As filed with the Securities and Exchange Commission on May 15, 2000
Registration Nos. 33-73404
811-8236
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]
Pre-Effective Amendment No. ___
[-]
Post-Effective Amendment No. 30
[X}
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[_]
Amendment No. 32
[X]
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Northern 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:
800-595-9111
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Jeffrey A. Dalke, Esquire
Drinker Biddle & Reath LLP
One Logan Square
18/th/ and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) [ ] on
________________, ______ 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)
[X] on July 31, 2000 pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for
a previously filed post-effective amendment.
Title of Securities Being Registered:
This Post-Effective Amendment No. 30 has been filed by Northern Funds, a
Delaware business trust, for the purpose of adopting under the Securities Act of
1933 and the Investment Company Act of 1940 the Registration Statement on Form
N-1A of Northern Funds, a Massachusetts business trust, pursuant to the
provisions of Rule 414 under the Securities Act of 1933. In accordance with the
provisions of paragraph (d) of Rule 414, this Registration Statement also
revises and sets forth additional information arising in connection with
Registrant's change of domicile or otherwise necessary to keep the Registration
Statement from being misleading in any material respect.
Northern Funds
Equity Funds
Income Equity Fund
Stock Index Fund
[Large Cap Value] Fund
Growth Equity Fund
Select Equity Fund
Blue Chip 20 Fund
Mid Cap Growth Fund
Small Cap Index Fund
Small Cap Value Fund (previously known as "Small Cap Fund")
Small Cap Growth Fund
International Growth Equity Fund
International Select Equity Fund
Technology Fund
Prospectus dated July 31, 2000
An investment in a Fund 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 a Fund involves investment risks, including possible
loss of principal.
The Securities and Exchange Commission ("SEC") 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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Table of Contents
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Page
OVERVIEW Definitions
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RISK/RETURN SUMMARY Equity Funds
Information about the objectives, principal Income Equity Fund
strategies and risk characteristics of each Fund. Stock Index Fund
[Large Cap Value]
Fund Growth Equity
Fund Select Equity
Fund Blue Chip 20
Fund Mid Cap
Growth Fund Small
Cap Index Fund
Small Cap Value
Fund Small Cap
Growth Fund
International
Growth Equity Fund
International
Select Equity Fund
Technology Fund
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Principal Investment Risks
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Fund Performance Income
Equity Fund Stock
Index Fund Growth
Equity Fund Select
Equity Fund Mid
Cap Growth Fund
Small Cap Value
Fund International
Growth Equity Fund
International
Select Equity Fund
Technology Fund
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Broad-Based Securities Indices Descriptions
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Fund Fees and Expenses
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MANAGEMENT OF THE FUNDS Investment Advisers Details that apply to the Funds as a
group.
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Advisory Fees
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Fund Management
Equity Funds
Other Fund Services
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ABOUT YOUR ACCOUNT Purchasing and Selling Shares
How to open, maintain and close an account. Purchasing Shares
Opening an Account
Selling Shares
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AccountPolicies and
Other Information
Calculating Share
Price Timing of
Purchase Requests
Social
Security/Tax
Identification
Number In-Kind
Purchases and
Redemptions
Miscellaneous
Purchase
Information Timing
of Redemption and
Exchange Requests
Payment of
Redemption
Proceeds
Miscellaneous
Redemption
Information
Exchange
Privileges
<PAGE>
Telephone Transactions
Making Changes to Your Account Information
Signature Guarantees
Business Day
Early Closings
Authorized Intermediaries
Service Organizations
Shareholder Communications
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Dividends and Distributions
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Tax Considerations
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Tax Table
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RISKS, SECURITIES, TECHNIQUES AND Risks, Securities, Techniques and
FINANCIAL INFORMATION Financial Information
Additional Information on Investment Objectives,
Principal Investment Strategies and Related Risks
Additional Description of Securities and Common
Investment Techniques
Disclaimers
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Financial Information
Fund Financial Highlights
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FOR MORE INFORMATION Annual/Semiannual Report
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Statement of Additional Information
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<PAGE>
Overview
Northern Funds (the "Trust") is a family of no-load mutual funds that offers a
selection of funds to investors, each with a distinct investment objective and
risk/reward profile.
The descriptions on the following pages may help you choose the fund or funds
that best fit your investment needs. Keep in mind, however, that no fund can
guarantee it will meet its investment objective, and no fund should be relied
upon as a complete investment program.
This Prospectus describes the thirteen equity funds (the "Funds") currently
offered by the Trust. The Trust also offers six money market funds and twelve
fixed income funds which are described in separate prospectuses.
In addition to the instruments described on the pages below, each Fund 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, Techniques and Financial Information" beginning on page __ of this
Prospectus and the Statement of Additional Information.
Definitions
Equity Funds -- Income Equity Fund, Stock Index Fund, [Large Cap Value] Fund,
Growth Equity Fund, Select Equity Fund, Blue Chip 20 Fund, Mid Cap Growth Fund,
Small Cap Index Fund, Small Cap Value Fund, Small Cap Growth Fund, International
Growth Equity Fund, International Select Equity Fund and Technology Fund. These
Funds invest at least 65% of their total assets under normal market conditions
in equity securities. As used in this Prospectus, the term "equity securities"
includes common stocks, preferred stocks, interests in real estate investment
trusts, convertible debt obligations, convertible preferred stocks, equity
interests in trusts, partnerships, joint ventures, limited liability companies
and similar enterprises, warrants and stock purchase rights.
International Funds -- International Growth Equity Fund and International Select
Equity Fund.
<PAGE>
RISK/RETURN SUMMARY
INCOME EQUITY FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income with long-term capital
appreciation as a secondary objective.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking to achieve its investment objective, the Fund
will, under normal market conditions, invest at least 65% of its total assets in
a mix of income-producing equity securities, including dividend-paying common
and preferred stocks and convertible securities. The Fund seeks to provide a
high level of current income relative to other mutual funds that invest in
equity securities.
Using fundamental research and quantitative analysis, the investment management
team buys and sells securities based on factors such as:
Current income; Prospects for growth; and Capital appreciation
potential.
In determining capital appreciation potential, the investment management team
will analyze such fundamental factors as sales and earnings growth, financial
condition, product development and the valuation of the stock relative to market
and historical norms. For convertible securities, the team also analyzes the
conversion feature and the potential value of the underlying equity securities.
Up to 100% of the Fund's total assets may be invested in convertible securities
that are below investment grade ("junk bonds"). In addition, the Fund may invest
up to 35% of its total assets in a broad range of non-convertible fixed income
securities without limitation as to maturity, and may invest to a limited extent
in the securities of foreign issuers.
Lower rated securities tend to offer higher yields than higher rated securities
with similar maturities. However, lower rated securities are considered
speculative and generally involve greater price volatility and greater risk of
loss than higher rated securities. There is no minimum rating for a security
purchased or held by the Fund, and the Fund may purchase securities that are in
default.
In seeking to achieve its investment objective, the Fund may make significant
investments in structured debt securities. Structured debt securities are
considered to be derivative instruments because the value of the principal of
and/or interest on these securities is based on changes in the value of specific
interest rates, indices or other financial indicators. For these reasons
structured debt securities present additional risk that the interest paid to the
Fund on a structured debt security will be less than expected, and that the
principal amount invested will not be returned to the Fund. As a result,
investments in structured debt securities may adversely affect the Fund's net
asset value. The Fund may also invest, to a lesser extent, in futures contracts,
options and swaps for both hedging and non-hedging purposes.
Risks. These primary investment risks apply to the Fund: interest rate/maturity,
credit, structured debt securities, high-yield, currency, country, foreign
regulatory and stock risks. See page __ for these risks and primary investment
risks common to all Funds.
<PAGE>
RISK/RETURN SUMMARY
STOCK INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide investment results approximating the aggregate price
and dividend performance of the securities included in the Standard & Poor's
("S&P") 500 Composite Stock Price Index ("S&P 500(R) Index").
The S&P 500(R) Index is an unmanaged index which includes 500 companies
operating across a broad spectrum of the U.S. economy, and its performance is
widely considered representative of the U.S. stock market as a whole.
The companies chosen for inclusion in the S&P 500(R) Index tend to be industry
leaders within the U.S. economy as determined by Standard & Poor's. However,
companies are not selected by Standard & Poor's for inclusion because they are
expected to have superior stock price performance relative to the market in
general or other stocks in particular. As of March 31, 2000, the approximate
market capitalization range of the companies included in the S&P 500(R) Index
was between $____ million and $____ billion.
S&P does not endorse any stock in the S&P 500(R) Index. It is not a sponsor of
the Stock Index Fund and is not affiliated with the Fund in any way.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. Under normal market conditions, the Fund will invest
substantially all (at least 80%) of its total assets in the equity securities of
the companies that make up the S&P 500(R) Index, in weightings that approximate
the relative composition of the securities contained in the S&P 500(R) Index.
The Fund is passively managed, which means it tries to duplicate the investment
composition and performance of the S&P 500(R) Index using computer programs and
statistical procedures. As a result, the investment management team does not use
traditional methods of fund investment management for this Fund, such as
selecting securities on the basis of economic, financial and market analysis.
Rather, the investment management team will buy and sell securities in response
to changes in the S&P 500(R) Index. Because the Fund will have fees and
transaction expenses (while the S&P 500(R) Index has none), returns are likely
to be below those of the S&P 500(R) Index.
Under normal market conditions, it is expected that the quarterly performance of
the Fund, before expenses, will track the performance of the S&P 500(R) Index
within a .95 correlation coefficient.
Risks. These primary investment risks apply to the Fund: stock and tracking
risks. See page __ for these risks and primary investment risks common to all
Funds.
<PAGE>
RISK/RETURN SUMMARY
[LARGE CAP VALUE] FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of large, established companies which the investment
management team believes are undervalued or overlooked by the market. Such
companies generally will have market capitalizations in excess of $1 billion.
Although the Fund primarily invests in the common stocks of U.S. companies, it
may invest to a limited extent in the stocks of foreign issuers.
In buying stocks for the Fund, the management team uses a disciplined strategy
to identify companies it believes are worth more than is indicated by current
market prices, focusing on such factors as a company's price-to-earnings ratio,
dividend yield and growth rate, earnings potential and asset valuation. It also
attempts to identify a catalyst that, once recognized by the market, would
result in a higher valuation for the company. The investment management team
will normally sell a security that it believes has achieved its full valuation
or is no longer attractive based upon the evaluation criteria described above.
Risks. These primary investment risks apply to the Fund: stock, currency,
country and foreign regulatory risks. See page __ for these risks and primary
risks common to all Funds.
<PAGE>
RISK/RETURN SUMMARY
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of a broad mix of companies. Such companies generally will
have market capitalizations in excess of $1 billion. Although the Fund primarily
invests in the common stocks of U.S. companies, it may invest to a limited
extent in the stocks of foreign issuers.
Using fundamental research and quantitative analysis, the investment management
team buys securities it believes to have favorable growth characteristics
relative to their peers. Similarly, the investment management team sells
securities it believes no longer have these characteristics. The team may also
sell securities in order to maintain the desired portfolio securities
composition of the Fund, which may change in response to market conditions. In
determining whether a company has favorable growth characteristics, the
investment management team analyzes factors such as:
Sales and earnings growth;
Return on equity;
Financial condition (such as debt to equity ratio); and Market
share and competitive leadership of the company's products.
Risks. These primary investment risks apply to the Fund: stock, currency,
country and foreign regulatory risks. See page __ for these risks and primary
investment risks common to all Funds.
<PAGE>
RISK/RETURN SUMMARY
SELECT EQUITY FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of a number of companies (generally less than 100) that are
selected by the investment management team for their growth potential. Such
companies generally will have market capitalizations in excess of $1 billion.
Although the Fund primarily invests in the common stocks of U.S. companies, it
may invest to a limited extent in the securities of foreign issuers.
Using fundamental research and quantitative analysis, the investment management
team buys securities it believes to have favorable growth characteristics
relative to their peers. Similarly, the investment management team sells
securities it believes no longer have these characteristics. The team may also
sell securities in order to maintain the desired portfolio securities
composition of the Fund, which may change in response to market conditions. In
determining whether a company has favorable growth characteristics, the
investment management team analyzes factors such as:
Sales and earnings growth;
Return on equity; and
Financial condition (such as debt to equity ratio).
The Fund may from time to time, emphasize particular companies or market
segments, such as technology, in attempting to achieve its investment objective.
Many of the companies in which the Fund invests retain their earnings to finance
current and future growth. These companies generally pay little or no dividends.
Risks. These primary investment risks apply to the Fund: stock, technology
stock, currency, country and foreign regulatory risks. See page __for these
risks and primary investment risks common to all Funds.
<PAGE>
RISK/RETURN SUMMARY
BLUE CHIP 20 FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking long-term capital appreciation, the Fund will,
under normal market conditions, invest at least 65% of its total assets in the
equity securities of a concentrated group of companies (generally between 20 and
40) that are selected by the investment management team for their growth
potential. Such companies generally will have market capitalizations in excess
of $1 billion. Although the Fund primarily invests in the common stocks of U.S.
companies, it may invest to a limited extent in the securities of foreign
issuers.
Using fundamental research and quantitative analysis, the investment management
team buys securities it believes have favorable growth characteristics relative
to their peers. Similarly, the investment management team sells securities it
believes no longer have these characteristics. The team may also sell securities
in order to maintain the desired portfolio securities composition of the Fund,
which may change in response to market conditions. In determining whether a
company has favorable growth characteristics, the investment management team
analyzes factors such as:
Sales and earnings growth;
Return on equity
Debt to equity ratio
Market share and competitive leadership of the company's products
The Fund may, from time to time, emphasize particular companies or market
segments, such as technology, in attempting to achieve its investment objective.
Many of the companies in which the Fund invests retain their earnings to finance
current and future growth. These companies generally pay little or no dividends.
The Fund is "non-diversified" under the 1940 Act, and may invest more of its
assets in fewer issuers than "diversified" mutual funds.
Risks. These primary investment risks apply to the Fund: stock,
non-diversification, technology stock, currency, country, foreign regulatory and
portfolio turnover risks. See page __ for these risks and primary risks common
to all Funds.
<PAGE>
RISK/RETURN SUMMARY
MID CAP GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of companies with market capitalizations, at the time of
purchase, that are within the range of the Standard & Poor's MidCap 400 Stock
Index ("S&P MidCap 400(R) Index").
Using fundamental research and quantitative analysis, the investment management
team buys securities of mid-sized companies that it believes have favorable
characteristics such as above average sales, earnings growth and competitive
returns on equity relative to their peers. Similarly, the investment management
team sells securities it believes no longer have these or other favorable
characteristics. The team may also sell securities in order to maintain the
desired portfolio securities composition of the Fund, which may change in
response to market conditions. In doing so, the investment management team
considers factors such as:
Financial condition (such as debt to equity ratio); Market share
and competitive leadership of the company's products; Earnings
growth relative to relevant competitors; and
Market valuation in comparison to securities of other mid cap
companies and the stock's own historical norms.
As of March 31, 2000, the approximate market capitalization range of the
companies included in the S&P MidCap 400(R) Index was between $____ million and
$____ billion. However, the Fund is not limited to the stocks included in the
S&P MidCap 400(R) Index and may invest in other stocks that meet the Investment
Adviser's criteria discussed above.
Although the Fund primarily invests in the stocks of U.S. companies, it may
invest to a limited extent in the securities of foreign issuers.
The investment management team may engage in active trading, and will not
consider portfolio turnover a limiting factor in making decisions for the Fund.
S&P does not endorse any stock in the S&P MidCap 400(R) Index. It is not a
sponsor of the Mid Cap Growth Fund and is not affiliated with the Fund in any
way.
Risks. These primary investment risks apply to the Fund: stock, mid cap stock,
currency, country, foreign regulatory and portfolio turnover risks. See page __
for these risks and primary investment risks common to all Funds.
<PAGE>
RISK/RETURN SUMMARY
SMALL CAP INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide investment results approximating the aggregate price
and dividend performance of the securities included in the Russell 2000 Index.
The Russell 2000 Index is a market value-weighted index which includes stocks of
the smallest 2,000 companies in the Russell 3000 Index. The Russell 3000 Index
consists of stocks of the 3,000 largest U.S. companies based on market
capitalization. The Russell 2000 Index is widely considered representative of
smaller company stock performance as a whole. The companies in the Russell 2000
Index are selected according to their total market capitalization. However,
companies are not selected by Frank Russell & Company ("Russell") for inclusion
in the Russell 2000 Index because they are expected to have superior stock price
performance relative to the stock market in general or other stocks in
particular. As of March 31, 2000, the approximate market capitalization range of
the companies included in the Russell 2000 Index was between $____ million and
$____ billion.
Russell does not endorse any stock in the Russell 2000 Index. It is not a
sponsor of the Small Cap Index Fund and is not affiliated with the Fund in any
way.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. Under normal market conditions, the Fund will invest
substantially all (at least 80%) of its total assets in the securities included
in the Russell 2000 Index, in weightings that approximate the relative
composition of the securities contained in the Index.
The Fund is passively managed, which means it tries to duplicate the investment
composition and performance of the Russell 2000 Index by using computer programs
and statistical procedures. As a result, the investment management team does not
use traditional methods of fund investment management for the Fund, such as
selecting securities on the basis of economic, financial and market analysis.
Rather, the investment management team will buy and sell securities in response
to changes in the Russell 2000 Index. Because the Fund will have fees and
transaction expenses (while the Russell 2000 Index has none), returns are likely
to be below those of the Russell 2000 Index.
Under normal market conditions, it is expected that the quarterly performance of
the Fund, before expenses, will track the performance of the Russell 2000 Index
within a .95 correlation coefficient.
Risks. These primary investment risks apply to the Fund: stock, tracking and
small cap stock risks. See page __ for these risks and primary investment risks
common to all Funds.
<PAGE>
RISK/RETURN SUMMARY
SMALL CAP VALUE FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of small companies. At the time of purchase, these companies
will have market capitalizations that are at or below the median capitalization
of stocks listed on the New York Stock Exchange. As of March 31, 2000, the
median market capitalization of stocks listed on the New York Stock Exchange was
$____ billion.
Using fundamental research and quantitative analysis, the investment management
team buys small capitalization stocks of companies which it believes are worth
more than is indicated by current market prices. Similarly, the management team
will normally sell a security that it believes has achieved its full valuation
or is not attractively priced or for other reasons. The team may also sell
securities in order to maintain the desired portfolio characteristics of the
Fund, which may change in response to market conditions. In determining whether
a stock is attractively priced, the investment management team analyzes factors
such as:
The stock's price and book value; Earnings and sales; Trading
volume; and Bid-ask spreads.
Although the Fund primarily invests in the stocks of U.S. companies, it may
invest to a limited extent in the securities of foreign issuers.
Risks. These primary investment risks apply to the Fund: stock, small cap stock,
currency, country and foreign regulatory risks. See page __ for these risks and
primary investment risks common to all Funds.
<PAGE>
RISK/RETURN SUMMARY
SMALL CAP GROWTH FUND
Investment Objective
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
Principal Investment Strategies and Risks
Investment Strategies. In seeking long-term capital appreciation, the Fund 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 Index.
Using fundamental research and quantitative analysis, the investment management
team buys securities of small companies that it believes have favorable
characteristics such as above average sales, earnings growth and competitive
returns on equity relative to their peers. Similarly, the investment management
team sells securities it believes no longer have these or other favorable
characteristics. The team may also sell securities in order to maintain the
desired portfolio securities composition of the Fund, which may change in
response to market conditions. In doing so, the investment management team
considers factors such as a company's:
Financial condition (such as debt to equity ratio); Market share
and competitive leadership of the company's products; Earnings
growth relative to relevant competitors; and
Market valuation in comparison to securities of other small cap
companies and the stock's own historical norms.
As of March 31, 2000, the approximate market capitalization range of the
companies included in the Russell 2000 Index was between $____ million and $____
billion. However, the Fund 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 Fund primarily invests in the stocks of U.S. companies, it may
invest to a limited extent in the securities of foreign issuers.
The investment management team may engage in active trading, and will not
consider portfolio turnover a limiting factor in making decisions for the Fund.
Russell does not endorse any stock in the Russell 2000 Index. It is not a
sponsor of the Small Cap Growth Fund and is not affiliated with the Fund in any
way.
Risks. These primary investment risks apply to the Fund: stock, small cap stock,
currency, country, foreign regulatory and portfolio turnover risks. See page __
for these risks and primary investment risks common to all Funds.
<PAGE>
RISK/RETURN SUMMARY
INTERNATIONAL GROWTH EQUITY FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of a broad mix of foreign companies. Such companies generally
will have market capitalizations in excess of $750 million.
Using fundamental research and quantitative analysis, the investment management
team buys securities of foreign companies believed to have favorable growth
characteristics, low debt ratios and above-average returns on equity relative to
their peers. Similarly, the investment management team sells securities it
believes no longer have these characteristics. The team may also sell securities
in order to maintain the desired portfolio securities composition of the Fund,
which may change in response to market conditions. In doing so, the investment
management team analyzes factors such as:
Sales and earnings growth;
Return on equity;
Financial condition (such as debt to equity ratio); and Market
share and competitive leadership of a company's products.
The Fund will invest in equity securities of issuers located in at least three
different foreign countries. Although the Fund primarily invests in mature
markets (such as Germany and Japan), it may to a lesser extent also make
investments in emerging markets (such as Argentina and China). In determining
whether to invest in a particular country or region, the investment management
team looks at a number of factors including a country's (or region's):
Prospects for growth;
Expected level of inflation;
Government policies influencing business conditions; and Outlook
for currency relationships.
The investment management team may engage in active trading, and will not
consider portfolio turnover a limiting factor in making decisions for the Fund.
Risks. These primary investment risks apply to the Fund: stock, currency,
country, foreign regulatory, emerging markets and portfolio turnover risks. See
page __ for these risks and primary investment risks common to all Funds.
<PAGE>
RISK/RETURN SUMMARY
INTERNATIONAL SELECT EQUITY FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation. Any income received is
incidental to this objective.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking long-term capital appreciation, the Fund will
invest, under normal market conditions, at least 65% of its total assets in the
equity securities of a number of foreign companies (generally less than ____)
that are selected by the investment management team for their growth potential.
Such companies generally will have market capitalizations in excess of $750
million.
Using fundamental research and quantitative analysis, the investment management
team buys securities of foreign companies it believes to have favorable growth
characteristics relative to their peers. Similarly, the investment management
team sells securities it believes no longer have these characteristics. The team
may also sell securities in order to maintain the desired portfolio securities
composition of the Fund, which may change in response to market conditions. In
doing so, the investment management team analyzes factors such as:
Sales and earnings growth;
Return on equity;
Financial condition (such as debt to equity ratio); and Market
share and competitive leadership of a company's products.
The Fund will invest in equity securities of issuers located in at least three
different foreign countries. Although the Fund primarily invests in mature
markets (such as Germany and Japan), it may to a lesser extent also make
investments in emerging markets (such as Argentina and China). In determining
whether to invest in a particular country or region, the investment management
team looks at a number of factors including a country's (or region's):
Prospects for economic growth;
Expected level of inflation;
Government policies influencing business conditions; and Outlook
for currency relationships.
The Fund may, from time to time, emphasize particular companies or market
segments, such as technology, in attempting to achieve its investment objective.
Many of the companies in which the Fund invests retain their earnings to finance
current and future growth. These companies pay little or no dividends.
The investment management team may engage in active trading, and will not
consider portfolio turnover a limiting factor in making decisions for the Fund.
Risks. These primary investment risks apply to the Fund: stock, technology
stock, currency, country, foreign regulatory, emerging markets and portfolio
turnover risks. See page __ for these risks and primary investment risks common
to all Funds.
<PAGE>
RISK/RETURN SUMMARY
TECHNOLOGY FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation by investing
principally in equity securities and securities of companies that develop,
produce or distribute products and services related to technology.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking to achieve its investment objective, the Fund
will invest, under normal market conditions, at least 65% of its total assets in
securities of companies principally engaged in technology business activities.
In considering whether an issuer is principally engaged in technology business
activities, Northern will consider whether it is listed on the Morgan Stanley
High-Technology 35 Index (the "Morgan Stanley Index"), the Hambrecht and Quist
Technology Index (the "H&Q Index"), the SoundView Technology Index (the
"SoundView Index"), the technology grouping of the S&P 500(R) Index or any other
comparable technology index.
Companies engaged in businesses related to the following products and services
are also considered by Northern to be engaged in technology business activities
whether or not they are listed in a technology index: industrial and business
machines; communications; computers, software and peripheral products;
electronics; electronic media; internet; television and video equipment and
services; and satellite technology and equipment. It is expected that more than
25% of the Fund's total assets will normally be invested in technology companies
which develop or sell computers, software and peripheral products. The Fund may
invest in both small and large technology companies, without regard to their
size.
Using fundamental research and quantitative analysis, the investment management
team buys stocks of technology companies it believes to have the potential to
outperform the technology sector over the next one- to two-year period.
Similarly, the investment management team sells securities it believes no longer
have these characteristics. The team may also sell securities to maintain the
desired portfolio securities composition of the Fund, which may change in
response to market conditions. In doing so, the investment management team
selects investments based on factors such as:
Financial condition (such as debt to equity ratio); Market share;
Competitive leadership of a company's products or market niches;
Earnings growth rates compared with relevant competitors; and
Market valuation compared to securities of other
technology-related companies and the stock's own historical norms.
Although the Fund primarily invests in the stocks of U.S. companies, it may
invest to a limited extent in the securities of foreign issuers.
Risks. These primary investment risks apply to the Fund: stock, small cap stock,
technology stock, computer, software and computer services, currency, country
and foreign regulatory risks. See page __ for these risks and primary investment
risks common to all Funds.
<PAGE>
RISK/RETURN SUMMARY
Principal Investment Risks
All investments carry some degree of risk which will affect the value of a
Fund's investments, its investment performance and the price of its shares. As a
result, loss of money is a risk of investing in each Fund.
An investment in each of the Funds 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 Funds and may
result in a loss of your investment.
Risks that apply to all Funds
Market risk is the risk that the value of the securities in which a Fund
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.
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 a Fund 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.
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.
Risk that applies primarily to the Income Equity Fund
High-yield risk may impact the value of non-investment grade securities
held by a Fund. Generally, these securities, sometimes known as "junk
bonds," are subject to greater credit risk, price volatility and risk of
loss than investment grade securities. In addition, there may be less of a
market for them, which could make it harder to sell them at an acceptable
price. These and related risks mean that a Fund may not achieve the
expected income from non-investment grade securities and that its share
price may be adversely affected by declines in the value of these
securities.
Structured debt securities risk is the risk that loss may result from a
Fund's investments in structured debt securities, which are derivative
instruments and may be leveraged. The value of structured debt securities
may be adversely affected by changes in the interest rate payable on a
security while held by a Fund. In some cases it is possible that a Fund may
suffer a total loss on its investment in a structured debt security.
Risk that applies primarily to the Blue Chip 20 Fund
Non-diversification risk is the risk that a non-diversified Fund may be
more susceptible to adverse financial, economic or other developments
affecting any single issuer, and more susceptible to greater losses because
of these developments.
<PAGE>
RISK/RETURN SUMMARY
Risk that applies to the Stock Index and Small Cap Index Funds
Tracking risk is the risk that a Fund's performance may vary substantially
from the performance of the benchmark index it tracks as a result of share
purchases and redemptions, transaction costs, expenses and other factors.
Risk that applies primarily to the Small Cap Index, Small Cap Value, Small Cap
Growth and Technology Funds
Small cap 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 cap stocks typically are traded in
lower volume, and their issuers typically are subject to greater degrees of
changes in their earnings and prospects.
Risk that applies primarily to the Mid Cap Growth Fund
Mid cap stock risk is the risk that stocks of mid-sized companies may be
subject to more abrupt or erratic market movements than stocks of larger,
more established companies. Mid-sized companies may have limited product
lines or financial resources, and may be dependent upon a particular niche
of the market.
Risks that apply primarily to the Technology Fund
Technology stock risk is the risk that stocks of technology companies may
be subject to greater price volatility than stocks of companies in other
sectors. Technology companies may produce or use products or services that
prove commercially unsuccessful, become obsolete or become adversely
impacted by government regulation. Technology securities may experience
significant price movements caused by disproportionate investor optimism or
pessimism.
Computer risk is the risk that companies in the computer industry can be
significantly affected by competitive pressures. For example, as product
cycles shorten and manufacturing capacity increases, these companies could
become increasingly subject to aggressive pricing, which hampers
profitability. Profitability can also be affected by changing domestic and
international demand, research and development costs and product
obsolescence.
Software and computer services risk is the risk that companies in the
software and computer services industry can be significantly affected by
competitive pressures. For example, an increasing number of companies and
new product offerings can lead to aggressive pricing and slower selling
cycles.
Other Risks
Currency risk is the potential for price fluctuations in the dollar value
of foreign securities because of changing currency exchange rates.
Country risk is the potential for price fluctuations in foreign securities
because of political, financial and economic events in foreign countries.
Investment of more than 25% of a Fund's total assets in securities of
issuers located in one country will subject the Fund to increased country
risk with respect to the particular country.
Foreign regulatory risk is the risk that a foreign security could lose
value because of less stringent foreign securities regulations and
accounting and disclosure standards.
RISK/RETURN SUMMARY
Emerging markets risk is the risk that the securities markets of emerging
countries are less liquid, are especially subject to greater price
volatility, have smaller market capitalizations, have less government
regulation and are not subject to as extensive and frequent accounting,
financial and other reporting requirements as the securities markets of
more developed countries.
Portfolio turnover risk is the risk that high portfolio turnover is likely
to result in increased Fund expenses which may result in lower investment
returns. High portfolio turnover is also likely to result in higher
short-term capital gains taxable to shareholders. For the last fiscal year,
the annual portfolio turnover rates of the [International Growth Equity
Fund and International Select Equity Fund] exceeded 100%. It is expected
that the annual portfolio turnover rates of the [Blue Chip 20 Fund, Mid Cap
Growth Fund and Small Cap Growth Fund] may also exceed 100%.
More information about the risks of investing in the Funds is provided in
"Risks, Securities, Techniques and Financial Information" beginning on page __
of this Prospectus. You should carefully consider the risks discussed in this
section and "Risks, Securities, Techniques and Financial Information" before
investing in a Fund.
Fund Performance
The bar charts and tables below provide an indication of the risks of investing
in a Fund by showing: (a) changes in the performance of a Fund from year to
year; and (b) how the average annual returns of a Fund compare to those of a
broad-based securities market index. For a description of each broad-based
securities market index please see page __.
The bar charts and tables assume reinvestment of dividends and distributions. A
Fund's past performance is not necessarily an indication of how the Fund will
perform in the future. Performance reflects expense limitations that were in
effect during the periods presented. If expense limitations were not in place, a
Fund's performance would have been reduced.
The Small Cap Index and Small Cap Growth Funds commenced operations on September
3, 1999 and October 1, 1999, respectively. As of the date of this Prospectus,
the [Large Cap Value] and Blue Chip 20 Funds had not commenced operations. The
bar chart and performance table have been omitted for these Funds because the
Funds have been in operation for less than one calendar year.
<PAGE>
RISK/RETURN SUMMARY
INCOME EQUITY FUND
[Bar Chart]
Calendar Year Total Return
1995: 18.92%
1996: 19.99%
1997: 20.84%
1998: 9.17%
1999: ____%
Year to date total return for the three months ended March 31, 2000: ____%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
[TO BE UPDATED]
Best Quarter Return: Q4 '98 10.98%
Worst Quarter Return: Q3 '98 (9.30)%
Average Annual Total Return (for the periods ended December 31, 1999)
[TO BE UPDATED]
<TABLE>
<CAPTION>
<S><C> <C> <C>
Since
1 Year Inception
Income Equity Fund (Inception 4/1/94) ____% ____%
Merrill Lynch Investment Grade Convertible Bond Index ____% ____%
Merrill Lynch All U.S. Convertibles Index* ____% ____%
- ------------------------------------------------------------------ ----------------- ------------------------
</TABLE>
* The Merrill Lynch All U.S. Convertibles Index, an unmanaged index of
securities which cannot be purchased by investors, is replacing the Merrill
Lynch Investment Grade Convertible Bond Index as the Northern Income Equity
Fund's performance benchmark. The Merrill Lynch All U.S. Convertibles Index
is a broader measure of the convertibles market and includes securities
from all investment grades. It is therefore expected to be a better
benchmark comparison of the Fund's performance.
<PAGE>
RISK/RETURN SUMMARY
STOCK INDEX FUND
[Bar Chart]
Calendar Year Total Return
1997: 32.71%
1998: 27.88%
1999: ____%
Year to date total return for the three months ended March 31, 2000: ____%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
[TO BE UPDATED]
Best Quarter Return: Q4 '98 21.18%
Worst Quarter Return: Q3 '98 (10.05)%
Average Annual Total Return (for the periods ended December 31, 1999)
[TO BE UPDATED]
<TABLE>
<CAPTION>
<S><C> <C> <C>
Since
1 Year Inception
Stock Index Fund (Inception 10/7/96) ____% ____%
S&P 500(R) Index ____% ____%
- ------------------------------------------------- ------------------- ----------------------------
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
GROWTH EQUITY FUND
[Bar Chart]
Calendar Year Total Return
1995: 26.15%
1996: 17.82%
1997: 30.13%
1998: 33.14%
1999: ____%
Year to date total return for the three months ended March 31, 2000: ____%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
[TO BE UPDATED]
Best Quarter Return: Q4 '98 24.82%
Worst Quarter Return: Q3 '98 (11.30)%
Average Annual Total Return (for the periods ended December 31, 1999)
[TO BE UPDATED]
Since
1 Year Inception
Growth Equity Fund (Inception 4/1/94) ____% ____%
S&P 500(R) Index ____% ____%
- ------------------------------------------------- ------------------- ---------
<PAGE>
RISK/RETURN SUMMARY
SELECT EQUITY FUND
[Bar Chart]
Calendar Year Total Return
1995: 28.88%
1996: 21.53%
1997: 31.78%
1998: 35.13%
1999: ____%
Year to date total return for the three months ended March 31, 2000: ____%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
[TO BE UPDATED]
Best Quarter Return: Q4 '98 27.46%
Worst Quarter Return: Q3 '98 (10.70)%
Average Annual Total Return (for the periods ended December 31, 1999)
[TO BE UPDATED]
Since
1 Year Inception
Select Equity Fund (Inception 4/6/94) ____% ____%
S&P 500(R) Index ____% ____%
- ------------------------------------------------- ------------------- ---------
<PAGE>
RISK/RETURN SUMMARY
MID CAP GROWTH FUND
[Bar Chart]
Calendar Year Total Return
1999: ____%
Year to date total return for the three months ended March 31, 2000: ____%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: ____ ____%
Worst Quarter Return: ____ ____%
Average Annual Total Return (for the periods ended December 31, 1999)
Since
1 Year Inception
Mid Cap Growth Fund (Inception 3/31/98) ____% ____%
S&P MidCap 400(R) Index ____% ____%
- ------------------------------------------------- ------------------- ---------
<PAGE>
RISK/RETURN SUMMARY
SMALL CAP VALUE FUND
[Bar Chart]
Calendar Year Total Return
1995: 22.54%
1996: 18.95%
1997: 29.77%
1998: (5.94)%
1999: ____%
Year to date total return for the three months ended March 31, 2000: ____%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
[TO BE UPDATED]
Best Quarter Return: Q3 '97 16.95%
Worst Quarter Return: Q3 '98 (20.46)%
Average Annual Total Return (for the periods ended December 31, 1999)
[TO BE UPDATED]
Since
1 Year Inception
Small Cap Value Fund (4/1/94) ____% ____%
Russell 2000 Index ____% ____%
- ------------------------------------------------- ------------------- ---------
<PAGE>
RISK/RETURN SUMMARY
INTERNATIONAL GROWTH EQUITY FUND
[Bar Chart]
Calendar Year Total Return
1995: 2.04%
1996: 5.02%
1997: 6.26%
1998: 23.98%
1999: ____%
Year to date total return for the three months ended March 31, 2000: ____%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
[TO BE UPDATED]
Best Quarter Return: Q4 '98 18.84%
Worst Quarter Return: Q3 '98 (13.72)%
Average Annual Total Return (for the periods ended December 31, 1999)
[TO BE UPDATED]
<TABLE>
<CAPTION>
<S><C> <C> <C>
Since
1 Year Inception
International Growth Equity Fund (Inception 4/1/94) ____% ____%
MSCI EAFE Index ____% ____%
- ------------------------------------------------------------------- ---------------- --------------------
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INTERNATIONAL SELECT EQUITY FUND
[Bar Chart]
Calendar Year Total Return
1995: (0.79)%
1996: 2.89%
1997: 9.08%
1998: 22.36%
1999: ____%
Year to date total return for the three months ended March 31, 2000: ____%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
[TO BE UPDATED]
Best Quarter Return: Q4 '98 16.27%
Worst Quarter Return: Q3 '98 (11.80)%
Average Annual Total Return (for the periods ended December 31, 1999)
[TO BE UPDATED]
<TABLE>
<CAPTION>
<S><C> <C> <C>
Since
1 Year Inception
International Select Equity Fund (Inception 4/5/94) ____% ____%
MSCI EAFE Index Blended with Emerging Markets Free Index ____% ____%
- ------------------------------------------------------------------------- --------------- ------------------
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
TECHNOLOGY FUND
[Bar Chart]
Calendar Year Total Return
1997: 16.76%
1998: 83.01%
1999: ____%
Year to date total return for the three months ended March 31, 2000: ____%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
[TO BE UPDATED]
Best Quarter Return: Q4 '98 50.19%
Worst Quarter Return: Q4 '97 (13.23)%
Average Annual Total Return (for the periods ended December 31, 1999)
[TO BE UPDATED]
<TABLE>
<CAPTION>
<S><C> <C> <C>
Since
1 Year Inception
Technology Fund (Inception 4/1/96) ____% ____%
Morgan Stanley High-Technology 35 Index ____% ____%
S&P 500(R) Index ____% ____%
- ------------------------------------------------------------------- ---------------- -------------------
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
Broad-Based Securities Market Indices Descriptions
The Merrill Lynch Investment Grade Convertible Bond Index is an unmanaged index
consisting of investment grade (BBB or better) convertible bonds and preferred
stocks. The Index figures do not reflect any fees or expenses.
The Merrill Lynch All U.S. Convertibles Index is an unmanaged index consisting
of securities of all investment grades. The Index figures do not reflect any
fees or expenses.
The S&P 500(R) Index is the Standard and Poor's Composite Index of 500 stocks, a
widely recognized, unmanaged index of common stock prices. The Index figures do
not reflect any fees or expenses.
The S&P MidCap 400(R) Index is an unmanaged index generally representative of
the U.S. market for medium cap stocks. The Index figures do not reflect any fees
or expenses.
The Russell 2000 Index is an unmanaged index which tracks the performance of the
2,000 smallest of the 3,000 largest U.S. companies, based on market
capitalization. The Index figures do not reflect any fees or expenses.
The MSCI EAFE Index is the Morgan Stanley Capital International Europe,
Australasia and Far East Index, an unmanaged index which tracks the performance
of selected equity securities in Europe, Australia, Asia and the Far East. The
Index figures do not reflect any fees or expenses.
The MSCI EAFE Index Blended with Emerging Markets Free Index is an unmanaged
index comprised of companies representative of developed European and Pacific
Basin countries as well as emerging market countries. The Index figures do not
reflect any fees or expenses.
The Morgan Stanley High-Technology 35 Index is an unmanaged index which tracks
the performance of stocks within the technology sector. The Index figures do not
reflect any fees or expenses.
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds. Please note that the following information does not reflect
any charges which may be imposed by The Northern Trust Company ("Northern"), its
affiliates, correspondent banks and other institutions on their customers. For
more information, please see "Account Policies and Other Information" on page
__.
[TO BE UPDATED]
<PAGE>
RISK/RETURN SUMMARY
Shareholder Fees
(fees paid directly from your investment)
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C>
---------------- ------------- ----------------- -------------- ----------------
Fund Sales Deferred Sales Redemption Exchange
Charge Sales Charge Fees(1) Fees
(Load) Charge (Load)
Imposed on (Load) Imposed on
Purchases Reinvested
Distributions
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
Income Equity None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
Stock Index None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
[Large Cap Value]
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
Growth Equity None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
Select Equity None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
Blue Chip 20 None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
Mid Cap Growth None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
Small Cap Index None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
Small Cap Value None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
Small Cap Growth None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
International Growth Equity None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
International Select Equity None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
Technology None None None None None
- -------------------------------------- ---------------- ------------- ----------------- -------------- ----------------
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
--------------------- ----------------------- ---------------------------------
Management Fees Distribution Other Expenses(3) Total Annual
(12b-1) Fees(2) Fund Operating Expenses(4)
- ------------------------------------ --------------------- ----------------------- ---------------------------------
1.00% 0.00% 0.35% 1.35%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
0.60% 0.00% 0.40% 1.00%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
1.00% 0.00% 0.30% 1.30%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
1.20% 0.00% 0.34% 1.54%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
1.20% 0.00% 0.33% 1.53%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
1.00% 0.00% 0.65% 1.65%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
0.65% 0.00% 0.57% 1.22%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
1.20% 0.00% 0.32% 1.52%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
1.20% 0.00% 0.68% 1.88%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
1.20% 0.00% 0.42% 1.62%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
1.20% 0.00% 0.46% 1.66%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
1.20% 0.00% 0.33% 1.53%
- ------------------------------------ --------------------- ----------------------- ---------------------------------
</TABLE>
[TO BE UPDATED]
Footnotes
1. A fee of $15.00 may be applicable for each wire redemption.
2. During the last fiscal year the Funds did not pay any 12b-1 fees. The
Funds do not expect to pay any 12b-1 fees during the current fiscal
year. The maximum distribution fee is 0.25% of each Fund's average net
assets under Northern Funds' Distribution and Service Plan.
3. These expenses include custodian, transfer agency and co-administration
expenses, proxy costs, if any, as well as other customary Fund
expenses. The co-administrators are entitled to a co-administration fee
of 0.15%, of which 0.09% is currently being waived voluntarily. The
Small Cap Growth Fund commenced operations on October 1, 1999, and as
of the date of this Prospectus, the [Large Cap Value] and Blue Chip 20
Funds had not commenced operations. As a result, "Other Expenses" for
those Funds are based on estimates for the current fiscal year.
4. As result of voluntary fee reductions, waivers and reimbursements,
"Management Fees," "Other Expenses" and "Total Fund Operating Expenses"
which are actually incurred by the Funds are set forth below. The
voluntary fee reductions, waivers and reimbursements may be modified or
terminated at any time at the option of the Investment Advisers. If
this occurs, "Management Fees," "Other Expenses" and "Total Fund
Operating Expenses" may increase without shareholder approval.
<PAGE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C>
RISK/RETURN SUMMARY
[TO BE UPDATED]
Distribution Total Annual
Fund Management Fees (12b-1) Fees Other Expenses Fund Operating Expenses
- ----------------------------- --------------------- ---------------- ------------------- ----------------------------
Income Equity 0.85% 0.00% 0.15% 1.00%
Stock Index 0.40% 0.00% 0.15% 0.55%
[Large Cap Value]
Growth Equity 0.85% 0.00% 0.15% 1.00%
Select Equity 0.85% 0.00% 0.15% 1.00%
Blue Chip 20 1.00% 0.00% 0.23% 1.23%
Mid Cap Growth 0.85% 0.00% 0.15% 1.00%
Small Cap Index 0.50% 0.00% 0.15% 0.65%
Small Cap Value 0.85% 0.00% 0.15% 1.00%
Small Cap Growth 1.00% 0.00% 0.25% 1.25%
International Growth 1.00% 0.00% 0.25% 1.25%
Equity
International Select 1.00% 0.00% 0.25% 1.25%
Equity
Technology 1.00% 0.00% 0.23% 1.23%
</TABLE>
Example
[TO BE UPDATED]
The following Example is intended to help you compare the cost of investing in a
Fund (without fee waivers and expense reimbursements) with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in a Fund 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 a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C>
Fund One Year 3 Years 5 Years 10 Years
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
Income Equity $137 $428 $739 $1,624
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
Stock Index 102 318 552 1,225
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
[Large Cap Value]
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
Growth Equity 132 412 713 1,568
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
Select Equity 157 486 839 1,834
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
Blue Chip 20 156 483 N/A N/A
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
Mid Cap Growth 168 520 897 1,955
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
Small Cap Index 103 322 -- --
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
Small Cap Value 155 480 829 1,813
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
Small Cap Growth 193 596 N/A N/A
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
International Growth Equity 165 511 881 1,922
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
International Select Equity 169 523 902 1,965
- ---------------------------------------- ------------------- -------------- --------------- ------------------
- ---------------------------------------- ------------------- -------------- --------------- ------------------
Technology 156 483 834 1,824
- ---------------------------------------- ------------------- -------------- --------------- ------------------
</TABLE>
<PAGE>
MANAGEMENT OF THE FUNDS
Investment Advisers
Northern, an Illinois state-chartered bank and member of the Federal Reserve
System, serves as investment adviser for all Funds except the Stock Index, Small
Cap Index and Small Cap Value Funds. Northern Trust Investments, Inc. ("NTI"),
formerly known as Northern Trust Quantitative Advisers, Inc., an Illinois
state-chartered trust company, serves as investment adviser for the Stock Index,
Small Cap Index and Small Cap Value Funds. Prior to April 1, 1998, Northern
served as investment adviser to the Stock Index, Small Cap Index and Small Cap
Value Funds pursuant to advisory agreements substantially identical as those
currently in effect for such Funds.
Northern and NTI are referred to as the "Investment Advisers." The Investment
Advisers are located at 50 S. LaSalle Street, Chicago, IL 60675 and are
wholly-owned subsidiaries of Northern Trust Corporation, a bank holding company.
As of March 31, 2000, Northern Trust Corporation and its subsidiaries had
approximately $33.2 billion in assets, $21.5 billion in deposits and employed
over 8,700 persons.
Northern has for more than 100 years managed the assets of individuals,
charitable organizations, foundations and large corporate investors. Northern
and its affiliates administered in various capacities (including as master
trustee, investment manager or custodian) approximately $1.6 trillion of assets
as of March 31, 2000, including approximately $323.1 billion of assets for which
Northern and its affiliates had investment management responsibility.
Under its Advisory Agreement with Northern Funds, each Investment Adviser,
subject to the general supervision of Northern Funds' Board of Trustees, is
responsible for making investment decisions for the Funds for which it serves as
adviser and for placing purchase and sale orders for portfolio securities.
Advisory Fees
As compensation for its advisory services and its assumption of related
expenses, each Investment Adviser is entitled to an advisory fee, computed daily
and payable monthly, at annual rates set forth in the table below (expressed as
a percentage of each Fund's respective average daily net assets). The table also
reflects the advisory fees (after voluntary fee waivers) paid by the Funds for
the fiscal year ended March 31, 2000.
Advisory Fee Paid
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Contractual for Fiscal Year
Fund Rate Ended 3/31/00
Income Equity 1.00% ____%
Stock Index 0.60% ____%
[Large Cap Value]
Growth Equity 1.00% ____%
Select Equity 1.20% ____%
Blue Chip 20 1.20% ____%
Mid Cap Growth 1.00% ____%
Small Cap Index 0.65% ____%
Small Cap Value 1.20% ____%
Small Cap Growth 1.20% ____%
International Growth Equity 1.20% ____%
International Select Equity 1.20% ____%
Technology 1.20% ____%
</TABLE>
The difference, if any, between the contractual advisory fees and the actual
advisory fees paid by the Funds reflects that the Investment Advisers did not
charge the full amount of the advisory fees to which they were entitled. The
Investment Advisers may discontinue or modify their voluntary limitations in the
future at their discretion.
<PAGE>
MANAGEMENT OF THE FUNDS
Fund Management
The Investment Advisers employ a team approach to the investment management of
the Funds. Below is information regarding the management of the Funds.
Theodore T. Southworth, Vice President of Northern, has led the management team
for the Income Equity Fund since 1995. He joined Northern in 1984 and during the
past five years has managed various equity portfolios.
The management team leader for the [Large Cap Value] Fund is Carl Domino,
President and Chief Executive Officer of Northern Trust Value Investors, a
division of NTI. Mr. Domino joined Northern in May 2000. From 1987 to 2000, he
served as Managing Partner for Carl Domino Associates, L.P.
Jon D. Brorson, Senior Vice President of Northern, and John J. Zielinski, Vice
President of Northern, are the management team leaders for the Growth Equity
Fund. Mr. Brorson has had such responsibility since July 1998 and Mr. Zielinski
has had such responsibility since April 1998. Mr. Brorson has managed equity
portfolios with Northern since 1996, and from 1990 to 1996, he was with Hartline
Investment Corp., where his primary responsibilities included portfolio
management, investment research, sales, and trading. Mr. Zielinski joined
Northern in 1980 and during the past five years has managed various equity
portfolios.
Robert N. Streed, Vice President of Northern, is the management team leader for
the Select Equity Fund. Mr. Streed has had such responsibility for the Fund
since it commenced operations in April 1994. Mr. Streed joined Northern in 1990
and during the past five years has managed various equity portfolios.
The management team leader for the Blue Chip 20 Fund is Robert G. Mitchell, Vice
President of Northern. Mr. Mitchell joined Northern in 1988 and during the past
five years has managed various equity portfolios for institutional clients.
Theodore Brechel, Senior Vice President of Northern, and Robert Cook, Vice
President, are the management team leaders for the Mid Cap Growth Fund. Mr.
Brechel has had such responsibility for the Fund since March 1998. Mr. Brechel
has been with Northern since 1968. During the past five years, he has managed
various equity portfolios. Mr. Cook has had such responsibility for the Fund
since July 2000. He has been with Northern since 1986. During the past five
years, he has managed various equity portfolios as well as another mutual fund
portfolio.
Susan J. French is the management team leader for the Small Cap Value Fund. Ms.
French serves as Vice President of Northern and, since 1998, NTI. Ms. French has
had such responsibility for the Fund since it commenced operations in April
1994. Ms. French joined Northern in 1986 and during the past five years has
managed various short-term investment and equity index portfolios.
The management team leader for the Small Cap Growth Fund is David H. Burshtan,
Vice President of Northern. Mr. Burshtan has had such responsibility since the
Fund commenced operations in September 1999. 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.
The management team leader for the International Growth Equity Fund and the
International Select Equity Fund is Robert A. LaFleur, Senior Vice President of
Northern. Mr. LaFleur has had such responsibility for the Fund since 1994. Mr.
LaFleur joined Northern in 1982 and during the past five years has managed
various international equity portfolios.
<PAGE>
MANAGEMENT OF THE FUNDS
The management team leaders for the Technology Fund are John B. Leo, Senior Vice
President of Northern, George J. Gilbert, Senior Vice President of Northern and
Kevin J. Spoor, Vice President of Northern. Mr. Leo has had such responsibility
since the Fund commenced operations in April 1996. Mr. Gilbert has had such
responsibility since July 1997. Mr. Spoor has had such responsibility since
September 1999. Mr. Leo joined Northern in 1984. During the past five years, Mr.
Leo has managed various equity and bond portfolios. Mr. Gilbert joined Northern
in 1980 and during the past five years has managed various technology portfolios
and served as a research analyst. Mr. Spoor joined Northern in 1999. From 1995
to 1998, Mr. Spoor was a senior semi-conductor analyst with Salomon Smith
Barney.
Other Fund Services
Northern also serves as transfer agent ("Transfer Agent") and custodian for each
Fund. 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 PFPC Inc. ("PFPC") serve as
co-administrators for Northern Funds. The fees that Northern and PFPC receive
for their co-administrative services are described on page __ under "Fund Fees
and Expenses."
<PAGE>
ABOUT YOUR ACCOUNT
Purchasing and Selling Shares
PURCHASING SHARES
You may purchase shares directly from Northern Funds or, if you maintain certain
accounts, through Northern and certain other institutions. If you have any
questions or need assistance in opening an investment account or purchasing
shares, call 1-800-595-9111.
OPENING AN ACCOUNT
Directly from the Funds. You may open a shareholder account and purchase shares
directly from the Funds with a minimum initial investment per Fund of $2,500
($500 for an IRA; $250 under the Automatic Investment Plan; and $500 for
employees of Northern and its affiliates). The minimum subsequent investment is
$50 (except for reinvestments of distributions for which there is no minimum).
The Funds reserve the right to waive these minimums.
For your convenience, there are a number of ways to invest directly in the
Funds:
By Mail
Read this Prospectus carefully Complete and sign the Purchase
Application Enclose a check or money order payable to Northern
Funds
If you are investing on behalf of a corporation or other entity,
your Purchase Application must be accompanied by a certified
corporate resolution (or other acceptable evidence of authority).
Mail your check, corporate resolution (if needed) and completed
Purchase Application to:
Northern Funds
P.O. Box 75986
Chicago, Illinois 60675-5986
For overnight delivery use the following address:
801 South Canal Street
Chicago, Illinois 60607
Attn: Northern Funds
For subsequent investments:
- Enclose your check with the return remittance portion of the
confirmation of your previous investment; or
- Indicate on your check or a separate piece of paper your name,
address and account number
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 Wire
To open a new account:
Call 1-800-595-9111 for instructions Complete a Purchase
Application and send it to:
Northern Funds
P.O. Box 75986
Chicago, IL 60750-5986
<PAGE>
ABOUT YOUR ACCOUNT
To add to an existing account: Have your bank wire Federal funds
to:
The Northern Trust Company
Chicago, Illinois
ABA Routing No. 0710-00152
(Reference 10 Digit Fund Account No.)
(Reference Shareholder's Name)
By Direct Deposit
To purchase additional shares: Determine if your employer has
direct deposit capabilities through the Automated Clearing House
("ACH") Have your employer send payments to:
ABA Routing No. 0710-00152
(Reference 10 Digit Fund Account No.)
(Reference Shareholder's Name)
The minimum periodic investment for direct deposit is $50
By Automatic Investment
To open a new account
Complete a Purchase Application, including the Automatic
Investment section
Send it to:
Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
The minimum initial investment is $250; $50 for monthly
minimum additions
To add to an account:
Call 1-800-595-9111 to obtain an Automatic Investment Plan
Application The minimum for automatic investment additions is
$50
If you discontinue participation in the plan, the Funds reserve the right to
redeem the investor's account involuntarily, upon 30 days written notice, if the
account's net asset value is $1,000 or less. Involuntary redemptions will not be
made if the value of shares in an account falls below the minimum amount solely
because of a decline in the Fund's net asset value.
By Directed Reinvestment
You may elect to have your income dividends and capital gains
distributions automatically invested in another Northern Fund.
Complete the Distribution Options section on the Purchase
Application
Reinvestments can only be directed to an existing Northern Funds
account (which must meet the minimum investment requirement)
By Exchange You may open a new account or add to an existing account by
exchanging shares of one Fund for shares of any other Fund offered by
Northern Funds. See "Selling Shares - By Exchange."
By Internet
You may initiate transactions between Northern banking and Northern
Funds accounts by using Northern Trust Private Passport. For details
and to sign up for this service, go to
www.northerntrust.com/privatepassport or contact your relationship
manager.
<PAGE>
ABOUT YOUR ACCOUNT
Through Northern and Other Institutions
If you have an account with Northern, you may purchase Northern Funds shares
through Northern. You may also purchase shares through other institutions
(together with Northern, "Service Organizations") that have entered into
agreements with Northern Funds. To determine whether you may purchase shares
through your institution, contact your institution directly or call
1-800-595-9111. Northern or another Service Organization may impose charges
against your account which will reduce the net return on an investment in a
Fund. These charges may include asset allocation fees, account maintenance fees,
sweep fees, compensating balance requirements or other charges based upon
account transactions, assets or income.
SELLING SHARES
Redeeming and Exchanging Directly from the Funds
If you purchased Northern Funds directly or, if you purchased your shares
through an account at Northern or another Service Organization and you appear on
Northern Funds records as the registered holder, you may redeem all or part of
your shares using one of the methods described below.
By Mail
Send a written request to:
Northern Funds
P.O. Box 75986
Chicago, Illinois 60675-5986
The redemption request must include:
The number of shares or the dollar amount to be redeemed The
Fund account number A signature guarantee is also required
if:
- The proceeds are to be sent elsewhere than the address of
record, or - The redemption amount is greater than $50,000
By Wire
If you authorize wire redemptions on your Purchase Application, you can
redeem shares and have the proceeds sent by Federal wire transfer to a
previously designated account.
You will be charged $15 for each wire redemption unless the
designated account is maintained at Northern or an affiliated bank
Call the Transfer Agent at 1-800-595-9111 for instructions The
minimum amount that may be redeemed by this method is $250
<PAGE>
ABOUT YOUR ACCOUNT
By Systematic Withdrawal
If you own shares of a Fund with a minimum value of $10,000, you may elect
to have a fixed sum redeemed at regular intervals and distributed in cash
or reinvested in one or more other Northern Funds.
Call 1-800-595-9111 for an application form and additional
information
The minimum amount is $250 per withdrawal
By Exchange
Northern Funds offers you the ability to exchange shares of one Northern
Fund for another Fund in the Northern Funds family.
When opening an account, complete the Exchange Privilege section
of the Purchase Application or, if your account is already opened,
send a written request to:
Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
Shares being exchanged must have a value of at least $1,000
($2,500 if a new account is being
established by the exchange)
Call 1-800-595-9111 for more information
By Telephone
If you authorize the telephone privilege on your Purchase Application, you
may redeem Northern Funds shares by phone.
If your account is already opened, send a written request to:
Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
The request must be signed by each owner of the account and must be
accompanied by signature guarantees Call 1-800-595-9111 to use the
telephone privilege 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 Internet
You may initiate transactions between Northern banking and Northern Funds
accounts by using Northern Trust Private Passport. For details and to sign
up for this service, go to www.northerntrust.com/privatepassport or contact
your relationship manager.
Redeeming and Exchanging Through Northern and Other Institutions
If you purchased your Northern Funds shares through an account at Northern or
another Service Organization, you may redeem or exchange your shares according
to the instructions pertaining to that account.
Although Northern Funds imposes no charges when you redeem, when
shares are purchased through Northern or another Service
Organization, a fee may be charged by those institutions for
providing services in connection with your account
Contact your account representative at Northern or other Service
Organization for more information about redemptions or exchanges
<PAGE>
ABOUT YOUR ACCOUNT
Account Policies and Other Information
Calculating Share Price. Northern Funds issues shares and redeems shares at net
asset value ("NAV"). The NAV for each Fund is calculated by dividing the value
of the Fund's net assets by the number of the Fund's outstanding shares. The NAV
is calculated on each Business Day as of 3:00 p.m., Chicago time, for each Fund.
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 Funds generally are valued at their
market prices. Shares of an investment company held by the Funds are valued at
their NAV. Any securities, including restricted securities, for which market
prices are not readily available are valued at fair value as determined by the
Investment Advisers. Short-term obligations held by a Fund are valued at their
amortized cost which, according to the Investment Advisers, approximates market
value.
A Fund may hold foreign securities that trade on weekends or other days when the
Fund 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 Fund 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 provided that
either:
The order is in proper form as described under "Purchasing and
Selling Shares" and accompanied by payment of the purchase price;
The order is placed by Northern or a Service Organization and
payment in Federal or other immediately available funds is to be
made on the next Business Day; or
The order is accepted by an authorized intermediary and payment
is to be made on the next Business Day in accordance with
procedures acceptable to Northern Funds.
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, provided that payment is
made as noted above.
Social Security/Tax Identification Number. Federal regulations require you to
provide a Social Security or other certified taxpayer identification number when
you open or reopen an account. Purchase Applications 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, the number must be provided and certified within 60 days
of the date of the Purchase Application.
In-Kind Purchases and Redemptions. Northern Funds reserves the right to accept
payment for shares in the form of securities that are permissible investments
for a Fund. Northern Funds also reserves the right to pay redemptions by a
distribution "in-kind" of securities (instead of cash) from a Fund. See the
Statement of Additional Information for further information about the terms of
these purchases and redemptions.
Miscellaneous Purchase Information.
|X| You will be responsible for all losses and expenses of a Fund 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 Funds and Northern against loss. In addition, a $20 charge will
be imposed if a check does not clear.
<PAGE>
ABOUT YOUR ACCOUNT
You may initiate transactions between Northern banking and Northern Funds
accounts by using Northern Trust Private Passport. For additional details,
please visit our website www.northerntrust.com/privatepassport or contact
your relationship manager.
Northern Funds reserves the right to reject any purchase order. The Funds
also reserve the right to change or discontinue any of their purchase
procedures.
In certain circumstances, Northern Funds may advance the time by which
purchase orders must be received. See "Early Closings" on page __.
Northern Funds may reproduce this Prospectus in an electronic format which
may be available on the Internet. If you have received this Prospectus in
its electronic format you, or your representative, may contact the Transfer
Agent for a free paper copy of this Prospectus by writing to the Northern
Funds Center at P.O. Box 75986, Chicago, IL 60675-5986, calling
1-800-595-9111 or sending an e-mail to:
[email protected].
Timing of Redemption and Exchange Requests. Redemption and exchange requests
received in good order by the Transfer Agent or other authorized intermediary on
a Business Day by 3:00 p.m., Chicago time, will be executed on the same day. The
redemption or exchange will be effected at that day's closing share price.
Good order means that the request must include the following information:
The account number and Fund name
The amount of the transaction, in dollar amount or number of
shares
The signature of all account owners exactly as they are
registered on the account (except for online, telephone and wire
redemptions)
Required signature guarantees, if applicable
Other supporting legal documents that might be required in the
case of estates, corporations, trusts and certain other accounts.
Call 1-800-595-9111 for more information about documentation that
may be required of these entities
In certain circumstances, Northern Funds may advance the time by which
redemption and exchange orders must be received. See "Early Closings" on page
__.
Payment of Redemption Proceeds. The Funds will make payment for redeemed shares
typically within one or two Business Days, but no later than the seventh day
after a redemption request is received in good order by the Transfer Agent or an
authorized intermediary (or such longer period permitted by the SEC). However,
if any portion of the shares to be redeemed represents an investment made by
check, the Funds may delay the payment of the redemption proceeds until the
check has cleared and collected. This may take up to fifteen days from the
purchase date.
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 Purchase Application.
Northern Funds 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
Fund and its shareholders.
<PAGE>
ABOUT YOUR ACCOUNT
Northern Funds may require any information reasonably necessary to ensure
that a redemption has been duly authorized.
Northern Funds reserves the right, on 60 days' written notice, to redeem
the shares held in any account if, at the time of redemption, the net asset
value of the remaining shares in the account falls below $1,000.
Involuntary redemptions will not be made if the value of shares in an
account falls below the minimum solely because of a decline in a Fund's net
asset value.
You may initiate transactions between Northern banking and Northern Funds
accounts by using Northern Trust Private Passport. For additional details,
please visit our web site at www.northerntrust.com/privatepassport or
contact your relationship manager.
Northern Funds reserves the right to change or discontinue any of its
redemption procedures.
Northern Funds reserves the right to defer crediting, sending or wiring
redemption proceeds for up to seven days (or such longer period permitted
by the SEC) after receiving the redemption order if, in its judgment, an
earlier payment could adversely affect a Fund.
Exchange Privileges. You may exchange shares of one Northern Fund for another
only if the registration of both accounts is identical. An exchange is a
redemption of shares of one Fund and the purchase of shares of another Fund. It
is considered a taxable event and may result in a gain or loss. Northern Funds
reserves the right, at any time without prior notice to suspend, limit or
terminate the exchange privilege of any shareholder who makes more than eight
exchanges of shares in a year and/or two exchanges of shares in a calendar
quarter. Northern Funds may also modify or terminate the exchange privilege with
respect to any or all shareholders, and may 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 are 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, Northern Funds 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.
Northern Funds 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 signature guarantee from an
institution participating in the Stock Transfer Agency Medallion Program
("STAMP"), or other acceptable evidence of authority. Additional requirements
may be imposed. In accordance with SEC regulations, the Funds and Transfer Agent
may charge a shareholder reasonable costs in locating a shareholder's current
address.
Signature Guarantees. If a signature guarantee is required, it must be from an
institution participating in STAMP, or other acceptable evidence of authority
must be provided. Additional requirements may be imposed by Northern Funds. In
addition to the situations described in this Prospectus, Northern Funds may
require signature guarantees in other circumstances based on the amount of a
redemption request or other factors.
ABOUT YOUR ACCOUNT
Business Day. A "Business Day" is each Monday through Friday when the New York
Stock Exchange (the "Exchange") is open for business. In 2000, the Funds will be
closed on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Early Closings. Northern Funds reserve 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. They also reserve this right when The Bond Market
Association recommends that securities markets close or close early.
Authorized Intermediaries. Northern Funds 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 Funds. These financial intermediaries may also designate other
intermediaries to accept such orders, if approved by the Funds. Authorized
intermediaries are responsible for transmitting orders and delivering funds on a
timely basis. A Fund 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 Fund's per share NAV next determined.
Service Organizations. Northern Funds may enter into agreements with Service
Organizations such as banks, corporations, broker/dealers and other financial
institutions, including Northern, concerning the provision of support and/or
distribution services to their customers who own Fund shares. These services may
include:
support services such as assisting investors in processing
purchase, exchange and redemption requests;
processing dividend and distribution payments from the Funds;
providing information to customers showing their positions in the
Funds; and
providing subaccounting with respect to Fund shares beneficially
owned by customers or the information necessary for subaccounting.
In addition, Service Organizations may provide assistance, such as the
forwarding of sales literature and advertising to their customers, in connection
with the distribution of Fund shares.
For their services, Service Organizations may receive fees from a Fund at annual
rates of up to 0.25% of the average daily net asset value of the shares covered
by their agreements. Because these fees are paid out of the Funds' assets on an
on-going basis, they will increase the cost of your investment in the Funds. In
addition, Northern and NTI may provide compensation to certain dealers and other
financial intermediaries who provide services to their customers who invest in
Northern Funds or whose customers purchase significant amounts of a Fund'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 and NTI as Investment Advisers (after adjustments). This additional
compensation will be paid by Northern, NTI or their affiliates and will not
represent an additional expense to Northern Funds or their shareholders.
<PAGE>
ABOUT YOUR ACCOUNT
Service Organizations may also charge their customers fees for providing
administrative services in connection with investments in a Fund. Investors
should contact their Service Organizations with respect to these fees and the
particular Service Organization's procedures for purchasing and redeeming
shares. It is the responsibility of Service Organizations to transmit purchase
and redemption orders and record those orders on a timely basis in accordance
with their agreements with their customers.
Conflict-of-interest restrictions may apply to the receipt of compensation paid
by Northern Funds in connection with the investment of fiduciary funds in Fund
shares. Institutions, including banks regulated by the Comptroller of the
Currency, Federal Reserve Board 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 their
legal counsel before entering into agreements with Northern Funds.
State securities laws regarding the registration of dealers may differ from
Federal law. As a result, Service Organizations investing in the Funds on behalf
of their customers may be required to register as dealers.
Agreements that contemplate the provision of distribution services by Service
Organizations are governed by a Distribution and Service Plan (the "Plan") that
has been adopted by Northern Funds pursuant to Rule 12b-1 under the 1940 Act.
Payments to Service Organizations, including Northern, under the Plan are not
tied directly to their own out-of-pocket expenses and therefore may be used as
they elect (for example, to defray their overhead expenses), and may exceed
their direct and indirect costs.
Shareholder Communications. Shareholders of record will be provided each year
with a semiannual report showing portfolio investments and other information as
of September 30 and, after the close of the Funds' fiscal year on March 31, with
an annual report containing audited financial statements. If you have consented
to the delivery of a single copy of the shareholder reports, prospectuses or (if
and when permitted by law) proxy or information statements to all shareholders
who share the same mailing address with your account, you may revoke your
consent at any time by contacting the Northern Funds Center by phone at (800)
595-9111 or by mail at Northern Funds, P.O. Box 75986, Chicago, IL 60675-5986.
You may also send an e-mail to [email protected]. The Funds will begin
sending individual copies to you within 30 days after receipt of your
revocation.
Dividends and Distributions
Dividends and capital gain distributions of each Fund are automatically
reinvested in additional shares of the same Fund 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 shares of another Northern Fund at their net
asset value per share. If you would like to receive dividends or distributions
in cash or have them reinvested in another Northern Fund, you must notify the
Transfer Agent in writing. This election will become effective for distributions
paid two days after its receipt by the Transfer Agent. Dividends and
distributions may only be reinvested in a Northern Fund in which you maintain an
account.
<PAGE>
ABOUT YOUR ACCOUNT
The following table summarizes the general distribution policies for each of the
Funds. A Fund with an annual dividend or distribution policy may, in some years,
pay additional dividends or make additional distributions to the extent
necessary for the Fund to avoid incurring unnecessary tax liabilities or for
other reasons.
<TABLE>
<CAPTION>
<S><C> <C> <C>
- --------------------------------------- -------------------------------------- --------------------------------------
Dividends, if any, Capital gains, if any,
Fund Declared and Paid Declared and Paid
--------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Income Equity Monthly Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Stock Index Quarterly Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
[Large Cap Value]
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Growth Equity Quarterly Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Select Equity Annually Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Blue Chip 20 Annually Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Mid Cap Growth Quarterly Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Small Cap Index Annually Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Small Cap Value Annually Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Small Cap Growth Annually Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
International Growth Equity Annually Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
International Select Equity Annually Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Technology Annually Annually
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
Tax Considerations
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income, except as discussed below. You will be
subject to income tax on Fund distributions regardless of whether they are paid
in cash or reinvested in additional shares. You will be notified annually of the
tax status of distributions to you.
For any Fund, you should note that if you purchase shares just before a
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.
<PAGE>
ABOUT YOUR ACCOUNT
Any loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
If you (a) have provided either an incorrect Social Security Number or Taxpayer
Identification Number or no number at all, (b) are subject to withholding by the
Internal Revenue Service for prior failure to properly include on your return
payments of interest or dividends, or (c) have failed to certify to Northern
Funds, when required to do so, that you are not subject to backup withholding or
are an "exempt recipient," then Northern Funds will be required in certain cases
to withhold and remit to the U.S. Treasury 31% of the dividends and
distributions payable to you.
There are certain tax requirements that the Funds must follow in order to avoid
Federal taxation. In their efforts to adhere to these requirements, the Funds
may have to limit their investment activity in some types of instruments.
The International Funds. It is expected that the International Funds will be
subject to foreign withholding taxes with respect to dividends or interest
received from sources in foreign countries. The International Funds may make an
election to treat a proportionate amount of such taxes as constituting a
distribution to each shareholder, which would allow each shareholder either (1)
to credit such proportionate amount of taxes against Federal income tax
liability or (2) to take such amount as an itemized deduction.
Consult Your Tax Professional. Your investment in the Funds could have
additional tax consequences. You should consult your tax professional for
information regarding all tax consequences applicable to your investments in the
Funds. More tax information is provided in the Statement of Additional
Information. This short summary is not intended as a substitute for careful tax
planning.
<PAGE>
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
Risks, Securities, Techniques and Financial Information
ADDITIONAL INFORMATION ON FUND STRATEGIES, RISKS,
SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
This section takes a closer look at some of the Funds' principal investment
strategies and related risks. It also explores the various investment securities
and techniques that the investment management team may use. The Funds may invest
in other securities and are subject to further restrictions and risks which are
described in the Statement of Additional Information.
ADDITIONAL INFORMATION ON INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES
AND RELATED RISKS
Investment Objectives. A Fund's investment objective may be changed by Northern
Funds' Board of Trustees without shareholder approval. Shareholders will,
however, be notified of any changes. Any such change may result in a Fund having
an investment objective different from the objective which the shareholder
considered appropriate at the time of investment in the Fund.
Derivatives. The Funds 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. Derivatives include futures contracts, options, interest rate and
currency swaps, equity swaps, structured securities, forward currency contracts
and structured debt obligations.
Investment strategy. A Fund will invest in derivatives only if the
potential risks and rewards are consistent with the Fund's objective,
strategies and overall risk profile. The Funds may use derivatives for
hedging purposes to offset a potential loss in one position by
establishing an interest in an opposite position. Certain Funds 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 Fund'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 a Fund 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, a Fund may suffer a loss
whether or not the analysis of the investment management team is
accurate.
