assets. Such asset pools are securitized through the use of
privately formed trusts or special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pooled insurance policy
issued by a financial institution, or other credit enhancements.
INVESTMENT STRATEGY. The Portfolio may purchase various types of
asset-backed securities that are "Eligible Securities" as defined
by the SEC.
SPECIAL RISKS. In addition to credit and market risk, asset-backed
securities involve prepayment risk because the underlying assets (loans)
may be prepaid at any time. The value of these securities may also change
because of actual or perceived changes in the creditworthiness of the
originator, the servicing agent, the financial institution providing the
credit support, or the counterparty. 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. In addition, non-mortgage
asset-backed securities involve certain risks not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of the same security interest in the underlying collateral.
BORROWINGS AND REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow money
from banks and may enter into reverse repurchase agreements with banks and other
financial institutions. Reverse repurchase agreements involve the sale of money
market securities held by the Portfolio subject to its agreement to repurchase
them at a mutually agreed upon date and price (including interest).
INVESTMENT STRATEGY. The Portfolio may borrow and enter into reverse
repurchase agreements in amounts not exceeding one-third of its total
assets (including the amount borrowed). These transactions may be entered
into as a temporary measure for emergency purposes or to meet redemption
requests. Reverse repurchase agreements may also be entered into when the
investment management team expects that the interest income to be earned
from the investment of the transaction proceeds will be greater than the
related interest expense.
SPECIAL RISKS. Borrowings and reverse repurchase agreements involve
leveraging. If the securities held by the Portfolio decline in value
while these transactions are outstanding, the net asset value of the
Portfolio's outstanding shares will decline in value by proportionately
more than the decline in value of the securities. In addition, reverse
repurchase agreements involve the risks that the interest income earned
by the Portfolio (from the investment of the proceeds) will be less than
the interest expense of the transaction, that the market value of the
securities sold by the Portfolio will decline below the price the
Portfolio is obligated to pay to repurchase the securities, and that the
securities may not be returned to the Portfolio.
DERIVATIVES. The Portfolio may purchase certain "derivative" instruments. A
derivative is a financial instrument whose value is derived from -- or based
upon -- the performance of underlying assets, interest rates, or indices.
Derivatives include structured debt obligations such as asset-backed securities,
"stripped" securities and various floating rate instruments.
INVESTMENT STRATEGY. The Portfolio will invest in derivatives only if the
potential risks and rewards are consistent with the Portfolio's
objective, strategies and overall risk profile.
SPECIAL RISKS. Engaging in derivative transactions involves special
risks, including (a) market risk that the Portfolio's derivatives
position will lose value; (b) credit risk that the counterparty to the
transaction will default; (c) leveraging risk that the value of the
derivative instrument will decline more than the value of the assets on
which it is based; (d) illiquidity risk that the Portfolio will be unable
to sell its position because of lack of market depth or disruption; (e)
pricing risk that the value of a derivative instrument will be difficult
to determine; and (f) operations risk that loss will occur as a result of
inadequate systems or human error. Many types of derivatives have been
recently developed and have not been tested over complete market cycles.
For these reasons, the Portfolio may suffer a loss whether or not the
analysis of the investment management team is accurate.
DOWNGRADED SECURITIES. After its purchase, the portfolio security may be
assigned a lower rating or cease to be rated. If this occurs, the Portfolio may
continue to hold the issue if the Investment Adviser believes it is in the best
interest of the Portfolio and its shareholders.
ILLIQUID OR RESTRICTED SECURITIES. Illiquid securities include certain variable
amount master demand notes that cannot be called within seven days and other
securities that are traded in the U.S. but are subject to trading restrictions
because they are not registered under the Securities Act of 1933, as amended
(the "1933 Act").
INVESTMENT STRATEGY. The Portfolio may invest up to 10% of its net assets
in securities that are illiquid. A domestically traded security which is
not registered under the 1933 Act will not be considered illiquid if the
Investment Adviser determines that an adequate trading market exists for
that security. If otherwise consistent with its investment objective and
policies, the Portfolio 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 the Investment Adviser determines,
under guidelines approved by the Trust's Board of Trustees, that an
adequate trading market exists.
SPECIAL RISKS. Because illiquid and restricted securities may be
difficult to sell at an acceptable price, they may be subject to greater
volatility and may result in a loss to the Portfolio. The practice of
investing in Rule 144A Securities could increase the level of the
Portfolio's illiquidity during any period that qualified institutional
buyers become uninterested in purchasing these securities.
INVESTMENT COMPANIES. In connection with the management of its daily cash
positions, the Portfolio may invest in shares of other money market funds which
invest in short-term, high quality debt securities and securities issued by
other investment companies consistent with its investment objectives and
policies.
INVESTMENT STRATEGY. Investments by the Portfolio in other money market
funds will be subject to the limitations of the Investment Company Act of
1940. Although the Portfolio does not expect to do so in the foreseeable
future, the Portfolio is authorized to invest substantially all of its
assets in an open-end investment company that has the same investment
objective, policies and fundamental restrictions as the Portfolio.
SPECIAL RISKS. As a shareholder of another investment company, the
Portfolio would be subject to the same risks as any other investor in
that company. It would also bear a proportionate share of any fees or
expenses paid by that company. These expenses would be in addition to the
advisory fees and other expenses the Portfolio bears directly in
connection with its own operations.
MUNICIPAL AND RELATED INSTRUMENTS. Municipal instruments 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 include both "general" and "revenue" bonds and may be
issued to obtain funds for various public purposes. General obligations are
secured by the issuer's pledge of its full faith, credit and taxing power.
Revenue obligations are payable only from the revenues derived from a particular
facility or class of facilities. In some cases, revenue bonds are also payable
from the proceeds of a special excise or other specific revenue source such as
lease payments from the user of a facility being financed. Some municipal
instruments, known as private activity bonds, are issued to finance projects for
private companies. Private activity bonds are usually revenue obligations since
they are typically payable by the private user of the facilities financed by the
bonds.
Municipal instruments also include "moral obligation" bonds, municipal leases,
certificates of participation and custodial receipts. Moral obligation bonds are
supported by a moral commitment but not a legal obligation of a state or
municipality. Municipal leases and participation certificates present the risk
that the state or municipality involved will not appropriate the monies to meet
scheduled payments on an annual basis. Custodial receipts represent interests in
municipal instruments held by a trustee.
The Portfolio may acquire "stand-by commitments" relating to the municipal
instruments it holds. Under a stand-by commitment, a dealer agrees to purchase,
at the Portfolio's option, specified municipal instruments at a specified price.
A stand-by commitment may increase the cost, and thereby reduce the yield, of
the municipal instruments to which the commitment relates. The Portfolio will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights for trading purposes.
INVESTMENT STRATEGY. Although it is not the Portfolio's current
policy to do so on a regular basis, in connection with its
investments in municipal instruments, the Portfolio may invest more
than 25% of its total assets in municipal instruments the interest
upon which is paid solely by governmental issuers from revenues of
similar projects. However, 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 to be paid are in the same
industry.
SPECIAL RISKS. Municipal instruments purchased by the Portfolio
may be backed by letters of credit, insurance or other forms of
credit enhancement issued by foreign (as well as domestic) banks,
insurance companies and other financial institutions. If the credit
quality of these banks, insurance companies and financial
institutions declines, the Portfolio could suffer a loss to the
extent that the Portfolio is relying upon this credit support.
Foreign institutions can present special risks relating to higher
transaction and custody costs, the imposition of additional taxes by
foreign governments, less complete financial information, less market
liquidity, more market volatility and political instability. Foreign
banks, insurance companies and financial institutions may be subject
to less stringent reserve requirements, and to different accounting,
auditing and recordkeeping requirements than U.S banks.
In addition, when a substantial portion 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 instrument
would likewise affect the related instrument.
SECURITIES LENDING. In order to generate additional income, the Portfolio may
lend securities on a short-term basis to banks, brokers and dealers or other
qualified institutions. In exchange, the Portfolio will receive collateral equal
to at least 100% of the value of the securities loaned.
INVESTMENT STRATEGY. Securities lending may represent no more than
one-third the value of the Portfolio's total assets (including the loan
collateral). Any cash collateral received by the Portfolio in connection
with these loans may be invested in U.S. government securities and other
liquid high-grade debt obligations.
SPECIAL RISKS. The main risk when lending portfolio securities is that
the borrower might become insolvent or refuse to honor its obligation to
return the securities. In this event, the Portfolio could experience
delays in recovering its securities and may possibly incur a capital
loss. In addition, the Portfolio may incur a loss in reinvesting the cash
collateral it receives.
STRIPPED OBLIGATIONS. These securities are issued by governmental entities,
banks and other financial institutions. They entitle the holder to receive
either interest payments or principal payments that have been "stripped" from a
debt obligation.
INVESTMENT STRATEGY. To the extent consistent with its investment
objective, the Portfolio may purchase stripped securities. SPECIAL RISKS.
Stripped securities are very sensitive to interest rate changes and to
the rate of principal prepayments. A rapid or unexpected increase in
prepayments could depress the price of certain stripped securities and
adversely affect the Portfolio's total return.
TAXABLE INVESTMENTS. Taxable investments include U.S. dollar-denominated
obligations of U.S. banks, foreign commercial banks and securities issued or
guaranteed by foreign governments; high quality commercial paper and other
obligations; high quality corporate bonds and notes; asset-backed securities;
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities and related custodial receipts; and repurchase agreements
relating to the above instruments.
INVESTMENT STRATEGY. The Portfolio may invest from time
to time, on a temporary basis or for temporary defensive
purposes, in short-term taxable instruments that are
"Eligible Securities" as defined by the SEC for money
market funds.
SPECIAL RISKS. Dividends paid by the Portfolio that are
derived from interest paid on taxable investments will
generally be taxable to the Portfolio's shareholders as
ordinary income for Federal income tax purposes. The
Portfolio may not achieve its investment objective when
its assets are invested in taxable obligations.
VARIABLE AND FLOATING RATE INSTRUMENTS. Variable and floating rate instruments
have interest rates that are periodically adjusted either at set intervals or
that float at a margin above a generally recognized index rate. These
instruments include 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 a
specified date.
<PAGE>
INVESTMENT STRATEGY. The Portfolio may invest in rated and unrated
variable and floating rate instruments to the extent consistent
with its investment objective. Unrated instruments may be purchased
by the Portfolio if they are determined by the Investment Adviser
to be of comparable quality to rated instruments eligible for
purchase by the Portfolio.
SPECIAL RISKS. Because there is no active secondary market for
certain variable and floating rate instruments, they may be more
difficult to sell if the issuer defaults on its payment obligations
or during periods when the Portfolio is not entitled to exercise
its demand rights.
WHEN-ISSUED SECURITIES, DELAYED DELIVERY TRANSACTIONS AND FORWARD COMMITMENTS. A
purchase of "when-issued" securities refers to a transaction made conditionally
because the securities, although authorized, have not yet been issued. A delayed
delivery or forward commitment transaction involves a contract to purchase or
sell securities for a fixed price at a future date beyond the customary
settlement period.
INVESTMENT STRATEGY. The Portfolio may purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis. Although the
Portfolio would generally purchase securities in these transactions with
the intention of acquiring the securities, the Portfolio may dispose of
such securities prior to settlement if the investment management team
deems it appropriate to do so.
SPECIAL RISKS. Purchasing securities on a when-issued, delayed delivery
or forward commitment basis involves the risk that the securities may
decrease in value by the time they are actually issued or delivered.
Conversely, selling securities in these transactions involves the risk
that the value of the securities may increase before the time they are
actually issued or delivered. These transactions also involve the risk
that the seller may fail to deliver the security or cash on the
settlement date.
<PAGE>
For More Information
ANNUAL/
SEMIANNUAL
REPORT
Additional information about the Portfolio's investments will be available in
the Portfolio's annual and semiannual reports to shareholders.
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Portfolio and its policies is also available in
the Portfolio's Statement of Additional Information ("SAI"). The SAI is
incorporated by reference into this Prospectus (is legally considered part of
this Prospectus).
The Portfolio's annual and semiannual reports (when they become available) and
the SAI are available free upon request by calling 1-800-637-1380.
To obtain other information and for shareholder inquiries:
By telephone -- Call 1-800-637-1380
By mail -- Northern Institutional Funds
P.O. Box 75943
Chicago, IL 60675
On the Internet -- Text-only versions of the Portfolio's documents are available
on the SEC's website at http://www.sec.gov.
You may review and obtain copies of Trust documents by visiting the SEC's Public
Reference Room in Washington, D.C. You may also obtain copies of Trust documents
by sending your request and a duplicating fee to the SEC's Public Reference
Section, Washington, D.C. 20549-6009. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Northern
Institutional Funds
SERVICE SHARES AND PREMIER SHARES PROSPECTUS
811-3605
<PAGE>
INVESTMENT ADVISER
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
TRANSFER AGENT
AND CUSTODIAN
The Northern Trust Company
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
SERVICE SHARES
PREMIER SHARES
NORTHERN INSTITUTIONAL FUNDS
MUNICIPAL PORTFOLIO
This Statement of Additional Information dated October 20 (the
"Additional Statement") is not a prospectus. Copies of the prospectus dated
October 20, 1999 for the Service Shares and Premier Shares of the Municipal
Portfolio (the "Portfolio") of Northern Institutional Funds (the "Prospectus")
may be obtained without charge by calling 1-800-637-1380 (toll-free). The
Portfolio also offers one additional share class, Shares, which is described in
a separate statement of additional information. Capitalized terms not otherwise
defined have the same meaning as in the Prospectus.
<PAGE>
INDEX
Page
ADDITIONAL INVESTMENT INFORMATION.........................................
Classification and History...................................
Investment Objective, Strategies and Risks...................
Investment Restrictions......................................
ADDITIONAL TRUST INFORMATION..............................................
Trustees and Officers........................................
Investment Adviser, Transfer Agent and Custodian.............
Portfolio Transactions.......................................
Co-Administrators and Distributor............................
Counsel and Auditors.........................................
In-Kind Purchases and Redemptions............................
Third-Party Fees and Requirements............................
PERFORMANCE INFORMATION...................................................
AMORTIZED COST VALUATION..................................................
DESCRIPTION OF SERVICE
SHARES AND PREMIER SHARES.................................................
ADDITIONAL INFORMATION CONCERNING TAXES...................................
General......................................................
Foreign Investors............................................
Conclusion...................................................
SERVICE PLAN..............................................................
OTHER INFORMATION.........................................................
APPENDIX A................................................................
No person has been authorized to give any information or to make any
representations not contained in this Additional Statement or in the Prospectus
in connection with the offering of Service Shares and Premier Shares made by the
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Trust or its distributor. The
Prospectus does not constitute an offering by the Trust or by the distributor in
any jurisdiction in which such offering may not lawfully be made.
An investment in the Portfolio is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Portfolio.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
Classification and History
Northern Institutional Funds (the "Trust") is an open-end, management
investment company. The Portfolio is classified as diversified under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Portfolio is a series of the Trust, which was formed as a Delaware
business trust on July 1, 1997 under an Agreement and Declaration of Trust (the
"Trust Agreement"). The Trust is the result of a reorganization of a
Massachusetts business trust known as The Benchmark Funds on March 31, 1998. The
Trust's name was changed from The Benchmark Funds to the Northern Institutional
Funds on July 15, 1998. The Trust also offers six fixed income, four money
market, one balanced, and seven equity portfolios, which are not described in
this document.
Investment Objective, Strategies and Risks
The following supplements the investment objective, strategies and
risks of the Portfolio as set forth in the Prospectus. Except as expressly noted
below, the Portfolio's investment objective and policies may be changed without
shareholder approval.
Commercial Paper, Bankers' Acceptances, Certificates of Deposit and Time
Deposits
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by banks or bank holding companies, corporations and
finance companies. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers' acceptances are negotiable drafts or bills
of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties that vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party. Bank notes and bankers'
acceptances rank junior to deposit liabilities of the bank and pari passu with
other senior, unsecured obligations of the bank. Bank notes are classified as
"other borrowings" on a bank's balance sheet, while deposit notes and
certificates of deposit are classified as deposits. Bank notes are not insured
by the Federal Deposit Insurance Corporation or any other insurer. Deposit notes
are insured by the Federal Deposit Insurance Corporation only to the extent of
$100,000 per depositor per bank.
The Portfolio may invest a portion of its assets in the obligations of
foreign banks and foreign branches of domestic banks. Such obligations include
Eurodollar Certificates of Deposit ("ECDs") which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Eurodollar Time Deposits ("ETDs"), which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs"), which are essentially the same as ETDs
except they are issued by Canadian offices of major Canadian banks; Schedule Bs,
which are obligations issued by Canadian branches of foreign or domestic banks;
Yankee Certificates of Deposit ("Yankee CDs") which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in
the United States; and Yankee Bankers' Acceptances ("Yankee BAs"), which are
U.S. dollar-denominated bankers' acceptances issued by a U.S. branch of a
foreign bank and held in the United States.
Zero Coupon
To the extent consistent with its investment objective, the Portfolio
may invest in zero coupon bonds. Zero coupon bonds are debt securities issued or
sold at a discount from their face value and which do not entitle the holder to
any periodic payment of interest prior to maturity or a specified date. The
original issue discount varies depending on the time remaining until maturity or
cash payment date, prevailing interest rates, the liquidity of the security and
perceived credit quality of the issuer. These securities also may take the form
of debt securities that have been stripped of their unmatured interest coupons,
the coupons themselves or receipts or certificates representing interests in
such stripped debt obligations or coupons. The market prices of zero coupon
bonds generally are more volatile than the market prices of interest bearing
securities and are likely to respond to a greater degree of changes in interest
rates than interest bearing securities having similar maturities and credit
quality.
Zero coupon bonds involve the additional risk that, unlike securities
that periodically pay interest to maturity, the Portfolio will realize no cash
until a specified future payment date unless a portion of such securities is
sold and, if the issuer of such securities defaults, the Portfolio may obtain no
return at all on its investment. In addition, even though such securities do no
provide for the payment of current interest in cash, the Portfolio is
nonetheless required to accrue income on such investment for each taxable year
and generally is required to distribute such accrued amounts (net of deductible
expenses, if any) to avoid being subject to tax. Because no cash is generally
received at the time of the accrual, the Portfolio may be required to liquidate
other portfolio securities to obtain sufficient cash to satisfy Federal tax
distribution requirements applicable to the Portfolio.
U.S. Government Obligations
Examples of the types of U.S. Government obligations that may be
acquired by the Portfolio include U.S. Treasury Bills, Treasury Notes and
Treasury Bonds and the obligations of Federal Home Loan Banks, Federal Farm
Credit Banks, Federal Land Banks, the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, Federal National Mortgage Association ("FNMA"), Government
National Mortgage Association ("GNMA"), General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
Intermediate Credit Banks, and the Maritime Administration.
.........Securities guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities are also 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 any agency or
instrumentality thereof, and (b) participations in loans made to foreign
governments or their agencies that are so guaranteed.
.........To the extent consistent with its investment objective, the Portfolio
may invest in a variety of U.S. Treasury obligations and obligations issued by
or guaranteed by the U.S. Government or its agencies and instrumentalities. Not
all U.S. Government obligations carry the same credit support. 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. In addition, the secondary market for certain participations in loans
made to foreign governments or their agencies may be limited.
Asset-Backed Securities
To the extent described in the Prospectus, the Portfolio may purchase
asset-backed securities, which are securities backed by mortgages, installment
contracts, credit card receivables or other assets. Asset-backed securities
represent interests in "pools" of assets in which payments of both interest and
principal on the securities are made periodically, thus in effect "passing
through" such payments made by the individual borrowers on the assets that
underlie the securities, net of any fees paid to the issuer or guarantor of the
securities. The average life of asset-backed securities varies with the
maturities of the underlying instruments, and the average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgage pools underlying the securities as a
result of mortgage prepayments. For this and other reasons, an asset-backed
security's stated maturity may be shortened, and the security's total return may
be difficult to predict precisely.
If an asset-backed security is purchased at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if an asset-backed security is
purchased at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore, prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments.
Asset-backed securities acquired by the Portfolio may include
collateralized mortgage obligations ("CMOs") issued by private companies. CMOs
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
ordinarily elect to be taxed as pass-through entities known as real estate
mortgage investment conduits ("REMICs"). CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. The relative payment rights of the various CMO classes may be structured
in a variety of ways. The Portfolio will not purchase "residual" CMO interests,
which normally exhibit greater price volatility.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by the GNMA include GNMA Mortgage Pass-Through Certificates (also known as
"Ginnie Maes"), which are guaranteed as to the timely payment of principal and
interest by GNMA and backed by the full faith and credit of the United States.
GNMA is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-backed securities issued by FNMA include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes"), which are
solely the obligations of FNMA and are not backed by or entitled to full faith
and credit of the United States, but are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-related securities
issued by the FHLMC include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of the
United States, created pursuant to an Act of Congress, which is owned entirely
by Federal Home Loan Banks. Freddie Macs are not guaranteed and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the underlying collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and Federal consumer credit laws, many of which
have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
Supranational Bank Obligations
The Portfolio may invest in obligations of supranational banks.
Supranational banks are international banking institutions designed or supported
by national governments to promote economic reconstruction, development or trade
among nations (e.g., the International Bank for Reconstruction and Development).
Obligations of supranational banks may be supported by appropriated but unpaid
commitments of their member countries and there is no assurance that these
commitments will be undertaken or met in the future.
Custodial Receipts for Treasury Securities
The Portfolio may acquire U.S. Government obligations and their
unmatured interest coupons that have been separated ("stripped") by their
holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRs") and "Certificate of Accrual on Treasury
Securities" ("CATS"). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. The underlying
U.S. Treasury bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered
securities which are ostensibly owned by the bearer or holder), in trust on
behalf of the owners. Counsel to the underwriters of these certificates or other
evidences of ownership of U.S. Treasury securities have state that, in their
opinion, purchasers of the stripped securities most likely will be deemed the
beneficial holders of the underlying U.S. Government obligations for Federal tax
purposes. The Trust is unaware of any binding legislative, judicial or
administrative authority on this issue.
U.S. Treasury STRIPS
The Treasury Department has facilitated transfers of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and principal payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." The
Portfolio may purchase securities registered in the STRIPS program. Under the
STRIPS program, the Portfolio will be able to have its beneficial ownership of
zero coupon securities recorded directly in the book-entry record-keeping system
in lieu of having to hold certificates or other evidences of ownership of the
underlying U.S. Treasury securities. The Portfolio may acquire securities
registered under the STRIPS program.
Variable and Floating Rate Instruments
With respect to the variable and floating rate instruments that may be
acquired by the Portfolio as described in the Prospectus, the Investment Adviser
will consider the earning power, cash flows and other liquidity ratios of the
issuers and guarantors of such instruments and, if the instruments are subject
to demand features, will monitor their financial status and ability to meet
payment on demand. In determining weighted average portfolio maturity, an
instrument may, subject to the Securities and Exchange Commission (the "SEC")
regulations, be deemed to have a maturity shorter than its nominal maturity
based on the period remaining until the next interest rate adjustment or the
time the Portfolio can recover payment of principal as specified in the
instrument. Where necessary to ensure that a variable or floating rate
instrument is of the minimum required credit quality, the issuer's obligation to
pay the principal of the instrument will be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend.
Variable and floating rate instruments eligible for purchase by the Portfolio
include variable amount master demand notes, which permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate.
Variable and floating rate instruments held by the Portfolio will be
subject to the Portfolio's 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
With respect to the investments of the Portfolio in the securities of
other investment companies, such investments will be limited so that, as
determined after a purchase is made, either (a) not more than 3% of the total
outstanding stock of such investment company will be owned by the Portfolio, the
Trust as a whole and their affiliated persons (as defined in the 1940 Act) or
(b) (i) not more than 5% of the value of the total assets of the Portfolio will
be invested in the securities of any one investment company; (ii) not more than
10% of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Portfolio.
Certain investment companies whose securities are purchased by the
Portfolio may not be obligated to redeem such securities in an amount exceeding
1% of the investment company's total outstanding securities during any period of
less than 30 days. Therefore, such securities that exceed this amount may be
illiquid. Notwithstanding the foregoing, the Portfolio may adhere to more
restrictive limitations with respect to its investments in securities issued by
other investment companies if required by the SEC or deemed to be in the best
interests of Investment Adviser. If required by the 1940 Act, the Portfolio
expects to vote the shares of other investment companies that are held by it in
the same proportion as the vote of all other holders of such securities.
Yields and Ratings
The yields on certain obligations, including the money market
instruments in which the Portfolio invests, are dependent on a variety of
factors, including general economic conditions, conditions in the particular
market for the obligation, financial condition of the issuer, size of the
offering, maturity of the obligation and ratings of the issue. The ratings of
Standard & Poor's Ratings Group, Inc. ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Credit Rating Co. ("Duff"), Fitch IBCA, Inc.
("Fitch") and Thomson BankWatch, Inc. represent their respective opinions as to
the quality of the obligations they undertake to rate. Ratings, however, are
general and are not absolute standards of quality. Consequently, obligations
with the same rating, maturity and interest rate may have different market
prices. For a more complete discussion of ratings, see Appendix A to this
Additional Statement.
Subject to the limitations stated in the Prospectus, if a security held
by the Portfolio undergoes a rating revision, the Portfolio may continue to hold
the security if the Investment Adviser determine such retention is warranted.
Repurchase Agreements
The Portfolio may agree to purchase portfolio securities from financial
institutions subject to the seller's agreement to repurchase them a mutually
agreed upon date and price ("repurchase agreements"). Repurchase agreements are
considered to be loans under the 1940 Act. Although the securities subject to a
repurchase agreement may bear maturities exceeding one year, settlement for the
repurchase agreement will never be more than one year after the Portfolio's
acquisition of the securities and normally will be within a shorter period of
time. Securities subject to repurchase agreements are held either by the Trust's
custodian or subcustodian (if any), or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
maintain the value of the securities subject to the agreement in an amount
exceeding the repurchase price (including accrued interest). Default by the
seller would, however, expose the Portfolio to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.
Reverse Repurchase Agreements
The Portfolio may borrow funds by selling portfolio securities to
financial institutions such as banks and broker/dealers and agreeing to
repurchase them at a mutually specified date and price ("reverse repurchase
agreements"). The Portfolio may use the proceeds of reverse repurchase
agreements to purchase other securities either maturing, or under an agreement
to resell, at a date simultaneous with or prior to the expiration of the reverse
repurchase agreement. Reverse repurchase agreements are considered to be
borrowing under the 1940 Act. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the repurchase price. The Portfolio will pay interest on amounts obtained
pursuant to a reverse repurchase agreement. While reverse repurchase agreements
are outstanding, the Portfolio will segregate liquid assets in an amount at
least equal to the market value of the securities, plus accrued interest,
subject to the agreement.
Securities Lending
Collateral for loans of portfolio securities made by the Portfolio may
consist of cash, cash equivalents, securities issued or guaranteed by the U.S.
Government or its agencies or irrevocable bank letters of credit (or any
combination thereof). The borrower of securities will be required to maintain
the market value of the collateral at not less than the market value of the
loaned securities, and such value will be monitored on a daily basis. When the
Portfolio lends its securities, it continues to receive dividends and interest
on the securities loaned and may simultaneously earn interest on the investment
of the cash collateral. Although voting rights, or rights to consent, attendant
to securities on loan pass to the borrower, such loans will be called so that
the securities may be voted by the Portfolio if a material event affecting the
investment is to occur.
Forward Commitments, When-Issued Securities and Delayed-Delivery Transactions
The Portfolio may purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment (sometimes called delayed
delivery) basis. These transactions involve a commitment by the Portfolio to
purchase or sell securities at a future date. The price of the underlying
securities (usually expressed in terms of yield) and the date when the
securities will be delivered and paid for (the settlement date) are fixed at the
time the transaction is negotiated. When-issued purchases and forward commitment
transactions are normally negotiated directly with the other party.
The Portfolio will purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, the
Portfolio may dispose of or negotiate a commitment after entering into it. The
Portfolio also may sell securities it has committed to purchase before those
securities are delivered to the Portfolio on the settlement date. The Portfolio
may realize a capital gain or loss in connection with these transactions.
When the Portfolio purchases securities on a when-issued or forward
commitment basis, the Portfolio will segregate liquid assets having a value
(determined daily) at least equal to the amount of the Portfolio's purchase
commitments until three days prior to the settlement date, or otherwise cover
its position. These procedures are designed to ensure that the Portfolio will
maintain sufficient assets at all times to cover its obligations under
when-issued purchases, forward commitments and delayed-delivery transactions.
For purposes of determining the Portfolio's average dollar-weighted maturity,
the maturity of when-issued or forward commitment securities will be calculated
from the commitment date.
Municipal Instruments
Opinions relating to the validity of municipal instruments and to
Federal and state tax issues relating to these securities are rendered by
counsel to the respective issuing authorities at the time of issuance. Such
opinions may contain various assumptions, qualifications or exceptions that are
reasonably acceptable to Investment Adviser. Neither Trust nor the Investment
Adviser will review the proceedings relating to the issuance of municipal
instruments or the bases for such opinions.
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 tax or
other specific revenue source such as lease revenue 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 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 (if such a fund has been established),
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Within the principal classifications of municipal instruments described
above there are a variety of categories, including municipal bonds, municipal
notes, municipal leases, custodial receipts and participation certificates.
Municipal notes include tax, revenue and bond anticipation notes of short
maturity, generally less than three years, which are issued to obtain temporary
funds for various public purposes. Municipal leases and participation
certificates are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities.
Participation certificates may represent participation in a lease, an
installment purchase contract, or a conditional sales contract. Certain
municipal lease obligations (and related participation certificates) may include
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in futures years
unless money is appropriated for such purpose on a yearly basis. Custodial
receipts are underwritten by securities dealers or banks and evidence ownership
of future interest payments, principal payments or both on certain municipal
securities. Municipal leases (and participations in such leases) present the
risk that a municipality will not appropriate funds for the lease payments. The
Investment Adviser, under the supervision of the Trust's Board of Trustees, will
determine the credit quality of any unrated municipal leases on an ongoing
basis, including an assessment of the likelihood that the leases will not be
cancelled.
An issuer's obligations under its municipal instruments are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its municipal instruments may be materially
adversely affected by litigation or other conditions.
From time to time proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal instruments. For example, under the Tax Reform Act of 1986
interest on certain private activity bonds must be included in an investor's
Federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their Federal alternative minimum taxable income. The
Trust cannot predict what legislation, if any, may be proposed in the future in
Congress as regards the Federal income tax status of interest on municipal
instruments or which proposals, if any, might be enacted. Such proposals, if
enacted, might materially and adversely affect the availability of municipal
instruments for investment by the Portfolio and its liquidity and value. In such
an event the Board of Trustees would reevaluate the Portfolio's investment
objective and policies and consider changes in their structure or possible
dissolution.