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 International Funds intend to invest a
substantial portion of their total assets in foreign securities. The
Income Equity, [Large Cap Value] Fund, Growth Equity, Select Equity,
Blue Chip 20, Mid Cap Growth, Small Cap Value, Small Cap Growth and
Technology Funds may invest up to 25% of their total assets in foreign
securities including ADRs, EDRs and GDRs. These Funds may also invest
in foreign time deposits and other short-term instruments.
<PAGE>
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
The International Growth Equity and International Select Equity Funds
may invest more than 25% of their total assets in the securities of
issuers located in countries with securities markets that are highly
developed, liquid and subject to extensive regulation. Such countries
may include, but are not limited to Japan, the United Kingdom, France,
Germany and Switzerland.
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, Central 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, a Fund may be required to deliver
securities before 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 Funds.
While the Funds' investments may, if permitted, be denominated in
foreign currencies, the portfolio securities and other assets held by
the Funds are valued in U.S. dollars. Currency exchange rates may
fluctuate significantly over short periods of time causing a Fund'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 a Fund is invested in foreign securities while also maintaining
currency positions, it may be exposed to greater combined risk. The
Funds' respective net currency positions may expose them to risks
independent of their 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 Funds. Because of the number of countries using
this single currency, a significant portion of the assets of the
International Funds may be denominated in the euro.
<PAGE>
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
Investment Grade Securities. A security is considered investment grade if, at
the time of purchase, it is rated:
BBB or higher by Standard and Poor's Ratings Services ("S&P");
Baa or higher by Moody's Investors Service, Inc. ("Moody's");
BBB or higher by Duff & Phelps Credit Rating Co. ("Duff"); or
BBB or higher by Fitch IBCA Inc. ("Fitch").
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. The Funds may invest in fixed income and
convertible securities to the extent consistent with their respective
investment policies. Except as stated in the next section, fixed income
and convertible securities purchased by the Funds will generally be
rated investment grade. The Funds may also invest in unrated securities
if the Investment Adviser believes they are comparable in quality.
Special risks. Although securities rated BBB by S&P, Duff or Fitch, or
Baa by 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 a Fund, a rated security may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by
the Fund. The Investment Adviser will consider such an event in
determining whether the Fund should continue to hold the security.
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 Funds (with the exception of the Stock Index
Fund and Small Cap Index Fund) may invest up to 15% (100% in the case
of the Income Equity Fund) of their total assets in non-investment
grade securities, including convertible securities, when the investment
management team determines that such securities are desirable in light
of the Funds' investment objectives and portfolio mix.
Special risks. Non-investment grade securities are considered
predominantly speculative by traditional investment standards. 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 often subordinated to the rights of other creditors of the issuers
of such securities. Investment by a Fund 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 a Fund of its initial investment and any
anticipated income or appreciation will be uncertain. A Fund may also
incur additional expenses in seeking recovery on defaulted securities.
The secondary market for lower quality securities is concentrated in
relatively few market markers and is dominated by institutional
investors. 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 these
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 a Fund's ability to dispose of particular portfolio
investments. A less developed secondary market may also make it more
difficult for a Fund to obtain precise valuations of the high yield
securities in its portfolio.
<PAGE>
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
Investments in lower quality securities, whether rated or unrated, will
be more dependent on Northern Trust's credit analysis than would be the
case with investments in higher quality securities.
Small Cap 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, a Fund may incur
losses because it will be required to effect sales at a disadvantageous time and
only then at a substantial drop 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 a Fund.
Investment strategy. Each Fund 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 (except for the Stock
Index and Small Cap Index Funds which generally will not invest in
these securities as part of a temporary defensive strategy to protect
against potential stock market declines).
Special risks. A Fund may not achieve its investment objective when its
assets are invested in short-term obligations.
Portfolio Turnover. The investment management team will not consider the Fund
turnover rate a limiting factor in making investment decisions for a Fund. A
high portfolio turnover rate (100% or more) is likely to involve higher
brokerage commissions and other transactions costs, which could reduce a Fund's
return. It may also result in higher short-term capital gains that are taxable
to shareholders. See "Financial Highlights" for the Funds' historical portfolio
turnover rates. [Northern Funds expects that the annual portfolio turnover rate
of the Small Cap Index Fund will generally not exceed 100%; the annual portfolio
turnover rate of the Small Cap Growth Fund will generally not exceed 200%, and
the annual portfolio turnover rate of the Blue Chip 20 Fund and the Mid Cap
Growth Fund will not exceed 150% and 125%, respectively.]
Special Risks and Considerations Applicable to the Technology Fund. The
Technology Fund's concentration in technology securities presents special risk
considerations.
Investment Strategy. The Technology Fund invests principally in
companies that develop, produce or distribute products and services
related to advances in technology.
Special Risks. Technology companies may produce or use products or
services that prove commercially unsuccessful, become obsolete or
become adversely impacted by government regulation. Competitive
pressures in the technology industry may affect negatively the
financial condition of technology companies, and the Fund's
concentration in technology securities may subject it to more volatile
price movements than a more diversified securities portfolio. In
certain instances, technology securities may experience significant
price movements caused by disproportionate investor optimism or
pessimism with little or no basis in fundamental economic conditions.
As a result of these and other reasons, investments in the technology
industry can experience sudden and rapid appreciation and depreciation.
You should, therefore, expect that the net asset value of the Fund's
shares will be more volatile than, and may fluctuate independently of,
broad stock market indices such as the S&P 500(R) Index.
<PAGE>
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
In addition, the Fund's investments may be concentrated in companies
that develop or sell computers, software and peripheral products, which
present the following additional risks. These companies are often
dependent on the existence and health of other products or industries
and face highly competitive pressures, product licensing, trademark and
patent uncertainties and rapid technological changes which may have a
significant effect on their financial condition. For example, an
increasing number of companies and new product offerings can lead to
price cuts and slower selling cycles, and many of these companies may
be dependent on the success of a principal product, may rely on sole
source providers and third-party manufacturers, and may experience
difficulties in managing growth.
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 Funds may invest in asset-backed securities
rated investment grade (rated BBB or better by S&P, Duff or Fitch, or
Baa or better by Moody's) at the time of purchase. They may also invest
in unrated mortgage-backed securities which Northern believes are of
comparable quality.
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 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 Funds can borrow money and
enter into reverse repurchase agreements. Reverse repurchase agreements involve
the sale of securities held by a Fund subject to the Fund's agreement to
repurchase them at a mutually agreed upon date and price (including interest).
Investment strategy. Each Fund may borrow and enter into reverse
repurchase agreements in amounts not exceeding one-third of its total
assets. Each Fund may also borrow up to an additional 5% of its total
assets for temporary purposes. The Funds may enter into 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.
<PAGE>
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
Special risks. Borrowings and reverse repurchase agreements involve
leveraging. If the securities held by the Funds decline in value while
these transactions are outstanding, the net asset value of the Funds'
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 a Fund
(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 a Fund will decline below the price the Fund is obligated to
pay to repurchase the securities, and that the securities may not be
returned to the Fund.
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 Funds 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 Funds (other than the Stock Index and Small
Cap Index Funds) may each acquire convertible securities. These
securities are subject to the same rating requirements as fixed income
securities held by a Fund.
Custodial Receipts for Treasury Securities. Custodial receipts are
participations in trusts that hold U.S. Treasury securities and are sold under
names such as TIGRs and CATS. Like other stripped obligations, they entitle the
holder to future interest or principal payments on the U.S. Treasury securities.
Investment strategy. To the extent consistent with their respective
investment objectives, the Funds may invest a portion of their total
assets in custodial receipts.
Special risks. Like other stripped obligations, custodial receipts may
be subject to greater price volatility than ordinary debt obligations
because of the way in which their principal and interest are returned
to investors.
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 Funds 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, a Fund 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, a
Fund may suffer a loss if the counterparty defaults.
Exchange Rate-Related Securities. Exchange rate-related securities represent
certain foreign debt obligations whose principal values are linked to a foreign
currency but which are repaid in U.S. dollars.
Investment strategy. The Income Equity Fund may invest in exchange rate-related
securities.
<PAGE>
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
Special risks. The principal payable on an exchange rate-related
security is subject to currency risk. In addition, the potential
illiquidity and high volatility of the foreign exchange market may make
exchange rate-related securities difficult to sell prior to maturity at
an appropriate price.
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. Each of the Funds (other than the Stock Index and
Small Cap Index Funds) 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. The
International Funds may also enter into these contracts for speculative
purposes (i.e., to increase total return) or for cross-hedging
purposes. Foreign currency exchange contracts will be used at the
discretion of the investment management team, and no Fund is 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 a Fund'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 a
Fund, 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 a Fund purchases an option on a futures contract, it has
the right to assume a position as a purchaser or seller of a futures contract at
a specified exercise price during the option period. When a Fund 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, each Fund 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 a Fund's futures contacts may equal up to 100% of its
total assets. However, a Fund 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 a
Fund'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").
<PAGE>
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
Investment strategy. Each Fund may invest up to 15% of its net assets
in securities that are illiquid. If otherwise consistent with their
investment objectives and policies, the Funds 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 Advisers determine,
under guidelines approved by the Northern Funds' 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 a Fund. The practice of
investing in Rule 144A Securities could increase the level of a Fund's
illiquidity during any period that qualified institutional buyers
become uninterested in purchasing these securities.
Interest Rate Swaps, Floors and Caps and Currency Swaps. Interest rate and
currency swaps are contracts that obligate a Fund and another party to exchange
their rights to pay or receive interest or specified amounts of currency,
respectively. Interest rate floors entitle the purchasers to receive interest
payments if a specified index falls below a predetermined interest rate.
Interest rate caps entitle the purchasers to receive interest payments if a
specified index exceeds a predetermined interest rate.
Investment strategy. The Income Equity Fund may enter into interest
rate swaps and may purchase interest rate floors or caps to protect
against interest rate fluctuations and fluctuations in the floating
rate market. The International Funds, Income Equity, [Large Cap Value],
Growth Equity, Select Equity, Blue Chip 20, Mid Cap Growth, Small Cap
Value, Small Cap Growth and Technology Funds may also enter into
currency swaps to protect against currency fluctuations.
Special risks. If the other party to an interest rate swap defaults, a
Fund's risk of loss consists of the amount of interest payments that
the Fund is entitled to receive. In contrast, currency swaps usually
involve the delivery of the entire principal value of one currency in
exchange for the other currency. Therefore, the entire principal value
of a currency swap is subject to the risk that the other party will
default on its delivery obligations. Like other derivative securities,
swaps, floors and caps can be highly volatile. As a result, they may
not always be successful hedges and they could lower a Fund's total
return.
Investment Companies. To the extent consistent with their respective investment
objectives and policies, the Funds may invest in securities issued by other
investment companies, including money market funds, 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 a Fund in other investment
companies will be subject to the limitations of the 1940 Act. Although
the Funds do not expect to do so in the foreseeable future, each Fund
is authorized to invest substantially all of its assets in a single
open-end investment company or series thereof that has substantially
the same investment objective, policies and fundamental restrictions as
the Fund.
Special risks. As a shareholder of another investment company, a Fund
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 Fund.
Mortgage Dollar Rolls. A mortgage dollar roll involves the sale by a Fund of
securities for delivery in the future (generally within 30 days). The Fund
simultaneously contracts with the same counterparty to repurchase substantially
similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the Fund loses the right to
receive principal and interest paid on the securities sold. However, the Fund
benefits to the extent of any difference between (a) the price received for the
securities sold and (b) the lower forward price for the future purchase and/or
fee income plus the interest earned on the cash proceeds of the securities sold.
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
Investment strategy. Each Fund may enter into mortgage dollar rolls in
an effort to enhance investment performance. For financial reporting
and tax purposes, the Funds treat mortgage dollar rolls as two separate
transactions: one involving the purchase of a security and a separate
transaction involving a sale. The Funds do not currently intend to
enter into mortgage dollar rolls that are accounted for as a financing
and do not treat them as borrowings.
Special risks. Successful use of mortgage dollar rolls depends upon the
Investment Adviser's ability to predict correctly interest rates and
mortgage prepayments. If the Investment Adviser is incorrect in its
prediction, a Fund may experience a loss. Unless the benefits of a
mortgage dollar roll exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the roll, the use of this technique will
diminish the Fund's performance.
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, each Fund may write (sell) covered call options, buy put
options, buy call options and write secured put options for hedging
(or, with respect to the International Funds, cross-hedging) purposes
or to earn additional income. Options may relate to particular
securities, foreign or domestic securities indices, financial
instruments, foreign currencies or the yield differential between two
securities. A Fund 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 a Fund's assets subject to options written by the Fund will
not be greater than 25% of its net assets at the time the option is
written. A Fund may "cover" a call option by owning the security
underlying the option or through other means. Put options written by a
Fund are "secured" if the Fund 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 Fund 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.
Each Fund will invest and trade in unlisted over-the-counter options
only with firms deemed creditworthy by the Investment Advisers.
However, unlisted options are not subject to the protections afforded
purchasers of listed options by the Options Clearing Corporation, which
performs the obligations of its members which fail to perform them in
connection with the purchase or sale of options.
Preferred Stock. Preferred stocks are securities that represent an ownership
interest providing the holder with claims on the issuer's earnings and assets
before common stock owners but after bond owners.
Investment strategy. To the extent consistent with their respective
investment objectives and policies, the Funds may invest in preferred
stocks.
Special risks. Unlike most debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment
obligations, may not typically be accelerated by the holders of such
preferred stock on the occurrence of an event of default or other
non-compliance by the issuer of the preferred stock.
Real Estate Investment Trusts (REITs). REITs are pooled investment vehicles that
invest primarily in either real estate or real estate related loans.
<PAGE>
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
Investment strategy. The Income Equity, [Large Cap Value], Small Cap
Index, Small Cap Value and Small Cap Growth Funds 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. A Fund 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 a Fund subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price.
Investment strategy. Each Fund may enter into repurchase agreements
with financial institutions such as banks and broker-dealers that are
deemed to be creditworthy by the Investment Advisers. 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 a Fund acquires the securities.
Special risks. In the event of a default, a Fund 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 Fund's
costs associated with delay and enforcement of the repurchase
agreement. In addition, in the event of bankruptcy, a Fund could suffer
additional losses if a court determines that the Fund's interest in the
collateral is unenforceable.
Securities Lending. In order to generate additional income, the Funds may lend
securities on a short-term basis to banks, broker-dealers or other qualified
institutions. In exchange, the Funds 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 a Fund's total assets (including the loan
collateral). Any cash collateral received by a Fund 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, a Fund could experience delays
in recovering its securities and may incur a capital loss. In addition,
a Fund may incur a loss in reinvesting the cash collateral it receives.
Stripped Obligations. These securities are issued by the U.S. government (or
agency or instrumentality), foreign governments, banks and other issuers. They
entitle the holder to receive either interest payments or principal payments
that have been "stripped" from a debt obligation. These obligations include
stripped mortgage-backed securities, which are derivative multi-class mortgage
securities.
Investment strategy. To the extent consistent with their respective
investment objectives, the Funds may purchase stripped securities.
Special risks. Stripped securities are very sensitive to changes in
interest rates and to the rate of principal prepayments. A rapid or
unexpected change in prepayments could depress the price of certain
stripped securities and adversely affect a Fund's total return.
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. Each Fund may invest in structured securities to
the extent consistent with its investment objective.
<PAGE>
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
Special risks. The terms of some structured securities may provide that
in certain circumstances no principal is due at maturity and,
therefore, a Fund 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, each Fund 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. 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 variable amount master demand notes, long-term variable and
floating rate bonds (sometimes referred to as "Put Bonds") where the Fund
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 and leveraged inverse floating rate
instruments ("inverse floaters"). An inverse floater is leveraged to the extent
that its interest rate varies by an amount that exceeds the amount of the
variation in the index rate of interest. Some variable and floating rate
instruments have interest rates that are periodically adjusted as a result of
changes in inflation rates.
Investment strategy. Each Fund 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 a Fund if
they are determined by the Investment Advisers to be of comparable
quality to rated instruments eligible for purchase by the Fund.
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 Funds are not entitled
to exercise their demand rights. As a result, the Funds 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.
<PAGE>
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL INFORMATION
Investment strategy. Each Fund (other than the Stock Index and Small
Cap Index Funds) may invest up to 5% of its net assets at the time of
purchase in warrants and similar rights. A Fund 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. Each Fund may purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis. Although the
Funds would generally purchase securities in these transactions with
the intention of acquiring the securities, the Funds 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.
Investment strategy. Each Fund 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. A Fund's
investments in zero coupon, pay-in-kind and capital appreciation bonds
may require the Fund to sell some of its Fund securities to generate
sufficient cash to satisfy certain income distribution requirements.
Disclaimers
The Stock Index Fund is not sponsored, endorsed, sold or promoted by S&P, nor
does S&P guarantee the accuracy and/or completeness of the S&P 500(R) Index or
any data included therein. S&P makes no warranty, express or implied, as to the
results to be obtained by the Fund, owners of the Fund, any person or any entity
from the use of the S&P 500(R) Index or any data included therein. S&P makes no
express or implied warranties and expressly disclaims all such warranties of
merchantability or fitness for a particular purpose for use with respect to the
S&P 500(R) Index or any data included therein.
The Small Cap Index Fund is not sponsored, endorsed, sold or promoted by
Russell, nor does Russell guarantee the accuracy and/or completeness of the
Russell 2000 Index or any data included therein. Russell makes no warranty,
express or implied, as to the results to be obtained by the Fund, owners of the
Fund, any person or any entity from the use of the Russell 2000 Index or any
data included therein. Russell makes no express or implied warranties and
expressly disclaims all such warranties of merchantability or fitness for a
particular purpose for use with respect to the Russell 2000 Index or any data
included therein.
Northern is sometimes referred to as "The Northern Trust Bank" in advertisements
and other sales literature.
<PAGE>
Financial Information
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the tables represent the rate that an investor
would have earned or lost on an investment in a Fund (assuming reinvestment of
all dividends and distributions). The information for the years or periods ended
on or before March 31, 2000 has been audited by ______________________, whose
report is included in the Funds' annual report along with the Funds' financial
statements. The annual report is available upon request and without charge.
<PAGE>
FINANCIAL HIGHLIGHTS [TO BE UPDATED]
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C>
INCOME EQUITY
FUND
-------------- ----------- ---------- ----------- -----------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR
YEAR MARCH 31, MARCH 31, MARCH 31, ENDED MARCH
ENDED 1999 1998 1997 31, 1996
MARCH 31,
2000
- -------------------------------- -------------- ----------- ---------- ----------- -----------
SELECTED PER SHARE DATA
Net Asset Value, $13.81 $11.81 $11.59 $9.95
Beginning of Period.....
Income (Loss) from
Investment Operations:
Net investment income... 0.46 0.45 0.44 0.34
Net realized and unrealized (0.41) 3.02 1.19 1.66
gains (losses)
on investments........
- -------------------------------- -------------- ----------- ---------- ----------- -----------
Total Income from 0.05 3.47 1.63 2.00
Investment Operations...
- -------------------------------- -------------- ----------- ---------- ----------- -----------
Less Distributions Paid:
From net investment income (0.48) (0.44) (0.44) (0.36)
From net realized gains. (0.65) (1.03) (0.97) --
- -------------------------------- -------------- ----------- ---------- ----------- -----------
Total Distributions Paid (1.13) (1.47) (1.41) (0.36)
- -------------------------------- -------------- ----------- ---------- ----------- -----------
Net Asset Value, $12.73 $13.81 $11.81 $11.59
- -------------------------------- -------------- ----------- ---------- ----------- -----------
Total Return(2)............ 0.67% 31.00% 14.42% 20.41%
Supplemental Data and Ratios:
Net assets, in thousands, $118,414 $117,562 $77,102 $55,919
end of period...........
Ratio to average net assets of (3):
Expenses, net of waivers 1.00% 1.00% 1.00% 1.00%
and reimbursements......
Expenses, before waivers 1.35% 1.37% 1.42% 1.48%
Net investment income, 3.54% 3.53% 3.71% 3.17%
net of waivers and
reimbursements..........
Net investment income 3.19% 3.16% 3.29% 2.69%
(loss), before waivers and
reimbursements..........
Portfolio Turnover Rate.... 79.95% 81.24% 72.04% 67.32%
- -------------------------------- -------------- ----------- ---------- ----------- -----------
</TABLE>
(1) For the period October 7, 1996 (commencement of operations) through March
31, 1997.
(2) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(3) Annualized for periods less than a full year.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
STOCK INDEX
FUND
---------------- ----------- ---------- ------------
YEAR YEAR YEAR ENDED YEAR
ENDED ENDED MARCH MARCH 31, ENDED
MARCH 31, 31, 1999 1998 MARCH 31,
2000 1997(1)
- -------------------------------- --------------- -------------- ----------- ----------
SELECTED PER SHARE DATA
Net Asset Value, $15.03 $10.74 $10.00
Beginning of Period.....
Income (Loss) from
Investment Operations:
Net investment income... 0.16 0.15 0.08
Net realized and unrealized 2.49 4.80 0.74
gains (losses)
on investments........
- -------------------------------- ---------------- ----------- ---------- -------------
Total Income from 2.65 4.95 0.82
Investment Operations...
- -------------------------------- ---------------- ----------- ---------- -------------
Less Distributions Paid:
From net investment income (0.17) (0.15) (0.07)
From net realized gains. (0.17) (0.51) (0.01)
- -------------------------------- ---------------- ----------- ---------- -------------
Total Distributions Paid (0.34) (0.66) (0.08)
- -------------------------------- ---------------- ----------- ---------- -------------
Net Asset Value, $17.34 $15.03 $10.74
End of Period............
- -------------------------------- ---------------- ----------- ---------- -------------
Total Return(2)............ 17.78% 47.11% 8.21%
Supplemental Data and Ratios:
Net assets, in thousands, $169,062 $93,907 $35,840
end of period...........
Ratio to average net assets of (3):
Expenses, net of waivers 0.55% 0.55% 0.55%
and reimbursements......
Expenses, before waivers 1.00% 1.18% 2.23%
and reimbursements......
Net investment income, 1.10% 1.23% 1.92%
net of waivers and
reimbursements..........
Net investment income 0.65% 0.60% 0.24%
(loss), before waivers and
reimbursements..........
Portfolio Turnover Rate.... 2.46% 32.06% 64.94%
- -------------------------------- ---------------- ----------- ---------- -------------
</TABLE>
(1) For the period October 7, 1996 (commencement of operations) through
March 31, 1997.
(2) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions and a complete redemption of the
investment at net asset value at the end of the year. Total return is not
annualized for periods less than one year.
(3) Annualized for periods less than a full year.
<PAGE>
FINANCIAL HIGHLIGHTS (continued).... [TO BE UPDATED]
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C>
GROWTH EQUITY
FUND
----------------- -------------- ---------------- ------------ ---------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED MARCH ENDED
MARCH 31, MARCH 31, MARCH 31, 31, 1997 MARCH 31,
2000 1999 1998 1996
- -------------------------------- ----------------- -------------- ---------------- ------------ ---------------
SELECTED PER SHARE DATA
Net Asset Value, $18.62 $13.93 $13.15 $10.61
Beginning of Period.....
Income (Loss) from
Investment Operations:
Net investment income... 0.02 0.03 0.08 0.08
Net realized and unrealized 4.51 6.36 1.49 2.59
gains (losses)
on investments........
- -------------------------------- ----------------- -------------- ---------------- ------------ ---------------
Total Income (Loss) from 4.53 6.39 1.57 2.67
Investment Operations...
- -------------------------------- ----------------- -------------- ---------------- ------------ ---------------
Less Distributions Paid:
From net investment income (0.02) (0.03) (0.08) (0.08)
From net realized gains. (1.19) (1.67) (0.71) (0.05)
- -------------------------------- ----------------- -------------- ---------------- ------------ ---------------
Total Distributions Paid (1.21) (1.70) (0.79) (0.13)
- --------------------------------
----------------- -------------- ---------------- ------------ ---------------
Net Asset Value, $21.94 $18.62 $13.93 $13.15
End of Period............
- -------------------------------- ----------------- -------------- ---------------- ------------ ---------------
Total Return(1)............ 24.72% 48.06% 11.72% 25.13%
Supplemental Data and Ratios:
Net assets, in thousands, $640,948 $479,782 $302,605 $224,571
end of period...........
Ratio to average net assets of (2):
Expenses, net of waivers 1.00% 1.00% 1.00% 1.00%
and reimbursements......
Expenses, before waivers 1.30% 1.30% 1.33% 1.36%
and reimbursements......
Net investment income, 0.08% 0.18% 0.56% 0.70%
net of waivers and
reimbursements..........
Net investment income (0.22)% (0.12)% 0.23% 0.34%
(loss), before waivers and
reimbursements..........
Portfolio Turnover Rate.... 49.67% 73.85% 67.34% 73.20%
- -------------------------------- ----------------- -------------- ---------------- ------------ ---------------
</TABLE>
(1) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions and a complete redemption of the
investment at net asset value at the end of the year. Total return is not
annualized for periods less than one year.
(2) Annualized for periods less than a full year.
<PAGE>
FINANCIAL HIGHLIGHTS (continued) [TO BE UPDATED]
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
SELECT EQUITY MID CAP SMALL CAP
FUND GROWTH FUND INDEX FUND
</TABLE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 1998 1997 1996 2000 1999(1) 2000(2)
SELECTED PER SHARE DATA
Net Asset Value, $19.16 $14.55 $13.12 $10.77 $11.72 $10.00 $10.00
Beginning of Period...
Income (Loss) from
Investment Operations:
Net investment -- 0.02 0.02 0.02 (0.02) -- 0.01
income (loss).......
Net realized and 5.40 6.81 2.05 2.73 1.13 1.72 (0.20)
unrealized
gains (losses) on
investments, and
futures contracts...
- ----------------------------- --------------- --------------- --------------- --------------- ------------- ----- ----------------
Total Income (Loss) from 5.40 6.83 2.07 2.75 1.11 1.72 (0.19)
Investment Operations.
- ----------------------------- --------------- --------------- --------------- --------------- ------------- ----- ----------------
Less Distributions Paid:
From net investment (0.01) (0.02) (0.02) (0.03) -- -- --
income
From net realized gains (1.22) (2.20) (0.62) (0.37) -- -- --
- ----------------------------- --------------- --------------- --------------- --------------- ------------- ----- -----------------
--
Total Distributions Paid. (1.23) (2.22) (0.64) (0.40) --
- ----------------------------- --------------- --------------- --------------- --------------- ------------- ----- ----------------
Net Asset Value, $23.33 $19.16 $14.55 $13.12 $12.83 $11.72 $9.81
End of Period..........
- ----------------------------- --------------- --------------- --------------- --------------- ------------- ----- -----------
Total Return(3).......... 28.79% 49.71% 15.64% 25.70% 9.47% 17.19% (1.90)%
Supplemental Data and
Ratios:
Net assets, in thousands, $198,530 $126,536 $63,677 $33,842 $246,003 $77,378 $137,043
end of period.........
Ratio to average net assets of (4):
Expenses, net of waivers 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.65%
and reimbursements....
Expenses, before waivers 1.54% 1.58% 1.67% 1.91% 1.34% 1.65% 1.34%
and reimbursements....
Net investment income (0.15)% 0.15% 0.21% 0.22% (0.42)% (0.51)% 1.03%
(loss),
net of waivers and
reimbursements........
Net investment income (0.69)% (0.43)% (0.46)% (0.69)% (0.76)% (1.16)% 0.34%
(loss), before waivers and
reimbursements........
Portfolio Turnover Rate.. 87.73% 148.55% 72.68% 137.99% 97.36% 173.39% 2.44%
- ----------------------------- --------------- --------------- --------------- --------------- ------------- ----- ----------------
</TABLE>
(1) Commenced investment operations after the close of business on March
31, 1998.
(2) Commenced investment operations after the close of business on
September 3, 1999.
(3) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions and a complete redemption of the
investment at net asset value at the end of the year. Total return is not
annualized for the period less than one year.
(4) Annualized for periods less than a full year.
<PAGE>
FINANCIAL HIGHLIGHTS (continued) [TO BE UPDATED]
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C> <C>
SMALL CAP SMALL CAP
VALUE FUND(3) GROWTH FUND
---------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 1998 1997 1996 2000
- --------------------------------------- ------------------- ------------- --------------
SELECTED PER SHARE DATA
Net Asset Value, $16.76 $12.31 $11.58 $9.98
Beginning of Period.........
Income (Loss) from
Investment Operations:
Net investment income (loss). 0.04 0.03 0.07 0.05
Net realized and unrealized (3.93) 5.14 1.37 2.29
gains (losses) on investments,
and futures contracts.....
- --------------------------------------- ------------------- ------------- ---------------- -------------- ----------------
Total Income (Loss) from (3.89) 5.17 1.44 2.34
Investment Operations.......
- --------------------------------------- ------------------- ------------- ---------------- -------------- ----------------
Less Distributions Paid:
From net investment income.. (0.01) (0.04) (0.06) (0.07)
From net realized gains..... (0.54) (0.68) (0.65) (0.67)
- --------------------------------------- ------------------- ------------- ---------------- -------------- ----------------
(0.55) (0.72) (0.71) (0.74)
Total Distributions Paid.......
- --------------------------------------- ------------------- ------------- ---------------- -------------- --------------
Net Asset Value, $12.32 $16.76 $12.31 $11.58
End of Period................
- --------------------------------------- ------------------- ------------- ---------------- -------------- ----------
Total Return(1)................ (23.46)% 42.71% 12.48% 24.09%
Supplemental Data and Ratios:
Net assets, in thousands, $264,434 $368,579 $197,113 $155,238
end of period...............
Ratio to average net assets of (2):
Expenses, net of waivers 1.00% 1.00% 1.00% 1.00%
and reimbursements..........
Expenses, before waivers 1.52% 1.53% 1.54% 1.61%
and reimbursements..........
Net investment income (loss), 0.25% 0.28% 0.54% 0.65%
net of waivers and
reimbursements..............
Net investment income (0.27)% (0.25)% 0.00% 0.04%
(loss) before waivers and
reimbursements..............
Portfolio Turnover Rate........ 18.74% 18.59% 18.92% 46.59%
- --------------------------------------- ------------------- ------------- ---------------- -------------- ----
</TABLE>
(1) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(2) Annualized for periods less than a full year.
(3) Previously known as Small Cap Fund.
<PAGE>
FINANCIAL HIGHLIGHTS (continued) [TO BE UPDATED]
INTERNATIONAL GROWTH
EQUITY FUND
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED MARCH ENDED MARCH ENDED
MARCH 31, MARCH 31, 31, 1998 31, 1997 MARCH 31,
2000 1999 1996
- ------------------------------ -------------- ---------- ----------- ------------ ------------- --- -
SELECTED PER SHARE DATA
Net Asset Value, $11.66 $10.05 $10.23 $9.61
Beginning of Period..
Income (Loss) from
Investment Operations:
Net investment 0.13 0.09 0.09 0.17
Income (loss)......
Net realized and 1.36 1.98 0.18 0.65
unrealized
gains (losses) on
investments, options,
futures contracts and
foreign currency
transactions........
- ------------------------------ -------------- ---------- ----------- ------------ ------------- --- -
Total Income (Loss) from 1.49 2.07 0.27 0.82
Investment Operations
- ------------------------------ -------------- ---------- ----------- ------------ ------------- --- --
Less Distributions Paid:
From net investment income -- (0.07) (0.09) (0.11)
From net realized gains (0.46) (0.29) (0.23) --
In excess of net (0.12) (0.10) -- (0.09)
investment income.
In excess of accumulated -- -- (0.13) --
net realized gains on
investment transactions
- ------------------------------ -------------- ---------- ----------- ------------ ------------- --- --
Total Distributions Paid (0.58) (0.46) (0.45) (0.20)
- ------------------------------ -------------- ---------- ----------- ------------ ------------- --- ---
Net Asset Value, $12.57 $11.66 $10.05 $10.23
End of Period.......
- ------------------------------ -------------- ---------- ----------- ------------ ------------- --- ----
Total Return(1)....... 13.04% 21.34% 2.61% 8.61%
Supplemental Data and Ratios:
Net assets, in thousands, $215,656 $178,210 $165,892 $181,237
end of period......
Ratio to average net assets of (2):
Expenses, net of waivers 1.25% 1.25% 1.25% 1.25%
and reimbursements.
Expenses, before waivers 1.62% 1.62% 1.63% 1.65%
and reimbursements.
Net investment income (loss), 0.52% 0.79% 0.78% 0.92%
net of waivers and
reimbursements.....
Net investment income (loss), 0.15% 0.42% 0.40% 0.52%
before waivers and
reimbursements.....
Portfolio Turnover Rate 177.89% 145.02% 190.94% 216.86%
- ------------------------------ -------------- ---------- ----------- ------------ ------------- --- ------
</TABLE>
- ---------------------------------
(1) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(2) Annualized for periods less than a full year.
INTERNATIONAL SELECT
EQUITY FUND
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C>
------------------------- ------------ ------------ -----------
YEAR YEAR YEAR YEAR ENDED YEAR
ENDED ENDED MARCH ENDED MARCH MARCH 31, ENDED MARCH
MARCH 31, 31, 1999 31, 1998 1997 31, 1996
2000
- ------------------------------ -------------- ---------- ----------- ------------ ----------- -
SELECTED PER SHARE DATA
Net Asset Value, $12.52 $10.37 $10.73 $9.78
Beginning of Period..
Income (Loss) from
Investment Operations:
Net investment 0.04 0.22 0.04 0.01
Income (loss)......
Net realized and 1.08 2.19 (0.25) 0.99
unrealized
gains (losses) on
investments, options,
futures contracts and
foreign currency
transactions........
- ------------------------------ -------------- ---------- ----------- ------------ ------------- ---
Total Income (Loss) from 1.12 2.41 (0.21) 1.00
Investment Operations
- ------------------------------ -------------- ---------- ----------- ------------ ------------- ---
Less Distributions Paid:
From net investment income -- (0.16) (0.03) (0.02)
From net realized gains (0.65) -- -- --
In excess of net (0.01) (0.10) (0.04) (0.03)
investment income.
In excess of accumulated -- -- (0.08) --
net realized gains on
investment transactions
- ------------------------------ -------------- ---------- ----------- ------------ ------------- ---
Total Distributions Paid (0.66) (0.26) (0.15) (0.05)
- ------------------------------ -------------- ------------ ----------- ---------- -----------
Net Asset Value, $12.98 $12.52 $10.37 $10.73
End of Period.......
- ------------------------------ -------------- ------------ ----------- ---------- -----------
Total Return(1)....... 9.16% 23.74% (1.95)% 10.20%
Supplemental Data and Ratios:
Net assets, in thousands, $124,513 $117,618 $108,944 $102,719
end of period......
Ratio to average net assets of (2):
Expenses, net of waivers 1.25% 1.25% 1.25% 1.25%
and reimbursements.
Expenses, before waivers 1.66% 1.64% 1.66% 1.71%
and reimbursements.
Net investment income (loss), 0.38% 0.29% 0.47% 0.12%
net of waivers and
reimbursements.....
Net investment income (loss), (0.03)% (0.10)% 0.06% (0.34)%
before waivers and
reimbursements.....
Portfolio Turnover Rate 168.19% 98.22% 97.60% 176.71%
- ------------------------------ ------------- ------------ ----------- ---------- -----------
- ---------------------------------
</TABLE>
(1) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(2) Annualized for periods less than a full year.
<PAGE>
FINANCIAL HIGHLIGHTS (continued) [TO BE UPDATED]
TECHNOLOGY
FUND
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C>
--------------- ------------- ------------- -------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 1998 1997(1)
- -------------------------------------------- --------------- ------------- ------------- -------------
SELECTED PER SHARE DATA
Net Asset Value, $17.11 $11.95 $10.00
Beginning of Period................
Income (Loss) from Investment Operations:
Net investment income (loss)....... -- -- --
Net realized and unrealized gains (losses) on investments, op13.55, futur6.06 2.10
contracts and foreign currency
transactions.....................
- -------------------------------------------- --------------- ------------- ------------- -------------
Total Income (Loss) from Investment 13.55 6.06 2.10
Operations
- -------------------------------------------- --------------- ------------- ------------- -------------
Less Distributions Paid:
From net investment income......... -- -- --
From net realized gains............ (0.67) (0.90) (0.15)
In excess of net investment income. -- -- --
In excess of accumulated net realized -- -- --
gains on investment transactions......
- -------------------------------------------- --------------- ------------- ------------- -------------
Total Distributions Paid.............. (0.67) (0.90) (0.15)
- -------------------------------------------- --------------- ------------- ------------- -------------
Net Asset Value, $29.99 $17.11 $11.95
End of Period.......................
- -------------------------------------------- --------------- ------------- ------------- -------------
Total Return(2)....................... 79.97% 52.62% 20.82%
Supplemental Data and Ratios:
Net assets, in thousands, $343,709 $104,389 $43,754
end of period......................
Ratio to average net assets of (3):
Expenses, net of waivers and reimbursements 1.23% 1.25% 1.25%
Expenses, before waivers and reimbursements 1.53% 1.59% 2.02%
Net investment income (loss), (0.87)% (0.96)% (0.75)%
net of waivers and reimbursements..
Net investment income (loss), (1.17)% (1.30)% (1.52)%
before waivers and reimbursements..
Portfolio Turnover Rate............... 61.01% 74.75% 67.89%
- -------------------------------------------- --------------- ------------- ------------- -------------
</TABLE>
(1) Commenced investment operations after the close of business on April 1,
1996.
(2) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption of
the investment at net asset value at the end of the year. Total return is not
annualized for periods less than one year.
(3) Annualized for periods less than a full year.
<PAGE>
For More Information
ANNUAL/SEMIANNUAL REPORT
Additional information about the Funds' investments is available in the Funds'
annual and semiannual reports to shareholders. In the Funds' annual reports, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during their last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Funds and their policies is also available in
the Funds' Statement of Additional Information ("SAI"). The SAI is incorporated
by reference into this Prospectus (is legally considered part of this
Prospectus).
The Funds' annual and semiannual reports, and the SAI, are available free upon
request by calling The Northern Funds Center at (800) 595-9111.
To obtain other information and for shareholder inquiries:
By telephone - Call (800) 595-9111
By mail - Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
On the Internet - Text-only versions of the Funds' documents are available
online and may be downloaded from:
The SEC's website at http://www.sec.gov. Northern Funds' website
at http://www.northernfunds.com.
You may review and obtain copies of Northern Funds' documents by visiting the
SEC's Public Reference Room in Washington, D.C. You may also obtain copies of
Northern Funds' documents, after paying a duplicating fee, by writing the SEC's
Public Reference Section, Washington, D.C. 20549-0102, or by electronic request
to: [email protected]. Information on the operation of the public reference
room may be obtained by calling the SEC at (202) 942-8090.
[LOGO]
811-8236
Northern Funds
Fixed Income Funds
U.S. Government Fund
Short-Intermediate U.S. Government Fund
Intermediate Tax-Exempt Fund
California Intermediate Tax-Exempt Fund
Florida Intermediate Tax-Exempt Fund
Fixed Income Fund
Tax-Exempt Fund
Arizona Tax-Exempt Fund
California Tax-Exempt Fund
Global Fixed Income Fund (previously known as "International
Fixed Income Fund")
High Yield Municipal Fund
High Yield Fixed Income Fund
Prospectus dated July 31, 2000
An investment in a Fund 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 a Fund involves investment risks, including possible
loss of principal.
The California Intermediate Tax-Exempt, Arizona Tax-Exempt and California
Tax-Exempt Funds are not available in certain states. Please call (800)-595-9111
to determine the availability in your state.
The Securities and Exchange Commission ("SEC") 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 of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------ ---------------------------------------------------------
Page
OVERVIEW Introduction [ ]
Definitions [ ]
RISK/RETURN SUMMARY Funds
Information about the objectives, principal o U.S. Government Fund [
strategies and risk characteristics of each Fund. ]
o Short-Intermediate U.S. Government Fund [
]
o Intermediate Tax-Exempt Fund [
]
California Intermediate Tax-Exempt Fund [
]
Florida Intermediate Tax-Exempt Fund [
]
Fixed Income Fund [
]
Tax-Exempt Fund [
]
Arizona Tax-Exempt Fund [
]
California Tax-Exempt Fund [
]
o Global Fixed Income Fund [
]
High Yield Municipal Fund [
]
High Yield Fixed Income Fund
---------------------------------------------------------
Principal Investment Risks [
]
---------------------------------------------------------
Fund Performance
o U.S. Government Fund [
]
o Intermediate Tax-Exempt Fund [
]
Florida Intermediate Tax-Exempt Fund [
]
o Fixed Income Fund [
]
Tax-Exempt Fund [
]
California Tax-Exempt Fund [
]
o Global Fixed Income Fund [
]
o High Yield Municipal
Fund [ ]
o High Yield Fixed Income Fund [
]
---------------------------------------------------------
Broad-Based Securities Indices Descriptions [
]
---------------------------------------------------------
Fund Fees and Expenses [
]
- ------------------------------------------------------ ---------------------------------------------------------
MANAGEMENT OF THE FUNDS Investment Adviser [
Details that apply to the Funds as a group ]
---------------------------------------------
Advisory Fees [
]
---------------------------------------------
Fund Management and Other Services [
]
- ------------------------------------------------------ ---------------------------------------------------------
ABOUT YOUR ACCOUNT Purchasing and Selling Shares [
How to open, maintain and close an account. ]
o Purchasing Shares [
]
Opening an Account [
]
o Selling Shares [
]
---------------------------------------------
Account Policies and Other Information [
]
Calculating Share Price [
]
o Timing of Purchase Requests [
]
o Social Security/Tax Identification
Number [
]
o In-Kind Purchases and Redemptions [
]
o Miscellaneous Purchase Information [
]
o Timing of Redemption and Exchange
Requests [
]
Payment of Redemption Proceeds [
]
o Miscellaneous Redemption Information [
]
o Exchange Privileges [
]
o Telephone Transactions [
]
Making Changes to Your Account
Information
[ ]
o Signature Guarantees
[ ]
o Business Day [
]
o Early Closings [
]
o Authorized Intermediaries [
]
o Service Organizations [
]
o Shareholder Communications [
]
-------------------------------------------
Dividends and Distributions [
]
---------------------------------------------
Tax Considerations [
]
---------------------------------------------
Tax Table [
]
- ------------------------------------------------------ ---------------------------------------------------------
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL Risks, Securities and Techniques
INFORMATION o Additional Information on Investment Objectives,
Principal Investment Strategies and Related
Risks
[ ]
o Additional Description of Securities and
Common Investment Techniques [
]
o Disclaimers
[ ]
---------------------------------------------------------
Financial Information
o Financial Highlights
[ ]
- ------------------------------------------------------ ---------------------------------------------------------
FOR MORE INFORMATION Annual/Semiannual Report
[ ]
---------------------------------------------
Statement of Additional Information
[ ]
- ------------------------------------------------------ ---------------------------------------------------------
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
OVERVIEW
Introduction
Northern Funds is a family of no-load mutual funds that offers a selection of
funds to investors, each with a distinct investment objective and risk/reward
profile.
The descriptions on the following pages may help you choose the fund or funds
that best fit your investment needs. Keep in mind, however, that no fund can
guarantee it will meet its investment objective, and no fund should be relied
upon as a complete investment program. This Prospectus describes the twelve
fixed income funds (the "Funds") that are part of the Northern Funds family (the
"Trust" or "Northern Funds"). The Trust's six money market and fourteen equity
funds are described in separate prospectuses.
In addition to the instruments described on the pages below, each Fund 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" beginning on page [ ] of this Prospectus and the
Statement of Additional Information.
Definitions
California Funds -- California Intermediate Tax-Exempt Fund and California
Tax-Exempt Fund.
Fixed Income Funds -- U.S. Government Fund, Short-Intermediate U.S. Government
Fund, Intermediate Tax-Exempt Fund, California Intermediate Tax-Exempt Fund,
Florida Intermediate Tax-Exempt Fund, Fixed Income Fund, Tax-Exempt Fund,
Arizona Tax-Exempt Fund, California Tax-Exempt Fund, Global Fixed Income Fund,
High Yield Municipal Fund and High Yield Fixed Income Fund.
Tax-Exempt Funds -- Intermediate Tax-Exempt Fund, California Intermediate
Tax-Exempt Fund, Florida Intermediate Tax-Exempt Fund, Tax-Exempt Fund, Arizona
Tax-Exempt Fund and California Tax-Exempt Fund.
<PAGE>
U.S. GOVERNMENT FUND
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking a high level of current income, the Fund will
invest, under normal market conditions, at least 65% of its total assets in
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities and repurchase agreements relating to such securities. These
may include:
U.S. Treasury bills, notes and bonds;
Obligations of U.S. government agencies and instrumentalities;
Mortgage-related securities issued or guaranteed by U.S. government agencie
and instrumentalities;
Stripped securities evidencing ownership of future interest or principal
payments on obligations of the U.S. government, its agencies o
instrumentalities;
Repurchase agreements relating to the above instruments; and
Structured debt securities that are issued or guaranteed directly
by the U.S. government, its agencies or instrumentalities.
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as treasury, agency and mortgage-related
securities) that the team believes will provide a favorable return in light of
these risks. The investment management team may engage in active trading, and
will not consider portfolio turnover rate a limiting factor in making decisions
for the Fund.
The Fund's dollar-weighted average maturity will, under normal market
conditions, range between one and ten years. In seeking to achieve its
investment objective, the Fund may make significant investments in structured
debt securities that are issued or guaranteed directly by the U.S. government,
its agencies or instrumentalities. Like other types of U.S. government
securities, the U.S. government, agency or instrumentality that issues or
guarantees a structured debt security is obligated to make principal and
interest payments on the security. Structured debt securities, however, are
considered to be derivative instruments because the value of the principal of
and/or interest on these securities is based on changes in the value of specific
currencies, interest rates, indices or other financial indicators. For these
reasons, structured debt securities present additional risk that the interest
paid to the Fund on a structured debt security will be less than expected, and
that the principal amount invested will not be returned to the Fund. As a
result, investments in structured debt securities may adversely affect the
Fund's net asset value. The Fund may also invest, to a lesser extent, in futures
contracts, options and swaps for both hedging and non-hedging purposes.
Risks. These primary investment risks apply to the Fund: interest rate/maturity,
prepayment (or call), debt extension, U.S. government securities, counterparty
failure, guarantor, structured debt securities and derivatives risks. See page [
] for these risks and primary investment risks common to all Funds.
<PAGE>
SHORT-INTERMEDIATE U.S. GOVERNMENT FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking high current income, the Fund will invest,
under normal market conditions, at least 65% of its total assets in securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities
and repurchase agreements relating to such securities. These may include:
U.S. Treasury bills, notes and bonds;
Obligations of U.S. government agencies and instrumentalities;
Mortgage-related securities issued or guaranteed by U.S. government agencies
and instrumentalities;
Stripped securities evidencing ownership of future interest or principal
payments on obligations of the U.S. government, its agencies or
instrumentalities; and
Repurchase agreements relating to the above instruments.
Structured debt securities that are issued or guaranteed directly by
the U.S. government, its agencies or instrumentalities.
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as treasury, agency and mortgage-related
securities) that the team believes will provide a favorable return in light of
these risks.
The Fund's dollar-weighted average maturity will, under normal market
conditions, range between two and five years.
In seeking to achieve its investment objective, the Fund may make significant
investments in structured debt securities that are issued or guaranteed directly
by the U.S. government, its agencies or instrumentalities. Like other types of
U.S. government securities, the U.S. government, agency or instrumentality that
issues or guarantees a structured debt security is obligated to make principal
and interest payments on the security. Structured debt securities, however, are
considered to be derivative instruments because the value of the principal of
and/or interest on these securities is based on changes in the value of specific
currencies, interest rates, indices or other financial indicators. For these
reasons, structured debt securities present additional risk that the interest
paid to the Fund on a structured debt security will be less than expected, and
that the principal amount invested will not be returned to the Fund. As a
result, investments in structured debt securities may adversely affect the
Fund's net asset value. The Fund may also invest, to a lesser extent, in futures
contracts, options and swaps for both hedging and non-hedging purposes.
Risks. These primary investment risks apply to the Fund: interest rate/maturity,
prepayment, debt extension, U.S. government securities, counterparty failure,
guarantor, structured debt securities and derivatives risks. See page [ ] for
these risks and primary investment risks common to all Funds.
<PAGE>
INTERMEDIATE TAX-EXEMPT FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income exempt from regular
Federal income tax by investing in municipal instruments.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking high current income exempt from regular
Federal income tax, the Fund may invest in a broad range of municipal
instruments. These may include:
General obligation bonds secured by the issuer's full faith,
credit and taxing power; Revenue obligation bonds payable from
the revenues derived from a particular facility or class of
facilities;
Industrial development bonds;
Moral obligation bonds;
Tax-exempt derivative instruments;
Stand-by commitments; and
Municipal instruments backed by letters of credit, insurance or
other forms of credit enhancement issued by domestic or foreign
banks, insurance companies and other financial institutions.
Although the Fund invests primarily in investment grade debt obligations (i.e.,
obligations rated within the top four rating categories by a Nationally
Recognized Statistical Rating Organization or of comparable quality as
determined by Northern Trust Company ("Northern"), it may invest to a limited
extent in obligations that are below investment grade ("junk bonds"). Under
normal market conditions, at least 80% of the Fund's net assets will be invested
in municipal instruments. Interest earned by the Fund on 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 will
not be deemed to have been derived from municipal instruments for the purpose of
determining whether the Fund meets this policy. For shareholders subject to AMT,
a limited portion of the Fund's dividends may be subject to Federal tax.
During temporary defensive periods, all or any portion of the Fund's assets may
be held uninvested or invested in AMT obligations and taxable instruments.
Taxable investments will consist exclusively of those instruments that may be
purchased by the Fixed Income Fund. The Fund may not achieve its investment
objective when this temporary defensive strategy is used.
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as general obligation bonds, corporate-backed
municipal bonds and revenue obligation bonds) that the team believes will
provide a favorable return in light of these risks.
The Fund's dollar-weighted average maturity will, under normal market
conditions, range between three and ten years.
In seeking to achieve its investment objective, the Fund may make significant
investments in structured debt securities. Structured debt securities are
considered to be derivative instruments because the value of the principal of
and/or interest on these securities is based on changes in the value of specific
interest rates, indices or other financial indicators. For these reasons,
structured debt securities present additional risk that the interest paid to the
Fund on a structured debt security will be less than expected, and that the
principal amount invested will not be returned to the Fund. As a result,
investments in structured debt securities may adversely affect the Fund's net
asset value. The Fund may also invest, to a lesser extent, in futures contracts,
options and swaps for both hedging and non-hedging purposes. Risks.
These primary investment risks apply to the Fund: interest rate/maturity,
credit, prepayment, debt extension, counterparty failure, guarantor, structured
debt securities, derivatives, project/industrial development bond, high-yield
and tax risks. See page [ ] for these risks and primary investment risks common
to all Funds.
<PAGE>
CALIFORNIA INTERMEDIATE TAX-EXEMPT FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide high current income exempt from regular Federal income
tax and California state personal income tax by investing in municipal
instruments.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking high current income exempt from regular
Federal income tax and California state personal income tax, the Fund may invest
in a broad range of municipal instruments. These may include:
General obligation bonds secured by the issuer's full faith,
credit and taxing power; Revenue obligation bonds payable from
the revenues derived from a particular facility or class of
facilities;
Industrial development bonds;
Moral obligation bonds;
Tax-exempt derivative instruments;
Stand-by commitments; and
Municipal instruments backed by letters of credit, insurance or
other forms of credit enhancement issued by domestic or foreign
banks, insurance companies and other financial institutions.
Although the Fund invests primarily in investment grade debt obligations (i.e.,
obligations rated within the top four rating categories by a Nationally
Recognized Statistical Rating Organization or of comparable quality as
determined by Northern), it may invest to a limited extent in obligations that
are below investment grade ("junk bonds"). Under normal market conditions,
at least 80% of the Fund's net assets will be invested in municipal instruments.
Interest earned by the Fund on 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 will not be deemed to have been
derived from municipal instruments for the purposes of determining whether the
Fund meets this policy. For shareholders subject to AMT, a limited portion of
the Fund's dividends may be subject to Federal tax. In addition, under normal
market conditions at least 65% of the Fund's total assets will be invested in
California municipal instruments. During temporary defensive periods, all
or any portion of the Fund's assets may be held uninvested or invested in AMT
obligations and taxable instruments. Taxable investments will consist
exclusively of those instruments that may be purchased by the Fixed Income Fund.
The Fund may not achieve its investment objective when this temporary defensive
strategy is used.
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as general obligation bonds and revenue obligation
bonds) that the team believes will provide a favorable return in light of these
risks.
The Fund's dollar-weighted average maturity will, under normal market
conditions, range between three and ten years. The Fund is "non-diversified"
under the 1940 Act, and may invest more of its assets in fewer issuers than
"diversified" mutual funds. In seeking to achieve its investment objective,
the Fund may make significant investments in structured debt securities.
Structured debt securities are considered to be derivative instruments because
the value of the principal of and/or interest on these securities is based on
changes in the value of specific interest rates, indices or other financial
indicators. For these reasons, structured debt securities present additional
risk that the interest paid to the Fund on a structured debt security will be
less than expected, and that the principal amount invested will not be returned
to the Fund. As a result, investments in structured debt securities may
adversely affect the Fund's net asset value. The Fund may also invest, to a
lesser extent, in futures contracts, options and swaps for both hedging and
non-hedging purposes. Risks. These primary investment risks apply to the
Fund: interest rate/maturity, credit, prepayment, debt extension, counterparty
failure, guarantor, structured debt securities, derivatives,
California-specific, project/industrial development bond, tax, high-yield and
non-diversification risks. See page [ ] for these risks and primary investment
risks common to all Funds.
<PAGE>
FLORIDA INTERMEDIATE TAX-EXEMPT FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide high current income exempt from regular Federal income
tax by investing in municipal instruments.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking high current income exempt from regular
Federal income tax, the Fund may invest in a broad range of municipal
instruments. These may include:
General obligation bonds secured by the issuer's full faith,
credit and taxing power; Revenue obligation bonds payable from
the revenues derived from a particular facility or class of
facilities;
Industrial development bonds;
Moral obligation bonds;
Tax-exempt derivative instruments;
Stand-by commitments; and
Municipal instruments backed by letters of credit, insurance or
other forms of credit enhancement issued by domestic or foreign
banks, insurance companies and other financial institutions.
Although the Fund invests primarily in investment grade debt obligations (i.e.,
obligations rated within the top four rating categories by a Nationally
Recognized Statistical Rating Organization or of comparable quality as
determined by Northern), it may invest to a limited extent in obligations that
are below investment grade ("junk bonds"). Under normal market conditions,
at least 80% of the Fund's net assets will be invested in municipal instruments.
Interest earned by the Fund on 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, will not be deemed to have been
derived from municipal instruments for the purposes of determining whether the
Fund meets this policy. For shareholders subject to AMT, a limited portion of
the Fund's dividends may be subject to Federal tax. In addition, under normal
market conditions, at least 65% of the Fund's total assets will be invested in
municipal instruments issued by the state of Florida and its municipalities,
counties and other taxing districts, as well as other securities exempt from the
Florida intangibles tax ("Florida municipal instruments"). During temporary
defensive periods, all or any portion of the Fund's assets may be held
uninvested or invested in AMT obligations and taxable instruments. Taxable
investments will consist exclusively of those instruments that may be purchased
by the Fixed Income Fund. The Fund may not achieve its investment objective when
this temporary defensive strategy is used.
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as general obligation bonds and revenue obligation
bonds) that the team believes will provide a favorable return in light of these
risks.
The Fund's dollar-weighted average maturity will, under normal market
conditions, range between three and ten years. The Fund is "non-diversified"
under the 1940 Act, and may invest more of its assets in fewer issuers than
"diversified" mutual funds. In seeking to achieve its investment objective,
the Fund may make significant investments in structured debt securities.
Structured debt securities are considered to be derivative instruments because
the value of the principal of and/or interest on these securities is based on
changes in the value of specific interest rates, indices or other financial
indicators. For these reasons, structured debt securities present additional
risk that the interest paid to the Fund on a structured debt security will be
less than expected, and that the principal amount invested will not be returned
to the Fund. As a result, investments in structured debt securities may
adversely affect the Fund's net asset value. The Fund may also invest, to a
lesser extent, in futures contracts, options and swaps for both hedging and
non-hedging purposes. Risks. These primary investment risks apply to the
Fund: interest rate/maturity, credit, prepayment, debt extension, counterparty
failure, guarantor, structured debt securities, derivatives, Florida-specific,
project/industrial development bond, tax, high-yield and non-diversification
risks. See page [ ] for these risks and primary investment risks common to all
Funds.
<PAGE>
FIXED INCOME FUND
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking high current income, the Fund will invest,
under normal market conditions, at least 65% of its total assets in a broad
range of bonds and other fixed income securities. These may include:
Obligations of the U.S. government, its agencies or
instrumentalities; Obligations of state, local and foreign
governments; Obligations of domestic and foreign banks and
corporations; Zero coupon bonds, debentures, convertible
securities and preferred stock; Mortgage and other
asset-backed securities; Stripped securities evidencing ownership
of future interest or principal payments on debt
obligations; and
Repurchase agreements relating to the above instruments.
Although the Fund invests primarily in investment grade domestic debt
obligations (i.e., obligations rated within the top four rating categories by a
Nationally Recognized Statistical Rating Organization or of comparable quality
as determined by Northern), it may invest to a limited extent in obligations of
foreign issuers and in securities that are below investment grade ("junk
bonds").
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as treasury, agency, corporate and
mortgage-related securities) that the team believes will provide a favorable
return in light of these risks.
The Fund's dollar-weighted average maturity will, under normal market
conditions, range between seven and twelve years.
In seeking to achieve its investment objective, the Fund may make significant
investments in structured debt securities. Structured debt securities are
considered to be derivative instruments because the value of the principal of
and/or interest on these securities is based on changes in the value of specific
currencies, interest rates, indices or other financial indicators. For these
reasons, structured debt securities present additional risk that the interest
paid to the Fund on a structured debt security will be less than expected, and
that the principal amount invested will not be returned to the Fund. As a
result, investments in structured debt securities may adversely affect the
Fund's net asset value. The Fund may also invest, to a lesser extent, in futures
contracts, options, swaps and currency contracts for both hedging and
non-hedging purposes. Risks. These primary investment risks apply to the
Fund: interest rate/maturity, credit, prepayment, debt extension, counterparty
failure, guarantor, high-yield, currency, country, foreign regulatory,
structured debt securities and derivatives risks. See page [ ] for these risks
and primary investment risks common to all Funds.
<PAGE>
TAX-EXEMPT FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income exempt from regular
Federal income tax by investing in municipal instruments.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking high current income exempt from regular
Federal income tax, the Fund may invest in a broad range of municipal
instruments. These may include:
General obligation bonds secured by the issuer's full faith,
credit and taxing power; Revenue obligation bonds payable from
the revenues derived from a particular facility or class of
facilities;
Industrial development bonds;
Moral obligation bonds;
Tax-exempt derivative instruments;
Stand-by commitments; and
Municipal instruments backed by letters of credit, insurance or
other forms of credit enhancement issued by domestic or foreign
banks, insurance companies and other financial institutions.
Although the Fund invests primarily in investment grade debt obligations (i.e.,
obligations rated within the top four rating categories by a Nationally
Recognized Statistical Rating Organization or of comparable quality as
determined by Northern), it may invest to a limited extent in obligations that
are below investment grade ("junk bonds"). Under normal market conditions,
at least 80% of the Fund's net assets will be invested in municipal instruments.
Interest earned by the Fund on 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 will not be deemed to have been
derived from municipal instruments for the purposes of determining whether the
Fund meets this policy. For shareholders subject to AMT, a limited portion of
the Fund's dividends may be subject to Federal tax.
During temporary defensive periods, all or any portion of the Fund's assets may
be held uninvested or invested in AMT obligations and taxable instruments.
Taxable investments will consist exclusively of those instruments that may be
purchased by the Fixed Income Fund. The Fund may not achieve its investment
objective when this temporary defensive strategy is used.
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as general obligation bonds and revenue obligation
bonds) that the team believes will provide a favorable return in light of these
risks. The investment management team may engage in active trading, and will not
consider portfolio turnover a limiting factor in making decisions for the Fund.
The Fund's dollar-weighted average maturity will, under normal market
conditions, range between ten and thirty years.
In seeking to achieve its investment objective, the Fund may make significant
investments in structured debt securities. Structured debt securities are
considered to be derivative instruments because the value of the principal of
and/or interest on these securities is based on changes in the value of specific
interest rates, indices or other financial indicators. For these reasons,
structured debt securities present additional risk that the interest paid to the
Fund on a structured debt security will be less than expected, and that the
principal amount invested will not be returned to the Fund. As a result,
investments in structured debt securities may adversely affect the Fund's net
asset value. The Fund may also invest, to a lesser extent, in futures contracts,
options and swaps for both hedging and non-hedging purposes. Risks.
These primary investment risks apply to the Fund: interest rate/maturity,
credit, prepayment, debt extension, counterparty failure, guarantor, structured
debt securities, derivatives, project/industrial development bond, tax,
high-yield and portfolio turnover risks. See page [ ] for these risks and
primary investment risks common to all Funds.
<PAGE>
ARIZONA TAX-EXEMPT FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide high current income exempt from regular Federal income
tax and Arizona state personal income tax by investing in municipal instruments.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking high current income exempt from regular
Federal income tax and Arizona state personal income tax, the Fund may invest,
under normal market conditions, at least 80% of its total assets in a broad
range of municipal instruments. These may include:
General obligation bonds secured by the issuer's full faith,
credit and taxing power; Revenue obligation bonds payable from
the revenues derived from a particular facility or class of
facilities;
Industrial development bonds;
Moral obligation bonds;
Tax-exempt derivative instruments;
Stand-by commitments; and
Municipal instruments backed by letters of credit, insurance or
other forms of credit enhancement issued by domestic or foreign
banks, insurance companies and other financial institutions.
Although the Fund invests primarily in investment grade debt obligations (i.e.,
obligations rated within the top four rating categories by a Nationally
Recognized Statistical Rating Organization or of comparable quality as
determined by Northern), it may invest to a limited extent in obligations that
are below investment grade ("junk bonds"). Under normal market conditions,
at least 80% of the Fund's net assets will be invested in municipal instruments.
Interest earned by the Fund on 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 will not be deemed to have been
derived from municipal instruments for the purposes of determining whether the
Fund meets this policy. For shareholders subject to AMT, a limited portion of
the Fund's dividends may be subject to Federal tax. In addition, under normal
market conditions, at least 65% of the Fund's total assets will be invested in
instruments the interest on which is exempt from Arizona state personal income
tax ("Arizona municipal instruments"). During temporary defensive periods,
all or any portion of the Fund's assets may be held uninvested or invested in
AMT obligations and taxable instruments. Taxable investments will consist
exclusively of those instruments that may be purchased by the Fixed Income Fund.
The Fund may not achieve its investment objective when this temporary defensive
strategy is used.
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as general obligation bonds and revenue obligation
bonds) that the team believes will provide a favorable return in light of these
risks.
The Fund's dollar-weighted average maturity will, under normal market
conditions, range between ten and thirty years. The Fund is "non-diversified"
under the 1940 Act, and may invest more of its assets in fewer issuers than
"diversified" mutual funds. In seeking to achieve its investment objective,
the Fund may make significant investments in structured debt securities.
Structured debt securities are considered to be derivative instruments because
the value of the principal of and/or interest on these securities is based on
changes in the value of specific interest rates, indices or other financial
indicators. For these reasons, structured debt securities present additional
risk that the interest paid to the Fund on a structured debt security will be
less than expected, and that the principal amount invested will not be returned
to the Fund. As a result, investments in structured debt securities may
adversely affect the Fund's net asset value. The Fund may also invest, to a
lesser extent, in futures contracts, options and swaps for both hedging and
non-hedging purposes. Risks. These primary investment risks apply to the
Fund: interest rate/maturity, credit, prepayment, debt extension, counterparty
failure, guarantor, structured debt securities, derivatives, Arizona-specific,
project/industrial development bond, tax, high-yield and non-diversification
risks. See page [ ] for these risks and primary investment risks common to all
Funds.
<PAGE>
CALIFORNIA TAX-EXEMPT FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide high current income exempt from regular Federal income
tax and California state personal income tax.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking high current income exempt from regular
Federal income tax and California state personal income tax, the Fund may invest
in a broad range of municipal instruments. These may include:
General obligation bonds secured by the issuer's full faith,
credit and taxing power; Revenue obligation bonds payable from
the revenues derived from a particular facility or class of
facilities;
Industrial development bonds;
Moral obligation bonds;
Tax-exempt derivative instruments;
Stand-by commitments; and
Municipal instruments backed by letters of credit, insurance or
other forms of credit enhancement issued by domestic or foreign
banks, insurance companies, and other financial institutions.
Although the Fund invests primarily in investment grade debt obligations (i.e.,
obligations rated within the top four rating categories by a Nationally
Recognized Statistical Rating Organization or of comparable quality as
determined by Northern), it may invest to a limited extent in obligations that
are below investment grade ("junk bonds"). Under normal market conditions,
at least 80% of the Fund's net assets will be invested in municipal instruments.
Interest earned by the Fund on 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, will not be deemed to have been
derived from municipal instruments for the purposes of determining whether the
Fund meets this policy. For shareholders subject to AMT, a limited portion of
the Fund's dividends may be subject to Federal tax. In addition, under normal
market conditions, at least 65% of the Fund's total assets will be invested in
California municipal instruments. During temporary defensive periods, all
or any portion of the Fund's assets may be held uninvested or invested in AMT
obligations and taxable instruments. Taxable investments will consist
exclusively of those instruments that may be purchased by the Fixed Income Fund.
The Fund may not achieve its investment objective when this temporary defensive
strategy is used.
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as general obligation bonds and revenue obligation
bonds) that the team believes will provide a favorable return in light of these
risks.
The Fund's dollar-weighted average maturity will, under normal market
conditions, range between ten and thirty years. The Fund is "non-diversified"
under the 1940 Act, and may invest more of its assets in fewer issuers than
"diversified" mutual funds. In seeking to achieve its investment objective,
the Fund may make significant investments in structured debt securities.
Structured debt securities are considered to be derivative instruments because
the value of the principal of and/or interest on these securities is based on
changes in the value of specific interest rates, indices or other financial
indicators. For these reasons, structured debt securities present additional
risk that the interest paid to the Fund on a structured debt security will be
less than expected, and that the principal amount invested will not be returned
to the Fund. As a result, investments in structured debt securities may
adversely affect the Fund's net asset value. The Fund may also invest, to a
lesser extent, in futures contracts, options and swaps for both hedging and
non-hedging purposes. Risks. These primary investment risks apply to the
Fund: interest rate/maturity, credit, prepayment, debt extension, counterparty
failure, guarantor, structured debt securities, derivatives,
California-specific, project/industrial development bond, tax, high-yield and
non-diversification risks. See page [ ] for these risks and primary investment
risks common to all Funds.
<PAGE>
GLOBAL FIXED INCOME FUND
INVESTMENT OBJECTIVE
The Fund seeks to maximize total return consistent with reasonable risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking to maximize total return, the Fund will
invest, under normal market conditions, at least 65% of its total assets in
bonds and other fixed income securities of issuers located in at least three
different countries. From time to time, U.S. companies may dominate the Fund's
portfolio. These may include:
Obligations of U.S. and foreign governments, their agencies or
instrumentalities; Obligations of supranational organizations
(such as the World Bank); Obligations of foreign and domestic
corporations and banks; Zero coupon bonds, debentures,
convertible securities and preferred stock of U.S. and foreign
issuers; and
Mortgage and other asset-backed securities. The Fund will
invest in issuers located in at least three different countries, although U.S.
companies may dominate the Fund's portfolio. Although the Fund primarily invests
in mature markets (such as Germany and Japan), it may to a lesser extent also
make investments in emerging markets (such as Argentina and China) depending
upon the Fund management team's outlook for the relative economic growth,
expected inflation and other economic and political prospects of each country or
region. Although the Fund invests primarily in investment grade debt
obligations (i.e., obligations rated within the top four rating categories by a
Nationally Recognized Statistical Rating Organization or of comparable quality
as determined by Northern), it may invest to a limited extent in obligations
that are below investment grade ("junk bonds").
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as foreign governmental, supranational and foreign
corporate obligations) that the team believes will provide a favorable return in
light of these risks. In this regard, the investment management team will
consider not only the income the Fund will receive from its investments, but
also the likelihood that particular securities will have a more favorable or
improving credit outlook.
The Fund's dollar-weighted average maturity will, under normal market
conditions, range between three and eleven years. The Fund is "non-diversified"
under the 1940 Act, and may invest more of its assets in fewer issuers than
"diversified" mutual funds. In seeking to achieve its investment objective,
the Fund may make significant investments in structured debt securities.
Structured debt securities are considered to be derivative instruments because
the value of the principal of and/or interest on these securities is based on
changes in the value of specific currencies, interest rates, indices or other
financial indicators. For these reasons, structured debt securities present
additional risk that the interest paid to the Fund on a structured debt security
will be less than expected, and that the principal amount invested will not be
returned to the Fund. As a result, investments in structured debt securities may
adversely affect the Fund's net asset value. The Fund may also invest, to a
lesser extent, in futures contracts, options, swaps and currency contracts for
both hedging and non-hedging purposes. Risks. These primary investment
risks apply to the Fund: interest rate/maturity, credit, prepayment, debt
extension, counterparty failure, guarantor, structured debt securities,
derivatives, non-diversification, high-yield, currency, country, foreign
regulatory and emerging markets risks. See page [ ] for these risks and primary
investment risks common to all Funds.
<PAGE>
HIGH YIELD MUNICIPAL FUND
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income exempt from regular Federal income
tax.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking high current income exempt from regular
Federal income tax, the Fund will invest, under normal market conditions, at
least 65% of its total assets in rated and unrated municipal securities that are
of low quality (commonly referred to as "junk bonds") or medium or upper medium
quality. These may include:
General obligation bonds secured by the issuer's full faith,
credit and taxing power; Revenue obligation bonds payable from
the revenues derived from a particular facility or class of
facilities;
Industrial development bonds;
Moral obligation bonds;
Tax-exempt derivative instruments;
Stand-by commitments; and
Municipal instruments backed by letters of credit, insurance or
other forms of credit enhancement issued by domestic or foreign
banks, insurance companies and other financial companies.
Upper medium quality securities are rated A by a Nationally Recognized
Statistical Rating Organization, and medium quality securities are rated BBB or
Baa by a Nationally Recognized Statistical Rating Organization. Lower quality
securities are rated BB, Ba or lower by a Nationally Recognized Statistical
Rating Organization. Unrated securities will be of comparable quality.
Lower quality securities tend to offer higher yields than higher rated
securities with similar maturities. However, lower rated securities are
considered speculative and generally involve greater price volatility and
greater risk of loss than higher rated securities. Medium quality securities,
although considered investment grade, are also considered to have speculative
characteristics. There is no minimum rating for a municipal instrument purchased
or held by the Fund, and the Fund may purchase securities that are in default.
Although the Fund primarily invests in low, medium or upper medium quality
securities, it may invest a portion (or, during temporary defensive periods,
all) of its assets in securities of higher quality. During temporary defensive
periods the Fund may invest all of its assets in securities of higher quality.
The Fund may not achieve its investment objective when this temporary strategy
is used. Under normal market conditions, at least 80% of the Fund's net
assets will be invested in municipal instruments. During temporary defensive
periods, however, all or any portion of a Fund's assets may be held uninvested
or invested in taxable instruments. Taxable investments will consist exclusively
of those instruments that may be purchased by the High Yield Fixed Income Fund.
The Fund may not achieve its investment objective when this temporary defensive
strategy is used. The Fund 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 Fund's dividends may be subject to Federal tax.
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as the corporate-backed municipal bonds and
revenue obligation bonds) that the team believes will provide a favorable return
in light of these risks. The investment management team may engage in active
trading, and will not consider portfolio turnover a limiting factor in making
decisions for the Fund.
The Fund does not have any portfolio maturity limitation, and may invest its
assets from time to time primarily in instruments with short, medium or long
maturities. The instruments held by the Fund are considered speculative, and an
investment in the Fund presents substantial risks in relation to a fund that
invests only in investment grade instruments. In seeking to achieve its
investment objective, the Fund may make significant investments in structured
debt securities. Structured debt securities are considered to be derivative
instruments because the value of the principal of and/or interest on these
securities is based on changes in the value of specific interest rates, indices
or other financial indicators. For these reasons, structured debt securities
present additional risk that the interest paid to the Fund on a structured debt
security will be less than expected, and that the principal amount invested will
not be returned to the Fund. As a result, investments in structured debt
securities may adversely affect the Fund's net asset value. The Fund may also
invest, to a lesser extent, in futures contracts, options, swaps [and currency
contracts] for both hedging and non-hedging purposes. Risks. These
primary investment risks apply to the Fund: interest rate/maturity, prepayment,
debt extension, counterparty failure, guarantor, structured debt securities,
derivatives, high-yield and portfolio turnover risks. See page [ ] for these
risks and primary investment risks common to all Funds.
<PAGE>
HIGH YIELD FIXED INCOME FUND
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income. In doing so, the Fund may also
consider the potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Strategies. In seeking to achieve its investment objective, the Fund
will invest, under normal market conditions, at least 65% of its total assets in
rated and unrated lower quality securities (commonly referred to as "junk
bonds"). These may include:
Obligations of U.S. and foreign corporations and banks;
Obligations of foreign, state and local governments; Obligations
of the U.S. government, its agencies or instrumentalities; Senior
and subordinated bonds and debentures; Mortgage and other
asset-related securities; Zero coupon, pay-in-kind and capital
appreciation bonds; Convertible securities, preferred stock,
structured securities and loan participations; Warrants, rights
and other equity securities that are acquired in connection with
the Fund's
investments in debt or convertible securities; and
Repurchase agreements relating to the above instruments.
Lower quality securities are rated BB, Ba or lower by a Nationally Recognized
Statistical Rating Organization. Unrated securities will be determined to be of
comparable quality by Northern.
Lower rated securities tend to offer higher yields than higher rated securities
with similar maturities. However, lower rated securities are considered
speculative and generally involve greater price volatility and greater risk of
loss than higher rated securities. There is no minimum rating for a security
purchased or held by the Fund, and the Fund may purchase securities that are in
default. Although the Fund invests primarily in lower quality fixed income
securities, it may invest a portion of its assets in securities of higher
quality. During temporary defensive periods the Fund may invest all of its
assets in securities of higher quality. The Fund may not achieve its investment
objective when this temporary strategy is used.
Although the Fund invests primarily in the debt obligations of domestic issuers,
it may invest to a limited extent in the obligations of foreign issuers.
In buying and selling securities for the Fund, the investment management team
uses a relative value approach. This approach involves an analysis of general
economic and market conditions. It also involves the use of models that analyze
and compare expected returns and assumed risks. Under the relative value
approach, the investment management team will emphasize particular securities
and types of securities (such as asset-backed, mortgage-backed and corporate
securities) that the team believes will provide a favorable return in light of
the risks. The investment management team may also consider obligations with a
more favorable or improving credit or industry outlook that provide the
potential for capital appreciation. The investment management team may engage in
active trading, and will not consider portfolio turnover a limiting factor in
making decisions for the Fund.
The Fund does not have any portfolio maturity limitation, and may invest its
assets from time to time primarily in instruments with short, medium or long
maturities. The instruments held by the Fund are considered speculative, and an
investment in the Fund presents substantial risks in relation to a fund that
invests only in investment grade instruments. In seeking to achieve its
investment objective, the Fund may make significant investments in structured
debt securities. Structured debt securities are considered to be derivative
instruments because the value of the principal of and/or interest on these
securities is based on changes in the value of specific currencies, interest
rates, indices or other financial indicators. For these reasons, structured debt
securities present additional risk that the interest paid to the Fund on a
structured debt security will be less than expected, and that the principal
amount invested will not be returned to the Fund. As a result, investments in
structured debt securities may adversely affect the Fund's net asset value. The
Fund may also invest, to a lesser extent, in futures contracts, options, swaps
[and currency contracts] for both hedging and non-hedging purposes.
Risks. These primary investment risks apply to the Fund: interest rate/maturity,
prepayment, debt extension, counterparty failure, guarantor, structured debt
securities, derivatives, high-yield, currency, country, foreign regulatory and
portfolio turnover risks. See page [ ] for these risks and primary investment
risks common to all Funds.
<PAGE>
Principal Investment Risks
All investments carry some degree of risk which will affect the value of a
Fund's investments, its investment performance and the price of its shares. As a
result, loss of money is a risk of investing in each Fund.
An investment in each of the Funds 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 Funds and may
result in a loss of your investment.
Risks that apply to all Funds
Market risk is the risk that the value of the securities in which a Fund
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.
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 a Fund 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.
Interest rate/maturity risk is the risk that increases in prevailing
interest rates will cause fixed income securities held by a Fund to decline
in value. The magnitude of this decline will often be greater for
longer-term fixed income securities than shorter-term securities.
Credit (or default) risk is the risk that an issuer of fixed income
securities held by a Fund 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. Investment grade bonds 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 a Fund (such as a
mortgage-backed security) earlier than expected. This may happen during a
period of declining interest rates. Under these circumstances, a Fund 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 Fund's income, total return and share price.
Debt extension risk is the risk that an issuer will exercise its right to
pay principal on an obligation held by a Fund (such as a mortgage-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 Fund will suffer from the inability to invest in higher
yielding securities.
U.S. government securities risk is the risk that the U.S. government will not
provide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Counterparty failure risk is the risk that an issuer of a security, or a
bank or other financial institution that has entered into a repurchase
agreement, may default on its payment obligations.
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 a Fund's investments in securities backed by
guarantees, letters of credit, insurance or other credit enhancements
issued by such bank or institution to decline in value.
Derivatives risk is the risk that loss may result from a Fund's
investments in options, futures, swaps, structured debt securities and
other derivative instruments, which may be leveraged. Investments in
derivative instruments may result in losses exceeding the amounts invested.
Structured debt securities risk is the risk that loss may result from a
Fund's investments in structured debt securities, which are derivative
instruments and may be leveraged. The value of structured debt securities
may be adversely affected by changes in the interest rate payable on a
security while held by a Fund. In some cases it is possible that a Fund may
suffer a total loss on its investment in a structured debt security.
Risks that apply primarily to the Tax-Exempt Funds and the High Yield Municipal
Fund
Arizona-specific risk is the risk that a Fund that invests more than 25%
of its assets in Arizona municipal instruments will be more exposed to
negative political or economic factors in Arizona than a fund that invests
more widely. Arizona's economy is largely composed of services,
manufacturing, mining, tourism and the military. The exposure to these
industries leaves Arizona vulnerable to an economic slowdown associated
with business cycles, including a decline in tourism revenue resulting from
a decline in the value of the Canadian dollar, the peso and other
currencies relative to the U.S. dollar. From time to time Arizona and its
political subdivisions have encountered financial difficulties.
California-specific risk is the risk that a Fund that invests more than
25% of its assets in California municipal instruments will be more exposed
to negative political or economic factors in California than a Fund that
invests more widely. California's economy is largely composed of high
technology manufacturing and services, including computer software,
electronic manufacturing and motion picture/television production, and
other services, entertainment and tourism, and both residential and
commercial construction. The exposure to these industries leaves California
vulnerable to an economic slowdown associated with business cycles.
Furthermore, the State budget continues to be under stress from mandated
spending on education and the social needs of a growing population. From
time to time California and its political subdivisions have encountered
financial difficulties.
Florida-specific risk is the risk that a Fund that invests more than 25%
of its assets in Florida municipal instruments will be more exposed to
negative political or economic factors in Florida than a Fund that invests
more widely. Florida's economy is largely composed of construction,
agriculture, manufacturing and tourism. The exposure to these industries,
particularly tourism, leaves Florida vulnerable to an economic slowdown
associated with business cycles. When compared with other states, Florida
has a proportionately greater retirement age population, property income
(dividends, interest and rent) and transfer payments (including social
security and pension benefits) are a relatively more important source of
income. Proportionately greater dependency on these revenues leaves the
State vulnerable to a decline in these revenues. Furthermore, because of
Florida's rapidly growing population, corresponding increases in State
revenue will be necessary during the next decade to meet increased burdens
on the various public and social services provided by the State. From time
to time Florida and its political subdivisions have encountered financial
difficulties.
Project/Industrial development bond risk is the risk that a Fund may be
more sensitive to an adverse economic, business or political development if
it invests more than 25% of its assets in municipal instruments the
interest upon which is paid solely from revenues of similar projects, or in
industrial development bonds.
Tax risk is the risk that future legislative or administrative changes or
court decisions may materially affect the ability of a Fund to pay
tax-exempt dividends.
Risk that applies primarily to the Global Fixed Income Fund, the California
Funds, the Florida Intermediate Tax-Exempt Fund and the Arizona Tax-Exempt Fund
Non-diversification risk is the risk that a non-diversified Fund may be
more susceptible to adverse financial, economic or other developments
affecting any single issuer, and more susceptible to greater losses because
of these developments.
Other Risks
High-yield risk may impact the value of non-investment grade securities
held by a Fund. Generally, these securities, sometimes known as "junk
bonds," are subject to greater credit risk, price volatility and risk of
loss than investment grade securities. In addition, there may be less of a
market for them, which could make it harder to sell them at an acceptable
price. These and related risks mean that a Fund may not achieve the
expected income from non-investment grade securities and that its share
price may be adversely affected by declines in the value of these
securities.
Currency risk is the potential for price fluctuations in the dollar value
of foreign securities because of changing currency exchange rates.
Country risk is the potential for price fluctuations in foreign securities
because of political, financial and economic events in foreign countries.
Investment of more than 25% of a Fund's total assets in securities of
issuers located in one country will subject the Fund to increased country
risk with respect to the particular country.
Foreign regulatory risk is the risk that a foreign security could lose
value because of less stringent foreign securities regulations and
accounting and disclosure standards.
Emerging markets risk is the risk that the securities markets of emerging
countries are less liquid, are especially subject to greater price
volatility, have smaller market capitalizations, have less government
regulation and are not subject to as extensive and frequent accounting,
financial and other reporting requirements as the securities markets of
more developed countries.
Portfolio turnover risk is the risk that high portfolio turnover is likely
to result in increased Fund expenses which may result in lower investment
returns. High portfolio turnover is also likely to result in higher
short-term capital gains taxable to shareholders. For the last fiscal year,
the annual portfolio turnover rates of the [U.S. Government Fund and
Tax-Exempt Fund] exceeded 100%. It is expected that the annual portfolio
turnover rates of the [High Yield Municipal Fund and High Yield Fixed
Income Fund] may also exceed 100%.
More information about the risks of investing in the Funds is provided in
"Risks, Securities and Techniques" beginning on page [ ] of this Prospectus. You
should carefully consider the risks discussed in this section and "Risks,
Securities and Techniques" before investing in a Fund.
<PAGE>
Fund Performance
The bar charts and tables below provide an indication of the risks of investing
in a Fund by showing: (a) changes in the performance of a Fund from year to
year; and (b) how the average annual returns of a Fund compare to those of a
broad-based securities market index. For a description of each broad-based
securities market index please see page [ ].
The bar charts and tables assume reinvestment of dividends and distributions. A
Fund's past performance is not necessarily an indication of how the Fund will
perform in the future. Performance reflects expense limitations that were in
effect during the periods presented. If expense limitations were not in place, a
Fund's performance would have been reduced.
The Short-Intermediate U.S. Government, California Intermediate Tax-Exempt and
Arizona Tax-Exempt Funds commenced operations on October 1, 1999. The bar chart
and performance table have been omitted for these Funds because the Funds have
been in operation for less than one calendar year.
<PAGE>
U.S. GOVERNMENT FUND
[Bar Chart]
Calendar Year Total Return
1995: 12.59%
1996: 3.05%
1997: 7.24%
1998: 7.53%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] '[ ] [ ]%
Worst Quarter Return: Q[ ] '[ ] [ ]%
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Annual Total Return (for the periods ended December 31, 1999)
Since
1 Year 5 Year Inception
------ ------ ---------
U.S. Government Fund (Inception 4/1/94) [ ]% [ ]% [ ]%
Lehman Brothers Intermediate Government Bond Index [ ]% [ ]% [ ]%
- ------------------------------------------------------- ------------------- ------------------- -------------------
</TABLE>
<PAGE>
INTERMEDIATE TAX-EXEMPT FUND
[Bar Chart]
Calendar Year Total Return
1995: 11.91%
1996: 3.36%
1997: 5.84%
1998: 5.15%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] '[ ] [ ]%
Worst Quarter Return: Q[ ] '[ ] [ ]%
Average Annual Total Return (for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Since
1 Year 5 Year Inception
------ ------ ---------
Intermediate Tax-Exempt Fund (Inception 4/1/94) [ ]% [ ]% [ ]%
Lehman Brothers 5-Year Municipal Bond Index [ ]% [ ]% [ ]%
Lehman Brothers Mutual Fund Intermediate Municipal Index*
[ ]% [ ]% [ ]%
- ------------------------------------------------------------ ------------------ ------------------- ----------------------
* The Lehman Brothers Mutual Fund Intermediate Municipal Index, an
unmanaged index of investment grade tax-exempt bonds with maturities of
five to ten years, is replacing the Lehman Brothers 5-Year Municipal
Bond Index as the Intermediate Tax-Exempt Fund's performance benchmark.
The Lehman Brothers Mutual Fund Intermediate Municipal Index includes
municipal obligations with a wider range of maturities and, therefore,
is expected to be a better benchmark comparison of the Fund's
performance. The Index figures do not reflect any fees or expenses.
</TABLE>
<PAGE>
FLORIDA INTERMEDIATE TAX-EXEMPT FUND
[Bar Chart]
Calendar Year Total Return
1997: 7.64%
1998: 5.68%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] '[ ] [ ]%
Worst Quarter Return: Q[ ] '[ ] [ ]%
Average Annual Total Return (for the periods ended December 31, 1999)
Since
1 Year Inception
Florida Intermediate Tax-Exempt Fund
(Inception 8/15/96) [ ]% [ ]%
Lehman Brothers Mutual Fund Florida
Intermediate Tax-Exempt Index [ ]% [ ]%
Lehman Brothers Mutual Fund Intermediate
Municipal Index [ ]% [ ]%
- ------------------------------------------------- -----------------------------
<PAGE>
FIXED INCOME FUND
[Bar Chart]
Calendar Year Total Return
1995: 18.80%
1996: 2.61%
1997: 9.24%
1998: 8.00%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] '[ ] [ ]%
Worst Quarter Return: Q[ ] '[ ] [ ]%
Average Annual Total Return (for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Since
1 Year 5 Year Inception
------ ------ ---------
Fixed Income Fund (Inception 4/1/94) [ ]% [ ]% [ ]%
Lehman Brothers Government/
Corporate Bond Index [ ]% [ ]% [ ]%
- ------------------------------------------------- ------------------- ------------------ -------------------
Lehman Brothers Aggregate
Bond Index [ ]% [ ]% [ ]%
- ------------------------------------------------- ------------------- ------------------ -------------------
The Lehman Brothers Aggregate Bond Index, an unmanaged index of prices of
U.S.dollar-denominated investment grade fixed income securities with remaining
maturities of one year and longer, is replacing the Lehman Brothers
Government/Corporate Bond Index as the Fixed Income Fund's performance
benchmark. The Lehman Brothers Aggregate Bond Index is a broader measure of the
U.S. dollar-denominated investment grade fixed income market and includes
government and corporate securities, agency mortgage pass-through securities,
commercial mortgage-backed securities, and asset-backed securities. It is
therefore expected to be a better benchmark comparison of the Fund's
performance.
</TABLE>
<PAGE>
TAX-EXEMPT FUND
[Bar Chart]
Calendar Year Total Return
1995: 17.37%
1996: 2.83%
1997: 8.71%
1998: 5.84%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] '[ ] [ ]%
Worst Quarter Return: Q[ ] '[ ] [ ]%
Average Annual Total Return (for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Since
1 Year 5 Year Inception
------ ------ ---------
Tax-Exempt Fund (Inception 4/1/94) [ ]% [ ]% [ ]%
Lehman Brothers Municipal Bond Index [ ]% [ ]% [ ]%
- ------------------------------------------------- ------------------- ------------------ -------------------
</TABLE>
<PAGE>
CALIFORNIA TAX-EXEMPT FUND
[Bar Chart]
Calendar Year Total Return
1998: 6.42%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] '[ ] [ ]%
Worst Quarter Return: Q[ ] '[ ] [ ]%
Average Annual Total Return (for the periods ended December 31, 1999)
Since
1 Year Inception
California Tax-Exempt Fund (Inception 4/8/97)
[ ]% [ ]%
Lehman Brothers California Exempt Municipal
Index [ ]% [ ]%
Lehman Brothers Mutual Fund Intermediate
Municipal Index [ ]% [ ]%
- ------------------------------------------------- ----------------------------
<PAGE>
GLOBAL FIXED INCOME FUND*
[Bar Chart]
Calendar Year Total Return
1995: 19.70%
1996: 5.53%
1997: (2.51)%
1998: 17.09%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] '[ ] [ ]%
Worst Quarter Return: Q[ ] '[ ] [ ]%
Average Annual Total Return (for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Since
1 Year 5 Year Inception
------ ------ ---------
Global Fixed Income Fund (Inception 4/1/94) [ ]% [ ]% [ ]%
JP Morgan International Government Bond Index [ ]% [ ]% [ ]%
- ----------------------------------------------------------- ------------------ ------------------- --------------------
JP Morgan Global Bond Index [ ]% [ ]% [ ]%
- ----------------------------------------------------------- ------------------ ------------------- --------------------
The JP Morgan Government Bond Index Global, an unmanaged index of traded
government fixed income securities which can be purchased by international
investors, is replacing the JP Morgan International Bond Index as the Fund's
performance benchmark. The JP Morgan Government Bond Index Global is a broader
measure of the global fixed income market and includes government securities
from thirteen developed countries, including the United States. It is therefore
expected to be a better benchmark comparison of the Fund's performance.
*Prior to July 31, 2000, this Fund was named the International Fixed Income Fund
and was required to invest at least 65% of its total assets in fixed income
securities of foreign issuers. </TABLE>
<PAGE>
HIGH YIELD MUNICIPAL FUND
[Bar Chart]
Calendar Year Total Return
1999: [ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] '99 [ ]%
Worst Quarter Return: Q[ ] '99 [ ]%
Average Annual Total Return (for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C>
Since
1 Year Inception
High Yield Municipal Fund (Inception 12/31/98) [ ]% [ ]%
Lehman Brothers Non-Investment Grade Bond Index [ ]% [ ]%
- ------------------------------------------------------------------ ----------------- ------------------------
</TABLE>
<PAGE>
HIGH YIELD FIXED INCOME FUND
[Bar Chart]
Calendar Year Total Return
1999: [ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] '99 [ ]%
Worst Quarter Return: Q[ ] '99 [ ]%
Average Annual Total Return (for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C>
Since
1 Year Inception
High Yield Fixed Income Fund (Inception 12/31/98) [ ]% [ ]%
Merrill Lynch High Yield Master II Index [ ]% [ ]%
- ------------------------------------------------------------------ ----------------- ------------------------
Lehman Brothers High Yield Corporate Bond Index [ ]% [ ]%
- ------------------------------------------------------------------ ----------------- ------------------------
Salomon Brothers Extended High-Yield Market Index [ ]% [ ]%
- ------------------------------------------------------------------ ----------------- ------------------------
</TABLE>
<PAGE>
Broad-Based Securities Market Indices Descriptions
The Lehman Brothers Intermediate Government Bond Index is an unmanaged index
including all public obligations of the U.S. Treasury and all publicly issued
debt of U.S. government agencies with maturities of up to 10 years.
The Index figures do no reflect any fees or expenses.
The Lehman Brothers 5-Year Municipal Bond Index is an unmanaged index of
investment grade (Baa or better) tax-exempt bonds with maturities of 4 to 6
years. The Index figures do not reflect any fees or expenses.
The Lehman Brothers Mutual Fund Florida Intermediate Tax-Exempt Index is an
unmanaged index of investment grade (Baa or better) tax-exempt Florida bonds
with a remaining maturity of [at least one year]. The index figures do not
reflect any fees or expenses.
The Lehman Brothers Mutual Fund Intermediate Municipal Index is an unmanaged
index of investment grade (Baa or better) tax-exempt bonds with maturities of
[five to ten years]. The figures do not reflect any fees or expenses.
The Lehman Brothers Government/Corporate Bond Index is an unmanaged index of
prices of U.S. government and corporate bonds with not less than one year to
maturity. The Index figures do not reflect any fees or expenses.
The Lehman Brothers Municipal Bond Index is an unmanaged index of investment
grade (Baa or better) tax-exempt bonds with a remaining maturity of at least one
year. The Index figures do not reflect any fees or expenses.
The Lehman Brothers California Exempt Municipal Index is an unmanaged index of
investment grade (Baa or better) tax-exempt California bonds with a remaining
maturity of at least one year. The Index figures do not reflect any fees or
expenses. The Lehman Brothers Aggregate Bond Index is an unmanaged index of
prices of U.S.dollar-denominated investment grade fixed income securities with
remaining maturities of one year and longer. The Index figures do not reflect
any fees or expenses.
The Lehman Brothers High Yield Corporate Bond Index is [ ]
The Lehman Brothers Municipal Non-Investment Grade Bond Index is [ ]
The J.P. Morgan International Government Bond Index is an unmanaged index of
non-U.S. government bonds with maturities of one to thirty years. The Index
figures do not reflect any fees or expenses.
The J.P. Morgan Global Bond Index is an unmanaged index of traded government
fixed income securities which can be purchased by international investors. The
Index figures do not reflect any fees or expenses.
The Merrill Lynch High Yield Master II Index is [ ]
Salomon Brothers Extended High-Yield Market Index is [ ]
<PAGE>
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds. Please note that the following information does not reflect
any charges which may be imposed by Northern, its affiliates, correspondent
banks and other institutions on their customers. For more information, please
see "Account Policies and Other Information" on page [ ].
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
-------------------------------------------------------------------------
Fund Sales Deferred Sales Redemption Exchange
Charge Sales Charge Fees(1) Fees
(Load) Charge (Load)
Imposed on (Load) Imposed on
Purchases Reinvested
Distributions
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
U.S. Government None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
Short-Intermediate U.S. Government None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
Intermediate Tax-Exempt None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
California Intermediate Tax-Exempt None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
Florida Intermediate Tax-Exempt None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
Fixed Income None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
Tax-Exempt None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
Arizona Tax-Exempt None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
California Tax-Exempt None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
Global Fixed Income None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
High Yield Municipal None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
High Yield Fixed Income None None None None None
- -------------------------------------------- --------------- ----------- --------------- ---------------- ------------
</TABLE>
<PAGE>
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
Management Distribution Other Total Annual
Fees (12b-1) Expenses(3) Fund
Fees(2) Operating
Expense(4)
------------------
- ---------------- -------------- ------------- ------------------
0.75% 0.00% 0.32% 1.07%
- ---------------- -------------- ------------- ------------------
- ---------------- -------------- ------------- ------------------
0.75% 0.00% 0.52% 1.27%
- ---------------- -------------- ------------- ------------------
- ---------------- -------------- ------------- ------------------
0.75% 0.00% 0.31% 1.06%
- ---------------- -------------- ------------- ------------------
- ---------------- -------------- ------------- ------------------
0.75% 0.00% 0.46% 1.21%
- ---------------- -------------- ------------- ------------------
- ---------------- -------------- ------------- ------------------
0.75% 0.00% 0.54% 1.29%
- ---------------- -------------- ------------- ------------------
- ---------------- -------------- ------------- ------------------
0.75% 0.00% 0.33% 1.08%
- ---------------- -------------- ------------- ------------------
- ---------------- -------------- ------------- ------------------
0.75% 0.00% 0.33% 1.08%
- ---------------- -------------- ------------- ------------------
- ---------------- -------------- ------------- ------------------
0.75% 0.00% 0.55% 1.30%
- ---------------- -------------- ------------- ------------------
- ---------------- -------------- ------------- ------------------
0.75% 0.00% 0.42% 1.17%
- ---------------- -------------- ------------- ------------------
- ---------------- -------------- ------------- ------------------
0.90% 0.00% 1.06% 1.96%
- ---------------- -------------- ------------- ------------------
- ---------------- -------------- ------------- ------------------
0.75% 0.00% 0.97% 1.72%
- ---------------- -------------- ------------- ------------------
- ---------------- -------------- ------------- ------------------
0.75% 0.00% 0.45% 1.20%
- ---------------- -------------- ------------- ------------------
Footnotes
1. A fee of $15.00 may be applicable for each wire redemption.
2. During the last fiscal year the Funds did not pay any 12b-1 fees. The
Funds do not expect to pay any 12b-1 fees during the current fiscal
year. The maximum distribution fee is 0.25% of each Fund's average net
assets under Northern Funds' Distribution and Service Plan.
3. These expenses include custodian, transfer agency and co-administration
expenses, proxy costs, if any, as well as other customary Fund
expenses. The co-administrators are entitled to a co-administration fee
of 0.15%, of which 0.09% is currently being waived voluntarily. The
Short-Intermediate U.S. Government, California Intermediate Tax-Exempt
and Arizona Tax-Exempt Funds commenced operations on October 1, 1999.
As a result, "Other Expenses" for those Funds are based on estimates
for the current fiscal year.
4. As a result of voluntary fee reductions, waivers and reimbursements,
"Management Fees," "Other Expenses" and "Total Fund Operating Expenses"
which are actually incurred by the Funds are set forth below. The
voluntary fee reductions, waivers and reimbursements may be modified or
terminated at any time at the option of the Investment Adviser. If this
occurs, "Management Fees," "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Management Distribution Other Total Annual
Fees (12b-1) Fees Expenses Fund Operating
Expenses
Fund
- --------------------------------------------------------------------------------------------------------
U.S. Government 0.75% 0.00% 0.15% 0.90%
Short-Intermediate U.S. Government 0.75% 0.00% 0.15% 0.90%
Intermediate Tax-Exempt 0.70% 0.00% 0.15% 0.85%
California Intermediate Tax-Exempt 0.70% 0.00% 0.15% 0.85%
Florida Intermediate Tax-Exempt 0.70% 0.00% 0.15% 0.85%
Fixed Income 0.75% 0.00% 0.15% 0.90%
Tax-Exempt 0.70% 0.00% 0.15% 0.85%
Arizona Tax-Exempt 0.70% 0.00% 0.15% 0.85%
California Tax-Exempt 0.70% 0.00% 0.15% 0.85%
Global Fixed Income 0.90% 0.00% 0.25% 1.15%
High Yield Municipal 0.70% 0.00% 0.15% 0.85%
High Yield Fixed Income 0.75% 0.00% 0.15% 0.90%
</TABLE>
<PAGE>
ABOUT YOUR ACCOUNT
Example
The following Example is intended to help you compare the cost of investing in a
Fund (without fee waivers and expense reimbursements) with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in a Fund 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 a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fund One Year 3 Years 5 Years 10 Years
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
U.S. Government $109 $340 $590 $1,306
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
Short-Intermediate U.S. Government 119 372 N/A N/A
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
Intermediate Tax-Exempt 108 337 585 1,294
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
California Intermediate Tax-Exempt 114 356 N/A N/A
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
Florida Intermediate Tax-Exempt 131 409 708 1,556
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
Fixed Income 110 343 595 1,317
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
Tax-Exempt 110 343 595 1,317
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
Arizona Tax-Exempt 127 397 N/A N/A
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
California Tax-Exempt 119 372 644 1,420
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
Global Fixed Income 199 615 1,057 2,285
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
High Yield Municipal 175 542 933 2,030
- -------------------------------------------- --------------- ----------- --------------- ----------------
- -------------------------------------------- --------------- ----------- --------------- ----------------
High Yield Fixed Income 122 381 660 1,455
- -------------------------------------------- --------------- ----------- --------------- ----------------
</TABLE>
Investment Adviser
Northern, an Illinois state-chartered bank and member of the Federal Reserve
System, serves as investment adviser for all Funds.
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 March
31, 2000, Northern Trust Corporation and its subsidiaries had approximately
$33.2 billion in assets, $21.5 billion in deposits and employed over 8,700
persons.
Northern has for more than 100 years managed the assets of individuals,
charitable organizations, foundations and large corporate investors. Northern
and its affiliates administered in various capacities (including as master
trustee, investment manager or custodian) approximately $1.6 trillion of assets
as of March 31, 2000, including approximately $323.1 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 Funds 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 annual rates set forth in the table below (expressed as
a percentage of each Fund's respective average daily net assets). The table also
reflects the advisory fees (after voluntary fee waivers) paid by the Funds for
the fiscal year ended March 31, 2000.
Advisory Fee
Contractual Paid
Fund Rate for Fiscal Year
Ended 3/31/00
U.S. Government 0.75% [ ]%
Short-Intermediate U.S. Government 0.75% [ ]%
Intermediate Tax-Exempt 0.75% [ ]%
California Intermediate Tax-Exempt 0.75% [ ]%
Florida Intermediate Tax-Exempt 0.75% [ ]%
Fixed Income 0.75% [ ]%
Tax-Exempt 0.75% [ ]%
Arizona Tax-Exempt 0.75% [ ]%
California Tax-Exempt 0.75% [ ]%
Global Fixed Income 0.90% [ ]%
High Yield Municipal 0.75% [ ]%
High Yield Fixed Income 0.75% [ ]%
The difference, if any, between the contractual advisory fees and the actual
advisory fees paid by the Funds reflects 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 limitations in the
future at its discretion.
Fund Management
The Investment Adviser employs a team approach to the investment management of
the Funds. Below is information regarding the management of the Funds.
The management team leaders for the U.S. Government Fund are Mark J. Wirth,
Senior Vice President of Northern and Monty M. Memler, Vice President of
Northern. Mr. Wirth has had such responsibility for the Fund since July 1998.
Mr. Memler has had such responsibility for the Fund since November 1994. Messrs.
Wirth and Memler joined Northern in 1986 and during the past five years have
managed various fixed income portfolios.
The management team leaders for the Short-Intermediate U.S. Government Fund are
Mr. Wirth and Peter T. Marchese, Second Vice President of Northern. Mr. Marchese
joined Northern in 1990 and during the past five years has managed various fixed
income portfolios.
The management team leader for the Intermediate Tax-Exempt Fund is M. Jane
McCart, Senior Vice President of Northern. Ms. McCart has had such
responsibility for the Fund since September 1999. Ms. McCart joined Northern in
1998. From 1983 to December 1998, Ms. McCart was with Stein Roe & Farnham
Incorporated where she had been the portfolio manager of various municipal bond
portfolios.
The management team leader for the California Intermediate Tax-Exempt and
Arizona Tax-Exempt Funds is Eric V. Boeckmann, Vice President of Northern. Mr.
Boeckmann joined Northern in 1985 and during the past five years has managed
various municipal bond portfolios, including common trust funds invested in
municipal securities.
The management team leader for the Florida Intermediate Tax-Exempt Fund is
Gregory A. Bell, Second Vice President of Northern. Mr. Bell has had such
responsibility for the Fund since November 1998. Mr. Bell joined Northern in
1984 and during the past five years has managed various municipal bond
portfolios.
The management team leaders for the Fixed Income Fund are Mr. Wirth and Steven
M. Schafer, Vice President of Northern. Mr. Wirth has had such responsibility
for the Fund since July 1998 and Mr. Schafer has had such responsibility since
the fund commenced operations in December 1998. Mr. Schafer joined Northern in
1988 and during the past five years has managed various fixed income portfolios
and served as credit analyst following both industrial and utility companies.
The management team leader for the Tax-Exempt Fund is Timothy T. A. McGregor,
Second Vice President of Northern. Mr. McGregor has had such responsibility for
the Fund since November 1998. Mr. McGregor joined Northern in 1989 and during
the past five years has managed various municipal bond portfolios.
The management team leader for the California Tax-Exempt Fund is Mr. Boeckmann.
Mr. Boeckmann has had such responsibility for the Fund since April 1998.
The management team leader for the Global Fixed Income Fund is Guy Williams,
Vice President of Northern. Mr. Williams has had such responsibility for the
Fund since September 1999. Mr. Williams joined Northern in 1999. From 1992 to
1999, he was a global fixed income manager for Paribas Asset Management.
The management team leader for the High Yield Municipal Fund is Ms. McCart. Ms.
McCart has had such responsibility since the fund commenced operations in
December 1998.
The management team leader for the High Yield Fixed Income Fund is Eric
Misenheimer, Vice President of Northern. Mr. Misenheimer has had such
responsibility since July 1999. Mr. Misenheimer joined Northern in 1999. From
April 1998 to May 1999, Mr. Misenheimer was with Stein Roe & Farnham
Incorporated where he had been a senior research analyst and assisted with
portfolio management of various high yield bond portfolios. From 1993 to 1998,
he was a research analyst with Falcon Asset Management.
Other Fund Services
Northern also serves as transfer agent ("Transfer Agent") and custodian for each
Fund. 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 these capacities are described in the
Statement of Additional Information. Northern and PFPC Inc. ("PFPC") serve as
co-administrators for the Funds. The fees that Northern and PFPC receive for
their co-administrative services are described on page [ ] under "Fund Fees and
Expenses."
<PAGE>
PHTRANS\279890\23 Page 44
Purchasing and Selling Shares
PURCHASING SHARES
You may purchase shares directly from the Trust or, if you maintain certain
accounts, through Northern and certain other institutions. If you have any
questions or need assistance in opening an investment account or purchasing
shares, call 1-800-595-9111.
OPENING AN ACCOUNT
Directly from the Funds. You may open a shareholder account and purchase shares
directly from the Funds with a minimum initial investment per Fund of $2,500
($500 for an IRA; $250 under the Automatic Investment Plan; and $500 for
employees of Northern and its affiliates). The minimum subsequent investment is
$50 (except for reinvestments of distributions for which there is no minimum).
The Funds reserve the right to waive these minimums.
For your convenience, there are a number of ways to invest directly in the
Funds:
By Mail.
Read this Prospectus carefully Complete and sign the Purchase
Application Enclose a check or money order payable to Northern
Funds If you are investing on behalf of a corporation or other
entity,
your Purchase Application must be accompanied by a certified
corporate resolution (or other acceptable evidence of authority).
Mail your check, corporate resolution (if needed) and completed
Purchase Application to:
Northern Funds
P.O. Box 75986
Chicago, Illinois 60675-5986
For overnight delivery use the following address:
801 South Canal Street
Chicago, Illinois 60607
Attn: Northern Funds
For subsequent investments: - Enclose your check with the return remittance
portion of the confirmation of your previous investment; or - Indicate on your
check or a separate piece of paper your name, address and account number
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 Wire To open a new account:
Call 1-800-595-9111 for instructions Complete a Purchase
Application and send it to:
Northern Funds
P.O. Box 75986
Chicago, IL 60750-5986
To add to an existing account: Have your bank wire Federal funds
to:
The Northern Trust Company
Chicago, Illinois
ABA Routing No. 0710-00152
(Reference 10 Digit Fund Account No.)
(Reference Shareholder's Name)
By Direct Deposit To purchase additional shares: Determine if your employer has
direct deposit capabilities through the Automated Clearing House ("ACH") Have
your employer send payments to:
ABA Routing No. 0710-00152
(Reference 10 Digit Fund Account No.)
(Reference Shareholder's Name)
The minimum periodic investment for direct deposit is $50
By Automatic Investment To open a new account Complete a Purchase Application,
including the Automatic Investment section
Send it to:
Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
The minimum initial investment is $250; $50 for monthly minimum additions
To add to an account:
Call 1-800-595-9111 to obtain an Automatic Investment Plan
Application The minimum for automatic investment additions is
$50
If you discontinue participation in the plan, the Funds reserve the right to
redeem your account involuntarily, upon 30 days written notice, if the account's
net asset value is $1,000 or less. Involuntary redemptions will not be made if
the value of shares in an account falls below the minimum amount solely because
of a decline in the Fund's net asset value.
By Directed Reinvestment
You may elect to have your income dividends and capital gains
distributions automatically invested in another Northern Fund.
Complete the Distribution Options section on the Purchase
Application Reinvestments can only be directed to an existing
Trust account
(which must meet the minimum investment requirement)
By Exchange You may open a new account or add to an existing account by
exchanging shares of one Fund for shares of any other Northern Fund offered by
the Trust. See "Selling Shares - By Exchange."
By Internet
You may initiate transactions between Northern banking and Trust
accounts by using Northern Trust Private Passport. For details and to
sign up for this service, go to www.northerntrust.com/privatepassport
or contact your relationship manager.
Through Northern and Other Institutions
If you have an account with Northern, you may purchase Trust shares through
Northern. You may also purchase shares through other institutions (together with
Northern, "Service Organizations") that have entered into agreements with the
Trust. To determine whether you may purchase shares through your institution,
contact your institution directly or call 1-800-595-9111. Northern or another
Service Organization may impose charges against your account which will reduce
the net return on an investment in a Fund. These charges may include asset
allocation fees, account maintenance fees, sweep fees, compensating balance
requirements or other charges based upon account transactions, assets or income.
SELLING SHARES
Redeeming and Exchanging Directly from the Funds
If you purchased Northern Funds directly or, if you purchased your shares
through an account at Northern or another Service Organization and you appear on
Trust records as the registered holder, you may redeem all or part of your
shares using one of the methods described below.
By Mail
Send a written request to:
Northern Funds
P.O. Box 75986
Chicago, Illinois 60675-5986
The redemption request must include:
The number of shares or the dollar amount to be redeemed The
Fund account number A signature guarantee is also required
if:
- The proceeds are to be sent elsewhere than the address of
record, or - The redemption amount is greater than $50,000
By Wire
If you authorize wire redemptions on your Purchase Application, you can
redeem shares and have the proceeds sent by Federal wire transfer to a
previously designated account.
You will be charged $15 for each wire redemption unless the
designated account is maintained at Northern or an affiliated bank
Call the Transfer Agent at 1-800-595-9111 for instructions The
minimum amount that may be redeemed by this method is $250
By Systematic Withdrawal If you own shares of a Fund with a minimum value of
$10,000, you may elect to have a fixed sum redeemed at regular intervals and
distributed in cash or reinvested in one or more other Northern Funds. Call
1-800-595-9111 for an application form and additional information The minimum
amount is $250 per withdrawal
By Exchange
The Trust offers you the ability to exchange shares of one Fund for
another Fund in the Trust family. When opening an account,
complete the Exchange Privilege section of the Purchase
Application or,
if your account is already opened, send a written request to:
Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
Shares being exchanged must have a value of at least $1,000 ($2,500 if a new
account is being established by the exchange) Call 1-800-595-9111 for more
information
By Telephone
If you authorize the telephone privilege on your Purchase
Application, you may redeem Trust shares by phone. If your
account is already opened, send a written request to:
Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
The request must be signed by each owner of the account and must be accompanied
by signature guarantees Call 1-800-595-9111 to use the telephone privilege
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 Internet
You may initiate transactions between Northern banking and Trust accounts
by using Northern Trust Private Passport. For details and to sign up for
this service, go to www.northerntrust.com/privatepassport or contact your
relationship manager.
Redeeming and Exchanging Through Northern and Other Institutions
If you purchased your Trust shares through an account at Northern or another
Service Organization, you may redeem or exchange your shares according to the
instructions pertaining to that account.
Although the Trust imposes no charges when you redeem, when
shares are purchased through Northern or another Service
Organization, a fee may be charged by those institutions for
providing services in connection with your account
Contact your account representative at Northern or other Service
Organization for more information about redemptions or exchanges
Account Policies and Other Information
Calculating Share Price. The Trust issues shares and redeems shares at net asset
value ("NAV"). The NAV for each Fund is calculated by dividing the value of the
Fund's net assets by the number of the Fund's outstanding shares. The NAV is
calculated on each Business Day as of 3:00 p.m., Chicago time. 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 Funds generally are valued at their
market prices. Shares of an investment company held by the Funds are valued at
their NAV. 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 a Fund are valued at their
amortized cost which, according to the Investment Adviser, approximates market
value.
A Fund may hold foreign securities that trade on weekends or other days when the
Fund 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 Fund 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 provided that
either:
The order is in proper form as described under "Purchasing and
Selling Shares" and accompanied by payment of the purchase price;
The order is placed by Northern or a Service Organization and
payment in Federal or other immediately available funds is to be
made on the next Business Day; or
The order is accepted by an authorized intermediary and payment
is to be made on the next Business Day in accordance with
procedures acceptable to the Trust.
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, provided that payment is
made as noted above.
Social Security/Tax Identification Number. Federal regulations require you to
provide a Social Security or other certified taxpayer identification number when
you open or reopen an account. Purchase Applications 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, the number must be provided and certified within 60 days
of the date of the Purchase Application.
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 a Fund. The Trust also reserves the right to pay redemptions by a
distribution "in-kind" of securities (instead of cash) from a Fund. See the
Statement of Additional Information for further information about the terms of
these purchases and redemptions.
Miscellaneous Purchase Information.
|X| You will be responsible for all losses and expenses of a Fund 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 Funds and Northern against loss. In addition, a $20 charge will
be imposed if a check does not clear.
You may initiate transactions between Northern banking and Trust accounts
by using Northern Trust Private Passport. For additional details, please
visit our website www.northerntrust.com/privatepassport or contact your
relationship manager.
The Trust reserves the right to reject any purchase order. The Funds also
reserve the right to change or discontinue any of their purchase
procedures.
In certain circumstances, the Trust may advance the time by which purchase
orders must be received. See "Early Closings" on page [ ].
The Trust may reproduce this Prospectus in an electronic format which may
be available on the Internet. If you have received this Prospectus in its
electronic format you, or your representative, may contact the Transfer
Agent for a free paper copy of this Prospectus by writing to the Northern
Funds Center at P.O. Box 75986, Chicago, IL 60675-5986, calling
1-800-595-9111 or sending an e-mail to: [email protected].
Timing of Redemption and Exchange Requests. Redemption and exchange requests
received in good order by the Transfer Agent or other authorized intermediary on
a Business Day by 3:00 p.m., Chicago time, will be executed on the same day. The
redemption or exchange will be effected at that day's closing share price.
Good order means that the request must include the following information:
The account number and Fund name
The amount of the transaction, in dollar amount or number of
shares The signature of all account owners exactly as they are
registered on the account (except for online, telephone and wire
redemptions)
Required signature guarantees, if applicable
Other supporting legal documents that might be required in the
case of estates, corporations, trusts and certain other accounts.
Call 1-800-595-9111 for more information about documentation that
may be required of these entities
In certain circumstances, the Trust may advance the time by which redemption and
exchange orders must be received. See "Early Closings" on page [ ].
Payment of Redemption Proceeds. The Funds will make payment for redeemed shares
typically within one or two Business Days, but no later than the seventh day
after a redemption request is received in good order by the Transfer Agent or an
authorized intermediary (or such longer period permitted by the SEC). However,
if any portion of the shares to be redeemed represents an investment made by
check, the Funds may delay the payment of the redemption proceeds until the
check has cleared and collected. This may take up to fifteen days from the
purchase date.
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 Purchase Application.
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
Fund 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, on 60 days' written notice, to redeem the
shares held in any account if, at the time of redemption, the net asset
value of the remaining shares in the account falls below $1,000.
Involuntary redemptions will not be made if the value of shares in an
account falls below the minimum solely because of a decline in a Fund's net
asset value.
You may initiate transactions between Northern banking and Trust accounts
by using Northern Trust Private Passport. For additional details, please
visit our web site at www.northerntrust.com/privatepassport or contact your
relationship manager.
The Trust reserves the right to change or discontinue any of its
redemption procedures.
The Trust reserves the right to defer crediting, sending or wiring
redemption proceeds for up to seven days (or such longer period permitted
by the SEC) after receiving the redemption order if, in its judgment, an
earlier payment could adversely affect a Fund.
Exchange Privileges. You may exchange shares of one Northern Fund for another
only if the registration of both accounts is identical. An exchange is a
redemption of shares of one Northern Fund and the purchase of shares of another
Northern Fund. It is considered a taxable event and may result in a gain or
loss. The Trust reserves the right, at any time without prior notice to suspend,
limit or terminate the exchange privilege of any shareholder who makes more than
eight exchanges of shares in a year and/or two exchanges of shares in a calendar
quarter. The Trust may also modify or terminate the exchange privilege with
respect to any or all shareholders, and may 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 are 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, Northern Funds 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 signature guarantee from an
institution participating in the Stock Transfer Agency Medallion Program
("STAMP"), or other acceptable evidence of authority. Additional requirements
may be imposed. In accordance with SEC regulations, the Funds and Transfer Agent
may charge a shareholder reasonable costs in locating a shareholder's current
address.
Signature Guarantees. If a signature guarantee is required, it must be from an
institution participating in STAMP, or other acceptable evidence of authority
must be provided. Additional requirements may be imposed by the Trust. In
addition to the situations described in this Prospectus, the Trust may require
signature guarantees in other circumstances based on the amount of a redemption
request or other factors.
Business Day. A "Business Day" is each Monday through Friday when the New York
Stock Exchange (the "Exchange") is open for business. In 2000 the Funds will be
closed on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Early Closings. The Trust reserve 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. They also reserve 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 Funds. These financial intermediaries may also designate other
intermediaries to accept such orders, if approved by the Funds. Authorized
intermediaries are responsible for transmitting orders and delivering funds on a
timely basis. A Fund 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 Fund's per share NAV next determined.
Service Organizations. The Trust may enter into agreements with Service
Organizations such as banks, corporations, broker/dealers and other financial
institutions, including Northern, concerning the provision of support and/or
distribution services to their customers who own Fund shares. These services may
include:
support services such as assisting investors in processing purchase, exchange
and redemption requests;
processing dividend and distribution payments from the Funds;
providing information to customers showing their positions in the Funds; and
providing subaccounting with respect to Fund shares beneficially owned by
customers or the information necessary for subaccounting.
In addition, Service Organizations may provide assistance, such as the
forwarding of sales literature and advertising to their customers, in connection
with the distribution of Fund shares.
For their services, Service Organizations may receive fees from a Fund at annual
rates of up to 0.25% of the average daily net asset value of the shares covered
by their agreements. Because these fees are paid out of the Funds' assets on an
on-going basis, they will increase the cost of your investment in the Funds. In
addition, 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 a Fund'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.
Service Organizations may also charge their customers fees for providing
administrative services in connection with investments in a Fund. Investors
should contact their Service Organizations with respect to these fees and the
particular Service Organization's procedures for purchasing and redeeming
shares. It is the responsibility of Service Organizations to transmit purchase
and redemption orders and record those orders on a timely basis in accordance
with their agreements with their customers.
Conflict-of-interest restrictions may apply to the receipt of compensation paid
by the Trust in connection with the investment of fiduciary funds in Fund
shares. Institutions, including banks regulated by the Comptroller of the
Currency, Federal Reserve Board 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 their
legal counsel before entering into agreements with the Trust.
State securities laws regarding the registration of dealers may differ from
Federal law. As a result, Service Organizations investing in the Funds on behalf
of their customers may be required to register as dealers.
Agreements that contemplate the provision of distribution services by Service
Organizations are governed by a Distribution and Service Plan (the "Plan") that
has been adopted by the Trust pursuant to Rule 12b-1 under the 1940 Act.
Payments to Service Organizations, including Northern, under the Plan are not
tied directly to their own out-of-pocket expenses and therefore may be used as
they elect (for example, to defray their overhead expenses), and may exceed
their direct and indirect costs.
Shareholder Communications. Shareholders of record will be provided each year
with a semiannual report showing portfolio investments and other information as
of September 30 and, after the close of the Funds' fiscal year on March 31, with
an annual report containing audited financial statements. If you have consented
to the delivery of a single copy of the shareholder reports, prospectuses or (if
and when permitted by law) proxy or information statements to all shareholders
who share the same mailing address with your account, you may revoke your
consent at any time by contacting the Northern Funds Center by phone at (800)
595-9111 or by mail at Northern Funds, P.O. Box 75986, Chicago, IL 60675-5986.
You may also send an e-mail to [email protected]. The Funds will begin
sending individual copies to you within 30 days after receipt of your
revocation.
Dividends and Distributions
Dividends and capital gain distributions of each Fund are automatically
reinvested in additional shares of the same Fund 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 shares of another Northern Fund at their net
asset value per share. If you would like to receive dividends or distributions
in cash or have them reinvested in another Northern Fund, you must notify the
Transfer Agent in writing. This election will become effective for distributions
paid two days after its receipt by the Transfer Agent. Dividends and
distributions may only be reinvested in a Northern Fund in which you maintain an
account. The following table summarizes the general distribution policies
for each of the Funds. In some years a Fund may make more than one capital gains
distribution to the extent necessary for the Fund to avoid incurring unnecessary
tax liabilities or for other reasons.
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------- -------------------------------------- --------------------------------------
Dividends, if any, Capital gains, if any,
Fund Declared and Paid Declared and Paid
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
U.S. Government Declared daily, paid monthly* Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Short-Intermediate U.S. Government Declared daily, paid monthly* Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Intermediate Tax-Exempt Declared daily, paid monthly* Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
California Intermediate Tax-Exempt Declared daily, paid monthly* Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Florida Intermediate Tax-Exempt Declared daily, paid monthly* Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Fixed Income Declared daily, paid monthly* Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Tax-Exempt Declared daily, paid monthly* Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Arizona Tax-Exempt Declared daily, paid monthly* Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
California Tax-Exempt Declared daily, paid monthly* Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
Global Fixed Income Quarterly Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
High Yield Municipal Declared daily, paid monthly* Annually
- --------------------------------------- -------------------------------------- --------------------------------------
- --------------------------------------- -------------------------------------- --------------------------------------
High Yield Fixed Income Declared daily, paid monthly* Annually
- --------------------------------------- -------------------------------------- --------------------------------------
* Shares of these Funds are entitled to the dividends declared by a Fund
beginning on the next Business Day after the purchase order is executed.
</TABLE>
Tax Considerations
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions will
generally be taxable as ordinary income, except as discussed below. You will be
subject to income tax on Fund distributions regardless of whether they are paid
in cash or reinvested in additional shares. You will be notified annually of the
tax status of distributions to you.
You should note that if you purchase shares of any Fund just before a
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.
Any loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
If you (a) have provided either an incorrect Social Security Number or Taxpayer
Identification Number or no number at all, (b) are subject to withholding by the
Internal Revenue Service for prior failure to properly include on your return
payments of interest or dividends, or (c) have failed to certify to the Trust,
when required to do so, that you are not subject to backup withholding or are an
"exempt recipient," then the Trust will be required in certain cases to withhold
and remit to the U.S. Treasury 31% of the dividends and distributions payable to
you.
There are certain tax requirements that the Funds must follow in order to avoid
Federal taxation. In their efforts to adhere to these requirements, the Funds
may have to limit their investment activity in some types of instruments.
The Tax-Exempt Funds and High Yield Municipal Fund. The Tax-Exempt Funds and
High Yield Municipal Fund expect to pay "exempt-interest dividends" that are
generally exempt from regular Federal income tax. However, a portion of the
exempt-interest dividends paid by the Tax-Exempt Funds may be, and a portion of
the dividends paid by High Yield Municipal Fund generally 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.
Except as stated below, you may be subject to state and local taxes on Fund
distributions and redemptions. State income taxes may not apply, however, to the
portions of each Fund'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.
The California Funds and the Arizona Tax-Exempt Fund expect to pay dividends
that are generally exempt from personal income tax in those respective states.
This exemption will apply, however, only to dividends that are derived from
interest paid on California or Arizona municipal instruments, respectively, or
on certain Federal obligations. In addition, dividends paid by these Funds will
be subject to state franchise and corporate income taxes, if applicable. The
Florida Intermediate Tax-Exempt Fund intends, but cannot guarantee, that its
shares will qualify for the exemption from the Florida intangibles tax.
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.
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
Tax-Exempt Funds and High Yield Municipal Fund generally will not be deductible
for Federal income tax purposes.
Global Fixed Income Fund. It is expected that Global Fixed Income Fund will be
subject to foreign withholding taxes with respect to dividends or interest
received from sources in foreign countries. The Fund may make an election to
treat a proportionate amount of such taxes as constituting a distribution to
each shareholder, which would allow each shareholder either (1) to credit such
proportionate amount of taxes against Federal income tax liability or (2) to
take such amount as an itemized deduction.
Consult Your Tax Professional. Your investment in the Funds could have
additional tax consequences. You should consult your tax professional for
information regarding all tax consequences applicable to your investments in the
Funds. More tax information is provided in the Statement of Additional
Information. This short summary is not intended as a substitute for careful tax
planning.
Tax Table
You may find it particularly useful to compare the tax-free yields of
the Tax-Exempt Funds and the High Yield Municipal Fund to the equivalent yields
from taxable investments. For an investor in a low tax bracket, it may not be
helpful to invest in a tax-exempt investment if a higher after-tax yield can be
achieved from a taxable instrument.
The table below illustrates the difference between hypothetical
tax-free yields and tax-equivalent yields for different tax brackets. You should
be aware, however, that tax brackets can change over time and that your tax
adviser should be consulted for specific yield calculations.
- ------------------------------------------- ----------- -------- ------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal
Marginal
Taxable Income Tax Rate
- ------------------------------------------- -----------
- ------------------------------------------- -----------
Tax-Exempt Yields
2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%
- ------------------------------------------- ----------- -------- ----------------------------------------- --------- ---------
- ---------------------- -------------------- ----------- ----------------------------------------------------------------------
Single Return Joint Return Equivalent Taxable Yields
- ---------------------- -------------------- ----------- ----------------------------------------------------------------------
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
$ 0 - $ $ 0 - $ 15% 2.35% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41%
25,750 43,050
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
$ 25,751 - $ 62,450 $ 43,051 - $104,050 28% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11%
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
$ 62,451 - $130,250 $104,051 - $158,550 31% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59%
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
$130,251 - $283,150 $158,551 - $283,150 36% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50%
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
Over $283,151 Over $283,151 39.6% 3.31% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25%
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
The tax-exempt yields used here are hypothetical and no assurance can be made
that the Funds will attain any particular yield. A Fund's yield fluctuates as
market conditions change. The tax brackets and related yield calculations are
based on the 2000 Federal marginal tax rates indicated in the table. The table
does not reflect the phase out of personal exemptions and itemized deductions
which will apply to certain higher income taxpayers. In addition, the brackets
do not take into consideration the California or Arizona state personal income
tax or the Florida intangibles tax or any other state tax.
</TABLE>
<PAGE>
Risks, Securities, Techniques and Financial Information
Risks, Securities and Techniques
ADDITIONAL INFORMATION ON FUND STRATEGIES, RISKS,
SECURITIES AND TECHNIQUES
This section takes a closer look at some of the Funds' principal investment
strategies and related risks. It also explores the various investment securities
and techniques that the investment management team may use. The Funds may invest
in other securities and are subject to further restrictions and risks which are
described in the Statement of Additional Information.
ADDITIONAL INFORMATION ON INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES
AND RELATED RISKS
Investment Objectives. A Fund'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 a Fund having
an investment objective different from the objective which the shareholder
considered appropriate at the time of investment in the Fund.
Derivatives. The Funds 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. Derivatives include futures contracts, options, interest rate and
currency 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 leveraged "inverse floaters").
Investment strategy. A Fund will invest in derivatives only if the
potential risks and rewards are consistent with the Fund's objective,
strategies and overall risk profile. The Funds may use derivatives for
hedging purposes to offset a potential loss in one position by
establishing an interest in an opposite position. Certain Funds 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 Fund'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 a Fund 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, a Fund may suffer a loss
whether or not the analysis of the investment management team is
accurate.
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. Each Fund 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, a Fund 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.
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 Global Fixed Income Fund intends to invest a
substantial portion of its total assets in foreign securities. The
Fixed Income and High Yield Fixed Income Funds may invest up to 25% of
their total assets in foreign securities including ADRs, EDRs and GDRs.
These Funds may also invest in foreign time deposits and other
short-term instruments.
The Global Fixed Income Fund may invest more than 25% of its total
assets in the securities of issuers located in countries with
securities markets that are highly developed, liquid and subject to
extensive regulation. Such countries may include, but are not limited
to Japan, the United Kingdom, France, Germany and Switzerland.
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 generally located
in the Asia/Pacific region, the Middle East, Eastern Europe, Central
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,
a Fund may be required to deliver securities before 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 Funds.
While the Funds' investments may, if permitted, be denominated in
foreign currencies, the portfolio securities and other assets held by
the Funds are valued in U.S. dollars. Currency exchange rates may
fluctuate significantly over short periods of time causing a Fund'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 a Fund is invested in foreign securities while also maintaining
currency positions, it may be exposed to greater combined risk. The
Funds' respective net currency positions may expose them to risks
independent of their 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 Funds. [Because of the number of countries using
this single currency, a significant portion of the assets of the Global
Fixed Income Fund may be denominated in the euro.]
Investment Grade Securities. A security is considered investment grade if, at
the time of purchase, it is rated:
BBB or higher by Standard and Poor's Ratings Services ("S&P");
Baa or higher by Moody's Investors Service, Inc. ("Moody's");
BBB or higher by Duff & Phelps Credit Rating Co. ("Duff"); or
BBB or higher by Fitch IBCA Inc. ("Fitch").
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 in the next section, fixed income
and convertible securities purchased by the Funds will generally be
rated investment grade. The Funds may also invest in unrated securities
if the Investment Adviser believes they are comparable in quality.
Special risks. Although securities rated BBB by S&P, Duff or Fitch, or
Baa by 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 a Fund, a rated security may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by
the Fund. The Investment Adviser will consider such an event in
determining whether the Fund should continue to hold the security.
Non-Investment Grade Securities. Non-investment grade fixed income and
convertible securities are generally rated BB or below by S&P, Duff or Fitch, or
Ba by Moody's.
Investment strategy. The High Yield Municipal Fund and the High Yield
Fixed Income Fund may invest without limitation in non-investment grade
securities, including convertible securities. The other Fixed Income
Funds (with the exception of the U.S. Government Fund and the
Short-Intermediate U.S. Government Fund) may invest up to 15% of total
assets in non-investment grade securities, including convertible
securities, when the investment management team determines that such
securities are desirable in light of the Funds' investment objectives
and portfolio mix.
Special risks. Non-investment grade securities (sometimes referred to
as "junk bonds") are considered predominantly speculative by
traditional investment standards. 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 often subordinated
to the rights of other creditors of the issuers of such securities.
Investment by a Fund 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 a Fund of its initial investment and any anticipated income or
appreciation will be uncertain. A Fund may also incur additional
expenses in seeking recovery on defaulted securities.
The secondary market for lower quality securities is concentrated in
relatively few market markers and is dominated by institutional
investors. 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 these
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 a Fund's ability to dispose of particular portfolio
investments. A less developed secondary market may also make it more
difficult for a Fund to obtain precise valuations of the high yield
securities in its portfolio.
Investments in lower quality securities, whether rated or unrated, will
be more dependent on Northern's credit analysis than would be the case
with investments in higher quality securities.
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 a Fund.
Investment strategy. Each Fund 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. A Fund may not achieve its investment objective when its
assets are invested in short-term obligations.
Maturity Risk. Each Fund will normally maintain the dollar-weighted average
maturity of its portfolio within a specified range. However, the maturities of
certain instruments, such as variable and floating rate instruments, are subject
to estimation. In addition, in calculating average weighted maturities, the
maturity of mortgage and other asset-backed securities will be based on
estimates of average life. As a result, the Funds cannot guarantee that these
estimates will, in fact, be accurate or that their average maturities will
remain within their specified limits.
Portfolio Turnover. The investment management team will not consider the Fund
turnover rate a limiting factor in making investment decisions for a Fund. A
high portfolio turnover rate (100% or more) is likely to involve higher
brokerage commissions and other transactions costs, which could reduce a Fund's
return. It may also result in higher short-term capital gains that are taxable
to shareholders. See "Financial Highlights" for the Funds' historical portfolio
turnover rates. The Trust expects that the annual portfolio turnover rate of
each of the Short-Intermediate U.S. Government Fund, the California Intermediate
Tax-Exempt Fund, the Arizona Tax-Exempt Fund and the California Tax-Exempt Fund
will generally not exceed 100%; the annual portfolio turnover rate of the High
Yield Municipal Fund and High Yield Fixed Income Fund will generally not exceed
200%.
Special Risks and Considerations Applicable to the California Funds, Florida
Intermediate Tax-Exempt Fund and the Arizona Tax-Exempt Fund. The investments of
the California Funds in California municipal instruments, the Florida
Intermediate Tax-Exempt Fund in Florida municipal instruments and the Arizona
Tax-Exempt Fund in Arizona municipal instruments raise additional
considerations. Payment of the interest on and the principal of these
instruments is dependent upon the continuing ability of issuers in these states
to meet their obligations.
Investment strategy. Under normal market conditions, at least 65% of
the value of the California Funds' total assets will be invested in
California municipal instruments, at least 65% of the value of the
Florida Intermediate Tax-Exempt Fund's total assets will be invested in
Florida municipal instruments, and at least 65% of the value of the
Arizona Tax-Exempt Fund's total assets will be invested in Arizona
municipal instruments. Consequently, these Funds are more susceptible
to factors adversely affecting issuers of California, Florida and
Arizona municipal instruments, and may be riskier than comparable funds
that do not emphasize these issuers to this degree.
Special Risks. The California Funds' investments will be affected by
political and economic developments within the state of California, and
by the financial condition of the state, its public authorities and
political subdivisions. After suffering a severe recession in the early
1990's which caused the state to experience financial difficulties,
California's economy entered a sustained recovery since late 1993 and
the state's budget has been returned to a positive balance.
California's long-term credit rating has been raised after being
reduced during the recession. To respond to its own revenue shortfalls
during the recession, the state reduced assistance to its public
authorities and political subdivisions. Cutbacks in state aid could
further adversely affect the financial condition of cities, counties
and education districts which are subject to their own fiscal
constraints. California voters in the past have passed amendments to
the California Constitution and other measures that limit the taxing
and spending authority of California governmental entities, and future
voter initiatives could result in adverse consequences affecting
California municipal instruments. Also, the ultimate fiscal effect of
federally-mandated reform of welfare programs on the State and its
local governments is still to be resolved. These factors, among others
(including the outcome of related pending litigation), could reduce the
credit standing of certain issuers of California municipal instruments.
Similarly, Florida's economy is influenced by numerous factors,
including transfer payments from the Federal government (social
security benefits, pension benefits, etc.), population growth, tourism,
interest rates and hurricane activity. From time to time Florida and
its political subdivisions have encountered financial difficulties.
Florida is highly dependent upon sales and use taxes, which account for
the majority of its General Fund revenues. The Florida Constitution
does not permit a state or local personal income tax. The Florida
Constitution may limit the State's ability to raise revenues and may
have an adverse effect on the State's finances and political
subdivisions.
Arizona's economy is also influenced by numerous factors, including
developments in the aerospace, high technology, light manufacturing,
government and service industries. During the 1990s, however, Arizona's
efforts to diversify its economy have enabled it to realize and sustain
increasing growth rates. Arizona has adopted a new method of financing
its public school system following the Arizona Supreme Court's 1994
ruling that the former system was unconstitutional. The State of
Arizona is not authorized to issue general obligation bonds.
If Florida or Arizona or any of their respective political subdivisions
should suffer serious financial difficulties to the extent their
ability to pay their obligations might be jeopardized, the ability of
such entities to market their securities, and the value of the Florida
Intermediate Tax-Exempt Fund or the Arizona Tax-Exempt Fund, could be
adversely affected.
In addition to the risk of nonpayment of California, Florida or Arizona
municipal instruments, if these obligations decline in quality and are
downgraded by an NRSRO, they may become ineligible for purchase by the
Funds. Since there are large numbers of buyers of these instruments,
the supply of California, Florida or Arizona municipal instruments that
are eligible for purchase by the Funds could become inadequate at
certain times.
A more detailed description of special factors affecting investments in
California, Florida and Arizona municipal instruments is provided in
the Statement of Additional Information.
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 U.S. Government Fund and the
Short-Intermediate U.S. Government Fund may purchase securities that
are secured or backed by mortgages and that are issued or guaranteed by
the U.S. government, its agencies or instrumentalities. The other Funds
may purchase these and other types of asset-backed securities. The
Funds will invest in asset-backed securities rated investment grade
(rated BBB or better by S&P, Duff or Fitch, or Baa or better by
Moody's) at the time of purchase. They may also invest in unrated
mortgage-backed securities which the Northern believes are of
comparable quality. These rating and comparable quality limitations do
not apply to the High Yield Municipal and High Yield Fixed Income
Funds.
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 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 Funds can borrow money and
enter into reverse repurchase agreements. Reverse repurchase agreements involve
the sale of securities held by a Fund subject to the Fund's agreement to
repurchase them at a mutually agreed upon date and price (including interest).
Investment strategy. Each Fund may borrow and enter into reverse
repurchase agreements in amounts not exceeding one-third of the value
of its total assets (including the amount borrowed). Each Fund may also
borrow up to an additional 5% of its total assets for temporary
purposes. The Funds may enter into 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.
Special risks. Borrowings and reverse repurchase agreements involve
leveraging. If the securities held by the Funds decline in value while
these transactions are outstanding, the net asset value of the Funds'
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 a Fund
(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 a Fund will decline below the price the Fund is obligated to
pay to repurchase the securities, and that the securities may not be
returned to the Fund.
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 Funds 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 Fixed Income Fund,
High Yield Fixed Income Fund and Global Fixed Income Fund may each acquire
convertible securities. These securities are subject to the same rating
requirements as fixed income securities held by a Fund.
Custodial Receipts for Treasury Securities. Custodial receipts are
participations in trusts that hold U.S. Treasury securities and are sold under
names such as TIGRs and CATS. Like other stripped obligations, they entitle the
holder to future interest or principal payments on the U.S. Treasury securities.
Investment strategy. To the extent consistent with their respective
investment objectives, the Funds may invest a portion of their total
assets in custodial receipts. Investments by the U.S. Government Fund
and Short-Intermediate U.S. Government Fund in custodial receipts will
not exceed 35% of the value of such Funds' total assets.
Special risks. Like other stripped obligations, custodial receipts may
be subject to greater price volatility than ordinary debt obligations
because of the way in which their principal and interest are returned
to investors.
Exchange Rate-Related Securities. Exchange rate-related securities represent
certain foreign debt obligations whose principal values are linked to a foreign
currency but which are repaid in U.S. dollars.
Investment strategy. The Fixed Income, Global Fixed Income and High Yield Fixed
Income Funds may invest in exchange rate-related securities.
Special risks. The principal payable on an exchange rate-related
security is subject to currency risk. In addition, the potential
illiquidity and high volatility of the foreign exchange market may make
exchange rate-related securities difficult to sell prior to maturity at
an appropriate price.
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 Global Fixed Income Fund, the Fixed Income
Fund and the [High Yield Fixed Income Fund/High Yield Municipal Fund]
may enter into forward currency exchange contracts for hedging [and
non-hedging] purposes and to help reduce the risks and volatility
caused by changes in foreign currency exchange rates. The Global Fixed
Income Fund and the High Yield Fixed Income Fund may also enter into
these contracts for speculative purposes (i.e., to increase total
return) or for cross-hedging purposes. Foreign currency exchange
contracts will be used at the discretion of the investment management
team, and no Fund is 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 a Fund'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 a
Fund, 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 a Fund purchases an option on a futures contract, it has
the right to assume a position as a purchaser or seller of a futures contract at
a specified exercise price during the option period. When a Fund 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, each Fund 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 a Fund's futures contacts may equal up to 100% of its
total assets. However, a Fund 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 a
Fund'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. Each Fund may invest up to 15% of its net assets
in securities that are illiquid. If otherwise consistent with their
investment objectives and policies, the Funds 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 a Fund. The practice of
investing in Rule 144A Securities could increase the level of a Fund'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 a Fund to make cash contributions to a deposit fund of
an insurance company's general account. The insurance company then credits
interest to the Fund for a set time period.
Investment Strategy. The Fixed Income Fund may invest in IFAs issued by
insurance companies that meet quality and credit standards established by the
Investment Adviser. The High Yield Fixed Income Fund may invest in IFAs without
regard to a minimum rating criteria.
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, the transfer of IFAs may
be restricted and an active secondary market in IFAs does not currently
exist. This means that it may be difficult or impossible to sell an IFA
at an appropriate price.
Interest Rate Swaps, Floors and Caps and Currency Swaps. Interest rate and
currency swaps are contracts that obligate a Fund and another party to exchange
their rights to pay or receive interest or specified amounts of currency,
respectively. Interest rate floors entitle the purchasers to receive interest
payments if a specified index falls below a predetermined interest rate.
Interest rate caps entitle the purchasers to receive interest payments if a
specified index exceeds a predetermined interest rate.
Investment strategy. The Funds may enter into interest rate swaps and
the U.S. Government, Short-Intermediate U.S. Government, Fixed Income,
Global Fixed Income, High Yield Municipal and High Yield Fixed Income
Funds may purchase interest rate floors or caps to protect against
interest rate fluctuations and fluctuations in the floating rate
market. The Global Fixed Income, Fixed Income and High Yield Fixed
Income Funds may also enter into currency swaps to protect against
currency fluctuations.
Special risks. If the other party to an interest rate swap defaults, a
Fund's risk of loss consists of the amount of interest payments that
the Fund is entitled to receive. In contrast, currency swaps usually
involve the delivery of the entire principal value of one currency in
exchange for the other currency. Therefore, the entire principal value
of a currency swap is subject to the risk that the other party will
default on its delivery obligations. Like other derivative securities,
swaps, floors and caps can be highly volatile. As a result, they may
not always be successful hedges and they could lower a Fund's total
return.
Investment Companies. To the extent consistent with their respective investment
objectives and policies, the Funds may invest in securities issued by other
investment companies, including money market funds, 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 a Fund in other investment
companies will be subject to the limitations of the 1940 Act. Although
the Funds do not expect to do so in the foreseeable future, each Fund
is authorized to invest substantially all of its assets in a single
open-end investment company or series thereof that has substantially
the same investment objective, policies and fundamental restrictions as
the Fund.
Special risks. As a shareholder of another investment company, a Fund
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 Fund.
Loan Participations. A loan participation is an interest in a loan to a U.S. or
foreign company or other borrower which is administered and sold by a financial
intermediary.
Investment strategy. The High Yield Fixed Income Fund may invest in
loan participations in the form of a direct or co-lending relationship
with the corporate borrower, an assignment of an interest in the loan
by a co-lender or another participant, or a participation in a seller's
share of the loan.
Special risks. Like other debt obligations, loan participations may be
subject to credit risk if the borrower defaults on making interest
payments and repaying the principal. In the case where the Fund
purchases a loan assignment or participation from another lender, the
Fund is also subject to delays, expenses and risks greater than would
have been involved if the Fund had purchased a direct obligation of the
borrower.
Mortgage Dollar Rolls. A mortgage dollar roll involves the sale by a Fund of
securities for delivery in the future (generally within 30 days). The Fund
simultaneously contracts with the same counterparty to repurchase substantially
similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the Fund loses the right to
receive principal and interest paid on the securities sold. However, the Fund
benefits to the extent of any difference between (a) the price received for the
securities sold and (b) the lower forward price for the future purchase and/or
fee income plus the interest earned on the cash proceeds of the securities sold.
Investment strategy. Each Fund may enter into mortgage dollar rolls in
an effort to enhance investment performance. For financial reporting
and tax purposes, the Funds treat mortgage dollar rolls as two separate
transactions: one involving the purchase of a security and a separate
transaction involving a sale. The Funds do not currently intend to
enter into mortgage dollar rolls that are accounted for as financing
and do not treat them as borrowings.
Special risks. Successful use of mortgage dollar rolls depends upon the
Investment Adviser's ability to predict correctly interest rates and
mortgage prepayments. If the Investment Adviser is incorrect in its
prediction, a Fund may experience a loss. Unless the benefits of a
mortgage dollar roll exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the roll, the use of this technique will
diminish the Fund's performance.
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 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 Tax-Exempt Funds and the High Yield Municipal Fund may also hold tax-exempt
derivative instruments that have interest rates that reset inversely to changing
short-term rates and/or have imbedded interest rate floors and caps that require
the issuer to pay an adjusted interest rate if market rates fall below or rise
above a specified rate. Because some of these instruments represent relatively
recent innovations in the municipal bond markets, and the trading market for
these instruments is less developed than the markets for traditional types of
municipal instruments, it is uncertain how these instruments will perform under
different economic and interest-rate scenarios. Also, because these instruments
may be leveraged, their market values may be more volatile than other types of
municipal instruments and may present greater potential for capital gain or
loss. The possibility of default by the issuer or the issuer's credit provider
may be greater for these derivative instruments than for other types of
instruments. In some cases it may be difficult to determine the fair value of a
derivative instrument because of a lack of reliable objective information and an
established secondary market for some instruments may not exist. In many cases,
the Internal Revenue Service has not ruled on whether the interest received on a
tax-exempt derivative instrument is tax-exempt and, accordingly, purchases of
such instruments are based on the opinion of counsel to the sponsors of the
instruments.