Certain of the municipal instruments held by the Portfolio may be
insured as to the timely payment of principal and interest. The insurance
policies will usually be obtained by the issuer of the Municipal Instrument at
the time of its original issuance. In the event that the issuer defaults on an
interest or principal payment, the insurer will be notified and will be required
to make payment to the bondholders. There is, however, no guarantee that the
insurer will meet its obligations. In addition, such insurance will not protect
against market fluctuations caused by changes in interest rates and other
factors. The Portfolio may invest more than 25% of its total assets in municipal
instruments covered by insurance policies.
As described in the Prospectus, the Portfolio may invest in municipal
leases, which may be considered liquid under guidelines established by the
Trust's Board of Trustees. The guidelines will provide for determination of the
liquidity of a municipal lease obligation based on factors including the
following: (1) the frequency of trades and quotes for the obligation; (2) the
number of dealers willing to purchase or sell the security and the number of
other potential buyers; (3) the willingness of dealers to undertake to make a
market in the security; and (4) the nature of the marketplace trades, including
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of transfer. The Investment Adviser, under the supervision of the
Trust's Board of Trustees, will also consider the continued marketability of a
municipal lease obligation based upon an analysis of the general credit quality
of the municipality issuing the obligation and the essentiality to the
municipality of the property covered by the lease.
Currently, it is not the intention of the Portfolio to invest more
than 25% of the value of its total assets in municipal instruments whose issuers
are in the same state.
Standby Commitments
The Portfolio may enter into standby commitments with respect to
municipal instruments held by it. Under a standby commitment, a dealer agrees to
purchase at the Portfolio's option a specified Municipal Instrument. Standby
commitments may be exercisable by the Portfolio at any time before the maturity
of the underlying municipal instruments and may be sold, transferred or assigned
only with the instruments involved.
The Portfolio expects that standby commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, the Portfolio may pay for a standby commitment either
separately in cash or by paying a higher price for municipal instruments which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding standby commitments held by the Portfolio will not exceed
1/2 of 1% of the value of the Portfolio's total assets calculated immediately
after each standby commitment is acquired.
The Portfolio intends to enter into standby commitments only with dealers, banks
and broker-dealers which, in Investment Adviser's opinion, present minimal
credit risks. The Portfolio will acquire standby commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a standby commitment will
not affect the valuation of the underlying Municipal Instrument. The actual
standby commitment will be valued at zero in determining net asset value.
Accordingly, where the Portfolio pays directly or indirectly for a standby
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by the Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
Illiquid or Restricted Securities
The Portfolio may invest up to 10% of its net assets in securities
that are illiquid. 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
will not be considered illiquid so long as the Investment Adviser 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.
Investment Restrictions
The Portfolio is subject to the fundamental investment restrictions
enumerated below which may be changed only by a vote of the holders of a
majority of the Portfolio's outstanding shares.
The Portfolio may not:
(1) Make loans, except (a) through the purchase of debt obligations in
accordance with the Portfolio's investment objective and policies, (b)
through repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities.
(2) Mortgage, pledge or hypothecate any assets (other than pursuant to
reverse repurchase agreements) except to secure permitted borrowings.
(3) Purchase or sell real estate or securities issued by real estate
investment trusts, but this restriction shall not prevent the Portfolio
from investing directly or indirectly in portfolio instruments secured by
real estate or interests therein.
(4) Purchase or sell commodities or commodity contracts or oil or gas or
other mineral exploration or development programs.
(5) Invest in companies for the purpose of exercising control or
management.
(6) Act as underwriter of securities (except as the Portfolio may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the purchase and sale of portfolio instruments in
accordance with its investment objective and portfolio management
policies), purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for
the clearance of transactions), make short sales of securities or
maintain a short position, or write puts, calls or combinations thereof.
(7) Make any investment inconsistent with the Portfolio's classification
as a diversified investment company under the 1940 Act.
(8) Purchase securities if such purchase would cause more than 25% in the
aggregate of the market value of the total assets of the Portfolio to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no
limitation with respect to, and the Portfolio reserves freedom of action,
when otherwise consistent with its investment policies, to concentrate
its investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, obligations (other than
commercial paper) issued or guaranteed by U.S. banks and U.S. branches of
foreign banks and repurchase agreements and securities loans
collateralized by such U.S. Government obligations or such bank
obligations. For the purposes of this restriction, state and municipal
governments and their agencies and authorities are not deemed to be
industries; as to utility companies, the gas, electric, water and
telephone businesses are considered separate industries; personal credit
finance companies and business credit finance companies are deemed to be
separate industries; and wholly-owned finance companies are considered to
be in the industries of their parents if their activities are primarily
related to financing the activities of their parents.
(9) Borrow money (other than pursuant to reverse repurchase agreements
for the Portfolio described above), except (a) as a temporary measure,
and then only in amounts not exceeding 5% of the value of the Portfolio's
total assets or (b) from banks, provided that immediately after any such
borrowing all borrowings of the Portfolio do not exceed one-third of the
Portfolio's total assets. No purchases of securities will be made if
borrowings subject to this restriction exceed 5% of the value of the
Portfolio's assets. The exceptions in (a) and (b) to this restriction are
not for investment leverage purposes but are solely for extraordinary or
emergency purposes or to facilitate management of the Trust's Portfolio
by enabling the Trust to meet redemption requests when the liquidation of
portfolio instruments is deemed to be disadvantageous or not possible. If
due to market fluctuations or other reasons the total assets of the
Portfolio fall below 300% of its borrowings, the Trust will promptly
reduce the borrowings of such Portfolio in accordance with the 1940 Act.
(10) Notwithstanding any of the Trust's other fundamental investment
restrictions (including, without limitation, those restrictions relating
to issuer diversification, industry concentration and control), the
Portfolio may (a) purchase securities of other investment companies to
the full extent permitted under Section 12 of the 1940 Act (or any
successor provision thereto) or under any regulation or order of the
Securities and Exchange Commission; and (b) invest all or substantially
all of its assets in a single open-end investment company or series
thereof with substantially the same investment objective, policies and
fundamental restrictions as the Portfolio.
* * *
The freedom of action reserved in Restriction No. 8 with respect to
U.S. branches of foreign banks is subject to the requirement that they are
subject to the same regulation as domestic branches of U.S. banks. Obligations
of U.S. branches of foreign banks may include certificates of deposit, bank and
deposit notes, bankers' acceptances and fixed time deposits. These obligations
may be general obligations of the parent bank or may be limited to the issuing
branch. Such obligations will meet the criteria for "Eligible Securities" as
described in the Prospectus.
In addition, as a matter of fundamental policy, the Portfolio may not
enter into reverse repurchase agreements exceeding in the aggregate one-third of
its total assets.
Also, as a matter of fundamental policy, changeable only with the
approval of the holders of a majority of the outstanding shares of the
Portfolio, at least 80% of the annual gross income of the Portfolio will be
derived from debt instruments, the interest on which is, in the opinion of bond
counsel or counsel for issuers, exempt from regular Federal income tax, except
in extraordinary circumstances such as when the Investment Adviser believes that
market conditions indicate that the Portfolio should adopt a temporary defensive
posture by holding uninvested cash or investing in taxable securities. Interest
earned by the Portfolio on "private activity bonds" that is treated as an item
of tax preference under Federal alternative minimum tax will be deemed to be
exempt from regular Federal income tax for purposes of determining whether the
Portfolio meets this fundamental policy.
Securities held in escrow or separate accounts in connection with the
Portfolio's investment practices described in this Additional Statement and in
the Prospectus are not deemed to be mortgaged, pledged or hypothecated for
purposes of the foregoing Investment Restrictions.
Except to the extent otherwise provided in Investment Restriction No.
8, for the purpose of such restriction in determining industry classification
the Trust intends to use the industry classification titles in the Bloomberg
Industry Group Classifications.
In applying Restriction No. 8 above, a security is considered to be
issued by the entity, or entities, whose assets and revenues back the security.
A guarantee of a security is not deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the guarantor, and
owned by the Portfolio, does not exceed 10% of the value of the Portfolio's
total assets.
Any restriction which involves a maximum percentage will not be
considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of, or borrowings by, the Portfolio.
The Portfolio intends, as a non-fundamental policy, to diversify its
investments in accordance with current SEC regulations. Investments in the
securities of any single issuer (excluding cash, cash items, certain repurchase
agreements, U.S. Government securities and securities of other investment
companies) will be limited to not more than 5% of the value of the Portfolio's
total assets at the time of purchase, except that 25% of the value of the total
assets of the Portfolio may be invested in the securities of any one issuer for
a period of up to three Business Days. A security that has an unconditional
guarantee meeting special SEC requirements (a "Guarantee") does not need to
satisfy the foregoing issuer diversification requirements that would otherwise
apply, but the Guarantee is instead subject to the following diversification
requirements: immediately after the acquisition of the security, the Portfolio
may not have invested more than 10% of its total assets in securities issued by
or subject to Guarantees from the same person, except that the Portfolio may,
subject to certain conditions, invest up to 25% of its total assets in
securities issued or subject to Guarantees of the same person. This percentage
is 100% if the Guarantee is issued by the U.S. Government or an agency thereof.
In addition, the Portfolio will limit its investments in certain conduit
securities that are not rated in the highest short-term rating category as
determined by two nationally recognized statistical rating organizations (each
an "NRSRO") (or one NRSRO if the security is rated by only one NRSRO) or, if
unrated, are not of comparable quality to First Tier Securities ("Second Tier
Securities"), to 5% of its total assets, with investments in any one such issuer
being limited to no more than 1% of the Portfolio's total assets or $1 million,
whichever is greater, measured at the time of purchase. Conduit securities
subject to this limitation are municipal instruments that are not subject to a
Guarantee and involve an arrangement whereunder a person, other than a municipal
issuer, provides for or secures repayment of the security and are not: (i) fully
and unconditionally guaranteed by a municipal issuer; or (ii) payable from the
general revenues of the municipal issuer or other municipal issuers; or (iii)
related to a project owned and operated by a municipal issuer; or (iv) related
to a facility leased to and under the control of an industrial or commercial
enterprise that is part of a public project which, as a whole, is owned and
under the control of a municipal issuer.
In addition to the foregoing, the Portfolio is subject to additional
diversification requirements imposed by SEC regulations on the acquisition of
securities subject to other types of demand features.
ADDITIONAL TRUST INFORMATION
TRUSTEES AND OFFICERS
The business and affairs of the Trust and the Portfolio are managed
under the direction of the Trust's Board of Trustees. Information pertaining to
the Trustees and officers of the Trust is set forth below.
<PAGE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
NAME POSITION(S) PRINCIPAL OCCUPATION(S)
AND ADDRESS AGE WITH TRUST DURING PAST 5 YEARS
- ----------- --- ---------- -------------------
William H. Springer 69 Chairman Director of Walgreen Co. (a retail drug
701 Morningside Drive and store business) since April 1988; Director
Lake Forest, IL 60045 Trustee of Baker, Fentress & Co. (a closed-end,
non-diversified
management
investment
company)
from
April
1992 to
present;
Trustee
of
Goldman
Sachs
Trust (a
registered
investment
company)
from 1989
to
present.
Richard Gordon Cline 64 Trustee Chairman and Director of Hussman
4200 Commerce Court, International Inc. (commercial
refrigeration
Suite 300 company) since January 1998; Chairman of
Lisle, IL 60532 Hawthorne Inc. (a management advisory
services
and
private
investment
company)
since
January
1996;
Chairman,
President
and CEO
of NICOR
Inc. (a
diversified
public
utility
holding
company)
from 1985
to 1996;
Chairman
and
Director
of the
Federal
Reserve
Bank of
Chicago
from 1992
to 1995;
Director
of
Central
DuPage
Health
System,
Pet
Incorporated
(a
commercial
food
company),
Whitman
Corporation
(a
diversified
holding
company),
Kmart
Corporation
(a
retailing
company),
Ryerson
Tull,
Inc. (a
metals
distribution
company)
and
University
of
Illinois
Foundation.
Edward J. Condon, Jr. 58 Trustee Chairman and CEO of The Paradigm
Sears Tower, Suite 9650 Group, Ltd. (a financial adviser) since
July
233 S. Wacker Drive. 1993; within the last five years he has
Chicago, IL 60606 served as Vice Chairman and Director of
Energenics
L.L.C. (a
waste
recycling
company);
Director
of
Financial
Pacific
Company
(an
equipment
leasing
company);
Member of
the Board
of
Managers
of The
Liberty
Hampshire
Company,
LLC (a
receivable
securitization
company),
Member of
Advisory
Board of
Real-Time
U.S.A.,
Inc. (a
software
company);
Member of
the Board
of
Directors
of
University
Elder
Care,
Inc.;
Member of
the Board
of
Directors
of the
Girl
Scouts of
Chicago;
Member of
the Board
of
Trustees
of
Dominican
University.
John W. English 66 Trustee Private Investor since 1993; Vice President
50-H New England Ave. and Chief Investment Officer of The Ford
P.O. Box 640 Foundation (a charitable trust) from 1981
Summit, NJ 07902-0640 until 1993; Trustee of The China Fund,
Inc.
(a
registered
investment
company),
American
Red Cross
in
Greater
New York,
Mote
Marine
Laboratory
(a
non-profit
marine
research
facility),
State
Street's
Select
Sector
SPDR
Trust (a
registered
investment
company),
Washington
Mutual's
WM Funds
(a
registered
investment
company)
and
United
Board for
Christian
Higher
Education
in Asia.
Director
of
University
of Iowa
Foundation,
Blanton-Peale
Institutes
of
Religion
and
Health,
Community
Foundation
of
Sarasota
County,
and Duke
Management
Company
(an
investment
adviser).
<PAGE>
NAME POSITION(S) PRINCIPAL OCCUPATION(S)
AND ADDRESS AGE WITH TRUST DURING PAST 5 YEARS
- ----------- --- ---------- -------------------
Sandra Polk Guthman 55 Trustee President and CEO of Polk Bros.
420 N. Wabash Avenue Foundation (an Illinois not-for-profit
Suite 204 corporation) from 1993 to present;
Director
Chicago, IL 60611 of Business Transformation from 1992-
1993 and
Midwestern
Director
of
Marketing
from
1988-1992
for IBM
(a
technology
company);
Director
of MBIA
Insurance
Corporation
of
Illinois
(bank
holding
company)
since
1994 and
Avondale
Financial
Corporation
(a stock
savings
and loan
holding
company)
since
1995.
Frederick T. Kelsey 71 Trustee Consultant to Goldman Sachs (an
3133 Laughing Gull Court investment advisor) from December
1985 Johns Island, SC 29455 through February 1988; Director of
Goldman
Sachs
Funds
Group (a
financial
services
provider)
and Vice
President
of
Goldman
Sachs
from May
1981
until his
retirement
in
November
1985;
President
and
Treasurer
of the
Trust and
other
investment
companies
affiliated
with
Goldman
Sachs
through
August
1985;
President
from 1983
to 1985
and
Trustee
from 1983
to 1994
of The
Centerland
Funds and
its
successor,
The Pilot
Funds (a
registered
investment
company);
Trustee
of
various
management
investment
companies
affiliated
with
Zurich
Kemper
Investments
(an
investment
adviser).
Richard P. Strubel 59 Trustee Managing Director of Tandem Partners,
737 N. Michigan Avenue Inc. (a privately held management services
Suite 1405 firm) since 1990; President and CEO of
Chicago, IL 60611 Microdot, Inc. (a privately held
manufacturing
firm)
from
January
1984 to
October
1994;
Trustee
of
Goldman
Sachs
Trust (a
registered
investment
company)
from 1987
to
present;
Director
of Kaynar
Technologies
Inc. (a
leading
manufacturer
of
aircraft
fasteners)
since
March
1997;
Trustee
of the
University
of
Chicago;
Director
of
Children's
Memorial
Medical
Center.
Jylanne M. Dunne 39 President Senior Vice President for Distribution
4400 Computer Drive Services at First Data Investor Services
Westborough, MA 01581 Group, Inc. ("FDISG") (since 1988).
Richard H. Rose 43 Vice Vice President and Division Manager of
4400 Computer Drive President Mutual Fund Administration at FDISG
Westborough, MA 01581 (since 1994); Senior Vice President at The
Boston Company Advisors, Inc. (a financial
services provider) (prior thereto).
Brian R. Curran 31 Treasurer Director of Fund Administration and
4400 Computer Drive Accounting at FDISG (since 1997);
Westborough, MA 01581 Director of Fund Administration at State
Street Bank and Trust Company (February
1997 to October 1997); Senior Auditor at
Price Waterhouse L.L.P. (February 1994 to
February 1997); Manager of Fund Accounting
at State Street Bank and Trust Company
(prior thereto).
<PAGE>
NAME POSITION(S) PRINCIPAL OCCUPATION(S)
AND ADDRESS AGE WITH TRUST DURING PAST 5 YEARS
- ----------- --- ---------- -------------------
Linda J. Hoard 51 Secretary Counsel at FDISG (since 1998); Attorney
4400 Computer Drive Consultant for Fidelity Investments (an
Westborough, MA 01581 investment adviser), Investors
Bank &
Trust
Company
(a
financial
service
provider)
and FDISG
(September
1994 to
June
1998);
Vice
President
and
Assistant
General
Counsel
at MFS
Investment
Management
(an
investment
adviser)
(prior
thereto).
Teresa M.R. Hamlin 34 Assistant Counsel at FDISG (since 1994); Paralegal
4400 Computer Drive Secretary Manager at The Boston Company Advisors,
Westborough, MA 01581 Inc. (an investment adviser) (prior
thereto).
Therese Hogan 36 Assistant Director of the State Regulation Department
4400 Computer Drive Secretary at FDISG (since 1994); Senior Legal
Westborough, MA 01581 Assistant at Palmer and Dodge (a
Massachusetts law firm) (prior
thereto).
</TABLE>
None of the Trustees is an "interested person" under the 1940 Act.
Certain of the Trustees and officers and the organizations with which they are
associated have had in the past, and may have in the future, transactions with
Northern, FDISG, First Data Distributors, Inc. ("FDDI" and collectively with
FDISG, "First Data") and their respective affiliates. The Trust has been advised
by such Trustees and officers that all such transactions have been and are
expected to be in the ordinary course of business and the terms of such
transactions, including all loans and loan commitments by such persons, have
been and are expected to be substantially the same as the prevailing terms for
comparable transactions for other customers. As a result of the responsibilities
assumed by Northern under its Advisory Agreement, Transfer Agency Agreement,
Custodian Agreement, and Co-Administration Agreement with the Trust, by FDISG
under its Co-Administration Agreement with the Trust and by FDDI under its
Distribution Agreement with the Trust, the Trust itself requires no employees.
Each officer holds comparable positions with certain other investment
companies of which First Data or an affiliate thereof is the investment adviser,
administrator and/or distributor.
Each Trustee earns a quarterly retainer of $6,750 and the Chairman of
the Board earns a quarterly retainer of $10,125. Each Trustee, including the
Chairman of the Board, earns an additional fee of $2,500 for each meeting
attended, plus reimbursement of expenses incurred as a Trustee.
In addition, the Trustees established an Audit Committee consisting of
three members including a Chairman of the Committee. The Audit Committee members
are Messrs. Condon, Kelsey and Strubel (Chairman). Each member earns a fee of
$2,500 for each meeting attended and the Chairman earns a quarterly retainer of
$1,500.
Each Trustee will hold office for an indefinite term until the earliest
of (1) the next meeting of shareholders, if any, called for the purpose of
considering the election or re-election of such Trustee and until the election
and qualification of his or her successor, if any, elected at such meeting; (2)
the date a Trustee resigns or retires, or a Trustee is removed by the Board of
Trustees or shareholders, in accordance with the Trust's Agreement and
Declaration of Trust, or (3) in accordance with the current resolutions of the
Board of Trustees (which may be changed without shareholder vote), on the last
day of the fiscal year of the Trust in which he or she attains the age of 72
years.
The Trust's officers do not receive fees from the Trust for services in
such capacities, although FDISG, of which they are also officers, receives fees
from the Trust for administrative services.
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended November
30, 1998:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
Aggregate Pension or Retirement Total Compensation From
Compensation Benefits Accrued as a Part of Trust Paid
Name of Trustee from the Trust Trust's Expenses to Trustees
William H. Springer $46,750 N/A $46,750
Richard G. Cline $34,000 N/A $34,000
Edward J. Condon, Jr. $37,000 N/A $37,000
John W. English $32,500 N/A $32,500
Sandra Polk Guthman $34,000 N/A $34,000
Frederick T. Kelsey $37,000 N/A $37,000
Richard P. Strubel $42,250 N/A $42,250
</TABLE>
Investment Adviser, Transfer Agent and Custodian
Northern, a wholly-owned subsidiary of Northern Trust Corporation, a bank
holding company, is one of the nation's leading providers of trust and
investment management services. As of September 30, 1999, Northern and its
affiliates had over $___ billion in assets under management for clients
including public and private retirement funds, endowments, foundations, trusts,
corporations, and individuals. Northern is one of the strongest banking
organizations in the United States. Northern believes it has built its
organization by serving clients with integrity, a commitment to quality, and
personal attention. Its stated mission with respect to all its financial
products and services is to achieve unrivaled client satisfaction. With respect
to such clients, the Trust is designed to assist (i) defined contribution plan
sponsors and their employees by offering a range of diverse investment options
to help comply with 404(c) regulation and may also provide educational material
to their employees, (ii) employers who provide post-retirement Employees'
Beneficiary Associations ("VEBA") and require investments that respond to the
impact of Federal regulations, (iii) insurance companies with the day-to-day
management of uninvested cash balances as well as with longer-term investment
needs, and (iv) charitable and not-for-profit organizations, such as endowments
and foundations, demanding investment management solutions that balance the
requirement for sufficient current income to meet operating expenses and the
need for capital appreciation to meet future investment objectives.
Northern employs a team approach to the investment management of the
Portfolio, relying upon investment professionals under the leadership of James
M. Snyder, Chief Investment Officer and Executive Vice President of Northern.
Under its Advisory Agreement with the Trust, Northern, subject to the
general supervision of the Trust's Board of Trustees, is responsible for making
investment decisions for the Portfolio and placing purchase and sale orders for
the portfolio transactions of the Portfolio. In connection with portfolio
transactions for the Portfolio, which are generally done at a net price without
a broker's commission, Northern's Advisory Agreement provides that Northern
shall attempt to obtain the best net price and execution.
Northern's investment advisory duties for the Trust are carried out
through its Trust Department. On occasions when Northern deems the purchase or
sale of a security to be in the best interests of the Portfolio as well as other
fiduciary or agency accounts managed by it (including any other portfolio,
investment company or account for which Northern acts as adviser), the
Investment Advisory Agreement provides that Northern, to the extent permitted by
applicable laws and regulations, may aggregate the securities to be sold or
purchased for the Portfolio with those to be sold or purchased for such other
accounts in order to obtain best net price and execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by Northern in the manner it considers
to be most equitable and consistent with its fiduciary obligations to the
Portfolio and other accounts involved. In some instances, this procedure may
adversely affect the size of the position obtainable for the Portfolio or the
amount of the securities that are able to be sold for the Portfolio. To the
extent that the execution and price available from more than one broker or
dealer are believed to be comparable, the Investment Advisory Agreement permits
Northern, at its discretion but subject to applicable law, to select the
executing broker or dealer on the basis of Northern's opinion of the reliability
and quality of such broker or dealer.
The Advisory Agreement provides that Northern may render similar
services to others so long as its services under such Agreement are not impaired
thereby. The Advisory Agreement also provides that the Trust will indemnify
Northern against certain liabilities (including liabilities under the Federal
securities laws relating to untrue statements or omissions of material fact and
actions that are in accordance with the terms of the Agreement) or, in lieu
thereof, contribute to resulting losses.
Under its Transfer Agency Agreement with the Trust, Northern has
undertaken to (1) answer customer inquiries regarding the current yield of, and
certain other matters (e.g. account status information) pertaining to, the
Trust, (2) process purchase and redemption transactions, including transactions
generated by any service provided outside of the Agreement by Northern, its
affiliates or correspondent banks whereby customer account cash balances are
automatically invested in shares of the Portfolio, and the disbursement of the
proceeds of redemptions, (3) establish and maintain separate omnibus accounts
with respect to shareholders investing through Northern or any of its affiliates
and correspondent banks and act as transfer agent and perform sub-accounting
services with respect to each such account, (4) provide periodic statements
showing account balances, (5) mail reports and proxy materials to shareholders,
(6) provide information in connection with the preparation by the Trust of
various regulatory reports and prepare reports to the Trustees and management,
(7) answer inquiries (including requests for prospectuses and statements of
additional information, and assistance in the completion of new account
applications) from investors and respond to all requests for information
regarding the Trust (such as current price, recent performance, and yield data)
and questions relating to accounts of investors (such as possible errors in
statements, and transactions), (8) respond to and seek to resolve all complaints
of investors with respect to the Trust or their accounts, (9) furnish proxy
statements and proxies, annual and semi-annual financial statements, and
dividend, distribution and tax notices to investors, (10) furnish the Trust all
pertinent Blue Sky information, (11) perform all required tax withholding, (12)
preserve records, and (13) furnish necessary office space, facilities and
personnel. Northern may appoint one or more sub- transfer agents in the
performance of its services.
As compensation for the services rendered by Northern under the
Transfer Agency Agreement with respect to Service Shares and Premier Shares
described in this Additional Statement and the assumption by Northern of related
expenses, Northern is entitled to a fee from the Trust, calculated daily and
payable monthly, at the following annual rates: (i) .01% of the average daily
net asset value of the outstanding Service Shares of the Portfolio; and (ii)
.02% of the average daily net asset value of the outstanding Premier Shares of
the Portfolio. The transfer agency fee attributable to each class of shares is
borne solely by that class. Northern's affiliates and correspondent banks may
receive compensation for performing the services described in the preceding
paragraph that Northern would otherwise receive. Conflict-of-interest
restrictions under state and Federal law (including the Employee Retirement
Income Security Act of 1974) may apply to the receipt by such affiliates or
correspondent banks of such compensation in connection with the investment of
fiduciary funds in Service Shares and Premier Shares of the Portfolio.
Under its Custodian Agreement with the Trust, Northern (1) holds the
Portfolio's cash and securities, (2) maintains such cash and securities in
separate accounts in the name of the Portfolio, (3) makes receipts and
disbursements of funds on behalf of the Portfolio, (4) receives, delivers and
releases securities on behalf of the Portfolio, (5) collects and receives all
income, principal and other payments in respect of the Portfolio's securities
held by Northern under the Custodian Agreement, and (6) maintains the accounting
records of the Trust. Northern may employ one or more subcustodians, provided
that Northern, subject to certain monitoring responsibilities, shall have no
more responsibility or liability to the Trust on account of any action or
omission of any subcustodian so employed than such subcustodian has to Northern
and that the responsibility or liability of the subcustodian to Northern shall
conform to the resolution of the Trustees of the Trust authorizing the
appointment of the particular subcustodian. Northern may also appoint agents to
carry out such of the provisions of the Custodian Agreement as Northern may from
time to time direct, provided that the appointment of an agent shall not relieve
Northern of any of its responsibilities under the Agreement.
As compensation for the services rendered to the Trust by Northern as
custodian, and the assumption by Northern of certain related expenses, Northern
is entitled to payment from the Trust as follows: (i) $18,000 annually for the
Portfolio, plus (ii) 1/100th of 1% annually of the Portfolio's average daily net
assets to the extent they exceed $100 million, plus (iii) a fixed dollar fee for
each trade in portfolio securities, plus (iv) a fixed dollar fee for each time
that Northern as custodian receives or transmits funds via wire, plus (v)
reimbursement of expenses incurred by Northern as custodian for telephone,
postage, courier fees, office supplies and duplicating. The fees referred to in
clauses (iii) and (iv) are subject to annual upward adjustments based on
increases in the Consumer Price Index for All Urban Consumers, provided that
Northern may permanently or temporarily waive all or any portion of any upward
adjustment.
Northern's fees under the Custodian Agreement are subject to reduction
based on the Portfolio's daily uninvested cash balances (if any).
Unless sooner terminated, each of the Advisory Agreement, Transfer
Agency Agreement and Custodian Agreement between Northern and the Trust will
continue in effect with respect to the Portfolio until April 30, 2000, and
thereafter for successive 12-month periods, provided that the continuance is
approved at least annually (1) by the vote of a majority of the Trustees who are
not parties to the agreement or "interested persons" (as such term is defined in
the 1940 Act) of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval and (2) by the Trustees or by the vote of a
majority of the outstanding shares of the Portfolio (as defined below under
"Other Information"). Each agreement is terminable at any time without penalty
by the Trust (by specified Trustee or shareholder action) on 60 days' written
notice to Northern and by Northern on 60 days' written notice to the Trust.
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered open-end investment company continuously
engaged in the issuance of its shares, but such banking laws and regulations do
not prohibit such a holding company or affiliate or banks generally from acting
as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company as agent for and upon the
order of customers. Northern believes that it may perform the services
contemplated by its agreements with the Trust without violation of such banking
laws or regulations, which are applicable to it. It should be noted, however,
that future changes in either Federal or state statutes and regulations relating
to the permissible activities of banks and their subsidiaries or affiliates, as
well as future judicial or administrative decisions or interpretations of
current and future statutes and regulations, could prevent Northern from
continuing to perform such services for the Trust.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of Northern in connection with the provision of
services on behalf of the Trust, the Trust might be required to alter materially
or discontinue its arrangements with Northern and change its method of
operations. It is not anticipated, however, that any change in the Trust's
method of operations would affect the net asset value per share of the Portfolio
or result in a financial loss to any shareholder. Moreover, if current
restrictions preventing a bank from legally sponsoring, organizing, controlling
or distributing shares of an open-end investment company were relaxed, the Trust
expects that Northern and its affiliates would consider the possibility of
offering to perform some or all of the services now provided by First Data. It
is not possible, of course, to predict whether or in what form such restrictions
might be relaxed or the terms upon which Northern and its affiliates might offer
to provide services for consideration by the Trustees.
Northern is active as an underwriter of municipal instruments. Under
the 1940 Act, the Portfolio is precluded, subject to certain exceptions, from
purchasing in the primary market those municipal instruments with respect to
which Northern is serving as a principal underwriter. In the opinion of
Northern, this limitation will not significantly affect the ability of the
Portfolio to pursue its investment objective.