Each Tax-Exempt Fund and the High Yield Municipal Fund may acquire "stand-by
commitments" relating to the municipal instruments it holds. Under a stand-by
commitment, a dealer agrees to purchase, at the Fund'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 Funds 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 their current policy to do so
on a regular basis, in connection with their investments in municipal
instruments, the Tax-Exempt Funds and the High Yield Municipal Fund may
invest more than 25% of their total assets in municipal instruments the
interest upon which is paid solely by governmental issuers from
revenues of similar projects. However, the Tax-Exempt Funds and the
High Yield Municipal Fund do not intend to invest more than 25% of the
value of their 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.
The Florida Intermediate Tax-Exempt Fund expects to invest principally
in Florida municipal instruments, the California Funds expect to invest
principally in California municipal instruments and the Arizona
Tax-Exempt Fund expects to invest principally in Arizona municipal
instruments. The other Tax-Exempt Funds and the High Yield Municipal
Fund may also invest from time to time more than 25% of the value of
their total assets in municipal instruments whose issuers are in the
same state.
Funds in addition to the Tax-Exempt Funds and the High Yield Municipal
Fund may invest from time to time in municipal instruments or other
securities issued by state and local governmental bodies. Generally,
this will occur when the yield of municipal instruments, on a pre-tax
basis, is comparable to that of other permitted short-term taxable
investments. Dividends paid by the Funds other than the Tax-Exempt
Funds and the High Yield Municipal Fund on such investments will be
taxable to shareholders.
Special risks. Municipal instruments purchased by the Tax-Exempt Funds
and the High Yield Municipal Fund 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, a Fund could suffer a loss to the
extent that the Fund is relying upon this credit support. Risks
relating to foreign banks and financial institutions are described on
page [ ] under "Foreign Investments."
In addition, when a substantial portion of a Fund'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.
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, each Fund may write (sell) covered call options, buy put
options, buy call options and write secured put options for hedging
(or, with respect to the Global Fixed Income Fund, cross-hedging)
purposes or to earn additional income. Options may relate to particular
securities, foreign or domestic securities indices, financial
instruments, foreign currencies or (in the case of the Global Fixed
Income Fund and High Yield Fixed Income Fund) the yield differential
between two securities. A Fund 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 a Fund's assets subject to options written by the
Fund will not be greater than 25% of its net assets at the time the
option is written. A Fund may "cover" a call option by owning the
security underlying the option or through other means. Put options
written by a Fund are "secured" if the Fund 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 Fund 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.
Each Fund 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.
Preferred Stock. Preferred stocks are securities that represent an ownership
interest providing the holder with claims on the issuer's earnings and assets
before common stock owners but after bond owners.
Investment strategy. To the extent consistent with their respective
investment objectives and policies, the Funds may invest in preferred
stocks.
Special risks. Unlike most debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment
obligations, may not typically be accelerated by the holders of such
preferred stock on the occurrence of an event of default or other
non-compliance by the issuer of the preferred stock.
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 High Yield Fixed Income Fund 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. A Fund 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 a Fund subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price.
Investment strategy. Each Fund 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 a Fund acquires the securities.
Special risks. In the event of a default, a Fund 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 Fund's
costs associated with delay and enforcement of the repurchase
agreement. In addition, in the event of bankruptcy, a Fund could suffer
additional losses if a court determines that the Fund's interest in the
collateral is unenforceable.
Securities Lending. In order to generate additional income, the Funds may lend
securities on a short-term basis to banks, broker-dealers or other qualified
institutions. In exchange, the Funds 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 a Fund's total assets (including the loan
collateral). Any cash collateral received by a Fund 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, a Fund could experience delays
in recovering its securities and may incur a capital loss. In addition,
a Fund may incur a loss in reinvesting the cash collateral it receives.
Stripped Obligations. These securities are issued by the U.S. government (or
agency or instrumentality), foreign governments, banks and other issuers. They
entitle the holder to receive either interest payments or principal payments
that have been "stripped" from a debt obligation. These obligations include
stripped mortgage-backed securities, which are derivative multi-class mortgage
securities.
Investment strategy. To the extent consistent with their respective
investment objectives, the Funds may purchase stripped securities.
Special risks. Stripped securities are very sensitive to changes in
interest rates and to the rate of principal prepayments. A rapid or
unexpected change in prepayments could depress the price of certain
stripped securities and adversely affect a Fund's total return.
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, each Fund 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. 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 variable amount master demand notes, long-term variable and
floating rate bonds (sometimes referred to as "Put Bonds") where the Fund
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 and leveraged inverse floating rate
instruments ("inverse floaters"). An inverse floater is leveraged to the extent
that its interest rate varies by an amount that exceeds the amount of the
variation in the index rate of interest. Some variable and floating rate
instruments have interest rates that are periodically adjusted as a result of
changes in inflation rates.
Investment strategy. Each Fund 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 a Fund if
they are determined by the Investment Adviser to be of comparable
quality to rated instruments eligible for purchase by the Fund.
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 Funds are not entitled
to exercise their demand rights. As a result, the Funds 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 High Yield Fixed Income Fund may invest up to
5% of its net assets at the time of purchase in warrants and similar
rights. The Fund 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. Each Fund may purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis. Although the
Funds would generally purchase securities in these transactions with
the intention of acquiring the securities, the Funds 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.
Investment strategy. Each Fund 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. A Fund's
investments in zero coupon, pay-in-kind and capital appreciation bonds
may require the Fund to sell some of its Fund securities to generate
sufficient cash to satisfy certain income distribution requirements.
Disclaimer
Northern is sometimes referred to as "The Northern Trust Bank" in advertisements
and other sales literature.
<PAGE>
Financial Information
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the tables represent the rate that an investor
would have earned or lost on an investment in a Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by [ ],
whose report is included in the Funds' annual report along with the Funds'
financial statements. The annual report is available upon request and without
charge.
<PAGE>
- Page 79 -
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
FUND
YEAR YEAR YEAR ENDED YEAR ENDED YEAR
ENDED ENDED MARCH 31, MARCH 31, ENDED
MARCH 31, MARCH 31, 1998 1997 MARCH 31,
2000 1999 1996
- ------------------------------ --------------- ---------- ---------- ---------- --------- ----------
SELECTED PER SHARE DATA
Net Asset Value, $10.20 $9.88 $10.06 $9.84
Beginning of Period..
Income (Loss) from
Investment Operations:
Net investment income 0.50 0.54 0.51 0.51
Net realized and 0.10 0.32 (0.11) 0.29
unrealized
gains (losses)
on investments...
- ------------------------------ --------------- ---------- ---------- ---------- --------- ----------
Total Income from Investment 0.60 0.86 0.40 0.80
Operations............
- ------------------------------ --------------- ---------- ---------- ---------- --------- ----------
Less Distributions Paid:
From net investment (0.49) (0.53) (0.51) (0.51)
income.............
From net realized gains (0.26) (0.01) (0.05) (0.07)
In excess of net -- -- (0.02) --
realized gains....
- ------------------------------ --------------- ---------- ---------- ---------- --------- ----------
Total Distributions Paid (0.75) (0.54) (0.58) (0.58)
- ------------------------------ --------------- ---------- ---------- ---------- --------- ----------
Net Asset Value, $10.05 $10.20 $9.88 $10.06
End of Period.......
- ------------------------------ --------------- ---------- ---------- ---------- --------- ----------
Total Return(1)....... 6.01% 8.90% 3.98% 7.65%
Supplemental Data and Ratios:
Net assets, in thousands, $268,242 $229,352 $181,921 $149,062
end of period......
Ratio to average net assets of (2):
Expenses, net of waivers 0.90% 0.90% 0.90% 0.90%
and reimbursements.
Expenses, before waivers 1.07% 1.07% 1.09% 1.10%
and reimbursements.
Net investment income, 4.73% 5.24% 5.19% 5.07%
net of waivers and
reimbursements.....
Net investment income, 4.56% 5.07% 5.00% 4.87%
before waivers and
reimbursements.....
Portfolio Turnover 123.75% 47.41% 83.41% 112.00%
Rate...............
- ------------------------------ --------------- ---------- ---------- ---------- --------- ----------
- ---------------------------------
(1) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(2) Annualized for periods less than a full year.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
INTERMEDIATE
TAX-EXEMPT
FUND
YEAR YEAR ENDED YEAR ENDED YEAR YEAR ENDED
ENDED MARCH 31, MARCH 31, ENDED MARCH 31,
MARCH 31 1999 1998 MARCH 31, 1996
2000 1997
- ------------------------------ --------------- ---------- ---------- --------- ---------- ---------- -------------- -----------
SELECTED PER SHARE DATA
Net Asset Value, $10.36 $10.07 $10.22 $10.03
Beginning of Period..
Income (Loss) from
Investment Operations:
Net investment income 0.39 0.40 0.40 0.41
Net realized and 0.11 0.29 (0.06) 0.26
unrealized
gains (losses)
on investments...
- ------------------------------ --------------- ---------- ---------- --------- ---------- ----------
-------------- -----------
Total Income (Loss) from 0.50 0.69 0.34 0.67
Investment Operations.
- ------------------------------ --------------- ---------- ---------- --------- ---------- ---------- ----------------- ------
Less Distributions Paid:
From net investment (0.39) (0.40) (0.40) (0.41)
income...........
From net realized gains (0.11) -- (0.07) (0.07)
In excess of net -- -- -- --
investment income.
In excess of net -- -- (0.02) --
realized gains....
- ------------------------------ --------------- ---------- ---------- --------- ---------- ----------
-------------------------
Total Distributions Paid (0.50) (0.40) (0.49) (0.48)
- ------------------------------ --------------- ---------- ---------- --------- ---------- ---------- ----------------- -
Net Asset Value, $10.36 $10.36 $10.07 $10.22
End of Period.......
Total Return(2)....... 4.88% 6.95% 3.39% 6.81%
Supplemental Data and Ratios:
Net assets, in thousands, $344,789 $298,529 $264,630 $244,139
end of period......
Ratio to average net assets of (3):
Expenses, net of waivers 0.85% 0.85% 0.85% 0.85%
and reimbursements.
Expenses, before waivers 1.06% 1.07% 1.07% 1.08%
and reimbursements.
Net investment income, 3.76% 3.84% 3.90% 4.01%
net of waivers and
reimbursements.....
Net investment income, 3.55% 3.62% 3.68% 3.78%
before waivers and
reimbursements.....
Portfolio Turnover 54.03% 61.83% 61.39% 137.85%
Rate...............
- ------------------------------ --------------- ---------- ---------- --------- ---------- ---------- ------------ -----------
</TABLE>
<PAGE>
- ---------------------------------
(1) For the period August 15, 1996 (commencement of operations) through March
31, 1997. (2) Assumes investment at net asset value at the beginning of the
year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(3) Annualized for periods less than a full year.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FLORIDA
INTERMEDIATE
TAX-EXEMPT
FUND
YEAR YEAR ENDED YEAR ENDED YEAR
ENDED MARCH 31, MARCH 31, ENDED MARCH
MARCH 31 1999 1998 31, 1997(1)
2000
- ------------------------------ --------------- ---------- ---------- --------- ---------- ---------- -------------- -----------
SELECTED PER SHARE DATA
Net Asset Value, $10.47 $10.03 $10.00
Beginning of Period..
Income (Loss) from
Investment Operations:
Net investment income 0.39 0.40 0.24
Net realized and 0.16 0.44 0.03
unrealized
gains (losses)
on investments...
- ------------------------------ --------------- ---------- ---------- --------- ---------- ----------
-------------- -----------
Total Income (Loss) from 0.55 0.84 0.27
Investment Operations.
- ------------------------------ --------------- ---------- ---------- --------- ---------- ---------- -------------- -----------
Less Distributions Paid:
From net investment (0.39) (0.40) (0.24)
income...........
From net realized gains (0.16) -- --
In excess of net -- -- --
investment income.
In excess of net -- -- --
realized gains....
- ------------------------------ --------------- ---------- ---------- --------- ---------- ----------
-------------- -----------
Total Distributions Paid (0.55) (0.40) (0.24)
- ------------------------------ --------------- ---------- ---------- --------- ---------- ---------- -----------------------
Net Asset Value, $10.47 $10.47 $10.03
End of Period.......
Total Return(2)....... 5.38% 8.51% 2.63%
Supplemental Data and Ratios:
Net assets, in thousands, $37,121 $25,329 $14,807
end of period......
Ratio to average net assets of (3):
Expenses, net of waivers 0.85% 0.85% 0.85%
and reimbursements.
Expenses, before waivers 1.29% 1.41% 2.31%
and reimbursements.
Net investment income, 3.67% 3.86% 3.84%
net of waivers and
reimbursements.....
Net investment income, 3.23% 3.30% 2.38%
before waivers and
reimbursements.....
Portfolio Turnover 57.98% 46.12% 50.77%
Rate...............
- ------------------------------ --------------- ---------- ---------- --------- ---------- ---------- --------------- -----------
</TABLE>
<PAGE>
- ---------------------------------
(1) For the period August 15, 1996 (commencement of operations) through March
31, 1997. (2) Assumes investment at net asset value at the beginning of the
year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(3) Annualized for periods less than a full year.
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FIXED INCOME
FUND
YEAR YEAR ENDED YEAR YEAR ENDED YEAR ENDED
ENDED MARCH 31, ENDED MARCH 31, MARCH 31,
MARCH 31 1999 MARCH 31, 1997 1996
2000 1998
- ------------------------------- ----------------- ----------- --------- ---------- ---------- ----------
SELECTED PER SHARE DATA
Net Asset Value, $10.42 $9.86 $10.10 $9.78
Beginning of Period..
Income (Loss) from
Investment Operations:
Net investment income 0.54 0.59 0.57 0.58
Net realized and unrealized -- 0.56 (0.12) 0.50
gains (losses)
on investments...
- ------------------------------- ----------------- ----------- --------- ---------- ---------- ----------
Total Income (Loss) from 0.54 1.15 0.45 1.08
Investment Operations.
- ------------------------------- ----------------- ----------- --------- ---------- ---------- ----------
Less Distributions Paid:
From net investment (0.54) (0.58) (0.56) (0.59)
income...........
From net realized gains (0.27) (0.01) (0.10) (0.17)
In excess of net -- -- --
investment income. (0.01)
In excess of net -- -- (0.02) --
realized gains....
- ------------------------------- ----------------- ----------- --------- ---------- ---------- ----------
Total Distributions Paid (0.81) (0.59) (0.69) (0.76)
- ------------------------------- ----------------- ----------- --------- ---------- ---------- ----------
Net Asset Value, $10.15 $10.42 $9.86 $10.10
End of Period.......
- ------------------------------- ----------------- ----------- --------- ---------- ---------- ----------
Total Return(1)....... 5.18% 11.90% 4.59% 11.18%
Supplemental Data and Ratios:
Net assets, in thousands, $275,108 $181,917 $122,444 $101,339
end of period......
Ratio to average net assets of (2):
Expenses, net of waivers 0.90% 0.90% 0.90% 0.90%
and reimbursements.
Expenses, before waivers 1.08% 1.09% 1.12% 1.14%
and reimbursements.
Net investment income, 5.15% 5.71% 5.69% 5.79%
net of waivers and
reimbursements.....
Net investment income, 4.97% 5.52% 5.47% 5.55%
before waivers and
reimbursements.....
Portfolio Turnover 84.85% 33.55% 87.64% 116.22%
Rate...............
- ------------------------------- ----------------- ----------- --------- ---------- ---------- ----------
</TABLE>
<PAGE>
- ---------------------------------
(1) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(2) Annualized for periods less than a full year.
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT CALIFORNIA
FUND TAX-EXEMPT
FUND
YEAR YEAR YEAR ENDED YEAR YEAR ENDED YEAR YEAR YEAR
ENDED ENDED MARCH 31, ENDED MARCH 31, ENDED ENDED MARCH ENDED MARCH
MARCH 31 MARCH 31, 1998 MARCH 31, 1996 MARCH 31 31, 1999 31, 1998(1)
2000 1999 1997 2000
- ------------------------------- ---------------- --------- ---------- --------- ---------- --------- ---------------- -------------
SELECTED PER SHARE DATA
Net Asset Value, $10.73 $10.24 $10.35 $10.08 $10.76 $10.00
Beginning of Period..
Income (Loss) from
Investment Operations:
Net investment income 0.45 0.47 0.50 0.48 0.43 0.41
Net realized and unrealized 0.13 0.57 (0.06) 0.29 0.23 0.76
gains (losses)
on investments...
- ------------------------------- ---------------- --------- ---------- --------- ---------- --------- ---------------- ------------
Total Income (Loss) from 0.58 1.04 0.44 0.77 0.66 1.17
Investment Operations.
- ------------------------------- ---------------- --------- ---------- --------- ---------- --------- ---------------- ------------
Less Distributions Paid:
From net investment (0.45) (0.47) (0.47) (0.48) (0.43) (0.41)
Income...........
From net realized gains (0.23) (0.08) (0.05) (0.02) (0.10) --
In excess of net -- -- (0.03) -- -- --
investment income.
In excess of net -- -- -- -- -- --
realized gains....
- ------------------------------- ---------------- --------- ---------- --------- ---------- --------- ---------------- -------------
Total Distributions Paid (0.68) (0.55) (0.55) (0.50) (0.53) (0.41)
- ------------------------------- ---------------- --------- ---------- --------- ---------- --------- ---------------- - -----------
Net Asset Value, $10.63 $10.73 $10.24 $10.35 $10.89 $10.76
End of Period.......
Total Return(2)....... 5.47% 10.39% 4.32% 7.80% 6.20% 11.86%
Supplemental Data and Ratios:
Net assets, in thousands, $227,823 $167,220 $136,372 $125,113 $77,249 $39,943
end of period......
Ratio to average net assets of (3):
Expenses, net of waivers 0.85% 0.85% 0.85% 0.85% 0.85% 0.85%
and reimbursements.
Expenses, before waivers 1.08% 1.09% 1.10% 1.10% 1.17% 1.60%
and reimbursements.
Net investment income, 4.13% 4.42% 4.61% 4.62% 3.87% 4.01%
net of waivers and
reimbursements.....
Net investment income, 3.90% 4.18% 4.36% 4.37% 3.55% 3.26%
before waivers and
reimbursements.....
Portfolio Turnover 140.39% 74.32% 8.10% 60.50% 62.55% 22.22%
Rate...............
- ------------------------------- ---------------- --------- ---------- --------- ---------- --------- ---------------- ------------
</TABLE>
<PAGE>
- ---------------------------------
(1) For the period April 8, 1997 (commencement of operations) through March 31,
1998. (2) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(3) Annualized for periods less than a full year.
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
GLOBAL
FIXED INCOME
FUND
YEAR YEAR YEAR ENDED YEAR YEAR ENDED
ENDED ENDED MARCH 31, ENDED MARCH 31,
MARCH 31 MARCH 31, 1998 MARCH 31, 1996
2000 1999 1997
- ------------------------------ -------------- ---------- ---------- --------- ---------- ----------
SELECTED PER SHARE DATA
Net Asset Value, $9.85 $10.08 $10.62 $10.64
Beginning of Period..
Income (Loss) from
Investment Operations:
Net investment income 0.38 0.43 0.56 0.78
Net realized and 0.58 0.02 (0.40) (0.16)
unrealized
gains (losses)
on investments...
- ------------------------------ -------------- ---------- ---------- --------- ---------- ----------
Total Income (Loss) from 0.96 0.45 0.16 0.62
Investment Operations.
- ------------------------------ -------------- ---------- ---------- --------- ---------- ----------
Less Distributions Paid:
From net investment (0.32) (0.59) (0.58) (0.62)
income...........
From net realized gains (0.07) (0.09) (0.11) (0.02)
In excess of net -- -- -- --
investment income.
In excess of net (0.04) -- (0.01) --
realized gains....
- ------------------------------ -------------- ---------- ---------- --------- ---------- ----------
Total Distributions Paid (0.43) (0.68) (0.70) (0.64)
- ------------------------------ -------------- ---------- ---------- --------- ---------- ----------
Net Asset Value, $10.38 $9.85 $10.08 $10.62
End of Period.......
- ------------------------------ -------------- ---------- ---------- --------- ---------- ----------
Total Return(1)....... 9.68% 4.61% 1.39% 5.84%
Supplemental Data and Ratios:
Net assets, in thousands, $14,285 $13,675 $16,426 $15,665
end of period......
Ratio to average net assets of (2):
Expenses, net of waivers 1.15% 1.15% 1.15% 1.15%
and reimbursements.
Expenses, before waivers 1.96% 1.87% 1.96% 2.00%
and reimbursements.
Net investment income, 4.69% 4.98% 5.49% 5.75%
net of waivers and
reimbursements.....
Net investment income, 3.88% 4.26% 4.68% 4.90%
before waivers and
reimbursements.....
Portfolio Turnover 16.49% 30.26% 37.76% 52.05%
Rate...............
- ------------------------------ -------------- ---------- ---------- --------- ---------- ----------
</TABLE>
<PAGE>
- ---------------------------------
(1) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(2) Annualized for periods less than a full year.
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
HIGH YIELD HIGH YIELD
MUNICIPAL FIXED INCOME
FUND FUND
YEAR YEAR ENDED YEAR YEAR ENDED
ENDED MARCH 31, ENDED MARCH 31,
MARCH 31 1999(1) MARCH 31 1999(1)
2000 2000
- ------------------------------ --------------- ------------- --------------- -------------
SELECTED PER SHARE DATA
Net Asset Value, $10.00 $10.00
Beginning of Period..
Income (Loss) from
Investment Operations:
Net investment income 0.05 0.11
Net realized and -- 0.08
unrealized
gains (losses)
on investments...
- ------------------------------ --------------- ------------- --------------- -------------
Total Income (Loss) from 0.05 0.19
Investment Operations.
- ------------------------------ --------------- ------------- --------------- -------------
Less Distributions Paid:
From net investment (0.04) (0.09)
income...........
From net realized gains -- --
In excess of net -- --
investment income.
In excess of net -- --
realized gains....
- ------------------------------ --------------- ------------- --------------- -------------
(0.04) (0.09)
Total Distributions Paid
- ------------------------------ --------------- ------------- --------------- -------------
$10.01 $10.10
Net Asset Value,
End of Period.......
- ------------------------------ --------------- ------------- --------------- -------------
0.57% 2.06%
Total Return(2).......
Supplemental Data and Ratios:
Net assets, in thousands, $10,033 $40,864
end of period......
Ratio to average net assets of (3):
Expenses, net of waivers 0.85% 0.90%
and reimbursements.
Expenses, before waivers 5.60% 2.18%
and reimbursements.
Net investment income, 2.92% 6.78%
net of waivers and
reimbursements.....
Net investment income (loss), (1.83)% 5.50%
before waivers and
reimbursements.....
Portfolio Turnover 0.00% 0.00%
Rate...............
- ------------------------------ --------------- ------------- --------------- -------------
</TABLE>
<PAGE>
- ---------------------------------
(1) Commenced investment operations after the close of business on December 31,
1998.
(2) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(3) Annualized for periods less than a full year.
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SHORT-INTERMEDIATE
U.S. GOVERNMENT CALIFORNIA
FUND INTERMEDIATE ARIZONA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
- ------------------------------ --------------- ---------------- --------------- ---------------- ---------------
YEAR YEAR YEAR
ENDED ENDED ENDED
MARCH 31 MARCH 31 MARCH 31
2000(1) 2000(1) 2000(1)
- ------------------------------ --------------- ---------------- --------------- ---------------- ---------------
SELECTED PER SHARE DATA
Net Asset Value,
Beginning of Period..
Income (Loss) from
Investment Operations:
Net investment income
Net realized and
unrealized
gains (losses)
on investments...
- ------------------------------ --------------- ---------------- --------------- ---------------- ---------------
Total Income (Loss) from
Investment Operations.
- ------------------------------ --------------- ---------------- --------------- ---------------- ---------------
Less Distributions Paid:
From net investment
income...........
From net realized gains
In excess of net
investment income.
In excess of net
realized gains....
- ------------------------------ --------------- ---------------- --------------- ---------------- ---------------
Total Distributions Paid
- ------------------------------ --------------- ---------------- --------------- ---------------- ---------------
Net Asset Value,
End of Period.......
- ------------------------------ --------------- ---------------- --------------- ---------------- ---------------
Total Return(2).......
Supplemental Data and Ratios:
Net assets, in thousands,
end of period......
Ratio to average net assets
of (3):
Expenses, net of waivers
and reimbursements.
Expenses, before waivers and reimbursements.
Net investment income, net of waivers and reimbursements.....
Net investment income (loss), before waivers and reimbursements.....
Portfolio Turnover
Rate...............
- ------------------------------ --------------- ---------------- --------------- ---------------- ---------------
</TABLE>
<PAGE>
- ---------------------------------
(1) For the period October 1, 1999 (commencement of operations) through March
31, 2000. (2) Assumes investment at net asset value at the beginning of the
year,
reinvestment of all dividends and distributions, and a complete redemption
of the investment at net asset value at the end of the year. Total return
is not annualized for periods less than one year.
(3) Annualized for periods less than a full year.
<PAGE>
- Page 80 -
For More Information
ANNUAL/SEMIANNUAL REPORT
Additional information about the Funds' investments is available in the Funds'
annual and semiannual reports to shareholders. In the Funds' annual reports, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during their last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Funds and their policies is also available in
the Funds' Statement of Additional Information ("SAI"). The SAI is incorporated
by reference into this Prospectus (is legally considered part of this
Prospectus).
The Funds' annual and semiannual reports, and the SAI, are available free upon
request by calling The Northern Funds Center at (800) 595-9111.
To obtain other information and for shareholder inquiries:
By telephone - Call (800) 595-9111
By mail - Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
On the Internet - Text-only versions of the Funds' documents are available
online and may be downloaded from:
The SEC's website at http://www.sec.gov. Northern Funds' website
at http://www.northernfunds.com.
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. 20549-0102, or by electronic request to:
[email protected]. Information on the operation of the public reference room
may be obtained by calling the SEC at (202) 942-8090.
[LOGO]
811-8236
Page 1
Northern Money Market Funds
Money Market Fund
U.S. Government Money Market Fund
U.S. Government Select Money Market Fund
Tax-Exempt Money Market Fund
Municipal Money Market Fund
California Municipal Money Market Fund
Prospectus dated July 31, 2000
An investment in a Fund 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 a Fund involves investment risks, including possible
loss of principal.
Although each of the Funds seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Funds.
The California Municipal Money Market Fund is not available in certain states.
Please call (800) 595-9111 to determine the availability in your state.
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>
Page 3
Table of Contents
- ------------------------------------------------------ ---------------------------------------------------------
Page
OVERVIEW Introduction [
]
RISK/RETURN SUMMARY
Information about the objectives, principal Funds
strategies and risk characteristics of each Fund. Money Market Fund [
]
U.S. Government Money Market Fund [
]
U.S. Government Select Money Market Fund [
]
Tax-Exempt Money Market Fund [ ]
Municipal Money Market Fund [
]
California Municipal Money Market Fund [
]
---------------------------------------------
Principal Investment Risks [
]
---------------------------------------------
Fund Performance
Money Market Fund [
]
U.S. Government Money Market Fund [
]
U.S. Government Select Money Market Fund [
]
Municipal Money Market Fund [
]
California Municipal Money Market Fund [
]
---------------------------------------------
Fund Fees and Expenses [
]
- ------------------------------------------------------ ---------------------------------------------------------
MANAGEMENT OF THE FUNDS Investment Adviser [
Details that apply to the Funds as a group. ]
---------------------------------------------
Advisory Fees [
]
---------------------------------------------
Fund Management and Other Services [
]
- ------------------------------------------------------ ---------------------------------------------------------
ABOUT YOUR ACCOUNT Purchasing and Selling Shares [
How to open, maintain and close an account. ]
o Purchasing Shares [
]
Opening an Account [
]
o Selling Shares [
]
---------------------------------------------
Account Policies and Other Information [
]
Calculating Share Price [
]
Timing of Purchase Requests [
]
o Social Security/Tax Identification
Number [
]
o In-Kind Purchases and Redemptions [
]
o Miscellaneous Purchase Information [
]
o Timing of Redemption and Exchange
Requests [
]
Payment of Redemption Proceeds [
]
o Miscellaneous Redemption Information [
]
o Exchange Privileges [
]
o Telephone Transactions [
]
Making Changes to Your Account
Information [
]
o Signature Guarantees [
]
o Business Day [
]
o Early Closings [
]
o Authorized Intermediaries [
]
o Service Organizations [
]
o Shareholder Communications [
]
---------------------------------------------
Dividends and Distributions [
]
---------------------------------------------
Tax Considerations [
]
---------------------------------------------
Tax Table [
]
- ------------------------------------------------------ ---------------------------------------------------------
RISKS, SECURITIES, TECHNIQUES AND FINANCIAL Risks, Securities and Techniques
INFORMATION o Additional Information on Principal
Investment Strategies and Related Risks [
]
o Additional Descriptions of Securities and
Common Investment Techniques [
]
---------------------------------------------------------
Financial Information
o Financial Highlights [
]
- ------------------------------------------------------ ---------------------------------------------------------
FOR MORE INFORMATION Annual/Semiannual Report
[ ]
---------------------------------------------
Statement of Additional Information
[ ]
- ------------------------------------------------------ ---------------------------------------------------------
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
Page 20
OVERVIEW
Introduction
Northern Funds (the "Trust") is a family of no-load mutual funds that offers a
selection of funds to investors, each with a distinct investment objective and
risk/reward profile.
The descriptions on the following pages may help you choose the Fund or Funds
that best fit your investment needs. Keep in mind, however, that no Fund can
guarantee it will meet its investment objective, and no Fund should be relied
upon as a complete investment program. This Prospectus describes the Trust's
six money market funds (the "Funds"). The Trust's twelve fixed income and
fourteen equity funds are described in separate Prospectuses.
The Funds seek to maintain a stable net asset value of $1.00 per share.
Consistent with this policy, each of the Funds:
Limits its dollar-weighted average portfolio maturity to 90 days or less; Buys
securities with remaining maturities of 397 days or less (except for certain
variable and floating rate instruments and securities collateralizing repurchase
agreements); and Invests only in U.S. dollar-denominated securities that
represent minimal credit risks.
In addition, each Fund 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 a Fund 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 ("Northern") under the direction of the Board of Trustees. After its
purchase, a portfolio security may be assigned a lower rating or cease to be
rated. If this occurs, a Fund may continue to hold the issue if the Investment
Adviser believes it is in the best interest of the Fund and its shareholders.
Securities in which the Funds 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, each Fund 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 California Municipal Money Market Fund may
invest up to 25% of its total assets in fewer than 5 issuers, and the other
Funds may invest up to 25% of their 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, securities subject to certain 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.
In addition to the instruments described on the pages below, each Fund 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" beginning on page [ ] of this Prospectus and the
Statement of Additional Information.
<PAGE>
Money Market Fund
Investment Objective
The Fund seeks to maximize current income to the extent consistent with the
preservation of capital and maintenance of liquidity by investing exclusively in
high-quality money market instruments.
Principal Investment Strategies and Risks
Investment Strategies. The Fund seeks its objective by investing in a broad
range of government, bank and commercial obligations that are available in the
money markets, including:
U.S. dollar-denominated obligations of U.S. banks with total assets in
excess of $1 billion (including obligations of foreign branches of such banks);
U.S. dollar-denominated obligations of foreign commercial banks where
such banks have total assets in excess of $5 billion;
High-quality commercial paper and other obligations issued or guaranteed
by U.S. and foreign corporations and other issuers;
Corporate bonds, notes, paper and other instruments that are of
high-quality;
Asset-backed securities;
Securities issued or guaranteed as to principal and interest by the U.S.
government or by its agencies or instrumentalities and custodial receipts with
respect thereto;
U.S. dollar-denominated securities issued or guaranteed by one or more
foreign governments or political subdivisions, agencies or instrumentalities;
Repurchase agreements relating to the above instruments; and
Municipal securities issued or guaranteed by state or local governmental
bodies.
Risks. These primary investment risks apply to the Fund: stable NAV, interest
rate, credit, prepayment, debt extension, counterparty failure and guarantor
risks. See page [ ] for these risks and other primary investment risks common to
all Funds.
<PAGE>
U.S. Government Money Market Fund
Investment Objective
The Fund seeks to maximize current income to the extent consistent with the
preservation of capital and maintenance of liquidity by investing exclusively in
high-quality money market instruments.
Principal Investment Strategies and Risks
Investment Strategies. The Fund seeks its objective by investing at least 65% of
its total assets in:
Securities issued or guaranteed as to principal and interest by
the U.S. government, its agencies or instrumentalities; and
Repurchase agreements relating to such securities.
Subject to the foregoing policy, the Fund may also invest up to 35% of its total
assets in custodial receipts (such as TIGRs and CATS) representing interests in
U.S. government securities. Risks. These primary investment risks apply
to the Fund: stable NAV, interest rate, prepayment (or call), debt extension,
U.S. government securities, guarantor (or credit enhancement), management and
liquidity risks. See page [ ] for these risks and other primary investment risks
common to all Funds.
<PAGE>
U.S. Government Select Money Market Fund
Investment Objective
The Fund seeks to maximize current income to the extent consistent with the
preservation of capital and maintenance of liquidity by investing exclusively in
high-quality money market instruments.
Principal Investment Strategies and Risks
Investment Strategies. The Fund seeks its objective by investing exclusively in
securities issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities. Under normal market conditions,
the Fund will seek to acquire only those U.S. government securities the interest
upon which is generally exempt from state income taxation. These securities
include obligations issued by the U.S. Treasury and certain U.S. government
agencies and instrumentalities, such as the Federal Home Loan Bank and the
Federal Farm Credit Bank Funding Corp.
When appropriate securities that are exempt from state taxes are unavailable,
the Fund may also invest in non-exempt U.S. government securities and cash
equivalents including money market funds and time deposits with a maturity of
three months or less, and may hold uninvested cash. Risks. These primary
investment risks apply to the Fund: stable NAV, interest rate, prepayment (or
call), debt extension, U.S. government securities, guarantor (or credit
enhancement), management and liquidity risks. See page [ ] for these risks and
other primary investment risks common to all Funds.
<PAGE>
Tax-Exempt Money Market Fund
Investment Objective
The Fund seeks to provide a high level of income exempt from regular Federal
income tax, to the extent consistent with the preservation of capital, by
investing primarily in municipal instruments.
Principal Investment Strategies and Risks
Investment Strategies. The Fund seeks to achieve its objective by investing
primarily in high-quality short-term municipal instruments, the interest on
which is exempt from regular Federal income tax ("municipal instruments"). The
high level of income sought by the Fund is relative to yields currently
available in the tax-exempt marketplace. Municipal instruments may include:
Fixed, variable and floating rate notes and bonds;
Asset-backed securities which are considered municipal instruments
(such as trust certificates backed by municipal bonds);
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 market conditions, at least 80% of the Fund's net assets will be
invested in municipal instruments. Interest earned by the Fund on 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, will not be deemed to have been derived from municipal instruments for the
purposes of determining whether the Fund meets this policy. For shareholders
subject to AMT, a limited portion of the Fund's dividends may be subject to
Federal tax.
During temporary defensive periods, however, all or any portion of the
Fund's assets may be held uninvested or invested in AMT obligations and taxable
instruments. Taxable investments will consist exclusively of those instruments
that may be purchased by the Money Market Fund. During temporary defensive
periods the Fund may not achieve its investment objective.
Risks. These primary investment risks apply to the Fund: stable NAV, interest
rate, credit (or default), prepayment (or call), debt extension, guarantor (or
credit enhancement), management, liquidity, project/industrial development bond
and tax risks. See page [ ] for these risks and primary investment risks common
to all Funds.
<PAGE>
Municipal Money Market Fund
Investment Objective
The Fund seeks to provide, to the extent consistent with the preservation of
capital and prescribed portfolio standards, a high level of income exempt from
regular Federal income tax by investing primarily in municipal instruments.
Principal Investment Strategies and Risks
Investment Strategies. The Fund seeks to achieve its objective by investing
primarily in high-quality short-term municipal instruments, the interest on
which is exempt from regular Federal income tax ("municipal instruments"). The
high level of income sought by the Fund is relative to yields currently
available in the tax-exempt marketplace. Municipal instruments may include:
Fixed, variable and floating rate notes and bonds;
Asset-backed securities which are considered municipal instruments
(such as trust certificates backed by municipal bonds);
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 Fund's net assets will be
invested in municipal instruments. During temporary defensive periods, however,
all or any portion of the Fund's assets may be held uninvested or invested in
taxable instruments. Taxable investments will consist exclusively of those
instruments that may be purchased by the Money Market Fund. During temporary
defensive periods the Fund may not achieve its investment objective.
The Fund 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 Fund's
dividends may be subject to Federal tax. Risks. These primary investment
risks apply to the Fund: stable NAV, interest rate, credit (or default),
prepayment (or call), debt extension, guarantor (or credit enhancement),
management, liquidity, project/industrial development bond and tax risks. See
page [ ] for these risks and other primary investment risks common to all
Funds.
<PAGE>
California Municipal Money Market Fund
Investment Objective
The Fund seeks to provide, to the extent consistent with the preservation of
capital and prescribed portfolio standards, a high level of income exempt from
regular Federal income tax and California state personal income tax.
Principal Investment Strategies and Risks
Investment Strategies. The Fund seeks to achieve its objective by investing
primarily in high-quality short-term instruments, the interest on which is
exempt from regular Federal income tax and California state personal income tax.
The high level of income sought by the Fund is relative to yields currently
available in the tax-exempt marketplace. These instruments may include:
Fixed, variable and floating rate notes and bonds;
Asset-backed securities which are considered municipal instruments
(such as trust certificates backed by municipal bonds);
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 Fund's net assets will be
invested in municipal instruments and at least 65% of the Fund's total assets
will be invested in instruments the interest on which is exempt from California
state personal income tax ("California municipal instruments"). During temporary
defensive periods, however, all or any portion of the Fund's assets may be held
uninvested or invested in taxable instruments. Taxable investments will consist
exclusively of those instruments that may be purchased by the Money Market Fund.
During temporary defensive periods the Fund may not achieve its investment
objective. The Fund 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 Fund's dividends may be subject to Federal tax.
The Fund is "non-diversified" under the Investment Company Act of 1940 (the
"1940 Act"), and may potentially invest, subject to SEC regulations, more of its
assets in fewer issuers than "diversified" mutual funds.
Risks. These primary investment risks apply to the Fund: stable NAV, interest
rate, credit (or default), prepayment (or call), debt extension, guarantor (or
credit enhancement), management, liquidity, California-specific,
project/industrial development bond, and tax and non-diversification risks. See
page [ ] for these risks and other primary investment risks common to all Funds.
<PAGE>
Principal Investment Risks
All investments carry some degree of risk which will affect the value of a
Fund's investments and its investment performance.
An investment in each of the Funds 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 Funds seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Funds.
The following summarizes the principal risks that apply to the Funds.
Risks that apply to all Funds
Stable NAV risk is the risk that a Fund 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, a Fund's yield (and the market value of its securities) will tend to
be lower than prevailing market rates; in periods of falling interest
rates, a Fund'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 a Fund may default on its obligation to pay interest and
repay principal. High quality and investment grade securities are generally
believed to have a relatively low degree of credit risk.
Prepayment (or call) risk is the risk that asset-backed securities may be
more rapidly repaid than their stated maturity date would indicate as a
result of the pass-through of prepayments of principal on the underlying
obligations. During periods of declining interest rates, prepayment of
obligations underlying asset-backed securities can be expected to
accelerate. Accordingly, a Fund's ability to maintain positions in such
securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally
prevailing interest rates at that time.
Debt extension risk is the risk that an issuer will exercise its right to
pay principal on an obligation held by a Fund (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 Fund will suffer from the inability to invest in higher
yielding securities.
U.S. government securities risk is the risk that the U.S. government will not
provide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
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 a Fund's investments in securities backed by
guarantees, letters of credit, insurance or other credit enhancements 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 a Fund 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.
Risks that apply primarily to the Municipal Money Market, Tax-Exempt Money
Market and California Municipal Money Market Funds
Project/Industrial development bond risk is the risk that a Fund may be
more sensitive to an adverse economic, business or political development if
it invests more than 25% of its assets in municipal instruments the
interest upon which is paid solely from revenues of similar projects, or in
industrial development bonds.
Tax risk is the risk that future legislative or administrative changes or
court decisions may materially affect the ability of a Fund to pay
tax-exempt dividends.
Risks that apply primarily to the California Municipal Money Market Fund
California-specific risk is the risk that a Fund that invests more than
25% of its assets in California municipal instruments will be more exposed
to negative political or economic factors in California than a Fund that
invests more widely. California's economy is largely composed of high
technology manufacturing and services, including computer software,
electronic manufacturing and motion picture/television production, and
other services, entertainment and tourism, and both residential and
commercial construction. The exposure to these industries leaves California
vulnerable to an economic slowdown associated with business cycles.
Furthermore, the state budget continues to be under stress from mandated
spending on education and the social needs of a growing population. From
time to time California and its political subdivisions have encountered
financial difficulties.
Non-diversification risk is the risk that a non-diversified Fund may be
more susceptible to adverse financial, economic or other developments
affecting any single issuer, and more susceptible to greater losses because
of these developments.
More information about the risks of investing in the Funds is provided in
"Risks, Securities and Techniques" beginning on page [ ] of this Prospectus. You
should carefully consider the risks discussed in this section and "Risks,
Securities and Techniques" before investing in a Fund.
<PAGE>
Fund Performance
The bar charts and tables that follow provide an indication of the risks of
investing in a Fund by showing changes in the performance of a Fund from year to
year.
The bar charts and tables assume reinvestment of dividends and distributions. A
Fund's past performance is not necessarily an indication of how the Fund will
perform in the future. Performance reflects expense limitations that were in
effect during the periods presented.
If expense limitations were not in place, a Fund's performance would have been
reduced. The bar chart and performance table have been omitted for the
Tax-Exempt Money Market Fund because the Fund had not commenced operations as of
the date of this Prospectus.
<PAGE>
MONEY MARKET FUND
[Bar Chart]
Calendar Year Total Return
1995: 5.71%
1996: 5.08%
1997: 5.25%
1998: 5.19%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] `[ ] [ ]%
Worst Quarter Return: Q[ ] `[ ] [ ]%
Average Annual Total Return (for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1-Year 5-Year Since Inception
Money Market Fund (Inception 4/11/94)
[ ]% [ ]% [ ]%
- ---------------------------------------------------------------------------------
</TABLE>
The 7-day yield for the Fund as of December 31, 1999: [ ]%. You may call
1-800-595-9111 to obtain the current 7-day yield.
<PAGE>
U.S. GOVERNMENT MONEY MARKET FUND
[Bar Chart]
Calendar Year Total Return
1995: 5.62%
1996: 4.96%
1997: 5.14%
1998: 5.11%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] `[ ] [ ]%
Worst Quarter Return: Q[ ] `[ ] [ ]%
Average Annual Total Return (for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1-Year 5-Year Since Inception
U.S. Government Money
Market Fund (Inception 4/11/94) [ ]% [ ]% [ ]%
- -------------------------------------------------------------------------
</TABLE>
The 7-day yield for the Fund as of December 31, 1999: [ ]%. You may call
1-800-595-9111 to obtain the current 7-day yield.
<PAGE>
U.S. GOVERNMENT SELECT MONEY MARKET FUND
[Bar Chart]
Calendar Year Total Return
1995: 5.75%
1996: 5.09%
1997: 5.21%
1998: 5.03%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] `[ ] [ ]%
Worst Quarter Return: Q[ ] `[ ] [ ]%
Average Annual Total Return (for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1-Year 5-Year Since Inception
U.S. Government Select Money
Market Fund (Inception 12/12/94) [ ]% [ ]% [ ]%
</TABLE>
The 7-day yield for the Fund as of December 31, 1999: [ ]%. You may call
1-800-595-9111 to obtain the current 7-day yield.
<PAGE>
MUNICIPAL MONEY MARKET FUND
[Bar Chart]
Calendar Year Total Return
1995: 3.64%
1996: 3.18%
1997: 3.27%
1998: 3.09%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] `[ ] [ ]%
Worst Quarter Return: Q[ ] `[ ] [ ]%
Average Annual Total Return (for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1-Year 5-Year Since Inception
Municipal Money Market Fund (Inception
4/11/94) [ ]% [ ]% [ ]%
</TABLE>
The 7-day yield for the Fund as of December 31, 1999: [ ]%. You may call
1-800-595-9111 to obtain the current 7-day yield.
<PAGE>
CALIFORNIA MUNICIPAL MONEY MARKET FUND
[Bar Chart]
Calendar Year Total Return
1995: 3.77%
1996: 3.20%
1997: 3.28%
1998: 2.85%
1999:[ ]%
Year to date total return for the three months ended March 31, 2000: [ ]%
Best and Worst Quarterly Performance:
(for the periods ended December 31, 1999)
Best Quarter Return: Q[ ] `[ ] [ ]%
Worst Quarter Return: Q[ ] `[ ] [ ]%
Average Annual Total Return (for the periods ended December 31, 1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1-Year 5-Year Since Inception
California Municipal Money Market Fund
(Inception 11/29/94) [ ]% [ ]% [ ]%
</TABLE>
The 7-day yield for the Fund as of December 31, 1999: [ ]%. You may call
1-800-595-9111 to obtain the current 7-day yield.
<PAGE>
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds. Please note that the following information does not reflect
any charges which may be imposed by Northern, its affiliates, correspondent
banks and other institutions on their customers. For more information, please
see "Account Policies and Other Information" on page [ ].
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
Fund Sales charge Deferred Sales Charge Redemption Exchange
(Load) Sales Charge (Load) Imposed Fees (1) Fees
Imposed On (Load) On Reinvested
Purchases Distributions
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
Money Market None None None None None
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
U.S. Government Money Market None None None None None
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
U.S. Government Select Money Market None None None None None
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
Tax-Exempt Money Market(4) None None None None None
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
Municipal Money Market None None None None None
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
- ---------------------------------------- --------------- --------------- ---------------- --------------- -----------
California Municipal Money Market None None None None None
1A fee of $15.00 may be applicable for each wire redemption.
2During the last fiscal year the Funds did not pay any 12b-1 fees. The Funds do
not expect to pay any 12b-1 fees during the current fiscal year. The maximum
distribution fee is 0.25% of each Fund's average net assets under the Trust's
Distribution and Service Plan.
3These expenses include custodian, transfer agency and co-administration
expenses, proxy costs, if any, as well as other customary Fund Expenses. The
co-administrators are entitled to a co-administration fee of 0.15%, of which
0.09% is currently being waived voluntarily.
</TABLE>
<PAGE>
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
- ---------------------------------------------------------------------- -------
- ------------------- ----------------- ------------- ------------------ ------
Management Fees Distribution Other Total Annual
(12b-1) Fees(2) Expenses(3) Fund Operating
Expenses(5)
- ------------------- ----------------- ------------- ------------------ ------
- ------------------- ----------------- ------------- ------------------ -------
0.60% 0.00% 0.29% 0.89%
- ------------------- ----------------- ------------- ------------------ ------
- ------------------- ----------------- ------------- ------------------ -------
0.60% 0.00% 0.31% 0.91%
- ------------------- ----------------- ------------- ------------------ ------
- ------------------- ----------------- ------------- ------------------ -------
0.60% 0.00% 0.31% 0.91%
- ------------------- ----------------- ------------- ------------------ -----
- ------------------- ----------------- ------------- ------------------ -------
0.60% 0.00% 0.32% 0.92%
- ------------------- ----------------- ------------- ------------------ --------
- ------------------- ----------------- ------------- ------------------ -------
0.60% 0.00% 0.29% 0.89%
- ------------------- ----------------- ------------- ------------------ -----
- ------------------- ----------------- ------------- ------------------ -----
0.60% 0.00% 0.31% 0.91%
4Since the Tax-Exempt Money Market Fund had not commenced operations as of the
date of this Prospectus, "Other Expenses" is based on estimated amounts the
Fund expects to pay during the current fiscal year.
5As a result of voluntary fee reductions, waivers and reimbursements,
"Management Fees," "Other Expenses" and "Total Fund Operating Expenses" which
are actually incurred by the Funds are set forth below. The voluntary fee
reductions, waivers and reimbursements may be modified or terminated at any
time at the option of the Investment Adviser. If this occurs, "Management
Fees," "Other Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fund Management Distribution Other Total Annual Fund
Fees (12b-1) Fees Expenses Operating Expenses
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
Money Market 0.40% 0.00% 0.15% 0.55%
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
U.S. Government Money Market 0.40% 0.00% 0.15% 0.55%
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
U.S. Government Select Money Market 0.40% 0.00% 0.15% 0.55%
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
Tax-Exempt Money Market 0.40% 0.00% 0.15% 0.55%
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
Municipal Money Market 0.40% 0.00% 0.15% 0.55%
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
California Municipal Money Market 0.40% 0.00% 0.15% 0.55%
- ------------------------------------------------- --------------- ----------------- ------------- -------------------
</TABLE>
<PAGE>
Page 21
Example
The following Example is intended to help you compare the cost of investing in a
Fund (without fee waivers and expense reimbursements) with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in a Fund 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 a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------- ------------ ---------- ---------- -----------
Fund One Year 3 Years 5 Years 10 Years
- ------------------------------------------- ------------ ---------- ---------- -----------
- ------------------------------------------- ------------ ---------- ---------- -----------
Money Market $ 91 $284 $493 $1,096
- ------------------------------------------- ------------ ---------- ---------- -----------
- ------------------------------------------- ------------ ---------- ---------- -----------
U.S. Government Money Market $ 93 $290 $504 $1,120
- ------------------------------------------- ------------ ---------- ---------- -----------
- ------------------------------------------- ------------ ---------- ---------- -----------
U.S. Government Select Money Market $ 93 $290 $504 $1,120
- ------------------------------------------- ------------ ---------- ---------- -----------
- ------------------------------------------- ------------ ---------- ---------- -----------
Tax-Exempt Money Market $ 94 $295 N/A N/A
- ------------------------------------------- ------------ ---------- ---------- -----------
- ------------------------------------------- ------------ ---------- ---------- -----------
Municipal Money Market $ 91 $284 $493 $1,096
- ------------------------------------------- ------------ ---------- ---------- -----------
- ------------------------------------------- ------------ ---------- ---------- -----------
California Municipal Money Market $ 93 $290 $504 $1,120
- ------------------------------------------- ------------ ---------- ---------- -----------
</TABLE>
<PAGE>
Page 34
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 Funds. 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 March 31, 2000, Northern Trust
Corporation and its subsidiaries had approximately $33.2 billion in assets,
$21.5 billion in deposits and employed over 8,700 persons.
Northern has for more than 100 years managed the assets of individuals,
charitable organizations, foundations and large corporate investors. Northern
and its affiliates administered in various capacities (including as master
trustee, investment manager or custodian) approximately $1.6 trillion of assets
as of March 31, 2000, including approximately $323.1 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 Funds 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 annual rates set forth in the table below (expressed as
a percentage of each Fund's respective average daily net assets). The table also
reflects the advisory fees (after voluntary fee waivers) paid by the Funds,
other than the Tax-Exempt Money Market Fund, for the fiscal year ended March 31,
2000.
Advisory Fee
Contractual Paid
Fund Rate for Fiscal Year
Ended 3/31/00
Money Market 0.60% 0.40%
U.S. Government Money Market 0.60% 0.40%
U.S. Government Select Money Market 0.60% 0.40%
Tax-Exempt Money Market 0.60% N/A
Municipal Money Market 0.60% 0.40%
California Municipal Money Market 0.60% 0.40%
The difference between the contractual advisory fees and the actual advisory
fees paid by the Funds reflects that the Investment Adviser did not charge the
full amount of the advisory fees to which it was entitled. The Investment
Adviser may discontinue or modify its voluntary limitations in the future at its
discretion.
Other Services
Northern also serves as transfer agent ("Transfer Agent") and custodian for each
Fund. 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 PFPC Inc. ("PFPC") act as
co-administrators for the Trust. The fees that Northern and PFPC receive for
their co-administrative services are described on page [ ] under "Fund Fees and
Expenses."
<PAGE>
ABOUT YOUR ACCOUNT
PURCHASING AND SELLING SHARES
PURCHASING SHARES
You may purchase shares directly from the Trust or, if you maintain certain
accounts, through Northern and certain other institutions. If you have any
questions or need assistance in opening an investment account or purchasing
shares, call (800) 595-9111.
As of the date of this Prospectus, shares of the Tax-Exempt Money Market Fund
are not being offered. Please call (800) 595-9111 before investing to determine
availability.
OPENING AN ACCOUNT
Directly from the Funds. You may open a shareholder account and purchase shares
directly from the Funds with a minimum initial investment per Fund of $2,500
($500 for an IRA; $250 under the Automatic Investment Plan; and $500 for
employees of Northern and its affiliates). The minimum subsequent investment is
$50 (except for reinvestments of distributions for which there is no minimum).
The Funds reserve the right to waive these minimums.
For your convenience, there are a number of ways to invest directly in the
Funds:
By Mail.
Read this Prospectus carefully Complete and sign the Purchase
Application Enclose a check or money order payable to Northern
Funds If you are investing on behalf of a corporation or other
entity,
your Purchase Application must be accompanied by a certified
corporate resolution (or other acceptable evidence of authority).
Mail your check, corporate resolution (if needed) and completed
Purchase Application to:
Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
For overnight delivery use the following address:
801 South Canal Street
Chicago, Illinois 60607
Attn: Northern Funds
For subsequent investments:
- Enclose your check with the return remittance portion of the
confirmation of your previous investment; or - Indicate on
your check or a separate piece of paper your name, address and
account number
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 Wire
To open a new account: Call (800) 595-9111 for instructions
Complete a Purchase Application and send it to:
Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
To add to an existing account: Have your bank wire Federal funds
to:
The Northern Trust Company
Chicago, Illinois
ABA Routing No. 0710-00152
(Reference 10 Digit Fund Account No.)
(Reference Shareholder's Name)
By Direct Deposit
To purchase additional shares:
Determine if your employer has direct deposit capabilities
through the Automated Clearing House ("ACH") Have your
employer send payments to:
ABA Routing No. 0710-00152
(Reference 10 Digit Fund Account No.)
(Reference Shareholder's Name)
The minimum periodic investment for direct deposit is $50
By Automatic Investment To open a new account: Complete a Purchase Application,
including the Automatic Investment section Send it to: Northern Funds P.O. Box
75986 Chicago, IL 60675-5986 The minimum initial investment is $250; $50 for
monthly minimum additions To add to an account: Call (800) 595-9111 to obtain an
Automatic Investment Plan Application The minimum for automatic investment
additions is $50
If you discontinue participation in the plan, the Funds reserve the right to
redeem the investor's account involuntarily, upon 30 days written notice, if the
account's net asset value is $1,000 or less. Involuntary redemptions will not be
made if the value of shares in an account falls below the minimum amount solely
because of a decline in the Fund's net asset value.
By Directed Reinvestment
You may elect to have your income dividends and capital gains
distributions automatically invested in another Northern
Fund. Complete the Distribution Options section on the
Purchase Application Reinvestments can only be directed to an
existing Trust account (which must meet the minimum
investment requirement)
By Exchange
You may open a new account or add to an existing account by exchanging
shares of one Fund for shares of any other Fund offered by the Trust.
See "Selling Shares - By Exchange" on page [ ].
Through Northern and Other Institutions
If you have an account with Northern, you may purchase Trust shares through
Northern. You may also purchase shares through other institutions (together with
Northern, "Service Organizations") that have entered into agreements with the
Trust. To determine whether you may purchase shares through your institution,
contact your institution directly or call (800) 595-9111. Northern or another
Service Organization may impose charges against your account which will reduce
the net return on an investment in a Fund. These charges may include asset
allocation fees, account maintenance fees, sweep fees, compensating balance
requirements or other charges based upon account transactions, assets or income.
By Internet
You may initiate transactions between Northern banking and Trust
accounts by using Northern Trust Private Passport. For details and to
sign up for this service, go to www.northerntrust.com/privatepassport
or contact your relationship manager.
<PAGE>
SELLING SHARES
Redeeming and Exchanging Directly from the Funds
If you purchased Northern Funds directly or, if you purchased your shares
through an account at Northern or another Service Organization and you appear on
Trust records as the registered holder, you may redeem all or part of your
shares using one of the methods described below.
By Mail
Send a written request to:
Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
The redemption request must include:
The number of shares or the dollar amount to be redeemed The
Fund account number A signature guarantee is also required
if:
- The proceeds are to be sent elsewhere than the address of
record, or - The redemption amount is greater than $50,000
By Wire
If you authorize wire redemptions on your Purchase Application, you can
redeem shares and have the proceeds sent by Federal wire transfer to a
previously designated account.
You will be charged $15 for each wire redemption unless the
designated account is maintained at Northern or an affiliated
bank Call the Transfer Agent at (800) 595-9111 for instructions
The minimum amount that may be redeemed by this method is $250
By Check If you authorize the checkwriting privilege on your Purchase
Application, you may redeem shares of the Funds by check in amounts of $250 or
more. If your account is already open: Call (800) 595-9111 for the appropriate
form The application must be signed by each person whose name appears on the
account and must be accompanied by a signature guarantee Dividends are earned
until the check clears the Transfer Agent Checks you write will not be returned
to you, although copies are available upon request A fee of $20 will be charged
to the account if there are insufficient funds to cover the amount of your
redemption by check To place a stop payment request, call (800) 595-9111. A $20
fee will be charged to the account You may not use checks to close an account or
redeem shares purchased within the past fifteen days
By Systematic Withdrawal If you own shares of a Fund with a minimum value of
$10,000, you may elect to have a fixed sum redeemed at regular intervals and
distributed in cash or reinvested in one or more other Northern Funds. Call
(800) 595-9111 for an application form and additional information The minimum
amount is $250 per withdrawal
By Exchange
The Trust offers you the ability to exchange shares of one Northern Fund
for another Fund in the Northern Funds family.
When opening an account, complete the Exchange Privilege
section of the Purchase Application or, if your account is already opened, send
a
written request to:
Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
Shares being exchanged must have a value of at least $1,000
($2,500 if a new account is being established by the
exchange) Call (800) 595-9111 for more information
By Telephone
If you authorize the telephone privilege on your Purchase
Application, you may redeem Trust shares by phone. If your
account is already opened, send a written request to:
Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
The request must be signed by each owner of the account and must
be accompanied by signature guarantees Call (800) 595-9111 to use
the telephone privilege During periods of unusual economic or
market activity, telephone
redemptions may be difficult to implement. In such event,
shareholders should follow the procedures outlined on page [ ]
under "Selling Shares -- By Mail"
By Internet
You may initiate transactions between Northern banking and Trust accounts
by using Northern Trust Private Passport. For details and to sign up for
this service, go to www.northerntrust.com/privatepassport or contact your
relationship manager.
Redeeming and Exchanging Through Northern and Other Institutions
If you purchased your Trust shares through an account at Northern or another
Service Organization, you may redeem or exchange your shares according to the
instructions pertaining to that account.
Although the Trust imposes no charges when you redeem, when
shares are purchased through Northern or another Service
Organization, a fee may be charged by those institutions for
providing services in connection with your account
Contact your account representative at Northern or other Service
Organization for more information about redemptions or exchanges
Account Policies and Other Information
Calculating Share Price. The Trust issues shares and redeems shares at net asset
value ("NAV"). The NAV for each Fund is calculated by dividing the value of the
Fund's net assets by the number of the Fund's outstanding shares. The NAV is
calculated on each Business Day as of 1:00 p.m., Chicago time, for each Fund.
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.
The Funds seek to maintain an NAV of $1.00 per share by valuing the obligations
held by the Funds 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, at that day's closing share price provided that either:
The order is in proper form as described under "Purchasing and
Selling Shares" and payment in immediately available funds has
been received by the Transfer Agent;
The order is placed by Northern or a Service Organization and
payment in Federal or other immediately available funds is to be
made by the close of the same Business Day; or
The order is accepted by an authorized intermediary and payment
in Federal or other immediately available funds is to be made by
the close of the same Business Day in accordance with procedures
acceptable to the Trust.
Orders received by the Transfer Agent that are accompanied by payment in any
form other than immediately available funds will not be executed until payment
is converted to Federal funds, which normally occurs within two Business Days
after receipt.
Social Security/Tax Identification Number. Federal regulations require you to
provide a Social Security or other certified taxpayer identification number when
you open or reopen an account. Purchase Applications 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, the number must be provided and certified within 60 days
of the date of the Purchase Application.
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 a Fund. The Trust also reserves the right to pay redemptions by a
distribution "in-kind" of securities (instead of cash) from a Fund. See the
Statement of Additional Information for further information about the terms of
these purchases and redemptions.
Miscellaneous Purchase Information.
|X| You will be responsible for all losses and expenses of a Fund 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 Funds and Northern against loss. In addition, a $20 charge will
be imposed if a check does not clear.
You may initiate transactions between Northern banking and Trust accounts
by using Northern Trust Private Passport. For additional details, please
visit our website at www.northerntrust.com/privatepassport or contact your
relationship manager.
The Trust reserves the right to reject any purchase order. The Funds also
reserve the right to change or discontinue any of their purchase procedures.
In certain circumstances, The Trust may advance the time by which purchase
orders must be received. See "Early Closings" on page [ ].
The Trust may reproduce this Prospectus in an electronic format which may
be available on the Internet. If you have received this Prospectus in its
electronic format you, or your representative, may contact the Transfer
Agent for a free paper copy of this Prospectus by writing to the Northern
Funds, P.O. Box 75986, Chicago, IL 60675-5986, calling (800) 595-9111 or
sending an e-mail to: [email protected].
Timing of Redemption and Exchange Requests. Redemption and exchange requests
received in good order by the Transfer Agent or other authorized intermediary on
a Business Day by 1:00 p.m., Chicago time, will be executed on the same day. The
redemption or exchange will be effected at that day's closing share price.
Good order means that the request must include the following information:
The account number and Fund name The amount of the transaction, in dollar amount
or number of shares The signature of all account owners exactly as they are
registered on the account (except for online, telephone and wire redemptions)
Required signature guarantees, if applicable Other supporting legal documents
that might be required in the case of estates, corporations, trusts and certain
other accounts. Call (800) 595-9111 for more information about documentation
that may be required of these entities
In certain circumstances, the Trust may advance the time by which redemption and
exchange orders must be received. See "Early Closings" on page [ ].
Payment of Redemption Proceeds. If a redemption request is received by the
Transfer Agent in good order by 1:00 p.m., Chicago time, on a Business Day, the
proceeds will normally be sent on the next Business Day, unless payment in
immediately available funds on the same Business Day is requested. Proceeds for
redemption orders received on a non-Business Day will normally be sent on the
second Business Day after receipt in good order. However, if any portion of the
shares to be redeemed represents an investment made by check, the Funds may
delay the payment of the redemption proceeds until the check has cleared and
collected. This may take up to fifteen days from the purchase date.
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 Purchase Application.
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
Fund 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, on 60 days' written notice, to redeem the
shares held in any account if, at the time of redemption, the net asset
value of the remaining shares in the account falls below $1,000.
Involuntary redemptions will not be made if the value of shares in an
account falls below the minimum solely because of a decline in a Fund's net
asset value.
You may initiate transactions between Northern banking and Trust accounts
by using Northern Trust Private Passport. For additional details, please
visit our web site at www.northerntrust.com/privatepassport or contact your
relationship manager.
The Trust reserves the right to change or discontinue any of its
redemption procedures.
The Trust reserves the right to defer crediting, sending or wiring
redemption proceeds for up to seven days (or such longer period permitted
by the SEC) after receiving the redemption order if, in its judgment, an
earlier payment could adversely affect a Fund.
Exchange Privileges. You may exchange shares of one Northern Fund for another
only if the registration of both accounts is identical. An exchange is a
redemption of shares of one Fund and the purchase of shares of another Fund. It
is considered a taxable event and may result in a gain or loss. The Trust
reserves the right, at any time without prior notice to suspend, limit or
terminate the exchange privilege of any shareholder who makes more than eight
exchanges of shares in a year and/or two exchanges of shares in a calendar
quarter. The Trust may also modify or terminate the exchange privilege with
respect to any or all shareholders, and may 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 are 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 signature guarantee from an
institution participating in the Stock Transfer Agency Medallion Program
("STAMP"), or other acceptable evidence of authority. Additional requirements
may be imposed. In accordance with SEC regulations, the Funds and Transfer Agent
may charge a shareholder reasonable costs in locating a shareholder's current
address.
Signature Guarantees. If a signature guarantee is required, it must be from an
institution participating in STAMP, or other acceptable evidence of authority
must be provided. Additional requirements may be imposed by Northern Funds. In
addition to the situations described in this Prospectus, the Trust may require
signature guarantees in other circumstances based on the amount of a redemption
request or other factors. Business Day. A "Business Day" is each Monday
through Friday when Northern or the New York Stock Exchange (the "Exchange") is
open for business. In 2000 the Funds will be closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas Day. Early
Closings. The Trust reserve 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. They also reserve 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 Funds. These financial intermediaries may also designate other
intermediaries to accept such orders, if approved by the Funds. Authorized
intermediaries are responsible for transmitting orders and delivering funds on a
timely basis. A Fund 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 Fund's per share NAV next determined.
Service Organizations. The Trust may enter into agreements with Service
Organizations such as banks, corporations, broker/dealers and other financial
institutions, including Northern, concerning the provision of support and/or
distribution services to their customers who own Fund shares. These services may
include:
support services such as assisting investors in processing purchase, exchange
and redemption requests;
processing dividend and distribution payments from the Funds;
providing information to customers showing their positions in the Funds; and
providing subaccounting with respect to Fund shares beneficially owned by
customers or the information necessary for subaccounting.
In addition, Service Organizations may provide assistance, such as the
forwarding of sales literature and advertising to their customers, in connection
with the distribution of Fund shares.
For their services, Service Organizations may receive fees from a Fund at annual
rates of up to 0.25% of the average daily net asset value of the shares covered
by their agreements. Because these fees are paid out of the Funds' assets on an
on-going basis, they will increase the cost of your investment in the Funds. In
addition, 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 a Fund'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.
Service Organizations may also charge their customers fees for providing
administrative services in connection with investments in a Fund. Investors
should contact their Service Organizations with respect to these fees and the
particular Service Organization's procedures for purchasing and redeeming
shares. It is the responsibility of Service Organizations to transmit purchase
and redemption orders and record those orders on a timely basis in accordance
with their agreements with their customers.
Conflict-of-interest restrictions may apply to the receipt of compensation paid
by Northern Funds in connection with the investment of fiduciary funds in Fund
shares. Institutions, including banks regulated by the Comptroller of the
Currency, Federal Reserve Board 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 their
legal counsel before entering into agreements with the Trust.
State securities laws regarding the registration of dealers may differ from
Federal law. As a result, Service Organizations investing in the Funds on behalf
of their customers may be required to register as dealers.
Agreements that contemplate the provision of distribution services by Service
Organizations are governed by a Distribution and Service Plan (the "Plan") that
has been adopted by Northern Funds pursuant to Rule 12b-1 under the 1940 Act.
Payments to Service Organizations, including Northern, under the Plan are not
tied directly to their own out-of-pocket expenses and therefore may be used as
they elect (for example, to defray their overhead expenses), and may exceed
their direct and indirect costs.
Shareholder Communications. Shareholders of record will be provided each year
with a semiannual report showing portfolio investments and other information as
of September 30 and, after the close of the Funds' fiscal year on March 31, with
an annual report containing audited financial statements. If you have consented
to the delivery of a single copy of the shareholder reports, prospectuses or (if
and when permitted by law) proxy or information statements to all shareholders
who share the same mailing address with your account, you may revoke your
consent at any time by contacting the Northern Funds Center by phone at (800)
595-9111 or by mail at Northern Funds, P.O. Box 75986, Chicago, IL 60675-5986.
You may also send an e-mail to [email protected]. The Funds will begin
sending individual copies to you within 30 days after receipt of your
revocation.
Dividends and Distributions
Dividends and capital gain distributions of each Fund are automatically
reinvested in additional shares of the same Fund 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 shares of another Northern Fund at their net
asset value per share. If you would like to receive dividends or distributions
in cash or have them reinvested in another Northern Fund, you must notify the
Transfer Agent in writing. This election will become effective for distributions
paid two days after its receipt by the Transfer Agent. Dividends and
distributions may only be reinvested in a Northern Fund in which you maintain an
account.
Each Fund's net investment income is declared as a dividend on each Business Day
and paid monthly. Dividends will also be paid promptly upon a total redemption
of shares in an account not subject to a standing order for the purchase of
additional shares. Net investment income includes interest accrued on the Fund's
assets less the Fund's estimated expenses. Net realized short-term capital gains
may be distributed from time to time during the Trust's fiscal year (but not
less frequently than annually). The Funds do not expect to realize net long-term
capital gains. Shares begin earning dividends on the day an order is executed if
payment in immediately available funds is received by the Trust by the time
designated on page [ ] under "Purchasing Shares." Otherwise, shares begin
earning dividends on the day payment in Federal or other immediately available
funds is received.
Tax Considerations
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (excess of long-term
capital gain over short-term capital loss). Fund distributions will generally be
taxable as ordinary income, except as discussed below. You will be subject to
income tax on Fund distributions regardless of whether they are paid in cash or
reinvested in additional shares. You will be notified annually of the tax status
of distributions to you. The one major exception to these tax principles is that
distributions on shares held in an IRA (or other tax-qualified plan) will not be
currently taxable.
If you (a) have provided either an incorrect Social Security Number or Taxpayer
Identification Number or no number at all, (b) are subject to withholding by the
Internal Revenue Service for prior failure to properly include on your return
payments of interest or dividends, or (c) have failed to certify to the Trust,
when required to do so, that you are not subject to backup withholding or are an
"exempt recipient," then the Trust will be required in certain cases to withhold
and remit to the U.S. Treasury 31% of the dividends and distributions payable to
you.
There are certain tax requirements that the Funds must follow in order to avoid
Federal taxation. In their efforts to adhere to these requirements, the Funds
may have to limit their investment activity in some types of instruments.
Municipal Money Market, Tax-Exempt Money Market and California Municipal Money
Market Funds. The Municipal Money Market and California Municipal Money Market
Funds (the "Municipal Funds") and the Tax-Exempt Money Market Fund expect to pay
"exempt-interest dividends" that are generally exempt from regular Federal
income tax. However, a portion of the exempt-interest dividends paid by the
Tax-Exempt Money Market Fund may be, and a portion of the dividends paid by the
Municipal Funds generally 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.
Except as stated below, you may be subject to state and local taxes on Fund
distributions and redemptions. State income taxes may not apply, however, to the
portions of each Fund'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.
The California Municipal Money Market Fund expects to pay dividends that are
generally exempt from California personal income tax. This exemption will apply,
however, only to dividends that are derived from interest paid on California
municipal instruments, or on certain Federal obligations. In addition, dividends
paid by this Fund will be subject to state franchise and corporate income taxes,
if applicable.
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.
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
Municipal Funds or the Tax-Exempt Money Market Fund generally will not be
deductible for Federal income tax purposes.
Consult Your Tax Professional. Your investment in the Funds could have
additional tax consequences. You should consult your tax professional for
information regarding all tax consequences applicable to your investments in the
Funds. More tax information is provided in the Statement of Additional
Information. This short summary is not intended as a substitute for careful tax
planning.
Tax Table
You may find it particularly useful to compare the tax-free yields of
the Municipal Funds to the equivalent yields from taxable investments. For an
investor in a low tax bracket, it may not be helpful to invest in a tax-exempt
investment if a higher after-tax yield can be achieved from a taxable
instrument.
The table below illustrates the difference between hypothetical
tax-free yields and tax-equivalent yields for different tax brackets. You should
be aware, however, that tax brackets can change over time and that your tax
adviser should be consulted for specific yield calculations.
<PAGE>
- ------------------------------------------- ----------- --------- ---------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal
Marginal
Taxable Income Tax Rate
- ------------------------------------------- -----------
- ------------------------------------------- -----------
Tax-Exempt Yields
2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%
- ------------------------------------------- ----------- -------- ----------------------------------------- --------- ---------
- ---------------------- -------------------- ----------- ----------------------------------------------------------------------
Single Return Joint Return Equivalent Taxable Yields
- ---------------------- -------------------- ----------- ----------------------------------------------------------------------
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
$ 0 - $ $ 0 - $ 15% 2.35% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41%
25,750 43,050
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
$ 25,751 - $ 62,450 $ 43,051 - $104,050 28% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11%
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
$ 62,451 - $130,250 $104,051 - $158,550 31% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59%
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
$130,251 - $283,150 $158,551 - $283,150 36% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50%
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
Over $283,151 Over $283,151 39.8% 3.31% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25%
- ---------------------- -------------------- ----------- -------- --------- --------- --------- ---------- --------- ----------
The tax-exempt yields used here are hypothetical and no assurance can be made
that the Funds will attain any particular yield. A Fund's yield fluctuates as
market conditions change. The tax brackets and related yield calculations are
based on the 2000 Federal marginal tax rates indicated in the table. The table
does not reflect the phase out of personal exemptions and itemized deductions
which will apply to certain higher income taxpayers. In addition, the brackets
do not take into consideration the California state personal income tax or any
other state tax.
</TABLE>
<PAGE>
RISKS, SECURITIES,
TECHNIQUES AND FINANCIAL INFORMATION
Risks, Securities and Techniques
ADDITIONAL INFORMATION ON FUND STRATEGIES, RISKS,
SECURITIES AND TECHNIQUES
This section takes a closer look at some of the Funds' principal investment
strategies and related risks. It also explores the various investment securities
and techniques that the investment management team may use. The Funds 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 a
Fund'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 a Fund having an investment objective
different from the objective which the shareholder considered appropriate at the
time of investment in the Fund.
ADDITIONAL INFORMATION ON PRINCIPAL INVESTMENT
STRATEGIES AND RELATED RISKS
California Municipal Instruments. The investments of the California Municipal
Money Market Fund in California municipal instruments raise special
considerations. Payment of the interest on and the principal of these
instruments is dependent upon the continuing ability of issuers of California
municipal instruments to meet their obligations.
Investment strategy. Under normal market conditions, at least 65% of
the value of the California Municipal Money Market Fund's total assets
will be invested in California municipal instruments. Consequently, the
Fund is more susceptible to factors adversely affecting issuers of
California municipal instruments, and may be riskier than comparable
funds that do not emphasize these issuers to this degree.
Special Risks. The California Municipal Money Market Fund's investments
will be affected by political and economic developments within the
State of California (the "State"), and by the financial condition of
the State, its public authorities and political subdivisions. After
suffering a severe recession in the early 1990's which caused the State
to experience financial difficulties, California's economy entered a
sustained recovery since late 1993 and the State's budget has been
returned to a positive balance. California's long-term credit rating
has been raised after being reduced during the recession. To respond to
its own revenue shortfalls during the recession, the State reduced
assistance to its public authorities and political subdivisions.
Cutbacks in state aid could further adversely affect the financial
condition of cities, counties and education districts which are subject
to their own fiscal constraints. California voters in the past have
passed amendments to the California Constitution and other measures
that limit the taxing and spending authority of California governmental
entities, and future voter initiatives could result in adverse
consequences affecting California municipal instruments. Also, the
ultimate fiscal effect of Federally-mandated reform of welfare programs
on the State and its local governments is still to be resolved. These
factors, among others (including the outcome of related pending
litigation), could reduce the credit standing of certain issuers of
California municipal instruments.
In addition to the risk of nonpayment of California municipal
instruments, if these obligations decline in quality and are downgraded
by a Nationally Recognized Statistical Rating Organization, they may
become ineligible for purchase by the Fund. Since there are large
numbers of buyers of these instruments, the supply of California
municipal instruments that are eligible for purchase by the California
Municipal Money Market Fund could become inadequate at certain times.
A more detailed description of special factors affecting investments in
California municipal instruments is provided in the Statement of Additional
Information.
Foreign Investments. The Money Market Fund may invest in the U.S.
dollar-denominated obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities, foreign commercial banks and foreign branches of U.S. banks.
It may also invest in U.S. dollar-denominated commercial paper and other
obligations of foreign issuers.
Investment strategy. Investments by the Money Market Fund in foreign issuer
obligations will not exceed 50% of the Fund's total assets measured at the time
of purchase.
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.
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
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, 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 DESCRIPTIONS 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. Asset-backed securities represent participations in, or are secured
by and payable from, pools of assets such as mortgages, motor vehicle
installment sale contracts, installment loan contracts, leases of various types
of real and personal property, receivables from revolving credit (credit card)
agreements, municipal securities 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 Money Market Fund, Tax-Exempt Money Market
Fund, Municipal Money Market Fund and California Municipal Money Market
Fund may purchase various types of asset-backed securities that are
"Eligible Securities" as defined by the SEC. The U.S. Government Money
Market Fund and U.S. Government Select Money Market Fund may only
purchase asset-backed securities (such as mortgage-backed securities)
that are guaranteed by the U.S. government, its agencies or
instrumentalities.
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 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 Funds can borrow money and
enter into reverse repurchase agreements. Reverse repurchase agreements involve
the sale of securities held by a Fund subject to the Fund's agreement to
repurchase them at a mutually agreed upon date and price (including interest).
Investment strategy. Each Fund may borrow and enter into reverse
repurchase agreements in amounts not exceeding one-third of the value
of its total assets (including the amount borrowed). Each Fund may also
borrow up to an additional 5% of its total assets for temporary
purposes. The Funds may enter into 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.
Special risks. Borrowings and reverse repurchase agreements involve
leveraging. If the securities held by the Funds decline in value while
these transactions are outstanding, the net asset value of the Funds'
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 a Fund
(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 a Fund will decline below the price the Fund is obligated to
pay to repurchase the securities, and that the securities may not be
returned to the Fund.
Custodial Receipts for Treasury Securities. Custodial receipts are
participations in trusts that hold U.S. Treasury securities and are sold under
names such as TIGRs and CATS. Like other stripped obligations, they entitle the
holder to future interest or principal payments on the U.S. Treasury securities.
Investment strategy. To the extent consistent with their respective
investment objectives, the Funds, other than the U.S. Government Select
Money Market Fund, may invest a portion of their total assets in
custodial receipts. Investments by the U.S. Government Money Market
Fund in custodial receipts will not exceed 35% of the value of the
Fund's total assets.
Special risks. Like other stripped obligations, custodial receipts may
be subject to greater price volatility than ordinary debt obligations
because of the way in which their principal and interest are returned
to investors.
Derivatives. The Funds 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 collateralized mortgage
obligations and other types of asset-backed securities, "stripped" securities
and various floating rate instruments.
Investment strategy. A Fund will invest in derivatives only if the
potential risks and rewards are consistent with the Fund's objective,
strategies and overall risk profile.
Special risks. Engaging in derivative transactions involves special
risks, including (a) market risk that the Fund'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 a Fund 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, a Fund may suffer a loss
whether or not the analysis of the investment management team is
accurate.
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) 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. Each Fund may invest up to 10% of its net assets
in securities that are illiquid. If otherwise consistent with their
investment objectives and policies, the Funds 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 Northern Funds' 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 a Fund. The practice of
investing in Rule 144A Securities could increase the level of a Fund'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 a Fund to make cash contributions to a deposit fund of
an insurance company's general account. The insurance company then credits
interest to the Fund for a set time period.
Investment Strategy. The Money Market Fund 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, the transfer of IFAs may
be restricted and an active secondary market in IFAs does not currently
exist. This means that it may be difficult or impossible to sell an IFA
at an appropriate price.
Investment Companies. To the extent consistent with their respective investment
objectives and policies, the Funds may invest in securities issued by other
investment companies, including money market funds.
Investment strategy. Investments by a Fund in other investment
companies will be subject to the limitations of the 1940 Act. Although
the Funds do not expect to do so in the foreseeable future, each Fund
is authorized to invest substantially all of its assets in a single
open-end investment company or series thereof that has substantially
the same investment objective, policies and fundamental restrictions as
the Fund.
Special risks. As a shareholder of another investment company, a Fund
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 Fund.
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.
Each of the Municipal Funds and the Tax-Exempt Money Market Fund may acquire
"stand-by commitments" relating to the municipal instruments it holds. Under a
stand-by commitment, a dealer agrees to purchase, at the Fund'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 Funds 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 their current policy to do so
on a regular basis, in connection with their investments in municipal
instruments, the Municipal Funds and the Tax-Exempt Money Market Fund
may invest more than 25% of their total assets in municipal instruments
the interest upon which is paid solely from revenues of similar
projects. However, these Funds do not intend to invest more than 25% of
the value of their 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.
The California Municipal Money Market Fund expects to invest
principally in California municipal instruments. The Municipal Money
Market Fund and Tax-Exempt Money Market Fund may also invest more than
25% of the value of their respective total assets in municipal
instruments whose issuers are in the same state.
Funds in addition to the Municipal Funds and the Tax-Exempt Money
Market Fund may invest from time to time in municipal instruments or
other securities issued by state and local governmental bodies.
Generally, this will occur when the yield of municipal instruments, on
a pre-tax basis, is comparable to that of other permitted short-term
taxable investments. Dividends paid by the Funds other than the
Municipal Funds and Tax-Exempt Money Market Fund on such investments
will be taxable to shareholders.
Special risks. Municipal instruments purchased by the Municipal Funds
and the Tax-Exempt Money Market Fund 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 institutions
declines, a Fund could suffer a loss to the extent that the Fund is
relying upon this credit support. Risks relating to foreign banks,
insurance companies and financial institutions are described on page [
] under "Foreign Investments."
In addition, when a substantial portion of a Fund'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.
Repurchase Agreements. Repurchase agreements involve the purchase of securities
by a Fund subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price.
Investment strategy. Each Fund 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 a Fund acquires the securities.
Special risks. In the event of a default, a Fund 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 Fund's
costs associated with delay and enforcement of the repurchase
agreement. In addition, in the event of bankruptcy, a Fund could suffer
additional losses if a court determines that the Fund's interest in the
collateral is unenforceable.
Securities Lending. In order to generate additional income, the Funds may lend
securities on a short-term basis to banks, brokers-dealers or other qualified
institutions. In exchange, the Funds 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 a Fund's total assets (including the loan
collateral). Any cash collateral received by a Fund in connection with
these loans may be invested in U.S. government securities and other
liquid high-quality 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, a Fund could experience delays
in recovering its securities and may incur a capital loss. In addition,
a Fund may incur a loss in reinvesting the cash collateral it receives.
Stripped Obligations. These securities are issued by the U.S. government (or
agency or instrumentality), foreign governments, banks and other issuers. They
entitle the holder to receive either interest payments or principal payments
that have been "stripped" from a debt obligation. These obligations include
stripped mortgage-backed securities, which are derivative multi-class mortgage
securities.
Investment strategy. To the extent consistent with their respective investment
objectives, the Funds may purchase stripped securities.
Special risks. Stripped securities are very sensitive to changes in
interest rates and to the rate of principal prepayments. A rapid or
unexpected change in prepayments could depress the price of certain
stripped securities and adversely affect a Fund's investment
performance.
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, each Fund 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. In addition, the secondary market
for certain participations in loans made to foreign governments or
their agencies may be limited.
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 Tax-Exempt, Money Market, Municipal Money
Market and California Municipal Money Market Funds may each 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 Tax-Exempt, Money Market,
Municipal Money Market and California Municipal Money Market Funds that
are derived from interest paid on taxable investments will generally be
taxable to each Fund's shareholders as ordinary income for Federal
income tax purposes. The Tax-Exempt, Money Market, Municipal Money
Market and California Municipal Money Market Funds each 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 variable amount master demand notes and long-term variable
and floating rate bonds (sometimes referred to as "Put Bonds") where a Fund
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. Each Fund 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 a Fund if
they are determined by the Investment Adviser to be of comparable
quality to rated instruments eligible for purchase by the Fund. The
Funds may invest in variable amount master demand notes.
Special risks. Variable and floating rate instruments are subject to
the same risks as fixed income investments, particularly interest rate
and credit risk. 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 Funds are not entitled to exercise their 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. Each Fund may purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis. Although the
Funds would generally purchase securities in these transactions with
the intention of acquiring the securities, the Funds 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.
Northern is sometimes referred to as "The Northern Trust Bank" in advertisements
and other sales literature.
<PAGE>
Page 40
Financial Information
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the tables represent the rate that an investor
would have earned or lost on an investment in a Fund (assuming reinvestment of
all dividends and distributions). The information for the years or periods ended
on or before March 31, 2000 has been audited by [ ], whose report is included in
the Funds' annual report along with the Funds' financial statements.
<PAGE>
Page 43
FINANCIAL HIGHLIGHTS
Money Market Funds
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
MONEY MARKET ` MONEY MARKET
FUND FUND
YEAR YEAR YEAR ENDEDYEAR ENDED YEAR ENDED YEAR YEAR ENDEDYEAR ENDEDYEAR ENDED YEAR ENDED
ENDED ENDED MARCH 31, MARCH 31, MARCH 31, ENDED MARCH 31, MARCH 31, MARCH 31, MARCH 31,
MARCH 31, MARCH 31, 1998 1997 1996 MARCH 31, 1999 1998 1997 1996
2000 1999 2000
- -----------------------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
Net Asset Value, $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Beginning of Period
Income From
Investment Operations:
Net investment 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05
income...........
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions Paid:
From net investment (0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05)
income...........
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
End of Period.......
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return(1)....... 5.04% 5.31% 5.05% 5.57% 4.94% 5.22% 4.93% 5.46%
Supplemental Data and
Ratios:
Net assets, in thousands, $4,886,098$3,296,030 $1,607,187$1,061,813 $469,866 $417,042 $314,259 $207,105
end of period......
Ratio to average net
assets of:(2)
Expenses, net of 0.55% 0.55% 0.55% 0.49% 0.55% 0.55% 0.55% 0.49%
waivers and
reimbursements.....
Expenses, before 0.89% 0.90% 0.90% 0.91% 0.91% 0.93% 0.96% 0.94%
waivers and
reimbursements.....
Net investment income, 4.91% 5.19% 4.94% 5.42% 4.82% 5.10% 4.82% 5.33%
net of waivers and
reimbursements.....
Net investment income, 4.57% 4.84% 4.59% 5.00% 4.46% 4.72% 4.41% 4.88%
before waivers and
reimbursements.....
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption of
the investment at net asset value at the end of the year. Total return is not
annualized for periods less than one year. (2) Annualized for periods less than
a full year.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
SELECT MONEY MARKET
FUND
YEAR YEAR ENDED YEAR ENDED YEAR YEAR ENDED
ENDED MARCH 31, MARCH 31, ENDED MARCH 31,
MARCH 31, 1999 1998 MARCH 31, 1996
2000 1997
---------------------------- ------------ ----------- ---------- --------- ----------
SELECTED PER SHARE DATA
Net Asset Value, $1.00 $1.00 $1.00 $1.00
Beginning of Period
Income From
Investment Operations:
Net investment 0.05 0.05 0.05 0.05
income...........
---------------------------- ------------ ----------- ---------- --------- ----------
Less Distributions Paid:
From net investment (0.05) (0.05) (0.05) (0.05)
income...........
---------------------------- ------------ ----------- ---------- --------- ----------
Net Asset Value, $1.00 $1.00 $1.00 $1.00
End of Period.......
---------------------------- ------------ ----------- ---------- --------- ----------
Total Return(1)....... 4.87% 5.24% 5.07% 5.55%
Supplemental Data and
Ratios:
Net assets, in thousands, $416,527 $306,425 $168,128 $85,400
end of period......
Ratio to average net
assets of:(2)
Expenses, net of 0.85% 0.46% 0.40% 0.33%
waivers and
reimbursements.....
Expenses, before 0.91% 0.93% 0.97% 1.00%
waivers and
reimbursements.....
Net investment income, 4.73% 5.13% 4.95% 5.43%
net of waivers and
reimbursements.....
Net investment income, 4.37% 4.66% 4.38% 4.76%
before waivers and
reimbursements.....
---------------------------- ------------ ----------- ---------- --------- ----------
(1) Assumes investment at net asset value at the beginning of the
year, reinvestment of all dividends and distributions, and a
complete redemption of the investment at net asset value at
the end of the year. Total return is not annualized for
periods less than one year.
(2) Annualized for periods less than a full year.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
Money Market Funds
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MUNICIPAL CALIFORNIA
MONEY MARKET MUNICIPAL
FUND MONEY MARKET
FUND
YEAR YEAR YEAR ENDED YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED MARCH 31, ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, 1998 MARCH 31, MARCH 31,MARCH 31, MARCH 31, MARCH 31, MARCH MARCH 31,
2000 1999 1997 1996 2000 1999 1998 31, 1997 1996
- --------------------------- ------------- ---------- ---------- --------- --------- ----------- ----------- --------- --------- ---
SELECTED PER SHARE DATA
Net Asset Value, $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Beginning of Period
Income From
Investment Operations:
Net investment 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.04
Income...........
- --------------------------- ------------- ---------- ---------- --------- --------- ----------- ----------- --------- --------- --
Less Distributions Paid:
From net investment (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.04)
Income...........
- --------------------------- ------------- ---------- ---------- --------- --------- ----------- ----------- -- --------- ----------
Net Asset Value, $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
End of Period.......
- --------------------------- ------------- ---------- ---------- --------- --------- ----------- ----------- ----------- ----------
Total Return(1)....... 2.98% 3.27% 3.14% 3.54% 2.75% 3.20% 3.19% 3.63%
Supplemental Data and Ratios:
Net assets, in thousands, $2,384,030 $1,814,343 $1,420,041$1,102,789 $363,050 $224,843 $200,989 $165,087
end of period......
Ratio to average net assets
of:(2)
Expenses, net of waivers 0.55% 0.55% 0.55% 0.49% 0.55% 0.49% 0.45% 0.39%
and reimbursements.
Expenses, before waivers 0.89% 0.89% 0.90% 0.91% 0.91% 0.94% 0.94% 0.94%
and reimbursements.
Net investment income, 2.90% 3.20% 3.08% 3.46% 2.68% 3.14% 3.13% 3.55%
net of waivers and
reimbursements.....
Net investment income, 2.56% 2.86% 2.73% 3.04% 2.32% 2.69% 2.64% 3.00%
before waivers and
reimbursements.....
- --------------------------- ------------- ---------- ---------- --------- --------- ----------- ----------- ------------ ---------
(1) Assumes investment at net asset value at the beginning of the year,
reinvestment of all dividends and distributions, and a complete redemption of
the investment at net asset value at the end of the year. Total return is not
annualized
for periods less than one year.
(2) Annualized for periods less than a full year.
</TABLE>
<PAGE>
FOR MORE INFORMATION
Page 44
For More Information
ANNUAL/SEMIANNUAL REPORT
Additional information about the Funds' investments is available in the Funds'
annual and semiannual reports to shareholders.
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Funds and their policies is also available in
the Funds' Statement of Additional Information ("SAI"). The SAI is incorporated
by reference into this Prospectus (is legally considered part of this
Prospectus).
The Funds' annual and semiannual reports, and the SAI, are available free upon
request by calling The Northern Funds Center at (800) 595-9111.
To obtain other information and for shareholder inquiries:
By telephone - Call (800) 595-9111
By mail - Northern Funds
P.O. Box 75986
Chicago, IL 60675-5986
On the Internet - Text-only versions of the Funds' documents are available
online and may be downloaded from:
The SEC's website at http://www.sec.gov. Northern Funds' website
at http://www.northernfunds.com.
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. 20549-0102, or by electronic request to:
[email protected]. Information on the operation of the public reference room
may be obtained by calling the SEC at (202) 942-8090.
[LOGO]
811-8236
PART B
STATEMENT OF ADDITIONAL INFORMATION
MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
U.S. GOVERNMENT SELECT MONEY MARKET FUND
TAX-EXEMPT MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
CALIFORNIA MUNICIPAL MONEY MARKET FUND
U.S. GOVERNMENT FUND
SHORT-INTERMEDIATE U.S. GOVERNMENT FUND
INTERMEDIATE TAX-EXEMPT FUND
CALIFORNIA INTERMEDIATE TAX-EXEMPT FUND
FLORIDA INTERMEDIATE TAX-EXEMPT FUND
FIXED INCOME FUND
TAX-EXEMPT FUND
ARIZONA TAX-EXEMPT FUND
CALIFORNIA TAX-EXEMPT FUND
GLOBAL FIXED INCOME FUND (previously known as
"International Fixed Income Fund")
HIGH YIELD MUNICIPAL FUND
HIGH YIELD FIXED INCOME FUND
INCOME EQUITY FUND
STOCK INDEX FUND
GROWTH EQUITY FUND
SELECT EQUITY FUND
BLUE CHIP 20 FUND (previously known as "MarketCommand Fund")
MID CAP GROWTH FUND
SMALL CAP INDEX FUND
SMALL CAP VALUE FUND (previously known as "Small Cap Fund")
SMALL CAP GROWTH FUND
INTERNATIONAL GROWTH EQUITY FUND
INTERNATIONAL SELECT EQUITY FUND
TECHNOLOGY FUND
[LARGE CAP VALUE FUND]
NORTHERN FUNDS
(the "Trust")
This Statement of Additional Information dated July 31, 2000 (the
"Additional Statement") is not a prospectus. This Additional Statement should be
read in conjunction with the Prospectuses dated July 31, 2000, as amended or
supplemented from time to time, for the Money Market Fund, U.S. Government Money
Market Fund, U.S. Government Select Money Market Fund, Tax-Exempt Money Market
Fund, Municipal Money Market Fund, California Municipal Money Market Fund
(collectively, the "Money Market Funds"), U.S. Government Fund,
Short-Intermediate U.S. Government Fund, Intermediate Tax-Exempt Fund,
California Intermediate Tax-Exempt Fund, Florida Intermediate Tax-Exempt Fund,
Fixed Income Fund, Tax-Exempt Fund, Arizona Tax-Exempt Fund, California
Tax-Exempt Fund, Global Fixed Income Fund, High Yield Municipal Fund, High Yield
Fixed Income Fund, Income Equity Fund, Stock Index Fund, Growth Equity Fund,
Select Equity Fund, Blue Chip 20 Fund, Mid Cap Growth Fund, Small Cap Index
Fund, Small Cap Value Fund, Small Cap Growth Fund, International Growth Equity
Fund, International Select Equity Fund, Technology Fund and [Large Cap Value
Fund] (collectively, the "Non-Money Market Funds," and together with the Money
Market Funds, the "Funds") of Northern Funds (the "Prospectuses"). Copies of the
Prospectuses may be obtained without charge from the Northern Trust (the
"Transfer Agent") by writing to the Northern Funds Center, P.O. Box 75986,
Chicago, Illinois 60675-5986 or by calling 1-800-595-9111. Capitalized terms not
otherwise defined have the same meaning as in the Prospectuses.
The audited financial statements and related report of ____________,
independent auditors, contained in the annual report to the Funds' shareholders
for the fiscal year ended March 31, 2000 (except for Blue Chip 20 Fund,
Tax-Exempt Money Market Fund and [Large Cap Value Fund], which did not commence
operations during the period), are incorporated herein by reference in the
section entitled "Financial Statements." No other part of the annual report is
incorporated by reference herein. Copies of the annual report may be obtained,
upon request and without charge by calling 1-800-595-9111 (toll free).
----------
No person has been authorized to give any information or to make any
representations not contained in this Additional Statement or in the
Prospectuses in connection with the offering made by the Prospectuses 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 Prospectuses do 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 a Fund is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any government
agency. An investment in a Fund involves investment risks, including possible
loss of principal. Although each of the Money Market Funds seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the Funds.
<PAGE>
INDEX
<TABLE>
<CAPTION>
<S><C> <C>
Page
ADDITIONAL INVESTMENT INFORMATION..................................................................................
Classification and History................................................................................
Investment Objectives and Policies........................................................................
Special Risk Factors and Considerations Relating to California Municipal Instruments,
Florida Municipal Instruments and Arizona Municipal Instruments..................................
California Municipal Instruments..........................................................................
Florida Municipal Instruments.............................................................................
Arizona Municipal Instruments.............................................................................
Investment Restrictions...................................................................................
ADDITIONAL TRUST INFORMATION.......................................................................................
Trustees and Officers.....................................................................................
Investment Adviser, Transfer Agent and Custodian..........................................................
Co-Administrators and Distributor.........................................................................
Service Organizations.....................................................................................
Counsel and Auditors......................................................................................
In-Kind Purchases and Redemptions.........................................................................
Automatic Investing Plan..................................................................................
Directed Reinvestments....................................................................................
Redemptions and Exchanges.................................................................................
Retirement Plans..........................................................................................
Expenses..................................................................................................
PERFORMANCE INFORMATION............................................................................................
Money Market Funds........................................................................................
Non-Money Market Funds....................................................................................
General Information.......................................................................................
NET ASSET VALUE....................................................................................................
TAXES
Federal - General Information.............................................................................
Federal - Tax-Exempt Information..........................................................................
Taxation of Certain Financial Instruments.................................................................
Special State Tax Considerations Pertaining to the California Funds.......................................
Special State Tax Considerations Pertaining to the Florida Intermediate Tax-Exempt Fund...................
Special State Tax Considerations Pertaining to the Arizona Tax-Exempt Fund................................
DESCRIPTION OF SHARES..............................................................................................
FINANCIAL STATEMENTS...............................................................................................
OTHER INFORMATION..................................................................................................
APPENDIX A.........................................................................................................
APPENDIX B.........................................................................................................
</TABLE>
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
Classification and History
The Trust is an open-end, management investment company. Each Fund is
classified as diversified under the Investment Company Act of 1940, as amended
(the "1940 Act"), except the California Municipal Money Market, California
Intermediate Tax-Exempt, Florida Intermediate Tax-Exempt, Arizona Tax-Exempt,
California Tax-Exempt, Global Fixed Income and Blue Chip 20 Funds, which are
classified as non-diversified. Each Fund is a series of the Trust that was
formed as a Delaware business trust on February 7, 2000 under an Agreement and
Declaration of Trust (the "Trust Agreement"). The Funds were formerly series of
Northern Funds, a Massachusetts business trust, and were reorganized into the
Trust on July 31, 2000.
Investment Objectives and Policies
The following supplements the investment objectives, strategies and
risks of the Funds as set forth in the Prospectuses. The investment objective of
each Fund may be changed without the vote of the majority of the Fund's
outstanding shares. Except as expressly noted below, each Fund's investment
policies may be changed without shareholder approval. In addition to the
instruments discussed below and in the Prospectuses, each Fund may purchase
other types of financial instruments, however designated, whose investment and
credit quality characteristics are determined by the Northern Trust Company
("Northern") and Northern Trust Investments, Inc. (previously known as "Northern
Trust Quantitative Advisors, Inc." and referred to as "NTI," and together with
Northern the "Investment Advisers") to be substantially similar to those of any
other investment otherwise permitted by a Fund's investment policies.
Money Market Funds
Money Market Fund seeks to maximize
current income to the extent consistent with the
preservation of capital and maintenance of liquidity
by investing only in high-quality money market
instruments.
U.S. Government Money Market Fund has the same objective as
the Money Market Fund but invests primarily in securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities and related repurchase agreements.
U.S. Government Select Money Market
Fund seeks to maximize current income to the extent
consistent with the preservation of capital and
maintenance of liquidity by investing exclusively in
high quality money market instruments.
Tax-Exempt Money Market Fund seeks to provide a high
level of income exempt from regular Federal income
tax, to the extent consistent with the preservation
of capital, by investing primarily in municipal
instruments.
Municipal Money Market Fund seeks
high current income exempt from regular federal tax
to the extent consistent with preserving capital by
investing mainly in short-term municipal instruments.
California Municipal Money Market
Fund seeks to provide its shareholders to the extent
consistent with the preservation of capital and
prescribed portfolio standards, a high level of
income exempt from regular federal income tax and
California state personal income tax.
Fixed Income Funds
U.S. Government Fund seeks high
current income from U.S. Government securities. The
Fund's dollar-weighted average maturity is
anticipated to range between one and ten years. It is
designed for investors who seek greater principal
stability than is generally available from higher
yielding corporate bonds.
Short-Intermediate U.S. Government
Fund seeks high current income from a broad range of
U.S. Government securities. The Fund's
dollar-weighted average maturity is anticipated to
range between two and five years. It is designed for
investors who seek greater principal stability than
is generally available from higher yielding corporate
bonds.
Fixed Income Fund seeks high current
income from a broad range of bonds and other fixed
income securities. The Fund's average maturity is
anticipated to range between seven and twelve years.
This Fund generally presents greater risk and reward
potential than the U.S. Government Fund and the
Short-Intermediate U.S. Government Fund.
Global Fixed Income Fund seeks to
maximize total return consistent with reasonable risk
while investing in securities of issuers located in
at least three different countries (one of which may
be the U.S.). Total return is comprised of current
income and value fluctuations from investing in bonds
and other fixed income securities of foreign issuers.
High Yield Municipal Fund seeks a high level of current
income exempt from regular federal income tax.
High Yield Fixed Income Fund seeks a
high level of current income. In seeking current
income, the Fund may also consider the potential for
capital appreciation. In pursuing its investment
objective, the Fund invests in high yield fixed
income instruments.
Tax-Exempt Fixed Income Funds
Intermediate Tax-Exempt Fund seeks
high current income exempt from regular federal
income tax by investing in a broad range of municipal
instruments with an expected average maturity of
three to ten years.
California Intermediate Tax-Exempt
Fund seeks high current income exempt from regular
federal income tax and California state personal
income tax by investing in municipal instruments with
an expected average maturity of three to ten years.
Florida Intermediate Tax-Exempt Fund
seeks high current income exempt from regular federal
income tax by investing in municipal instruments with
an expected average maturity of three to ten years.
The Fund intends, but cannot guarantee, that its
shares will qualify for exemption from the Florida
intangibles tax.
Tax-Exempt Fund seeks high current
income exempt from regular federal income tax by
investing in municipal instruments with an expected
average maturity of ten to thirty years.
Arizona Tax-Exempt Fund seeks high
current income exempt from regular federal income tax
and Arizona state personal income tax by investing in
municipal instruments with an expected average
maturity of ten to thirty years.
California Tax-Exempt Fund seeks
high current income exempt from regular federal
income tax and California state personal income tax
by investing in municipal instruments with an
expected average maturity of ten and thirty years.
Equity Funds
Income Equity Fund seeks to achieve
high current income and, as a secondary objective,
longer-term capital appreciation. The Fund invests in
convertible and other equity securities. Because it
emphasizes high current income, this Fund is likely
to have the least price fluctuation of the Trust's
equity funds.
Stock Index Fund seeks to provide
investment results approximating the aggregate price
and dividend performance of the securities included
in the S&P 500(R) Composite Stock Price Index (the
"S&P 500 Index").
Growth Equity Fund seeks long-term
capital appreciation by investing mainly in the
equity securities of growth companies. It is designed
for investors willing to accept above-average price
volatility in search of long-term reward.
Select Equity Fund is also for the
more aggressive investor, seeking long-term capital
appreciation by investing principally in common
stocks of companies the its Investment Adviser
believes to have superior growth characteristics. Any
income is incidental to this objective.
Blue Chip 20 Fund seeks to provide
long-term capital appreciation by investing primarily
in the equity securities of a concentrated group
(generally between 20 and 40) that are selected by
the investment management team for their growth. Any
income received is incidental to this objective.
Mid Cap Growth Fund seeks long-term
capital appreciation by investing primarily in equity
securities of companies with market capitalizations
that are within the capitalization range of the
Standard & Poor's MidCap 400(R) Stock Index at the
time of investment.
Small Cap Index Fund seeks to
provide investment results approximating the
aggregate price and dividend performance of the
securities included in the Russell 2000 Index.
Small Cap Value Fund seeks long-term
capital appreciation; any income is incidental to
this objective. Because it invests principally in the
equity securities of smaller companies, this Fund is
likely to have more price volatility than the Growth
Equity and Select Equity Funds.
Small Cap Growth Fund seeks
long-term capital appreciation by investing primarily
in equity securities of companies with market
capitalizations that are within the capitalization
range of the Russell 2000 Small Stock Index.
International Growth Equity Fund
offers the potential benefits of international
diversification to investors willing to accept
above-average price volatility while seeking
long-term capital appreciation. While subject to
additional risks such as currency fluctuations and
the higher volatility of foreign securities, this
Fund uses diversification, in an effort to control
risk.
International Select Equity Fund
seeks long-term growth by investing principally in
common stock of foreign issuers that the Investment
Adviser believes are growing faster than their
markets. Because fewer countries and securities are
generally represented in this Fund than in the
International Growth Equity Fund, it is likely to
experience more price volatility.
Technology Fund seeks long-term
capital appreciation by investing principally in
equity securities and securities convertible into
common stock of companies that develop, produce or
distribute products and services related to advances
in technology. The Fund will, under normal market
conditions, invest at least 65% of the value of its
total assets in securities of companies principally
engaged in technology business activities. An issuer
is considered principally engaged in technology
business activities if such issuer is listed on the
Morgan Stanley High-Technology 35 Index (the "Morgan
Stanley Index"), the SoundView Technology Index, the
Hambrecht and Quist Technology Index (the "H&Q
Index"), the technology grouping of the S&P 500 Index
or any other comparable index.
The Morgan Stanley Index is an equal
dollar weighted index of 35 stocks drawn from nine
technology subsectors: computer services, design
software, server software, PC software and new media,
networking and telecom equipment, server hardware, PC
hardware and peripherals, specialized systems and
semi-conductors. The SoundView Technology Index is an
equal dollar weighted index designed to measure the
performance of the technology industry. It is
comprised of 100 major technology companies chosen by
SoundView Financial Group. The H&Q Index is comprised
of publicly traded stocks of approximately 250
technology companies. The H&Q Index includes
companies in the electronics, services and related
technologies industries and is a market
capitalization weighted index. Changes in the indices
may occur when Morgan Stanley, SoundView or H&Q
choose to modify their indices or as mergers,
acquisitions and failures dictate. Such changes may
happen with fair regularity owing to the
fast-changing nature of the technology industries.
[Large Cap Value Fund] seeks to
provide long-term capital appreciation by investing
primarily in equity securities of large, established
companies which the investment team believes are
undervalued or overlooked by the market.
American Depository Receipts. Each Equity Fund and the Global Fixed Income
Fund (together with the International Growth Equity Fund and International
Select Equity Fund, the "International Funds") 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.
Asset-Backed Securities. To the extent described in the Prospectuses,
the Funds may purchase asset-backed securities, which are securities backed by
mortgages, installment contracts, credit card receivables, municipal securities
or other financial 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. In
calculating a Fund's average weighted maturity, the maturity of asset-backed
securities will be based on estimates of average life.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore, prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments.
Asset-backed securities acquired by the Funds 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 Funds 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 Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes"), which are guaranteed as
to the timely payment of principal and interest by GNMA and backed by the full
faith and credit of the United States. GNMA is a wholly-owned U.S. Government
corporation within the Department of Housing and Urban Development. GNMA
certificates also are supported by the authority of GNMA to borrow funds from
the U.S. Treasury to make payments under its guarantee. Mortgage-backed
securities issued by the Federal National Mortgage Association ("FNMA") include
FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of 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 by the United States or by any Federal
Home Loan Banks and do not constitute a debt or obligation of the United States
or of any Federal Home Loan Bank. Freddie Macs entitle the holder to timely
payment of interest, which is guaranteed by 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.
Bank and Deposit Notes. Bank notes 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.
Calculation of Portfolio Turnover Rate. The portfolio turnover rate for
the Funds 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 Funds to receive favorable tax treatment.
The Funds are not restricted by policy with regard to portfolio
turnover and will make changes in their investment portfolio from time to time
as business and economic conditions as well as market prices may dictate. For
the fiscal year ended March 31, 2000, the turnover rates for the Funds (except
for the Blue Chip 20 Fund and [Large Cap Value Fund], which had not commenced
operations during the fiscal year ended March 31, 2000) are as follows:
<TABLE>
<CAPTION>
<S><C> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
Fund Portfolio Turnover Rate
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
U.S. Government Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Short-Intermediate U.S. Government Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Fixed Income Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Global Fixed Income Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
High Yield Municipal Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
High Yield Fixed Income Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Intermediate Tax-Exempt Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
California Intermediate Tax-Exempt Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Florida Intermediate Tax-Exempt Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Arizona Tax-Exempt Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
California Tax-Exempt Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Income Equity Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Stock Index Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Growth Equity Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Select Equity Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Mid Cap Growth Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Small Cap Index Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Small Cap Value Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Small Cap Growth Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
International Growth Equity Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
International Select Equity Fund
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
Technology Fund
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
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. 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.
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. 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.
A Fund 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.
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 Advisers 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 a Fund's portfolio 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 a Fund may result from an improvement in the
credit standing of an issuer whose securities are held in the Fund 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 a
Fund or a general increase in interest rates may be expected to result in
capital depreciation to the Fund.
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. A Fund 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 a Fund of any single investment, it does
not reduce the overall risk of investing in lower quality securities.
European Depository Receipts ("EDRs"). Each Equity Fund and each
International Fund may also invest in EDRs and Global Depository Receipts
("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.
Equity Swaps. Each Equity Fund 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 Fund 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 Fund 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 Fund 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 Fund on the
notional amount. In other cases, the counterparty and the Fund 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).
A Fund will enter into equity swaps only on a net basis, which means
that the two payment streams are netted out, with the Fund 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 a Fund is contractually obligated to make. If
the other party to an equity swap defaults, a Fund's risk of loss consists of
the net amount of payments that such Fund 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 Fund's potential
exposure, the Trust and its Investment Advisers believe that transactions do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to a Fund's borrowing restrictions.
The Funds 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 Ratings Group,
Inc. ("S&P"), Duff & Phelps Credit Rating Co. ("D&P") or Fitch IBCA ("Fitch");
or A or P-1 or better by Moody's Investors Service, Inc. ("Moody's"). If there
is a default by the other party to such a transaction, a Fund 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 Advisers are incorrect in
their forecasts of market values, the investment performance of a Fund would be
less favorable than it would have been if this investment technique were not
used.
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 Fixed Income, Global Fixed Income, High Yield Fixed
Income, Income Equity, Growth Equity, Select Equity, Blue Chip 20, Mid Cap
Growth, Small Cap Value, Small Cap Growth, International Growth Equity,
International Select Equity [, Large Cap Value] and Technology Funds are
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 a Fund to establish a rate of exchange for a future point in time.
When entering into a contract for the purchase or sale of a security, a
Fund 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 an 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, a Fund 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 Fund's securities denominated in
such foreign currency. Similarly, when the securities held by a Fund create a
short position in a foreign currency, a Fund may enter into a forward contract
to buy, for a fixed amount, an amount of foreign currency approximating the
short position. A Fund'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. A
Fund will also incur costs in connection with forward foreign currency exchange
contracts and conversions of foreign currencies and U.S. dollars.
In addition, the International Funds and the High Yield Fixed Income Fund
may purchase or sell forward currency exchange contracts to seek to increase
total return or for cross-hedging purposes. The International Funds and the High
Yield Fixed Income Fund may engage in cross-hedging by using forward contracts
in one currency to hedge against fluctuations in the value of securities
denominated in a different currency if the investment management team believes
that there is a pattern of correlation between the two currencies.
Liquid assets equal to the amount of a Fund'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 Fund. A
forward contract to sell a foreign currency is "covered" if a Fund owns the
currency (or securities denominated in the currency) underlying the contract, or
holds a forward contract (or call option) permitting the Fund to buy the same
currency at a price that is (i) no higher than the Fund's price to sell the
currency or (ii) greater than the Fund's price to sell the currency provided the
Fund segregates liquid assets in the amount of the difference. A forward
contract to buy a foreign currency is "covered" if a Fund holds a forward
contract (or put option) permitting the Fund to sell the same currency at a
price that is (i) as high as or higher than the Fund's price to buy the currency
or (ii) lower than the Fund's price to buy the currency provided the Fund
segregates liquid assets in the amount of the difference.
Foreign Securities. The International Funds intend to invest primarily
in the securities of foreign issuers. In addition, each Equity Fund, the Fixed
Income Fund and the High Yield Fixed Income Fund may invest a portion of their
assets in such securities, including (except with respect to the Fixed Income
Fund) 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. The Money
Market Fund may also invest in dollar-denominated obligations issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities, as well as other foreign issuers.
These obligations may be issued by supranational entities, including
international organizations (such as the European Coal and Steel Community)
designed or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies.
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 a Fund that invests in foreign stocks. The holdings of
a Fund that 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 Money Market Fund, the Fixed Income Fund, the High Yield Fixed
Income Fund, each Equity Fund and each International Fund 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.
In addition, the International Funds and the High Yield Fixed Income Fund
may invest their assets in countries with emerging economies or securities
markets. These countries are located in the Asia-Pacific region, the Middle
East, Eastern Europe, Latin and South America and Africa. Political and economic
structures in many of these countries may be undergoing significant evolution
and rapid development, and these countries may lack the social, political and
economic stability characteristics of more developed countries. In general, the
securities markets of these countries are less liquid, subject to greater price
volatility, have smaller market capitalizations and have problems with
securities registration and custody. As a result, the risks presented by
investments in these countries are heightened. Additionally, settlement
procedures in emerging countries are frequently less developed and reliable than
those in the United States and may involve a Fund's delivery of securities
before receipt of payment for their sale. Settlement or registration problems
may make it more difficult for a Fund to value its portfolio securities and
could cause the Fund to miss attractive investment opportunities, to have a
portion of its assets uninvested or to incur losses due to the failure of a
counterparty to pay for securities the Fund has delivered or the Fund's
inability to complete its contractual obligations.
Unanticipated political, economic or social developments may affect the
value of a Fund's investment in emerging market countries and the availability
to a Fund of additional investments in these countries. Some of these countries
may have in the past failed to recognize private property rights and may have at
times nationalized or expropriated the assets of private companies. The small
size and inexperience of the securities markets in certain of such countries and
the limited volume of trading in securities in those countries may make a Fund's
investments in such countries illiquid and more volatile than investments in
Japan or most Western European countries, and a Fund may be required to
establish special custodial or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.
Although a Fund (other than the Money Market Fund) 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, a
Fund'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 a Fund's total assets,
adjusted to reflect the Fund's net position after giving effect to currency
transactions, are denominated in the currencies of foreign countries, the Fund
will be more susceptible to the risk of adverse economic and political
developments within those countries.
A Fund is also subject to the possible imposition of exchange control
regulations or freezes on the convertibility or currency. In addition, through
the use of forward currency exchange contracts and with other instruments, the
respective net currency positions of the International Funds may expose them to
risks independent of their securities positions. Although the net long and short
foreign currency exposure of the International Funds will not exceed their
respective total asset values, to the extent that a Fund is fully invested in
foreign securities while also maintaining currency positions, it may be exposed
to greater risk than it would have if it did not maintain the currency
positions.
Dividends and interest payable on a Fund'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."
To the extent consistent with its investment objective, a Fund may also
invest in obligations of 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.
Investors should understand that the expense ratios of the
International Funds can be expected to be higher than those of Funds investing
primarily in domestic securities. The costs attributable to investing abroad are
usually higher for several reasons, such as the higher cost of investment
research, higher costs of custody of foreign securities, higher commissions paid
on comparable transactions on foreign markets and additional costs arising from
delays in settlements of transactions involving foreign securities.
Countries in which the other Equity Funds may invest (to the extent
permitted by their investment policies) include, but are not limited to:
Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, Colombia, Czech
Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary,
Indonesia, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, Mexico, the
Netherlands, New Zealand, Norway, Peru, the Philippines, Poland, Portugal,
Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan,
Thailand, Turkey, the United Kingdom and Venezuela.
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 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.
Forward Commitments, When-Issued Securities and Delayed-Delivery
Transactions. Each Fund 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 Fund to purchase
or sell securities at a future date. The price of the underlying securities
(usually expressed in terms of yield) and the date when the securities will be
delivered and paid for (the settlement date) are fixed at the time the
transaction is negotiated. When-issued purchases and forward commitment
transactions are normally negotiated directly with the other party.
A Fund will purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis only with the intention of completing
the transaction and actually purchasing or selling the securities. If deemed
advisable as a matter of investment strategy, however, a Fund may dispose of or
negotiate a commitment after entering into it. A Fund also may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. The Fund may realize a capital gain or loss in
connection with these transactions.
When a Fund purchases securities on a when-issued, delayed-delivery or
forward commitment basis, the Fund will segregate liquid assets having a value
(determined daily) at least equal to the amount of the Fund'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 Fund 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 a Fund's average dollar-weighted maturity, the
maturity of when-issued, delayed-delivery or forward commitment securities will
be calculated from the commitment date.
Futures Contracts and Related Options. The Funds (other than the Money
Market Funds) 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, a Fund may sell a futures contract in order to
offset a decrease in the market value of its portfolio securities that might
otherwise result from a market decline or currency exchange fluctuations. A Fund
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, a Fund may purchase a futures
contract as a hedge in anticipation of purchases of securities. In addition, a
Fund may utilize futures contracts in anticipation of changes in the composition
of its portfolio holdings.
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, a Fund'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 a Fund's position in a futures contract or related
option, the Fund 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 CFTC exempting
the Funds from registration as a "commodity pool operator."
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. The Money Market Fund and Fixed Income Fund will only purchase
highly rated IFAs. The High Yield Fixed Income Fund is not subject to any
minimum rating criteria. 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 a
Fund's limitation on illiquid investments when the Fund may not demand payment
of the principal amount within seven days and a reliable trading market is
absent.
Interest Rate Swaps, Floors and Caps and Currency Swaps. The U.S.
Government, Short-Intermediate U.S. Government, Intermediate Tax-Exempt,
California Intermediate Tax-Exempt, Florida Intermediate Tax-Exempt, Fixed
Income, Tax-Exempt, Arizona Tax-Exempt, California Tax-Exempt, Global Fixed
Income, High Yield Municipal, High Yield Fixed Income[, Large Cap Value] and
Income Equity Funds may enter into interest rate swaps for hedging purposes and
not for speculation. The U.S. Government, Short-Intermediate U.S. Government,
Fixed Income, Global Fixed Income, High Yield Municipal and High Yield Fixed
Income Funds may also purchase interest rate floors or caps for hedging purposes
and not for speculation. A Fund will typically use interest rate swaps to
preserve a return on a particular investment or portion of its portfolio or to
shorten the effective duration of its portfolio investments. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. The purchase of an interest rate floor or
cap entitles the purchaser to receive payments of interest on a notional
principal amount from the seller, to the extent the specified index falls below
(floor) or exceeds (cap) a predetermined interest rate. The International Funds
and the High Yield Fixed Income Fund may also enter into currency swaps, which
involve the exchange of the rights of a Fund and another party to make or
receive payments in specific currencies.
A Fund will only enter into interest rate swaps or interest rate floor or
cap transactions on a net basis, i.e. the two payment streams are netted out,
with a Fund receiving or paying, as the case may be, only the net amount of the
two payments. In contrast, currency swaps usually involve the delivery of the
entire principal value of one designated currency in exchange for the other
designated currency. In as much as interest rate and currency swaps are entered
into for good faith hedging purposes, the Trust and the Investment Advisers
believe that such transactions do not constitute senior securities as defined in
the 1940 Act and, accordingly, will not treat them as being subject to a Fund's
borrowing restrictions.
The net amount of the excess, if any, of the Funds' obligations over their
entitlements with respect to each interest rate or currency swap will be accrued
on a daily basis and an amount of liquid assets having an aggregate net asset
value at least equal to such accrued excess will be segregated by the Funds.
Except for the High Yield Fixed Income Fund (which is not subject to any
minimum rating criteria), a Fund will not enter into a currency or interest rate
swap or interest rate floor or cap transaction unless the unsecured commercial
paper, senior debt or the claims-paying ability of the other party thereto is
rated either A or A-1 or better by S&P, D&P or Fitch, or A or P-1 or better by
Moody's. If there is a default by the other party to such transaction, a Fund
will have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid in comparison with markets for other similar
instruments which are traded in the interbank market.
Investment Companies. With respect to the investments of the Funds 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 a Fund,
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 a Fund 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 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 Fund.
Certain investment companies whose securities are purchased by the Funds
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.
If required by the 1940 Act, each Fund 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.
A Fund 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, policy and restrictions as the Fund. However, each Fund
currently intends to limit its investments in securities issued by other
investment companies to the extent described above. A Fund may adhere to more
restrictive limitations with respect to its investments in securities issued by
other investment companies if required by the Securities and Exchange Commission
(the "SEC") or deemed to be in the best interests of the Trust.
As noted in the Prospectuses, a Fund may invest in World Equity
Benchmark Shares ("WEBS"), Standard & Poor's Depository Receipts ("SPDRs") and
similar securities of other investment companies, subject to the restrictions
set forth above.
WEBS are shares of an investment company that invests substantially all
of its assets in securities included in the Morgan Stanley Capital International
Index ("MSCI") indices for specified countries. WEBS are listed on the American
Stock Exchange (the "AMEX"), and were initially offered to the public in 1996.
The market prices of WEBS are expected to fluctuate in accordance with both
changes in the net asset values of their underlying indices and supply and
demand of WEBS on the AMEX. To date WEBS have traded at relatively modest
discounts and premiums to their net asset values. However, WEBS have a limited
operating history, and information is lacking regarding the actual performance
and trading liquidity of WEBS for extended periods or over complete market
cycles. In addition, there is no assurance that the requirements of the AMEX
necessary to maintain the listing of WEBS will continue to be met or will remain
unchanged. In the event substantial market or other disruptions affecting WEBS
should occur in the future, the liquidity and value of a Fund's shares could
also be substantially and adversely affected, and a Fund's ability to provide
investment results approximating the performance of securities in the Morgan
Stanley Capital International Europe, Australia and Far East Index ("MSCI EAFE")
index could be impaired. If such disruptions were to occur, a Fund could be
required to reconsider the use of WEBS as part of its investment strategy.
SPDRs are interests in a unit investment trust ("UIT") that may be
obtained from the UIT or purchased in the secondary market (SPDRs are listed on
the AMEX). The UIT will issue SPDRs in aggregations know as "Creation Units" in
exchange for a "Portfolio Deposit" consisting of (i) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
S&P 500 Index, (ii) a cash payment equal to a pro rata portion of the dividends
accrued on the UIT's portfolio securities since the last dividend payment by the
UIT, net of expenses and liabilities, and (iii) a cash payment or credit
("Balancing Amount") designed to equalize the net asset value of the S&P 500
Index and the net asset value of a Fund Deposit.
SPDRs are not individually redeemable, except upon termination of the
UIT. To redeem, a Fund must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, a Fund will
receive Index Securities and cash identical to the Fund Deposit required of an
investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by
the UIT. Accordingly, the level of risk involved in the purchase or sale of a
SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by a Fund could result in losses on SPDRs. Trading in
SPDRs involves risks similar to those risks involved in the writing of options
on securities.
Loan Participations. The High Yield Fixed Income Fund may invest in
loan participations. Such loans must be to issuers in whose obligations the High
Yield Fixed Income Fund may invest. A loan participation is an interest in a
loan to a U.S. or foreign company or other borrower which is administered and
sold by a financial intermediary. In a typical corporate loan syndication, a
number of lenders, usually banks (co-lenders), lend a corporate borrower a
specified sum pursuant to the terms and conditions of a loan agreement. One of
the co-lenders usually agrees to act as the agent bank with respect to the loan.
Participation interests acquired by the High Yield Fixed Income Fund
may take the form of a direct or co-lending relationship with the corporate
borrower, an assignment of an interest in the loan by a co-lender or another
participant, or a participation in the seller's share of the loan. When the High
Yield Fixed Income Fund acts as co-lender in connection with a participation
interest or when the High Yield Fixed Income Fund acquires certain participation
interests, the High Yield Fixed Income Fund will have direct recourse against
the borrower if the borrower fails to pay scheduled principal and interest. In
cases where the High Yield Fixed Income Fund lacks direct recourse, it will look
to the agent bank to enforce appropriate credit remedies against the borrower.
In these cases, the High Yield Fixed Income Fund may be subject to delays,
expenses and risks that are greater than those that would have been involved if
the Fund had purchased a direct obligation (such as commercial paper) of such
borrower. For example, in the event of the bankruptcy or insolvency of the
corporate borrower, a loan participation may be subject to certain defenses by
the borrower as a result of improper conduct by the agent bank. Moreover, under
the terms of the loan participation, the High Yield Fixed Income Fund may be
regarded as a creditor of the agent bank (rather than of the underlying
corporate borrower), so that the High Yield Fixed Income Fund may also be
subject to the risk that the agent bank may become insolvent. The secondary
market, if any, for these loan participations is limited and any loan
participations purchased by the High Yield Fixed Income Fund will be regarded as
illiquid.
For purposes of certain investment limitations pertaining to
diversification of the High Yield Fixed Income Fund's portfolio investments, the
issuer of a loan participation will be the underlying borrower. However, in
cases where the High Yield Fixed Income Fund does not have recourse directly
against the borrower, both the borrower and each agent bank and co-lender
interposed between the High Yield Fixed Income Fund and the borrower will be
deemed issuers of a loan participation.
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 Funds will not engage in selling securities short. The
Funds may, however, make short sales against the box although the Funds have no
current intention to do so in the coming year. "Selling short against the box"
involves selling a security that a Fund owns for delivery at a specified date in
the future.
Mortgage Dollar Rolls. Each Non-Money Market Fund may enter into
mortgage "dollar rolls" in which a Fund sells securities for delivery in the
future (generally within 30 days) and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity), but not
identical securities on a specified future date. During the roll period, a Fund
loses the right to receive principal and interest paid on the securities sold.
However, a Fund would benefit to the extent of any difference between the price
received for the securities sold and the lower forward price for the future
purchase (often referred to as the "drop") or fee income plus the interest
earned on the cash proceeds of the securities sold until the settlement date of
the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use of
this technique will diminish the investment performance of a Fund compared with
what such performance would have been without the use of mortgage dollar rolls.
All cash proceeds will be invested in instruments that are permissible
investments for the applicable Fund. Each Fund will hold and maintain in a
segregated account until the settlement date cash or liquid assets, as permitted
by applicable law, in an amount equal to its forward purchase price.
For financial reporting and tax purposes, the Fund treat mortgage
dollar rolls as two separate transaction; one involving the purchase of a
security and a separate transaction involving a sale. The Funds do not currently
intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks including the following. If
the broker-dealer to whom a Fund sells the security becomes insolvent, a Fund's
right to purchase or repurchase the mortgage-related securities subject to the
mortgage dollar roll may be restricted and the instrument which a Fund is
required to repurchase may be worth less than an instrument which a Fund
originally held. Successful use of mortgage dollar rolls will depend upon the
Investment Adviser's ability to manage a Fund's interest rate and mortgage
prepayments exposure. For these reasons, there is no assurance that mortgage
dollar rolls can be successfully employed.
Municipal Instruments. Municipal instruments are high quality,
short-term instruments, the interest on which is, in the opinion of bond counsel
to the issuers, exempt from Federal income tax. Opinions relating to the
validity of municipal instruments and to Federal and state tax issues relating
to these securities are rendered by bond 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 the
Investment Adviser. Neither the Trust nor the Investment Adviser will review the
proceedings relating to the issuance of municipal instruments or the bases for
such opinions.
Municipal instruments are generally issued to finance public works, such as
airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses and to make loans to other public
institutions and for other facilities. Municipal instruments include private
activity bonds issued by or on behalf of public authorities. Private activity
bonds are or have been issued to obtain funds to provide, among other things,
privately operated housing facilities, pollution control facilities, convention
or trade show facilities, mass transit, airport, port or parking facilities and
certain local facilities for water supply, gas, electricity or sewage or solid
waste disposal. Private activity bonds are also issued to privately held or
publicly owned corporations in the financing of commercial or industrial
facilities. State and local governments are authorized in most states to issue
private activity bonds for such purposes in order to encourage corporations to
locate within their communities. The principal and interest on these obligations
may be payable from the general revenues of the users of such facilities.
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.
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.
Within the principal classifications of municipal instruments described
above there are a variety of categories, including municipal bonds, municipal
notes, municipal leases, asset-backed securities such as 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 or local
governments or authorities to finance the acquisition of equipment and
facilities. Participation certificates may represent participations 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 future 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.
The Tax-Exempt Money Market Fund, Intermediate Tax-Exempt Fund,
California Intermediate Tax-Exempt Fund, Florida Intermediate Tax-Exempt Fund,
Tax-Exempt Fund, Arizona Tax-Exempt Fund and California Tax-Exempt Fund (the
"Tax-Exempt Funds") and the Municipal Money Market Fund, California Municipal
Money Market Fund and High Yield Municipal Fund (the "Municipal Funds") 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.
Municipal bonds with a series of maturity dates are called Serial
Bonds. Each of the Tax-Exempt Funds and the Municipal Funds may purchase Serial
Bonds and other long-term securities provided that it has a remaining maturity
meeting the Fund's maturity requirements. The Fund may also purchase long-term
variable and floating rate bonds (sometimes referred to as "Put Bonds") where
the Fund obtains at the time of purchase the right to put the bond back to the
issuer or a third party at a par at least every thirteen months. Put Bonds with
conditional puts (that is, puts which cannot be exercised if the issuer defaults
on its payment obligations) will present risks that are different than those of
other municipal instruments because of the possibility that the Fund might hold
long-term Put Bonds on which defaults occur following acquisition by the Fund.
The Tax-Exempt Money Market, Municipal Money Market and California
Municipal Money Market Funds may invest in fixed and variable rate notes and
similar debt instruments rated MIG-2, VMIG-2 or Prime-2 or higher by Moody's,
SP-2 or A-2 or higher by S&P, AA or higher by D&P or F-2 or higher by Fitch and
tax-exempt commercial paper and similar debt instruments rated Prime-2 or higher
by Moody's, A-2 or higher by S&P, D-2 or higher by D&P or F-2 or higher by
Fitch. The Tax-Exempt Money Market, Municipal Money Market and California
Municipal Money Market Funds may also invest in rated and unrated municipal
bonds, notes, paper or other instruments that are of comparable quality to the
tax-exempt commercial paper permitted to be purchased by the Funds.
Each of the Tax-Exempt Funds and Municipal Funds may acquire securities
in the form of custodial receipts evidencing rights to receive a specific future
interest payment, principal payment or both on certain municipal obligations.
Such obligations are held in custody by a bank on behalf of the holders of the
receipts. These custodial receipts are known by various names, including
"Municipal Receipts," "Municipal Certificates of Accrual on Tax-Exempt
Securities" ("M-CATS") and "Municipal Zero-Coupon Receipts." The Fund may also
purchase certificates of participation that, in the opinion of counsel to the
issuer, are exempt from regular Federal income tax. Certificates of
participation are a type of floating or variable rate of obligation that
represents interests in a pool of municipal obligations held by a bank.
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 Tax-Exempt and
Municipal Funds and the Funds' liquidity and value. In such an event the Board
of Trustees would reevaluate the Funds' investment objectives and policies and
consider changes in their structure or possible dissolution.
Certain of the municipal instruments held by a Fund 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. A
Fund may invest more than 25% of its total assets in municipal instruments
covered by insurance policies.
In addition, municipal instruments may be backed by letters of credit
or guarantees issued by domestic or foreign banks or other financial
institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its credit or guarantee with respect to
a municipal instrument held by a Fund, including a change in the credit quality
of any such bank or financial institution, could result in a loss to the Fund
and adversely affect the value of its shares. As described above under "Foreign
Securities," letters of credit and guarantees issued by foreign banks and
financial institutions involve certain risks in addition to those of similar
instruments issued by domestic banks and financial institutions.
The Tax-Exempt Funds and the Municipal Funds 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: (i) the frequency of trades and quotes for the obligation; (ii) the
number of dealers willing to purchase or sell the security and the number of
other potential buyers; (iii) the willingness of dealers to undertake to make a
market in the security; and (iv) 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 Tax-Exempt Funds and the
Municipal Funds to invest more than 25% of the value of their total assets in
municipal instruments whose issuers are in the same state.
Options. Each Non-Money Market Fund 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, foreign currencies or (in the case of the Global Fixed Income Fund
and the High Yield Fixed Income Fund) the yield differential between two
securities ("yield curve options"), 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 or currency. The
premium paid to the writer is in consideration for undertaking the obligation
under the option contract. A put option for a particular security 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 or currency. In contrast to an option on a particular security, options
on an index provide the holder with the right to make or receive a cash
settlement upon exercise of the option. The amount of this settlement will be
equal to the difference between the closing price of the index at the time of
exercise and the exercise price of the option expressed in dollars, times a
specified multiple.
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 Funds will write call options only if they are "covered." In the
case of a call option on a security or currency, the option is "covered" if a
Fund owns the security or currency 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 a Fund maintains with its
custodian securities comprising the index or liquid assets equal to the contract
value. A call option is also covered if a Fund 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 Fund
segregates liquid assets in the amount of the difference. The Funds 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.
With respect to yield curve options, a call (or put) option is covered
if the Global Fixed Income Fund or High Yield Fixed Income Fund holds another
call (or put) option on the spread between the same two securities and maintains
in a segregated account liquid assets sufficient to cover the Fund's net
liability under the two options. Therefore, the Fund's liability for such a
covered option is generally limited to the difference between the amount of the
Fund's liability under the option written by the Fund less the value of the
option held by the Fund. Yield curve options may also be covered in such other
manner as may be in accordance with the requirements of the counterparty with
which the option is traded and applicable laws and regulations. Yield curve
options are traded over-the-counter, and because they have been only recently
introduced, established trading markets for these securities have not yet
developed.
A Fund's obligation to sell an instrument subject to a covered call
option written by it, or to purchase a security or currency subject to a secured
put option written by it, may be terminated prior to the expiration date of the
option by the Fund's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying security or currency, exercise price and expiration date) as the
option previously written. Such a purchase does not result in the ownership of
an option. A closing purchase transaction will ordinarily be effected to realize
a profit on an outstanding option, to prevent an underlying 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 security.
The cost of such a liquidation purchase plus transaction costs may be greater
than the premium received upon the original option, in which event the Fund will
have incurred a loss in the transaction. There is no assurance that a liquid
secondary market will exist for any particular option. An option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security or currency (in the case of a covered call option) or
liquidate the segregated assets (in the case of a secured put option) until the
option expires or the optioned security or currency is delivered upon exercise
with the result that the writer in such circumstances will be subject to the
risk of market decline or appreciation in the instrument during such period.
When a Fund purchases an option, the premium paid by it is recorded as
an asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund'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 a Fund expires unexercised, the Fund realizes a loss equal to the
premium paid. If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund will realize a gain if the premium received by the
Fund 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 a Fund expires on the
stipulated expiration date or if a Fund 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 a Fund is exercised, the proceeds of the sale will be increased by the net
premium originally received and the Fund 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 a national securities exchange (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.
Real Estate Investment Trusts. The High Yield Fixed Income Fund, Income
Equity Fund, Small Cap Index Fund, Small Cap Value Fund, Small Cap Growth Fund
and [Large Cap Value] Fund 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 Fund 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, a Fund 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 Fund bears directly in connection with its own
operations.
Relative Value Approach. In buying and selling securities for the Fixed
Income Funds, the investment management team uses a relative value approach.
This approach involves an analysis of economic and market information, including
economic growth rates, interest and inflation rates, deficit levels, the shape
of the yield curve, sector and quality spreads and risk premiums. It also
involves the use of proprietary valuation models to analyze and compare expected
returns and assumed risks. Under the relative value approach, the investment
management team will emphasize particular securities and particular types of
securities that the team believes will provide a favorable return in light of
these risks.
Repurchase Agreements. Each Fund 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 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 a Fund's acquisition of the securities and
normally will be within a shorter period of time. Securities subject to
repurchase agreements are held either by the Trust's custodian or subcustodian
(if any), or in the Federal Reserve/Treasury Book-Entry System. The seller under
a repurchase agreement will be required to maintain the value of the securities
subject to the agreement in an amount exceeding the repurchase price (including
accrued interest). Default by the seller would, however, expose a Fund to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations.
Reverse Repurchase Agreements. A Fund 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 Funds 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 a Fund may decline below the
repurchase price. A Fund will pay interest on amounts obtained pursuant to a
reverse repurchase agreement. While reverse repurchase agreements are
outstanding, a Fund will segregate liquid assets in an amount at least equal to
the market value of the securities, plus accrued interest, subject to the
agreement.
Risks Related to Small Company Securities. While the Investment
Advisers believe 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 primary investments of the Small
Cap Index, Small Cap Value and Small Cap Growth Funds', and stocks of recently
organized companies, in which the Small Cap Index, Small Cap Value and Small Cap
Growth Funds 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 a Fund'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 a Fund 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 a Fund'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 a Fund 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 a Fund of its initial investment
and any anticipated income or appreciation will be uncertain. A Fund may also
incur additional expenses in seeking recovering on defaulted securities. If an
issuer of a security defaults, a Fund 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 a Fund'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 a Fund's ability to dispose of particular
portfolio investments. A less developed secondary market may also make it more
difficult for a Fund 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 a Fund, especially in a thinly traded market.
Illiquid or restricted securities held by a Fund 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 a Fund holds. Because of this, a Fund's
performance may depend more on its Investment Adviser's credit analysis than is
the case of mutual funds investing in higher quality securities.
Securities Lending. Collateral for loans of portfolio securities made
by a Fund may consist of cash, cash equivalents, securities issued or guaranteed
by the U.S. Government or its agencies or (except for the U.S. Government Money
Market Fund, U.S. Government Select Money Market Fund, U.S. Government Fund and
Short-Intermediate U.S. Government Fund) irrevocable bank letters of credit (or
any combination thereof). The borrower of securities will be required to
maintain the market value of the collateral at not less than the market value of
the loaned securities, and such value will be monitored on a daily basis. When a
Fund lends its securities, it continues to receive dividends and interest on the
securities loaned and may simultaneously earn interest on the investment of the
cash collateral. Although voting rights, or rights to consent, attendant to
securities on loan pass to the borrower, such loans will be called so that the
securities may be voted by a Fund if a material event affecting the investment
is to occur.
Standby Commitments. The Tax-Exempt Funds and Municipal Funds may enter
into standby commitments with respect to municipal instruments held by them,
respectively. Under a standby commitment, a dealer agrees to purchase at a
Fund's option a specified municipal instrument. Standby commitments may be
exercisable by the Tax-Exempt Funds and Municipal Funds at any time before the
maturity of the underlying municipal instruments and may be sold, transferred or
assigned only with the instruments involved.
The Tax-Exempt Funds and Municipal Funds expect that standby
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, the Tax-Exempt Funds
and Municipal Funds 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 Tax-Exempt Funds and Municipal Funds will not
exceed 1/2 of 1% of the value of the Fund's total assets calculated immediately
after each standby commitment is acquired.
The Tax-Exempt Funds and Municipal Funds intend to enter into standby
commitments only with dealers, banks and broker-dealers which, in the Investment
Adviser's opinion, present minimal credit risks. The Tax-Exempt Funds and
Municipal Funds 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 Tax-Exempt
Funds and Municipal Funds pay directly or indirectly for a standby commitment,
the Funds' costs will be reflected as an unrealized loss for the period during
which the commitment is held by the Fund and will be reflected as unrealized
loss for the period during which the commitment is held by the Tax-Exempt Funds
and the Municipal Funds and will be reflected as unrealized loss for the period
during which the commitment is held by the Tax-Exempt Funds and the Municipal
Funds and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Stock Indices. The S&P 500 Index is a market value-weighted index
consisting of 500 common stocks which are traded on the New York Stock Exchange,
AMEX and the Nasdaq National Market System and selected by the S&P through a
detailed screening process starting on a macro-economic level and working toward
a micro-economic level dealing with company-specific information such as market
value, industry group classification, capitalization and trading activity. S&P's
primary objective for the S&P 500 Index is to be the performance benchmark for
the U.S. equity markets. The companies chosen for inclusion in the S&P 500 Index
tend to be leaders in important industries within the U.S. economy. However,
companies are not selected by S&P for inclusion because they are expected to
have superior stock price performance relative to the market in general or other
stocks in particular. S&P makes no representation or warranty, implied or
express, to purchasers of the Stock Index Fund shares or any member of the
public regarding the advisability of investing in the Fund or the ability of the
S&P 500 Index to track general stock market performance. As of March 31, 2000,
the approximate market capitalization range of the companies included in the S&P
500 Index was between $______million and $_______billion.
The S&P MidCap 400(R) Stock Index ("S&P MidCap 400 Index") is a
market-weighted index composed of 400 common stocks chosen by S&P for market
size, liquidity and industry group representation. The purpose of the S&P MidCap
400 Index is to represent the performance of the medium-capitalization sector of
the U.S. securities market. Medium capitalized stocks which are included in the
S&P 500 Index are excluded from the S&P MidCap 400 Index. Except for a limited
number of Canadian securities, the S&P MidCap 400 does not include foreign
securities. As of March 31, 2000, the approximate market capitalization range of
the companies included in the S&P MidCap 400 Index was between $___ million and
$___ billion.
The Russell 2000 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
2000 Index represents approximately __% of the total market capitalization of
the Russell 3000 Index. As of March 31, 2000, the average market capitalization
of the companies included in the Russell 2000 Index was approximately $___
million. The Russell 2000 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 2000 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 2000
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 the Small
Cap Index or the Small Cap Growth Fund shares or any member of the public
regarding the advisability of investing in the Fund or the ability of the
Russell 2000 Index to track general market performance of small capitalization
stocks.
Stripped Securities. The Treasury Department has facilitated transfers
of ownership of zero coupon securities by accounting separately for the
beneficial ownership of particular interest coupon and principal payments on
Treasury securities through the Federal Reserve book-entry record-keeping
system. The Federal Reserve program as established by the Treasury Department is
known as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." The Funds may purchase securities registered in the STRIPS program.
Under the STRIPS program, the Funds are able to have their 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 Funds, other than the U.S. Government Select Money
Market Fund, 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.
The Prospectuses discuss other types of stripped securities that may be
purchased by the Funds, including 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, a Fund 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.
Supranational Bank Obligations. A Fund 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 (the "World Bank")). Obligations of
supranational banks may be supported by appropriated but unpaid commitments of
their member countries and there is no assurance that these commitments will be
undertaken or met in the future.
Tracking Variance. As discussed in the Prospectuses, the Stock Index
and Small Cap Index Funds are subject to the risk of tracking variance. Tracking
variance may result from share purchases and redemptions, transaction costs,
expenses and other factors. Share purchases and redemptions may necessitate the
purchase and sale of securities by a Fund and the resulting transaction costs
which may be substantial because of the number and the characteristics of the
securities held. In addition, transaction costs are incurred because sales of
securities received in connection with spin-offs and other corporate
organizations are made to conform a Fund's holdings with its investment
objective. Tracking variance may also occur due to factors such as the size of a
Fund, the maintenance of a cash reserve pending investment or to meet expected
redemptions, changes made in the Fund's designated Index or the manner in which
the Index is calculated or because the indexing and investment approach of the
Investment Adviser does not produce the intended goal of the Fund. Tracking
variance is monitored by the Investment Adviser at least quarterly. In the event
the performance of a Fund is not comparable to the performance of its designated
Index, the Board of Trustees will evaluate the reasons for the deviation and the
availability of corrective measures. If substantial deviation in a Fund's
performance were to continue for extended periods, it is expected that the Board
of Trustees would consider recommending to shareholders possible changes to the
Fund's investment objective.
U.S. Government Obligations. Examples of the types of U.S. Government
obligations that may be acquired by the Funds 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, FNMA, GNMA, General Services
Administration, Central Bank for Cooperatives, FHLMC, Federal Intermediate
Credit Banks and Maritime Administration.
Securities guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities are also deemed to include (i)
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 (ii) participations in loans made to foreign
government; or their agencies that are so guaranteed.
To the extent consistent with their respective investment objectives,
the Funds 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.
Variable and Floating Rate Instruments. With respect to the variable
and floating rate instruments that may be acquired by the Funds, the Investment
Advisers 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 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 a Fund can recover payment of
principal as specified in the instrument. Where necessary to ensure that a
variable or floating rate instrument meets a Fund's quality requirements, the
issuer's obligation to pay the principal of the instrument will be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
Variable and floating rate instruments eligible for purchase by the
Funds include variable amount master demand notes, which permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate, and (except for the Money Market Funds) leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage interest in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. The Funds
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 Advisers to be of comparable quality at the time
of purchase to rated instruments which may be purchased by the Funds.