Under a Service Mark License Agreement with the Trust, Northern Trust
Corporation has agreed that the name "Northern Institutional Funds" may be used
in connection with the Trust's business on a royalty-free basis. Northern Trust
Corporation has reserved to itself the right to grant the non-exclusive right to
use the name "Northern Institutional Funds" to any other person. The Agreement
provides that at such time as the Agreement is no longer in effect, the Trust
will cease using the name "Northern Institutional Funds."
Portfolio Transactions
To the extent that the Portfolio effects brokerage transactions with
First Data or any broker/dealer affiliated directly or indirectly with the
Investment Adviser, such transactions, including the frequency thereof, the
receipt of any commissions payable in connection therewith, and the selection of
the affiliated broker/dealer effecting such transactions, will be fair and
reasonable to the shareholders of the Portfolio.
Co-Administrators and Distributor
Northern and FDISG, 4400 Computer Drive, Westborough, Massachusetts
01581, act as co-administrators for the Portfolio under a Co-Administration
Agreement with the Trust. Subject to the general supervision of the Trust's
Board of Trustees, Northern and FDISG (the "Co-Administrators") provide
supervision of all aspects of the Trust's non-investment advisory operations and
perform various corporate secretarial, treasury and blue sky services, including
but not limited to: (a) maintaining office facilities and furnishing corporate
officers for the Trust; (b) furnishing data processing services, clerical
services, and executive and administrative services and standard stationery and
office supplies; (c) performing all functions ordinarily performed by the office
of a corporate treasurer, and furnishing the services and facilities ordinarily
incident thereto, such as expense accrual monitoring and payment of the Trust's
bills, preparing monthly reconciliation of the Trust's expense records, updating
projections of annual expenses, preparing materials for review by the Board of
Trustees and compliance testing; (d) preparing and submitting reports to the
Trust's shareholders and the SEC; (e) preparing and printing financial
statements; (f) preparing monthly Portfolio profile reports; (g) preparing and
filing the Trust's Federal and state tax returns (other than those required to
be filed by the Trust's custodian and transfer agent) and providing shareholder
tax information to the Trust's transfer agent; (h) assisting in marketing
strategy and product development; (i) performing oversight/management
responsibilities, such as the supervision and coordination of certain of the
Trust's service providers; (j) effecting and maintaining, as the case may be,
the registration of shares of the Trust for sale under the securities laws of
various jurisdictions; (k) assisting in maintaining corporate records and good
standing status of the Trust in its state of organization; and (l) monitoring
the Trust's arrangements with respect to services provided by Servicing Agents
to their customers who are the beneficial owners of shares, pursuant to
servicing agreements between the Trust and such Servicing Agents.
Subject to the limitations described below, as compensation for their
administrative services and the assumption of related expenses, the
Co-Administrators are entitled to a fee from the Portfolio, computed daily and
payable monthly, at an annual rate of .10% of the average daily net assets of
the Portfolio. The Co-Administrators will reimburse the Portfolio for its
expenses (including administration fees payable to the Co-Administrators, but
excluding advisory fees, transfer agency fees, servicing fees and extraordinary
expenses) which exceed on an annualized basis .10% of the Portfolio's average
daily net assets.
Unless sooner terminated, the Co-Administration Agreement will continue
in effect until April 30, 2001, and thereafter for successive one-year terms
with respect to the Portfolio, provided that the agreement is approved annually
(1) by the Board of Trustees or (2) by the vote of a majority of the outstanding
shares of the Portfolio (as defined below under "Other Information"), provided
that in either event the continuance is also approved by a majority of the
Trustees who are not parties to the Agreement and who are not interested persons
(as defined in the 1940 Act) of any party thereto, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Co-Administration
Agreement is terminable at any time after April 30, 2001, without penalty by the
Trust on at least 60 days written notice to the Co-Administrators. Each
Co-Administrator may terminate the Co-Administration Agreement with respect to
itself at any time after April 30, 2001 without penalty on at least 60 days
written notice to the Trust and the other Co-Administrator.
The Trust may terminate the Co-Administration Agreement prior to April
30, 2001 in the event that the Trust or its shareholders incur damages in excess
of $100,000 as a result of the willful misfeasance, bad faith or negligence of
the Co-Administrators, or the reckless disregard of their duties under the
Agreement. The Trust may also terminate the Co-Administration Agreement prior to
April 30, 2001 in the event that the Co-Administrators fail to meet one of the
performance standards set forth in the Agreement.
The Trust has entered into a Distribution Agreement with FDDI, under
which FDDI, as agent, sells Service Shares and Premier Shares of the Portfolio
on a continuous basis. FDDI pays the cost of printing and distributing
prospectuses to persons who are not shareholders of the Trust and of sales
presentations, advertising and other distribution efforts. No compensation is
payable by the Trust to FDDI for such distribution services.
The Co-Administration Agreement provides that the Co-Administrators may
render similar services to others so long as their services under such Agreement
are not impaired thereby. The Co-Administration Agreement also provides that the
Trust will indemnify each Co-Administrator against all claims except those
resulting from the willful misfeasance, bad faith or negligence of such
Co-Administrator, or the Co-Administrator's breach of confidentiality. The
Distribution Agreement provides that the Trust will indemnify FDDI against
certain liabilities relating to untrue statements or omissions of material fact
except those resulting from the reliance on information furnished to the Trust
by FDDI, or those resulting from the willful misfeasance, bad faith or
negligence of FDDI, or FDDI's breach of confidentiality. FDDI is a wholly-owned
subsidiary of FDISG, which is a wholly-owned subsidiary of First Data
Corporation.
Counsel and Auditors
Drinker Biddle & Reath LLP, with offices at One Logan Square, 18th and
Cherry Streets, Philadelphia, Pennsylvania 19103-6996, serve as counsel to the
Trust.
Ernst & Young LLP, independent auditors, 233 S. Wacker Drive, Chicago,
Illinois 60606, have been selected as auditors of the Trust. In addition to
audit services, Ernst & Young LLP reviews the Trust's Federal and state tax
returns, and provides consultation and assistance on accounting, internal
control and related matters.
In-Kind Purchases and Redemptions
Payment for Service Shares and Premier Shares of the Portfolio may, in
the discretion of Northern, be made in the form of securities that are
permissible investments for the Portfolio as described in the Prospectus. For
further information about this form of payment, contact Northern. In connection
with an in-kind securities payment, the Portfolio will require, among other
things, that the securities be valued on the day of purchase in accordance with
the pricing methods used by the Portfolio and that the Portfolio receive
satisfactory assurances that it will have good and marketable title to the
securities received by it; that the securities be in proper form for transfer to
the Portfolio; and that adequate information be provided concerning the basis
and other tax matters relating to the securities.
Although the Portfolio generally will redeem Service Shares and Premier
Shares in cash, it reserves the right to pay redemptions by a distribution
in-kind of securities (instead of cash) from the Portfolio. The securities
distributed in-kind would be readily marketable and would be valued for this
purpose using the same method employed in calculating the Portfolio's net asset
value per share. If a shareholder receives redemption proceeds in-kind, the
shareholder should expect to incur transaction costs upon the disposition of the
securities received in the redemption.
Third-Party Fees and Requirements
Service Shares and Premier 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.
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 the 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.
PERFORMANCE INFORMATION
The performance of a class of shares of the Portfolio may be compared
to those of other money market funds with similar investment objectives 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 IBC Financial Data, Inc. or other independent mutual fund reporting
services. 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 the Portfolio.
From time to time, the Portfolio may advertise its "yield," "effective yield,"
"tax-equivalent yield" and "tax-equivalent effective yield." 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.
In arriving at quotations as to "yield," the Trust first determines the
net change, exclusive of capital changes, during the seven-day period in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, then divides such net change by the value of the
account at the beginning of the period to obtain the base period return, and
then multiplies the base period return by 365/7.
"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 "effective
yield" with respect to the shares of the Portfolio is computed by adding 1 to
the base period return (calculated as above), raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
The "tax-equivalent yield" demonstrates the level of taxable yield
necessary to produce an after-tax yield equivalent to the 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 current yield" will always be higher than the
Portfolio's yield.
"Tax-equivalent yield" is computed by dividing the tax-exempt portion
of the yield by 1 minus a stated income tax rate and then adding the quotient to
the taxable portion of the yield, if any. There may be more than one
tax-equivalent yield if more than one stated income tax rate is used.
The "tax-equivalent effective yield" demonstrates the level of taxable
yield necessary to produce an after-tax yield equivalent to the Portfolio's
tax-free effective yield. It is calculated by taking that portion of the
seven-day "effective yield" which is tax-exempt and adjusting it to reflect the
tax savings associated with a stated tax rate. The "tax-equivalent effective
yield" will always be higher than the Portfolio's effective yield.
"Tax-equivalent effective yield" is computed by dividing the tax-exempt
portion of the effective yield by 1 minus a stated income tax-rate, and then
adding the quotient to the taxable portion of the effective yield, if any. There
may be more than one tax-equivalent effective yield, if more than one stated
income tax rate is used.
Quotations of yield, effective yield, tax-equivalent current yield and
tax-equivalent effective yield provided by the Trust are carried to at least the
nearest hundredth of one percent. Any fees imposed by Northern, its affiliates
or correspondent banks on their customers in connection with investments in
shares of the Portfolio are not reflected in the calculation of yields of the
Portfolio.
The Portfolio's 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. The Portfolio's yields fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. The
annualization of one week's income is not necessarily indicative of future
actual yields. Actual yields will depend on such variables as portfolio quality,
average portfolio maturity, the type of portfolio instruments acquired, changes
in money market interest rates, portfolio expenses and other factors. Yields are
one basis investors may use to analyze the Portfolio as compared to other money
market funds and other investment vehicles. However, yields of other money
market funds and other investment vehicles may not be comparable because of the
foregoing variables, and differences in the methods used in valuing their
portfolio instruments, computing net asset value and determining yield.
The Portfolio may also quote from time to time its total return in
accordance with SEC regulations.
The yields and total returns of the Portfolio's Shares are calculated
separately from the calculations of the yield and total return of the Service
Shares and Premier Shares described in this Additional Statement.
AMORTIZED COST VALUATION
As stated in the Prospectus, the Portfolio seeks to maintain a net
asset value of $1.00 per share and, in this connection, values its instruments
on the basis of amortized cost pursuant to Rule 2a-7 under the 1940 Act. This
method values a security at its cost on the date of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Portfolio would receive if it sold the instrument.
During such periods the yield to investors in the Portfolio may differ somewhat
from that obtained in a similar entity which uses available indications as to
market value to value its portfolio instruments. For example, if the use of
amortized cost resulted in a lower (higher) aggregate Portfolio value on a
particular day, a prospective investor in the Portfolio would be able to obtain
a somewhat higher (lower) yield and ownership interest than would result from
investment in such similar entity and existing investors would receive less
(more) investment income and ownership interest. However, the Trust expects that
the procedures and limitations referred to in the following paragraphs of this
section will tend to minimize the differences referred to above.
Under Rule 2a-7, the Trust's Board of Trustees, in supervising the
Trust's operations and delegating special responsibilities involving portfolio
management to Northern, has established procedures that are intended, taking
into account current market conditions and the Portfolio's investment objective,
to stabilize the net asset value of the Portfolio, as computed for the purposes
of purchases and redemptions, at $1.00 per share. The Trustees' procedures
include periodic monitoring of the difference (the "Market Value Difference")
between the amortized cost value per share and the net asset value per share
based upon available indications of market value. Available indications of
market value used by the Trust consist of actual market quotations or
appropriate substitutes which reflect current market conditions and include (a)
quotations or estimates of market value for individual portfolio instruments
and/or (b) values for individual portfolio instruments derived from market
quotations relating to varying maturities of a class of money market
instruments. In the event the Market Value Difference of the Portfolio exceeds
certain limits or Northern believes that the Market Value Difference may result
in material dilution or other unfair results to investors or existing
shareholders, the Trust will take action in accordance with the 1940 Act and the
Trustees will take such steps as they consider appropriate (e.g., selling
portfolio instruments to shorten average portfolio maturity or to realize
capital gains or losses, reducing or suspending shareholder income accruals,
redeeming shares in-kind or utilizing a net asset value per share based upon
available indications of market value which under such circumstances would vary
from $1.00) to eliminate or reduce to the extent reasonably practicable any
material dilution or other unfair results to investors or existing shareholders
which might arise from Market Value Differences. In particular, if losses were
sustained by the Portfolio, the number of outstanding shares might be reduced in
order to maintain a net asset value per share of $1.00. Such reduction would be
effected by having each shareholder proportionately contribute to the
Portfolio's capital the necessary shares to restore such net asset value per
share. Each shareholder will be deemed to have agreed to such contribution in
these circumstances by investing in the Portfolio.
Rule 2a-7 requires that the Portfolio limit its investments to
instruments which Northern determines (pursuant to guidelines established by the
Board of Trustees) to present minimal credit risks and which are "Eligible
Securities" as defined by the SEC and described in the Prospectus. The Rule also
requires that the Portfolio maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to its policy of maintaining a
stable net asset value per share and precludes the purchase of any instrument
deemed under the Rule to have a remaining maturity of more than 397 calendar
days. Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Rule requires the Portfolio
to invest its available cash in such a manner as to reduce such maturity to the
prescribed limit as soon as reasonably practicable.
DESCRIPTION OF SERVICE SHARES AND PREMIER SHARES
The Trust Agreement permits the Trust's Board of Trustees to issue an
unlimited number of full and fractional shares of beneficial interest of one or
more separate series representing interests in one or more investment
portfolios. The Trustees may hereafter create series in addition to the Trust's
nineteen existing series, which represent interests in the Trust's nineteen
respective portfolios. The Trust Agreement also permits the Board of Trustees to
classify or reclassify any unissued shares into classes within a series.
Pursuant to such authority, the Trustees have authorized the issuance of an
unlimited number of shares of beneficial interest in three separate classes of
shares of the Portfolio: Shares, Service Shares and Premier Shares. This
Additional Statement (and the related Prospectus) relates only to the Service
Shares and Premier Shares of the Portfolio discussed herein. For information on
the other share classes in the Portfolio and on the Trust's other investment
portfolios, call the toll-free number on page 1.
Under the terms of the Trust Agreement, each share of the Portfolio is
without par value, represents an equal proportionate interest in the Portfolio
with each other share of its class in the Portfolio and is entitled to such
dividends and distributions out of the income belonging to the Portfolio as are
declared by the Trustees. Upon the liquidation of the Portfolio, shareholders of
each class of the Portfolio are entitled to share pro rata in the net assets
belonging to that class available for distribution. Shares do not have any
preemptive or conversion rights. The right of redemption is described under
"About Your Account - Selling Shares and Account Policies and Other Information"
in the Prospectus and under "Amortized Cost Valuation" in this Additional
Statement. In addition, pursuant to the terms of the 1940 Act, the right of a
shareholder to redeem shares and the date of payment by the Portfolio may be
suspended for more than seven days (a) for any period during which the New York
Stock Exchange is closed, other than the customary weekends or holidays, or
trading in the markets the Portfolio normally utilizes is closed or is
restricted as determined by the SEC, (b) during any emergency, as determined by
the SEC, as a result of which it is not reasonably practicable for the Portfolio
to dispose of instruments owned by it or fairly to determine the value of its
net assets, or (c) for such other period as the SEC may by order permit for the
protection of the shareholders of the Portfolio. The Trust may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions. In addition, shares of the Portfolio are
redeemable at the unilateral option of the Trust if the Trustees determine in
their sole discretion that failure to so redeem may have material adverse
consequences to the shareholders of the Portfolio. Service Shares and Premier
Shares when issued as described in the Prospectus are validly issued, fully paid
and nonassessable, except as stated below. In the interests of economy and
convenience, certificates representing Service Shares and Premier Shares of the
Portfolio are not issued.
The proceeds received by the Portfolio for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to and constitute the underlying assets of that Portfolio. The underlying assets
of the Portfolio will be segregated on the books of account, and will be charged
with the liabilities and with a share of the general liabilities of the Trust.
Expenses with respect to the Portfolio are normally allocated in proportion to
the net asset value of the Portfolio except where allocations of direct expenses
can otherwise be fairly made.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
the Portfolio, if it is affected by the matter. The Portfolio is affected by a
matter unless it is clear that the interests of the Portfolio in the matter are
substantially identical as the other investment portfolios or that the matter
does not affect any interest of the Portfolio. Under the Rule, the approval of
an investment advisory agreement or any change in a fundamental investment
policy would be effectively acted upon with respect to the Portfolio only if
approved by a majority of the outstanding shares of the Portfolio. However, the
Rule also provides that the ratification of the appointment of independent
accountants, the approval of principal underwriting contracts and the election
of Trustees are exempt from the separate voting requirements stated above. In
addition, shareholders of each of the classes in the Portfolio have equal voting
rights except that only shares of a particular class of 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.
The Trust is not required to hold annual meetings of shareholders and
does not intend to hold such meetings. In the event that a meeting of
shareholders is held, each share of the Trust will be entitled, as determined by
the Trustees without the vote or consent of shareholders, either to one vote for
each share or to one vote for each dollar of net asset value represented by such
shares on all matters presented to shareholders, including the election of
Trustees (this method of voting being referred to as "dollar-based voting").
However, to the extent required by the 1940 Act or otherwise determined by the
Trustees, series and classes of the Trust will vote separately from each other.
Shareholders of the Trust do not have cumulative voting rights in the election
of Trustees 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. Meetings of shareholders of the Trust, or any series
or class thereof, may be called by the Trustees, certain officers or upon the
written request of holders of 10% or more of the shares entitled to vote at such
meeting. The shareholders of the Trust will have voting rights only with respect
to the limited number of matters specified in the Trust Agreement and such other
matters as the Trustees may determine or may be required by law. 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 authorizes the Trustees, without shareholder
approval (except as stated in the next paragraph), to cause the Trust, or any
series thereof, to merge or consolidate with any corporation, association, trust
or other organization or sell or exchange all or substantially all of the
property belonging to the Trust, or any series thereof. In addition, the
Trustees, without shareholder approval, may adopt a "master-feeder" structure by
investing substantially all of the assets of a series of the Trust in the
securities of another open-end investment company or pooled portfolio.
The Trust Agreement also authorizes the Trustees, in connection with
the merger, consolidation, termination or other reorganization of the Trust or
any series or class, to classify the shareholders of any class into one or more
separate groups and to provide for the different treatment of shares held by the
different groups, provided that such merger, consolidation, termination or other
reorganization is approved by a majority of the outstanding voting securities
(as defined in the 1940 Act) of each group of shareholders that are so
classified.
The Trust Agreement permits the Trustees to amend the Trust Agreement
without a shareholder vote. However, shareholders of the Trust have the right to
vote on any amendment: (i) that would adversely affect the voting rights of
shareholders; (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Trust Agreement; or (iv) that the
Trustees determine to submit to shareholders.
The Trust Agreement permits the termination of the Trust or of any
series or class of the Trust (i) by a majority of the affected shareholders at a
meeting of shareholders of the Trust, series or class; or (ii) by a majority of
the Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust or its shareholders. The factors and
events that the Trustees may take into account in making such determination
include (i) the inability of the Trust or any series or class to maintain its
assets at an appropriate size; (ii) changes in laws or regulations governing the
Trust or any series or class thereof, or affecting assets of the type in which
it invests; or (iii) economic developments or trends having a significant
adverse impact on their business or operations.
Under the Delaware Business Trust Act (the "Delaware Act"),
shareholders are not personally liable for obligations of the Trust. The
Delaware Act entitles shareholders of the Trust to the same limitation of
liability as is available to shareholders of private for-profit corporations.
However, no similar statutory or other authority limiting business trust
shareholder liability exists in many other states. As a result, to the extent
that the Trust or a shareholder is subject to the jurisdiction of courts in such
other states, those courts may not apply Delaware law and may subject the
shareholders to liability. To offset this risk, the Trust Agreement (i) contains
an express disclaimer of shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in each agreement,
obligation and instrument entered into or executed by the Trust or its Trustees
and (ii) provides for indemnification out of the property of the applicable
series of the Trust of any shareholder held personally liable for the
obligations of the Trust solely by reason of being or having been a shareholder
and not because of the shareholder's acts or omissions or for some other reason.
Thus, the risk of a shareholder incurring financial loss beyond his or her
investment because of shareholder liability is limited to circumstances in which
all of the following factors are present: (1) a court refuses to apply Delaware
law; (2) the liability arises under tort law or, if not, no contractual
limitation of liability is in effect; and (3) the applicable series of the Trust
is unable to meet its obligations.
The Trust Agreement provides that the Trustees will not be liable to
any person other than the Trust or a shareholder and that a Trustee will not be
liable for any act as a Trustee. However, nothing in the Trust Agreement
protects a Trustee against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
The Trust Agreement provides for indemnification of Trustees, officers
and agents of the Trust unless the recipient is liable by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office. 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.
In addition to the requirements of Delaware law, the Trust Agreement
provides that a shareholder of the Trust may bring a derivative action on behalf
of the Trust only if the following conditions are met: (a) shareholders eligible
to bring such derivative action under Delaware law who hold at least 10% of the
outstanding shares of the Trust, or 10% of the outstanding shares of the series
or class to which such action relates, must join in the request for the Trustees
to commence such action; and (b) the Trustees must be afforded a reasonable
amount of time to consider such shareholder request and to investigate the basis
of such claim. The Trust Agreement also provides that no person, other than the
Trustees, who is not a shareholder of a particular series or class shall be
entitled to bring any derivative action, suit or other proceeding on behalf of
or with respect to such series or class. The Trustees will be entitled to retain
counsel or other advisers in considering the merits of the request and may
require an undertaking by the shareholders making such request to reimburse the
Trust for the expense of any such advisers in the event that the Trustees
determine not to bring such action.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). To the extent
provided by the Trustees in the appointment of Series Trustees, Series Trustees
(a) may, but are not required to, serve as Trustees of the Trust or any other
series or class of the Trust; (b) may have, to the exclusion of any other
Trustee of the Trust, all the powers and authorities of Trustees under the Trust
Agreement with respect to such series or class; and/or (c) may have no power or
authority with respect to any other series or class. The Trustees are not
currently considering the appointment of Series Trustees for the Trust.
As of July 30, 1999, substantially all of the Trust's portfolios'
outstanding shares were held of record by Northern for the benefit of its
customers and the customers of its affiliates and correspondent banks that have
invested in the portfolios. As of the same date, Northern possessed sole or
shared voting and/or investment power for its customer accounts with respect to
less than 10% of the Trust's outstanding shares. As of the same date, the
Trust's Trustees and officers as a group owned beneficially less than 1% of the
outstanding shares of each class of each portfolio.
ADDITIONAL INFORMATION CONCERNING TAXES
General
The Portfolio will elect to be taxed separately as a regulated
investment company (a "RIC"). To qualify as a RIC, the Portfolio generally must
distribute an amount equal to at least the sum of 90% of its investment company
taxable income and 90% of its net tax-exempt interest income (net income and the
excess of net short-term capital gain over net long-term capital loss), if any,
for each year (the "Distribution Requirement") and satisfy certain other
requirements.
The Portfolio must derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or from other income derived with respect to its business of investing in such
stock, securities or currencies. Also, at the close of each quarter of the
taxable year, it is generally required that at least 50% of the value of the
Portfolio's assets must consist of cash and cash items, U.S. Government
securities, securities of other RICs and securities of other issuers (as to
which the Portfolio has not invested more than 5% of the value of its total
assets in securities of such issuer and as to which the Portfolio does not hold
more than 10% of the outstanding voting securities of such issuer), and no more
than 25% of the value of the Portfolio's total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other RICs), or in two or more issuers which such Portfolio
controls and which are engaged in the same or similar trades or businesses. The
Portfolio intends to comply with these RIC requirements.
If for any taxable year the Portfolio was not to qualify as a RIC, all
of its taxable income would be subject to tax at regular corporate rates without
any deduction for distributions to shareholders. In such event, all
distributions by the Portfolio would be taxable to shareholders as ordinary
income to the extent of the Portfolio's current and accumulated earnings and
profits, and would be eligible for the dividends-received deduction in the case
of corporate shareholders.
The Internal Revenue Code imposes a nondeductible 4% excise tax on RICs
that fail currently to distribute an amount equal to specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). The Portfolio intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and capital
gain net income each calendar year to avoid liability for this excise tax. The
Portfolio also intends to make sufficient distributions or deemed distributions
each year to avoid liability for corporate income tax. If the Portfolio were to
fail to make sufficient distributions, it could be liable for corporate income
tax and for excise tax.
The Trust will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends and gross sale proceeds paid to any
shareholder (i) who has provided either an incorrect tax identification number
or no number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of taxable interest or
dividend income properly, or (iii) who has failed to certify to the Trust, when
required to do so, that he or she is not subject to backup withholding or that
he or she is an "exempt recipient."
Special Tax Considerations
As described in the Prospectus, the Portfolio is designed to provide
investors with Federally tax-exempt interest income. The Portfolio is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital appreciation or maximum tax-exempt income irrespective
of fluctuations in principal. Shares of the Portfolio would not be suitable for
tax-exempt institutions or for retirement plans qualified under Section 401 of
the Code, H.R. 10 plans and individual retirement accounts because such plans
and accounts are generally tax-exempt and, therefore, would not gain any
additional benefit from the Portfolio's dividends being tax-exempt. In addition,
the Portfolio may not be an appropriate investment for persons or entities that
are "substantial users" of facilities financed by private activity bonds or
"related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person which regularly uses a part of such
facilities in its trade or business and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, which occupies more
than 5% of the usable area of such facilities or for which such facilities or a
part thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.
In order for the Portfolio to pay Federal exempt-interest dividends
with respect to any taxable year, at the close of each taxable quarter at least
50% of the aggregate value of the Portfolio must consist of tax-exempt
obligations. An exempt-interest dividend is any dividend or part thereof (other
than a capital gain dividend) paid by the Portfolio and designated as an
exempt-interest dividend in a written notice mailed to shareholders not later
than 60 days after the close of the Portfolio's taxable year. However, the
aggregate amount of dividends so designated by the Portfolio cannot exceed the
excess of the amount of interest exempt from tax under Section 103 of the Code
received by the Portfolio during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code. The percentage of total
dividends paid by the Portfolio with respect to any taxable year which qualifies
as Federal exempt-interest dividends will be the same for all shareholders
receiving dividends from the Portfolio with respect to such year.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Portfolio generally is not deductible for Federal income tax
purposes to the extent attributable to exempt-interest-dividends. If a
shareholder holds Portfolio shares for six months or less, any loss on the sale
or exchange of those shares will be disallowed to the extent of the amount of
exempt-interest dividends earned with respect to the shares. The Treasury
Department, however, is authorized to issue regulations reducing the six-month
holding requirement to a period of not less than the greater of 31 days or the
period between regular distributions for investment companies that regularly
distribute at least 90% of its net tax-exempt interest. No such regulations had
been issued as of the date of this Additional Statement.
Corporate taxpayers will be required to take into account all
exempt-interest dividends from the Portfolio in determining certain adjustments
for alternative minimum tax purposes.
The Portfolio will determine annually the percentages of its net
investment income which is exempt from tax, which constitute an item of tax
preference for purposes of the Federal alternative minimum tax, and which is
fully taxable, and will apply these percentages uniformly to all dividends
declared from net investment income during that year. These percentages may
differ significantly from the actual percentages for any particular day.
Shareholders will be advised annually as to the Federal income tax
consequences of distributions made by the Portfolios.
Foreign Investors
Foreign shareholders generally will be subject to U.S. withholding tax
at a rate of 30% (or a lower treaty rate, if applicable) on distributions by the
Portfolio of net investment income, other ordinary income, and the excess, if
any, of net short-term capital gain over net long-term capital loss for the
year, regardless of the extent, if any, to which the income or gain is derived
from non-U.S. investments of the Portfolio. For this purpose, foreign
shareholders include individuals other than U.S. citizens, residents and certain
nonresident aliens, and foreign corporations, partnerships, trusts and estates.
Different tax consequences may apply to a foreign shareholder engaged in a U.S.
trade or business or present in the U.S. for 183 days or more in a year. Foreign
shareholders should consult their tax advisers regarding the U.S. and foreign
tax consequences of investing in the Portfolio.
Conclusion
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Additional Statement. Such laws and
regulations may be changed by legislative or administrative action. No attempt
is made to present a detailed explanation of the tax treatment of the Portfolio
or its shareholders, and the discussion here and in the Prospectus is not
intended as a substitute for careful tax planning. Shareholders are advised to
consult their tax advisers with specific reference to their own tax situation,
including the application of state and local taxes.
Although the Portfolio expects to qualify as a RIC and to be relieved
of all or substantially all Federal taxes, depending upon the extent of its
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located or in which it is
otherwise deemed to be conducting business, the Portfolio may be subject to the
tax laws of such states or localities.
SERVICE PLAN
The Trust, on behalf of the Portfolio, has adopted a Service Plan (the
"Plan") with respect to the Service Shares and Premier Shares. Under the Plan,
the Trust, on behalf of the Service Shares and the Premier Shares of the
Portfolio, is authorized to pay to Northern a monthly or quarterly service fee
in respect of (i) administrative support services performed and expenses
incurred in connection with the Portfolio's Service Shares and Premier Shares
and (ii) personal and account maintenance services performed and expenses
incurred in connection with the Portfolio's Premier Shares as set forth below.
The fee paid for such services (the "Service Fee") during any one year shall not
exceed: (i) .33% of the average daily net asset value of the Service Shares of
the Portfolio and (ii) .58% of the average daily net asset value of the Premier
Shares of the Portfolio during such period; provided, however, that the fee paid
for personal and account maintenance services and expenses shall not exceed .25%
of the average daily net asset value of the Premier Shares of the Portfolio for
such period. Northern will determine the amount of the Service Fee to be paid to
one or more brokers, dealers, other financial institutions or other industry
professionals (collectively, "Servicing Agents") and the basis on which such
payments will be made. Payments to a Servicing Agent will be subject to
compliance by the Servicing Agent with the terms of the related Plan agreement
entered into by the Servicing Agent. The Service Fees payable pursuant to this
Plan shall not pertain to services or expenses which are primarily intended to
result in the sales of Service Shares and Premier Shares.
Payments of the Service Fee with respect to Service Shares and Premier
Shares will be used to compensate or reimburse Northern and the Servicing Agents
for administrative support services and expenses, which may include without
limitation: (i) acting or arranging for another party to act, as recordholder
and nominee of Service Shares and Premier Shares of the Portfolio beneficially
owned by Customers; (ii) establishing and maintaining individual accounts and
records with respect to Service Shares and Premier Shares of the Portfolio owned
by Customers; (iii) processing and issuing confirmations concerning Customer
orders to purchase, redeem and exchange Service Shares and Premier Shares of the
Portfolio; (iv) receiving and transmitting funds representing the purchase price
or redemption proceeds of Service Shares and Premier Shares of the Portfolio;
(v) processing dividend payments on behalf of Customers; (vi) forwarding
shareholder communications from the Trust (such as proxy statements and proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices); (vii) providing such statistical and other
information as may be reasonably requested by the Trust or necessary for the
Trust to comply with applicable Federal or state law; (viii) facilitating the
inclusion of the Portfolio in investment, retirement, asset allocation, cash
management or sweep accounts or similar programs or services offered to their
Customers or to Customers of other Servicing Agents; (ix) facilitating
electronic or computer trading and/or processing in the Portfolio to their
Customers or to Customers of other Servicing Agents; and (x) performing any
other similar administrative support services. Payments of the Service Fee with
respect to the Premier Shares will also be used to compensate or reimburse
Northern and the Servicing Agents for personal and account maintenance services
and expenses, which may include, without limitation: (i) providing facilities to
answer inquiries and respond to correspondence with Customers and other
investors about the status of their accounts or about other aspects of the Trust
or the Portfolio; (ii) assisting Customers in completing application forms,
selecting dividend and other account options and opening custody accounts with
the Servicing Agents; (iii) providing services to Customers intended to
facilitate, or improve their understanding of the benefits and risks of, the
Portfolio to Customers, including asset allocation and other similar services;
(iv) acting as liaison between Customers and the Trust, including obtaining
information from the Trust and assisting the Trust in correcting errors and
resolving problems; and (v) performing any similar personal and account
maintenance services.
Conflict of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Servicing Agent's receipt of
compensation paid by the Trust in connection with the investment of fiduciary
funds in Service or Premier Shares. Servicing Agents, including banks regulated
by the Comptroller of the Currency, the Federal Reserve Board or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor or state
securities commissions, are urged to consult legal advisers before investing
fiduciary assets in Service or Premier Shares.
The Trustees, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of such Plan or the related agreements, approved the
Plan and related agreement for the Portfolio at a meeting called for the purpose
of voting on such Plan and related agreement on October 5, 1999. The Plan and
related agreement will remain in effect until April 30, 2000 and will continue
in effect thereafter only if such continuance is specifically approved annually
by a vote of the Board of Trustees in the manner described above.
The Plan may not be amended to increase materially the amount to be
spent for the services described therein without approval of the Board of
Trustees in the manner described above. The Plan may be terminated as to the
Service Class and the Premier Class at any time by a majority of the
non-interested Trustees. A service agreement may be terminated at any time,
without payment of any penalty, by vote of a majority of the Trustees as
described above or by any party to the agreement on not more than sixty (60)
days' written notice to any other party to the agreement. Each service agreement
shall terminate automatically if assigned. While the Plan is in effect, the
selection and nomination of those Trustees who are not interested persons shall
be committed to the non-interested members of the Board of Trustees. The Board
of Trustees has determined that, in its judgment, there is a reasonable
likelihood that the Plan will benefit the Portfolio and holders of Service and
Premier Shares of the Portfolio. The Plan provides that the Board of Trustees
will review, at least quarterly, a written report of the amount expended under
the Plan and the purposes of the expenditures.
OTHER INFORMATION
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
Securities Act of 1933 with respect to the securities offered by the Trust's
Prospectus. Certain portions of the Registration Statement have been omitted
from the Prospectus and this Additional Statement pursuant to the rules and
regulations of the SEC. The Registration Statement including the exhibits filed
therewith may be examined at the office of the SEC in Washington, D.C.
The Portfolio is responsible for the payment of its expenses. Such
expenses include, without limitation, the fees and expenses payable to Northern
and First Data, 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, 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 for industry organizations such as the Investment Company
Institute, miscellaneous expenses and extraordinary expenses incurred by the
Trust.
The term "majority of the outstanding shares" of either the Trust or
the Portfolio means, with respect to the approval of an investment advisory
agreement or a change in a fundamental investment restriction, the vote of the
lesser of (i) 67% or more of the shares of the Trust or the Portfolio present at
a meeting, if the holders of more than 50% of the outstanding shares of the
Trust or the Portfolio are present or represented by proxy, or (ii) more than
50% of the outstanding shares of the Trust or the Portfolio.
Statements contained in the Prospectus or in this Additional Statement
as to the contents of any contract or other documents referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the registration statement of
which the Prospectus and this Additional Statement form a part, each such
statement being qualified in all respects by such reference.
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The following summarizes the rating categories used by Standard
and Poor's for commercial paper that is a permissible investment for the
Portfolios:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's
capacity to meet its financial commitment on these obligations is
extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually senior debt obligations not having an original maturity in excess of
one year, unless explicitly noted. The following summarizes the rating
categories used by Moody's for commercial paper that is a permissible investment
for the Portfolios:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structure with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate
liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
The following summarizes the rating categories used by Duff & Phelps for
commercial paper that is a permissible investment for the Portfolios:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
Duff & Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the
highest rating category.
Fitch IBCA short-term ratings apply to debt obligations that have time horizons
of less than 12 months for most obligations, or up to three years for U.S.
public finance securities. The following summarizes the rating categories used
by Fitch IBCA for short-term obligations that are permissible investments for
the Portfolios:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally
strong credit feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of
the higher ratings.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
payment of principal and interest of debt instruments with original maturities
of one year or less. The following summarizes the ratings used by Thomson
BankWatch for short-term obligations that are permissible investments for the
Portfolios:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's second-
highest category and indicates that while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for corporate and
municipal debt that are permissible investments for the Portfolios:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong.
PLUS (+) OR MINUS (-) - The "AA" rating classification may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
"r" - This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and municipal
long-term debt that are permissible investments for the Portfolios:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high- grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risk appear
somewhat larger than the "Aaa" securities.
Con. (---) - Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in the rating
classification "Aa". The modifier 1 indicates that the obligation ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of its generic
rating category.
The following summarizes the long-term debt ratings used by Duff & Phelps for
corporate and municipal long-term debt that are permissible investments for the
Portfolios:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
To provide more detailed indications of credit quality, the "AA" and "A" ratings
may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate and
municipal bonds that are permissible investments for the Portfolio:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
To provide more detailed indications of credit quality, the Fitch IBCA rating
"AA" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standing within the major rating category.
Thomson BankWatch assesses the likelihood of an untimely repayment of principal
or interest over the term to maturity of long term debt and preferred stock
which are issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the rating
categories used by Thomson BankWatch for long-term debt ratings for those
investments which are permissible investments for the Portfolios:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
PLUS (+) OR MINUS (-) The ratings "AAA" and "AA" may include a plus or minus
sign designation which indicates where within the respective category the issue
is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and market access
risks unique to notes due in three years or less. The following summarizes the
ratings used by Standard & Poor's Ratings Group for municipal notes that are
permissible investments for the Portfolios:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity
to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade ("MIG") and variable rate demand obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such ratings
recognize the differences between short-term credit risk and long-term risk. The
following summarizes the ratings by Moody's Investors Service, Inc. for
short-term notes that are permissible investments for the Portfolios:
"MIG-1"/"VMIG-1" - This designation, denotes best quality. There is
present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - This designation, denotes high quality, with margins
of protection that are ample although not so large as in the preceding
group.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes that are permissible investments
for the Portfolios.
<PAGE>
PART C.
OTHER INFORMATION
ITEM 23. EXHIBITS
The following exhibits are incorporated herein by reference to Post-Effective
Amendment No. 31 to Registrant's Registration Statement on Form N-1A (the
"Registration Statement") (Accession No. 0000950130-96-001086), Post-Effective
Amendment No. 32 to such Registration Statement (Accession No.
0000950130-97-000170), Post-Effective Amendment No. 33 to such Registration
Statement (Accession No. 0000950130-97-001306), Post-Effective Amendment No. 34
to such Registration Statement (Accession No. 0000950130-97-002471),
Post-Effective Amendment No. 35 to such Registration Statement (Accession No.
0000950131-97-005862), Post-Effective Amendment No. 36 to such Registration
Statement (Accession No. 0000950131-98-00216), Post-Effective Amendment No. 37
to such Registration Statement (Accession No. 0000950131-98-00512),
Post-Effective Amendment No. 38 to such Registration Statement (Accession No.
0000950131-98-002030), Post-Effective Amendment No. 39 to such Registration
Statement (Accession No. 00009150131-99-000461 and Post-Effective Amendment No.
40 to such Registration Statement (Accession No. 0000927405-99-000282):
(a) (1) Agreement and Declaration of Trust dated July 1, 1997
(Accession No. 0000950131-98-00216).
(2) Amendment No. 1 dated January 27, 1998 to the Agreement
and Declaration of Trust (Accession
No. 0000950131-99-000461).
(3) Amendment No. 2 dated May 15, 1998 to the Agreement and
Declaration of Trust (Accession No. 0000950131-99-000461).
(b) By-Laws dated July 8, 1997 (Accession No. 0000950131-98-00216).
(c) Articles IV, V and VII of the Agreement and Declaration of Trust
dated July 1, 1997 (Accession No. 0000950131-98-00216).
(d) (1) Investment Advisory Agreement dated March 31, 1998
between the Registrant and The Northern Trust Company (the
"Investment Advisory Agreement") (Accession No.
0000950131-99-000461).
(2) Addendum No. 1 dated March 31, 1998 to the Investment
Advisory
Agreement (Accession No. 0000950131-99-000461).
(3) Addendum No. 2 dated March 31, 1998 to the Investment
Advisory Agreement (Accession No. 0000950131-99-000461).
<PAGE>
(4) Addendum No. 3 dated March 31, 1998 to the Investment
Advisory Agreement. (Accession
No. 0000950131-99-000461).
(5) Addendum No. 4 dated March 31, 1998 to the Investment
Advisory Agreement (Accession No. 0000950131-99-000461).
(6) Addendum No. 5 dated March 31, 1998 to the Investment
Advisory Agreement (Accession No. 0000950131-99-000461).
(7) Addendum No. 6 dated March 31, 1998 to the Investment
Advisory Agreement (Accession No. 0000950131-99-000461).
(8) Assumption Agreement dated April 1, 1998 between The
Northern Trust Company and Northern Trust
Quantitative Advisors, Inc. (Accession No.
0000950131-99-000461).
(e) (1) Distribution Agreement dated May 1, 1999 between the
Registrant and First Data Distributors, Inc. (Accession No.
0000927405-99-000282)
(f) Not Applicable.
(g) (1) Custodian Agreement dated June 8, 1992 between the
Registrant and The Northern Trust
Company (Accession No. 0000950131-98-002030).
(2) Addendum No. 1 to the Custodian Agreement between the
Registrant and The Northern Trust Company (Accession No.
0000950130-96-001086).
(3) Addendum No. 2 to the Custodian Agreement between the
Registrant and The Northern Trust Company (Accession No.
0000950130-96-001086).
(4) Addendum No. 3 to the Custodian Agreement between the
Registrant and The Northern Trust Company (Accession No.
0000950130-97-002471).
(5) Addendum No. 4 to the Custodian Agreement between the
Registrant and The Northern Trust Company (Accession No.
0000950131-97-005862).
(6) Addendum No. 5 to the Custodian Agreement between the
Registrant and The Northern Trust Company (Accession No.
0000950131-98-002030).
(7) Addendum No. 6 to the Custodian Agreement between the
Registrant and The Northern Trust Company (Accession No.
0000950131-98-002030).
(8) Addendum No. 7 to the Custodian Agreement between the
Registrant and The Northern Trust Company
(Accession No. 0000950131-99-000461).
(9) Foreign Custody Agreement between the Registrant and The
Northern Trust Company (Accession No.
0000950131-98-002030).
(10) Addendum No. 1 to the Foreign Custody Agreement between
the Registrant and The Northern Trust Company (Accession
No. 0000950130-97-002471).
(11) Addendum No. 2 to the Foreign Custody Agreement between
the Registrant and The Northern Trust Company
(Accession No. 0000950131-98-002030).
(12) Addendum No. 3 to the Foreign Custody Agreement between
the Registrant and The Northern Trust Company
(Accession No. 0000950131-99-000461).
(13) Foreign Custody Monitoring Agreement dated March 31, 1998
between the Registrant and The Northern Trust Company
(Accession No. 0000950131-99-000461).
(h) (1) Agreement and Plan of Reorganization between the
Registrant and The Benchmark Tax-Exempt Fund (Accession No.
0000950131-98-002030).
(2) Revised and Restated Transfer Agency Agreement dated
January 8, 1993 between the Registrant and The Northern
Trust Company (Accession No. 0000950131-98-002030).
(3) Addendum No. 1 to the Revised and Restated Transfer Agency
Agreement between the Registrant and The Northern Trust
Company (Accession No. 0000950130-96-001086).
(4) Addendum No. 2 to the Revised and Restated Transfer Agency
Agreement between the Registrant and The Northern Trust
Company (Accession No. 0000950130-96-001086).
<PAGE>
(5) Addendum No. 3 to the Revised and Restated Transfer Agency
Agreement between the Registrant and The Northern Trust
Company (Accession No. 0000950130-97-002471).
(6) Addendum No. 4 to the Revised and Restated Transfer Agency
Agreement between the Registrant and The Northern Trust
Company (Accession No. 0000950131-97-005862).
(7) Addendum No. 5 to the Revised and Restated Transfer Agency
Agreement between the Registrant and The Northern Trust
Company (Accession No. 0000950131-98-002030).
(8) Addendum No. 6 to the Revised and Restated Transfer Agency
Agreement between the Registrant and The Northern Trust
Company (Accession No. 0000950131-99-000461).
(9) Shareholder Servicing Plan for Class B, C and D Shares and
Related Forms of Servicing Agreement (Accession No.
0000950131-99-000461).
(10) Service Plan for the Service and Premier Classes of Shares
and Related Forms of Servicing Agreement (Accession No.
0000950131-99-000461).
(11) Co-Administration Agreement dated May 1, 1999
among the Registrant, Northern Trust Company and First Data
Investor Services Group, Inc. (Accession No.
0000927405-99-000282)
(k) None.
(l) (1) Subscription Agreement with Goldman, Sachs & Co.
Accession No. 0000950131-98-002030).
(2) Amendment No. 1 to Subscription Agreement with Goldman,
Sachs & Co. (Accession No. 0000950131-98-002030).
(3) Amendment No. 2 to Subscription Agreement with Goldman,
Sachs & Co. (Accession No. 0000950131-98-002030).
(4) Amendment No. 3 to Subscription Agreement with Goldman,
Sachs & Co. (Accession No. 0000950131-98-002030).
(m) None.
The following exhibits to the Registration Statement are filed herewith
electronically pursuant to EDGAR rules:
(a) (4) Amendment No. 3 dated October 5, 1999 to the Agreement
and Declaration of Trust.
(d) (9) Form of Addendum No. 7 to Investment Advisory Agreement.
(e) (2) Form of Distribution Agreement between the Registrant and
Northern Funds Distributors, LLC.
(g) (14) Form of Addendum No. 8 to Custodian Agreement.
(h) (12) Form of Addendum No. 7 to Revised and Restated Transfer
Agency Agreement.
(h) (13) Form of Amended and Restated Co-Administration Agreement
among the Registrant, First Data Investor Services Group, Inc.
and The Northern Trust Company.
(h) (14) Shareholder Servicing Plan for Class C and D Shares and
Related Forms of Servicing Ageements.
(i) (1) Opinion of Drinker Biddle & Reath LLP.
(j) (1) Consent of Drinker Biddle & Reath LLP.
(2) Consent of Ernst & Young LLP.
(n) Amended and Restated Plan pursuant to Rule 18f-3 for Operation of a
Multi-Class System.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees.
ITEM 25. INDEMNIFICATION
Section 3 of Article IV of the Registrant's Agreement and Declaration of Trust
provides for indemnification of the Registrant's Trustees and officers under
certain circumstances. A copy of such Agreement and Declaration of Trust was
filed as Exhibit 1 to Post-Effective Amendment No. 36 to Registrant's
Registration Statement on Form N-1A.
Paragraph 7 of the Investment Advisory Agreement between the Registrant and The
Northern Trust Company provides for indemnification of The Northern Trust
Company or, in lieu thereof, contribution by the Registrant, under certain
circumstances. A copy of the Investment Advisory Agreement was filed as Exhibit
(d)(1) to Post-Effective Amendment No. 39 to Registrant's Registration Statement
on Form N-1A.
Article 10 of the Co-Administration Agreement dated May 1, 1999 among the
Registrant, Northern Trust Company and First Data Investor Services Group, Inc.
provides that the Registrant will indemnify Northern Trust Company and First
Data Investor Services Group, Inc. (each a "Co-Administrator") against all
claims except those resulting from the willful misfeasance, bad faith or
negligence of such Co-Administrator, or the Co-Administrator's breach of
confidentiality. A copy of the Co-Administration Agreement was filed as Exhibit
(h)(13) to Post-Effective Amendment No. 40 to Registrant's Registration
Statement on Form N-1A.
Paragraph 3 of the Distribution Agreement dated May 1, 1999 between the
Registrant and First Data Distributors, Inc. ("FDDI") provides that the
Registrant will indemnify FDDI against certain liabilities relating to untrue
statements or omissions of material fact except those resulting from the
reliance on information furnished to the Registration by FDDI, or those
resulting from the willful misfeasance, bad faith or negligence of FDDI, or
FDDI's breach of confidentiality. A copy of the Distribution Agreement was filed
as Exhibit (e)(1) to Post-Effective Amendment No. 40 to Registrant's
Registration Statement on Form N-1A.
A mutual fund and trustee and officer liability policy purchased by the
Registrant insures the Registrant and its Trustees and officers, subject to the
policy's coverage limits and exclusions and varying deductibles, against loss
resulting from claims by reason of any act, error, omission, misstatement,
misleading statement, neglect or breach of duty.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The Northern Trust Company, Registrant's investment adviser, is a full service
commercial bank and also provides a full range of trust and fiduciary services.
Set forth below is a list of all of the directors, senior officers and those
officers primarily responsible for Registrant's affairs of The Northern Trust
Company and, with respect to each such person, the name and business address of
the company (if any) with which such person has been connected at any time since
November 30, 1996, as well as the capacity in which such person was connected.
Northern Trust Quantitative Advisors, Inc. ("NTQA") is an indirect wholly-owned
subsidiary of Northern Trust Corporation. The list required by this Item 26 of
officers and directors of NTQA, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of Form ADV, filed by NTQA pursuant to the
Investment Advisers Act of 1940 (SEC File No. 801-333580).
<TABLE>
<CAPTION>
<S><C> <C> <C>
NAME AND POSITION NAME AND PRINCIPAL
CONNECTION
WITH INVESTMENT BUSINESS ADDRESS OF
WITH OTHER
ADVISER OTHER COMPANY COMPANY
Duane L. Burnham Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60605
Abbott Laboratories Chairman and
Chief
150 Field Drive Executive
Officer
Suite 160
Lake Forest, IL
NCR Corporation Director
1700 S. Patterson Blvd
Dayton, OH 45479
Sara Lee Corporation Director
3 First National Plaza
Chicago, IL 60602
Dr. Dolores E. Cross Northern Trust Director
Director Corporation
50 S. LaSalle Street
Chicago, IL 60675
Chicago
State University Former
95th Street at King Drive President
Chicago, IL 60643
General Electric Company GE Fund Former
3135 Easton Turnpike President
Fairfield, CT 06432
The Graduate School and University Center Professor
GE Fund Distinguished of
The City University of NY Leadership
33 W 42nd St. - Room 1400N and
New York, NY 10036 Diversity
Susan Crown Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
Henry Crown and Company Vice
222 N. LaSalle St., Ste 2000 President
Chicago, IL 60601
Baxter International, Inc. Director
One Baxter Parkway
Deerfield, IL 60015
Illinois Tool Works, Inc. Director
3600 W. Lake Avenue
Glenview, IL 60025
John R. Goodwin NTQA Director, Managing
Senior Vice President 50 S. LaSalle Street
Chief Director Chicago, IL 60606 Investment
Officer
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL
CONNECTION
WITH INVESTMENT BUSINESS ADDRESS OF
WITH OTHER
ADVISER OTHER COMPANY COMPANY
Robert S. Hamada Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
The University of Chicago Dean and
Graduate School of Business Edward
1101 East 58th Street Eagle
Chicago, IL 60637 Brown
Distinguished
Service Professor of
Finance
A.M. Castle & Co. Director
3400 North Wolf Road
Franklin, IL 60131
Chicago Board of Trade Director
141 West Jackson Boulevard
Chicago, IL 60674
Barry G. Hastings Northern Trust Corporation Operating
President & Chief 50 S. LaSalle Street Director
President, Chief Officer Chicago, IL 60675 Operating
Officer &
Director
Northern Trust Director
Securities, Inc.
50 S. LaSalle Street
Chicago, IL 60675
Northern Trust of California Corporation Director
355 S. Grand Avenue
Los Angeles, CA 90017
Northern Trust of Florida Corporation Vice Chairman of 700
Brickell Avenue the Board &
Miami, Fl 33131 Director
Nortrust Realty Mgmt., Inc. Director
50 S. LaSalle Street, 38th Fl.
Chicago, IL 60675
Robert A. Helman Northern Trust Director
Director Corporation
50 S. LaSalle Street
Chicago, IL 60675
Mayer, Brown & Platt Partner
190 S. LaSalle St.,38th Fl.
Chicago, IL 60603
Chicago Stock Exchange
One Financial Plaza
440 S. LaSalle St.
Chicago, IL 60605
Brambles USA, Inc.
400 N. Michigan Avenue
Chicago, IL 60611
Zenith Electronics
1000 Milwaukee Avenue
Glenview, IL 60025
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL
CONNECTION
WITH INVESTMENT BUSINESS ADDRESS OF
WITH OTHER
ADVISER OTHER COMPANY COMPANY
Arthur L. Kelly Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
KEL Enterprises L.P. Managing Partner
Two First National Plaza
20 S. Clark Street
Suite. 2222
Chicago, IL 60603
Bayerische Motoren Director
Werke(BMW) A.G. BMW Haus
Petuelring 130
Postfach 40 02 40
D-8000
Munich 40 Germany
A.G. Deere & Company Director
John Deere Rd.
Moline, IL 61265
Nalco Chemical Director
Company
One Nalco Center
Naperville, IL
60563-1198
Snap-on Incorporated Director
2801 80th Street
Kenosha, WI 53140
Arthur L. Kelly Tejas Gas Corporation Director
1301 McKinney St.
Houston, TX 77010
Thyssen Industrie AG Director
Am Thyssenhaus 1
45128 Essen Germany
Frederick A. Krehbiel Molex Incorporated Director
Director 2222 Wellington Court
Lisle, IL 60532-1682
Nalco Chemical Company Chairman, CEO
and
One Nalco Center Director
Naperville, IL 60563-1198
Tellabs, Inc. Director
4951 Indiana Avenue
Lisle, IL 60532
Roger W. Kushla The Northern Trust Director
Senior Vice President Company of New York
40 Broad Street, 8th Fl.
New York, NY 10004
Robert A. LaFleur None
Senior Vice President
Thomas L. Mallman None
Senior Vice President
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL
CONNECTION
WITH INVESTMENT BUSINESS ADDRESS OF
WITH OTHER
ADVISER OTHER COMPANY COMPANY
James J. Mitchell, III The Northern Trust Director
Executive Vice Company of New York
President 40 Broad Street, 8th Fl.
New York, NY 10004
Northern Trust Director
Corporation
50 S. LaSalle Street
Chicago, IL 60675
William G. Mitchell Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675
The Interlake Corporation Director
7701 Harger Road
Oak Brook, IL
60521-1488
Peoples Energy Director
Corporation
122 South Michigan Ave
Chicago, IL 60603
The Sherwin-Williams Director
Company
101 Prospect Avenue, N.W.
Cleveland, OH 44115-1075
Edward J. Mooney Northern Trust Corporation Director
Director 50 S. LaSalle
Chicago, IL 60675
Nalco Chemical Company Chairman, Chief
One Nalco Center Executive
Officer,
Naperville, IL President &
Director
60563-1198
Morton International, Inc. Director
100 North Riverside Plaza
Chicago, IL 60605
FMC Corporation Director
200 E. Randolph Drive
Chicago, IL 60601
William A. Osborn Northern Trust Corporation Director
Chairman and Chief Executive Officer 50 S. LaSalle Street
Chicago, IL 60675
Northern Trust of California Corporation Director
355 S. Grand Avenue and Former
Los Angeles, CA 90017 Chairman of the Board
Northern Trust Bank of Director
California N.A.
355 S. Grand Avenue
Los Angeles, CA 90017
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL
CONNECTION
WITH INVESTMENT BUSINESS ADDRESS OF
WITH OTHER
ADVISER OTHER COMPANY COMPANY
Nortrust Realty Director
Management Inc.
50S. LaSalle Street
Chicago, IL 60675
Northern Futures Corporation Director
50 S. LaSalle Street
Chicago, IL 60675
Sheila A. Penrose Northern Trust Global Director
President - Corporate Advisors, Inc.
and Institutional 29 Federal Street
Services Stamford, CT 06901
Nalco Chemical Company Director
One Nalco Center
Naperville, IL 60563-1198
Northern Trust Retirement Manager
Consulting, LLC
400 Perimeter Center Terrace
Suite 850
Atlanta, GA 30346
Northern Trust
Corporation Director and 50 S.
LaSalle Street Executive Vice
Chicago, IL 60675 President
NTQA Director
50 South LaSalle Street
Chicago, IL 60675
Perry R. Pero Northern Futures Corporation Director
Senior Executive Vice President, Chief 50 S. LaSalle Street
Financial Officer Chicago IL 60675
Northern Investment Former Chairman,
Corporation President and
50 S. LaSalle Street Director, Former
Chicago, IL 60675 Treasurer
Northern Trust Global Director
Advisors, Inc
29 Federal Street
Stamford ST 06901
Northern Trust Director
Securities, Inc.
50 South LaSalle Street
Chicago, IL 60675
Nortrust Realty Director
Management, Inc.
50 South LaSalle Street
Chicago, IL 60675
Northern Trust Corporation Director
50 S. LaSalle Street
Chicago, IL 60675
NTQA Director
50 South LaSalle Street
Chicago, IL 60675
Stephen N. Potter NTQA Director, Senior Vice
President 50 S. LaSalle Street Managing
Chicago, IL 60675 Director
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL
CONNECTION
WITH INVESTMENT BUSINESS ADDRESS OF
WITH OTHER
ADVISER OTHER COMPANY COMPANY
Peter L. Rossiter Schiff, Hardin & Waite Former Partner
Executive Vice 7200 Sears Tower
President and General Chicago, IL 60606
Counsel
Tanglewood Bancshares Inc. Former Vice
600 Bering Dr. President
Houston, TX 77057 and Director
Consolidated Communications Inc. Director
Illinois Consolidated
Telephone Company
121 S. 17th Street
Mattoon, IL 61938
Northern Trust Corporation Executive Vice
50 South LaSalle Street President
Chicago, IL 60675 and General Counsel
Harold B. Smith Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60675
Illinois Tool Works Inc. Chairman of the
3600 West Lake Ave. Executive Committee
Glenview, IL 60025-5811
W.W. Grainger, Inc. Director
5500 West Howard Street
Skokie, IL 60077
Northwestern Mutual Life Insurance Co. Trustee
720 East Wisconsin Avenue
Milwaukee, WI 53202
William D. Smithburg The Quaker Oats Company Retired Chairman
Director 321 North Clark Street
Chicago, IL 60610
Northern Trust Corporation Director
50 South LaSalle Street
Chicago, IL 60675
Abbott Laboratories Director
One Abbott Park Road
Abbott Park, IL 60675
Corning Incorporated Director
Corning, NY 14831
Prime Capital Corporation Director
10275 W. Higgins Road
Suite 200
Rosemont, IL 60018
James M. Snyder NTQA Director
Chairman, CEO and 50 South LaSalle Street
Executive Vice Chicago, IL 60675
President
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL
CONNECTION
WITH INVESTMENT BUSINESS ADDRESS OF
WITH OTHER
ADVISER OTHER COMPANY COMPANY
Bide L. Thomas Northern Trust Corporation Director
Director 50 South LaSalle Street
Chicago, IL 60674
MYR Group Inc. Director
(formerly L.E. Myers Company)
2550 W. Golf Rd.
Rolling Meadows, IL 60008
R.R. Donnelley & Sons Company Director
77 West Wacker Drive
Chicago, IL 60601
Stephen B. Timbers Northern Trust Corporation Executive Vice
President - NTGI 50 S. LaSalle Street President
Chicago, IL 60675
Northern Trust Global Advisors, Inc. Executive Vice
29 Federal Street President
Stamford, CT 06901
LTV Steel Co. Director
200 Public Square
Cleveland, OH 44114-2308
Zurich-Kemper Investments Former President
222 S. Riverside Plaza and CEO
Chicago, IL 60606
Jeffrey H. Wessel NTQA President and
Executive Vice President 50 South LaSalle Director
Chicago, IL 60675
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) First Data Distributors, Inc. (the "Distributor"), a
wholly owned subsidiary of First Data Investor Services
Group, Inc. and an indirect wholly-owned subsidiary of First
Data Corporation, acts as distributor for Northern
Institutional Funds pursuant to a distribution agreement
dated May 1, 1999. The Distributor also acts as underwriter
for ABN AMRO Funds, Alleghany Funds, BT Insurance Funds
Trust, First Choice Funds Trust, LKCM Funds, The Galaxy
Fund, The Galaxy VIP Fund, Galaxy Fund II, IBJ Funds Trust,
Panorama Trust, Undiscovered Managers Fund, New Covenant
Funds, Forward Funds, Inc., Light Index Funds, Inc. Weiss
Peck & Greer Funds Trust, Weiss Peck & Greer International
Fund, WPG Growth Fund, WPG Growth & Income Fund, WPG Tudor
Fund, RWB/WPG U.S. Large Stock Fund, Tomorrow Funds
Retirement Trust, The Govett Funds, Inc., IAA Trust Growth
Fund, Inc., IAA Trust Asset Allocation Fund, Inc., IAA Trust
Tax Exempt Bond Fund, Inc., IAA Trust Taxable Fixed Income
Series Fund, Inc., Matthews International Funds, MCM Funds,
Metropolitan West Funds, Smith Breeden Series Fund, Smith
Breeden Trust, Stratton Growth Fund, Inc., Stratton Monthly
Dividend REIT Shares, Inc., The Stratton Funds, Inc.,
Trainer, Wortham First Mutual Funds, Wilshire Target Funds,
Inc. and Worldwide Index Funds. The Distributor is
registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
(b) The information required by this Item 27(b) with respect to
each director, officer, or partner of First Data
Distributors, Inc. is incorporated by reference to Schedule
A of Form BD filed by First Data Distributors, Inc. with the
Securities and Exchange Commission pursuant to the
Securities Act of 1934 (File No. 8-45467).