Variable and floating rate instruments including inverse floaters held by a
Fund will be subject to the Fund's limitation on illiquid investments, absent a
reliable trading market, when the Fund may not demand payment of the principal
amount within seven days.
Warrants. The Income Equity, Growth Equity, Select Equity, Blue Chip
20, Mid Cap Growth, Small Cap Value, Small Cap Growth, International Growth
Equity, International Select Equity, Technology, [Large Cap Value] and High
Yield Fixed Income Funds 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 a Fund could lose the purchase value of a warrant if the
right to subscribe to additional shares is not exercised prior to the warrant's
expiration. Also, the purchase of warrants involves the risk that the effective
price paid for the warrant added to the subscription price of the related
security may exceed the value of the subscribed security's market price such as
when there is no movement in the level of the underlying security. [A Fund will
not invest more than 5% of its total assets, taken at market value, in warrants.
Warrants acquired by a Fund in shares or attached to other securities are not
subject to this restriction.]
Yields and Ratings. The yields on certain obligations, including the
money market instruments in which the Funds invest, 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
S&P, Moody's, D&P, Fitch and Thomson BankWatch, Inc. ("TBW") represent their
respective opinions as to the quality of the obligations they undertake to rate.
Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate may
have different market prices. For a more complete discussion of ratings, see
Appendix A to this Additional Statement.
Subject to the limitations stated in the Prospectuses, if a security
held by a Fund undergoes a rating revision, the Fund may continue to hold the
security if the Investment Advisers determine such retention is warranted.
Zero Coupon, Pay-in-Kind and Capital Appreciation Bonds. To the extent
consistent with their respective investment objectives, each Fund 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, a Fund 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, a Fund 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 Funds are nonetheless required to accrue income on
such investments for each taxable year and generally are 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, a Fund
may be required to liquidate other portfolio securities to obtain sufficient
cash to satisfy federal tax distribution requirements applicable to the Fund.
Special Risk Factors and Considerations Relating to California Municipal
Instruments, Florida Municipal Instruments and Arizona Municipal Instruments
Some of the risk factors relating to investments by the California,
Florida Intermediate Tax-Exempt and Arizona Tax-Exempt Funds in California,
Florida, and Arizona municipal instruments are summarized below. This summary
does not purport to be a comprehensive description of all relevant factors.
Although the Trust has no reason to believe that the information summarized
herein is not correct in all material respects, this information has not been
independently verified for accuracy or thoroughness by the Trust. Rather, the
information presented herein with respect to California municipal instruments
was culled from official statements and prospectuses issued in connection with
various securities offerings of the State of California and local agencies in
California available as of the date of this Additional Statement and, with
respect to the Florida Intermediate Tax-Exempt and Arizona Tax-Exempt Funds, the
information is derived principally from official statements relating to issues
of Florida and Arizona municipal instruments released prior to the date of this
Additional Statement. Further, any estimates and projections presented herein
should not be construed as statements of fact. They are based upon assumptions
which may be affected by numerous factors and there can be no assurance that
target levels will be achieved.
California Municipal Instruments
General
The financial condition of the State of California ("California"), its
public authorities and local governments could affect the market values and
marketability of, and therefore the net asset value per unit and the interest
income of, the California Funds, or result in the default of existing
obligations, including obligations which may be held by the California Funds. It
should be noted that the creditworthiness of obligations issued by local issuers
may be unrelated to the creditworthiness of California, and that there is no
obligation on the part of California to make payment on such local obligations
in the event of default in the absence of a specific guarantee or pledge
provided by California.
During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the State's finances have
improved significantly since 1994, with ratings increases since 1996. The
ratings of certain related debt of other issuers for which California has an
outstanding lease purchase, guarantee or other contractual obligation (such as
for state-insured hospital bonds) are generally linked directly to California's
rating. Should the financial condition of California deteriorate again, its
credit ratings could be reduced, and the market value and marketability of all
outstanding notes and bonds issued by California, its public authorities or
local governments could be adversely affected.
Economic Factors
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of almost 34 million represents
over 12 percent of the total United States population and grew by 26 percent in
the 1980s, more than double the national rate. Population growth slowed to less
than 1 percent annually in 1994 and 1995, but rose to 1.8 percent in 1996 and
1.6 percent in 1997. During the early 1990's, net population growth in the State
was due to births and foreign immigration, but in recent years, in-migration
from the other states has increased.
[Total personal income in the State, at an estimated [$902] billion in
1999, accounts for almost [13] percent of all personal income in the nation.
Total employment is over [15] million, the majority of which is in the service,
trade and manufacturing sectors.]
From mid-1990 to late 1993, the State suffered a recession with the
worst economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), and financial services, among others, were
all severely affected, particularly in Southern California. Employment levels
stabilized by late 1993 and pre-recession job levels were reached in 1996.
Unemployment, while remaining higher than the national average, has come down
from its 10 percent recession peak to under 6 percent in early 1999. Economic
indicators show a steady and strong recovery underway in California since the
start of 1994 particularly in high technology manufacturing and services,
including computer software, electronic manufacturing and motion
picture/television production, and other services, entertainment and tourism,
and both residential and commercial construction. International economic
problems starting in 1997 had some moderating impact on California's economy,
but negative impacts, such as a sharp drop in exports to Asia which have hurt
the manufacturing and agricultural sectors, have apparently been offset by
increased exports to Latin American and other nations, and a greater strength in
services, computer software and construction. [Current forecasts predict
continued strong growth of the State's economy in [1999], with a slowdown in the
rate of growth predicted in 2000 and beyond.] Any delay or reversal of the
recovery may create new shortfalls in State revenues.
Constitutional Limitations on Taxes, Other Charges and Appropriations
Limitation on Property Taxes. Certain California municipal instruments
may be obligations of issuers which rely in whole or in part, directly or
indirectly, on ad valorem property taxes as a source of revenue. The taxing
powers of California local governments and districts are limited by Article
XIIIA of the California Constitution, enacted by the voters in 1978 and commonly
known as "Proposition 13." Briefly, Article XIIIA limits to 1 percent of full
cash value of the rate of ad valorem property taxes on real property and
generally restricts the reassessment of property to 2 percent per year, except
under new construction or change of ownership (subject to a number of
exemptions). Taxing entities may, however, raise ad valorem taxes above the 1
percent limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1 percent ad valorem tax levy is applied
against the assessed value of property as of the owner's date of acquisition (or
as of March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13, but it was upheld by the U.S.
Supreme Court in 1992.
Article XIIIA prohibits local governments from raising revenues through
ad valorem taxes above the 1 percent limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed a non-voter approved levy of "general taxes" which
were not dedicated to a specific use.
Limitations on Other Taxes, Fees and Charges. On November 5, 1996, the
voters of the State approved Proposition 218, called the "Right to Vote on Taxes
Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution,
which contain a number of provisions affecting the ability of local agencies to
levy and collect both existing and future taxes, assessments, fees and charges.
Article XIIIC requires that all new or increased local taxes be
submitted to the electorate before they become effective. Taxes for general
governmental purposes require a majority vote and taxes for specific purposes
require a two-thirds vote. Further, any general purpose tax which was imposed,
extended or increased without voter approval after December 31, 1994 must be
approved by a majority vote within two years.
Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges", defined for purposes of Article XIIID to mean
"any levy other than an ad valorem tax, a special tax, or an assessment, imposed
by a [local government] upon a parcel or upon a person as an incident of
property ownership, including a user fee or charge for a property related
service." All new and existing property related fees and charges must conform to
requirements prohibiting, among other things, fees and charges which generate
revenues exceeding the funds required to provide the property related service or
are used for unrelated purposes. There are new notice, hearing and protest
procedures for levying or increasing property related fees and charges, and,
except for fees or charges for sewer, water and refuse collection services (or
fees for electrical and gas service, which are not treated as "property related"
for purposes of Article XIIID), no property related fee or charge may be imposed
or increased without majority approval by the property owners subject to the fee
or charge or, at the option of the local agency, two-thirds voter approval by
the electorate residing in the affected area.
In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments, fees
and charges. Consequently, local voters could, by future initiative, repeal,
reduce or prohibit the future imposition or increase of any local tax,
assessment, fee or charge. It is unclear how this right of local initiative may
be used in cases where taxes or charges have been or will be specifically
pledged to secure debt issues.
The interpretation and application of Proposition 218 will ultimately
be determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainty the outcome of such
determinations. Proposition 218 is generally viewed as restricting the fiscal
flexibility of local governments, and for this reason, some ratings of
California cities and counties have been, and others may be, reduced.
Appropriations Limits. The State and its local governments are subject
to an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of
post-1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in the State's economy.
"Excess" revenues are measured over a two year cycle. Local governments
must return any excess to taxpayers by rate reductions. The State must refund 50
percent of any excess, with the other 50 percent paid to schools and community
colleges. With more liberal annual adjustment factors since 1988, and depressed
revenues since 1990 because of the recession, few governments are currently
operating near their spending limits, but this condition may change over time.
Local governments may by voter approval exceed their spending limits for up to
four years. During fiscal year 1986-87, State receipts from proceeds of taxes
exceeded its appropriations limit by $1.1 billion, which was returned to
taxpayers. Since that year, appropriations subject to limitation have been under
the State limit. State appropriations were $6.8 billion under the limit for
fiscal year 1998-99.
Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID
of the California Constitution, the ambiguities and possible inconsistencies in
their terms, and the impossibility of predicting future appropriations or
changes in population and cost of living, and the probability of continuing
legal challenges, it is not currently possible to determine fully the impact of
these Articles on California municipal instruments or on the ability of the
State or local governments to pay debt service on such California municipal
instruments. It is not possible, at the present time, to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of these Articles or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay debt
service on their obligations. Further initiatives or legislative changes in laws
or the California Constitution may also affect the ability of the State or local
issuers to repay their obligations.
Obligations of the State of California
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. As of May 1,
1999, the State had outstanding approximately $19.7 billion of long-term general
obligation bonds, plus $246 million of general obligation commercial paper which
will be refunded by long-term bonds in the future, and $6.6 billion of
lease-purchase debt supported by the State General Fund. The State also had
about $15.3 billion of authorized and unissued long-term general obligation
bonds and lease-purchase debt. In FY 1997-98, debt service on general obligation
bonds and lease purchase debt was approximately 4.4 percent of General Fund
revenues.
Recent Financial Results
The principal sources of General Fund revenues in 1997-1998 were the
California personal income tax (51 percent of total revenues), the sales tax (32
percent), bank and corporation taxes (11 percent), and the gross premium tax on
insurance (2 percent). The State maintains a Special Fund for Economic
Uncertainties (the "SFEU"), derived from General Fund revenues, as a reserve to
meet cash needs of the General Fund, but which is required to be replenished as
soon as sufficient revenues are available. Year-end balances in the SFEU are
included for financial reporting purposes in the General Fund balance. Because
of the recession and an accumulated budget deficit, no reserve was budgeted in
the SFEU from 1992-93 to 1995-96.
Throughout the 1980's, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were constrained by Proposition
13 and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative (Proposition 98) was enacted which
(subject to suspension by a two-thirds vote of the Legislature and the Governor)
guarantees local school districts and community college districts a minimum
share of State General Fund revenues (currently about 35 percent).
Recent Budgets. As a result of the severe economic recession from
1990-94 and other factors, during this period the State experienced substantial
revenue shortfalls, and greater than anticipated social service costs. The State
accumulated and sustained a budget deficit in the budget reserve, the SFEU,
approaching $2.8 billion at its peak at June 30, 1993. The Legislature and
Governor responded to these deficits by enacting a series of fiscal steps
between FY1991-92 and FY1994-95, including significant cuts in health and
welfare and other program expenditures, tax increases, transfers of program
responsibilities and some funding sources from the State to local governments,
and transfer of about $3.6 billion in annual local property tax revenues
primarily from cities and counties to local school districts, thereby reducing
State funding for schools.
A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to pay
its ongoing obligations. The State's cash condition became so serious that from
late spring 1992 until 1995, the State had to rely on issuance of short term
notes which matured in a subsequent fiscal year to finance its ongoing deficit,
and pay current obligations. The last of these deficit notes was repaid in
April, 1996.
The State's financial condition improved markedly in the years from
FY1995-96 onward, with a combination of better than expected revenues, slowdown
in growth of social welfare programs, and continued spending restraint based on
the actions taken in earlier years. The State's cash position also improved, and
no external deficit borrowing has occurred over the fiscal year since FY
1994-95.
The economy grew strongly during these fiscal years, and as a result,
the General Fund took in substantially greater tax revenues (around $2.2 billion
in 1995-96, $1.6 billion in 1996-97, $2.1 billion in 1997-98, and $1.0 billion
in 1998-99) than were initially planned when the budgets were enacted. These
additional funds were largely directed to school spending as mandated by
Proposition 98, and to make up shortfalls from reduced federal health and
welfare aid in 1995-96 and 1996-97. The accumulated budget deficit from the
recession years was finally eliminated. The Department of Finance estimates that
the State's budget reserve (the SFEU) totaled about $1.8 billion at June 30,
1998 and $1.9 billion at June 30, 1999.
The growth in General Fund revenues since the end of the recession
resulted in significant increases in State funding for local school districts
under Proposition 98. From the recession level of about $4,300 per pupil, annual
State funding has increased to over $6,000 per pupil in FY 1999-2000. A
significant amount of the new moneys have been directed to specific educational
reforms, including reduction of class sizes in many grade levels. The improved
budget condition also allowed annual increases in support for higher education
in the State, permitting increased enrollment and reduction of student fees.
Part of the 1997-98 Budget Act was completion of State welfare reform
legislation to implement the new federal law passed in 1996. The new State
program, called "CalWORKs," became effective January 1, 1998, and emphasizes
programs to bring aid recipients into the workforce. As required by federal law,
new time limits are placed on receipt of welfare aid. Generally, health and
welfare costs have been contained even during the recent period of economic
recovery, with the first real increases (after inflation) in welfare support
levels occurring in 1999-2000.
FY 1998-99 Budget. The FY 1998-99 Budget Act was signed on August 21,
1998. After giving effect to line-item vetoes made by the Governor, the Budget
plan resulted in spending of about $57.3 billion for the General Fund and $14.7
billion for Special Funds. The Budget Act assumed General Fund revenues and
transfers in FY 1998-99 of $57.0 billion. After enactment of the Budget Act, the
Legislature passed a number of additional fiscal bills. Taking these into
account, the Administration projected in September, 1998 that the balance in the
SFEU at June 30, 1999 would be about $1.2 billion.
One of the most important elements of the 1998-99 Budget Act was
agreement on substantial tax cuts. The largest of these was a phased-in cut in
the Vehicle License Fee (an annual tax on the value of cars registered in the
State, the "VLF"). Starting on January 1, 1999, the VLF has been reduced by 25
percent. Under pre-existing law, VLF funds are automatically transferred to
cities and counties, so the new legislation provided for the General Fund to
make up the reductions. If State General Fund revenues continue to grow above
certain targeted levels in future years, the cut could reach as much as 67.5
percent by the year 2003. The initial 25 percent VLF cut will be offset by about
$500 million in General Fund money in FY 1998-99, and $1 billion annually for
future years. Other tax cuts in FY 1998-99 included an increase in the dependent
credit exemption for personal income tax filers, restoration of a renter's tax
credit for taxpayers, and a variety of business tax relief measures. The total
cost of these tax cuts was estimated at $1.4 billion for FY 1998-99.
The Administration released new projections for the balance of FY
1998-99 on May 14, 1999 as part of the May Revision of the Governor's Proposed
Budget for 1999-2000 (the "May Revision"). The May Revision revealed that the
State's economy was much stronger in late 1998 and into 1999 than the
Administration had thought when it made its first FY 1999-2000 Budget Proposal
in January 1999. As a result, the May Revision updated 1998-99 General Fund
revenues to be $57.9 billion, almost $1 billion above the original FY 1998-99
estimates, and over $1.6 billion above the Administration's January estimate.
Most of the increase is from personal income taxes, reflecting stronger wage
employment than previously estimated and extraordinary growth in capital gain
realizations resulting from the stock market's rise. The May Revision projected
the SFEU will have a balance of almost $1.9 billion at June 30, 1999.
Although, as noted, the Administration projected a budget reserve in
the SFEU of about $1.9 billion on June 30, 1999, the General Fund balance on
that date also reflects $1.0 billion of "loans" which the General Fund made to
local schools in the recession years, representing cash outlays above the
mandatory minimum funding level. Settlement of litigation over these
transactions in July 1996 calls for repayment of these loans over the period
ending in 2001-02, about equally split between outlays from the General Fund and
from schools' entitlements. The 1998-99 Budget Act contained a $300 million
appropriation from the General Fund toward this settlement.
FY 1999-2000 Budget. The newly elected Governor, Gray Davis, released
his proposed FY 1999-00 Budget in January 1999. It projected somewhat lower
General Fund revenues than in earlier projections, due to slower economic growth
which was expected in late 1998, but totaling an estimated $60.3 billion. The
May Revision has sharply increased the revenue estimates, by over $2.7 billion,
to a total of almost $63.0 billion, which would represent a 9 percent increase
above FY 1998-99. Again, the greatest increase is expected in personal income
taxes (about 10 percent year-over-year increase), with more moderate increases
in sales taxes (6 percent) and corporate taxes (3 percent).
The 1999-00 Budget Act was signed on June 29, 1999, only the second
time in the decade the budget was in place at the start of the fiscal year.
After the Governor used his line-item veto power to reduce expenditures by about
$581 million, the final spending plan called for about $63.7 billion of General
Fund expenditures, $16.1 billion of Special Fund expenditures, and $1.5 billion
in bond funded expenditures. The Governor's final budget actions left the SFEU
with an estimated balance of $881 million at June 30, 2000, but the Governor
also reduced spending to set aside $300 million for future appropriation for
either employee pay raises or potential litigation costs. If not fully used,
these "set-aside" funds would increase the SFEU year-end balance.
The final Budget Act generally provided increased funding for a wide
range of programs. Education spending under Proposition 98 received the largest
increase (over $2.3 billion above 1998-99), with other significant increases for
higher education, health and welfare, natural resources and capital outlay. The
budget provides several hundred million dollars in direct new aid to cities and
counties. A proposal is being drafted to place a constitutional amendment on the
ballot in 2000 to provide more extensive, permanent fiscal relief for local
government.
The final spending plan includes several targeted tax cuts for
businesses, totaling under $100 million in 1999-00. The plan also includes a
one-time, one-year additional cut of 10 percent in the Vehicle License Fee for
calendar year 2000. This cut will cost the General Fund about $500 million in
each of 1999-00 and 2000-01 to make up lost funds for local governments. Under
the 1998 law, the VLF cut to 35 percent would become permanent in the year 2001
if General Fund revenues reach a certain specified level in 2000-01.
Although the State's strong economy is producing record revenues to the
State government, the State's budget continues to be under stress from mandated
spending on education, a rising prison population, and social needs of a growing
population with many immigrants. These factors which limit State spending growth
also put pressure on local governments. There can be no assurances that, if
economic conditions weaken, or other factors intercede, the State will not
experience budget gaps in the future.
Bond Rating
The ratings on California's long-term general obligation bonds were reduced in
the early 1990's from "AAA" levels which had existed prior to the recession.
After 1996, the three major rating agencies raised their ratings of California's
general obligation bonds, which as of July 1, 1999 were assigned ratings of "A+"
from S&P, "Aa3" from Moody's and "AA-" from Fitch.
There can be no assurance that such ratings will be maintained in the
future. It should be noted that the creditworthiness of obligations issued by
local California issuers may be unrelated to creditworthiness of obligations
issued by the State of California, and that there is no obligation on the part
of the State to make payment on such local obligations in the event of default.
Legal Proceedings
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues. Trial courts have recently entered tentative decisions or
injunctions which would overturn several parts of the State's recent budget
compromises. The matters covered by these lawsuits include reductions in welfare
payments and the use of certain cigarette tax funds for health costs. All of
these cases are subject to further proceedings and appeals, and if California
eventually loses, the final remedies may not have to be implemented in one year.
Year 2000 Preparations
The State and local governments, along with all other public and
private institutions in the nation, face a major challenge to ensure that their
computer systems, including microchips embedded into existing machinery, will
not fail prior to or at the January 1, 2000 date which may not be recognized
properly by software utilizing only two digits to identify a year. The new State
Administration has placed a very high priority on "Year 2000" remediation and
contingency planning. The State has a Department of Information Technology
("DOIT") which coordinates activities, provides technical assistance to State
agencies and local governments, and reports on the status of remediation efforts
by over 100 State departments and agencies.
DOIT has reported that, as of early 1999, 372 of 564 "mission critical"
systems in State government had been remediated (although final testing was
still going on in some cases). Of the balance, 54 were being retired and 138
were in process. DOIT does not report on all State agencies. In addition to
hardware and software changes, agencies are preparing business contingency plans
in case of computer problems at 1/1/2000, and are actively coordinating with
outside agencies, vendors, contractors and others with whom computer data is
shared. The State Treasurer and State Controller, responsible for State fiscal
controls and debt service payments, have reported they were fully remediated by
December 31, 1998 and are spending the 1999 year in testing and confirmation of
their systems.
The State has expended and plans to spend many hundreds of millions of
dollars on Year 2000 projects of all sorts, and has set aside several tens of
millions of dollars in contingency funds to support late-coming needs. There is
no survey of local government costs, or the overall status of their activities.
It is likely that larger government agencies are better prepared at this time
than smaller ones. Both the State and local governments are preparing emergency
plans for Year 2000 computer difficulties similar to their normal planning for
natural emergencies, such as floods or earthquakes.
Obligations of Other Issuers
Other Issuers of California Municipal Instruments. There are a number
of State agencies, instrumentalities and political subdivisions of the State
that issue municipal instruments, some of which may be conduit revenue
obligations payable from payments from private borrowers. These entities are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
State Assistance. Property tax revenues received by local governments
declined more than 50 percent following passage of Proposition 13. Subsequently,
the California Legislature enacted measures to provide for the redistribution of
the State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Total
local assistance from the State's General Fund was budgeted at approximately 75
percent of General Fund expenditures in recent years, including the effect of
implementing reductions in certain aid programs. To reduce State General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts caused local
governments to transfer $3.9 billion of property tax revenues to school
districts, representing loss of the post-Proposition 13 "bailout" aid. Local
governments have in return received greater revenues and greater flexibility to
operate health and welfare programs. However, except for agreement in 1997 on a
new program for the State to substantially take over funding for local trial
courts (saving cities and counties some $400 million annually), there has been
no large-scale reversal of the property tax shift to help local government.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such reductions
in State aid could compound the serious fiscal constraints already experienced
by many local governments, particularly counties. Los Angeles County, the
largest in the State, was forced to make significant cuts in services and
personnel, particularly in the health care system, in order to balance its
budget in FY1995-96 and FY1996-97. Orange County, which emerged from Federal
Bankruptcy Court protection in June 1996, has significantly reduced county
services and personnel, and faces strict financial conditions following large
investment fund losses in 1994 which resulted in bankruptcy.
Counties and cities may face further budgetary pressures as a result of
changes in welfare and public assistance programs, which were enacted in August,
1997 in order to comply with the federal welfare reform law. Generally, counties
play a large role in the new system, and are given substantial flexibility to
develop and administer programs to bring aid recipients into the workforce.
Counties are also given financial incentives if either at the county or
statewide level, the "Welfare-to-Work" programs exceed minimum targets; counties
are also subject to financial penalties for failure to meet such targets.
Counties remain responsible to provide "general assistance" for able-bodied
indigents who are ineligible for other welfare programs. The long-term financial
impact of the new CalWORKs system on local governments is still unknown.
Assessment Bonds. California municipal instruments which are assessment
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
California Long Term Lease Obligations. Based on a series of court
decisions, certain long-term lease obligations, though typically payable from
the general fund of the State or a municipality, are not considered
"indebtedness" requiring voter approval. Such leases, however, are subject to
"abatement" in the event the facility being leased is unavailable for beneficial
use and occupancy by the municipality during the term of the lease. Abatement is
not a default, and there may be no remedies available to the holders of the
certificates evidencing the lease obligation in the event abatement occurs. The
most common cases of abatement are failure to complete construction of the
facility before the end of the period during which lease payments have been
capitalized and uninsured casualty losses to the facility (e.g., due to
earthquake). In the event abatement occurs with respect to a lease obligation,
lease payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due. Although
litigation is brought from time to time which challenges the constitutionality
of such lease arrangements, the California Supreme Court issued a ruling in
August, 1998 which reconfirmed the legality of these financing methods.
Other Considerations
The repayment of industrial development securities secured by real
property may be affected by California laws limiting foreclosure rights of
creditors. Securities backed by health care and hospital revenues may be
affected by changes in State regulations governing cost reimbursements to health
care providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that
all revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay that entity's general obligation
indebtedness. As a result, redevelopment agencies (which, typically, are the
issuers of tax allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter-approved bonded indebtedness.
The effect of these various constitutional and statutory changes upon
the ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not possible, at present, to predict the extent to which
any such legislation will be enacted. Nor is it possible, at present, to
determine the impact of any such legislation on California municipal instruments
in which the Fund may invest, future allocations of state revenues to local
governments or the abilities of state or local governments to pay the interest
on, or repay the principal of, such California municipal instruments.
Substantially all of California is within an active geologic region
subject to major seismic activity. Northern California in 1989 and Southern
California in 1994 experienced major earthquakes causing billions of dollars in
damages. The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Fund could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage
rates; (ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State government to appropriate
sufficient funds within their respective budget limitations.
Florida Municipal Instruments
The financial condition of the State of Florida may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities but also by entities that are not under the control of the
State. Adverse developments affecting the State's financing activities, its
agencies or its political subdivisions could adversely affect the State's
financial condition.
The State's revenues increased from $32,957,715,000 during the 1996-97
fiscal year ended June 30, 1997 to $35,849,518,000 during the fiscal year ended
June 30, 1998. The State's operating expenditures increased from $31,494,591,000
during the 1996-97 fiscal year ended June 30, 1997 to $33,373,020,000 during the
1997-98 fiscal year ended June 30, 1998. The Office of Economic and Demographic
Research of the Florida Legislature also projected non-agricultural jobs to grow
3.5% and 3.1% in fiscal years 1998-99 and 1999-2000, respectively. The revenue
growth in the 1998-1999 fiscal year is driven by the State's sales tax
collections. The sales tax accounts for close to 75% of total revenues through
March 31, 1999. A March 31, 1999 estimate shows an expected year-end surplus of
$573.8 million. When this is combined with the Budget Stabilization Fund balance
of $786.9 million, Florida's total reserves are $1,360.7 million.
The Constitution of the State of Florida limits the right of the State
and its local governments to tax. The Constitution requires the State to have a
balanced budget and to raise revenues to defray its operating expenses. The
State may not borrow for the purpose of maintaining ordinary operating expenses,
but may generally borrow for capital improvements.
An amendment to the Florida Constitution adopted in 1994 requires that
state revenues in excess of an allowed amount plus a growth factor must be
contributed to a Budget Stabilization Fund until this fund reaches a certain
amount at which time the excess state revenues must be distributed to the
taxpayers. The growth factor is the average annual rate of growth in the state
personal income over the most recent 20 quarters times the amount of state
revenue allowed under the Constitution for the prior fiscal year. Included among
the categories of revenues that are exempt from this revenue limitation are
revenues pledged to state bonds and other payments related to debt. A two-thirds
vote of the Florida legislature can raise the amount of the limit on state
revenues. It is difficult to predict the impact of this amendment on Florida
state finances, especially since courts have not interpreted it extensively. To
the extent that local governments traditionally receive revenues from the state
which are subject to or limited by this Constitutional amendment, the further
distribution of such state revenues may be adversely impacted by the amendment.
There are a number of methods by which the State of Florida may incur
debt. The State may issue bonds backed by the State's full faith and credit to
finance or refinance certain capital projects authorized by its voters. The
total outstanding principal of State bonds pledging the full faith and credit of
the State may not exceed 50% of the total tax revenues of the State for the two
preceding fiscal years, excluding any tax revenues held in trust. The State also
may issue certain bonds backed by the State's full faith and credit to finance
or refinance pollution control, solid waste disposal and water facilities for
local governments; county roads; school districts and capital public education
projects without voter authorization. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State's authorities, agencies and instrumentalities. Payments of debt service on
State bonds backed by the State's full faith and credit and State-guaranteed
bonds and notes are legally enforceable obligations of the State. Revenue bonds
to finance or refinance certain capital projects also may be issued by the State
of Florida without voter authorization. However, revenue bonds are payable
solely from funds derived directly from sources other than state tax revenues.
The State of Florida currently imposes, among other taxes, an ad
valorem tax on intangible property and a corporate income tax. The Florida
Constitution prohibits the levying of a personal income tax. Certain other taxes
the State of Florida imposes include: an estate or inheritance tax which is
limited by the State's Constitution to an amount not in excess of the amount
allowed to be credited upon or deducted from federal estate taxes or the estate
taxes of another state; and a 6% sales tax on most goods and certain services
with an option for counties to impose up to an additional 1% sales tax on such
goods and services. In addition, counties chartered before June 1, 1976 or
county with a consolidated county/municipal government may assess up to a 1%
discretionary sales surtax within the county for the development, construction,
maintenance and operation of a fixed guideway rapid transit system.
The Constitution reserves the right to charge an ad valorem tax on real
estate and tangible personal property to Florida's local governments. All other
forms of taxation are preempted to the State of Florida except as may be
provided by general law. Motor vehicles, boats, airplanes, trailers, trailer
coaches and mobile homes, as defined by law, may be subject to a license tax for
their operation, but may not be subject to an ad valorem tax.
Under the Constitution, ad valorem taxes may not be levied in excess of
the following millage upon the assessed value of real estate and tangible
personal property: for all county purposes, ten mills; for all municipal
purposes, ten mills; for all school purposes, ten mills; for water management
purposes for the northwest portion of the State, .05 mills; for water management
purposes for the remaining portion of the State, one mill; and for all other
special districts a millage authorized by law and approved by referendum. When
authorized by referendum, the above millage caps may be exceeded for up to two
years. Counties, school districts, municipalities, special districts and local
governmental bodies with taxing powers may issue bonds to finance or refinance
capital projects payable from ad valorem taxes in excess of the above millage
cap when approved by referendum. It should be noted that several municipalities
and counties have charters that further limit either ad valorem taxes or the
millage that may be assessed.
The Florida legislature has passed a number of mandates which limit or
place requirements on local governments without providing the local governments
with compensating changes in their fiscal resources. The Florida legislature
enacted a comprehensive growth management act which forces local governments to
establish and implement comprehensive planning programs to guide and control
future development. This legislation prohibits public or private development
that does not conform with the locality's comprehensive plan. Local governments
may face greater requirements for services and capital expenditures than they
had previously experienced if their locality experiences increased growth or
development. The burden for funding these potential services and capital
expenditures which has been left to the local governments may be quite large.
The Florida Constitution limits the assessed value of homestead real
property for ad valorem tax purposes to the lower of (A) three percent (3%) of
the assessed value for the prior year; or (B) the percentage change in the
Consumer Price Index for the preceding calendar year. In addition, no such
assessed value shall exceed "just value" and such just value shall be reassessed
(notwithstanding the 3% cap) as of January 1 of the year following a change of
ownership of the assessed real property.
Florida has grown dramatically since 1980 and as of April 1, 1997
ranked fourth nationally with an estimated population of 14.7 million. Florida's
substantial population increases over the past few years are expected to
continue. It is anticipated that corresponding increases in State revenues will
be necessary during the next decade to meet increased burdens on the various
public and social services provided by the State. Much of this growth is being
funded by bonded revenues secured by the expanding real property tax base. As of
1997, real property values exceed $724 billion. Residential property values
account for over $400 billion in value while commercial and industrial property
values exceed $100 billion.
Florida's job market continues to reflect strong performance. The
state's March 1999 unemployment rate was 4.1 percent, 0.3 percentage points
lower than the year ago rate of 4.4 percent. Florida's unemployment rate was one
of the lowest since October 1973 when it was 3.4 percent. The U.S. unemployment
rate was 4.2 percent in March 1999, just above Florida's rate. Fueled by low
interest rates, construction had the fastest growth rate at 5.8 percent and
added 20,000 jobs over the year. Similarly, finance, insurance, and real estate
and government also experienced year to year increases of 19,100 jobs and 16,400
jobs, respectively. The apparel and textiles industries lost 1,500 jobs due to
tariffs and foreign competition. The State is gradually becoming less dependent
on employment related to construction, agriculture and manufacturing, and more
dependent on employment related to trade and services. Presently, services
constitute 34.9% and trade 25.6% of the State's total non-farm jobs.
Personal income in the State has been growing strongly the last several
years and has generally outperformed both the nation as a whole and the
Southeast in particular. The reasons for this are strong population growth and
diversification of the economy. From 1992 through 1997, the State's per capita
income rose an average of 5.0% per year, while the national per capita income
increased an average of 4.8%. For 1997, the State's per capita personal income
rose an average of 4.0% while the national per capita personal income rose 4.7%.
In 1997, per capita personal income in Florida was $24,795, while the national
per capita personal income was $25,298. The structure of the State's income
differs from that of the nation and the Southeast. Because the State has a
proportionately greater retirement age population, property income (dividends,
interest and rent) and transfer payments (social security and pension benefits,
among other sources of income) are a relatively more important source of income.
Transfer payments, such as social security, are occasionally subject to
legislative change.
Tourism is one of Florida's most important industries. According to
Visit Florida (formerly the Florida Tourism Commission), about 47 million people
visited the State in 1997. Tourists to Florida effectively represent additional
residents, spending their dollars predominantly at eating and drinking
establishments, hotels and motels, and amusement and recreation parks. Their
expenditures generate additional business activity and State tax revenues. The
State's tourist industry over the years has become more sophisticated,
attracting visitors year-round, thus to a degree, reducing its seasonality.
The State also has a strong construction industry, with single and
multi-family housing starts accounting for approximately 9.2% of total U.S.
housing starts in 1997, while the State's population was only 5.5% of the
nation's total population. The reason for such a dynamic construction industry
was the rapid growth of the State's population. Since 1985, total housing starts
have averaged approximately 148,000 per year. Total housing starts were 132,813
in 1997, and are projected to be 97,600 in 1998-99.
Florida has experienced a diversifying economic base as technology
related industry, healthcare and financial services have grown into leading
elements of Florida's economy, complementing the State's previous reliance
primarily on agriculture and tourism. With the increasing costs and capital
needs related to its growing population, Florida's ability to meet its expenses
will be dependent in part upon the State's continued ability to foster business
and economic growth. Florida has also increased its funding of capital projects
through more frequent debt issuance rather than its historical pay-as-you go
method.
At the regional level, local economies within Florida perform
differently according to their urban or rural qualities and level of economic
diversification. The spectrum of local economies spans dense urban centers such
as Miami and Tampa to rural agricultural regions of citrus, cattle ranching and
sugar cane production. For example, Central Florida is a premier world-class
resort/vacation destination with its economy driven by the presence of Disney
World, studio theme parks and other tourist oriented recreational parks with a
laser/optical research node and motion picture industries helping to diversify
the Central Florida local economy. In contrast to the highly urban areas of
Southeast Florida, North Florida and the Florida Panhandle are rural in many
areas with local economies is dominated by the logging and paper industries,
defense, tourism, state government and retirement.
Florida has a moderate debt burden. As of June 30, 1998 full faith and
credit bonds totaled $8.7 billion and revenue bonds totaled $5 billion for a
total debt of $13.7 billion. Full faith and credit debt per capita was $577. In
the 1998 fiscal year, debt service as a percent of Governmental Fund
expenditures was 2.0%. In recent years debt issuance for the State has been
increasing. The State brought a new indenture to the market in late Fiscal Year
1998, the Florida Lottery Bonds. These bonds will finance capital improvements
for Florida schools.
The payment on most Florida municipal instruments held by the Florida
Intermediate Tax-Exempt Fund will depend upon the issuer's ability to meet its
obligations. If the State or any of its political subdivisions were to suffer
serious financial difficulties jeopardizing their ability to pay their
obligations, the marketability of obligations issued by the State or localities
within the State, and the value of the Florida Intermediate Tax-Exempt Fund's
portfolio, could be adversely affected.
Arizona Municipal Instruments
Under its Constitution, the State of Arizona is not permitted to issue
general obligation bonds secured by the State's full faith and credit. However,
agencies and instrumentalities of the State are authorized under specified
circumstances to issue bonds secured by revenues. The State enters into certain
lease transactions that are subject to annual renewal at its option. Local
governmental units in the State are also authorized to incur indebtedness. The
major source of financing for such local government indebtedness is an ad
valorem property tax. In addition, to finance public projects, local governments
may issue revenue bonds to be paid from the revenues of an enterprise or the
proceeds of an excise tax, from assessment bonds payable from special proceeds
of an excise tax, or from assessment bonds payable by special assessments.
Arizona local governments have also financed public projects through leases that
are subject to annual appropriation at the option of the local government.
There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions without voter approval.
It is possible that if such a proposal were enacted, there would be an adverse
impact on State or local government financing. It is not possible to predict
whether any such proposals will be enacted in the future or what would be their
possible impact on state or local government financing.
The State is required by law to maintain a balanced budget. To achieve
this objective, it has in the past utilized a combination of spending reductions
and tax increases. In recent years, the State's fiscal situation has improved,
even while tax reduction measures have been enacted each year since 1992. In
1992, voters passed a measure that requires a two-thirds vote of the legislature
to increase state taxes.
The State's population, because of continued employment growth, is
expected to record above-average growth rates. After population growth of 3% in
1997 and 2.9% in 1998, 2.8% growth is expected in 1999 and 2.6% in 2000. That
translates into almost 132,000 more people in the state in 1999 and 126,000 in
2000.
The State's diversified economic base is not dependent on any single
industry. Principal economic sectors include services, manufacturing, mining,
tourism, and the military. Agriculture, at one time a major sector, plays a much
smaller role in the economy. For several decades, the population has grown at a
substantially higher rate than the population of the United States.
The economy of the State is growing. Since the current boom peaked in
1994, when employment grew by 6.8%, the rate of growth has slowed, but only
modestly. Through November 1998 (the latest data available), employment was 4.7%
higher than the year before.
Different parts of the State have different growth rates and
structures. The Phoenix metropolitan area accounts for 70.6% of all Arizona jobs
and almost 80% of the State's employment growth. The Tucson area saw growth
accelerate in 1998 by 3%, versus 1.8% in 1997. The balance of the State also
grew at more moderate levels.
On a percentage basis, this expansion has not been as strong as
previous expansions. Yet, in terms of absolute employment growth, this expansion
has created more jobs than any period of economic growth in the State's history.
For example, since the beginning of the current expansion in March 1991, more
than 580,000 jobs have been created. In comparison, 297,200 jobs were created in
the 1975-1980 expansion, and about 450,000 jobs were created in the expansion
that lasted from 1982 to 1990.
According to the national Blue Chip Economic Indicators, after real GDP
growth of 3.9% in 1997 and 3.6% in 1998, growth is expected to moderate to 2.2%
in 1999. Inflation is expected to remain low and interest rates are also likely
to be low and through most of 1999.
As of 1998, 47% of all manufacturing employment in the Phoenix area and
25% in Pima County is in high technology. The national average is 14.3%. The
high-tech areas include computers, telecommunications, electronic components,
aviation, and instrumentation. In the Phoenix area, the economy is weighted
towards electronic components employment, which accounts for 27% of all
manufacturing jobs. Tucson's high-tech manufacturing employment is more evenly
spread among computers, electronic components, aviation and instrumentation.
It is expected that international trade in the high-tech industry will
continue to grow, which will be a positive for the Arizona economy. But in the
near term, the unbalanced mix of employment could be a problem. Roughly 52% of
Arizona manufacturing exports are of high-tech products; further, nearly 40% of
the state's exports are to Japan, Malaysia, Taiwan, Hong Kong and Singapore, all
of which are experiencing some degree of economic problems.
In 1997, Arizona's total exports as a percent of personal income ranked
fifth in the U.S. at 13.5%, compared to 9.2% for the nation. When analyzing data
using only high-tech exports, Arizona ranked second at 7.1%, versus 2.1%
nationally. Thus, the impact of the reduction in high-tech exports will likely
affect Arizona more than other states. This is expected to result in some
continued layoffs in the manufacturing sector.
The unemployment rate, 4.1% for 1998, is also expected to remain
relatively low, especially in the State's metropolitan areas. However, it is
expected to increase in both 1999 and 2000. The current level of unemployment,
the lowest in nearly three decades, suggests a tight labor market. The modest
rise in unemployment projected for 1999 suggests that labor markets will
moderately soften. After employment growth of 5.6% in 1996, 4.5% in 1997 and an
estimated 4.6% in 1998, employment should increase by another 3.5% in 1999 with
growth continuing at about 3% in 2000 and 2001. The Phoenix area's unemployment
rate remains low, at about 2.7%.
The outlook for continued, albeit slower, growth for the U.S. economy
acts as a base for the Arizona economy. The state has been one of the top five
employment-growth states for quite some time, and it is expected to remain in
the top five through 1999. There are other positive factors as well. First, as
of November 1998, manufacturing was 2.3% above the November 1997 rate. Second,
the unemployment rate is low in greater Phoenix and for many other parts of
Arizona. That suggests that job growth will continue. Third, California, the
State's leading domestic trading partner, is expected to enjoy continued, albeit
slower, growth. Fourth, single-family housing markets continue to boom. Although
the absolute level of permits is expected to decline from 1998's record levels,
the outlook is for a relatively strong housing market.
Housing, which is expected to be up by about 15% in 1998, is expected
to decrease by about 10% in 1999. The slowdown is expected to be in
single-family activity. In 1999, even if single-family housing slows, commercial
construction is expected to continue to do well throughout most of the year,
despite higher vacancy rates in the Phoenix-area office and industrial markets.
This is expected to prevent any significant problem in construction employment
in 1999, despite the likelihood of a slowdown.
Another uncertainty is the tourism market. Given the strong economy,
tourist activity is expected to be strong. But declines in the value of the
Canadian dollar, the peso and other currencies versus the U.S. dollar could hurt
winter visitation in Arizona.
Personal income, after growing by 8% in 1996 and 7.3% in 1997, is
expected to grow by another 8% in 1998, 7.8% in 1999, and 7% in 2000.
Overall, General Fund revenues are expected to grow modestly, including
4% in FY 1999 and 5.7% in FY 2001. However, the FY 1999 rate of growth reflects
the impact of the $120 million tax reduction program passed last year, and the
FY 2000 revenue estimate includes an incremental reduction to account for an
additional $60 million of tax reductions already enacted.
The Governor's budget proposals in 1999 sought to limit overall
spending, continue the growth of the State's "rainy day" funds, reflect
conservative revenue forecasts to reflect a slowing economy, and propose for the
8th and 9th consecutive years tax reductions.
State policy makers have been very successful in recent years in
depositing monies into various accounts that have been established for a "rainy
day." These monies are reserved for a true budget emergency precipitated by an
economic downturn. By the end of FY 2001, the rainy day fund is expected to
reach $425 million, or 7.08% of the General Fund revenues.
Other Information on California, Florida and Arizona Municipal Instruments
The Investment Adviser believes that it is likely that sufficient
California, Florida and Arizona municipal instruments and certain specified
federal obligations should be available to satisfy the respective investment
objectives, policies and limitations of the California, Florida Intermediate
Tax-Exempt and the Arizona Tax-Exempt Funds. If the Trust's Board of Trustees,
after consultation with the Investment Adviser, should for any reason determine
that it is impracticable to satisfy a Fund's investment objective, policies and
limitations because of the unavailability of suitable investments, the Board
would re-evaluate the particular Fund's investment objective and policies and
consider changes in its structure and name or possible dissolution.
Investment Restrictions
The Funds are subject to the fundamental investment restrictions
enumerated below which may be changed with respect to a particular Fund only by
a vote of the holders of a majority of such Fund's outstanding shares.
No Fund may:
(1) Make loans, except through (a) the purchase of debt
obligations in accordance with the Fund's investment objective and
policies, (b) repurchase agreements with banks, brokers, dealers and
other financial institutions, (c) loans of securities, and (d) loans
to affiliates of the Fund to the extent permitted by law.
(2) Purchase or sell real estate or real estate limited
partnerships, but this restriction shall not prevent a Fund 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.
(3) Invest in commodities or commodity contracts, except that a
Fund may invest in currency and financial instruments and contracts
that are commodities or commodity contracts.
(4) Invest in companies for the purpose of exercising control.
(5) Act as underwriter of securities, except as a Fund 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.
(6) Purchase securities (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements collateralized by such obligations) if,
except for the Technology Fund, such purchase would cause 25% or more
in the aggregate of the market value of the total assets of the Fund
to be invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that with
respect to each Money Market Fund there is no limitation, and each
Money Market Fund reserves freedom of action, when otherwise
consistent with its investment policies, to concentrate its
investments in obligations (other than commercial paper) issued or
guaranteed by U.S. banks (including foreign branches of U.S. banks)
and U.S. branches of foreign banks and repurchase agreements and
securities loans collateralized by 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. The Technology
Fund may not, except during temporary defensive periods, purchase the
securities of any issuer, if, as a result of such purchase, less than
25% of the assets of the Technology Fund would be invested in the
securities of issuers principally engaged in technology business
activities.
(7) Borrow money, except that to the extent permitted by
applicable law (a) a Fund may borrow from banks, other affiliated
investment companies and other persons, and may engage in reverse
repurchase agreements and other transactions which involve borrowings,
in amounts up to 33 1/3% of its total assets (including the amount
borrowed) or such other percentage permitted by law, (b) a Fund may
borrow up to an additional 5% of its total assets for temporary
purposes, (c) a Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of portfolio
securities, and (d) a Fund may purchase securities on margin. If due
to market fluctuations or other reasons a Fund's borrowings exceed the
limitations stated above, the Trust will promptly reduce the
borrowings of a Fund in accordance with the 1940 Act. In addition, as
a matter of fundamental policy, a Fund will not issue senior
securities to the extent such issuance would violate applicable law.
(8) Make any investment inconsistent with the Fund's
classification as a diversified company under the 1940 Act. This
restriction does not, however, apply to any Fund classified as a
non-diversified company under the 1940 Act.
(9) Notwithstanding any of a Fund's other fundamental investment
restrictions (including, without limitation, those restrictions
relating to issuer diversification, industry concentration and
control), a Fund may: (a) purchase securities of other investment
companies to the full extent permitted under Section 12 or any other
provision of the 1940 Act (or any successor provision thereto) or
under any regulation or order of the SEC; 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 Fund.
For the purposes of Investment Restrictions 1 and 7 above, the Funds
expect that they would be required to file an exemptive application with the SEC
and receive the SEC's approval of that application prior to entering into
lending or borrowing arrangements with affiliates. As of July 31, 2000, the
Funds had not filed such an application.
Also, as a matter of fundamental policy, changeable only with the
approval of the holders of a majority of the outstanding shares of the Fund
involved, at least 80% of the net assets of each Tax-Exempt and Municipal Fund
will be invested in debt instruments, the interest on which is, in the opinion
of bond counsel or counsel for issuers, if any, exempt from regular Federal
income tax, except in extraordinary circumstances such as when the Investment
Adviser believes that market conditions indicate that a Fund should adopt a
temporary defensive posture by holding uninvested cash or investing in taxable
securities. Interest earned on "private activity bonds" that is treated as an
item of tax preference under the Federal alternative minimum tax will be deemed
by a Municipal Fund, but will not be deemed by a Tax-Exempt Fund, to be exempt
from regular Federal income tax for purposes of determining whether the
Municipal and Tax-Exempt Funds meet this Fundamental policy.
As a non-fundamental investment restriction that can be changed without
shareholder approval, the Global Fixed Income, Florida Intermediate Tax-Exempt,
California Intermediate Tax-Exempt, Arizona Tax-Exempt, California Tax-Exempt
and Blue Chip 20 Funds may not hold, at the end of any tax quarter, more than
10% of the outstanding voting securities of any one issuer, except that up to
50% of the total value of the assets of each Fund may be invested in any
securities without regard to this 10% limitation so long as no more than 25% of
the total value of its assets is invested in the securities of any one issuer
(except the U.S. Government, its agencies and instrumentalities. Also, as a
non-fundamental investment restriction, these Funds will not hold any securities
(except U.S. government securities) that would cause, at the end of any tax
quarter, more than 5% of their respective total assets to be invested in the
securities of any one issuer, except that up to 50% of the respective Fund's
total assets may be invested without regard to this limitation so long as no
more than 25% of the Fund's total assets are invested in any one issuer (except
the U.S. government, its agencies and instrumentalities).
Except as otherwise provided in Investment Restriction (6), for the
purpose of such restriction in determining industry classification with respect
to the Funds other than the International Funds and the Technology Fund, the
Trust intends to use the industry classification titles in the Bloomberg
Industry Group Classification. With respect to the International Funds, the
Trust intends to use the Morgan Stanley Capital International industry
classification titles. With respect to the Technology Fund, the Trust intends to
consider an issuer to be principally engaged in technology business activities
if such issuer is listed in the Morgan Stanley Index, the H&Q Index, the
SoundView Technology Index, the technology grouping of the S&P 500 Index or any
other comparable index. The freedom of action reserved in Investment Restriction
(6) above 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, and such freedom with respect to foreign branches of U.S. banks is
subject to the requirement that the domestic parent be unconditionally liable in
the event that a foreign branch fails to pay on its instruments for any reason.
Securities held in escrow or separate accounts in connection with a Fund's
investment practices described in this Additional Statement and in the relevant
Prospectus are not deemed to be mortgaged, pledged or hypothecated for purposes
of the foregoing Investment Restrictions.
A security is considered to be issued by the entity, or entities, whose
assets and revenues back the security. A guarantee of a security is not deemed
to be a security issued by the guarantor when the value of all securities issued
and guaranteed by the guarantor, and owned by a Fund, does not exceed 10% of the
value of the Fund's total assets.
The Money Market, U.S. Government Money Market, U.S. Government Select
Money Market, Municipal Money Market, Tax-Exempt Money Market and California
Municipal Money Market Funds intend, as a non-fundamental policy, to diversify
their 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 a Fund's total
assets at the time of purchase, except that (a) 25% of the total assets of the
California Municipal Money Market Fund may be invested in fewer than five
issuers; and (b) 25% of the value of the total assets of the other Money Market
Funds 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, a Money Market Fund 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 a Fund, subject to
certain conditions, may invest up to 25% of its total assets in securities
issued or subject to Guarantees of the same persons. This percentage is 100% if
the Guarantee is issued by the U.S. Government or an agency thereof. In
addition, the Municipal Money Market, Tax-Exempt Money Market and California
Municipal Money Market Funds will limit their 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 their total assets, with investments in any one such
issuer being limited to no more than 1% of a Fund'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. The Money Market, U.S. Government and
U.S. Government Select Money Market Funds will limit their investments in all
Second Tier Securities (that are not subject to Guarantees) in accordance with
the foregoing percentage limitations.
In addition to the foregoing, each Money Market Fund is subject to
additional diversification requirements imposed by SEC regulations on the
acquisition of securities subject to other types of demand features and puts
whereunder a Fund has the right to sell the securities to third parties.
Each Investment Restriction which involves a maximum percentage (other
than the restriction set forth above in Investment Restriction (7)) 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 the Fund. The 1940 Act requires that if the asset coverage for borrowings at
any time falls below the limits described in Investment Restriction (7), the
Fund involved will, within three days thereafter (not including Sundays and
holidays), reduce the amount of its borrowings to an extent that the net asset
coverage of such borrowings shall conform to such limits.
Although the foregoing Investment Restrictions would permit the Money
Market Funds to acquire options, enter into forward currency contracts and
engage in short sales and interest rate and currency swaps, they are not
currently permitted to engage in these transactions under SEC regulations. In
addition, the U.S. Government Select Money Market Fund does not intend to
purchase any bank or corporate obligation during the current fiscal year.
ADDITIONAL TRUST INFORMATION
Trustees and Officers
The business and affairs of the Trust and each 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>
Position(s) Principal Occupation(s)
Name and Address Age with Trust During the Past 5 Years
- ---------------- --- ---------- -----------------------
Mr. Richard G. Cline 65 Trustee Chairman, Hawthorne Investors, Inc. (a management
4200 Commerce Court advisory services and private investment company)
Suite 300 since January 1996; Chairman, Hussman International,
Lisle, IL 60532 Inc. (a refrigeration company) since 1998; Chairman
and CEO of NICOR Inc. (a diversified public utility
holding company) from 1986 to 1995, and President,
1992 to 1993; Chairman, Federal Reserve Bank of
Chicago from 1992 to 1995; and Deputy Chairman from
1995 to 1996. Director: Whitman Corporation (a
diversified holding company); Kmart Corporation (a
retailing company); Ryerson Tull, Inc. (a metals
distribution company) and University of Illinois
Foundation. Trustee: Northern Institutional Funds.
Mr. Edward J. Condon, Jr. 60 Trustee Chairman of The Paradigm Group, Ltd. (a financial
Sears Tower, Suite 9650 advisor) since July 1993; Vice President and
233 S. Wacker Drive Treasurer of Sears, Roebuck and Co. (a retail
Chicago, IL 60606 corporation) from February 1989 to July 1993; Member
of Advisory Board of Real-Time USA, Inc. (a software
development company); Member of the Board of Managers
of The Liberty Hampshire Company, LLC (a receivable
securitization company); Vice Chairman and Director
of Energenics L.L.C. (a waste to energy recycling
company). Director: University Eldercare, Inc. (an
Alzheimer's disease research and treatment company);
Financial Pacific Company (a small business leasing
company). Trustee: Dominican University. Trustee:
Northern Institutional Funds.
<PAGE>
Position(s) Principal Occupation(s)
Name and Address Age with Trust During the Past 5 Years
- ---------------- --- ---------- -----------------------
Mr. Wesley M. Dixon, Jr. 72 Trustee Director of Kinship Capital Corporation (a financial
400 Skokie Blvd., Suite 300 services company) from 1985 to 1996; Vice Chairman
Northbrook, IL 60062 and Director of G.D. Searle & Co. (manufacture and
sale of food products and pharmaceuticals) from 1977
to 1985 and President of G.D. Searle & Co. prior
thereto. Trustee: Northern Institutional Funds.
Mr. William J. Dolan, Jr. 67 Trustee Partner of Arthur Andersen & Co. S.C. (an accounting
1534 Basswood Circle firm) from 1966 to 1989. Financial Consultant, Ernst
Glenview, IL 60025 & Young LLP (an accounting firm) from 1992 to 1993
and 1997. Trustee: Northern Institutional Funds.
Mr. John W. English 67 Trustee Private Investor; Vice President and Chief Investment
50-H New England Ave. Officer of The Ford Foundation (a charitable trust)
P.O. Box 640 from 1981 to 1993. Director: the University of Iowa
Summit, NJ 07902-0640 Foundation, the Blanton-Peale Institutes of Religion
and Health, and the Community Foundation of Sarasota
County. Former Director: the Duke Management Company
(manager of the Duke University endowment fund) and
the John Ringling Centre Foundation (a non-profit
historical preservation organization). Trustee: The
China Fund, Inc., Select Sector SPDR Trust; WM Funds;
American Red Cross in Greater New York; Mote Marine
Laboratory (a non-profit marine research facility);
and United Board for Christian Higher Education in
Asia. Trustee: Northern Institutional Funds.
Mr. Raymond E. George, Jr. * 69 Trustee Senior Vice President and Senior Fiduciary Officer of
703 Prospect Avenue The Northern Trust Company from 1990 to 1993.
Winnetka, IL 60093 Trustee: Northern Institutional Funds.
Ms. Sandra Polk Guthman 56 Trustee President and CEO of Polk Bros. Foundation (an
420 N. Wabash Avenue Illinois not-for-profit corporation) from 1993 to
Suite 204 present; Director of Business Transformation from
Chicago, IL 60611 1992 to 1993, and Midwestern Director of Marketing
from 1988 to 1992, IBM (a technology company);
Director: MBIA Insurance Corporation of Illinois (a
municipal bond insurance company). Trustee: Northern
Institutional Funds.
<PAGE>
Position(s) Principal Occupation(s)
Name and Address Age with Trust During the Past 5 Years
- ---------------- --- ---------- -----------------------
Mr. Michael E. Murphy** 63 Trustee President of Sara Lee Foundation (philanthropic
Suite 2222 organization) since November 1997; Vice Chairman and
20 South Clark Street Chief Administrative Officer of Sara Lee Corporation
Chicago, IL 60603 (a consumer product company) from November 1994 to
October 1997; Vice Chairman and Chief Financial and
Administrative Officer of Sara Lee Corporation from
July 1993 to November 1994. Director: Payless Shoe
Source, Inc., (a retail shoe store business); True
North Communications, Inc. (a global advertising and
communications holding company); American General
Corporation (a diversified financial services
company); GATX Corporation (a railroad holding
company); Bassett Furniture Industries, Inc. (a
furniture manufacturer) Trustee: Northern
Institutional Funds.
Mary Jacobs Skinner, Esq.*** 42 Trustee Partner in the law firm of Sidley & Austin. Trustee:
One First National Plaza Northern Institutional Funds.
Chicago, IL 06063
Mr. William H. Springer 71 Chairman and Vice Chairman of Ameritech (a telecommunications
701 Morningside Drive Trustee holding company) from February 1987 to August 1992;
Lake Forest, IL 60045 Vice Chairman, Chief Financial and Administrative
Officer of Ameritech prior to 1987. Director:
Walgreen Co. (a retail drug store business); Baker,
Fentress & Co. (a closed-end, non-diversified
management investment company). Trustee: Goldman
Sachs Trust; Goldman Sachs Variable Insurance Trust.
Trustee: Northern Institutional Funds.
Mr. Richard P. Strubel 61 Trustee President and Chief Operating Officer, UNext.com (a
737 N. Michigan Avenue provider of educational services via the internet)
Suite 1405 since 1999; Managing Director of Tandem Partners,
Chicago, IL 60611 Inc. (a privately held management services firm) from
1990 to 1999; President and Chief Executive Officer,
Microdot, Inc. (a privately held manufacturing firm)
from 1984 to 1994. Director: Gildan Activewear, Inc.
(an athletic clothing marketing and manufacturing
company); Children's Memorial Medical Center.
Trustee: University of Chicago; Goldman Sachs Trust;
Goldman Sachs Variable Insurance Trust. Trustee:
Northern Institutional Funds.
<PAGE>
Position(s) Principal Occupation(s)
Name and Address Age with Trust During the Past 5 Years
- ---------------- --- ---------- -----------------------
Mr. Stephen Timbers**** 55 Trustee President of Northern Trust Global Investments, a
50 South LaSalle Street division of Northern Trust Corporation and Executive
Chicago, IL 60675 Vice President, The Northern Trust Company since
1998; President,
Chief Executive
Officer and
Director of Zurich
Kemper Investments
(a financial
services company)
from 1996 to 1998;
President, Chief
Operating Officer
and Director of
Kemper Corporation
(a financial
services company)
from 1992 to 1996;
President and
Director of Kemper
Funds (a registered
investment company)
from 1990 to 1998.
Director: LTV
Corporation (a
steel producer) and
Northern Trust
Investments, Inc.
("NTI") (previously
known as Northern
Trust Quantitative
Advisors, Inc.)
Trustee: Northern
Institutional
Funds.
Ms. Jylanne M. Dunne 40 President Senior Vice President for Distribution Services at
4400 Computer Drive PFPC Inc. ("PFPC") (formerly First Data Investor
Westborough, MA 01581 Services Group, Inc. ("FDISG")) (since 1988).
Mr. Archibald E. King 42 Vice President Senior Vice President and other positions at The
50 South LaSalle Street Northern Trust Company (since 1979).
Chicago, IL 60675
Mr. Lloyd A. Wennlund 42 Vice President Senior Vice President and other positions at The
50 South LaSalle Street Northern Trust Company, President of Northern Trust
Chicago, IL 60675 Securities, Inc., and Managing Executive, Mutual
Funds for Northern Trust Global Investments (since
1989).
Mr. Brian R. Curran 32 Vice President Director of Fund Administration at PFPC (formerly
4400 Computer Drive and Treasurer FDISG) (since 1997); Director of Fund Administration
Westborough, MA 01581 at State Street Bank & Trust Company (February 1997
to October 1997);
Senior Auditor at
Price Waterhouse
LLP (an accounting
firm) (February
1994 to February
1997).
Ms. Judith E. Clear 33 Assistant Client Treasury Manager of Mutual Fund Administration
4400 Computer Drive Treasurer at PFPC (since 1997); Compliance Manager at Citizens
Westborough, MA 01581 Trust (1994 to 1996).
Ms. Suzanne E. Anderson 27 Assistant Client Treasury Manager of Mutual Fund Administration
4400 Computer Drive Treasurer at PFPC (since August 1998); Manager of Fund
Westborough, MA 01581 Administration at State Street Bank & Trust Company
(October 1996 to
August 1998); Fund
Administrator at
State Street Bank &
Trust Company
(October 1995 to
October 1996);
Mutual Fund
Accountant at The
Boston Company
(prior thereto).
<PAGE>
Position(s) Principal Occupation(s)
Name and Address Age with Trust During the Past 5 Years
- ---------------- --- ---------- -----------------------
Jeffrey A. Dalke, Esq. 49 Secretary Partner in the law firm of Drinker Biddle & Reath LLP.
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
Linda J. Hoard, Esq. 52 Assistant Vice President at PFPC (formerly FDISG) (since 1998);
4400 Computer Drive Secretary Attorney Consultant for Fidelity Management &
Westborough, MA 01581 Research Co. (a financial service company), Investors
Bank & Trust
Company (a
financial service
provider) and FDISG
(September 1994 to
June 1998).
Ms. Therese Hogan 37 Assistant Director of the State Regulation Department at PFPC
4400 Computer Drive Secretary (formerly FDISG) (since 1994).
Westborough, MA 01581
</TABLE>
* Mr. George is deemed to be an "interested" Trustee because he owns shares
of Northern Trust Corporation.
** Mr. Murphy is deemed to be an "interested" Trustee because he owns
shares of Northern Trust Corporation.
*** Ms. Skinner is deemed to be an "interested" Trustee because her law
firm provides legal services to Northern Trust Corporation.
**** Mr. Timbers is deemed to be an "interested" Trustee because he is an
officer, director, employee and shareholder of Northern Trust Corporation and/or
Northern and NTI.
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 Advisers, PFPC, Northern Funds Distributors,
LLC ("NFD") 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 Trust's service providers under the Trust's Advisory Agreement, Transfer
Agency Agreement, Custodian Agreement, Foreign Custodian Agreement,
Co-Administration Agreement and Distribution Agreement, the Trust itself
requires no employees.
Each officer holds comparable positions with certain other investment
companies for which NFD, PFPC or an affiliate thereof is the investment adviser,
administrator and/or distributor.
Each Trustee, except Mr. Timbers, earns an annual retainer of $30,000
and the Chairman of the Board earns an annual retainer of $40,000. Each Trustee
earns an additional fee of $1,500, and the Chairman of the Board earns an
additional fee of $3,500, 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, Jr. (chairman), Dolan, Jr. and Strubel. Each member
earns an annual fee of $1,500 and the Chairman earns an annual fee of $3,500.
The Trustees have also established a Nominating Committee consisting of
three members, including a Chairman of the Committee. The Nominating Committee
members are Messrs. Dixon (chairman), Cline and Ms. Guthman. Each member earns
an annual fee of $1,500 and the Chairman earns an annual fee of $3,500.
The Trustees have also established a Valuation Committee consisting of four
members, including a Chairman of the Committee. The Valuation Committee members
are Messrs. George (chairman), English, and Murphy and Ms. Skinner. Each member
earns an annual fee of $1,500 and the Chairman earns an annual fee of $3,500.
Each Trustee will hold office for an indefinite term until the earliest
of (i) 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; (ii)
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 (iii) effective December 31, 2001, in accordance with
the current by-laws of the Trust (which may be changed without shareholder
vote), on the last day of the calendar 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. All of the Trust's officers (except Mr. Dalke, Mr. King and Mr.
Wennlund) are employees of PFPC, which receives fees from the Trust for
administrative services.
Drinker Biddle & Reath LLP, of which Mr. Dalke is a partner, receives fees
from the Trust for legal services.
Northern Trust Company, of which Mr. King and Mr. Wennlund are officers,
receives fees from the Trust as investment adviser, custodian, transfer agent
and co-administrator.
The following tables set forth certain information with respect to the
compensation of each Trustee of the Trust for the fiscal year ended March 31,
2000. The following tables do not include the following amounts paid during the
fiscal year ended March 31, 2000: $32,750 to a former Trustee who retired from
the Board in October 1999, $17,500 paid to a former Chairman of the Board who
retired in August 1999 and $35,000 paid to another former Chairman of the Board
who retired in March 2000. Additionally, the tables do not include information
for the Blue Chip 20 Fund, Tax-Exempt Money Market Fund and [Large Cap Value
Fund], which did not commence operations during the fiscal year ended March 31,
2000:
<TABLE>
<CAPTION><S><C> <C> <C> <C> <C> <C>
U.S. U.S.
Government Government
Money Money Select Money Tax-Exempt Municipal
Market Market Fund Market Fund Money
Fund Fund Market Fund
Steven Timbers $ 0 $ 0 $ 0 $ 0 $ 0
William H. Springer**
Richard G. Cline**
Edward J. Condon, Jr.**
John W. English**
Sandra Polk Guthman**
Richard P. Strubel**
Wesley M. Dixon, Jr.
William J. Dolan, Jr.
Raymond E. George, Jr.
Michael E. Murphy
Mary Jacobs Skinner
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C>
California
Municipal Short-Intermediate California
Money U.S. Government Government Fund Intermediate Intermediate
Market Fund Fund Tax-Exempt Fund Tax-Exempt Fund
Steven Timbers $ 0 $ 0 $ 0 $ 0 $ 0
William H. Springer**
Richard G. Cline**
Edward J. Condon, Jr.**
John W. English**
Sandra Polk Guthman**
Richard P. Strubel**
Wesley M. Dixon, Jr.
William J. Dolan, Jr.
Raymond E. George, Jr.
Michael E. Murphy
Mary Jacobs Skinner
</TABLE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C>
Florida Global
Intermediate Fixed Arizona California Fixed
Tax-Exempt Income Tax-Exempt Fund Tax-Exempt Income Fund
Fund Fund Fund
Steven Timbers $ 0 $ 0 $ 0 $ 0 $ 0
William H. Springer**
Richard G. Cline**
Edward J. Condon, Jr.**
John W. English**
Sandra Polk Guthman**
Richard P. Strubel**
Wesley M. Dixon, Jr.
William J. Dolan, Jr.
Raymond E. George, Jr.
Michael E. Murphy
Mary Jacobs Skinner
</TABLE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C>
High Yield High Yield Income Stock Growth
Municipal Fixed Income Equity Equity Equity
Fund Fund Fund Fund Fund
Steven Timbers $ 0 $ 0 $ 0 $ 0 $ 0
William H. Springer**
Richard G. Cline**
Edward J. Condon, Jr.**
John W. English**
Sandra Polk Guthman**
Richard P. Strubel**
Wesley M. Dixon, Jr.
William J. Dolan, Jr.
Raymond E. George, Jr.
Michael E. Murphy
Mary Jacobs Skinner
</TABLE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C>
Small
Select Equity Mid Cap Growth Small Cap Index Small Cap Cap Growth
Fund Fund Fund Value Fund Fund
Steven Timbers $ 0 $ 0 $ 0 $ 0 $ 0
William H. Springer**
Richard G. Cline**
Edward J. Condon, Jr.**
John W. English**
Sandra Polk Guthman**
Richard P. Strubel**
Wesley M. Dixon, Jr.
William J. Dolan, Jr.
Raymond E. George, Jr.
Michael E. Murphy
Mary Jacobs Skinner
</TABLE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C>
International Total
Growth Equity International Compensation
Fund Select Equity Technology Fund from Fund
Fund Complex*
Steven Timbers $ 0 $ 0
William H. Springer**
Richard G. Cline**
Edward J. Condon, **Jr.
John W. English**
Sandra Polk Guthman**
Richard P. Strubel**
Wesley M. Dixon, Jr.
William J. Dolan, Jr.
Raymond E. George, Jr.
Michael E. Murphy
Mary Jacobs Skinner
</TABLE>
* Fund complex includes thirty-one investment portfolios of the Trust and
twenty-one portfolios of Northern Institutional Funds, a separately registered
investment company.
** Became a Trustee of the Trust on March 28, 2000 and only received fees
during the fiscal year ended March 31, 2000 for the March 28, 2000 Special
Meeting of the Board of Trustees.
The Trust does not provide pension or retirement benefits to its Trustees.
The Trust, its Investment Advisers and principal underwriter have adopted
codes of ethics (the "Codes of Ethics") under rule 17j-1 of the 1940 Act. The
Codes of Ethics permit personnel, subject to the Codes of Ethics and their
provisions, to invest in securities, including securities that may be purchased
or held by the Trust.
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. 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 univested 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. NTI, also a
wholly-owned subsidiary of Northern Trust Corporation, serves as investment
adviser principally to defined benefit and defined contribution plans and
manages over 60 equity and bond commingled and common trust funds. As of March
31, 2000, Northern Trust Corporation and its subsidiaries had approximately
$83.2 billion in assets, $21.5 billion in deposits and employed over 8,700
persons. Northern and its affiliates administered in various capacitates
(including master trustee, investment manager or custodian) approximately $1.6
trillion of assets as of March 31, 2000, including approximately $323.1 billion
of assets for which Northern and its affiliates had investment management
responsibilities.
Under the Advisory Agreement with the Trust, the Investment Adviser makes
decisions with respect to and places orders for all purchases and sales of
portfolio securities for the Funds (other than the Stock Index, Small Cap Index
and Small Cap Value Funds), and also provides certain ancillary services. NTI
provides similar services to the Stock Index, Small Cap Index and Small Cap
Value Funds. The Investment Advisers are also responsible for monitoring and
preserving the records required to be maintained under the regulations of the
SEC (with certain exceptions unrelated to its activities for Northern Funds). In
making investment recommendations for the Funds, investment advisory personnel
may not inquire or take into consideration whether issuers of securities
proposed for purchase or sale for the Funds' accounts are customers of
Northern's commercial banking department. These requirements are designed to
prevent investment advisory personnel for the Funds from knowing which companies
have commercial business with Northern and from purchasing securities where they
know the proceeds will be used to repay loans to the bank.
The Trust's Investment Advisory and Ancillary Services Agreement with
Northern and NTI (the "Advisory Agreement") has been approved by the Board of
Trustees, including the "non-interested" Trustees, and the initial shareholder
of the Trust. The Advisory Agreement provides that in executing portfolio
transactions and in selecting brokers or dealers (i) with respect to common and
preferred stocks, the Investment Advisers shall use their best judgment to
obtain the best overall terms available, and (ii) with respect to other
securities, the Investment Advisers shall attempt to obtain best net price and
execution. Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers.
In assessing the best overall terms available for any transaction, the
Investment Advisers are to consider all factors they deem 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 Advisers may consider the brokerage and research services provided to
the Funds and/or other accounts over which the Investment Advisers or an
affiliate of the Investment Advisers exercise 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.
Supplemental research information so received is in addition to, and
not in lieu of, services required to be performed by the Investment Advisers and
does not reduce the advisory fees payable to the Investment Advisers by the
Funds. The Trustees will periodically review the commissions paid by the Funds
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Funds. It is
possible that certain of the supplemental research or other services received
will primarily benefit one or more other investment companies or other accounts
for which investment discretion is exercised. Conversely, a Fund may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
For the fiscal years or periods indicated, the amount of commissions
paid by each Fund (except the Tax-Exempt Money Market Fund, the Blue Chip 20
Fund and the [Large Cap Value Fund], which did not commence operations during
the fiscal year ended March 31, 2000) was as follows:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
====================================== ======================= ========================== ==========================
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 2000 March 31, 1999 March 31, 1998
====================================== ======================= ========================== ==========================
====================================== ======================= ========================== ==========================
Income Equity Fund $ 174,737 $ 36,166 $ 91,382
====================================== ======================= ========================== ==========================
====================================== ======================= ========================== ==========================
Stock Index Fund $ 41,073 $ 12,651 $ 32,541
====================================== ======================= ========================== ==========================
====================================== ======================= ========================== ==========================
Growth Equity Fund $ 1,228,486 $ 252,010 $ 475,781
====================================== ======================= ========================== ==========================
====================================== ======================= ========================== ==========================
Select Equity Fund $ 632,894 $ 119,043 $ 312,832
====================================== ======================= ========================== ==========================
====================================== ======================= ========================== ==========================
Mid Cap Growth Fund(1) $ 572,622 $ 46,823 N/A
====================================== ======================= ========================== ==========================
====================================== ======================= ========================== ==========================
Small Cap Value Fund $ 271,927 $ 137,526 $ 324,908
====================================== ======================= ========================== ==========================
====================================== ======================= ========================== ==========================
International Growth Equity Fund $ 2,645,022 $ 1,717,776 $ 1,455,258
====================================== ======================= ========================== ==========================
====================================== ======================= ========================== ==========================
International Select Equity Fund $ 1,136,403 $ 1,024,518 $ 610,796
====================================== ======================= ========================== ==========================
====================================== ======================= ========================== ==========================
Technology Fund $ 1,063,227 $ 84,102 $ 79,005
====================================== ======================= ========================== ==========================
====================================== ======================= ========================== ==========================
Small Cap Growth Fund $ 378,161
====================================== ======================= ========================== ==========================
====================================== ======================= ========================== ==========================
Small Cap Index Fund $
36,831
====================================== ======================= ========================== ==========================
</TABLE>
1. The Mid Cap Growth Fund commenced operations on March 31, 1998.
No commissions were paid by the Funds to any "affiliated" persons (as
defined in the 1940 Act) of the Funds. 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 Advisers 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 Trust is required to identify any securities of its "regular brokers or
dealers" or their parents which the Trust acquired during its most recent fiscal
year.
During the fiscal year ended March 31, 2000, the Money Market Fund
acquired or sold securities of Bear Stearns & Co., Inc., Morgan Stanley Dean
Witter & Co. and Citigroup, Inc. As of March 31, 2000 the Money Market Fund
owned securities of Morgan Stanley Dean Witter & Co., Morgan JP & Co.., Inc.,
and Citigroup, Inc. in the amounts of $100,000,000, $14,850,550 and $44,553,938,
respectively.
During the fiscal year ended March 31, 2000, the U.S. Government Money
Market Fund did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the U.S. Government Select
Money Market Fund did not acquire or sell securities of its regular
broker-dealers.
During the fiscal year ended March 31, 2000, the Municipal Money Market
Fund did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the California Municipal
Money Market Fund did not acquire or sell securities of its regular
broker-dealers.
During the fiscal year ended March 31, 2000, the U.S. Government Fund
did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the Intermediate
Tax-Exempt Fund did not acquire or sell securities of its regular
broker-dealers.
During the fiscal year ended March 31, 2000; the Florida Intermediate
Tax-Exempt Fund did not acquire or sell securities of its regular
broker-dealers.
During the fiscal year ended March 31, 2000, the Fixed Income Fund
acquired or sold securities of Morgan Stanley Dean Witter & Co. As of March 31,
2000, the Fixed Income Fund owned securities Donaldson, Lufkin & Jenrette and
Morgan Stanley Dean Witter & Co. in the amount of $83,300 and $9,426,465,
respectively.
During the fiscal year ended March 31, 2000, the Tax-Exempt Fund did
not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the California Tax-Exempt
Fund did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the Global Fixed Income
Fund did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the High Yield Municipal
Fund did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the High Yield Fixed
Income Fund did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the Income Equity Fund
acquired or sold securities of Citigroup, Inc., Soloman Smith Barney, Goldman
Sachs Group, Inc. As of March 31, 2000, the Income Equity Fund owned Citigroup,
Inc. in the amount of $4,490,625.
During the fiscal year ended March 31, 2000, the Stock Index Fund
acquired or sold securities of Merrill Lynch & Co., Inc., Morgan Stanley Dean
Witter & Co. and Citigroup, Inc. As of March 31, 2000, the Stock Index Fund
owned securities of Bear Stearns Co., Merrill Lynch & Co., Inc., Morgan JP &
Co.., Inc., Morgan Stanley Dean Witter & Co. and Citigroup, Inc. in the amount
of $217,905, $1,648,500, $974,950, $4,004, 354 and $8,570,508.
During the fiscal year ended March 31, 2000, the Growth Equity Fund
acquired or sold securities of Citigroup, Inc., Goldman Sachs Group, Inc.,
Merrill Lynch & Co., Inc. and Morgan Stanley Dean Witter & Co. As of March 31,
2000, the Growth Equity Fund owned securities of Citigroup, Inc., Goldman Sachs
Group, Inc., Merrill Lynch & Co., Inc. and Morgan Stanley Dean Witter & Co. in
the amount of $25,836,063, $10,693,400, $11,340,000 and $20,553,000,
respectively.
During the fiscal year ended March 31, 2000, the Select Equity Fund
acquired or sold securities Citigroup, Inc., Goldman Sachs Group, Inc., Merrill
Lynch & Co., Inc. and Morgan Stanley Dean Witter & Co. As of March 31, 2000, the
Select Equity Fund owned securities Citigroup, Inc., Merrill Lynch & Co., Inc.
and Morgan Stanley Dean Witter & Co. in the amount of $9,924,281, $5,145,000 and
$7,956,000, respectively.
During the fiscal year ended March 31, 2000, the Mid Cap Growth Fund
did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the Small Cap Value Fund
sold securities of Banque Paribas. As of March 31, 2000, the Small Cap Value
Fund did not own securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the International Growth
Equity Fund did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the International Select
Equity Fund did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the Technology Fund did
not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the Small Cap Index Fund
did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the Small Cap Growth Fund
did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000, the Short-Intermediate
U.S. Government Fund did not acquire or sell securities of its regular
broker-dealers.
During the fiscal year ended March 31, 2000, the California
Intermediate Tax-Exempt Fund did not acquire or sell securities of its regular
broker-dealers.
During the fiscal year ended March 31, 2000, the Arizona Tax-Exempt
Fund did not acquire or sell securities of its regular broker-dealers.
During the fiscal year ended March 31, 2000 the Tax-Exempt Money Market
Fund, Blue Chip 20 Fund and [Large Cap Value Fund] had not yet commenced
operations.
During the fiscal year ending March 31, 2000, the Trust directed
brokerage transactions to brokers because of research services provided. The
amount of such transactions and related commissions were as follows: for the
Income Equity Fund, $109,778,038 in research commission transactions and
$135,241 in research commissions; for the Stock Index Fund, $5,209,674 in
research commission transactions and $1,639 in research commissions; for the
Growth Equity Fund, $781,421,216 in research commission transactions and
$884,679 in research commissions; for the Select Equity Fund, $436,692,031 in
research commission transactions and $488,655 in research commissions; for the
Mid Cap Growth Fund, $345,394,304 in research commission transactions and
$426,161 in research commissions; for the Small Cap Value Fund, $6,434,143 in
research commission transactions and $15,385 in research commissions; for the
International Growth Equity Fund, $647,750,361 in research commission
transactions and $1,542,637 in research commissions; for the International
Select Equity Fund, $276,669,177 in research commission transactions and
$699,732 in research commissions; for the Technology Fund, $883,346,181 in
research commission transactions and $723,252 in research commissions; Small Cap
Growth Fund $140,430,961 in research commission transactions and $201,763 in
research commissions; and for the Small Cap Index Fund $51,060 in research
commission transactions and $41 in research commissions.
The Funds 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 Funds will engage in this practice, however, only when the Investment
Advisers believe such practice to be in the Funds' interests.
Northern's investment advisory duties for the Trust are carried out
through its Trust Department. On occasions when an Investment Adviser deems the
purchase or sale of a security to be in the best interests of a Fund as well as
other fiduciary or agency accounts managed by it (including any other portfolio,
investment company or account for which an Investment Adviser acts as adviser),
the 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 such Fund with those to be sold or purchased for such other
accounts in order to obtain the best overall terms available with respect to
common and preferred stocks and the best net price and execution with respect to
other securities. 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 Fund and other accounts
involved. In some instances, this procedure may adversely affect the size of the
position obtainable for the Fund or the amount of the securities that are able
to be sold for the Fund. To the extent that the execution and price available
from more than one broker or dealer are believed to be comparable, the Agreement
permits each Investment Adviser, at its discretion but subject to applicable
law, to select the executing broker or dealer on the basis of the Investment
Adviser's opinion of the reliability and quality of the broker or dealer.
The Advisory Agreement provides that the Investment Advisers may render
similar services to others so long as their services under such Agreement are
not impaired thereby. The Advisory Agreement also provides that the Trust will
indemnify the Investment Advisers 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.
From time to time, the Investment Advisers may voluntarily waive a portion
or all of their fees otherwise payable to it with respect to the Funds.
For the fiscal years or periods indicated, Northern and NTI received
advisory fees from the Funds (except the Tax-Exempt Money Market Fund, the Blue
Chip 20 Fund and the [Large Cap Value Fund] which did not commence operations
during the fiscal year ended March 31, 2000), after fee waivers and
reimbursements, as follows:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
========================== ========================== ==========================
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 2000 March 31, 1999 March 31, 1998
======================================= ========================== ========================== ==========================
Money Market Fund $ 15,349,562 $ 9,490,597
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government $ 1,730,444 $ 1,364,316
Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government $ 1,450,638 $ 673,956
Select Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Municipal Money Market Fund $ 8,162,930 $ 6,064,365
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Municipal $ 1,091,368 $ 719,108
Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government Fund $ 1,895,842 $ 1,527,868
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Short-Intermediate U.S. Government
Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Intermediate Tax-Exempt Fund $ 2,242,387 $ 1,973,661
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Arizona Tax-Exempt Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Intermediate Tax-Exempt
Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Florida Intermediate $ 196,206 $ 125,977
Tax-Exempt Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Fixed Income Fund $ 1,752,818 $ 1,105,332
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Tax-Exempt Fund $ 1,365,071 $ 1,035,810
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Tax-Exempt Fund1 $ 404,924 $ 88,551
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Global Fixed Income Fund $ 118,107 $ 129,287
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
High Yield Municipal Fund2 $ 0 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
High Yield Fixed Income Fund2 $ 0 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Income Equity Fund $ 978,113 $ 818,335
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Stock Index Fund3 $ 490,454 $ 226,431
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Growth Equity Fund $ 4,529,273 $ 3,339,695
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Select Equity Fund $ 1,249,368 $ 802,297
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Mid Cap Growth Fund2 $ 216,101 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Index Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Value Fund3 $ 2,669,690 $ 2,460,252
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Growth Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
International Growth Equity Fund $ 1,946,058 $ 1,756,185
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
International Select Equity Fund $ 1,195,310 $ 1,138,571
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Technology Fund $ 1,757,940 $ 754,963
- --------------------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
1. The California Tax-Exempt Fund commenced operations on April 8, 1997.
2. The High Yield Municipal, High Yield Fixed Income, and Mid Cap Growth
Funds commenced operations on December 31, 1998, December 31, 1998, and
March 31, 1998, respectively.
3. NTI assumed investment advisory responsibilities for these Funds on April 1,
1998.
For the fiscal years or periods indicated, Northern voluntarily waived
and reimbursed advisory fees for each of the Funds (except the Tax-Exempt Money
Market Fund, the Blue Chip 20 Fund and the [Large Cap Value Fund] which did not
commence operations during the fiscal year ended March 31, 2000) as follows:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
========================== ========================== ==========================
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 2000 March 31, 1999 March 31, 1998
======================================= ========================== ========================== ==========================
Money Market Fund $7,674,790 $4,745,304
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government 865,224 682,159
Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government 725,320 632,972
Select Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Municipal Money Market Fund 4,081,471 3,032,186
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Municipal 545,685 568,061
Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government Fund 0 0
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Short-Intermediate U.S. Government
Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Intermediate Tax-Exempt Fund 160,168 140,974
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Arizona Tax-Exempt Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Intermediate Tax-Exempt
Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Florida Intermediate 23,427 26,197
Tax-Exempt Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Fixed Income Fund 0 0
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Tax-Exempt Fund 97,545 73,985
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Tax-Exempt Fund1 28,923 53,795
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Global Fixed Income Fund 15,857 10,037
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
High Yield Municipal Fund2 10,562 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
High Yield Fixed Income Fund2 41,621 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Income Equity Fund 172,607 144,411
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Stock Index Fund3 245,227 117,685
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Growth Equity Fund 799,277 589,353
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Select Equity Fund 514,443 330,356
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Mid Cap Growth Fund2 93,569 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Index Fund 1,099,279 1,013,041
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Value Fund3
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Growth Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
International Growth Equity Fund 389,208 351,234
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
International Select Equity Fund 239,060 227,712
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Technology Fund 351,585 150,991
- --------------------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
1. The California Tax-Exempt Fund commenced operations on April 8, 1997.
2. The High Yield Municipal, High Yield Fixed Income, and Mid Cap Growth
Funds commenced operations on December 31, 1998, December 31, 1998, and
March 31, 1998, respectively.
3. NTI assumed investment advisory responsibilities for these Funds on April 1,
1998.
Under its Transfer Agency Agreement with the Trust, Northern has
undertaken, among other things, to perform the following services: (i) answer
shareholder inquiries and respond to requests for information regarding the
Trust; (ii) process purchase and redemption transactions; (iii) establish and
maintain shareholder accounts and subaccounts; (iv) furnish confirmations in
accordance with applicable law, and provide periodic account statements to each
shareholder; (v) furnish proxy statements and proxies, annual and semi-annual
financial statements, and dividend, distribution and tax notices to
shareholders; (vi) act as income disbursing agent; and (vii) maintain
appropriate records relating to its services. The Trust 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 .10% of the average daily net asset value of each of the Funds.
For the fiscal years or periods indicated, the amount of transfer
agency fees incurred by each of the Funds (except the Tax-Exempt Money Market
Fund, the Blue Chip 20 Fund and the [Large Cap Value Fund] which did not
commence operations during the fiscal year ended March 31, 2000) was as follows:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
========================== ========================== ==========================
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 2000 March 31, 1999 March 31, 1998
======================================= ========================== ========================== ==========================
Money Market Fund $3,837,356 $1,299,295
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government 432,607 341,076
Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government 362,656 217,819
Select Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Municipal Money Market Fund 2,040,714 1,516,077
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Municipal 272,840 214,526
Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government Fund 252,777 203,714
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Short-Intermediate U.S. Government
Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Intermediate Tax-Exempt Fund 320,338 281,949
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Arizona Tax-Exempt Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Intermediate Tax-Exempt
Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Florida Intermediate 29,284 20,290
Tax-Exempt Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Fixed Income Fund 233,707 147,377
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Tax-Exempt Fund 195,008 147,971
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Tax-Exempt Fund1 57,846 18,926
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Global Fixed Income Fund 14,885 15,480
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
High Yield Municipal Fund2 1,408 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
High Yield Fixed Income Fund2 5,549 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Income Equity Fund 115,071 96,274
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Stock Index Fund3 122,613 57,352
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Growth Equity Fund 532,850 392,901
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Select Equity Fund 146,983 94,387
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Mid Cap Growth Fund2 30,967 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Index Fund 314,078 289,438
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Value Fund3
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Growth Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
International Growth Equity Fund 194,604 175,617
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
International Select Equity Fund 119,530 113,856
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Technology Fund 175,792 75,496
- --------------------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
1. The California Tax-Exempt Fund commenced operations on April 8, 1997.
2. The High Yield Municipal, High Yield Fixed Income, and Mid Cap Growth
Funds commenced operations on December 31, 1998, December 31, 1998, and
March 31, 1998, respectively.
Northern maintains custody of the assets of the Funds (other than the
International Funds) pursuant to the terms of its Custodian Agreement with the
Trust. Northern maintains custody of the assets of the International Funds
pursuant to the terms of its Foreign Custody Agreement with the Trust. Under
each of these agreements, Northern (i) holds each Fund's cash and securities,
(ii) maintains such cash and securities in separate accounts in the name of the
Fund, (iii) makes receipts and disbursements of funds on behalf of the Fund,
(iv) receives, delivers and releases securities on behalf of the Fund, (v)
collects and receives all income, principal and other payments in respect of the
Fund's investments held by Northern under the agreement, and (vi) maintains the
accounting records of Northern Funds. Northern may employ one or more
subcustodians under the Custody Agreement, provided that Northern shall, subject
to certain monitoring responsibilities, 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 an agent to carry out such of the
provisions of the Custody Agreement as Northern may from time to time direct.
Under its Foreign Custody Agreement, Northern has entered into agreements with
financial institutions and depositories located in foreign countries with
respect to the custody of the International Funds' foreign securities.
As compensation for the services rendered to each Fund (other than the
International Funds) under the Custodian Agreement, and the assumption by
Northern of certain related expenses, Northern is entitled to payment from each
of the Funds as follows: (a) a basic custodial fee of (i) $18,000 annually for
each Fund, plus (ii) 1/100th of 1% annually of each Fund's average daily net
assets to the extent they exceed $100 million, plus (b) a basic accounting fee
of (i) $25,000 annually for each Fund, plus (ii) 1/100th of 1% annually of each
Fund's average daily net assets to the extent they exceed $50 million, plus (c)
a fixed dollar fee for each trade in portfolio securities, plus (d) a fixed
dollar fee for each time that Northern as Custodian receives or transmits funds
via wire, plus (e) reimbursement of expenses incurred by Northern as Custodian
for telephone, postage, courier fees, office supplies and duplicating. The fees
referred to in clauses (c) and (d) are subject to annual upward adjustments
based on increases in the Consumer Price Index for All Urban Consumers, provided
that Northern may permanently or temporarily waive all or any portion of any
upward adjustment.
As compensation for the services rendered to the International Funds
under the Foreign Custody Agreement, and the assumption by Northern of certain
related expenses, Northern is entitled to payment from each of those Funds as
follows: (i) $35,000 annually for each Fund, plus (ii) 9/100th of 1% annually of
each Fund's average daily net assets, plus (iii) reimbursement for fees incurred
by Northern as foreign Custodian for telephone, postage, courier fees, office
supplies and duplicating. As compensation for basic accounting services rendered
to the International Funds by Northern, Northern is entitled to receive $25,000
for the first $50 million of each of those Fund's average daily net assets and
1/100th of 1% of each Fund's average daily net assets in excess of $50 million.
Northern's fees under the Custodian Agreement and Foreign Custody Agreement
are subject to reduction based on the Funds' daily uninvested cash balances (if
any).
<PAGE>
For the fiscal years or periods indicated, the amount of custody and
fund accounting fees incurred by each Fund (except the Tax-Exempt Money Market
Fund, the Blue Chip 20 Fund and the [Large Cap Value Fund], which did not
commence operations during the fiscal year ended March 31, 2000) was as follows:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
========================== ========================== ==========================
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 2000 March 31, 1999 March 31, 1998
======================================= ========================== ========================== ==========================
Money Market Fund $844,081 $540,182
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government 136,794 114,701
Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government 110,597 79,062
Select Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Municipal Money Market Fund 478,551 358,220
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Municipal 100,159 86,643
Money Market Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
U.S. Government Fund 85,772 72,223
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Short-Intermediate U.S. Government
Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Intermediate Tax-Exempt Fund 103,042 91,127
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Arizona Tax-Exempt Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Intermediate Tax-Exempt
Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Florida Intermediate 48,986 46,979
Tax-Exempt Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Fixed Income Fund 84,111 64,094
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Tax-Exempt Fund 78,492 64,384
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
California Tax-Exempt Fund1 50,725 48,223
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Global Fixed Income Fund 77,396 74,075
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
High Yield Municipal Fund2 14,132 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
High Yield Fixed Income Fund2 14,132 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Income Equity Fund 61,425 56,325
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Stock Index Fund3 122,803 133,408
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Growth Equity Fund 143,431 115,833
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Select Equity Fund 72,051 60,090
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Mid Cap Growth Fund2 44,274 N/A
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Index Fund 141,187 136,631
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Value Fund3
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Small Cap Growth Fund
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
International Growth Equity Fund 257,479 228,550
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
International Select Equity Fund 182,139 167,301
- --------------------------------------- -------------------------- -------------------------- --------------------------
- --------------------------------------- -------------------------- -------------------------- --------------------------
Technology Fund 78,748 55,245
- --------------------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
1. The California Tax-Exempt Fund commenced operations on April 8, 1997.
2. The High Yield Municipal, High Yield Fixed Income, and Mid Cap Growth
Funds commenced operations on December 31, 1998, December 31, 1998, and
March 31, 1998, respectively.
Unless sooner terminated, the Trust's Advisory Agreement, Transfer
Agency Agreement, Custodian Agreement and Foreign Custody Agreement will
continue in effect with respect to a particular Fund until March 31, 2001, and
thereafter for successive 12-month periods, provided that the continuance is
approved at least annually (i) 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 (ii) by the Trustees or by the vote of a
majority of the outstanding shares of the Fund (as defined under "Description of
Shares"). 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 (or NTI) and by Northern (or NTI) on 60 days' written notice to the
Trust.
Northern is active as an underwriter of municipal instruments. Under
the 1940 Act, the Funds are precluded, subject to certain exceptions, from
purchasing in the primary market those municipal instruments with respect to
which Northern is serving as a principal underwriter. In the opinion of
Northern, this limitation will not significantly affect the ability of the Funds
to pursue their respective investment objectives.
In the Advisory Agreement, Northern agrees that the name "Northern" may
be used in connection with the Trust's business on a royalty-free basis.
Northern has reserved to itself the right to grant the non-exclusive right to
use the name "Northern" to any other person. The Advisory Agreement provides
that at such time as the Agreement is no longer in effect, the Trust will cease
using the name "Northern."
Co-Administrators and Distributor
Northern and PFPC, 4400 Computer Drive, Westborough, Massachusetts 01581,
act as co-administrators for the Funds under a Co-Administration Agreement with
the Trust. Subject to the general supervision of the Trust's Board of Trustees,
Northern and PFPC (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: (i)
maintaining office facilities and furnishing corporate officers for the Trust;
(ii) furnishing data processing services, clerical services, and executive and
administrative services and standard stationery and office supplies; (iii)
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; (iv) preparing and submitting reports to the
Trust's shareholders and the SEC; (v) preparing and printing financial
statements; (vi) preparing monthly Fund profile reports; (vii) 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; (viii) assisting in marketing
strategy and product development; (ix) performing oversight/management
responsibilities, such as the supervision and coordination of certain of the
Trust's service providers; (x) effecting and maintaining, as the case may be,
the registration of shares of the Trust for sale under the securities laws of
various jurisdictions; (xi) assisting in maintaining corporate records and good
standing status of the Trust in its state of organization; and (xii) monitoring
the Trust's arrangements with respect to services provided by Service
Organizations to their customers who are the beneficial owners of shares.
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 each Fund, computed daily and
payable monthly, at an annual rate of 0.15% of the average daily net assets of
each Fund.
<PAGE>
On October 1, 1999, the Co-Administrators replace Sunstone Financial
Group, Inc. ("Sunstone") as administrators of the Trust. For the period October
1, 1999 through March 31, 2000, the Co-Administrators received fees under the
Co-Administration Agreement with the Trust (except for the Tax-Exempt Money
Market Fund, Blue Chip 20 Fund and [Large Cap Value Fund], which had not
commenced operations during that period) in the amount of:
<TABLE>
<CAPTION>
<S><C> <C>
=================================================
October 1, 1999 through
March 31, 2000
================================================================== =================================================
Money Market Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
U.S. Government Money Market Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
U.S. Government Select Money Market Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Municipal Money Market Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
California Municipal Money Market Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
U.S. Government Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Short-Intermediate U.S. Government Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Intermediate Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Arizona Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
California Intermediate Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Florida Intermediate Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Fixed Income Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
California Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Global Fixed Income Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
High Yield Municipal Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
High Yield Fixed Income Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Income Equity Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Stock Index Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Growth Equity Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Select Equity Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Mid Cap Growth Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Small Cap Index Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Small Cap Value Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Small Cap Growth Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
International Growth Equity Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
International Select Equity Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Technology Fund
- ------------------------------------------------------------------ -------------------------------------------------
</TABLE>
Additionally, for the period October 1, 1999 through March 31, 2000,
the Co-Administrators voluntarily [waived/reimbursed] each Fund (except for the
Tax-Exempt Money Market Fund, Blue Chip 20 Fund and [Large Cap Value Fund],
which had not commenced operations during that period) for its expenses reducing
the administration fees in the following amounts: <TABLE> <CAPTION>
<S><C> <C>
=================================================
October 1, 1999 through
March 31, 2000
================================================================== =================================================
Money Market Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
U.S. Government Money Market Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
U.S. Government Select Money Market Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Municipal Money Market Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
California Municipal Money Market Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
U.S. Government Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Short-Intermediate U.S. Government Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Intermediate Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
California Intermediate Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Florida Intermediate Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Fixed Income Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Arizona Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
California Tax-Exempt Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Global Fixed Income Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
High Yield Municipal Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
High Yield Fixed Income Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Income Equity Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Stock Index Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Growth Equity Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Select Equity Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Mid Cap Growth Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Small Cap Index Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Small Cap Value Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Small Cap Growth Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
International Growth Equity Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
International Select Equity Fund
- ------------------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------------------ -------------------------------------------------
Technology Fund
- ------------------------------------------------------------------ -------------------------------------------------
</TABLE>
<PAGE>
Prior to October 1, 1999, Sunstone, 207 E. Buffalo Street, Milwaukee,
Wisconsin 53202 acted as the Trust's administrator pursuant to an administration
agreement substantially similar to the Co-Administration Agreement currently in
effect with Northern and PFPC.
For the fiscal years or periods indicated, Sunstone received, after
waivers, administrative fees for each Fund (except for the Tax-Exempt Money
Market Fund, Blue Chip 20 Fund and [Large Cap Value Fund], which had not
commenced operations during that periods) as follows:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
- -------------------------------------------------- ---------------------- -------------------- ======================
April 1, 1999
through Fiscal Year Fiscal Year
September 30, 1999 Ended Ended
March 31, 1999 March 31, 1998
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Money Market Fund $2,447,894 $1,186,568
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
U.S. Government Money Market Fund 294,367 217,652
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
U.S. Government Select Money Market Fund 226,085 124,207
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Municipal Money Market Fund 1,339,727 929,212
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
California Municipal Money Market Fund 176,849 131,467
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
U.S. Government Fund 171,664 124,997
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Short-Intermediate U.S. Government Fund
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Intermediate Tax-Exempt Fund 215,890 178,379
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Arizona Tax-Exempt Fund
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
California Intermediate Tax-Exempt Fund1
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Florida Intermediate Tax-Exempt Fund 17,638 11,284
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Fixed Income Fund 154,709 85,293
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Tax-Exempt Fund 128,048 92,041
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
California Tax-Exempt Fund 35,426 6,684
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Global Fixed Income Fund 10,053 10,534
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
High Yield Municipal Fund2 708 N/A
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
High Yield Fixed Income Fund2 2,958 N/A
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Income Equity Fund 78,886 57,142
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Stock Index Fund 77,739 30,318
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Growth Equity Fund 349,439 235,526
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Select Equity Fund 94,686 53,548
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Mid Cap Growth Fund2 14,391 N/A
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Small Cap Index Fund 224,567 157,708
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Small Cap Value Fund
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Small Cap Growth Fund
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
International Growth Equity Fund 132,079 115,012
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
International Select Equity Fund 82,930 74,312
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Technology Fund 87,044 41,187
- -------------------------------------------------- ---------------------- -------------------- ======================
</TABLE>
1. The California Tax-Exempt Fund commenced operations on April 8, 1997.
2. The High Yield Municipal Fund, High Yield Fixed Income, and Mid Cap
Growth Funds commenced operations on December 31, 1998, December 31,
1998, and March 31, 1998, respectively.
<PAGE>
For the fiscal years or periods indicated, Sunstone waived
administrative fees with respect to each Fund (except for the Tax-Exempt Fund,
Blue Chip 20 Fund and [Large Cap Value Fund], which had not commenced operations
during that periods) as follows:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C>
- -------------------------------------------------- ---------------------- -------------------- ======================
April 1, 1999
through Fiscal Year Fiscal Year
September 30, 1999 Ended Ended
March 31, 1999 March 31, 1998
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Money Market Fund $3,308,194 $2,372,408
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
U.S. Government Money Market Fund 354,550 293,967
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
U.S. Government Select Money Market Fund 317,904 202,525
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Municipal Money Market Fund 1,721,373 1,344,926
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
California Municipal Money Market Fund 232,414 244,331
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
U.S. Government Fund 207,505 180,577
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Short-Intermediate U.S. Government Fund
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Intermediate Tax-Exempt Fund 264,621 244,548
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Arizona Tax-Exempt Fund
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
California Intermediate Tax-Exempt Fund1
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Florida Intermediate Tax-Exempt Fund 26,288 19,151
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Fixed Income Fund 195,856 135,774
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Tax-Exempt Fund 164,475 129,918
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
California Tax-Exempt Fund 51,343 21,785
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Global Fixed Income Fund 12,274 12,687
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
High Yield Municipal Fund2 1,405 N/A
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
High Yield Fixed Income Fund2 5,367 N/A
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Income Equity Fund 93,722 87,270
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Stock Index Fund 106,182 55,711
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Growth Equity Fund 449,843 353,831
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Select Equity Fund 125,790 88,034
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Mid Cap Growth Fund2 32,060 N/A
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Small Cap Index Fund 246,554 276,453
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Small Cap Value Fund 159,830 148,415
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Small Cap Growth Fund 96,366 96,473
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
International Growth Equity Fund 176,646 72,057
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
International Select Equity Fund
- -------------------------------------------------- ---------------------- -------------------- ======================
- -------------------------------------------------- ---------------------- -------------------- ======================
Technology Fund
- -------------------------------------------------- ---------------------- -------------------- ======================
</TABLE>
1. The California Tax-Exempt Fund commenced operations on April 8, 1997.
2. The High Yield Municipal Fund, High Yield Fixed Income, and Mid Cap
Growth Funds commenced operations on December 31, 1998, December 31,
1998, and March 31, 1998, respectively.
Unless sooner terminated, the Co-Administration Agreement will continue
in effect until September 30, 2001, and thereafter for successive one-year terms
with respect to each Fund, provided that the Agreement is approved annually (i)
by the Board of Trustees or (ii) by the vote of a majority of the outstanding
shares of such Fund (as defined below under "Description of Shares"), 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 September 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 September 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 September
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
September 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 also entered into a Distribution Agreement under which
NFD, as agent, sells shares of each Fund on a continuous basis. NFD pays the
cost of printing and distributing prospectuses to persons who are not
shareholders of the Trust (excluding preparation and typesetting expenses) and
of certain other distribution efforts. No compensation is payable by the Trust
to NFD for such distribution services. NFD is a wholly-owned subsidiary of
Provident Distributors, Inc. ("PDI"). PDI, based in King of Prussia,
Pennsylvania, is an independently owned and operated broker-dealer.
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 NFD 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 NFD, or those resulting from the willful misfeasance, bad faith or negligence
of NFD, or NFD's breach of confidentiality.
Under a Service Mark License Agreement with NFD, Northern Trust
Corporation agrees that the name "Northern 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 Funds" to any other person. The Agreement provides that at such time
as the Agreement is no longer in effect, NFD will cease using the name "Northern
Funds."
Service Organizations
As stated in the Funds' Prospectuses, the Funds may enter into
agreements from time to time with Service Organizations providing for support
and/or distribution services to customers of the Service Organizations who are
the beneficial owners of Fund shares. Under the agreements, the Funds may pay
Service Organizations up to 0.25% (on an annualized basis) of the average daily
net asset value of the shares beneficially owned by their customers. Support
services provided by Service Organizations under their agreements may include:
(i) processing dividend and distribution payments from a Fund; (ii) providing
information periodically to customers showing their share positions; (iii)
arranging for bank wires; (iv) responding to customer inquiries; (v) providing
subaccounting with respect to shares beneficially owned by customers or the
information necessary for subaccounting; (vi) forwarding shareholder
communications; (vii) assisting in processing share purchase, exchange and
redemption requests from customers; (viii) assisting customers in changing
dividend options, account designations and addresses; and (ix) other similar
services requested by the Funds. In addition, Service Organizations may provide
assistance (such as the forwarding of sales literature and advertising to their
customers) in connection with the distribution of Fund shares.
The Funds' arrangements with Service Organizations under the agreements
are governed by two Plans (a Service Plan and a Distribution and Service Plan),
which have been adopted by the Board of Trustees. Because the Distribution and
Service Plan contemplates the provision of services related to the distribution
of Fund shares (in addition to support services), that Plan has been adopted in
accordance with Rule 12b-1 under the 1940 Act. In accordance with the Plans, the
Board of Trustees reviews, at least quarterly, a written report of the amounts
expended in connection with the Funds' arrangements with Service Organizations
and the purposes for which the expenditures were made. In addition, the Funds'
arrangements with Service Organizations must be approved annually by a majority
of the Trustees, including a majority of the Trustees who are not "interested
persons" of the Funds as defined in the 1940 Act and have no direct or indirect
financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees believes that there is a reasonable likelihood
that their arrangements with Service Organizations will benefit each Fund and
its shareholders. Any material amendment to the arrangements with Service
Organizations under the agreements must be approved by a majority of the Board
of Trustees (including a majority of the Disinterested Trustees), and any
amendment to increase materially the costs under the Distribution and Service
Plan with respect to a Fund must be approved by the holders of a majority of the
outstanding shares of the Fund involved. So long as the Distribution and Service
Plan is in effect, the selection and nomination of the members of the Board of
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust will be committed to the discretion of such disinterested Trustees.
For the fiscal period ended March 31, 2000, the Money Market Fund, U.S.
Government Money Market Fund, Income Equity Fund, Growth Equity Fund, Stock
Index Fund, Select Equity Fund, Small Cap Value Fund, International Growth
Equity Fund, International Select Equity Fund and Technology Fund paid fees of
$____, $____, $____, $____, $____, $____, $____, $____ and $____, respectively,
under the Service Plan. No other Funds paid fees under either Plan.
For the fiscal period ended March 31, 1999, the Money Market Fund, U.S.
Government Money Market Fund, Income Equity Fund, Growth Equity Fund, Stock
Index Fund, Select Equity Fund, Small Cap Value Fund, International Growth
Equity Fund, International Select Equity Fund and Technology Fund paid fees of
$25,567, $29,542, $146, $37, $37, $73, $110, $957, $37 and $2,103, respectively,
under the Service Plan. No other Funds paid fees under either Plan.
For the fiscal period ended March 31, 1998, the Money Market Fund, U.S.
Government Money Market Fund, Income Equity Fund, Growth Equity Fund, Select
Equity Fund, Small Cap Value Fund, International Select Equity Fund and
Technology Fund paid fees of $107, $40,296, $181, $145, $440, $368, $78 and
$449, respectively, under the Service Plan. No other Funds paid fees under
either Plan.
Counsel and Auditors
Drinker Biddle & Reath LLP, with offices at One Logan Square, 18th and
Cherry Streets, Philadelphia, Pennsylvania 19103, serve as counsel to the Trust.
_____________, independent accountants,
___________________________[address] serve as auditors for the Trust. The
financial statements dated March 31, 2000, incorporated by reference into this
Additional Statement have been incorporated in reliance on the report of
____________ given on the authority of said firm as experts in auditing and
accounting.
In-Kind Purchases and Redemptions
Payment for shares of a Fund may, in the discretion of Northern, be made in
the form of securities that are permissible investments for the Fund as
described in the Prospectuses. For further information about this form of
payment, contact the Transfer Agent. In connection with an in-kind securities
payment, a Fund will require, among other things, that the securities be valued
on the day of purchase in accordance with the pricing methods used by the Fund
and that the Fund 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 Fund; and that adequate information be provided
concerning the basis and other tax matters relating to the securities.
Although each Fund generally will redeem shares in cash, each Fund
reserves the right to pay redemptions by a distribution in-kind of securities
(instead of cash) from such Fund. The securities distributed in-kind would be
readily marketable and would be valued for this purpose using the same method
employed in calculating the Fund'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.
Automatic Investing Plan
The Automatic Investing Plan permits an investor to use "Dollar Cost
Averaging" in making investments. Instead of trying to time market performance,
a fixed dollar amount is invested in shares at predetermined intervals. This may
help investors reduce their average cost per share because the agreed upon fixed
investment amount allows more shares to be purchased during periods of lower
share prices and fewer shares during periods of higher share prices. In order to
be effective, Dollar Cost Averaging should usually be followed on a sustained,
consistent basis. Investors should be aware, however, that shares bought using
Dollar Cost Averaging are purchased without regard to their price on the day of
investment or to market trends. Dollar Cost Averaging does not assure a profit
and does not protect against losses in a declining market. In addition, while
investors may find Dollar Cost Averaging to be beneficial, it will not prevent a
loss if an investor ultimately redeems shares at a price which is lower than
their purchase price. An investor may want to consider his or her financial
ability to continue purchases through periods of low price levels.
Directed Reinvestments
In addition to having your income dividends and/or capital gains
distributions reinvested in shares of the Fund from which such distributions are
paid, you may elect the directed reinvestment option and have dividends and
capital gains distributions automatically invested in another Northern Fund.
Reinvestments can only be directed to an existing Northern Funds account (which
must meet the minimum investment requirement). Directed reinvestments may be
used to invest funds from a regular account to another regular account, from a
qualified plan account to another qualified plan account, or from a qualified
plan account to a regular account. Directed reinvestments from a qualified plan
account to a regular account may have adverse tax consequences including
imposition of a penalty tax and, therefore, you should consult your own tax
adviser before commencing these transactions.
Redemptions and Exchanges
Exchange requests received on a Business Day prior to the time shares
of the Funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the Fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new Fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share next determined coincident to or after the time of
redemption. Exchange requests received on a Business Day after the time shares
of the Funds involved in the request are priced will be processed on the next
Business Day in the manner described above.
The Trust may redeem shares involuntarily to reimburse a Fund for any
loss sustained by reason of the failure of a shareholder to make full payment
for shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
Fund shares as provided in the Funds' Prospectuses from time to time. The Trust
reserves the right on 60 days' written notice, to redeem the shares held in any
account if at the time of redemption, the net asset value of the remaining
shares in the account falls below $1,000. Such involuntary redemptions will not
be made if the value of shares in an account falls below the minimum solely
because of a decline in the Fund's net asset value. The Trust may also redeem
shares involuntarily if the redemption is appropriate to carry out the Trust's
responsibilities under the 1940 Act (see, e.g., "Amortized Cost Valuation").
Retirement Plans
Shares of the Funds may be purchased in connection with certain
tax-sheltered retirement plans, including profit-sharing plans, 401(k) plans,
money purchase pension plans, target benefit plans and individual retirement
accounts. Further information about how to participate in these plans, the fees
charged and the limits on contributions can be obtained from Northern. To invest
through any of the tax-sheltered retirement plans, please call Northern for
information and the required separate application. To determine whether the
benefits of a tax-sheltered retirement plan are available and/or appropriate, a
shareholder should consult with a tax adviser.
Expenses
Except as set forth above and in this Additional Statement, each Fund
is responsible for the payment of its expenses. These expenses include, without
limitation, the fees and expenses payable to Northern and PFPC, brokerage fees
and commissions, fees for the registration or qualification of Fund shares under
federal or state securities laws, expenses of the organization of the Trust,
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 Funds'
shareholders and regulatory authorities, compensation and expenses of its
Trustees, payments to Service Organizations, fees of industry organizations such
as the Investment Company Institute, and miscellaneous and extraordinary
expenses incurred by the Trust.
The Trust and PFPC intend to voluntarily reimburse a portion of the
Funds' expenses and/or reduce their advisory and co-administrative fees from the
Funds during the current fiscal year. The result of these reimbursements and fee
reductions will be to increase the performance of the Funds during the periods
for which the reductions and reimbursements are made.
PERFORMANCE INFORMATION
Money Market Funds
From time to time the Trust may advertise quotations of "yields" and
"effective yields" with respect to each Money Market Fund, and the Municipal
Money Market Fund, Tax-Exempt Money Market Fund and the California Municipal
Money Market Fund may advertise their "tax-equivalent yields" and
"tax-equivalent effective yields." These yield figures will fluctuate, are based
on historical earnings and are not intended to indicate future performance.
"Yield" refers to the net investment income generated by an investment in the
Fund 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 during the 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 Fund 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 a Money Market Fund 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 a Fund'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
Fund'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 a Fund'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 Fund'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.
The annualized yield of each Money Market Fund (except the Tax-Exempt
Money Market Fund, which did not commence operations during the period) for the
seven-day period ended March 31, 2000 was as follows1:
<TABLE>
<CAPTION><S><C> <C> <C> <C> <C>
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
Money Market Fund
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
U.S. Government Money Market Fund
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
U.S. Government Select Money Market Fund
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
Municipal Money Market Fund
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
California Municipal Money Market Fund
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
</TABLE>
1. An income tax rate of 31% is used in the calculation of tax-equivalent
yield and tax-equivalent effective yield.
The information set forth in the foregoing table reflects certain fee
reductions and expense limitations. See "Additional Trust Information -
Investment Adviser, Transfer Agent and Custodian" and "Co-Administrators and
Distributor." In the absence of such fee reductions and expense limitations, the
annualized yield of each Fund (except the Tax-Exempt Money Market Fund, which
did not commence operations during the period) for the same seven-day period
would have been as follows1:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C>
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
Money Market Fund
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
U.S. Government Money Market Fund
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
U.S. Government Select Money Market Fund
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
Municipal Money Market Fund
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
California Municipal Money Market Fund
- ---------------------------------------------- ----------------- ---------------- ----------------- --------------------
</TABLE>
1. An income tax rate of 31% is used in the calculation of tax-equivalent
yield and tax-equivalent effective yield.
A Money Market Fund may also quote, from time to time, total return
information using the formula described in the following section.
Non-Money Market Funds
The Non-Money Market Funds calculate their total returns separately 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 Fund over the measuring period. Total returns for each Non-Money Market
Fund 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 a Fund during the period are reinvested in the shares
of the Fund. When considering average total return figures for periods longer
than one year, it is important to note that the annual total return of a Fund
for any one year in the period might have been more or less than the average for
the entire period. The Non-Money Market Funds 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.
A Non-Money Market Fund calculates its "average annual total return" by
determining the average annual compounded rate of return during specified
periods that equates the initial amount invested to the ending redeemable value
of such investment according to the following formula:
P (1+T)N = ERV
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.
A Non-Money Market Fund calculates its "aggregate total return" by
determining the aggregate compounded rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable value
of such investment. The formula for calculating aggregate total return is as
follows:
<PAGE>
Aggregate Total Return = T = [(ERV/P)]-1
The calculations set forth below are made assuming that (i) all
dividends and capital gain distributions are reinvested on the reinvestment
dates at the price per share existing on the reinvestment date, and (ii) 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.
<PAGE>
<TABLE>
<CAPTION>
<S><C> <C>
For Periods Ended March 31, 2000
</TABLE>
<TABLE>
<CAPTION>
<S><C> <C> <C>
Average Annual Total Returns (%) Aggregate Total Returns (%)
</TABLE>
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Name* 1 Year 5 Year 10 Year Since Inception 1 Year 5 Year 10 Year Since Inception
------ ------ ------- --------------- ------ ------ ------- ---------------
U.S. Government Fund
(4/1/94 inception)
Short-Intermediate U.S.
Government Fund
( inception)
Intermediate Tax-Exempt Fund
(4/1/94 inception)
California Intermediate
Tax-Exempt Fund
( inception)
Florida Intermediate
Tax-Exempt Fund
(8/15/96 inception)
Fixed Income Fund
(4/1/94 inception)
Tax-Exempt Fund
(4/1/94 inception)
Arizona Tax-Exempt Fund
( inception)
California Tax-Exempt Fund
(4/8/97 inception)
Global Fixed Income Fund*
(4/1/94 inception)
High Yield Municipal Fund
( inception)
High Yield Fixed Income Fund
( inception)
Income Equity Fund
(4/1/94 inception)
Stock Index Fund
(10/7/96 inception)
Growth Equity Fund
(4/1/94 inception)
Select Equity Fund
(4/6/94 inception)
Mid Cap Growth Fund
( inception)
Small Cap Index Fund
( inception)
Small Cap Value Fund
(4/1/94 inception)
Small Cap Growth Fund
( inception)
International Growth Equity Fund
(4/1/94 inception)
International Select Equity Fund
(4/5/94 inception)
Technology Fund
(4/1/96 inception)
</TABLE>
* As of March 31, 2000, the Blue Chip 20 Fund and the [Large Cap Value]
Fund had not commenced operations.
* Prior to June 30, 2000, this Fund was named the International Fixed
Income Fund and was required to invest at least 65% of its total assets in fixed
income securities of foreign issuers.
<PAGE>
The yield of a Non-Money Market Fund is computed based on the Fund's
net income during a specified 30-day (or one month) period. More specifically,
the Fund's yield is computed by dividing the per share net income during the
relevant period by the net asset value per share on the last day of the period
and annualizing the result on a semi-annual basis.
A Non-Money Market Fund calculates its 30-day (or one month) standard
yield 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 reimbursement);
c = average daily number of shares outstanding during the period
entitled to receive dividends; and
d = net assets value per share on the last day of the period Based
on the foregoing calculations, for the 30-day period ended March 31, 2000, the
yields for the U.S. Government, Intermediate Tax-Exempt, Florida Intermediate
Tax-Exempt, Fixed Income, Tax-Exempt, California Tax-Exempt, Global Fixed
Income, High Yield Municipal, High Yield Fixed Income and Income Equity Funds,
after fee waivers, were ___%, ___%, ___%, ___%, ___%, ___%, ___%, ___%, ___% and
___, respectively. Also for the 30-day period ended March 31, 2000, the yields
for the U.S. Government, Intermediate Tax-Exempt, Florida Intermediate
Tax-Exempt, Fixed Income, Tax-Exempt, California Tax-Exempt, Global Fixed
Income, High Yield Municipal and High Yield Fixed Income Funds, absent fee
waivers, were ___%, ___%, ___%, ___%, ___%, ___%, ___%, ___%, ___% and ___%,
respectively.
A Non-Money Market Fund's "tax-equivalent" yield is computed by: (i)
dividing the portion of the Fund's yield (calculated as above) that is exempt
from federal income tax by one minus a stated federal income tax rate; and (ii)
adding the quotient to that portion, if any, of the Fund's yield that is not
exempt from federal income tax. For the 30-day period ended March 31, 2000, and
using a federal income tax rate of __%, the 30-day tax-equivalent yields, after
fee waivers, were ___%, ___%, ___%, ___% and ___% for the Intermediate
Tax-Exempt, Florida Intermediate Tax-Exempt, Tax-Exempt, California Tax-Exempt
and High Yield Municipal Funds, respectively. Also, for the 30-day period ended
March 31, 2000, and using a federal income tax rate of __%, the 30-day
tax-equivalent yields, absent fee waivers, were ___%, ___%, ___%, ___% and ___%
for the Intermediate Tax-Exempt, Florida Intermediate Tax-Exempt, Tax-Exempt,
California Tax-Exempt and High Yield Municipal Funds, respectively.
General Information
The performance information set forth above includes the reinvestment
of dividends and distributions. Certain performance information set forth above
reflects fee waivers in effect; in the absence of fee waivers, these performance
figures would be reduced. Any fees imposed by Northern, NTI or other Service
Organizations on their customers in connection with investments in the Funds are
not reflected in the Trust's calculations of performance for the Funds.
Each Fund's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates, portfolio
expenses and other factors. Performance is one basis investors may use to
analyze a Fund as compared to other funds and other investment vehicles.
However, performance of other 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 performance.
<PAGE>
The performance of each Fund may be compared to those of other mutual funds
with similar investment objectives and to stock, bond 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 Fund may be compared to data prepared by Lipper Analytical
Services, Inc. or to the S&P 500 Index, the S&P MidCap 400 Index, the Russell
2000 or 1000 Small Stock Index, the Consumer Price Index or the Dow Jones
Industrial Average. In addition, performance of the U.S. Government and Fixed
Income Funds may be compared to the Lehman Brothers Government Bond Index (or
its two components, the Treasury Bond Index and Agency Bond Index), the Lehman
Brothers Corporate Bond Index, the Lehman Brothers Intermediate Government Bond
Index and the Lehman Brothers Government/Corporate Bond Index. Performance of
the Intermediate Tax-Exempt and Tax-Exempt Funds may be compared to the Lehman
Brothers Mutual Fund Intermediate Municipal Index, Lehman Brothers Municipal
Bond or 5-Year Municipal Bond Indices; performance of the California
Intermediate Tax-Exempt Fund may be compared to the Lehman Brothers Mutual Fund
California Intermediate Index; performance of the Florida Intermediate
Tax-Exempt Fund may be compared to the Lehman Brothers Florida Intermediate
Tax-Exempt Index; performance of the Arizona Tax-Exempt Fund may be compared to
the Lehman Brothers Arizona Municipal Bond Index; performance of the California
Tax-Exempt Fund may be compared to the Lehman Brothers California Exempt
Municipal Index and performance of the California Intermediate Tax-Exempt Fund,
Florida Intermediate Tax-Exempt Fund, Arizona Tax-Exempt Fund and California
Tax-Exempt Fund may be compared to the Lehman Brothers Mutual Fund Intermediate
Municipal Index. Performance of the High Yield Municipal Fund may be compared to
Lehman Brothers Municipal Non-Investment Grade Bond Index. Performance of the
High Yield Fixed Income Fund may be compared to Merrill Lynch High Yield Master
II Index, Lehman Brothers High Yield Corporate Bond Index and Salomon Brothers
Extended High-Yield Market Index. Performance of the Income Equity Fund may be
compared to the Merrill Lynch All U.S. Convertibles Index and the Merrill Lynch
Investment Grade Convertible Bond Index. Performance of the International Funds
may be compared to the Morgan Stanley Capital International Europe, Australia
and Far East Index ("MSCI EAFE"), the MSCI EAFE blended with Emerging Markets
Free Index and the J.P. Morgan International Government Bond Index. Performance
of the Global Fixed Income Fund may be compared to the J.P. Morgan Global Bond
Index. Performance of the Income Equity Fund may be compared to the Merrill
Lynch All U.S. Convertibles Index. Performance of the Technology Fund may be
compared to the Morgan Stanley High-Technology 35 Index, the Morgan Stanley
Index, the Hambrecht and Quist Technology Index, the SoundView Technology Index,
the technology grouping of the S&P 500 Index and any other comparable technology
index. Performance data as reported in national financial publications such as
Money, 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 Fund. From time to time, the Funds may also quote the mutual
fund ratings of Morningstar, Inc. and other services in their advertising
materials.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate of
inflation (based on the Consumer Price Index), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices. The Funds may use the performance of these capital
markets in order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical investment
in any of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the Funds. The
Funds may also compare performance to that of other compilations or indices that
may be developed and made available in the future.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original investment in the Fund, but also of the additional Fund shares
received through reinvestment.
The Funds may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Fund (such as value investing, market timing, dollar
cost averaging, asset allocation, constant ratio transfer, automatic account
rebalancing, the advantages and disadvantages of investing in tax-deferred and
taxable investments), economic and political conditions, the relationship
between sectors of the economy and the economy as a whole, the effects of
inflation and historical performance of various asset classes, including but not
limited to, stocks, bonds and Treasury bills. From time to time advertisements,
sales literature, communications to shareholders or other materials may
summarize the substance of information contained in shareholder reports
(including the investment composition of a Fund), as well as the views of
Northern and NTI as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund. In addition, selected
indices may be used to illustrate historic performance of selected asset
classes. The Funds may also include in advertisements, sales literature,
communications to shareholders or other materials, charts, graphs or drawings
which illustrate the potential risks and rewards of investment in various
investment vehicles, including but not limited to, stocks, bonds, treasury bills
and shares of a Fund. In addition, advertisements, sales literature,
communications to shareholders or other materials may include a discussion of
certain attributes or benefits to be derived by an investment in a Fund and/or
other mutual funds, shareholder profiles and hypothetical investor scenarios,
timely information on financial management, tax and retirement planning and
investment alternative to certificates of deposit and other financial
instruments. Such sales literature, communications to shareholders or other
materials may include symbols, headlines or other material which highlight or
summarize the information discussed in more detail therein.
Materials may include lists of representative clients of Northern and
NTI. Materials may refer to the CUSIP numbers of the Funds and may illustrate
how to find the listings of the Funds in newspapers and periodicals. Materials
may also include discussions of other Funds, products, and services.
The Funds may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Funds may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data.
The Funds may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.
A Fund may advertise its current interest rate sensitivity, duration,
weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to a Fund may include
information regarding the background and experience of its portfolio managers.
NET ASSET VALUE
As stated in the Prospectus for the Money Market Funds, each Money
Market Fund seeks to maintain a net asset value of $1.00 per share and, in this
connection, values its instruments on the basis of amortized cost pursuant to
Rule 2a-7 under the 1940 Act. This method values a security at its cost on the
date of purchase and thereafter assumes a constant amortization to maturity of
any discount or premium, regardless of the impact of fluctuating interest rates
on the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price a Fund would receive if the
Fund sold the instrument. During such periods the yield to investors in the Fund
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 Fund value
on a particular day, a prospective investor in the Fund 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
Funds' operations and delegating special responsibilities involving portfolio
management to Northern, has established procedures that are intended, taking
into account current market conditions and the Funds' investment objectives, to
stabilize the net asset value of each Money Market Fund, 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 (i) quotations or estimates of market value for individual portfolio
instruments and/or (ii) values for individual portfolio instruments derived from
market quotations relating to varying maturities of a class of money market
instruments. In the event the Market Value Difference of a given Money Market
Fund exceeds 1/2 of 1%, the Trustees' procedures provide that 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 a
Fund, 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 Fund'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 Fund.
Rule 2a-7 requires that each Money Market Fund 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 Prospectuses. The Rule
also requires that each Money Market Fund 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
days. Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Rule requires a Money
Market Fund to invest its available cash in such a manner as to reduce such
maturity to the prescribed limit as soon as reasonably practicable.
Securities held by the other Funds that are listed on a recognized U.S.
or foreign securities exchange are valued at the last quoted sales price on the
securities exchange on which the 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 securities listed on a U.S. exchange are
not traded on a valuation date, they will be valued at the last quoted bid
price. If securities traded on a foreign securities exchange are not traded on a
valuation date, they will be valued at the most recent quoted sales price.
Securities that are traded in the U.S. over-the-counter markets, absent a last
quoted sales price, are valued at the last quoted bid price. Securities which
are traded in the foreign over-the-counter markets are valued at the last sales
price, except that such securities traded in the United Kingdom are valued at
the average of the closing bid and ask prices. Any securities for which no
current quotations are readily available are valued at fair value as determined
in good faith by Northern under the supervision of the Board of Trustees.
Temporary short-term investments are valued at amortized cost which Northern has
determined, pursuant to Board authorization, approximates market value.
Securities may be valued on the basis of prices provided by independent pricing
services when those prices are believed to reflect the fair market value of the
securities.
Northern is not required to calculate the net asset value of a Fund on
days during which no shares are tendered to a Fund for redemption and no orders
to purchase or sell shares are received by a Fund, or on days on which there is
an insufficient degree of trading in the Fund's portfolio securities for changes
in the value of such securities to affect materially the net asset value per
share.
TAXES
The following summarizes certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectuses. No attempt is made to present a detailed explanation of the
tax treatment of the Funds or their shareholders, and the discussions here and
in the Prospectuses are not intended as a substitute for careful tax planning.
Potential investors should consult their tax advisers with specific reference to
their own tax situations.
The discussions of Federal and state tax consequences in the
Prospectuses and this Additional Statement are based on the Internal Revenue
Code of 1986, as amended (the "Code") and the laws and regulations issued
thereunder as in effect on the date of this Additional Statement. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Federal - General Information
Each Fund intends to qualify as a regulated investment company under
Part I of Subchapter M of Subtitle A, Chapter 1 of the Code. As a regulated
investment company, each Fund is generally exempt from Federal income tax on its
net investment income and realized capital gains which it distributes to
shareholders, provided that it distributes an amount equal to at least the sum
of 90% of its tax-exempt income and 90% of its investment company taxable income
(net investment income and the excess of net short-term capital gain over net
long-term capital loss), if any, for the year (the "Distribution Requirement")
and satisfies certain other requirements of the Code that are described below.
In addition to satisfaction of the Distribution Requirement, each Fund
must derive with respect to a taxable year at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock or securities or foreign currencies,
or from other income derived with respect to its business of investing in such
stock, securities, or currencies (the "Income Requirement").
In addition to the foregoing requirements, at the close of each quarter
of its taxable year, at least 50% of the value of each Fund's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which a
Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which a Fund does not hold more than 10% of
the outstanding voting securities of such issuer), and no more than 25% of the
value of each Fund's total assets may be invested in the securities of any one
issuer (other than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which such Fund controls and
which are engaged in the same or similar trades or businesses.
Each Fund intends to distribute to shareholders any excess of net
long-term capital gain over net short-term capital loss ("net capital gain") for
each taxable year. Such gain is distributed as a capital gain dividend and is
taxable to shareholders as long-term capital gain, regardless of the length of
time the shareholder has held the shares, whether such gain was recognized by
the Fund prior to the date on which a shareholder acquired shares of the Fund
and whether the distribution was paid in cash or reinvested in shares. In
addition, investors should be aware that any loss realized upon the sale,
exchange or redemption of shares held for six months or less will be treated as
a long-term capital loss to the extent of any capital gain dividends that have
been paid with respect to such shares.
Dividends and distributions from each Fund will generally be taxable to
you in the tax year in which they are paid, with one exception. Dividends and
distributions declared by a Fund in October, November or December and paid in
January are taxed as though they were paid by December 31.
In the case of corporate shareholders, distributions of a Fund for any
taxable year generally qualify for the dividends received deduction to the
extent of the gross amount of "qualifying dividends" from domestic corporations
received by the Fund for the year. A dividend usually will be treated as a
"qualifying dividend" if it has been received from a domestic corporation. A
portion of the dividends paid by the Income Equity Fund, Stock Index Fund,
Growth Equity Fund, Select Equity Fund, Blue Chip 20 Fund, Mid Cap Growth, Small
Cap Index Fund, Small Cap Value Fund, Small Cap Growth Fund, Technology Fund and
[Large Cap Value Fund], may constitute "qualifying dividends." The other Funds,
however, are not expected to pay qualifying dividends.
If for any taxable year any Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In such
event, all distributions (whether or not derived from exempt-interest income)
would be taxable as ordinary income to the extent of such Fund's current and
accumulated earnings and profits and would be eligible for the dividends
received deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund 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.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, each Fund
may be subject to the tax laws of such states or localities.
Federal - Tax-Exempt Information
As described in the Prospectuses, the Municipal Money Market,
California Municipal Money Market, Tax-Exempt Money Market, Intermediate
Tax-Exempt, California Intermediate Tax-Exempt, Florida Intermediate Tax-Exempt,
Tax-Exempt, Arizona Tax-Exempt, California Tax-Exempt and High Yield Municipal
Funds are designed to provide investors with Federally tax-exempt interest
income. The Funds are not intended to constitute a balanced investment program
and are not designed for investors seeking capital appreciation or maximum
tax-exempt income irrespective of fluctuations in principal. Shares of the Funds
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 Funds' dividends being
tax-exempt. In addition, the Funds 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, partnerships and their partners and S
corporations and their shareholders.
In order for the Municipal Money Market, California Municipal Money
Market, Tax-Exempt Money Market, Intermediate Tax-Exempt, California
Intermediate Tax-Exempt, Florida Intermediate Tax-Exempt, Tax-Exempt, Arizona
Tax-Exempt, California Tax-Exempt or High Yield Municipal Funds 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 Fund must consist of
tax-exempt obligations. An exempt-interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by a Fund and designated as an
exempt-interest dividend in a written notice mailed to shareholders not later
than 60 days after the close of the Fund's taxable year. However, the aggregate
amount of dividends so designated by a Fund cannot exceed the excess of the
amount of interest exempt from tax under Section 103 of the Code received by the
Fund 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 a Fund with respect to any taxable year which qualifies as federal
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Fund with respect to such year.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of a tax exempt Fund generally is not deductible for federal income tax
purposes to the extent attributable to exempt-interest-dividends. If a
shareholder holds Fund 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 Tax-Exempt Funds and the Municipal Funds in
determining certain adjustments for alternative minimum tax purposes.
The Funds will determine annually the percentages of their respective
net investment income which are exempt from tax, which constitute an item of tax
preference for purposes of the federal alternative minimum tax, and which are
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 Funds.
Taxation of Certain Financial Instruments
The tax principles applicable to transactions in financial instruments
and futures contacts and options that may be engaged in by a Fund, and
investments in passive foreign investment companies ("PFICs"), are complex and,
in some cases, uncertain. Such transactions and investments may cause a Fund to
recognize taxable income prior to the receipt of cash, thereby requiring the
Fund to liquidate other positions, or to borrow money, so as to make sufficient
distributions to shareholders to avoid corporate-level tax. Moreover, some or
all of the taxable income recognized may be ordinary income or short-term
capital gain, so that the distributions may be taxable to shareholders as
ordinary income.
In addition, in the case of any shares of a PFIC in which a Fund
invests, the Fund may be liable for corporate-level tax on any ultimate gain or
distributions on the shares if the Fund fails to make an election to recognize
income annually during the period of its ownership of the shares.
Special State Tax Considerations Pertaining to the California Funds
Assuming each of the California Funds qualifies as a regulated
investment company, it will be relieved of liability for California state
franchise and corporate income tax to the extent its earnings are distributed to
its shareholders. Each of the California Funds may be taxed on its undistributed
taxable income. If for any year one of the California Funds does not qualify as
a regulated investment company, all of that Fund's taxable income (including
interest income on California municipal instruments for franchise tax purposes
only) may be subject to California state franchise or income tax at regular
corporate rates.
If, at the close of each quarter of its taxable year, at least 50% of
the value of the total assets of a regulated investment company, or series
thereof, consists of obligations the interest on which, if held by an
individual, is exempt from taxation by California ("California municipal
instruments") then a regulated investment company, or series thereof, will be
qualified to pay dividends exempt from California state personal income tax to
its non-corporate shareholders (hereinafter referred to as "California
exempt-interest dividends"). "Series" of a regulated investment company is
defined as a segregated portfolio of assets, the beneficial interest in which is
defined as a series of stock of the company. Each of the California Funds
intends to qualify under the above requirements so that it can pay California
exempt-interest dividends. If one of the California Funds fails to so qualify,
no part of that Fund's dividends to shareholders will be exempt from the
California state personal income tax. Each of the California Funds may reject
purchase orders for shares if it appears desirable to avoid failing to so
qualify.
Within 60 days after the close of its taxable year, each of the
California Funds will notify each shareholder of the portion of the dividends
paid by the Fund to the shareholder with respect to such taxable year which is
exempt from California state personal income tax. The total amount of California
exempt-interest dividends paid by the Fund with respect to any taxable year
cannot exceed the excess of the amount of interest received by the Fund for such
year on California municipal instruments over any amounts that, if the Fund were
treated as an individual, would be considered expenses related to tax-exempt
income or amortizable bond premium and would thus not be deductible under
federal income or California state personal income tax law. The percentage of
total dividends paid by the Fund with respect to any taxable year which
qualifies as California exempt-interest dividends will be the same for all
shareholders receiving dividends from the Fund with respect to such year.
In cases where shareholders are "substantial users" or "related
persons" with respect to California municipal instruments held by one of the
California Funds, such shareholders should consult their tax advisers to
determine whether California exempt-interest dividends paid by the Fund with
respect to such obligations retain California state personal income tax
exclusion. In this connection, rules similar to those regarding the possible
unavailability of federal exempt-interest dividend treatment to "substantial
users" are applicable for California state tax purposes. See "Federal
- -Tax-Exempt Information" above.
To the extent any dividends paid to shareholders are derived from the
excess of net long-term capital gains over net short-term capital losses, such
dividends will not constitute California exempt-interest dividends and will
generally be taxed as long-term capital gains under rules similar to those
regarding the treatment of capital gain dividends for federal income tax
purposes. See "Federal - General Information" above. Moreover, interest on
indebtedness incurred by a shareholder to purchase or carry shares of one of the
California Funds is not deductible for California state personal income tax
purposes if that Fund distributes California exempt-interest dividends during
the shareholder's taxable year.
In addition, any loss realized by a shareholder of the California Funds
upon the sale of shares held for six months or less may be disallowed to the
extent of any exempt-interest dividends received with respect to such shares.
Moreover, any loss realized upon the redemption of shares within six months from
the date of purchase of such shares and following receipt of a long-term capital
gains distribution will be treated as long-term capital loss to the extent of
such long-term capital gains distribution. Finally, any loss realized upon the
redemption of shares within thirty days before or after the acquisition of other
shares of the same Fund may be disallowed under the "wash sale" rules.
California may tax income derived from repurchase agreements involving
federal obligations because such income represents a premium paid at the time
the government obligations are repurchased rather than interest paid by the
issuer of the obligations.
The foregoing is only a summary of some of the important California
state personal income tax considerations generally affecting the California
Funds and their shareholders. No attempt is made to present a detailed
explanation of the California state personal income tax treatment of the
California Funds or their shareholders, and this discussion is not intended as a
substitute for careful planning. Further, it should be noted that the portion of
a Fund's dividends constituting California exempt-interest dividends is
excludable from income for California state personal income tax purposes only.
Any dividends paid to shareholders subject to California state franchise tax or
California state corporate income tax may therefore be taxed as ordinary
dividends to such purchasers notwithstanding that all or a portion of such
dividends is exempt from California state personal income tax. Accordingly,
potential investors in one of the California Funds, including, in particular,
corporate investors which may be subject to either California franchise tax or
California corporate income tax, should consult their tax advisers with respect
to the application of such taxes to the receipt of Fund dividends and as to
their own California state tax situation, in general.
Special State Tax Considerations Pertaining to the Florida Intermediate
Tax-Exempt Fund
The State of Florida does not currently impose an income tax on
individuals. Thus, individual shareholders of the Florida Intermediate
Tax-Exempt Fund will not be subject to any Florida income tax on distributions
received from the Fund. However, Florida does currently impose an income tax on
certain corporations. Consequently, distributions may be taxable to corporate
shareholders.
The State of Florida currently imposes an "intangibles tax" at the
annual rate of 2 mills or 0.20% on certain securities and other intangible
assets owned by Florida residents. Every natural person is entitled to an
exemption of the first $20,000 of the value of taxable property against the
first mill of the annual tax. Spouses filing jointly are entitled to a $40,000
exemption. With respect to the second mill, natural persons are entitled to an
exemption of the first $100,000 of otherwise taxable property (joint filers are
entitled to a $200,000 exemption). Taxpayers are limited to only one exemption
under each provision. Notes, bonds and other obligations issued by the State of
Florida or its municipalities, counties, and other taxing districts, or by the
United States Government, its agencies and certain U.S. territories and
possessions (such as Guam, Puerto Rico and the Virgin Islands) as well as cash
are exempt from this intangibles tax. If on December 31 of any year at least 90
percent of the net asset value of the portfolio of the Florida Intermediate
Tax-Exempt Fund consists solely of such exempt assets, then the Fund's shares
will be exempt from the Florida intangibles tax payable in the following year.
In order to take advantage of the exemption from the intangibles tax in
any year, it may be necessary for the Fund to sell some of its non-exempt assets
held in its portfolio during the year and reinvest the proceeds in exempt assets
including cash prior to December 31. Transaction costs involved in restructuring
the portfolio in this fashion would likely reduce the Fund's investment return
and might exceed any increased investment return the Fund achieved by investing
in non-exempt assets during the year.
Outside the State of Florida, income distributions may be taxable to
shareholders under state or local law as dividend income even though all or a
portion of such distributions may be derived from interest on tax-exempt
obligations or U.S. Government obligations which, if realized directly, would be
exempt from such income taxes. Shareholders are advised to consult their tax
advisers concerning the application of state and local taxes.
Special State Tax Considerations Pertaining to the Arizona Tax-Exempt Fund
Individuals, trusts and estates who are subject to Arizona income tax
will not be subject to such tax on dividends paid by the Arizona Tax-Exempt
Fund, to the extent that such dividends qualify as exempt-interest dividends of
a regulated investment company under Section 852(b)(5) of the Code and are
attributable to either (i) obligations of the State of Arizona or its political
subdivisions thereof or (ii) obligations issued by the governments of Guam,
Puerto Rico, or the Virgin Islands. In addition, dividends paid by the Arizona
Tax-Exempt Fund which are attributable to interest payments on direct
obligations of the United States government will not be subject to Arizona
income tax to the extent the Arizona Tax-Exempt Fund qualifies as a regulated
investment company under Subchapter M of the Code. Other distributions from the
Arizona Tax-Exempt Fund, however, such as distributions of short-term or
long-term capital gains, will generally not be exempt from Arizona income tax.
There are no municipal income taxes in Arizona. Moreover, because
shares of the Arizona Tax-Exempt Fund are intangibles, they are not subject to
Arizona property tax. Shareholders of the Arizona Tax-Exempt Fund should consult
their tax advisors about other state and local tax consequences of their
investment in the Arizona Tax-Exempt Fund.
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 different investment portfolios.
The Trust may hereafter create series in addition to the Trust's existing
series, which represent interests in thirty-one portfolios, each of which is
discussed in this Additional Statement.
Under the terms of the Trust Agreement, each share of each Fund has a
par value of $.0001, represents a proportionate interest in the particular Fund
with each other share of its class and is entitled to such dividends and
distributions out of the income belonging to the Fund as are declared by the
Trustees. Upon any liquidation of a Fund, shareholders of each class of a Fund
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 "Redeeming and Exchanging
Shares" in the Prospectuses. In addition, pursuant to the terms of the 1940 Act,
the right of a shareholder to redeem shares and the date of payment by a Fund
may be suspended for more than seven days (i) 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 Fund normally utilizes is closed or is
restricted as determined by the SEC, (ii) during any emergency, as determined by
the SEC, as a result of which it is not reasonably practicable for the Fund to
dispose of instruments owned by it or fairly to determine the value of its net
assets, or (iii) for such other period as the SEC may by order permit for the
protection of the shareholders of the Fund. 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, the Trust reserves the right to
adopt, by action of the Trustees, a policy pursuant to which it may, without
shareholder approval, redeem upon not less than 30 days' notice all of a Fund's
shares if such shares have an aggregate value below a designated amount and if
the Trustees determine that it is not practical, efficient or advisable to
continue the operation of such Fund and that any applicable requirements of the
1940 Act have been met. Shares when issued as described in the Prospectuses are
validly issued, fully paid and nonassessable, except as stated below. In the
interests of economy and convenience, certificates representing shares of the
Funds are not issued.
The proceeds received by each Fund 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 Fund. The underlying assets of
each Fund will be segregated on the books of account, and will be charged with
the liabilities in respect to that Fund and with a share of the general
liabilities of the Trust. Expenses with respect to the portfolios of Northern
Funds are normally allocated in proportion to the net asset value of the
respective portfolios except where allocations of direct expenses can otherwise
be fairly made.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Each Fund entitled to
vote on a matter will vote in the aggregate and not by Fund, except as required
by law or when the matter to be voted on affects only the interests of
shareholders of a particular Fund.
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, a
distribution plan subject to Rule 12b-1 under the 1940 Act 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.
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.
<PAGE>
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: (i) a court refuses to apply Delaware
law; (ii) the liability arises under tort law or, if not, no contractual
limitation of liability is in effect; and (iii) 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: (i) 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 (ii) 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
(i) may, but are not required to, serve as Trustees of the Trust or any other
series or class of the Trust; (ii) 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 (iii) 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.
The term "majority of the outstanding shares" of either Northern Funds
or a particular Fund or investment portfolio means, with respect to the approval
of an investment advisory agreement, a distribution plan or a change in a
fundamental investment policy, the vote of the lesser of (i) 67% or more of the
shares of Northern Funds or such Fund or portfolio present at a meeting, if the
holders of more than 50% of the outstanding shares of Northern Funds or such
Fund or portfolio are present or represented by proxy, or (ii) more than 50% of
the outstanding shares of Northern Funds or such Fund or portfolio.