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The Agreement and Declaration of Trust, By-laws and minute books of the
Registrant are in the physical possession of First Data Investor Services Group,
Inc., 101 Federal Street, Boston, Massachusetts 02110. Records for the First
Data Distributors, Inc., the distributor, are located at 4400 Computer Drive,
Westborough, Massachusetts 01581. All other accounts, books and other documents
required to be maintained under Section 31(a) of the Investment Company Act of
1940 and the Rules promulgated thereunder are in the physical possession of The
Northern Trust Company, 50 S. LaSalle Street, Chicago, Illinois 60675 and NTQA,
50 S. LaSalle Street, Chicago IL 60690.
<PAGE>
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for the effectiveness of this Post-Effective Amendment No. 41
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 41 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Boston and Commonwealth of Massachusetts on the 14th day of October, 1999.
NORTHERN INSTITUTIONAL FUNDS
By: /s/ Linda J. Hoard
Linda J. Hoard
Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
<S><C> <C> <C>
Name Title Date
/s/ Jylanne Dunne President October 14, 1999
Jylanne Dunne
/s/ Brian R. Curran Treasurer October 14 , 1999
- ------------------- ---------
Brian R. Curran
WILLIAM H. SPRINGER* Trustee October 14, 1999
-------
William H. Springer
RICHARD G. CLINE* Trustee October 14 , 1999
-------
Richard G. Cline
EDWARD J. CONDON* Trustee October 14, 1999
-------
Edward J. Condon
JOHN W. ENGLISH* Trustee October 14, 1999
-------
John W. English
SANDRA P. GUTHMAN* Trustee October 14, 1999
-------
Sandra P. Guthman
FREDERICK T. KELSEY* Trustee October 14 , 1999
-------
Frederick T. Kelsey
RICHARD P. STRUBEL * Trustee October 14, 1999
-------
Richard P. Strubel
*By: /s/ Linda J. Hoard October 14, 1999
------------------
Linda J. Hoard
Attorney-in-fact
</TABLE>
<PAGE>
NORTHERN INSTITUTIONAL FUNDS
power of attorney
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a
Trustee of Northern Institutional Funds, a business trust organized under the
laws of The State of Delaware (the "Trust"), does hereby make, constitute and
appoint Richard Rose, Brian Curran, Linda Hoard and Teresa Hamlin, and each of
them, attorneys-in-fact and agents of the undersigned with full power and
authority of substitution and resubstitution, in any and all capacities, to
execute for and on behalf of the undersigned any and all filings and amendments
to the Registration Statement on Form N-1A relating to the shares of the Trust
and any other documents and instruments incidental thereto, and to deliver and
file the same, with all exhibits thereto, and all documents and instruments in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing that said attorneys-in-fact and
agents, and each of them, deem advisable or necessary to enable the Trust to
effectuate the intents and purposes hereof, and the undersigned hereby fully
ratifies and confirms all that said attorneys-in-fact and agents, of any of
them, or their or his or her substitute or substitutes, shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed his name this 21st
day of April, 1999.
/s/ Edward J. Condon, Jr.
Edward J. Condon, Jr.
/s/ Richard Gordon Cline
Richard Gordon Cline
/s/ John W. English
John W. English
/s/ Sandra Polk Guthman
Sandra Polk Guthman
/s/ Frederick T. Kelsey
Frederick T. Kelsey
/s/ William H. Springer
William H. Springer
/s/ Richard P. Strubel
Richard P. Strubel
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
(a) (4) Amendment No. 3 dated October 5, 1999 to the Agreement
and Declaration of Trust.
(d) (9) Form of Addendum No. 7 to Investment Advisory Agreement.
(e) (2) Form of Distribution Agreement between the Registrant
and Northern Funds Distributors, LLC.
(g) (14) Form of Addendum No. 8 to Custodian Agreement.
(h) (12) Form of Addendum No. 7 to Revised and Restated Transfer
Agency Agreement.
(h) (13) Form of Amended and Restated Co-Administration Agreement
among the Registrant, First Data Investor Services Group,
Inc. and The Northern Trust Company
(h) (14) Shareholder Servicing Plan for Class C and D Shares
and Related Forms of Servicing Agreements.
(i) (1) Opinion of Drinker Biddle & Reath LLP.
(j) (1) Consent of Drinker Biddle & Reath LLP.
(2) Consent of Ernst & Young LLP.
(n) Amended and Restated Plan pursuant to Rule 18f-3 for Operation of a
Multi-Class System.
Exhibit (a)(4)
NORTHERN INSTITUTIONAL FUNDS
(a Delaware business trust)
AMENDMENT NO. 3 TO THE AGREEMENT AND DECLARATION OF TRUST
The undersigned hereby certifies that the following
resolutions were duly adopted by the Board of Trustees of Northern Institutional
Funds (the "Trust") on October 5, 1999:
RESOLVED, that pursuant to Article V of the Agreement
and Declaration of Trust of the Trust, an unlimited number of
authorized, unissued and unclassified shares of beneficial interest of
the Trust be, and hereby are, classified into: (i) three separate
classes of shares designated as Class A, Class C and Class D Shares in
each of the Small Company Growth, Mid Cap Growth and MarketPower
Portfolios; and (ii) three separate classes of shares designated as
Shares, Service Shares and Premier Shares in the Municipal Portfolio;
FURTHER RESOLVED, that each share of each such class
of the Portfolios shall have all of the preferences, conversion and
other rights, voting powers, restrictions, limitations, qualifications
and terms and conditions of redemption that are set forth in the
Agreement and Declaration of Trust of the Trust with respect to its
shares of beneficial interest; and
FURTHER RESOLVED, that the officers of the Trust be,
and each hereby is, authorized and empowered to execute and deliver any
and all documents, instruments, papers and writings, including, but not
limited to, any instrument to be filed with the Secretary of State of
the State of Delaware, and to do any and all other acts, in the name of
the Trust and on its behalf, as he, she or they may deem necessary or
desirable in connection with or in furtherance of the foregoing
resolutions.
Date: October 5, 1999 /s/ Linda J. Hoard
------------------
Linda J. Hoard
Secretary
Exhibit (d)(9)
NORTHERN INSTITUTIONAL FUNDS
ADDENDUM NO. 7 TO THE INVESTMENT ADVISORY AGREEMENT
This Addendum, dated as of the 5th day of October, 1999, is entered
into between NORTHERN INSTITUTIONAL FUNDS (the "Trust"), a Delaware business
trust, and THE NORTHERN TRUST COMPANY (the "Adviser"), an Illinois state bank.
WHEREAS, the Trust and the Adviser have entered into an Investment Advisory
Agreement as amended by Addenda No. 1, No. 2, No. 3, No. 4, No. 5 and No. 6 (the
"Advisory Agreement"), pursuant to which the Trust appointed the Adviser to act
as Adviser to the Trust for the Diversified Assets Portfolio, Government
Portfolio, Government Select Portfolio, Tax-Exempt Portfolio, U.S. Treasury
Index Portfolio, U.S. Government Securities Portfolio, Short-Intermediate Bond
Portfolio, Bond Portfolio, Intermediate Bond Portfolio, Equity Index Portfolio,
Small Company Index Portfolio, Diversified Growth Portfolio, Focused Growth
Portfolio, Balanced Portfolio, International Growth Portfolio, International
Bond Portfolio and International Equity Index Portfolio;
WHEREAS, Section 1(b) of the Advisory Agreement provides that in the
event the Trust establishes one or more additional investment portfolios with
respect to which it desires to retain the Adviser to act as Adviser under the
Advisory Agreement, the Trust shall so notify the Adviser in writing and if the
Adviser is willing to render such services it shall notify the Trust in writing,
and the compensation to be paid to the Adviser shall be that which is agreed to
in writing by the Trust and the Adviser; and
WHEREAS, pursuant to Section l(b) of the Advisory Agreement, the Trust
has notified the Adviser that it is establishing the Small Company Growth
Portfolio, the Municipal Portfolio, the Mid Cap Growth Portfolio and the
MarketPower Portfolio (the "Portfolios"), and that it desires to retain the
Adviser to act as the Adviser therefor, and the Adviser has notified the Trust
that it is willing to serve as Adviser for the Portfolios;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Appointment. The Trust hereby appoints the Adviser to act as
Adviser to the Trust for the Portfolios for the period and on
the terms set forth in the Advisory Agreement. The Adviser
hereby accepts such appointment and agrees to render the
services set forth in the Advisory Agreement for the
compensation herein provided.
2. Duties. The Adviser shall perform the following duties with
respect to the common and preferred stocks of the Portfolios
in lieu of clauses (ii) and (iii) of paragraph 3(a) of the
Advisory Agreement:
(a) The Adviser shall place orders pursuant to its
determination either directly with the issuer or with any
broker and/or dealer or other persons who deal in the
securities in which the Portfolio in question is trading. In
executing portfolio transactions and selecting brokers or
dealers, the Adviser shall use its best judgment to obtain the
best overall terms available. In assessing the best overall
terms available for any transaction, the Adviser shall
consider all factors it deems relevant, including the breadth
of the market in the security, the price of the security, the
financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both
for the specific transaction and on a continuing basis. In
evaluating the best overall terms available and in selecting
the broker or dealer to execute a particular transaction, the
Adviser may also consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) provided to any Portfolio and/or other
accounts over which the Adviser and/or an affiliate of the
Adviser exercises investment discretion;
(b) The Adviser may, on occasions when it deems the
purchase or sale of a security to be in the best interests of
a Portfolio as well as other fiduciary or agency accounts
managed by the Adviser, aggregate, to the extent permitted by
applicable laws and regulations, the securities to be sold or
purchased in order to obtain best overall terms available
execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner it
considers to be most equitable and consistent with its
fiduciary obligations to such Portfolio and to such other
accounts.
3. Compensation. For the services provided and the
expenses assumed pursuant to the Advisory ------------
Agreement, the Trust will pay the Adviser, and the Adviser
will accept as full compensation therefor from the Trust, a
fee at an annual rate of .___ of 1% of the Small Company
Growth Portfolio's average net assets, .___ of 1% of the
Municipal Portfolio's average net assets, .___ of 1% of the
Mid Cap Growth Portfolio's average net assets and .___ of 1%
of the MarketPower Portfolio's average net assets. The fee
will be computed based on net assets on each day and will be
paid to the Adviser monthly. Such fee as is attributable to
each Portfolio shall be a separate charge to such Portfolio
and shall be the several (and not joint or joint and
several) obligation of each such Portfolio.
4. Capitalized Terms. From and after the date hereof, the term
"Portfolios" as used in the Advisory Agreement shall be deemed
to include the Small Company Growth Portfolio, the Municipal
Portfolio, the Mid Cap Growth Portfolio and the MarketPower
Portfolio. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the
Advisory Agreement.
5. Miscellaneous. Except to the extent supplemented hereby, the
Advisory Agreement shall remain unchanged and in full force
and effect, and is hereby ratified and confirmed in all
respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the day and year first above written.
NORTHERN INSTITUTIONAL FUNDS
Attest:________________ By:___________________________
Name:_________________________
Title:________________________
THE NORTHERN TRUST COMPANY
Attest:________________ By:___________________________
Name:_________________________
Title:________________________
Exhibit (e)(2)
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this _____ day of _____, 1999 (the
"Agreement") by and between Northern Institutional Funds (the "Fund"), a
Massachusetts business trust, and Northern Funds Distributors, LLC, a Wisconsin
limited liability company.
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"'),
and is currently offering shares of beneficial interest (the "Shares"),
representing interests in investment portfolios of the Fund identified on
Schedule A hereto (the "Portfolios") which are registered with the Securities
and Exchange Commission (the "SEC") pursuant to the Fund's Registration
Statement on Form N-1A (the "Registration Statement"); and
WHEREAS, the Fund desires to retain the Distributor as distributor for
the Portfolios to provide for the sale and distribution of the Shares of the
Portfolios identified on Schedule A and for such additional classes or series as
the Fund may issue, and the Distributor is prepared to provide such services
commencing on the date first written above.
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein and intending to be legally bound hereby the parties hereto
agree as follows:
1. Service as Distributor
The Fund hereby appoints the Distributor as exclusive distributor of the Shares
covered by the Registration Statement then in effect under the Securities
Act of 1933, as amended (the "1933 Act"), on the terms and for the periods
set forth in this Agreement. The Distributor hereby accepts such
appointment and agrees to render the services and perform the duties set
forth in this Agreement without compensation. The Distributor will have no
liability for payment for the purchase of Shares by unaffiliated investors
sold pursuant to this Agreement or with respect to redemptions or
repurchases of Shares.
1.2 The Distributor agrees to sell Shares of each of the Portfolios, as agent,
from time to time during the term of this Agreement at the Shares' then current
net asset value (with any purchase price adjustments, as applicable). The net
asset value of the Shares shall be determined in the manner provided in the then
current prospectus and statement of additional information relating to the
Shares (collectively, the "Prospectus" and "Statement of Additional
Information"), and when determined shall be applicable to all transactions as
provided in the Prospectus. The net asset value of the Shares shall be
calculated by the Fund or by another entity on behalf of the Fund. The
Distributor shall have no duty to inquire into, or liability for, the accuracy
of the net asset value per Share as calculated. 1.3 The Distributor agrees to
use appropriate efforts to solicit orders for the sale of the Shares. The
Distributor shall, at its own expense, finance appropriate activities which are
primarily intended to result in the sale of Shares, including, but not limited
to, the distribution services set forth in Schedule B to this Agreement. It is
contemplated that the Distributor will enter into selling agreements with
securities dealers, financial institutions and other industry professionals,
such as investment advisers, accountants and estate planning firms to the extent
permitted by SEC and NASD regulations or other governing law, with respect to
the offering of Shares to the public. The Distributor will require each dealer
with whom the Distributor has a selling agreement to conform to the applicable
provisions of the Registration Statement, with respect to the public offering
price of the Shares, and the Distributor shall not cause the Fund to withhold
the placing of purchase orders so as to make a profit thereby. 1.4 The Fund
understands that the Distributor is now, and may in the future be, the
distributor of the shares of several investment companies or series
(collectively, the "Investment Entites"), including Investment Entities having
investment objectives similar to those of the Portfolios. The Fund further
understands that investors and potential investors in the Portfolios may invest
in shares of such other Investment Entities. The Fund agrees that the
Distributor's duties to such Investment Entities shall not be deemed in conflict
with its duties to the Fund under this Section 1.4. 1.5 The Distributor shall
not utilize any materials in connection with the sale or offering of Shares
except the Fund's then current Prospectus and Statement of Additional
Information and such other materials as the Fund shall provide or approve. The
Fund agrees to furnish the Distributor with sufficient copies of any and all
communications with the public or other materials which the Fund intends to use
in connection any sales of Shares, in adequate time for the Distributor to file
and clear such materials with the proper authorities before they are put in use.
The Distributor and the Fund may agree that any such material does not need to
be filed subsequent to distribution. In addition, the Fund agrees not to use any
such materials until so filed and cleared for use, if required, by appropriate
authorities as well as by the Distributor. 1.6 All activities by the Distributor
and its agents and employees, as distributor of the Shares, shall comply with
all applicable laws, rules and regulations, including, without limitation, all
rules and regulations made or adopted by the SEC or the National Association of
Securities Dealers. 1.7 The Distributor will transmit any orders received by it
for purchase or redemption of the Shares to the transfer agent for the Fund. 1.8
Whenever in its judgment such action is warranted, the Fund may decline to
accept any orders for, or make any sales of, the Shares until such time as the
Fund deems it advisable to accept such orders and to make such sales, and the
Fund shall notify the Distributor promptly of any such determination. 1.9 The
Fund agrees to execute any and all documents and to furnish any and all
information and otherwise to take all actions that may be reasonably necessary
in connection with the qualification of the Shares for sale in such states where
Shares are offered for sale. The Fund shall notify the Distributor in writing of
the states in which the Shares are to be sold and shall notify the Distributor
in writing of any changes to the information contained in the previous
notification. 1.10 The Fund shall furnish from time to time, for use in
connection with the sale of the Shares, such information with respect to the
Fund and the Shares as the Distributor may reasonably request; and the Fund
warrants that the statements contained in any such information shall fairly show
or represent what they purport to show or represent. The Fund shall also furnish
the Distributor upon request with: (a) audited annual statements and unaudited
semi-annual statements of a Portfolio's books and accounts prepared by the Fund,
(b) quarterly earnings statements of a Portfolio prepared by the Fund, (c) a
monthly itemized list of the securities in a Portfolio, (d) monthly balance
sheets as soon as practicable after the end of each month, and (c) from time to
time such additional information regarding the financial condition of a
Portfolio as the Distributor may reasonably request. 1.11 The Fund represents to
the Distributor that all Registration Statements and Prospectuses filed by the
Fund with the SEC under the 1933 Act with respect to the Shares have been
prepared in conformity with the requirements of the 1933 Act and the rules and
regulations of the SEC thereunder. As used in this Agreement, the term
"Registration Statement" shall mean any Registration Statement and any
Prospectus and any Statement of Additional Information relating to the Fund
filed with the SEC and any amendments or supplements thereto at any time filed
with the SEC. Except as to information included in the Registration Statement in
reliance upon information provided to the Fund by the Distributor or any
affiliate of the Distributor expressly for use in the Registration Statement,
the Fund represents and warrants to the Distributor that any Registration
Statement, when such Registration Statement becomes effective, will contain
statements required to be stated therein in conformity with the 1933 Act and the
rules and regulations of the SEC; that all statements of fact contained in any
such Registration Statement will be true and correct when such Registration
Statement becomes effective; and that no Registration Statement when such
Registration Statement becomes effective will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of the
Shares. The Distributor may but shall not be obligated to propose from time to
time such amendment or amendments to any Registration Statement and such
supplement or supplements to any Prospectus as, in the light of future
developments, may, in the opinion of the Distributor's counsel, be necessary or
advisable. The Distributor shall promptly notify the Fund of any advice given to
it by its counsel regarding the necessity or advisability of amending or
supplementing such Registration Statement. If the Fund shall not propose such
amendment or amendments and/or supplement or supplements within fifteen days
after receipt by the Fund of a written request from the Distributor to do so,
the Distributor may, at its option, terminate this Agreement. The Fund shall not
file any amendment to any Registration Statement or supplement to any Prospectus
without giving the Distributor reasonable notice thereof in advance; provided,
however, that nothing contained in this Agreement shall in any way limit the
Fund's right to file at any time such amendments to any Registration Statement
and/or supplements to any Prospectus, of whatever character, as the Fund may
deem advisable, such right being in all respects absolute and unconditional. The
Fund authorizes the Distributor to use any Prospectus or Statement of Additional
Information in the form furnished by the Fund from time to time in connection
with the sale of the Shares. 1.12 No Shares shall be offered by either the
Distributor or the Fund under any of the provisions of this Agreement and no
orders for the purchase or sale of Shares hereunder shall be accepted by the
Fund if and so long as effectiveness of the Registration Statement then in
effect or any necessary amendments thereto shall be suspended under any of the
provisions of the 1933 Act, or if and so long as a current Prospectus a required
by Section 5(b)(2) of the 1933 Act is not on file with the SEC; provided,
however, that nothing contained in this Section 1.12 shall in any way restrict
or have any application to or bearing upon the Fund's obligation to redeem
Shares tendered for redemption by any shareholder in accordance with the
provisions of the Fund's Registration Statement or Agreement and Declaration of
Trust. 1.13 The Fund agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor: (a) of any
request by the SEC for amendments to the Registration Statement, Prospectus or
Statement of Additional Information then in effect or for additional
information,
(b) in the event of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement, Prospectus or Statement of
Additional Information then in effect or the initiation by service of process on
the Fund of any proceeding for that purpose; (c) of the happening of any event
that makes untrue any statement of a material fact made in the Registration
Statement, Prospectus or Statement of Additional Information then in effect or
that requires the making of a change in such Registration Statement, Prospectus
or Statement of Additional Information in order to make the statements therein
not misleading; and (d) of all actions of the SEC with respect to any amendments
to any Registration Statement, Prospectus or Statement of Additional Information
which may from time to time be filed with the SEC.
For purposes of this Section 1.13, informal requests by or acts of the
staff of the SEC shall not be deemed actions of or requests by the SEC.
The Fund represents and warrants to the Distributor that the Fund is an
investment company registered under the 1940 Act and the Shares sold by
each Portfolio are, and will be, registered under the 1933 Act.
1.15 The Distributor agrees to maintain, and preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act, such records as are required to be maintained
by Rule 31a-1(d) under the 1940 Act. 2. Compensation and Expenses
The Fund will bear the following expenses:
(a) preparation, printing and distribution of sufficient
copies of the Prospectus and Statement of Additional
Information to existing shareholders;
(b) preparation, printing and distribution of reports and other
communications (not prepared by the Distributor) to existing
shareholders;
(c) registration of the Shares under the federal and state securities laws;
(d) maintaining facilities for the issue and transfer of Shares;
(e) supplying information, prices and other data to be furnished by the
Fund under this Agreement;
(f) any original issue taxes or other transfer taxes applicable to the
sale or delivery of the Shares or certificates therefor; and
(g) any payments made in accordance with any plan hereafter adopted
pursuant to Rule 12b-1 under the 1940 Act.
3. Indemnification
The Fund agrees to indemnify and hold the Distributor, its officers, directors,
and employees, and any person who controls the Distributor within the
meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, costs, expenses (including reasonable attorneys' fees),
losses, damages, charges, payments and liabilities of any sort or kind
which the Distributor, its officers, directors, employees or any such
controlling person may incur under the 1933 Act, under any other statute,
or under common law or otherwise, arising out of or based upon (i) any
untrue statement, or alleged untrue statement, of a material fact contained
in the Fund's Registration Statement, Prospectus or Statement of Additional
Information (including amendments and supplements thereto), or (ii) any
omission, or alleged omission, to state a material fact required to be
stated in the Fund's Registration Statement, Prospectus or Statement of
Additional Information (including amendments or supplements thereto) or
necessary to make the statements therein not misleading; provided, however,
that insofar as any losses, claims, damages, costs, charges, payments,
liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information furnished to the Fund by the
Distributor or its affiliated persons for use in the Fund's Registration
Statement, Prospectus or Statement of Additional Information (including
amendments or supplements thereto), such indemnification is not applicable;
and further provided that the Fund's agreement to indemnify the Distributor
and the Fund's representations and warranties hereinbefore set forth in
Section 1.11 shall not be deemed to cover any liability to the Fund, its
officers, trustees or shareholders to which the Distributor otherwise be
subject by reason of: (a) the Distributor's willful misfeasance, bad faith
or negligence in the performance of its duties and obligations, or by
reason of the Distributor's reckless disregard of its duties and
obligations under this Agreement; or (b) the Distributor's breach of
Section 12 of this Agreement. The Fund agrees and acknowledges that the
Distributor has not prior to the date hereof assumed, and will not assume,
any obligations or liabilities arising out of the conduct of the Fund or
its distributor prior to the date hereof of those duties which the
Distributor has agreed perform pursuant to this Agreement. The Fund further
agrees to indemnify the Distributor against any losses, claims, damages or
liabilities to which the Distributor may become subject in connection with
the conduct by the Fund or its distributor of such duties prior to the date
hereof; provided that the Fund's agreement to indemnify the Distributor
shall not be deemed to cover any liability to the Fund, its officers,
trustees or shareholders to which the Distributor would otherwise be
subject by reason of willful misfeasance, bad faith or negligence in the
performance of its duties and obligations, or by reason of the
Distributor's reckless disregard of its duties and obligations under this
Agreement.
3.2 The Distributor agrees to indemnify and hold harmless the Fund, its several
officers and trustees and each person, if any, who controls a Portfolio within
the meaning of Section 15 of the 1933 Act, from and against any and all claims,
costs, expenses (including reasonable attorneys' fees), losses, damages,
charges, payments and liabilities of any sort or kind which the Fund, its
officers or trustees, or any such controlling person, may incur under the 1933
Act, under any other statute, or under common law or otherwise, but only to the
extent that such liability or expense incurred by the Fund, its officers or
trustees, or any controlling person, resulting from such claims or demands,
shall arise out of or be based upon any untrue statement, or alleged untrue
statement, of a material fact contained in the Fund's Registration Statement,
Prospectus or Statement of Additional Information (including amendments and
supplements thereto), or any omission, or alleged omission, to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, if such statement or omission was made in reliance upon
information furnished or confirmed to the Fund by the Distributor or its
affiliated persons (as defined in the 1940 Act). The Distributor also agrees to
indemnify and hold harmless the Fund, its officers or trustees, or any
controlling person in connection with any claim or in connection with any
action, suit or proceeding which arises out of or is alleged to arise out of:
(a) the Distributor's willful misfeasance, bad faith or negligence in the
performance of its duties and obligations or by reason of the Distributor's
reckless disregard of its duties and obligations under this Agreement; or (b)
the Distributor's breach of Section 12 of this Agreement. The foregoing rights
of indemnification shall be in addition to any other rights to which the Fund,
its officers or trustees, or any controlling person shall be entitled to as a
matter of law.
In any case in which one party hereto (the "Indemnifying Party") may be asked
to indemnify or hold the other party hereto (the "Indemnified Party")
harmless, the Indemnified Party will notify the Indemnifying Party in
writing promptly after identifying any situation which it believes presents
or appears likely to present a claim for indemnification (an
"Indemnification Claim") against the Indemnifying Party, although the
failure to do so shall not relieve the Indemnifying Party from any
liability which it may otherwise have to the Indemnified Party, and the
Indemnified Party shall keep the Indemnifying Party advised with respect to
all developments concerning such situation. The Indemnifying Party shall be
entitled to participate at its own expense in the defense, or if it so
elects, to assume the defense of, any Indemnification Claim which may be
the subject of this indemnification, and, in the event that the
Indemnifying Party so elects, such defense shall be conducted by counsel of
good standing chosen by the Indemnifying Party and approved by the
Indemnified Party, which approval shall not be unreasonably withheld. In
the event the Indemnifying Party elects to assume the defense of any such
Indemnification Claim and retain such counsel, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by the
Indemnified Party. In the event that the Indemnifying Party does not elect
to assume the defense of any such Indemnification Claim, or in case the
Indemnified Party reasonably does not approve of counsel chosen by the
Indemnifying Party, or in case there is a conflict of interest between the
Indemnifying Party or the Indemnified Party, the Indemnifying Party will
reimburse the Indemnified Party for the fees and expenses of any counsel
retained by the Indemnified Party. The Fund agrees promptly to notify the
Distributor of the commencement of any litigation or proceedings against
the Fund or any of its officers or trustees in connection with the issue
and sale of any of the Shares, and the Distributor agrees promptly to
notify the Fund of the commencement of any litigation or proceedings
against the Distributor or any of its officers, directors, employees or
controlling persons in connection with the issuance and sale of any of the
Shares. The Indemnified Party will not confess any Indemnification Claim or
make any compromise in any case in which the Indemnifying Party will be
asked to provide indemnification, except with the Indemnifying Party's
prior written consent.
3.4 The obligations of the parties hereto under this Section 3 shall survive the
termination of this Agreement. 3.5 The Fund's indemnification agreement
contained in this Section 3 and the Fund's representations and warranties in
this Agreement shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Distributor, its officers,
directors and employees, or any controlling person, and shall survive the
delivery of any Shares. This agreement of indemnify will inure exclusively to
the Distributor's benefit, to the benefit of its several officers, directors and
employees, and their respective estates and to the benefit of its controlling
persons and their successors. 3.6 The Distributor's indemnification agreement
contained in this Section 3 and the Distributor's representations and warranties
in this Agreement shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Fund or its officers and
trustees, or any controlling person, and shall survive the delivery of any
Shares. 4. Standard of Care; Limitation of Liability
The Distributor shall not be liable to the Fund for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
performance of its obligations and duties under this Agreement, except a
loss resulting from: (a) the Distributor's willful misfeasance, bad faith
or negligence in the performance of such obligations and duties, or by
reason of its reckless disregard thereof, or (b) the Distributor's breach
of Section 12 of this Agreement.
4.2 Each party shall have the duty to mitigate damages for which the other party
may become responsible.
4.3 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY, IN NO EVENT SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR
DIRECTORS, TRUSTEES, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE TO
THE OTHER PARTY FOR CONSEQUENTIAL DAMAGES, PROVIDED, HOWEVER, THAT NOTHING
CONTAINED IN THIS SECTION 4.3 SHALL BE CONSTRUED SO AS TO LIMIT THE RIGHTS OF
ANY SHAREHOLDER OF THE FUND, WHETHER SUING ON HIS, HER OR ITS OWN BEHALF OR
DERIVATIVELY THROUGH THE FUND, TO CONSEQUENTIAL DAMAGES. 5. Term
This Agreement shall become effective on the date first written above and,
unless sooner terminated as provided herein, shall continue until April 30,
2000 and thereafter shall continue automatically for successive one-year
terms, provided such continuance is specifically approved at least annually
by (i) the Fund's Board of Trustees or (ii) by a vote of a majority (as
defined in the 1940 Act and Rule l8f-2 thereunder) of the outstanding
voting securities of the Fund, provided that in either event the
continuance is also approved by a majority of the trustees who are not
parties to this Agreement and who are not interested persons (as defined in
the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement
is terminable without penalty, on at least sixty days' written notice, by
the Fund's Board of Trustees, by vote of a majority (as defined in the 1940
Act and Rule 18f-2 thereunder) of the outstanding voting securities of the
Fund, or by the Distributor. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act
and the rules thereunder).
5.2 In the event a termination notice is given by the Fund and provided that the
Distributor is not in default under this Agreement at the time of such
termination notice, all expenses associated with movement of records and
materials and conversion thereof to a successor distributor will be borne by the
Fund.
6. Modifications and Waivers
No change, termination, modification, or waiver of any term or
condition of the Agreement shall be valid unless in writing signed by
each party. No such writing shall be effective as against the
Distributor unless said writing is executed by a Senior Vice President,
Executive Vice President or President of the Distributor. No such
writing shall be effective as against the Fund unless said writing is
executed by the Chairman of the Fund's Board of Trustees. A party's
waiver of a breach of any term or condition in the Agreement shall not
be deemed a waiver of any subsequent breach of the same or another term
or condition.
7. No Presumption Against Drafter
The Distributor and the Fund have jointly participated in the
negotiation and drafting of this Agreement. The Agreement shall be
construed as if drafted jointly by the Fund and the Distributor, and no
presumptions arise favoring any party by virtue of the authorship of
any provision of this Agreement.
8. Publicity
Neither the Distributor nor the Fund shall release or publish news
releases, public announcements, advertising or other publicity relating
to this Agreement or to the transactions contemplated by it without
prior review and written approval of the other party; provided,
however, that either party may make such disclosures as are required by
legal, accounting or regulatory requirements after making reasonable
efforts in the circumstances to consult in advance with the other
party.
9. Severabilily
The parties intend every provision of this Agreement to be severable.
If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or
invalidity shall not affect the validity of the remainder of this
Agreement. In such case, the parties shall in good faith modify or
substitute such provision consistent with the original intent of the
parties. Without limiting the generality of this paragraph, if a court
determines that any remedy stated in this Agreement has failed of its
essential purpose, then all other provisions of this Agreement shall
remain fully effective.
10. Force Majeure
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default
or delay is caused, directly or indirectly, by circumstances beyond
such party's reasonable control. In any such event, the non-performing
party shall be excused from any farther performance and observance of
the obligations so affected only for so long as such circumstances
prevail and such party continues to use commercially reasonable efforts
to recommence performance of observance as soon as practicable.
Miscellaneous
Any notice or other instrument authorized or required by this Agreement to be
given in writing to the Fund or the Distributor shall be sufficiently given
if addressed to the party and received by it at its office set forth below
or at such other place as it may from time to time designate in writing.
To the Fund:
James D. Grassi, Esq.
The Northern Trust Company
50 South LaSalle Street - M-9
Chicago, IL 60675
with a copy to:
W. Bruce McConnel, III Esq.
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
To the Distributor:
Philip Rinnander
c/o Provident Distributors, Inc.
Four Falls Corporate Center
6th Floor
West Conshohocken, PA 19428-2961
The laws of the Commonwealth of Massachusetts, excluding the applicable
provisions of the 1940 Act, shall govern the interpretation, validity, and
enforcement of this Agreement. To the extent the provisions of
Massachusetts law or the provisions hereof conflict with the 1940 Act, the
1940 Act shall control. All actions arising from or related to this
Agreement shall be brought in the state and federal courts sitting in the
City of Boston, and the Distributor and the Fund hereby submit themselves
to the exclusive jurisdiction of those courts.
11.3 This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and which collectively shall be deemed to
constitute only one instrument. 11.4 The captions of this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. 11.5 This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and is not intended to confer upon any
other person any rights or remedies hereunder. Confidential
The parties agree that the Proprietary Information (defined below) is
confidential information of the parties and their respective licensers. The
Fund and the Distributor shall exercise at least the same degree of care,
but not less than reasonable care, to safeguard the confidentiality of the
Proprietary Information of the other as it would protect its own
Proprietary Information. The Fund and the Distributor may use the
Proprietary Information only to exercise their respective rights or perform
their respective duties under this Agreement. Except as otherwise required
by law, the Fund and the Distributor shall not duplicate, sell or disclose
to others the Proprietary Information of the other, in whole or in part,
without the prior written permission of the other party. The Fund and the
Distributor may, however, disclose Proprietary Information to their
respective employees who have a need to know the Proprietary Information to
perform work for the other, provided that the Fund and the Distributor
shall use reasonable efforts to ensure that the Proprietary Information is
not duplicated or disclosed by their respective employees in breach of this
Agreement. The Fund and the Distributor may also disclose the Proprietary
Information to independent contractors, auditors and professional advisors,
provided they first agree in writing to be bound by confidentiality
obligations substantially similar to this Section 12. Notwithstanding the
previous sentence, in no event shall either the Fund or the Distributor
disclose the Proprietary Information to any competitor of the other without
specific, prior written consent.
Proprietary Information means:
(a) any data or information that is completely sensitive material,
and not generally known to the public, including, but not
limited to, information about product plans, marketing
strategies, finance, operations, customer relationships,
customer profiles, sales estimates, business plans, and
internal performance results relating to the past, present or
future business activities of the Fund or the Distributor,
their respective subsidiaries and affiliated companies and the
customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process, procedure,
formula, or improvement that is commercially valuable and secret in the sense
that its confidentiality affords the Fund or the Distributor a competitive
advantage over its competitors; (c) all confidential or proprietary concepts,
documentation, reports, data, specifications, computer software, source code,
object code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable; (d) all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and models,
and any other tangible manifestation of the foregoing of either party which now
exist or come into the control or possession of the other; and (e) with respect
to the Fund, all records and other information relative to the Fund and its
prior, present or potential shareholders (and clients of such shareholders).
Notwithstanding the foregoing, it is hereby understood and agreed by the parties
hereto that any marketing
strategies, financing plans, customer profiles, sales estimates, business
plans or similar items prepared or developed by the Distributor for the
benefit of the Fund shall be considered the Proprietary Information of the
Fund and nothing in this Agreement shall be construed to prevent or
prohibit the Fund from disclosing such Proprietary Information to a
successor distributor.
12.4 The obligations of the parties hereto under this Section 12 shall survive
the termination of this Agreement.
Trustee and Shareholder Liability
This Agreement is executed by or on behalf of the Fund with respect to
each of the Portfolios and the obligations hereunder are not binding
upon any of the trustees, officers or shareholders of the Fund
individually but are binding only upon the Portfolio to which such
obligations pertain and the assets and property of such Portfolio. All
obligations of the Fund under this Agreement shall apply only on a
Portfolio-by-Portfolio basis, and the assets of one Portfolio shall not
be liable for the obligations of another Portfolio. The Fund's
Declaration of Trust is on file with the Secretary of the Commonwealth
of Massachusetts.
Entire Agreement
This Agreement, including all Schedules hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof
and supersedes all prior and contemporaneous proposals, agreements,
contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
NORTHERN INSTITUTIONAL FUNDS
By:
Name:
Title:
NORTHERN FUNDS DISTRIBUTORS, LLC
By:
Name:
Title:
<PAGE>
SCHEDULE A
LIST OF PORTFOLIOS
Non-International Portfolios:
Government Select Portfolio
Government Portfolio
Diversified Assets Portfolio
Tax-Exempt Portfolio
Municipal Portfolio
U.S. Government Securities Portfolio
Short-Intermediate Bond Portfolio
U.S. Treasury Index Portfolio
Bond Portfolio
Intermediate Bond Portfolio
Balanced Portfolio
Equity Index Portfolio
Diversified Growth Portfolio
Focused Growth Portfolio
Small Company Index Portfolio
Small Company Growth Portfolio
MidCap Growth Portfolio
MarketPower Portfolio
International Portfolios:
International Bond Portfolio
International Equity Index Portfolio
International Growth Portfolio
<PAGE>
SCHEDULE B
DISTRIBUTION SERVICES
The Distributor shall, at its own expense, finance appropriate activities which
are primarily intended to result in the sale of the Shares. Such services shall
include, but are not limited to:
1. Preparation and execution of selling agreements
monitoring accruals
monitoring expenses
making disbursements for expenses and fees
2. Advertising and sales literature submission to the NASD
3. Investor qualification calls, as necessary
4. Printing and mailing of Prospectuses to other than existing shareholders
Exhibit (g)(14)
NORTHERN INSTITUTIONAL FUNDS
ADDENDUM NO. 8 TO THE CUSTODIAN AGREEMENT
This Addendum No. 8, dated as of the 5th day of October, 1999, is
entered into between THE NORTHERN INSTITUTIONAL FUNDS (the "Trust"), a
Massachusetts business trust, and THE NORTHERN TRUST COMPANY, an Illinois state
bank ("Northern").
WHEREAS, the Trust and Northern have entered into a Custodian Agreement
(the "Agreement") dated June 8, 1992, as amended by Addendum No. 1 dated January
8, 1993, Addendum No. 2 dated July 1, 1993, Addendum No. 3 dated October 8,
1996, Addendum No. 4 dated April 22, 1997, Addendum No. 5 dated December 1,
1997, Addendum No. 6 dated January 27, 1998 and Addendum No. 7, dated March 31,
1998 pursuant to which the Trust has appointed Northern to act as custodian to
the Trust for its Diversified Assets Portfolio, Government Portfolio, Government
Select Portfolio, Tax-Exempt Portfolio, Global Asset Portfolio, Equity Index
Portfolio, Small Company Index Portfolio, Diversified Growth Portfolio, Focused
Growth Portfolio, U.S. Treasury Index Portfolio, U.S. Government Securities
Portfolio, Short-Intermediate Bond Portfolio, Bond Portfolio, Balanced Portfolio
and Intermediate Bond Portfolio; and
WHEREAS, the Trust is establishing the Small Company Growth Portfolio,
the Municipal Portfolio, the Mid Cap Growth Portfolio and the MarketPower
Portfolio (the "Portfolios"), and it desires to retain Northern under the terms
of the Agreement to act as the custodian for the Portfolios, and Northern is
willing to so act;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Appointment. The Trust hereby appoints Northern
custodian to the Trust for the Portfolios for the
period and on the terms set forth in the Agreement.
Northern hereby accepts such appointment and agrees
to render the services set forth in the Agreement for
the compensation therein provided.
2. Capitalized Terms. From and after the date hereof,
the term "Portfolios" as used in the Agreement shall
be deemed to include the Small Company Growth
Portfolio, the Municipal Portfolio, the Mid Cap
Growth Portfolio, and the Market Power Portfolio.
Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in
the Agreement.
3. Miscellaneous. Except to the extent supplemented
hereby, the Agreement shall remain unchanged and in
full force and effect, and is hereby ratified and
confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of
the day and year first above written.
NORTHERN INSTITUTIONAL FUNDS
Attest:
By:
Name:
Title:
THE NORTHERN TRUST COMPANY
Attest:
By:
Name:
Title:
Exhibit (h)(12)
NORTHERN INSTITUTIONAL FUNDS
ADDENDUM NO. 7 TO THE REVISED
AND RESTATED TRANSFER AGENCY AGREEMENT
This Addendum, dated as of the 5th day of October, 1999 is
entered into between Northern Institutional Funds (the "Trust"), a Delaware
business trust, and THE NORTHERN TRUST COMPANY, an Illinois state bank (the
"Transfer Agent").
WHEREAS, the Trust and the Transfer Agent have entered into a
Revised and Restated Transfer Agency Agreement dated as of January 8, 1993,
Addendum No. 1 dated July 1, 1993, Addendum No. 2 dated March 25, 1994, Addendum
No. 3 dated January 22, 1997, Addendum No. 4 dated April 22, 1997, Addendum No.
5, dated January 27, 1998 and Addendum No. 6, dated March 31, 1998, (the
"Transfer Agency Agreement"), pursuant to which the Trust appointed the Transfer
Agent to act as transfer agent with respect to each Class of shares in the
Diversified Assets Portfolio, Government Portfolio, Tax-Exempt Portfolio,
Government Select Portfolio, Global Asset Portfolio, Equity Index Portfolio,
Small Company Index Portfolio, Diversified Growth Portfolio, Focused Growth
Portfolio, U.S. Treasury Index Portfolio, U.S. Government Securities Portfolio,
Short-Intermediate Bond Portfolio, Bond Portfolio, Intermediate Bond Portfolio,
Balanced Portfolio, International Growth Portfolio, International Bond Portfolio
and International Equity Index Portfolio;
WHEREAS, the Trust is establishing the Small Company Growth
Portfolio, Municipal Portfolio, Mid Cap Growth Portfolio and the MarketPower
Portfolio, (the "Portfolios"), and it desires to retain the Transfer Agent to
render transfer agency and other services with respect to the Portfolios and
each Class of shares within the Portfolios and the record and/or beneficial
owners thereof, and the Transfer Agent is willing to render such services;
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Appointment. The Trust hereby appoints the Transfer
Agent as transfer agent with respect to the
Portfolios on the terms and for the periods set forth
in the Transfer Agency Agreement. The Transfer Agent
hereby accepts such appointment and agrees to render
the services and perform the duties set forth in the
Transfer Agency Agreement for the compensation
therein provided.
2. Capitalized Terms. From and after the date hereof, the term "Current
Portfolios" as used in the Transfer Agency Agreement shall be deemed to include
the Small Company Growth Portfolio, Municipal Portfolio, Mid Cap Growth
Portfolio and the Market Power Portfolio. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Transfer
Agency Agreement. 3. Miscellaneous. Except to the extent supplemented hereby,
the Transfer Agency Agreement shall remain unchanged and in full force and
effect, and is hereby ratified and confirmed in all respects as supplemented
hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the day and year first above written.
NORTHERN INSTITUTIONAL FUNDS
Attest: By:
Name:
Title:
THE NORTHERN TRUST COMPANY
Attest: By:
Name:
[SEAL] Title:
Exhibit (h)(13)
AMENDED AND RESTATED
CO-ADMINISTRATION AGREEMENT
THIS AMENDED AND RESTATED CO-ADMINISTRATION AGREEMENT (the
"Agreement"), dated as of this ____ day of October, 1999 (the "Effective Date"),
by and among FIRST DATA INVESTOR SERVICES GROUP, INC. ("Investor Services
Group"), a Massachusetts corporation, THE NORTHERN TRUST COMPANY ("Northern"),
an Illinois state bank (each a "Co-Administrator" and collectively, the
"Co-Administrators"), and NORTHERN INSTITUTIONAL FUNDS (the "Fund"), a Delaware
business trust.
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the " 1940 Act");
and
WHEREAS, the Fund desires to retain the Co-Administrators to render
certain administrative services with respect to each investment portfolio listed
in Schedule A hereto, as the same may be amended from time to time by the
parties hereto (collectively, the "Portfolios"), and the Co-Administrators are
willing to render such services.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein and intending to be legally bound hereby, the parties hereto
agree as follows:
Definitions.
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
"Advisory Agreement" shall mean the Investment Advisory Agreement between the
Fund and Northern dated March 31, 1998, as currently in effect and as
amended and/or superseded from time to time.
"Articles of Incorporation" shall mean the Articles of Incorporation,
Declaration of Trust, or other similar organizational document as the case
may be, of a party as the same may be amended from time to time.
"Assign" and "Assignment" shall have the same meaning herein as the term
"assignment" has in the 1940 Act.
"Authorized Person" shall be deemed to include (i) any Board Member or officer
of the Fund; or (ii) any person, whether or not such person is an officer
or employee of the Fund, duly authorized to give Oral Instructions or
Written Instructions on behalf of the Fund as indicated in writing to a
Co-Administrator from time to time.
"Board Members" shall mean the Directors or Trustees of the governing body of
the Fund, as the case may be.
"Board of Directors" shall mean the Board of Directors or Board of Trustees of
the Fund, as the case may be.
"By-Laws" shall mean the By-Laws of a party as the same may be amended from time
to time.
"Commission" shall mean the Securities and Exchange Commission.
"Custodian" refers to any custodian or subcustodian of securities and other
property, which the Fund may from time to time deposit, or cause to be
deposited or held under the name or account of such a custodian pursuant to
a custody agreement.
"1933Act" shall mean the Securities Act of 1933 and the rules and regulations
promulgated thereunder, all as amended from time to time.
"1940Act" shall mean the Investment Company Act of 1940 and the rules and
regulations promulgated thereunder, all as amended from time to time.
"OralInstructions" shall mean instructions, other than Written Instructions,
actually received by a Co-Administrator from a person reasonably believed
by a Co-Administrator to be an Authorized Person.
"Prospectus" shall mean the most recently dated Fund Prospectuses and Statements
of Additional Information, including any supplements thereto if any, which
has become effective under the 1933 Act and the 1940 Act.
"Shares" refers collectively to such shares of capital stock or beneficial
interest, as the case may be, or class thereof, of each respective
Portfolio of the Fund as may be issued from time to time.
"Written Instructions" shall mean a written communication signed by a person
reasonably believed by a Co-Administrator to be an Authorized Person and
actually received by a Co-Administrator. Written Instructions shall include
manually executed originals and authorized electronic transmissions,
including telefacsimile of a manually executed original or other process.
Appointment of the Co-Administrators.
The Fund hereby appoints Northern and Investor Services Group to act as
Co-Administrators of the Fund for the period and on the terms set forth in this
Agreement. Northern and Investor Services Group accept such appointment and
agree to render the services herein set forth for the compensation herein
provided. This Agreement shall be effective and binding on the parties hereto as
of the Effective Date.
Duties of the Co-Administrators.
Subject to the general supervision of the Board of Directors, the
Co-Administrators shall provide supervision of all aspects of the Fund's
operations (other than those referred to in paragraph 3(a) of the Advisory
Agreement) and perform the customary services of an administrator,
including but not limited to the corporate secretarial, treasury and blue
sky services set forth in Schedule B to this Agreement.
In performing their duties under this Agreement, the Co-Administrators: (a) will
act in accordance with the Articles of Incorporation, By-Laws, Prospectus and
with the Oral Instructions and Written Instructions of the Fund and will conform
to and comply with the requirements of the 1940 Act and all other applicable
federal or state laws and regulations; and (b) will consult with legal counsel
to the Fund, as necessary and appropriate. Furthermore, the Co-Administrators
shall not have or be required to have any authority to supervise the investment
or reinvestment of the securities or other properties which comprise the assets
of the Fund or any of its Portfolios and shall not provide any investment
advisory services to the Fund or any of its Portfolios under this Agreement.
In addition to the duties set forth herein, the Co-Administrators shall
perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the
Fund and the Co-Administrators.
The Co-Administrators agree to provide the services described herein in
accordance with the performance standards annexed hereto as Exhibit 1 of
Schedule B and incorporated herein (the "Performance Standards"). Such
Performance Standards may be amended from time to time upon written
agreement by the parties.
The services of the Co-Administrators hereunder are not deemed exclusive and
the Co-Administrators shall be free to render similar services to others so
long as their services under this Agreement are not impaired thereby.
Recordkeeping and Other Information.
The Co-Administrators shall create and maintain all records required of them
pursuant to their duties hereunder and as set forth in Schedule B in
accordance with all applicable laws, rules and regulations, including
records required by Section 3l(a) of the 1940 Act. Where applicable, such
records shall be maintained by the Co-Administrators for the periods and in
the places required by Rule 31a-2 under the 1940 Act.
To the extent required by Section 31 of the 1940 Act, the Co-Administrators
agree that all such records prepared or maintained by the Co-Administrators
relating to the services to be performed by the Co-Administrators hereunder
are the property of the Fund and will be preserved, maintained and made
available in accordance with such section, and will be surrendered promptly
to the Fund on and in accordance with the Fund's request.
Fund Instructions.
A Co-Administrator will have no liability when acting upon Written or Oral
Instructions reasonably believed to have been executed or orally
communicated by an Author Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written
Instruction thereof from the Fund.
At any time, a Co-Administrator may request Written Instructions from the Fund
and may seek advice from legal counsel for the Fund, or its own legal
counsel, with respect to any matter arising in connection with this
Agreement, and it shall not be liable for any action taken or not taken in
good faith in accordance with such Written Instructions or in accordance
with the opinion of counsel for the Fund or for the Co-Administrator.
Written Instructions requested by a Co-Administrator will be provided by
the Fund within a reasonable period of time.
Each Co-Administrator, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is
an Authorized Person. The Fund agrees that all Oral Instructions shall be
followed within one business day by confirming Written Instructions, and
that the Fund's failure to so confirm shall not impair in any respect a
Co-Administrator's right to rely on Oral Instructions.
Compensation.
Each Co-Administrator will from time to time employ or associate with itself
such person or persons as the Co-Administrator may believe to be
particularly suited to assist it in performing services under this
Agreement. Such person or persons include officers and employees who are
employed by both the Co-Administrator and the Fund. The Co-Administrator
shall pay the compensation of such person or persons and no obligation
shall be incurred on behalf of the Fund in such respect.
The Co-Administrators shall not be required to pay any of the following expenses
incurred by the Fund: membership dues in the Investment Company Institute or any
similar organization; investment advisory fees; custody and transfer agency
fees; fees paid under any service or distribution plan adopted by the Fund;
costs of printing and mailing stock certificates; costs of typesetting and
printing of the Prospectus for regulatory purposes and for distribution to
existing shareholders of the Portfolios; costs of shareholders' reports and
notices; interest on borrowed money; brokerage commissions; stock exchange
listing fees; taxes and fees payable to federal, state and other governmental
agencies; fees of Board Members of the Fund who are not affiliated with the
Co-Administrators; outside auditing expenses; outside legal expenses; blue sky
registration or filing fees; or other expenses not specified in this Section 6.2
which may be properly payable by the Fund. The Co-Administrators shall not be
required to pay any blue sky registration or filing fees unless and until they
have received the amount of such fees from the Fund.
The Fund on behalf of each of the Portfolios will compensate the
Co-Administrators for the performance of their obligations hereunder in
accordance with the fees and charges set forth in the written Fee Schedule
annexed hereto as Schedule C and incorporated herein.
During the term of this Agreement, the Co-Administrators will pay all expenses
incurred by them in connection with the performance of their duties under
Article 3 and Article 4 hereof, other than those items listed in Section
6.2 and those out-of-pocket costs of the preparations, submissions,
updatings and filings of the Fund's Prospectus.
If in any fiscal year, the sum of a Portfolio's expenses (including the fee
payable pursuant to Section 6.3 hereof, but excluding the investment
advisory fee and transfer agency fee payable to Northern pursuant to its
agreements with the Fund, servicing fees, and extraordinary expenses such
as taxes, interest, and indemnification expenses) exceeds on an annualized
basis .10% of a Portfolio's average net assets (.25% for each International
Portfolio as defined in Schedule A to this Agreement) for such fiscal year,
the Co-Administrators will reimburse each Portfolio for the amount of such
excess in accordance with the following timetable. Expense reimbursements,
if any, will be calculated and paid monthly. The amount of the
reimbursement paid by the Co-Administrators to each Portfolio will be
computed as of the end of each month by (a) determining the difference
between the Portfolio's accrued annualized expense ratio and the above
percentage limitation; (b) multiplying this percentage by the Portfolio's
year to date average net asset value for such month to obtain the
cumulative dollar amount of such excess; and (c) subtracting from the
cumulative dollar amount of such excess the cumulative amount of
reimbursements made to such Portfolio by the Co-Administrators since the
beginning of the fiscal year. A positive remainder represents the amount to
be paid by the Co-Administrators to the Portfolio; a negative remainder
represents the amount to be paid by the Portfolio to the Co-Administrators.
Any compensation agreed to hereunder may be adjusted from time to time by the
unanimous consent of the parties.
Documents.
In connection with the appointment of the Co-Administrators, the Fund
shall, on or before the Effective Date, but in any case within a reasonable
period of time for the Co-Administrators to prepare to perform their duties
hereunder, deliver or caused to be delivered to the Co-Administrators the
documents set forth in the written schedule of fund documents annexed hereto as
Schedule D.
Fund Accounting System.
Each Co-Administrator shall retain title to and ownership of any and all data
bases, computer programs, screen formats, report formats, interactive
design techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade
secrets, and other related legal rights owned and/or developed by it in
connection with the services provided by such Co-Administrator to the Fund
pursuant to this Agreement (the "Co-Administrator System").
Each Co-Administrator hereby grants to the Fund a limited license to the
Co-Administrator System for the sole and limited purpose of having such
Co-Administrator provide the services contemplated hereunder and nothing
contained in this Agreement shall be construed or interpreted otherwise and
such license shall immediately terminate with the termination of this
Agreement.
In the event that the Fund, including any affiliate or agent of the Fund or
any third party acting on behalf of the Fund, is provided with direct
access to the Co-Administrator System, such direct access capability shall
be limited to direct entry to the Co-Administrator System by means of
on-line mainframe terminal entry or PC emulation of such mainframe
ten-terminal entry, and any other non-conforming method of transmission of
information to the Co-Administrator System is strictly prohibited without
the prior written consent of the particular Co-Administrator.
Representations and Warranties.
Investor Services Group represents and warrants to the Fund that:
it is a corporation duly organized, existing and in good standing under the laws
of the jurisdiction in which it is organized;
it is empowered under applicable laws and by its Articles of Incorporation and
By-Laws to enter into and perform the services contemplated by this
Agreement;
all requisite corporate proceedings have been taken to authorize it to enter
into this Agreement; and
it has and will continue to have access to the necessary facilities, equipment
and personnel to perform its duties and obligations under this Agreement.
Northern represents and warrants to the Fund that:
it is duly organized, existing and in good standing under the laws of the
jurisdiction in which it is organized;
it is empowered under applicable laws and by its Articles of Incorporation and
By-Laws to enter into and perform the services contemplated by this
Agreement;
all requisite corporate proceedings have been taken to authorize it to enter
into this Agreement; and
it has and will continue to have access to the necessary facilities, equipment
and personnel to perform its duties and obligations under this Agreement.
The Fund represents and warrants to each Co-Administrator that:
it is duly organized, existing and in good standing under the laws of the
jurisdiction in which it is organized;
it is empowered under applicable laws and by its Articles of Incorporation and
By-Laws to enter into this Agreement;
all corporate proceedings required by said Articles of Incorporation, By-Laws
and applicable laws have been taken to authorize it to enter into this
Agreement;
a registration statement under the 1933 Act and the 1940 Act on behalf of each
of the Portfolios is currently effective; and
as of the date hereof, each Portfolio is duly registered and lawfully eligible
for sale in each jurisdiction indicated for such Portfolio on the list
furnished to the Co-Administrators pursuant to Article 7 of this Agreement
and that it will notify the Co-Administrators immediately of any changes to
the aforementioned list.
Indemnification.
The Fund shall indemnify and hold each Co-Administrator harmless from and
against any and all claims, costs, expenses (including reasonable
attorneys' fees), losses, damages, charges, payments and liabilities of any
sort or kind which may be asserted against a Co-Administrator or for which
a Co-Administrator may be held to be liable in connection with this
Agreement or a Co-Administrator's performance hereunder (a "Claim"), unless
such Claim resulted from: (a) the willful misfeasance, bad faith or
negligence of such Co-Administrator in the performance of its duties
hereunder, or by reason of its reckless disregard thereof; or (b) such
Co-Administrator's breach of Article 14 of this Agreement.
The Fund agrees and acknowledges that the Co-Administrators have not prior to
the Effective Date assumed, and will not assume, any obligations or
liabilities arising out of the conduct by the Fund or its administrator
prior to the Effective Date of those duties which the Co-Administrators
have agreed to perform pursuant to this Agreement. The Fund further agrees
to indemnify each Co-Administrator against any losses, claims, damages or
liabilities to which a Co-Administrator may become subject in connection
with the conduct by the Fund or its administrator of such duties prior to
the Effective Date.
Each Co-Administrator jointly and severally shall indemnify and hold the Fund
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and
liabilities of any sort or kind which may be asserted against the Fund or
for which the Fund may be held to be liable in connection with this
Agreement or the Fund's performance hereunder (a "Claim"), provided that
such Claim resulted from: (a) the willful misfeasance, bad faith or
negligence of such Co-Administrator in the performance of its duties
hereunder, or by reason of its reckless disregard thereof; or (b) such
Co-Administrator's breach of Article 14 of this Agreement.
In any case in which one party (the "Indemnifying Party") may be asked to
indemnify or hold another party (the "Indemnified Party") harmless, the
Indemnified Party will notify the Indemnifying Party in writing promptly
after identifying any situation which it believes presents or appears
likely to present a claim for indemnification (an "Indemnification Claim")
against the Indemnifying Party, although the failure to do so shall not
relieve the Indemnifying Party from any liability which it may otherwise
have to the Indemnified Party, and the Indemnified Party shall keep the
Indemnifying Party advised with respect to all developments concerning such
situation. The Indemnifying Party shall be entitled to participate at its
own expense in the defense, or if it so elects, to assume the defense of,
any Indemnification Claim which may be the subject of this indemnification,
and, in the event that the Indemnifying Party so elects, such defense shall
be conducted by counsel of good standing chosen by the Indemnifying Party
and approved by the Indemnified Party, which approval shall not be
unreasonably withheld. In the event the Indemnifying Party elects to assume
the defense of any such Indemnification Claim and retain such counsel, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by the Indemnified Party. In the event that the
Indemnifying Party does not elect to assume the defense of any such
Indemnification Claim, or in case the Indemnified Party reasonably does not
approve of counsel chosen by the Indemnifying Party, or in case there is a
conflict of interest between the Indemnifying Party or the Indemnified
Party, the Indemnifying Party will reimburse the Indemnified Party for the
fees and expenses of any counsel retained by the Indemnified Party. The
Indemnified Party will not confess any Indemnification Claim or make any
compromise in any case in which the Indemnifying Party will be asked to
provide indemnification, except with the Indemnifying Party's prior written
consent. The obligations of the parties hereto under this Article 10 shall
survive the termination of this Agreement.
Standard of Care.
The Co-Administrators shall at all times act in good faith and agree to use
their best efforts within commercially reasonable limits to ensure the
accuracy of all services performed under this Agreement, but assume no
responsibility for loss or damage to the Fund unless said errors are caused
by the Co-Administrators' willful misfeasance, bad faith or negligence in
the performance of their duties hereunder, or by reason of their reckless
disregard thereof.
Each party shall have the duty to mitigate damages for which another party may
become responsible.
Without in any way limiting the foregoing, in the event the Co-Administrators
shall provide blue sky services to the Fund, the Co-Administrators shall
have no liability for failing to file on a timely basis any material to be
provided by the Fund or its designee that the Co-Administrators have not
received on a timely basis from the Fund or its designee, nor shall the
Co-Administrators have any responsibility to review the accuracy or
adequacy of materials they receive from the Fund or its designee for
filing; nor shall the Co-Administrators have any liability for monetary
damages for the sale of securities in jurisdictions where Shares are not
properly registered, or in jurisdictions where Shares are sold in excess of
the lawfully registered amount, unless such failure of proper registration
or excess sales is due to the willful misfeasance, bad faith or negligence
of the Co-Administrators, or the reckless disregard of their duties
hereunder. The Co-Administrators shall not be liable for any errors which
result from inaccurate or inadequate information reported to the
Co-Administrators directly or indirectly from the Fund's transfer agent.
The Co-Administrators shall be under no obligation to investigate or
confirm the accuracy or adequacy of any information provided to the
Co-Administrators by the Fund's transfer agent.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL
ANY PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, TRUSTEES,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE TO ANY OTHER PARTY
FOR CONSEQUENTIAL DAMAGES.
Term and Termination.
This Agreement shall be effective on the Effective Date and, unless sooner
terminated as provided herein, shall continue until April 30, 2001 (the
"Initial Term").
Upon the expiration of the Initial Term, this Agreement shall continue
automatically for successive one-year terms ("Renewal Terms") with respect
to each Portfolio, provided such continuance is specifically approved at
least annually by (i) the Board of Directors or (ii) by a vote of a
majority (as defined in the 1940 Act and Rule 18f-2 thereunder) of the
outstanding voting securities of the particular Portfolio, provided that in
either event the continuance is also approved by a majority of the Board
Members who are not parties to this Agreement and who are not interested
persons (as defined in the 1940 Act) of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval.
The Fund may terminate this Agreement at any time after the Initial Term, with
or without cause, and without penalty, on at least sixty (60) days written
notice to the Co-Administrators.
Each Co-Administrator may terminate this Agreement with respect to itself at any
time after the Initial Term, with or without cause, and without penalty, on
at least sixty (60) days written notice to the Fund and the other
Co-Administrator.
The Fund may terminate this Agreement at any time during the Initial Term in
the event that the Fund or its shareholders incur damages in excess of one
hundred thousand dollars ($100,000) as a result of the willful misfeasance,
bad faith or negligence of the Co-Administrators, or the reckless disregard
of their duties hereunder. For this purpose, "damages" is defined as
damages caused by a single event, or cumulative series of events related to
the same matter, which generates a monetary loss to the Fund or its
shareholders. The Fund's right to terminate this Agreement pursuant to this
Section 12.5 shall remain effective even if the Co-Administrators have made
the Fund or its shareholders whole with respect to the damages caused.
The Fund may also terminate this Agreement at any time during the Initial Term,
regardless of the amount of damages to the Fund or its shareholders, in the
event that the Co-Administrators have failed to meet one of the performance
standards set forth in Exhibit 1 to Schedule B (a "Triggering Event"). The
Fund will provide the Co-Administrators with sixty (60) days written notice
if the Fund intends to exercise its option to terminate this Agreement
under this Section 12.6; provided, however, that such notice must be given
within sixty (60) days following the end of the month in which the
Triggering Event occurs. Notwithstanding the foregoing, the Fund's rights
under this Section 12.6 shall not become effective until ninety (90) days
following the Effective Date.
In the event this Agreement: (a) is terminated by the Fund pursuant to Section
12.5, Section 12.6 or Section 12.9 hereof; or (b) is not continued after
the expiration of the Initial Term or any Renewal Term, all reasonable
expenses associated with the movement of records and materials and
conversion thereof to a successor administrator shall be borne by the
Co-Administrators, and the Fund shall not be responsible for the
Co-Administrators' costs associated with such termination; provided,
however, that such expenses shall not exceed $25,000 in the event this
Agreement is not continued after the expiration of the Initial Term or any
Renewal Term. In the event this Agreement is terminated by the Fund
pursuant to any other provision of this Agreement, all reasonable expenses
associated with conversion to a successor administrator shall be borne by
the Fund.
Notwithstanding anything contained in this Agreement to the contrary, unless
this Agreement is terminated pursuant to Section 12.5, Section 12.6 or
Section 12.9 hereof, should the Fund move any of the services provided by
the Co-Administrators hereunder to a successor service provider during the
Initial Term, or should, during the Initial Term, all or substantially all
of the Fund's assets be merged with or purchased by another entity which
does not utilize the services of the Co-Administrators, the
Co-Administrators shall be entitled to receive fees from the Fund for the
period from the date of such movement, merger or purchase until the end of
the Initial Term (the "Unexpired Term"). The fees payable for the Unexpired
Term shall be accelerated to the date of such movement, merger or purchase
and shall be calculated in accordance with Section 6.3 herein at the asset
levels on such date. The expense reimbursements set forth in Section 6.5
hereof shall not apply to the Unexpired Term.
The Fund may terminate this Agreement upon its Assignment by a Co-Administrator
unless the conditions to an Assignment as set forth in Article 16 hereof
have been satisfied.
Additional Portfolios.
In the event that the Fund establishes one or more Portfolios in
addition to those identified in Schedule A with respect to which the Fund
desires to have the Co-Administrators render services as administrator under the
terms hereof, the Fund shall so notify the Co-Administrators in writing, and if
the Co-Administrators agree in writing to provide such services, Schedule A
shall be deemed amended to include such additional Portfolios.
Confidentiality.
The parties agree that the Proprietary Information (defined below) is
confidential information of the parties and their respective licensers. The
Fund and the Co-Administrators shall exercise at least the same degree of
care, but not less than reasonable care, to safeguard the confidentiality
of the Proprietary Information of each other as they would exercise to
protect their own Proprietary Information. The Fund and the
Co-Administrators may use the Proprietary Information only to exercise
their respective rights or perform their respective duties under this
Agreement. Except as otherwise required by law, the Fund and the
Co-Administrators shall not duplicate, sell or disclose to others the
Proprietary Information of the other, in whole or in part, without the
prior written permission of the affected party. The Fund and the
Co-Administrators may, however, disclose Proprietary Information to their
respective employees who have a need to know the Proprietary Information to
perform work for the other, provided that the Fund and the
Co-Administrators shall use reasonable efforts to ensure that the
Proprietary Information is not duplicated or disclosed by their respective
employees in breach of this Agreement. The Fund and the Co-Administrators
may also disclose the Proprietary Information to independent contractors,
auditors and professional advisors, provided they first agree in writing to
be bound by confidentiality obligations substantially similar to this
Section 14.1. Notwithstanding the previous sentence, in no event shall
either the Fund or the Co-Administrators disclose the Proprietary
Information to any competitor of the other without specific, prior written
consent.
Proprietary Information means:
any data or information that is competitively sensitive material, and not
generally known to the public, including, but not limited to, information
about product plans, marketing strategies, finance, operations, customer
relationships, customer profiles, sales estimates, business plans, and
internal performance results relating to the past, present or future
business activities of the Fund or the Co-Administrators, their respective
subsidiaries and affiliated companies and the customers, clients and
suppliers of any of them;
any scientific or technical information, design, process, procedure, formula or
improvement that is commercially valuable and secret in the sense that its
confidentiality affords the Fund or the Co-Administrators a competitive
advantage over their competitors;
all confidential or proprietary concepts, documentation, reports, data,
specifications, computer software, source code, object code, flow charts,
databases, inventions, know-how, show-how and trade secrets, whether or not
patentable or copyrightable;
all documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment,
prototypes and models, and any other tangible manifestation of the
foregoing of any party hereto which now exist or come into the control or
possession of the other; and
with respect to the Fund, all records and other information relative to the Fund
and its prior, present or potential shareholders (and clients of such
shareholders).
The obligations of confidentiality and restriction on use herein shall not
apply to any Proprietary Information that a party proves:
Was in the public domain prior to the date of this Agreement or subsequently
came into the public domain through no fault of such party; or
Was lawfully received by the party from a third party free of any obligation of
confidence to such third party; or
Was already in the possession of the party prior to receipt thereof, directly
or indirectly, from the other party; or
Is required to be disclosed in a judicial or administrative proceeding after
all reasonable legal remedies for maintaining such information in
confidence have been exhausted including, but not limited to, giving the
other party as much advance notice of the possibility of such disclosure as
practical so the other party may attempt to stop such disclosure or obtain
a protective order concerning such disclosure; or
Is subsequently and independently developed by employees, consultants or
agents of the party without reference to the Proprietary Information
disclosed under this Agreement.
Notwithstanding the foregoing, it is hereby understood and agreed by the parties
hereto that any marketing strategies, customer profiles or administrative,
business or shareholder servicing plans or similar items prepared or
developed by the Co-Administrators for the benefit of the Fund shall be
considered the Proprietary Information of the Fund and nothing in this
Agreement shall be construed to prevent or prohibit the Fund from
disclosing such Proprietary Information to a successor administrator.
The obligations of the parties hereto under this Article 14 shall survive the
termination of this Agreement.
Force Maieure.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by circumstances beyond such party's
reasonable control. In any such event, the non-performing party shall be excused
from any further performance and observance of the obligations so affected only
for as long as such circumstances prevail and such party continues to use
commercially reasonable efforts to recommence performance or observance as soon
as practicable.
Assignment and Subcontracting
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Except for the pending acquisition of Investor Services Group
by PNC Bank Corp, this Agreement may not be assigned or otherwise transferred by
any party hereto without the prior written consent of the other parties;
provided, however, that each party may, in its sole discretion, Assign all its
right, title and interest in this Agreement to an entity controlling, controlled
by, or under common control with, such party, provided that, in the reasonable
judgment of the Board of Directors determine in its sole discretion within
ninety (90) days of receiving written notice of such Assignment: (i) the
financial capacity of a Co-Administrator's assignee is not materially less than
that of the Co-Administrator; (ii) the nature and quality of the services to be
provided hereunder are not materially adversely affected by such Assignment; and
(iii) the quality and capability of the personnel and facilities of a
Co-Administrator's assignee are not materially less than those of the
Co-Administrator. The Co-Administrators may, in their sole discretion, engage
subcontractors to perform any non-material or non-substantive obligations
contained in this Agreement that they are otherwise required to perform
hereunder, provided that the Co-Administrators shall be responsible for all
compensation payable to such subcontractors and shall remain responsible for the
acts and omissions of such subcontractors to the same extent that the
Co-Administrators are hereunder.
Noticee 17
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or a Co-Administrator shall be sufficiently
given if addressed to a party and received by it at its office set forth below
or at such other place as it may from time to time designate in writing.
To the Fund:
James D. Grassi, Esq.
The Northern Trust Company
50 South LaSalle Street - M-9
Chicago, IL 60675
with a copy to:
W. Bruce McConnel, III, Esq.
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
To Northern:
James D. Grassi, Esq.
The Northern Trust Company
50 South LaSalle Street - M-9
Chicago, IL 60675
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this Agreement (except as to Article 24 hereof which shall be construed in
accordance with the laws of the State of Delaware). All actions arising from or
related to this Agreement shall be brought in the state and federal courts
sitting in the City of Boston, and the parties hereby submit themselves to the
exclusive jurisdiction of those courts.
Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Captions.0
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Publicity.
No party shall release or publish news releases, public announcements,
advertising or other publicity relating to this Agreement or to the transactions
contemplated by it without the prior review and written approval of the other
parties; provided, however, that a party may make such disclosures as are
required by legal, accounting or regulatory requirements after making reasonable
efforts in the circumstances to consult in advance with the other parties.
Relationship of Parties.
The Co-Administrators agree that they are independent contractors and
not partners or co-venturers and nothing contained herein shall be interpreted
or construed otherwise.
Entire Agreement; Severability.
This Agreement, including all Schedules and Exhibits hereto, constitutes the
entire Agreement between the parties with respect to the subject matter
hereof and supersedes all prior and contemporaneous proposals, agreements,
contracts, representations and understandings, whether written or oral,
between the parties with respect to the subject matter hereof. No change,
termination, modification or waiver of any term or condition of the
Agreement shall be valid unless in writing signed by each party. No such
writing shall be effective as against Investor Services Group unless said
writing is executed by a Senior Vice President, Executive Vice President or
President of Investor Services Group. No such writing shall be effective as
against the Fund unless said writing is executed by the Chairman of the
Board of Directors or another person specifically designated by the Board
of Directors. No such writing shall be effective as against Northern unless
said writing is executed by the Vice President, Senior Vice President,
Executive Vice President or President of Northern. A party's waiver of a
breach of any term or condition in the Agreement shall not be deemed a
waiver of any subsequent breach of the same or another term or condition.
The parties intend every provision of this Agreement to be severable. If a
court of competent jurisdiction determines that any term or provision is
illegal or invalid for any reason, the illegality or invalidity shall not
affect the validity of the remainder of this Agreement. In such case, the
parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of
this paragraph, if a court determines that any remedy stated in this
Agreement has failed of its essential purpose, then all other provisions of
this Agreement shall remain fully effective.
Board Member and Shareholder Liability.
This Agreement is executed by or on behalf of the Fund with respect to
each of the Portfolios and the obligations hereunder are not binding upon any of
the Board Members, officers or shareholders of the Fund individually but are
binding only upon the Portfolio to which such obligations pertain and the assets
and property of such Portfolio. All obligations of the Fund under this Agreement
shall apply only on a Portfolio-by-Portfolio basis, and the assets of one
Portfolio shall not be liable for the obligations of another Portfolio.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the Effective Date.
NORTHERN INSTITUTIONAL FUNDS
By:
Name:
Title:
THE NORTHERN TRUST COMPANY
By:
Name:
Title:
FIRST DATA INVESTOR SERVICES
GROUP, INC,
By:
Name:
Title:
<PAGE>
SCHEDULE A
LIST OF PORTFOLIOS
Non-International Portfolios:
Government Select Portfolio
Government Portfolio
Diversified Assets Portfolio
Tax-Exempt Portfolio
Municipal Portfolio
U.S. Government Securities Portfolio
Short-Intermediate Bond Portfolio
U.S. Treasury Index Portfolio
Bond Portfolio
Intermediate Bond Portfolio
Balanced Portfolio
Equity Index Portfolio
Diversified Growth Portfolio
Focused Growth Portfolio
Small Company Index Portfolio
Small Company Growth Portfolio
MidCap Growth Portfolio
MarketPower Portfolio
International Portfolios:
International Bond Portfolio
International Equity Index Portfolio
International Growth Portfolio
<PAGE>
SCHEDULE B
DUTIES OF THE CO-ADMINISTRATORS
Maintaining office facilities (which may be in the offices of a Co-Administrator
or a corporate affiliate) and furnishing corporate officers for the Fund;
Furnishing data processing services, clerical services, and executive and
administrative services and standard stationery and office supplies;
Performing all functions ordinarily performed by the office of a corporate
treasurer, and furnishing the services and facilities ordinarily incident
thereto, as follows:
Expense accrual monitoring and payment of the
Fund's bills, preparing monthly reconciliation of the
Fund's expense records and updating projections of annual
expenses
Determining dividends
Calculating yields and total returns
Preparing materials for review by the Board of
Directors, e.g., written reports pursuant to Rules 2a-7,
10f-3, 17a-7, 17e-1 and 144A and the Fund's applicable
procedures
Tax and financial counsel
Creating expense pro formas for new Portfolios/classes
Reporting Fund statistical information to investment
company reporting agencies and associations (e.g., Lipper
Analytical Services, Inc. and the Investment Company
Institute)
Compliance testing (e.g., to test compliance with
applicable provisions of the Prospectus, 1940 Act and
Internal Revenue Code)
Preparing and submitting reports to the Fund's shareholders and the Commission
including, but not necessarily limited to, Annual Reports and Semi-Annual
Reports on Form N-SAR;
Preparing and printing financial statements;
Preparing monthly Portfolio profile reports;
Preparing and filing the Fund's federal and state tax returns (other than those
required to be filed by the Fund's custodian and transfer agent) and
providing shareholder tax information to the Fund's transfer agent;
Assisting the Fund's investment adviser, at the adviser's request, in monitoring
and developing compliance procedures for the Fund which will include, among
other matters, procedures to assist the adviser in monitoring compliance
with each Portfolio's investment objective, policies, restrictions, tax
matters and applicable laws and regulations;
Assisting in marketing strategy and product development;
Performing oversight/management responsibilities, including the following:
Supervision and coordination of transfer agent
Supervision and coordination of IRA custodian
Supervision and coordination of Fund custodian
Vendor management and invoicing
Daily report coordination
Media relations
Sales literature forms and development
Fund operations coordination
Management of auditor relationship
Oversight of Portfolio compliance and tax function
Performing "blue sky" compliance functions, as follows:
Effecting and maintaining, as the case may
be, the registration of Shares of the Fund for sale
under the securities laws of the jurisdictions listed
in the Written Instructions of the Fund, which
instructions will include the amount of Shares to be
registered as well as the warning threshold to be
maintained.
Filing with each appropriate jurisdiction
the appropriate materials relating to the Fund.
Providing to the Fund quarterly reports of
sales activity in each jurisdiction in accordance
with the Written Instructions of the Fund. Sales will
be reported by shareholder residence. NSCC trades and
order clearance will be reported by the state
provided by the dealer at the point of sale. Trades
by omnibus accounts will be reported by trustee state
of residence in accordance with the Written
Instructions of the Fund outlining the entities which
are permitted to maintain omnibus positions with the
Fund.
In the event sales of Shares in a particular
jurisdiction reach or exceed the warning levels
provided in the Written Instructions of the Fund, the
Co-Administrators will promptly notify the Fund with a
recommendation of the amount of Shares to be registered
in such jurisdiction and the fee for such registration.
The Co-Administrators will not register additional
Shares in such jurisdiction unless and until the
Co-Administrators shall have received Written
Instructions to do so.
If the Co-Administrators are instructed by the Fund
not to register Shares in a particular jurisdiction,
the Co-Administrators will use their best efforts to
cause any sales in such jurisdictions to be blocked,
and such sales will not be reported to the
Co-Administrators as sales of Shares of the Fund.
Performing corporate secretarial services including the following:
Assist in maintaining corporate records and good
standing status of Fund in its state of organization
Develop and maintain calendar of annual and quarterly
board approvals and regulatory filings
Prepare notice, agenda, memoranda, resolutions and
background materials for legal approvals at quarterly and
special board meetings and committee meetings; assemble and
distribute board materials for board meetings and committee
meetings; attend meetings; make presentations where
appropriate; prepare minutes; follow up on issues; prepare
such periodic and special reports as the Board Members may
reasonably request
Provide support for written consent votes where needed
Monitoring the Fund's arrangements with respect to services provided by
institutions ("Servicing Agents") to their customers who are the beneficial
owners of Shares, pursuant to agreements ("Servicing Agreements") between
the Fund and such Servicing Agents including:
Review the qualifications of Servicing Agents wishing
to enter into Servicing Agreements
Assist in the execution and delivery of Servicing Agreements
Report to the Board of Directors with
respect to the amounts paid or payable by the Fund
from time to time under the Servicing Agreements and
the nature of the services provided by Servicing
Agents.
Maintain appropriate records in connection with their
monitoring duties
Performing the following legal services:
Prepare and file annual Post-Effective Amendments to
the Fund's Registration Statement
Prepare and file Rule 24f-2 Notices
Prepare and file Forms N-SAR
Prepare and file Annual and Semi-Annual Financial Reports
Communicate significant regulatory or legislative
developments to Fund management and Board Members and
provide related planning assistance where needed.
Consult with Fund management regarding portfolio
compliance and Fund corporate and regulatory issues as
needed
Maintain effective communication with outside counsel
Arrange D&O/E&O insurance and fidelity bond coverage for Fund
Assist in monitoring Fund Code of Ethics reporting and
provide such reports to the person designated under the
Fund's Code
Monitor handling of litigation by outside counsel and
non-routine regulatory matters
Assist in managing Commission audits of the Fund at the
investment adviser's principal place of business
Review sales material and advertising for Fund
Prospectus compliance
Assist in developing compliance guidelines and
procedures to improve overall compliance by Fund and service
providers
Prepare compliance manuals
Performing, in accordance with the Written Instructions of the Fund, Special
Legal Services in accordance with the pricing structure listed on the Fee
Schedule attached to this Agreement as Schedule C. Examples of such Special
Legal Services are:
Assist in new Portfolio start-up (to the extent
requested):
Coordinate time and responsibility schedules Prepare
Fund corporate documents Draft/file registration statement
(including investment objectives/policies and prospectuses)
Respond to and negotiate Commission comments Draft notice,
agenda and resolutions for organizational meeting; attend
board meeting; make presentations where appropriate; prepare
minutes and follow up on issues
Prepare proxy materials for special meetings of
shareholders (including fund merger documents)
Prepare Post-Effective Amendments for special purposes
(e.g., new funds or classes, changes in advisory
relationships, mergers, restructurings)
Assist in extraordinary non-recurring projects,
including providing consultative legal services, such as:
Arrange CDSC financial programs Prospectus simplification
Profile prospectuses Exemptive order applications Requests
for no-action letters
<PAGE>
EXHIBIT 1 TO SCHEDULE B
PERFORMANCE STANDARDS
The Co-Administrators' obligation to meet the following Performance Standards
shall be measured in the aggregate with respect to all Portfolios of the Fund.
The Co-Administrators will report to the Fund on a monthly basis the percent of
items completed within standard as well as a quality rating. Reporting will be
detailed to the transaction type level. A pass/fail determination for
contractual penalties will be based on the categories listed below. Note that
completion standards are measured in business days.
Fund Administration (Treasury and Reporting)Tax/Compliance
The following standards will be met 100% of the time:
All Commission and Internal Revenue Service ("IRS") regulatory
requirements will be met according to the deadlines set forth by the
Commission and the IRS
Notification to the Fund's investment adviser within two (2) business
days with compliance violations based on procedures established by and
among the Co-Administrators and the Fund.
Directors & Officers Errors & Omissions Insurance Coverage will be
reviewed annually
Rule 17g-1 Fidelity Bond filings will be made as required by the
regulations of the Commission
The following standard will be met 98% of the time:
Code of Ethics reporting forms will be circulated at least seven (7)
business days before each quarter end
Blue Sky
The following standard will be met 98% of the time:
Annual renewal filings will be submitted at least thirty (30) business
days prior to expiration
Filings of Prospectus and Annual Reports will be submitted within
fifteen (15) business days of printing/release
Legal Administration
The following standards will be met 98% of the time as measured on a quarterly
basis:
Board materials will be sent to the Fund for review at least
fourteen (14) business days prior to the Board meeting,
provided that all requested information has been received by
the Co-Administrators within agreed-upon time frames
Board materials will be sent to the Board Members at least
seven (7) business days prior to the Board meeting, provided
that all requested information has been received by the
Co-Administrators within agreed-upon time frames
Timely submission of sales literature to NASD, provided that
copies of such materials are provided to the Co-Administrators
or their affiliates on a timely basis
<PAGE>
SCHEDULE C
FEE SCHEDULE
For the services rendered, expenses assumed, facilities furnished and
payments made by the Co-Administrators, as provided for in this Agreement, the
Fund, on behalf of each Portfolio, on the first business day of each month, will
pay to Northern, as agent for itself and Investor Services Group, a fee for the
previous month at the annualized rates listed below.
1. Standard Annual Fees: Non-International Portfolios:
.10% of each Portfolio's average daily net assets
International Portfolios:
.15% of each Portfolio's average daily net assets
The foregoing fee will be computed based on net assets on each day.
2. Fees for Special Legal Services: The Co-Administrators shall be entitled to
the following fee for the performance of any Special Legal Services as described
in Schedule B in accordance with the Written Instructions of the Fund: $185 per
hour subject to certain project caps as may be agreed to by the
Co-Administrators and the Fund. Services and charges may vary based on volume.
<PAGE>
SCHEDULE D
FUND DOCUMENTS
Certified copy of the Articles of Incorporation of the Fund
Certified copy of the By-Laws of the Fund
Copy of the resolution of the Board of Directors
authorizing the execution and delivery of this
Agreement
Copies of all agreements between the Fund and its
service providers
A listing of all jurisdictions in which each Portfolio is
registered and lawfully available for sale as of the date of this
Agreement and all information relative to the monitoring of sales
and registrations of the Shares in such jurisdictions
The Fund's most recent post-effective amendment to its
registration statement
The Fund's Prospectus
Exhibit (h)(14)
NORTHERN INSTITUTIONAL FUNDS
(formerly, "The Benchmark Funds")
SHAREHOLDER SERVICING PLAN
FOR CLASS C AND D SHARES
Section 1. Upon the recommendation of The Northern Trust
Company, the Trust's investment adviser ("Northern"), any officer of Northern
Institutional Funds (the "Trust") is authorized to execute and deliver, in the
name and on behalf of the Trust, written agreements in substantially the forms
attached hereto or in any other forms previously or hereafter approved by the
Board of Trustees of the Trust or, after the Trust's reorganization as a
Delaware business trust, the Trust's successor ("Servicing Agreements") with
various financial institutions and other organizations ("Servicing Agents") of
Class C and/or D Shares of the Equity Index, Small Company Index, Diversified
Growth, Focused Growth, U.S. Treasury Index, U.S. Government Securities,
Short-Intermediate Bond, Bond, Intermediate Bond, Balanced, International
Growth, International Bond, International Equity Index, Global Asset, Small
Company Growth, Mid Cap Growth and MarketPower Portfolios (collectively the
"Funds" or individually, a "Fund"). Such Servicing Agreements shall require the
Servicing Agents to provide, or to arrange to provide, support services as set
forth therein to their customers, clients, employees and others ("Clients") who
beneficially own Shares of beneficial interest in Class C and/or D of one or
more of the Funds ("Fund Shares") in consideration for a fee, computed daily and
paid monthly in the manner set forth in the Servicing Agreements, at the annual
rate of up to .15% and .25% of the average daily net asset value of Class C
and/or D Shares of a Fund, respectively, held by the Servicing Agents on behalf
of their Clients. All expenses incurred by the Trust in connection with
Servicing Agreements for Class C and/or D Shares of a particular Fund shall be
allocated entirely to such Class C and/or D Shares of that particular Fund. The
fee allocated to the Class C and/or D Shares of a particular Fund shall be the
several (and not joint or joint and several) obligation of each such Class of
such Fund.
Section 2. Northern shall monitor the arrangements pertaining to the
Trust's Servicing Agreements with Servicing Agents. Northern shall not, however,
be obliged by this Plan to recommend, and the Trust shall not be obliged to
execute, any Servicing Agreement with any qualifying Servicing Agent.
Section 3. So long as this Plan is in effect, Northern shall provide to
the Trust's Board of Trustees, and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to this Plan and
the purposes for which such expenditures were made.
Section 4. This Plan shall become effective with respect to Class C
and/or D Shares of a particular Fund upon the approval of the Plan (and the
relevant form of Servicing Agreement attached hereto) by a majority of the Board
of Trustees, including a majority of the Trustees who are not "interested
persons" as defined in the Investment Company Act of 1940 (the "Act") of the
Trust and have no direct or indirect financial interest in the operation of this
Plan or in any Servicing Agreements or other agreements related to this Plan
(the "Disinterested Trustees"), pursuant to a vote cast in person at a meeting
called for the purpose of voting on the approval of this Plan (and relevant form
of Servicing Agreement) with respect to such Class C and/or D Shares,
respectively.
Section 5. Unless sooner terminated, this Plan shall continue until
April 30, 1999 and thereafter shall continue automatically for successive annual
periods ending on April 30, provided such continuance is approved at least
annually in the manner set forth in Section 4.
Section 6. This Plan may be amended at any time by the Board of
Trustees, provided that any material amendments of the terms of this Plan shall
become effective only upon the approval set forth in Section 4.
Section 7. This Plan is terminable at any time by vote of a majority of
the Disinterested Trustees.
Section 8. While this Plan is in effect, the selection and nomination of
those Trustees who are not "interested persons" (as defined in the Act) of the
Trust shall be committed to the discretion of the Disinterested Trustees.
Section 9. The Trust has adopted this Shareholder Services Plan as of
April 27, 1993 and last revised this Plan as of October 5, 1999.
Section 10. All persons dealing with the Trust must look solely to the
Trust's property for the enforcement of any claims against the Trust, as neither
the Trustees, officers, agents nor shareholders of the Trust assume any personal
liability for obligation entered into on the Trust's behalf.
FORM
Northern Institutional Funds
(formerly, "The Benchmark Funds")
4900 Sears Tower
Chicago, Illinois 60606
SERVICING AGREEMENT
For Class C Shares
Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the
provision of administrative support services to your customers, clients,
employees and others ("Customers") and other investors ("Investors")
(collectively "Clients") who may from time to time beneficially own shares of
beneficial interest in Class C of one or more of the portfolios which are listed
on Appendix A hereto (collectively the "Funds," and individually a "Fund")
offered by Northern Institutional Funds ("Fund Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide or arrange for the provision of
one or more of the following services to Clients who may from time to time
beneficially own Fund Shares: (1) establishing and maintaining separate account
records of Customers or other Investors; (2) providing Customers or other
Investors with a service that invests their assets in Fund Shares pursuant to
specific or pre-authorized instructions, and assistance with new account
applications; (3) aggregating and processing purchase and redemption requests
for Fund Shares from Customers or other Investors, and placing purchase and
redemption orders with the Transfer Agent; (4) issuing confirmations to
Customers or other Investors in accordance with applicable law; (5) arranging
for the timely transmission of funds representing the net purchase price or
redemption proceeds; (6) processing dividend payments on behalf of Customers or
other Investors; (7) providing information periodically to Customers or other
Investors showing their positions in Fund Shares; (8) responding to Customer or
other Investor inquiries (including requests for prospectuses), and complaints
relating to the services performed by the institutions; (9) acting as liaison
with respect to all inquiries and complaints from Customers and other Investors
relating to errors committed by the Trust or its agents, and other matters
pertaining to the Trust; (10) providing or arranging for another person to
provide subaccounting with respect to Fund Shares beneficially owned by
Customers or other Investors; (11) if required by law, forwarding shareholder
communications from the Trust (such as proxy statements and proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to Customers and other Investors; (12) providing such office
space, facilities and personnel as may be required to answer questions and
respond to inquiries; (13) maintaining appropriate management reporting and
statistical information; (14) paying expenses related to the preparation of
educational and other explanatory materials in connection with the development
of investor services; (15) developing and monitoring investment programs; or
(16) providing such other similar services as the Trust may reasonably request
to the extent the Institutions are permitted to do so under applicable law,
rules and regulations.
Section 2. We recognize that you may be subject to the
provisions of the Glass-Steagall Act and other laws governing, among other
things, the conduct of activities by Federally chartered and supervised banks
and other banking organizations. As such, you are restricted in the activities
you may undertake and for which you may be paid and, therefore, you will perform
only those activities which are consistent with your statutory and regulatory
obligations. You will act solely as agent for, upon the order of, and for the
account of, your Clients.
Section 3. In performing your duties hereunder, you shall act in
conformity with the then effective prospectus and statement of additional
information applicable to the Fund Shares, the Investment Company Act of 1940
and all other applicable Federal and State banking, securities and other laws,
regulations and rulings. You will assume sole responsibility for your compliance
with applicable Federal and State laws and regulations, and shall rely
exclusively upon your own determination, or that of your legal advisers, that
the performance of your duties hereunder complies with such laws and
regulations. You shall perform your duties hereunder in a manner consistent with
the customs and practices of other financial institutions that provide similar
services.
Section 4. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order to
provide such services to Clients.
Section 5. Neither you nor any of your officers, employees or
agents are authorized to make any representations concerning us or Fund Shares
except those contained in our then current prospectuses for such Shares, copies
of which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 6. For all purposes of this Agreement you will be deemed
to be an independent contractor, and will have no authority to act as agent for
us in any matter, or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold us harmless from and
against any and all direct or indirect liabilities or losses resulting from
requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the purchase,
redemption, transfer or registration of Fund Shares by or on behalf of Clients.
You and your employees will upon request, be available during normal business
hours to consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 7. In consideration of the services and facilities
provided by you or arranged by you to be provided hereunder, we will pay to you,
and you will accept as full payment therefor, a fee at the annual rate of .15%
of the average daily net asset value of the Fund Shares beneficially owned by
your Clients for whom you are the dealer of record or holder of record or with
whom you have a servicing relationship (the "Clients' Fund Shares"), which fee
will be computed daily and payable monthly. For purposes of determining the fees
payable under this Section 7, the average daily net asset value of the Clients'
Fund Shares will be computed in the manner specified in our registration
statement (as the same is in effect from time to time) in connection with the
computation of the net asset value of Fund Shares for purposes of purchases and
redemptions. The fee rate stated above may be prospectively increased or
decreased by us, in our sole discretion, at any time upon notice to you.
Further, we may, in our discretion, and without notice, suspend or withdraw the
sale of Fund Shares, including the sale of such Shares to you for the account of
any Client or Clients.
Section 8. Any person authorized to direct the disposition of
monies paid or payable by us pursuant to this Agreement will provide to our
Board of Trustees, and our Trustees will review, at least quarterly, a written
report of the amounts so expended and the purposes for which such expenditures
were made. In addition, you will furnish us or our designees with such
information as we or they may reasonably request (including, without limitation,
periodic certifications confirming the provision to Clients of the services
described herein), and will otherwise cooperate with us and our designees
(including, without limitation, any auditors designated by us), in connection
with the preparation of reports to our Board of Trustees concerning this
Agreement and the monies paid or payable by us pursuant hereto, as well as any
other reports or filings that may be required by law. You will be responsible
for promptly reporting to us and our Board of Trustees any potential or existing
conflicts with respect to the investments of your Clients in the Funds.
Section 9. We may enter into other similar Servicing Agreements
with any other person or persons without your consent.
Section 10. By your written acceptance of the Agreement, you
represent, warrant and agree that: (i) in no event will any of the services
provided by you hereunder be primarily intended to result in the sale of any
Fund Shares issued by us; (ii) the compensation payable to you hereunder,
together with any other compensation payable to you by Clients in connection
with the investment of their assets in the Funds, will be disclosed by you to
your Clients, will be authorized by your Clients and will not result in an
excessive or unreasonable fee to you; (iii) in the event an issue pertaining to
this Agreement or our Shareholder Servicing Plan related hereto is submitted for
approval, you will vote any Fund Shares held for your own account in the same
proportion as the vote of the Fund Shares held for your Clients benefits; and
(iv) you will not engage in activities pursuant to the Agreement which
constitute acting as a broker or dealer under state law unless you have obtained
the licenses required by such law.
Section 11. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our designee. Unless
sooner terminated, this Agreement will continue until the next April 30, and
thereafter will continue automatically for successive annual periods ending on
April 30, provided such continuance is specifically approved at least annually
by us in the manner described in Section 15 hereof. This Agreement is
terminable, without penalty, at any time by us (which termination may be by vote
of a majority of our Disinterested Trustees as defined in Section 15 hereof) or
by you upon notice to the other party hereto.
Section 12. All notices and other communications to either you
or us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device to the appropriate address shown herein.
Section 13. This Agreement will be construed in accordance with
the laws of the State of Illinois and is non-assignable by the parties hereto.
Section 14. All persons dealing with us must look solely to our
property for the enforcement of any claims against us, as neither our Trustees,
officers, agents nor shareholders assume any personal liability for obligations
entered into on our behalf.
Section 15. This Agreement has been approved by vote of a
majority of (i) our Board of Trustees and (ii) those Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) of us
and have no direct or indirect financial interest in the operation of the
Shareholder Servicing Plan adopted by us regarding the provision of support
services to the beneficial owners of Fund Shares or in any agreements related
thereto ("Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on such approval.
Section 16. The Declaration of Trust establishing Northern
Institutional Funds, dated July 1, 1997, a copy of which, together with all
amendments thereto (the "Declaration"), is on file with the Trust. The name
"Northern Institutional Funds" refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of Northern Institutional Funds, shall
be held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of said Northern Institutional Funds, but the Trust
Estate only shall be liable.
If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and promptly
return it to [insert name and address].
Very truly yours,
NORTHERN INSTITUTIONAL FUNDS
Date: By:
Authorized Officer
Accepted and Agreed to:
Date: By:
Authorized Officer
APPENDIX A
Please check the appropriate boxes to indicate the Class C
Shares of Northern Institutional Funds for which you wish to act as Servicing
Agent:
15 Equity Index Portfolio
16 Small Company Index Portfolio
17 Diversified Growth Portfolio
18 Focused Growth Portfolio
19 U.S. Treasury Index Portfolio
20 U.S. Government Securities Portfolio
21 Short-Intermediate Bond Portfolio
22 Bond Portfolio
23 Intermediate Bond Portfolio
24 Balanced Portfolio
25 International Growth Portfolio
26 International Bond Portfolio
27 International Equity Index Portfolio
28 Global Asset Portfolio
29 Small Company Growth Portfolio
30 Mid Cap Growth Portfolio
31 MarketPower Portfolio
FORM
Northern Institutional Funds
(formerly, "The Benchmark Funds")
4900 Sears Tower
Chicago, Illinois 60606
SERVICING AGREEMENT
For Class D Shares
Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the
provision of administrative support services to your customers, clients,
employees and others ("Customers") and other investors ("Investors")
(collectively "Clients") who may from time to time beneficially own shares of
beneficial interest in Class D of one or more of the portfolios which are listed
on Appendix A hereto (collectively the "Funds," and individually a "Fund")
offered by Northern Institutional Funds ("Fund Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide or arrange for the provision of
one or more of the following services to Clients who may from time to time
beneficially own Fund Shares: (1) establishing and maintaining separate account
records of Customers or other Investors; (2) providing Customers or other
Investors with a service that invests their assets in Fund Shares pursuant to
specific or pre-authorized instructions, and assistance with new account
applications; (3) aggregating and processing purchase and redemption requests
for Fund Shares from Customers or other Investors, and placing purchase and
redemption orders with the Transfer Agent; (4) issuing confirmations to
Customers or other Investors in accordance with applicable law; (5) arranging
for the timely transmission of funds representing the net purchase price or
redemption proceeds; (6) processing dividend payments on behalf of Customers or
other Investors; (7) providing information periodically to Customers or other
Investors showing their positions in Fund Shares; (8) responding to Customer or
other Investor inquiries (including requests for prospectuses), and complaints
relating to the services performed by the institutions; (9) acting as liaison
with respect to all inquiries and complaints from Customers and other Investors
relating to errors committed by the Trust or its agents, and other matters
pertaining to the Trust; (10) providing or arranging for another person to
provide subaccounting with respect to Fund Shares beneficially owned by
Customers or other Investors; (11) if required by law, forwarding shareholder
communications from the Trust (such as proxy statements and proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to Customers and other Investors; (12) displaying and making
prospectuses available on an institution's premises; (13) providing such office
space, facilities and personnel as may be required to answer questions of
potential investors and respond to inquiries of Customers and other Investors;
(14) maintaining appropriate management reporting and statistical information;
(15) paying expenses related to the preparation of educational and other
explanatory materials in connection with the development of investor services;
(16) developing and monitoring investment programs; or (17) providing such other
similar services as the Trust may reasonably request to the extent the
Institutions are permitted to do so under applicable law, rules and regulations.
Section 2. We recognize that you may be subject to the
provisions of the Glass-Steagall Act and other laws governing, among other
things, the conduct of activities by Federally chartered and supervised banks
and other banking organizations. As such, you are restricted in the activities
you may undertake and for which you may be paid and, therefore, you will perform
only those activities which are consistent with your statutory and regulatory
obligations. You will act solely as agent for, upon the order of, and for the
account of, your Clients.
Section 3. In performing your duties hereunder, you shall act in
conformity with the then effective prospectus and statement of additional
information applicable to the Fund Shares, the Investment Company Act of 1940
and all other applicable Federal and State banking, securities and other laws,
regulations and rulings. You will assume sole responsibility for your compliance
with applicable Federal and State laws and regulations, and shall rely
exclusively upon your own determination, or that of your legal advisers, that
the performance of your duties hereunder complies with such laws and
regulations. You shall perform your duties hereunder in a manner consistent with
the customs and practices of other financial institutions that provide similar
services.
Section 4. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order to
provide such services to Clients.
Section 5. Neither you nor any of your officers, employees or
agents are authorized to make any representations concerning us or Fund Shares
except those contained in our then current prospectuses for such Shares, copies
of which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 6. For all purposes of this Agreement you will be deemed
to be an independent contractor, and will have no authority to act as agent for
us in any matter, or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold us harmless from and
against any and all direct or indirect liabilities or losses resulting from
requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the purchase,
redemption, transfer or registration of Fund Shares by or on behalf of Clients.
You and your employees will upon request, be available during normal business
hours to consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 7. In consideration of the services and facilities
provided by you or arranged by you to be provided hereunder, we will pay to you,
and you will accept as full payment therefor, a fee at the annual rate of .25%
of the average daily net asset value of the Fund Shares beneficially owned by
your Clients for whom you are the dealer of record or holder of record or with
whom you have a servicing relationship (the "Clients' Fund Shares"), which fee
will be computed daily and payable monthly. For purposes of determining the fees
payable under this Section 7, the average daily net asset value of the Clients'
Fund Shares will be computed in the manner specified in our registration
statement (as the same is in effect from time to time) in connection with the
computation of the net asset value of Fund Shares for purposes of purchases and
redemptions. The fee rate stated above may be prospectively increased or
decreased by us, in our sole discretion, at any time upon notice to you.
Further, we may, in our discretion, and without notice, suspend or withdraw the
sale of Fund Shares, including the sale of such Shares to you for the account of
any Client or Clients.
Section 8. Any person authorized to direct the disposition of
monies paid or payable by us pursuant to this Agreement will provide to our
Board of Trustees, and our Trustees will review, at least quarterly, a written
report of the amounts so expended and the purposes for which such expenditures
were made. In addition, you will furnish us or our designees with such
information as we or they may reasonably request (including, without limitation,
periodic certifications confirming the provision to Clients of the services
described herein), and will otherwise cooperate with us and our designees
(including, without limitation, any auditors designated by us), in connection
with the preparation of reports to our Board of Trustees concerning this
Agreement and the monies paid or payable by us pursuant hereto, as well as any
other reports or filings that may be required by law. You will be responsible
for promptly reporting to us and our Board of Trustees any potential or existing
conflicts with respect to the investments of your Clients in the Funds.
Section 9. We may enter into other similar Servicing Agreements
with any other person or persons without your consent.
Section 10. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the services
provided by you hereunder be primarily intended to result in the sale of any
Fund Shares issued by us; (ii) the compensation payable to you hereunder,
together with any other compensation payable to you by Clients in connection
with the investment of their assets in the Funds, will be disclosed by you to
your Clients, will be authorized by your Clients and will not result in an
excessive or unreasonable fee to you; (iii) in the event an issue pertaining to
this Agreement or our Shareholder Servicing Plan related hereto is submitted for
approval, you will vote any Fund Shares held for your own account in the same
proportion as the vote of the Fund Shares held for your Clients' benefit; and
(iv) you will not engage in activities pursuant to this Agreement which
constitute acting as a broker or dealer under state law unless you have obtained
the licenses required by such law.
Section 11. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our designee. Unless
sooner terminated, this Agreement will continue until April 30, 1999, and
thereafter will continue automatically for successive annual periods ending on
April 30, provided such continuance is specifically approved at least annually
by us in the manner described in Section 15 hereof. This Agreement is
terminable, without penalty, at any time by us (which termination may be by vote
of a majority of our Disinterested Trustees as defined in Section 15 hereof) or
by you upon notice to the other party hereto.
Section 12. All notices and other communications to either you
or us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device to the appropriate address shown herein.
Section 13. This Agreement will be construed in accordance with
the laws of the State of Illinois and is nonassignable by the parties hereto.
Section 14. All persons dealing with us must look solely to our
property for the enforcement of any claims against us, as neither our Trustees,
officers, agents nor shareholders assume any personal liability for obligations
entered into on our behalf.
Section 15. This Agreement has been approved by vote of a
majority of (i) our Board of Trustees and (ii) those Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) of us
and have no direct or indirect financial interest in the operation of the
Shareholder Servicing Plan adopted by us regarding the provision of support
services to the beneficial owners of Fund Shares or in any agreements related
thereto ("Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on such approval.
Section 16. The Declaration of Trust establishing Northern
Institutional Funds, dated July 1, 1997, a copy of which, together with all
amendments thereto (the "Declaration"), is on file with the Trust. The name
"Northern Institutional Funds" refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of Northern Institutional Funds, shall
be held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of said Northern Institutional Funds, but the Trust
Estate only shall be liable.
If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and promptly
return it to [insert name and address].
Very truly yours,
NORTHERN INSTITUTIONAL FUNDS
Date: By:
Authorized Officer
Accepted and Agreed to:
Date: By:
Authorized Officer
APPENDIX A
Please check the appropriate boxes to indicate the Class D
Shares of Northern Institutional Funds for which you wish to act as Servicing
Agent:
29 Equity Index Portfolio
30 Small Company Index Portfolio
31 Diversified Growth Portfolio
32 Focused Growth Portfolio
33 U.S. Treasury Index Portfolio
34 U.S. Government Securities Portfolio
35 Short-Intermediate Bond Portfolio
36 Bond Portfolio
37 Intermediate Bond Portfolio
38 Balanced Portfolio
39 International Growth Portfolio
40 International Bond Portfolio
41 International Equity Index Portfolio
42 Global Asset Portfolio
43 Small Company Growth Portfolio
44 Mid Cap Growth Portfolio
45 MarketPower Portfolio
Exhibit (i)(1)
DRINKER BIDDLE & REATH LLP
One Logan Square
18th & Cherry Streets
Philadelphia, PA 19103-6996
October 11, 1999
Northern Institutional Funds
50 South LaSalle Street
Chicago, IL 60675
Re: Registration Statement on Form N-1A/Issuance of Shares
Ladies and Gentlemen:
We have acted as counsel to Northern Institutional Funds, a Delaware
business trust (the "Trust") organized under an Agreement and Declaration of
Trust dated July 1, 1997 (the "Declaration of Trust"), in connection with the
registration under the Securities Act of 1933, as amended, pursuant to a
Registration Statement on Form N-1A (File Nos. 2-80543 and 811-3605) (the
"Registration Statement"), of: (a) three separate classes of shares of
beneficial interest (known as Class A Shares, Class C Shares and Class D Shares)
in each of the following sixteen series, or portfolios, of the Trust - U.S.
Government Securities Portfolio, Short-Intermediate Bond Portfolio, Intermediate
Bond Portfolio, U.S. Treasury Index Portfolio, Bond Portfolio, International
Bond Portfolio, Balanced Portfolio, Equity Index Portfolio, Diversified Growth
Portfolio, Focused Growth Portfolio, MarketPower Portfolio, MidCap Growth
Portfolio, Small Company Index Portfolio, Small Company Growth Portfolio,
International Equity Index Portfolio and International Growth Portfolio; and (b)
three separate classes of shares of beneficial interest (known as Shares,
Service Shares and Premier Shares) in each of the following five series, or
portfolios, of the Trust - Government Select Portfolio, Government Portfolio,
Diversified Assets Portfolio, Tax-Exempt Portfolio and Municipal Portfolio.
Shares of the aforesaid classes of shares of beneficial interest are referred to
hereinafter as "Shares." The Trust is authorized to issue an unlimited number of
Shares in each of the aforesaid classes and series.
We have reviewed the Registration Statement and the Trust's Declaration
of Trust, as amended, its by-laws and certain resolutions adopted by its
Trustees, and have considered such other legal and factual matters as we have
deemed appropriate.
This opinion is based exclusively on the Delaware Business Trust Act and
the federal law of the United States of America.
Based on the foregoing, we are of the opinion that the Shares registered
under the Registration Statement will be, when issued against payment therefor
as described therein, legally issued, fully paid and non-assessable by the
Trust, and that, under Delaware law, the holders of the Shares will be entitled
to the same limitation of personal liability extended to stockholders of private
corporations for profit organized under the general corporation law of the State
of Delaware (except that we express no opinion as to such holders who are also
Trustees of the Trust). Pursuant to Section 2 of Article VIII of the Declaration
of Trust, the Trustees have the power to cause shareholders, or shareholders of
a particular series or class of Shares, to pay certain custodian, transfer,
servicing or similar agent charges by setting off the same against declared but
unpaid dividends or by reducing Share ownership (or by both means).
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as part of Post-Effective Amendment No. 41 to the Trust's
Registration Statement on Form N-1A. Except as provided in this paragraph, the
opinion set forth above is expressed solely for the benefit of the addressee
hereof in connection with the matters contemplated hereby and may not be relied
upon by, or filed with, any other person or entity or for any other purpose
without our prior written consent.
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
DRINKER BIDDLE & REATH LLP
Exhibit (j)(1)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
Firm under the caption "Additional Trust Information Counsel and Auditors" in
the Statement of Additional Information included in Post-Effective Amendment No.
41 to the Registration Statement on Form N-1A under the Securities Act of 1933,
as amended (the "1933 Act"), of Northern Institutional Funds (File Nos. 2-80543
and 811-3605). This consent does not constitute a consent under section 7 of the
1933 Act, and in consenting to the use of our name and the references to our
Firm under such caption we have not certified any part of the Registration
Statement and do not otherwise come within the categories of persons whose
consent is required under said section 7 or the rules and regulations of the
Securities and Exchange Commission thereunder.
/s/ Drinker Biddle & Reath LLP
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
October 12, 1999
Exhibit (j)(2)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Counsel and
Auditors" in the Registration Statement (Form N-1A) of Northern Institutional
Funds filed with the Securities and Exchange Commission in this Post-Effective
Amendment No. 41 to the Registration Statement under the Securities Act of 1933
(Registration No. 2-80543) and in this Amendment No. 42 to the Registration
Statement under the Investment Company Act of 1940 (Registration No. 811-3605).
/s/ ERNST & YOUNG LLP
Chicago, Illinois
October 13, 1999
Exhibit (n)
NORTHERN INSTITUTIONAL FUNDS
(the "Trust")
AMENDED AND RESTATED PLAN PURSUANT TO
RULE 18f-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
I. INTRODUCTION
On February 23, 1995, the Securities and Exchange Commission (the "Commission")
adopted Rule 18f-3 under the
Investment Trust Act of 1940, as amended (the "1940 Act"), which permits the
creation and operation of a multi-class distribution structure without the need
to obtain an exemptive order under Section 18 of the 1940 Act. Rule 18f-3, which
became effective on April 3, 1995, requires an investment Trust to file with the
Commission a written plan specifying all of the differences among classes,
including the various services offered to shareholders, different distribution
arrangements for each class, methods for allocating expenses relating to those
differences and any conversion features or exchange privileges. Previously, the
Trust operated a multi-class distribution structure pursuant to an exemptive
order granted by the Commission on May 26, 1993. On July 11, 1995 the Board of
Trustees of the Trust authorized the Trust to operate its current multi-class
distribution structure in compliance with Rule 18f-3. This Plan became effective
upon its original filing with the Securities and Exchange Commission.
II. ATTRIBUTES OF CLASSES
A. Generally
The Trust will offer three classes of shares - Shares (hereinafter "Initial
Class shares"), Service Class shares and Premier Class shares -- in the
Diversified Assets, Government, Government Select, Tax-Exempt and Municipal
Portfolios (each a "Portfolio," collectively, the "Money Market Portfolios").
The Trust will offer three classes of shares-- Class A, Class C and Class D
shares -- in the U.S. Government Securities, Short-Intermediate Bond, U.S.
Treasury Index, Bond, International Bond and Intermediate Bond Portfolios (each
a "Portfolio," collectively, the "Fixed Income Portfolios") and in the Balanced,
Equity Index, Diversified Growth, Focused Growth, Small Trust Index,
International Growth, International Equity Index, Global Asset, Small Company
Growth, Mid Cap Growth and MarketPower Portfolios (each a "Portfolio,"
collectively, the "Equity Portfolios" and, collectively with the Fixed Income
Portfolios, the "Non-Money Market Portfolios").
In general, shares of each class will be identical except for different expense
variables (which will result in different returns for each class), certain
related rights and certain transfer agency and shareholder services as described
below.
Initial Class, Service Class and Premier Class shares of each Money Market
Portfolio will represent interests in the
same portfolio of investments of the particular Portfolio, and will be identical
in all respects, except for: (a) the impact of (i) expenses assessed to a class
pursuant to the Service Plan for the Service Shares and the Premier Shares (the
"Money Market Non-12b-1 Plan") adopted for that class, (ii) transfer agency fees
and (iii) any other incremental expenses identified from time to time that
should be properly allocated to one class so long as any changes in expense
allocations are reviewed and approved by a vote of the Board of Trustees,
including a majority of the independent Trustees; (b) the fact that a class will
vote separately on any matter submitted to shareholders that pertains to (i) the
Money Market Non-12b-1 Plan adopted for that class or (ii) class expenses borne
by that class; (c) the different exchange privileges of each class of shares;
(d) the designation of each class of shares of a Portfolio; and (e) the
different transfer agency and shareholder services relating to a class of
shares.
Class A, Class C and Class D shares of each Non-Money Market Portfolio will
represent interests in the same
portfolio of investments of the particular Portfolio, and will be identical in
all respects, except for: (a) the impact of (i) expenses assessed to a class
pursuant to the Shareholder Servicing Plan (the "Non-12b-1 Plan") adopted for
that class, (ii) transfer agency fees and (iii) any other incremental expenses
identified from time to time that should be properly allocated to one class so
long as any changes in expense allocations are reviewed and approved by a vote
of the Board of Trustees, including a majority of the independent Trustees; (b)
the fact that a class will vote separately on any matter submitted to
shareholders that pertains to (i) the Non-12b-1 Plan adopted for that class or
(ii) class expenses borne by that class; (c) the different exchange privileges
of each class of shares; (d) the designation of each class of shares of a
Portfolio; and (e) the different transfer agency and shareholder services
relating to a class of shares.
B. Distribution Arrangements/Shareholder Services/Expenses/Sales Charges
Initial Class shares of the Money Market Portfolios
Initial Class shares of the Money Market Portfolios will be available for
purchase by The Northern Trust Company,
its affiliates and other institutions and organizations (collectively, the
"Institutions") acting on behalf of their customers, clients, employees and
others (the "Customers") and for their own account. Initial Class shares of the
Portfolios will be available for purchase, as described from time to time in the
Trust's Prospectuses and Statements of Additional Information, by Institutions
directly or through procedures established in connection with the requirements
of their qualified accounts.
Initial Class shares of the Portfolios will not be subject to a sales charge and
will not be subject to fees payable pursuant to the Money Market Non-12b-1 Plan.
Service Class and Premier Class Shares of the Money Market Portfolios
Service Class and Premier Class shares of each Money Market Portfolio will be
available for purchase by Institutions as described from time to time in the
Trust's Prospectuses and Statements of Additional Information.
Service Class shares of each Portfolio will initially be designed to be
purchased by investors having a relationship with an organization which requires
that administrative support services be provided to the investors by a servicing
agent. Premier Class shares of each Portfolio will initially be designed to be
purchased by investors having a relationship with an organization which requires
that administrative support services and unitholder liaison services be provided
to the investors by a servicing agent.
Service Class and Premier Class shares will not be subject to a sales charge.
Services provided or arranged to be provided under the Money Market Non-12b-1
Plan adopted for a Class of shares may include: (i) acting or arranging for
another party to act, as recordholder and nominee of all Service Class and
Premier Class shares of a Portfolio beneficially owned by Customers; (ii)
establishing and maintaining individual accounts and records with respect to
Service Class and Premier Class shares of a Portfolio owned by Customers; (iii)
processing and issuing confirmations concerning Customer orders to purchase,
redeem and exchange Service Class and Premier Class shares of a Portfolio; (iv)
receiving and transmitting funds representing the purchase price or redemption
proceeds of Service Class and Premier Class shares of a Portfolio; (v)
processing dividend payments on behalf of Customers; (vi) forwarding shareholder
communications from the Trust; (vii) providing such statistical and other
information as may be reasonably requested by the Trust or necessary for the
Trust to comply with applicable federal or state law; (viii) facilitating the
inclusion of a Portfolio in investment, retirement, asset allocation, cash
management or sweep accounts or similar products or services offered to
Customers or to Customers of other service agents; (ix) facilitating electronic
or computer trading and/or processing in a Portfolio to Customers or to
Customers of other service agents; (x) providing facilities to answer inquiries
and respond to correspondence with Customers and other investors about the
status of their accounts or about other aspects of the Trust or the applicable
Portfolio; (xi) assisting Customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the service
agents; (xii) providing services to Customers intended to facilitate, or improve
their understanding of the benefits and risks of, a Portfolio to Customers,
including asset allocation and other similar services; (xiii) acting as liaison
between Customers and the Trust, including obtaining information from the Trust
and assisting the Trust in correcting errors and resolving problems; and (xiv)
performing any similar administrative or shareholder liaison services.
Class A shares of the Non-Money Market Portfolios
Class A shares of the Non-Money Market Portfolios will be available for purchase
by Institutions acting on behalf of their Customers and for their own account.
Class A shares of the Portfolios will be available for purchase, as described
from time to time in the Trust's Prospectuses and Statements of Additional
Information, by Institutions directly or through procedures established in
connection with the requirements of their qualified accounts.
Class A shares of the Portfolios initially will be 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 to the holders of Class C and D shares of the
Non-Money Market Portfolios.
Class A shares of the Portfolios will not be subject to a sales charge; but
Class A shares of the Small Company Index Portfolio and International Equity
Index Portfolio will be subject to an additional purchase price amount not
exceeding .50% and 1.00%, respectively, of the net asset value of the Class A
shares purchased. Class A shares will not be subject to a fee payable pursuant
to the Non-12b-1 Plan.
Class B, C and D shares of the Non-Money Market Portfolios
Class C and D shares of each Non-Money Market Portfolio will be available for
purchase by Institutions acting on
behalf of Customers and for their own account. Class C and D shares will be
available for purchase, as described from time to time in the Trust's
Prospectuses and Statements of Additional Information, by Institutions directly
or through procedures established in connection with the requirements of their
qualified accounts.
Class C shares of each Portfolio will initially be designed to be purchased by
institutional investors which require
certain account-related services of the Trust's transfer agent and a servicing
agent that are incident to the investor being the beneficial owner of shares.
Class D shares of each Portfolio will initially be designed to be purchased by
investors having a relationship with an organization which requires that
account-related services and information be provided to the investor and
organization by the Trust's transfer agent and a servicing agent.
Class C and D shares of each Portfolio will not be subject to a sales charge;
but each class of shares of the Small Company Index Portfolio and International
Equity Index Portfolio will be subject to an additional purchase price amount
not exceeding .50% and 1.00%, respectively, of the net asset value of the shares
purchased. In addition, Class C and D shares will be subject to a fee payable
pursuant to the Non-12b-1 Plan which will not exceed the annual rate of .15% and
.25% of the average daily net asset value of the outstanding shares of the
respective classes which are held by or serviced by certain servicing agents for
beneficial owners of shares.
Services provided or arranged to be provided under the Non-12b-1 Plan adopted
for a class of shares may include:
(i) establishing and maintaining separate account records of Customers or other
investors; (ii) providing Customers or other investors with a service that
invests their assets in shares of certain classes pursuant to specific or
pre-authorized instructions, and assistance with new account applications; (iii)
aggregating and processing purchase and redemption requests for shares of
certain classes from Customers or other investors, and placing purchase and
redemption orders with the Trust's transfer agent; (iv) issuing confirmations to
Customers or other investors in accordance with applicable law; (v) arranging
for the timely transmission of funds representing the net purchase price or
redemption proceeds; (vi) processing dividend payments on behalf of Customers or
other investors; (vii) providing information periodically to Customers or other
investors showing their positions in shares; (viii) responding to Customer or
other investor inquiries (including requests for prospectuses), and complaints
relating to the services performed by the Institutions; (ix) acting as liaison
with respect to all inquiries and complaints from Customers and other investors
relating to errors committed by the Trust or its agents, and other matters
pertaining to the Trust; (x) providing or arranging for another person to
provide subaccounting with respect to shares of certain classes beneficially
owned by Customers or other investors; (xi) if required by law, forwarding
unitholder communications from the Trust (such as proxy statements and proxies,
unitholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers and other investors; (xii) providing
such office space, facilities and personnel as may be required to perform its
services under the Non-12b-1 Plan; (xiii) maintaining appropriate management
reporting and statistical information; (xiv) paying expenses related to the
preparation of educational and other explanatory materials in connection with
the development of investor services; (xv) developing and monitoring investment
programs; and (xvi) providing such other similar services as the Trust may
reasonably request to the extent the Institutions are permitted to do so under
applicable statutes, rules and regulations.
C. Exchange Privileges
Institutions and, to the extent permitted by their account agreements, Customers
generally will be permitted to exchange Initial Class shares of a Money Market
Portfolio for Initial Class shares of another Money Market Portfolio or shares
of other portfolios of the Trust (as provided for in the Prospectus for Shares)
as to which the Institution or Customer maintains an existing account with an
identical title.
To the extent permitted by their account agreements, Customers generally will be
permitted to exchange Service Class and Premier Class shares of a Money Market
Portfolio for Service Class and Premier Class shares, respectively, of another
Money Market Portfolio or shares of other portfolios of the Trust (as provided
for in the Prospectuses for Service Class and Premier Class shares) as to which
the Customer maintains an existing account with an identical title.
Institutions and, to the extent permitted by their account agreements, Customers
generally will be permitted to exchange Class A, C and D shares of a Non-Money
Market Portfolio for Class A, C or D shares, respectively, of another Non-Money
Market Portfolio or shares of other portfolios of the Trust (as provided for in
the Prospectus for Class A, C and D shares) as to which the Institution or
Customer maintains an existing account with an identical title.
D. Methodology for Allocating Expenses Among Classes
Expenses of a Portfolio are classified as being either joint or class-specific.
Joint expenses of a Portfolio are allocated daily to each class of shares of
such Portfolio in accordance with Rule 18f-3(c). Class-specific expenses of a
Portfolio are allocated to the specific class of shares of such Portfolio.
Originally Adopted: July 11, 1995
Last Amended and Restated: October 5, 1999