<PAGE>
As of April 30, 2000, Northern and its affiliates held of record
substantially all of the outstanding shares of the Non-Money Market Funds as
agent, custodian, trustee or investment adviser on behalf of their customers. At
such date, The Northern Trust Company, 50 S. LaSalle Street, Chicago, Illinois
60675, and its affiliate banks held as beneficial owner five percent or more of
the outstanding shares of the Non-Money Market Funds because they possessed sole
or shared voting or investment power with respect to such shares. As of April
30, 2000 the names and share ownership of the entities or individuals which held
of record or beneficially more than 5% of the outstanding shares of any Fund
were as follows:
<TABLE>
<CAPTION>
<S><C> <C> <C>
Number Percentage
of Shares of Shares
Money Market Fund
Short-Term Investment Fund of NTC 945,040,000 15.0%
The Northern Trust Bank - Miami 995,735,732 15.8%
Northern Trust Bank Illinois - M&I Sweep Account 340,358,679 5.4%
Northern Trust Bank Florida - M&I Sweep Account 417,453,117 6.6%
U.S. Government Money Market Fund
TNT - Miami on behalf of its customers 32,367,291 6.5%
Sunstone Financial Group, Inc. 55,349,754 11.2%
Northern Trust Bank Florida - M&I Sweep Account 43,637,121 8.8%
U.S. Government Select Money Market Fund
Northern Trust Bank Florida - M&I Sweep Account 98,316,333 14.4%
TNT - Miami on behalf of its customers 228,136,679 33.4%
Municipal Money Market Fund
TNT - Miami on behalf of its customers 618,709,499 24,1%
Northern Trust Bank Illinois - M&I Sweep Account 188,651,513 7.3%
Northern Trust Bank Florida - M&I Sweep Account 130,073,758 5.1%
California Municipal Money Market Fund
Northern Trust Bank California - M&I Sweep Account 75,290,439 6.9%
Florida Intermediate Tax-Exempt Fund
First Data Investors Services Group FBO Northern Funds 382,736 9.3%
Auto House Trust Cash Processing Unit - Miami 266,653 6.5%
Fixed Income Fund
CCT Combs Funds 5,205,804 7.7%
High Yield Fixed Income Fund
Northern Trust Company Pension Plan 2,366,471 12.9%
Stock Index Fund
CCT Combs Funds 2,249,292 8.3%
Select Equity Fund
First Data Investors Services Group FBO Northern Funds 1,831,777 12.2%
Technology Fund
Charles Schwab and Co., Inc. on behalf of its customers 3,033,911 6.9%
</TABLE>
As of April 30, 2000, Northern possessed sole or shared voting or
investment power for its customer accounts with respect to more than 50% of the
outstanding shares of Northern Funds. As of the same date, the Trust's Trustees
and officers as a group owned less than 1% of the outstanding shares of each
Fund.
FINANCIAL STATEMENTS
The audited financial statements and related report of the Trust's
independent auditors, contained in the annual report to shareholders for the
fiscal year ended March 31, 2000 (the "Annual Report") are hereby incorporated
herein by reference. No other part of the Annual Report is incorporated by
reference herein. Copies of the Annual Report may be obtained, without charge,
from the Transfer Agent by writing to the Northern Funds Center, P.O. Box 75986,
Chicago, Illinois 60675-5986 or by calling 1-800-595-9111.
<PAGE>
OTHER INFORMATION
The Prospectuses and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Trust's Prospectuses.
Certain portions of the Registration Statement have been omitted from the
Prospectuses 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.
Statements contained in the Prospectuses 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 Prospectuses 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 Ratings Group, Inc. ("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 Investor Service, Inc. ("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 Credit Rating Co. ("D&P")
for investment grade commercial paper and short-term debt are "D-1," "D-2" and
"D-3." D&P employs three designations, "D-1+," "D-1" and "D-1-," within the
highest rating category. The following summarizes the rating categories used by
D&P 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 ("Fitch") 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 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, Inc. ("TBW") 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 TBW:
"TBW-1" - This designation represents TBW'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 TBW'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 TBW'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 TBW'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 S&P's for corporate and
municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by S&P'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 (i) earnings of projects under construction, (ii) earnings
of projects unseasoned in operating experience, (iii) rentals which begin when
facilities are completed, or (vi) 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 D&P 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 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
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.
TBW 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 TBW 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 TBW 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 S&P'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 S&P's 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 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 and D&P use the short-term ratings described under Commercial
Paper Ratings for municipal notes.
<PAGE>
APPENDIX B
As stated in the Prospectuses, the Funds (other than the Money
Market Funds) may enter into certain futures transactions. Such transactions are
described in this Appendix.
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, a Fund 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.
A Fund presently could accomplish a similar result to that
which it hopes to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market,
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by a Fund, by using futures
contracts.
Interest rate future contracts can also be used by a Fund 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 a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by a Fund, 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 Fund'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 Fund is
immediately paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sale price, the Fund pays the difference and realizes
a loss. Similarly, the closing out of a futures contract purchase is effected by
the Fund entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the purchase price
exceeds the offsetting sale price, the Fund 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 Funds may trade in any interest rate futures contracts for which
there exists a public market, including, without limitation, the foregoing
instruments.
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 the S&P 500 or the New York
Stock Exchange Composite Index. In contrast, certain exchanges offer futures
contracts on narrower market indexes, such as the S&P's 100 or indexes based on
an industry or market indexes, such as the S&P 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, a Fund 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).
A Fund may sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. A Fund may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, a Fund
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, a Fund may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that a Fund expects to narrow the range of industry groups
represented in its holdings it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. A Fund
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 a Fund for
non-hedging (speculative) purposes to increase total return.
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 a Fund to
hedge against exposure to fluctuations in exchange rates between the U.S. dollar
and other currencies arising from multinational transactions.
A Fund may also use futures contracts on foreign currencies for
non-hedging (speculative) purposes to increase total return.
Margin Payments
Unlike purchases or sales of portfolio securities, no price is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund 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 Fund 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 a particular Fund 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 Fund
will be entitled to receive from the broker a variation margin payment equal to
that increase in value. Conversely, where the Fund 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 Fund would be required to make a variation margin payment to the broker.
Prior to expiration of the futures contract, Northern or NTI 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 Fund'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 Fund, and the Fund
realizes a loss or gain.
Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures
by a Fund, even if the futures are used for hedging (non-speculative) purposes.
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 Fund 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 Fund 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, a Fund 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 Advisers. Conversely, a Fund 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
Advisers. It is also possible that, where a Fund 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 Fund may decline. If this occurred, the Fund 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 a Fund is able to
invest its cash (or cash equivalents) in an orderly fashion, it is possible that
the market may decline instead; if the Fund then concludes not to invest its
cash at that time because of concern as to possible further market decline or
for other reasons, the Fund 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
Funds intend to purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund 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 a Fund is also subject to the
Investment Advisers' ability to predict correctly movements in the direction of
the market. For example, if a particular Fund has hedged against the possibility
of a decline in the market adversely affecting securities held by it and
securities prices increase instead, the Fund 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 Fund 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. A
Fund may have to sell securities at a time when it may be disadvantageous to do
so.
Futures purchased or sold by a Fund (and related options) may
be traded on foreign exchanges. 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, customers who trade foreign futures of
foreign options contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the Commodity Futures Trading
Commission's ("CFTC") regulations and the rules of the National Futures
Association and any domestic exchange, including the right to use reparations
proceedings before the CFTC and arbitration proceedings provided by the National
Futures Association or any domestic futures exchange. In particular, the
investments of a Fund in foreign futures, or foreign options transactions may
not be provided the same protections in respect to 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.
Options on Futures Contracts
A Fund may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss. A Fund 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, a Fund 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 Fund intends to
purchase. Similarly, if the value of the securities held by a Fund is expected
to decline as a result of an increase in interest rates, the Fund 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). See "Risks
of Transactions in Futures Contracts" above. In addition, the purchase or sale
of an option also entails the risk that changes in the value of the underlying
futures contract will not correspond to changes in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of 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 Fund 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.
Other Matters
Each Fund intends to comply with the regulations of the CFTC
exempting it from registration as a "Commodity Pool Operator." Accounting for
futures contracts will be in accordance with generally accepted accounting
principles.
PART C
OTHER INFORMATION
Item 23. Exhibits
The following exhibits are incorporated herein by reference:
(a) (1) Agreement and Declaration of Trust dated October 12, 1993 filed
as Exhibit 1(a) to Post-Effective Amendment No. 11 to Registrant's Registration
Statement on Form N-1A, filed on July 29, 1996 ("PEA No. 11").
(2) Amendment No. 1 to Agreement and Declaration of Trust filed as
Exhibit 1(b) to PEA No. 11.
(3) Amendment No. 2 to Agreement and Declaration of Trust filed as
Exhibit 1(c) to PEA No. 11.
(4) Amendment No. 3 to Agreement and Declaration of Trust filed as
Exhibit 1(d) to PEA No. 11.
(5) Amendment No. 4 to Agreement and Declaration of Trust filed as
Exhibit 1(e) to PEA No. 11.
(6) Amendment No. 5 to Agreement and Declaration of Trust dated May
26, 1995 filed as Exhibit 1(f) to Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A, filed on June 12, 1996
("PEA No. 9").
(7) Amendment No. 6 to Agreement and Declaration of Trust dated August
6, 1996 filed as Exhibit 1(g) to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A, filed on October 30, 1996
("PEA No. 12").
(8) Amendment No. 7 to Agreement and Declaration of Trust dated August
6, 1996 filed as Exhibit 1(h) to PEA No. 12.
(9) Amendment No. 8 to Agreement and Declaration of Trust dated
February 12, 1996 filed as Exhibit 1(i) to Post-Effective Amendment No. 15
to Registrant's Registration Statement on Form N-1A, filed on February 26,
1997 ("PEA No. 15").
(10) Amendment No. 9 to Agreement and Declaration of Trust dated
February 12, 1997 filed as Exhibit 1(j) to Post-Effective Amendment No. 16
to Registrant's Registration Statement on Form N-1A, filed on July 31, 1997
("PEA No. 16").
(11) Amendment No. 10 to Agreement and Declaration of Trust dated
November 18, 1997 filed as Exhibit 1(k) to Post-Effective Amendment No. 19
to Registrant's Registration Statement on Form N-1A, filed on March 20,
1998 ("PEA No. 19").
(12) Amendment No. 11 to Agreement and Declaration of Trust dated
September 18, 1998 filed as Exhibit (a)(12) to Post-Effective Amendment No.
22 to Registrant's Registration Statement on Form N-1A, filed on May 28,
1999 ("PEA No. 22").
(13) Amendment No. 12 to Agreement and Declaration of Trust dated
November 18, 1998 filed as Exhibit (a)(13) to PEA No. 22.
(14) Amendment No. 13 to Agreement and Declaration of Trust dated
September 15, 1999 filed as Exhibit (a)(14) to Post-Effective Amendment No.
22 to Registrant's Registration Statement on Form N-1A, filed on September
17, 1999 ("PEA No. 25").
(15) Amendment No. 14 to Agreement and Declaration of Trust dated
October 1, 1999 filed as Exhibit (a)(15) to Post-Effective Amendment No. 22
to Registrant's Registration Statement on Form N-1A, filed on October 15,
1999 ("PEA No. 27").
(16) Amendment No. 15 to Agreement and Declaration of Trust dated
November 17, 1999 filed as Exhibit (a)(16) to Post-Effective Amendment No.
28 to Registrant's Registration Statement on Form N-1A, filed on December
28, 1999 ("PEA No. 28").
(17) Amendment No. 16 to Agreement and Declaration of Trust dated
February 8, 2000 filed as Exhibit (a)(17) to Post-Effective Amendment No.
29 to Registrant's Registration Statement on Form N-1A, filed on February
29, 2000 (PEA No. 29")
(18) Amendment No. 17 to Agreement and Declaration of Trust dated
February 8, 2000 filed as Exhibit (a)(18) to PEA No. 29.
(b) (1) By-Laws filed as Exhibit 2 to PEA No. 11.
(2) Amendment to the By-Laws dated August 4, 1994 filed as Exhibit
2(a) to PEA No. 11.
(3) Amendment No. 2 to the By-Laws dated May 22, 1997 filed as Exhibit
2(b) to PEA No. 16.
(4) Amendment No. 3 to the By-Laws dated September 15, 1999 filed as
Exhibit (b)(4) to PEA No. 27.
(c) None.
(d) (1) Investment Advisory and Ancillary Services Agreement between
Registrant and The Northern Trust Company dated April 1, 1994 ("Investment
Advisory Agreement") filed as Exhibit 5 to PEA No. 11.
(2) Addendum No. 1 to the Investment Advisory Agreement dated November
29, 1994 filed as Exhibit 5(a) to PEA No. 11.
(3) Addendum No. 2 to the Investment Advisory Agreement dated March
29, 1996 filed as Exhibit 5(b) to PEA No. 9.
(4) Addendum No. 3 to the Investment Advisory Agreement dated August
7, 1996 filed as Exhibit 5(c) to PEA No. 12.
(5) Addendum No. 4 to the Investment Advisory Agreement dated March
24, 1997 filed as Exhibit 5(d) to PEA No. 16.
(6) Addendum No. 5 to the Investment Advisory Agreement dated February
12, 1997 filed as Exhibit 5(e) to PEA No. 19.
(7) Addendum No. 6 to the Investment Advisory Agreement dated November
18, 1997 filed as Exhibit 5(f) to PEA No. 19.
(8) Assumption Agreement between The Northern Trust Company and
Northern Trust Quantitative Advisors, Inc. dated April 1, 1998 filed as
exhibit 5(g) to Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A, filed on July 31, 1998 ("PEA No. 20").
(9) Addendum No. 7 to the Investment Advisory Agreement dated December
21, 1998 filed as Exhibit (d)(9) to PEA No. 22.
(10) Addendum No. 8 to the Investment Advisory Agreement dated
September 15, 1999 filed as Exhibit (d)(10) to PEA No. 27.
(11) Addendum No. 9 to the Investment Advisory Agreement dated
December 28, 1999 filed as Exhibit (d)(11) to PEA No. 28.
(e) (1) Distribution Agreement between Registrant and Northern Funds
Distributors, LLC dated October 1, 1999 filed as Exhibit (e)(1) to PEA No.
27.
(2) Amended and Restated Schedule A to the Distribution Agreement
dated December 28, 1999 filed as Exhibit (e)(2) to PEA No. 28.
(f) None.
(g) (1) Custodian Agreement between Registrant and The Northern Trust
Company dated April 1, 1994 ("Custodian Agreement") filed as Exhibit 8(a)
to PEA No. 11.
(2) Addendum No. 1 to the Custodian Agreement dated November 29, 1994
filed as Exhibit 8(d) to PEA No. 11.
(3) Addendum No. 2 to the Custodian Agreement dated March 29, 1996
filed as Exhibit 8(f) to PEA No. 9.
(4) Foreign Custody Agreement between the Registrant and The Northern
Trust Company dated April 1, 1994 filed as Exhibit 8(g) to PEA No. 11.
(5) Addendum No. 3 to the Custodian Agreement dated August 7, 1996
filed as Exhibit 8(i) to PEA No. 12.
(6) Addendum No. 4 to the Custodian Agreement dated August 7, 1996
filed as Exhibit 8(j) to PEA No. 12.
(7) Addendum No. 5 to the Custodian Agreement dated March 24, 1997
filed as Exhibit 8(n) to PEA No. 16.
(8) Addendum No. 6 to the Custodian Agreement dated February 12, 1997
filed as Exhibit 8(l) to PEA No. 19.
(9) Addendum No. 7 to the Custodian Agreement dated November 18, 1997
filed as Exhibit 8(o) to PEA No. 19.
(10) Addendum No. 1 to the Foreign Custody Agreement dated April 1,
1998 filed as Exhibit 8(p) to PEA No. 19.
(11) Foreign Custody Monitoring Agreement between the Registrant and
The Northern Trust Company dated February 18, 1998 filed as exhibit 8(r) to
PEA No. 20.
(12) Addendum No. 8 to the Custodian Agreement dated December 21, 1998
filed as Exhibit (g)(12) to PEA No. 22.
(13) Addendum No. 9 to the Custodian Agreement dated September 15,
1999 filed as Exhibit (g)(13) to PEA No. 27.
(14) Addendum No. 10 to the Custodian Agreement dated December 28,
1999 filed as Exhibit (g)(14) to PEA No. 28.
(h) (1) Transfer Agency Agreement between Registrant and The Northern
Trust Company dated April 1, 1994 ("Transfer Agency Agreement") filed as
Exhibit 8(b) to PEA No. 11.
(2) Addendum No. 1 to the Transfer Agency Agreement dated November 29,
1994 filed as Exhibit 8(c) to PEA No. 11.
(3) Addendum No. 2 to the Transfer Agency Agreement dated March 29,
1996 filed as Exhibit 8(e) to PEA No. 9.
(4) Addendum No. 3 to the Transfer Agency Agreement dated August 7,
1996 filed as Exhibit 8(h) to PEA No. 12.
(5) Addendum No. 4 to the Transfer Agency Agreement dated March 24,
1997 filed as Exhibit 8(m) to PEA No. 16.
(6) Addendum No. 5 to the Transfer Agency Agreement dated February 12,
1997 filed as Exhibit 8(k) to PEA No. 19.
(7) Addendum No. 6 to the Transfer Agency Agreement dated November 18,
1997 filed as Exhibit 8(q) to PEA No. 19.
(8) Addendum No. 7 to the Transfer Agency Agreement dated December 21,
1998 filed as Exhibit (h)(11) to PEA No. 22.
(9) Addendum No. 8 to the Transfer Agency Agreement dated September
15, 1999 filed as Exhibit (h)(9) to PEA No. 27.
(10) Amended and Restated Service Plan, adopted as of April 1, 1999
and most recently revised as of September 15, 1999, and Related Agreement
filed as Exhibit (h)(11) to PEA No. 27.
(11) Co-Administration Agreement among Registrant, First Data Investor
Services Group, Inc. and The Northern Trust Company dated October 1, 1999
filed as Exhibit (h)(12) to PEA No. 27.
Addendum No. 9 to the Transfer Agency Agreement dated December 28,
1999 filed as Exhibit (h)(10) to PEA No. 28.
(13) Amended and Restated Schedule A to the Co-Administration
Agreement dated December 28, 1999 filed as Exhibit (h) (13) to PEA No. 29.
(14) Agreement and Plan of Reorganization, Conversion and Termination
dated February 8, 2000 filed as Exhibit (h)(14) to PEA No. 29.
(i) Opinion of Hale and Dorr LLP filed as Exhibit (i) to PEA No. 29.
(j) None
(k) None.
(l) (1) Purchase Agreement between Registrant and The Northern Trust
Company dated March 31, 1994 filed as Exhibit 13(a) to PEA No. 11.
(2) Purchase Agreement between Registrant and Miriam M. Allison dated
March 14, 1994 filed as Exhibit 13(b) to PEA No. 11.
(3) Purchase Agreement between Registrant and Miriam M. Allison dated
March 31, 1998 for shares of the Mid Cap Growth Fund filed as Exhibit
(l)(3) to PEA No. 22.
(4) Purchase Agreement between Registrant and Miriam M. Allison dated
December 31, 1998 for shares of the High Yield Fixed Income Fund filed as
Exhibit (l)(4) to PEA No. 22.
(5) Purchase Agreement between Registrant and Miriam M. Allison dated
December 31, 1998 for shares of the High Yield Municipal Fund filed as
Exhibit (l)(5) to PEA No. 22.
(6) Purchase Agreement between Registrant and Miriam M. Allison dated
September 3, 1999 for shares of the Small Cap Index Fund filed as Exhibit
(l)(6) to PEA No. 27.
(7) Purchase Agreement between Registrant and The Northern Trust
Company dated September 3, 1999 for shares of the Income Equity Fund, Stock
Index Fund, Growth Equity Fund, Technology Fund, International Growth
Equity Fund and Small Cap Index Fund filed as Exhibit (l)(7) to PEA No. 27.
(8) Purchase Agreement between Registrant and Martin C. Gawne dated
September 30, 1999 for shares of the Small Cap Growth Fund filed as Exhibit
(l)(8) to PEA No. 27.
(9) Purchase Agreement between Registrant and Martin C. Gawne dated
September 30, 1999 for shares of the Short-Intermediate U.S. Government
Fund filed as Exhibit (l)(9) to PEA No. 27.
(10) Purchase Agreement between Registrant and Martin C. Gawne dated
September 30, 1999 for shares of the California Intermediate Tax-Exempt
Fund filed as Exhibit (l)(10) to PEA No. 27.
(11) Purchase Agreement between Registrant and Martin C. Gawne dated
September 30, 1999 for shares of the Arizona Tax-Exempt Fund filed as
Exhibit (l)(11) to PEA No. 27.
(12) Purchase Agreement between Registrant and The Northern Trust
Company dated October 1, 1999 for shares of the U.S. Government Fund,
Intermediate Tax-Exempt Fund, Fixed Income Fund, Tax-Exempt Fund,
California Tax-Exempt Fund, International Fixed Income Fund, Arizona
Tax-Exempt Fund, California Intermediate Tax-Exempt Fund and
Short-Intermediate U.S. Government Fund filed as Exhibit (l)(12) to PEA No.
27.
(m) Amended and Restated Distribution and Service Plan, adopted April
1, 1994 and most recently revised as of September 15, 1999, and Related
Agreement filed as Exhibit (m) to PEA No. 27.
(n) None.
The following exhibits to the Registration Statement are filed herewith
electronically pursuant to EDGAR rules:
(a) (19) Agreement and Declaration of Trust dated February 7, 2000.
(b) (5) By-Laws
(b) (6) Amendment No.1 to By-Laws
(d) (12) Addendum No. 10 to the Investment Advisory Agreement dated
February 8, 2000.
(e) (3) Amended and Restated Schedule A to the Distribution Agreement
dated February 8, 2000.
(g) (15) Addendum No. 2 to the Foreign Custody Agreement dated
February 8, 2000.
(h) (15) Addendum No. 10 to the Transfer Agency Agreement dated
February 8, 2000.
(16) Amended and Restated Schedule A to the Co-Administration
Agreement dated February 8, 2000.
(j) (1) Consent of Drinker Biddle & Reath LLP.
(l) (13) Purchase Agreement between Registrant and the Northern Trust
Company dated February 14, 2000 for shares of the MarketPower Fund.
(14) Purchase Agreement between Registrant and the Northern Trust
Company dated May 8, 2000 for shares of the Global Communications Fund.
(15) Purchase Agreement between Registrant and the Northern Trust
Company dated February 14, 2000 for shares of the Tax-Exempt Money Market
Fund.
(o) (1) Code of Ethics of Trust
(o) (2) Code of Ethics of Investment Advisers
Item 24. Persons Controlled by or Under Common Control with
Registrant
Registrant is controlled by its Board of Trustees.
Item 25. Indemnification
Section 7 of the Investment Advisory and Ancillary Services
Agreement between the Registrant and The Northern Trust Company ("Northern")
provides for indemnification of Northern or, in lieu thereof, contribution by
Registrant, in connection with certain claims and liabilities to which Northern,
in its capacity as Registrant's Adviser, may be subject. A copy of the
Investment Advisory and Ancillary Services Agreement is incorporated by
reference herein as Exhibit (d)(1).
Article 10 of the Co-Administration Agreement dated October 1,
1999 among the Registrant, The Northern Trust Company and First Data Investor
Services Group, Inc. provides that Registrant will indemnify The 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 is incorporated by
reference herein as Exhibit (h)(11).
Section 3.1 of the Distribution Agreement between the
Registrant and Northern Funds Distributors, LLC provides for indemnification of
Northern Funds Distributors, LLC, in connection with certain claims and
liabilities to which Northern Funds Distributors, LLC, in its capacity as
Registrant's Distributor, may be subject. A copy of the Distribution Agreement
is incorporated by reference herein as Exhibit (e)(1).
In addition, Section 6.3 of Registrant's Agreement and
Declaration of Trust, a copy of which is incorporated by reference herein as
Exhibit (a)(1), provides for indemnification of shareholders as follows:
6.3 Indemnification of Shareholders. No Shareholder shall be
subject to any personal liability whatsoever to any person in connection with
property of the Trust or the acts, obligations or affairs of the Trust or any
Series thereof. The Trust shall indemnify and hold each Shareholder harmless
from and against all claims and liabilities, to which such Shareholder may
become subject by reason of his being or having been a Shareholder, and shall
reimburse such Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) out of
the property of the Trust for all legal and other expenses reasonably incurred
by him in connection with any such claim or liability. The indemnification and
reimbursement required by the preceding sentence shall be made only out of
assets of the one or more Series whose Shares were held by said Shareholder at
the time the act or event occurred which gave rise to the claim against or
liability of said Shareholder. The rights accruing to a Shareholder under this
Section shall not impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained restrict the right of the
Trust or any Series thereof to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
Section 6.4 of Registrant's Agreement and Declaration of
Trust, a copy of which is incorporated by reference herein as Exhibit (a)(1),
provides for indemnification of Trustees and officers, as follows:
6.4 Indemnification of Trustees, Officers, etc. The Trust
shall indemnify each of its Trustees and officers and persons who serve at the
Trust's request as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person") against all liabilities,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses, including reasonable
accountants' and counsel fees, incurred by any Covered Person in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, before any court or administrative or legislative body, in
which such Covered Person may be or may have been involved as a party or
otherwise or with which such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a Trustee or
officer, director or trustee, except that no Covered Person shall be indemnified
against any liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such Covered Person's office (such willful misfeasance, bad faith, gross
negligence or reckless disregard being referred to herein as "Disabling
Conduct"). Expenses, including accountants' and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by the Trust
in advance of the final disposition of any such action, suit or proceeding upon
receipt of (a) an undertaking by or on behalf of such Covered Person to repay
amounts so paid to the Trust if it is ultimately determined that indemnification
of such expenses is not authorized under this Article VI and either (b) such
Covered Person provides security for such undertaking, (c) the Trust is insured
against losses arising by reason of such payment, or (d) a majority of a quorum
of disinterested, non-party Trustees, or independent legal counsel in a written
opinion, determines, based on a review of readily available facts, that there is
reason to believe that such Covered Person ultimately will be found entitled to
indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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 within the last two fiscal years, as well as the capacity
in which such person was connected.
<TABLE>
<CAPTION>
<S><C> <C> <C>
NAME AND POSITION NAME AND PRINCIPAL BUSINESS CONNECTION WITH
WITH INVESTMENT ADVISER ADDRESS OF OTHER COMPANY OTHER COMPANY
Duane L. Burnham Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
Abbott Laboratories Retired Chairman, and
150 Field Drive, Suite 160 Chief Executive Officer
Lake Forest, IL
Sara Lee Corporation Director
3 First National Plaza
Chicago, IL 60602
Dolores E. Cross Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
Chicago State University Former President
95th Street at King Drive
Chicago, IL 60643
General Electric Company Former President
3135 Easton Turnpike GE Fund
Fairfield, CT 06432
The Graduate School and University Center GE Fund
The City University of NY Distinguished Professor of Leadership and
33 W. 42nd Street - Room 1400N Diversity (7/98-6/99)
New York, NY 10036
Morris Brown College President (6/99)
Administration Building, 2nd Floor
643 Martin Luther King Jr. Drive
Atlanta, GA 30314
6
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL BUSINESS CONNECTION WITH
WITH INVESTMENT ADVISER ADDRESS OF OTHER COMPANY OTHER COMPANY
Susan Crown Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
Henry Crown and Company Vice President
222 N. LaSalle Street, Suite 2000
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 Director
Senior Vice President 50 S. LaSalle Street and Chief Investment Officer
Chicago, IL 60675
Robert S. Hamada Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
The University of Chicago Dean and Edward Eagle Brown
Graduate School of Business Distinguished Service Professor of Finance
1101 East 58th Street
Chicago, IL 60637
A.M. Castle & Co. Director
3400 North Wolf Road
Franklin, IL 60131
Chicago Board of Trade Director
141 West Jackson Boulevard
Chicago, IL 60604
Barry G. Hastings Northern Trust Corporation President,
President, 50 S. LaSalle Street Chief Operating Officer and Director
Chief Operating Officer and Director 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 the Board
700 Brickell Avenue and Director
Miami, FL 33131
Nortrust Realty Management, Inc. Director
50 S. LaSalle Street, 38th Floor
Chicago, IL 60675
7
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL BUSINESS CONNECTION WITH
WITH INVESTMENT ADVISER ADDRESS OF OTHER COMPANY OTHER COMPANY
Robert A. Helman Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
Mayer, Brown & Platt Partner
190 S. LaSalle Street, 38th Floor
Chicago, IL 60603
Chicago Stock Exchange Governor
One Financial Plaza
440 S. LaSalle Street
Chicago, IL 60605
Dreyer's Grand Ice Cream, Inc. Director
5929 College Avenue
Oakland, CA 94618
TC Pipelines GP Director
TransCanada Pipeline Tower
111 5th Ave., S.W.
Calgary, Alberta
Canada T2P3Y6
Brambles USA, Inc. Director
400 N. Michigan Avenue
Chicago, IL 60611
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
Deere & Company Director
John Deere Road
Moline, IL 61265
Snap-on Incorporated Director
2801 80th Street
Kenosha, WI 53140
Thyssen-Krupp Industries AG Director
Am Thyssenhaus 1
45128 Essen Germany
8
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL BUSINESS CONNECTION WITH
WITH INVESTMENT ADVISER ADDRESS OF OTHER COMPANY OTHER COMPANY
Frederick A. Krehbiel Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
DeVry, Inc. Director
One Tower Lane
Suite 1000
Oak Brook Terrace, IL 60181
Molex Incorporated Chairman, CEO
2222 Wellington Court and Director
Lisle, IL 60532-1682
Tellabs, Inc. Director
4951 Indiana Avenue
Lisle, IL 60532
Robert A. LaFleur None
Senior Vice President
James J. Mitchell The Northern Trust Company of New York Director
President - Worldwide Operations 40 Broad Street, 8th Floor
and Technology and New York, NY 10004
Executive Vice President
William G. Mitchell Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
Peoples Energy Corporation Director
122 South Michigan Avenue
Chicago, IL 60603
The Sherwin-Williams Company Director
101 Prospect Avenue, N.W.
Cleveland, OH 44115-1075
Edward J. Mooney Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
Nalco Chemical Company Chairman, Chief Executive Officer,
One Nalco Center President and Director
Naperville, IL 60563-1198
FMC Corporation Director
200 E. Randolph Drive
Chicago, IL 60601
9
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL BUSINESS CONNECTION WITH
WITH INVESTMENT ADVISER ADDRESS OF OTHER COMPANY OTHER COMPANY
William A. Osborn Northern Trust Corporation Director
Chairman and 50 S. LaSalle Street
Chief Executive Officer Chicago, IL 60675
Nortrust Realty Management Inc. Director
50 S. LaSalle Street
Chicago, IL 60675
Northern Futures Corporation Director
50 S. LaSalle Street
Chicago, IL 60675
NICOR, Inc. Director
1844 Ferry Road
Naperville, IL 60566
Sheila A. Penrose Northern Trust Global Advisors, Inc. Director
President - 29 Federal Street
Corporate and Institutional Services Stamford, CT 06901
and Executive Vice President
Northern Trust Retirement Consulting Manager
400 Perimeter Center Terrace, Suite 850
Atlanta, GA 30346
NTQA Director
50 S. LaSalle Street
Chicago, IL 60675
Perry R. Pero Northern Futures Corporation President and Director
Vice Chairman 50 S. LaSalle Street
and Chief Financial Officer Chicago, IL 60675
Northern Investment Corporation President and Director
50 S. LaSalle Street
Chicago, IL 60675
Northern Trust Global Advisors, Inc. Director
29 Federal Street
Stamford, CT 06901
Northern Trust Securities, Inc. Director
50 S. LaSalle Street
Chicago, IL 60675
Nortrust Realty Management, Inc. Director
50 S. LaSalle Street
Chicago, IL 60675
NTQA Director
50 S. LaSalle Street
Chicago, IL 60675
Stephen N. Potter NTQA Director and Managing Director
Senior Vice President 50 S. LaSalle Street
Chicago, IL 60675
Peter L. Rossiter None
Executive Vice President
and General Counsel
10
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL BUSINESS CONNECTION WITH
WITH INVESTMENT ADVISER ADDRESS OF OTHER COMPANY OTHER COMPANY
Harold B. Smith Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
Illinois Tool Works Inc. Chairman of the Executive Committee and Director
3600 West Lake Avenue
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 Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
The Quaker Oats Company Retired Chairman,
321 North Clark Street President and Chief Executive Officer
Chicago, IL 60610
Abbott Laboratories Director
One Abbott Park Road
Abbott Park, IL 60064
Corning Incorporated Director
Corning, NY 14831
Prime Capital Corporation Director
10275 W. Higgins Road, Suite 200
Rosemont, IL 60018
James M. Snyder NTQA Chairman,
Executive Vice President 50 S. LaSalle Street Chief Executive Officer and Director
Chicago, IL 60675
Northern Trust Global Advisors, Inc. Director
29 Federal Street
Stamford, CT 06901
Bide L. Thomas Northern Trust Corporation Director
Director 50 S. LaSalle Street
Chicago, IL 60675
MYR Group Inc. Director
(formerly L.E. Myers Company)
2550 W. Golf Road
Rolling Meadows, IL60008
R.R. Donnelley & Sons Company Director
77 West Wacker Drive
Chicago, IL 60601
11
<PAGE>
NAME AND POSITION NAME AND PRINCIPAL BUSINESS CONNECTION WITH
WITH INVESTMENT ADVISER ADDRESS OF OTHER COMPANY OTHER COMPANY
Stephen B. Timbers Northern Trust Global Advisors, Inc. Director
President - Northern Trust 29 Federal Street
Global Advisors, Inc. Stamford, CT 06901
and Executive Vice President
LTV Steel Co. Director
200 Public Square
Cleveland, OH 44114-2308
Zurich-Kemper Investments Former President and
222 S. Riverside Plaza Chief Executive Officer
Chicago, IL 60606
NTQA Director
50 S. LaSalle Street
Chicago, IL 60675
Northern Investment Management Company President and Director
50 S. LaSalle Street
Chicago, IL 60675
Jeffrey H. Wessel NTQA President and Director
Executive Vice President 50 S. LaSalle Street
Chicago, IL 60675
Northern Trust Global Advisors, Inc. Director
29 Federal Street
Stamford, CT 06901
Northern Trust Retirement Consulting Manager
401 Perimeter Center Terrace
Suite 850
Atlanta, Georgia 30346
</TABLE>
Item 27. Principal Underwriter
(a) None
(b) To the best of Registrant's knowledge, the directors and executive
officers of Northern Funds Distributors, LLC, distributor for Registrant,
are as follows:
<TABLE>
<CAPTION>
<S><C> <C> <C>
Positions and
Offices with Positions and
Name and Principal Northern Funds Offices with
Business Address Distributors, LLC Registrant
Jane Haegele Director None
Four Falls Corporate Center
6th Floor
West Conshohocken, PA 19428
Philip H. Rinnander President and Secretary None
Four Falls Corporate Center
6th Floor
West Conshohocken, PA 19428
Jason A. Greim Vice President and Treasurer None
Four Falls Corporate Center
6th Floor
West Conshohocken, PA 19428
</TABLE>
(c) None
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 Drinker Biddle & Reath
LLP, One Logan Square, 18th and Cherry Streets, Philadelphia, Pennsylvania
19103. Records relating to PFPC, Inc.'s (formerly First Data Investor Services
Group, Inc.) functions as co-administrator for the Registrant are located at 101
Federal Street, Boston, Massachusetts 02110. Records relating to Northern Funds
Distributors, LLC's functions as distributor, for the Registrant are located at
Four Falls Corporate Center, 6th Floor, West Conshohocken, Pennsylvania
19428-2961. 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 or 801 S. Canal
Street, Chicago, Illinois 60607 (relating to transfer agent).
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 30 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Westborough and State of Massachusetts on the 15th day of May, 2000.
NORTHERN FUNDS
By: /s/ Jylanne M. Dunne
Jylanne M. Dunne
President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 30 to Registrant's 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
/*/ Richard G. Cline* Trustee May 15, 2000
Richard G. Cline
/*/ Edward J. Condon, Jr.* Trustee May 15, 2000
Edward J. Condon, Jr.
/*/ Wesley M. Dixon, Jr.* Trustee May 15, 2000
Wesley M. Dixon, Jr.
/*/ William J. Dolan, Jr.* Trustee May 15, 2000
William J. Dolan, Jr.
/*/ John W. English* Trustee May 15, 2000
John W. English
/*/ Raymond E. George, Jr.* Trustee May 15, 2000
Raymond E. George, Jr.
/*/ Sandra Polk Guthman* Trustee May 15, 2000
Sandra Polk Guthman
/*/ Mary Jacobs Skinner* Trustee May 15, 2000
Mary Jacobs Skinner
/*/ William H. Springer* Trustee May 15, 2000
William H. Springer
/*/ Richard P. Strubel* Trustee May15, 2000
Richard P. Strubel
/*/ Stephen B. Timbers* Trustee May 15, 2000
Stephen B. Timbers
/s/ Jylanne M. Dunne President May15, 2000
Jylanne M. Dunne (Chief Executive
Officer)
/s/ Brian R. Curran Vice President May 15, 2000
Brian R. Curran and Treasurer
(Chief Financial
and Accounting
Officer)
</TABLE>
*By: /s/ Linda J. Hoard
Linda J. Hoard,
Attorney-in-fact
NORTHERN FUNDS
power of attorney
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a
Trustee of Northern Funds, a business trust organized under the laws of The
Commonwealth of Massachusetts (the "Trust"), does hereby make, constitute and
appoint Jylanne M. Dunne, Archibald E. King III, Lloyd A. Wennlund, Brian R.
Curran, Jeffrey A. Dalke and Linda J. Hoard, 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, or 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 or her name this
28th day of March, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Richard G. Cline /s/Sandra Polk Guthman
Richard G. Cline Sandra Polk Guthman
/s/Edward J. Condon, Jr.
Edward J. Condon, Jr.
/s/Wesley M. Dixon, Jr. /s/Mary Jacobs Skinner
Wesley M. Dixon, Jr. Mary Jacobs Skinner
/s/William J. Dolan /s/William H. Springer
William J. Dolan William H. Springer
/s/John W. English /s/Richard P. Strubel
John W. English Richard P. Strubel
/s/Raymond E. George, Jr. /s/Stephen B. Timbers
Raymond E. George, Jr. Stephen B. Timbers
</TABLE>
NORTHERN FUNDS
EXHIBIT INDEX
(a) (19) Agreement and Declaration of Trust dated February 7, 2000.
(b) (5) By-Laws.
(b) (6) Amendment No.1 to By-Laws.
(d) (12) Addendum No. 10 to the Investment Advisory Agreement dated
February 8, 2000.
(e) (3) Amended and Restated Schedule A to the Distribution Agreement
dated February 8, 2000.
(g) (15) Addendum No. 2 to the Foreign Custody Agreement dated
February 8, 2000.
(h) (15) Addendum No. 10 to the Transfer Agency Agreement dated
February 8, 2000.
(16) Amended and Restated Schedule A to the Co-Administration
Agreement dated February 8, 2000.
(j) (1) Consent of Drinker Biddle & Reath LLP.
(l) (13) Purchase Agreement between Registrant and the Northern Trust
Company dated February 14, 2000 for shares of the MarketPower Fund.
(l) (14) Purchase Agreement between Registrant and the Northern Trust
Company dated May 8, 2000 for shares of the Global Communications Fund.
(l) (15) Purchase Agreement between Registrant and the Northern Trust
Company dated February 14, 2000 for shares of the Tax-Exempt Money Market
Fund.
(o) (1) Code of Ethics of Trust
(o) (2) Code of Ethics of Investment Advisers
Exhibit (a)(19)
AGREEMENT AND DECLARATION OF TRUST
OF
NORTHERN FUNDS
Dated: February 7, 2000
AGREEMENT AND DECLARATION OF TRUST (the "Declaration") made this
seventh day of February 2000 by the undersigned Trustee (together with all other
persons from time to time duly elected, qualified and serving as Trustees in
accordance with the provisions of Article II hereof, the "Trustees");
WHEREAS, the Trustees desire to establish a trust for the investment and
reinvestment of funds contributed thereto;
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
WHEREAS, the Trustees declare that all money and property contributed
to the trust established hereunder shall be held and managed in trust for the
benefit of the holders, from time to time, of the shares of beneficial interest
issued hereunder and subject to the provisions hereof;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements contained herein, the undersigned, being all of the Trustees of the
Trust, hereby declare as follows:
NAME AND DEFINITIONS
Name. The name of the Trust created by this Agreement and Declaration of Trust
is "Northern Funds."
Definitions. Unless otherwise provided or required by the context:
"Administrator" or "Administrators" means the party or parties, other than the
Trust, to the contract described in Article III, Section 3 hereof.
"By-laws" means the By-laws of the Trust adopted by the Trustees, as amended
from time to time, which By-laws are expressly herein incorporated by reference
as part of the "governing instrument" within the meaning of the Delaware Act;
provided that in the event of a conflict between the provisions of this
Declaration and the By-laws, the provisions of this Declaration shall control.
"Class" means any class of Shares of a Series established pursuant to Article V.
"Commission," "Interested Person" and "Principal Underwriter" have the meanings
provided in the 1940 Act. Except as such term may be otherwise defined by the
Trustees in conjunction with the establishment of any Series of Shares, the term
"vote of a majority of the Shares outstanding and entitled to vote" or "Shares
representing a majority of the votes entitled to be cast" shall have the same
meaning as is assigned to the term "vote of a majority of the outstanding voting
securities" in the 1940 Act (except as shall be necessary to give effect to
voting on a net asset basis in accordance with Article VII, Section 1).
"Covered Person" means a person so defined in Article IV, Section 3.
"Custodian" means any Person other than the Trust who has custody of any Trust
Property as required by Section 17(f) of the 1940 Act, but does not include a
system for the central handling of securities described in said Section 17(f).
"Declaration" shall mean this Agreement and Declaration of Trust, as amended or
restated from time to time. Reference in this Agreement and Declaration of Trust
to "Declaration," "hereof," "herein," and "hereunder" shall be deemed to refer
to this Declaration rather than exclusively to the article or section in which
such words appear.
"Delaware Act" means Chapter 38 of Title 12 of the Delaware Code entitled
"Treatment of Delaware Business Trusts," as amended from time to time.
"Distributor" means the party, other than the Trust, to the contract described
in Article III, Section 1 hereof.
"His" shall include the feminine and neuter, as well as the masculine, genders.
"Investment Adviser" or Investment Advisers" means the party or parties, other
than the Trust, to the contract described in Article III, Section 2 hereof.
"Net Asset Value" means the net asset value of each Series of the Trust,
determined as provided in Article VI, Section 3.
"Person" means and includes individuals, corporations, partnerships, trusts,
associations, joint ventures, estates and other entities, and governments and
agencies and political subdivisions, thereof, whether domestic or foreign.
"Series" means a series of Shares established pursuant to Article V.
"Shareholder" means a record owner of Outstanding Shares.
"Shares" means the equal proportionate transferable units of interest into which
the beneficial interest of each Series or Class is divided from time to time
(including whole Shares and fractions of Shares). "Outstanding Shares" means
Shares shown in the books of the Trust or its transfer agent as then issued and
outstanding, but does not include Shares which have been repurchased or redeemed
by the Trust and which are held in the treasury of the Trust.
"Transfer Agent" means any Person other than the Trust who maintains the
Shareholder records of the Trust, such as the list of Shareholders, the number
of Shares credited to each account, and the like.
"Trust" means Northern Funds established hereby, and reference to the Trust,
when applicable to one or more Series, refers to such Series.
"Trustees" means the person who has signed this Declaration of Trust, so long as
he or she shall continue in office in accordance with the terms hereof, and all
other persons who may from time to time be duly qualified and serving as
Trustees in accordance with Article II, in all cases in their capacities as
Trustees hereunder.
"Trust Property" means any and all property, real or personal, tangible or
intangible, which is owned or held by or for the Trust or any Series or the
Trustees on behalf of the Trust or any Series.
The "1940 Act" means the Investment Company Act of 1940, as amended from time to
time.
THE TRUSTEES
Management of the Trust. The business and affairs of the Trust shall be managed
by or under the direction of the Trustees, and they shall have all powers
necessary or desirable to carry out that responsibility. The Trustees may
execute all instruments and take all action they deem necessary or desirable to
promote the interests of the Trust. Any determination made by the Trustees in
good faith as to what is in the interests of the Trust shall be conclusive. In
construing the provisions of this Declaration, the presumption shall be in favor
of a grant of power to the Trustees.
Powers. The Trustees in all instances shall act as principals, free of the
control of the Shareholders. The Trustees shall have full power and authority to
take or refrain from taking any action and to execute any contracts and
instruments that they may consider necessary or desirable in the management of
the Trust. The Trustees shall not in any way be bound or limited by current or
future laws or customs applicable to trust investments, but shall have full
power and authority to make any investments which they, in their sole
discretion, deem proper to accomplish the purposes of the Trust. The Trustees
may exercise all of their powers without recourse to any court or other
authority. Subject to any applicable limitation herein or in the By-laws or
resolutions of the Trust, the Trustees shall have power and authority, without
limitation:
To operate as and carry on the business of an investment company, and exercise
all the powers necessary and appropriate to the conduct of such operations.
To invest in, hold for investment, or reinvest in, cash, including foreign
currencies; securities, including common, preferred and preference stocks;
warrants; subscription rights; profit-sharing interests or participation and all
other contracts for or evidence of equity interests; bonds, debentures, bills,
time notes and all other evidences of indebtedness; negotiable or non-negotiable
instruments; government securities, including securities of any state,
municipality or other political subdivision thereof, or any governmental or
quasi-governmental agency or instrumentality; and money market instruments
including bank certificates of deposit, finance paper, commercial paper,
bankers' acceptances and all kinds of repurchase agreements, of any corporation,
company, trust, association, firm or other business organization however
established, and of any country, state, municipality or other political
subdivision, or any governmental or quasi-governmental agency or
instrumentality; or any other security, property or instrument in which the
Trust or any of its Series shall be authorized to invest.
To acquire (by purchase, subscription or otherwise), to hold, to trade in and
deal in, to acquire any rights or options to purchase or sell, to sell or
otherwise dispose of, to lend and to pledge any such securities, to enter into
repurchase agreements, reverse repurchase agreements, firm commitment agreements
and forward foreign currency exchange contracts, to purchase and sell options on
securities, securities indices, currency and other financial assets, futures
contracts and options on futures contracts of all descriptions and to engage in
all other types of transactions in which the Trust or any of its Series shall be
authorized to engage.
To exercise all rights, powers and privileges of ownership or interest in all
securities, repurchase agreements and other property and instruments included in
the Trust Property, including the right to vote thereon and otherwise act with
respect thereto and to do all acts for the preservation, protection, improvement
and enhancement in value of all such securities and repurchase agreements.
To acquire (by purchase, lease or otherwise) and to hold, use, maintain, develop
and dispose of (by sale or otherwise) any property, real or personal, including
cash or foreign currency, and any interest therein.
To borrow money or other property in the name of the Trust or any of its Series
exclusively for Trust purposes and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; and to endorse, guarantee,
or undertake the performance of any obligation or engagement of any other Person
and to lend Trust Property.
To aid by further investment any corporation, company, trust, association or
firm, any obligation of or interest in which is included in the Trust Property
or in the affairs of which the Trustees have any direct or indirect interest; to
do all acts and things designed to protect, preserve, improve or enhance the
value of such obligation or interest; and to guarantee or become surety on any
or all of the contracts, stocks, bonds, notes, debentures and other obligations
of any such corporation, company, trust, association or firm.
To adopt By-laws not inconsistent with this Declaration providing for the
conduct of the business of the Trust and to amend and repeal them to the extent
such right is not reserved to the Shareholders.
To elect and remove such officers and appoint and terminate such agents as they
deem appropriate.
To employ as custodian of any assets of the Trust, subject to any provisions
herein or in the By-laws, one or more banks, trust companies or companies that
are members of a national securities exchange, or other entities permitted by
the Commission to serve as such.
To retain one or more transfer agents and shareholder servicing agents, or both.
To provide for the distribution of Shares either through a Principal Underwriter
as provided herein or by the Trust itself, or both, or pursuant to a
distribution plan of any kind and to adopt on behalf of any Series or Class
distribution, authorized dealer service, administration, service or other plans
providing for the compensation by such Series or Class for distribution,
administration, shareholder liaison or similar services.
To set record dates in the manner provided for herein or in the By-laws.
To delegate such authority as they consider desirable to any officers of the
Trust and to any agent, independent contractor, manager, investment adviser,
custodian, underwriter or other Person.
To hold any security or other property (i) in a form not indicating any trust,
whether in bearer, book entry, unregistered or other negotiable form, or (ii)
either in the Trust's or Trustees' own name or in the name of a custodian or a
nominee or nominees, subject to safeguards according to the usual practice of
business trusts or investment companies.
To establish separate and distinct Series with separately defined investment
objectives and policies and distinct investment purposes, and with separate
Shares representing beneficial interests in such Series, and to establish
separate Classes, all in accordance with the provisions of Article V.
To the full extent permitted by Section 3804 of the Delaware Act, to allocate
assets, liabilities and expenses of the Trust to a particular Series and assets,
liabilities and expenses to a particular Class or to apportion the same between
or among two or more Series or Classes, provided that any liabilities or
expenses incurred by a particular Series or Class shall be payable solely out of
the assets belonging to that Series or Class as provided for in Article V,
Section 4.
To consent to or participate in any plan for the reorganization, consolidation
or merger of any corporation or concern whose securities are held by the Trust;
to consent to any contract, lease, mortgage, purchase, or sale of property by
such corporation or concern; and to pay calls or subscriptions with respect to
any security held in the Trust.
To compromise, arbitrate, or otherwise adjust claims in favor of or against the
Trust or any matter in controversy including, but not limited to, claims for
taxes.
To make distributions of income, capital gains, returns of capital (if any) and
redemption proceeds to Shareholders in the manner hereinafter provided for.
To establish committees for such purposes, with such membership, and with such
responsibilities as the Trustees may consider proper.
To issue, sell, repurchase, redeem, cancel, retire, acquire, hold, resell,
reissue, dispose of and otherwise deal in Shares; to establish terms and
conditions regarding the issuance, sale, repurchase, redemption, cancellation,
retirement, acquisition, holding, resale, reissuance, disposition of or dealing
in Shares; and, subject to Articles V and VI, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or
property of the Trust or of the particular Series or Class with respect to which
such Shares are issued.
To invest part or all of the Trust Property (or part or all of the assets of any
Series), or to dispose of part or all of the Trust Property (or part or all of
the assets of any Series) and invest the proceeds of such disposition, in
interests issued by one or more other investment companies or pooled portfolios
(including investment by means of transfer of part or all of the Trust Property
in exchange for an interest or interests in such one or more investment
companies or pooled portfolios) all without any requirement of approval by
Shareholders. Any such other investment company or pooled portfolio may (but
need not) be a trust (formed under the laws of any state or jurisdiction) which
is classified as a partnership for federal income tax purposes.
To sell or exchange any or all of the assets of the Trust, subject to Article
IX, Section 4.
To enter into joint ventures, partnerships and other combinations and
associations.
To join with other security holders in acting through a committee, depositary,
voting trustee or otherwise, and in that connection to deposit any security
with, or transfer any security to, any such committee, depositary or trustee,
and to delegate to them such power and authority with relation to any security
(whether or not so deposited or transferred) as the Trustees shall deem proper,
and to agree to pay, and to pay, such portion of the expenses and compensation
of such committee, depositary or trustee as the Trustees shall deem proper;
To purchase and pay for entirely out of Trust Property such insurance as the
Trustees may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of the
Trust or payment of distributions and principal on its portfolio investments,
and, subject to applicable law and any restrictions set forth in the By-laws,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, Principal Underwriters, or independent contractors
of the Trust, individually, against all claims and liabilities of every nature
arising by reason of holding Shares, holding, being or having held any such
office or position, or by reason of any action alleged to have been taken or
omitted by any such Person as Trustee, officer, employee, agent, investment
adviser, Principal Underwriter, or independent contractor, including any action
taken or omitted that may be determined to constitute negligence, whether or not
the Trust would have the power to indemnify such Person against liability.
To adopt, establish and carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and benefit plans and
trusts, including the purchasing of life insurance and annuity contracts as a
means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
To enter into contracts of any kind and description.
To interpret the investment policies, practices or limitations of any Series or
Class.
To guarantee indebtedness and contractual obligations of others.
To take any other action that may be taken by a Board of Directors of a business
corporation organized under the laws of the State of Delaware.
To engage in and to prosecute, defend, compromise, abandon, or adjust by
arbitration, or otherwise, any actions, suits, proceedings, disputes, claims and
demands relating to the Trust, and out of the assets of the Trust or any Series
thereof to pay or to satisfy any debts, claims or expenses incurred in
connection therewith, including those of litigation, and such power shall
include without limitation the power of the Trustees or any appropriate
committee thereof, in the exercise of their or its good faith business judgment,
to dismiss any action, suit, proceeding, dispute, claim or demand, derivative or
otherwise, brought by any person, including a Shareholder in its own name or the
name of the Trust, whether or not the Trust or any of the Trustees may be named
individually therein or the subject matter arises by reason of business for or
on behalf of the Trust.
To carry on any other business in connection with or incidental to any of the
foregoing powers, to do everything necessary or desirable to accomplish any
purpose or to further any of the foregoing powers, and to take every other
action incidental to the foregoing business or purposes, objects or powers.
The clauses above shall be construed as objects and powers, and the
enumeration of specific powers shall not limit in any way the general powers of
the Trustees. Any action by one or more of the Trustees in their capacity as
such hereunder shall be deemed an action on behalf of the Trust or the
applicable Series, and not an action in an individual capacity. No one dealing
with the Trustees shall be under any obligation to make any inquiry concerning
the authority of the Trustees, or to see to the application of any payments made
or property transferred to the Trustees or upon their order. In construing this
Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
Certain Transactions. Except as prohibited by applicable law, the Trustees may,
on behalf of the Trust, buy any securities from or sell any securities to, or
lend any assets of the Trust to, any Trustee or officer of the Trust or any firm
of which any such Trustee or officer is a member acting as principal, or have
any such dealings with any investment adviser, administrator, distributor or
transfer agent for the Trust or with any Interested Person of such person. The
Trust may employ any such person or entity in which such person is an Interested
Person, as broker, legal counsel, registrar, investment adviser, administrator,
distributor, transfer agent, dividend disbursing agent, custodian or in any
other capacity upon customary terms.
Initial Trustees; Election and Number of Trustees. The initial Trustees shall be
the persons initially signing this Declaration. The number of Trustees (other
than the initial Trustees) shall be fixed from time to time by a majority of the
Trustees; provided, that there shall be at least one (1) Trustee. The Trustee
(other than the initial Trustees) shall be appointed by the Trustees pursuant to
Section 6 of this Article II, provided that the Trustees shall be elected by the
Shareholders as and to the extent required under the 1940 Act on such dates as
the Trustees may fix from time to time. The Trustees are sometimes referred to
in this Declaration as the "Board of Trustees."
Term of Office of Trustees. Each Trustee shall hold office for life (or until
the attainment of any mandatory retirement age or term limits established by a
majority of the Trustees) or until his successor is elected or the Trust
terminates; except that (a) any Trustee may resign by delivering to the other
Trustees or to any Trust officer a written resignation effective upon such
delivery or a later date specified therein; (b) any Trustee may be removed with
or without cause at any time by a written instrument signed by at least a
majority of the then Trustees, specifying the effective date of removal; (c) any
Trustee who requests to be retired, or who is declared bankrupt or has become
physically or mentally incapacitated or is otherwise unable to serve, may be
retired either by a written instrument signed by a majority of the other
Trustees or in accordance with a by-law or other action approved by a majority
of the other Trustees, in each case, specifying the effective date of
retirement; and (d) any Trustee may be removed at any meeting of the
Shareholders by a vote of at least two-thirds of the Outstanding Shares.
Vacancies; Appointment of Trustees. Whenever a vacancy shall exist in the Board
of Trustees, regardless of the reason for such vacancy, the remaining Trustees
may appoint any person as they determine in their sole discretion to fill that
vacancy, consistent with the limitations under the 1940 Act, unless the
remaining Trustees determine to decrease the size of the Board to the number of
remaining Trustees. Such appointment shall be made by a written instrument
signed by a majority of the Trustees or by a resolution of the Trustees, duly
adopted and recorded in the records of the Trust, specifying the effective date
of the appointment. The Trustees may appoint a new Trustee as provided above in
anticipation of a vacancy expected to occur because of the retirement,
resignation or removal of a Trustee, or an increase in number of Trustees,
provided that such appointment shall become effective only at or after the
expected vacancy occurs. Upon acceptance of his appointment, the trust estate
shall vest in the new Trustee, together with the continuing Trustees, without
any further act or conveyance, and he shall be deemed a Trustee hereunder. The
Trustees' power of appointment is subject to Section 16(a) of the 1940 Act.
Whenever a vacancy in the number of Trustees shall occur, until such vacancy is
filled as provided in this Article II, the Trustees in office, regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by the Declaration.
Temporary Vacancy or Absence. Whenever a vacancy in the Board of Trustees shall
occur, until such vacancy is filled, or while any Trustee is absent from his
domicile (unless that Trustee has made arrangements to be informed about, and to
participate in, the affairs of the Trust during such absence), or is physically
or mentally incapacitated, the remaining Trustees shall have all the powers
hereunder and their certificate as to such vacancy, absence, or incapacity shall
be conclusive. Any Trustee may, by power of attorney, delegate his powers as
Trustee for a period not exceeding six (6) months at any one time to any other
Trustee or Trustees.
Chairman. The Trustees may, but need not, appoint from among their number a
Chairman. When present he may preside at the meetings of the Shareholders and of
the Trustees. He may call meetings of the Trustees and of any committee thereof
whenever he deems it necessary. The Chairman shall have such other powers and
duties as from time to time may be conferred upon or assigned to him by this
Declaration, the By-laws or the Trustees, but shall not by reason of performing
and executing those powers and duties be deemed an officer or employee of the
Trust.
Action by the Trustees. Except as otherwise provided by law or as provided below
with respect to action taken by any Trustee or Trustees or committee pursuant to
delegation by a majority vote of the Trustees, the Trustees shall act by
majority vote at a meeting duly called at which a quorum is present, including a
meeting held by conference telephone, teleconference or other electronic media
or communication equipment by means of which all persons participating in the
meeting can communicate with each other; or by written consent of a majority of
Trustees (or such greater number as may be required by applicable law) without a
meeting. A majority of the Trustees shall constitute a quorum at any meeting.
Meetings of the Trustees may be called orally or in writing by the President or
by any one of the Trustees. Notice of the time, date and place of all Trustees'
meetings shall be given to each Trustee as set forth in the By-laws. In the
absence of a quorum, a majority of the Trustees present may adjourn the meeting
from time to time until a quorum shall be present. Notice of an adjourned
meeting need not be given. Subject to applicable law, the Trustees by majority
vote may delegate to any Trustee or Trustees or committee (which may, in
addition to or in lieu of Trustees, include officers of the Trust) authority to
approve particular matters or take any particular actions on behalf of the Trust
including action for and binding upon the Trustees and the Trust with respect to
the institution, prosecution, dismissal, settlement, review or investigation of
any legal action, suit or proceeding pending or threatened. Approval of any
particular matter or the taking of any particular action on behalf of the Trust
pursuant to any such delegation shall be taken by a majority of the Trustees or
committee to whom the authority is delegated (unless a single Trustee is
delegated to act with respect thereto or unless the Trustees in delegating such
responsibility shall specify a different standard or a different standard is
otherwise required by applicable law). Any written consent or waiver may be
provided and delivered to the Trust by facsimile or other similar electronic
mechanism.
Ownership of Trust Property. The Trust Property of the Trust and of each Series
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or any successor
Trustees. Legal title in and beneficial ownership of all of the assets of the
Trust shall at all times be considered as vested in the Trust, except that the
Trustees may cause legal title in and beneficial ownership of any Trust Property
to be held by, or in the name of one or more of the Trustees acting for and on
behalf of the Trust, or in the name of any person as nominee acting for and on
behalf of the Trust. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or of any Series or any right of
partition or possession thereof, but each Shareholder shall have, as provided in
Article V, a proportionate undivided beneficial interest in the Trust or Series
or Class thereof represented by Shares. The Shares shall be personal property
giving only the rights specifically set forth in this Declaration. The Trust, or
at the determination of the Trustees one or more of the Trustees or a nominee
acting for and on behalf of the Trust, shall be deemed to hold legal title and
beneficial ownership of any income earned on securities of the Trust issued by
any business entities formed, organized, or existing, under the laws of any
jurisdiction, including the laws of any foreign country. Upon the resignation or
removal of a Trustee, or his otherwise ceasing to be a Trustee (other than as a
result of his death or incapacity), he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust Property held in the name of the
resigning or removed Trustee. Upon the incapacity or death of any Trustee, his
legal representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding sentence.
Effect of Trustees Not Serving. The death, resignation, retirement, removal,
incapacity or inability or refusal to serve of the Trustees, or any one or more
or all of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration.
Trustees, etc. as Shareholders. Subject to any restrictions in the By-laws, any
Trustee, officer, agent or independent contractor of the Trust may acquire, own
and dispose of Shares to the same extent as any other Shareholder; and the
Trustees may issue and sell Shares to and buy Shares from any such person or any
firm or company in which such person is interested, subject only to any general
limitations herein.
Series of Trustees. In connection with the establishment of one or more Series
or Classes, the Trustees establishing such Series or Class may appoint, to the
extent permitted by the Delaware Act, separate Trustees with respect to such
Series or Classes (the "Series Trustees"). To the extent provided by the
Trustees in the appointment of Series Trustees, the 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 hereunder with respect to such
Series or Class, including, without limitation, the power to appoint additional
or successor Series Trustees; and/or (c) may have no power or authority with
respect to any other Series or Class. Any provision of this Declaration relating
to election of Trustees by Shareholders only shall entitle the Shareholders of a
Series or Class for which Series Trustees have been appointed to vote with
respect to the election of such Series Trustees and the Shareholders of any
other Series or Class shall not be entitled to participate in such vote. In the
event that Series Trustees are appointed, the Trustees initially appointing such
Series Trustees shall, without the approval of any Outstanding Shares, amend
either the Declaration or the By-laws to provide for the respective rights,
duties, powers, authorities and responsibilities of the Trustees and the Series
Trustees in circumstances where an action of the Trustees or Series Trustees
affects all Series of the Trust or two or more Series represented by different
Trustees.
CONTRACTS WITH SERVICE PROVIDERS
Underwriting Contract. The Trustees may in their discretion from time to time
approve an exclusive or non-exclusive distribution contract or contracts
providing for the sale of the Shares whereby the Trust may either agree to sell
the Shares to the other party to the contract or appoint such other party as the
Trust's sales agent for the Shares, and in either case on such terms and
conditions, if any, as may be prescribed in the By-laws, and such further terms
and conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Article III or of the By-laws; and such
contract may also provide for the repurchase of the Shares by such other party
as agent of the Trust.
Advisory or Management Contract. The Trustees may in their discretion from time
to time approve one or more investment advisory or management contracts or, if
the Trustees establish multiple Series, separate investment advisory or
management contracts with respect to one or more Series whereby the other party
or parties to any such contracts shall undertake to furnish the Trust or such
Series management, investment advisory, administration, accounting, legal,
statistical and research facilities and services, promotional or marketing
activities, and such other facilities and services, if any, as the Trustees
shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may in their discretion determine. Notwithstanding
any provisions of the Declaration, the Trustees may authorize the Investment
Advisers or persons to whom the Investment Adviser delegates certain or all of
their duties, or any of them, under any such contracts (subject to such general
or specific instructions as the Trustees may from time to time adopt), including
duties relating to purchases, sales, loans or exchanges of portfolio securities
and other investments of the Trust or may authorize any officer, employee or
Trustee to effect such duties, including those relating to purchases, sales,
loans or exchanges pursuant to recommendations of such Investment Advisers, or
any of them (and all without further action by the Trustees). Any such
purchases, sales, loans and exchanges shall be deemed to have been authorized by
all of the Trustees.
Administration Agreement. The Trustees may in their discretion from time to time
approve an administration agreement or, if the Trustees establish multiple
Series or Classes, separate administration agreements with respect to each
Series or Class, whereby the other party or parties to such agreement shall
undertake to manage the business affairs of the Trust or of a Series or Class
thereof of the Trust and furnish the Trust or a Series or a Class thereof with
office facilities, and shall be responsible for the ordinary clerical,
bookkeeping and recordkeeping services at such office facilities, and other
facilities and services, if any, and all upon such terms and conditions as the
Trustees may in their discretion determine.
Service Agreements. The Trustees may in their discretion from time to time
approve service agreements with respect to one or more Series or Classes of
Shares whereby the other parties to such service agreements will provide or
arrange for the provision of distribution, administration and/or support
services pursuant to distribution, authorized dealer service, administration,
service or similar plans, including without limitation plans subject to Rule
12b-1 under the 1940 Act, and all upon such terms and conditions as the Trustees
in their discretion may determine.
Transfer Agent. The Trustees may in their discretion from time to time approve
one or more transfer agency and shareholder service contracts whereby the other
party to such contracts shall undertake to furnish transfer agency and
shareholder services to the Trust or one or more Classes of Shares. The
contracts shall have such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the Declaration. Such services may be
provided by one or more Persons.
Custodian. The Trustees may appoint or otherwise engage one or more banks or
trust companies, or any other entity, to serve as Custodian with authority as
the Trust's agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the By-laws of the Trust. The
Trustees may also authorize the Custodian to employ one or more sub-custodians,
including such foreign banks and securities depositories, upon such terms and
conditions as may be agreed upon between the Custodian and such sub-custodian,
to hold securities and other assets of the Trust and to perform the acts and
services of the Custodian, subject to applicable provisions of law and
resolutions adopted by the Trustees.
Other Contracts. Subject to compliance with the provisions of the 1940 Act, but
notwithstanding any limitations of present and future law or custom in regard to
delegation of powers by trustees generally, the Trustees may, at any time and
from time to time and without limiting the generality of their powers and
authority otherwise set forth herein, approve other contracts with any one or
more corporations, trusts, associations, partnerships, limited partnerships,
other type of organizations, or individuals to provide for the performance and
assumption of such other services, duties and responsibilities in addition to
those set forth above as the Trustees may determine to be appropriate.
Affiliations of Trustees or Officers, Etc. The fact that:
any of the Shareholders, Trustees or officers of the Trust or any Series thereof
is a shareholder, director, officer, partner, trustee, employee, manager,
adviser or distributor of or for any partnership, corporation, trust,
association or other organization or of or for any parent or affiliate of any
organization, with which a contract of the character described in Sections 1, 2,
3, or 4 of this Article III, or for services as Custodian, Transfer Agent,
disbursing agent or for any other services approved by the Trustees with respect
to any Series or Class may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder of or has an
interest in the Trust, or that
any partnership, corporation, trust, association or other organization with
which a contract of the character described in Sections 1, 2, 3 or 4 of this
Article III or for services as Custodian, Transfer Agent or disbursing agent or
for any other services approved by the Trustees with respect to any Series or
Class may have been or may hereafter be made also has any one or more of such
contracts with one or more other partnerships, corporations, trusts,
associations or other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
COMPENSATION, LIMITATION OF LIABILITY AND INDEMNIFICATION
Compensation. The Trustees as such shall be entitled to reasonable compensation
from the Trust, and they may fix the amount of such compensation. Nothing herein
shall in any way prevent the employment of any Trustee for advisory, management,
legal, accounting, investment banking or other services and payment for the same
by the Trust.
Limitation of Liability. A Trustee, when acting in such capacity, shall not be
personally liable to any Person other than the Trust or a Shareholder of the
Trust for any act, omission or obligation of the Trust or any Trustee. All
persons contracting with or having any claim against the Trust or a particular
Series shall look only to the assets of the Trust or such particular Series for
payment under such contract or claim; and neither the Trustees nor, when acting
in such capacity, any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. The Trustees and
officers of the Trust shall not be responsible or liable for any act or omission
or for neglect or wrongdoing of themselves or any officer, agent, employee,
investment adviser or independent contractor of the Trust, or of any other
Person, but nothing contained in this Declaration or in the Delaware Act shall
protect any Trustee or officer of the Trust against liability to the Trust or to
Shareholders to which he 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 office.
Indemnification. Subject to the exceptions and limitations contained in
subsection (b) below:
every person who is, or has been, a Trustee or an officer of the Trust or any
Series (including any individual who serves at its request as director, officer,
partner, trustee or the like of another organization in which it has any
interest as a shareholder, creditor or otherwise) and such person's heirs,
executors, administrators and other legal representatives ("Covered Person")
shall be indemnified by the Trust or the appropriate Series to the fullest
extent permitted by law against liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action, suit or proceeding
in which he becomes involved as a party or otherwise by virtue of his being or
having been a Covered Person and against amounts paid or incurred by him in the
settlement thereof; and
as used herein, the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals before any court or administrative or legislative body),
actual or threatened, and the words "liability" and "expenses" shall include,
without limitation, reasonable attorneys' fees, costs, judgments, amounts paid
in settlement, fines, penalties and other liabilities.
No indemnification shall be provided hereunder to a Covered Person:
who shall have been adjudicated by a court or body before which the proceeding
was brought (A) to be liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, or (B) not to have acted in good
faith in the reasonable belief that his action was in the best interest of the
Trust; or
in the event of a settlement, unless there has been a determination that such
Covered Person did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, (A) by the court or other body approving the settlement; (B) by at least
a majority of those Trustees who are neither Interested Persons of the Trust nor
are parties to the matter based upon a review of readily available facts (as
opposed to a full trial-type inquiry); (C) by written opinion of independent
legal counsel based upon a review of readily available facts (as opposed to a
full trial-type inquiry); or (D) by a vote of a majority of the Outstanding
Shares entitled to vote (excluding any Outstanding Shares owned of record or
beneficially by such individual).
The rights of indemnification herein provided may be insured against by policies
maintained by the Trust, shall be severable, shall not be exclusive of or affect
any other rights to which any Covered Person may now or hereafter be entitled,
and shall inure to the benefit of the heirs, executors and administrators of a
Covered Person.
To the maximum extent permitted by applicable law, expenses in connection with
the preparation and presentation of a defense to any claim, action, suit or
proceeding of the character described in subsection (a) of this Section may be
paid by the Trust or applicable Series from time to time prior to final
disposition thereof upon receipt of an under-taking by or on behalf of such
Covered Person that such amount will be paid over by him to the Trust or
applicable Series if it is ultimately determined that he is not entitled to
indemnification under this Section; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the matter, or independent legal counsel in
a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that such Covered Person will not be disqualified from
indemnification under this Section.
Any repeal or modification of this Article IV by the Shareholders, or adoption
or modification of any other provision of the Declaration or By-laws
inconsistent with this Article, shall be prospective only, to the extent that
such repeal, or modification would, if applied retrospectively, adversely affect
any limitation on the liability of any Covered Person or indemnification
available to any Covered Person with respect to any act or omission which
occurred prior to such repeal, modification or adoption.
The right of indemnification provided by this Section 3 shall not be exclusive
of or affect any other rights to which any Covered Person may be entitled.
Indemnification of Shareholders. If any Shareholder or former Shareholder of any
Series shall be held personally liable solely by reason of his being or having
been a Shareholder and not because of his acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of any entity, its
general successor) shall be entitled to be held harmless from and indemnified
against all loss and expense arising from such liability out of the assets
belonging to the applicable Series whose Shares were held by such Shareholder at
the time the act or event occurred and to which the liability against the
Shareholder relates. The Trust, on behalf of the affected Series, shall, upon
request by such Shareholder, assume the defense of any claim made against such
Shareholder for any act or obligation of the Series and satisfy any judgment
thereon from the assets of such Series.
No Bond Required of Trustees. No Trustee shall be obligated to give any bond or
other security for the performance of any of his duties hereunder.
No Duty of Investigation, Notice in Trust Instruments, Etc. No purchaser,
lender, transfer agent or other Person dealing with the Trustees or any officer,
employee or agent of the Trust or a Series thereof shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or a Series thereof
or undertaking, and every other act or thing whatsoever executed in connection
with the Trust shall be conclusively presumed to have been executed or done by
the executors thereof only in their capacity as Trustees under this Declaration
or in their capacity as officers, employees or agents of the Trust or a Series
thereof. Every written obligation, contract, instrument, certificate, Share,
other security of the Trust or a Series or Class thereof or undertaking made or
issued by the Trustees may recite that the same is executed or made by them not
individually, but as Trustees under the Declaration, and that the obligations of
the Trust or a Series or Class thereof under any such instrument are not binding
upon any of the Trustees, officers or Shareholders individually, but bind only
the Trust Property or the Trust Property of the applicable Series or Class, and
may contain any further recital which they may deem appropriate, but the
omission of such recital shall not operate to bind the Trustees, officers or
Shareholders individually. The Trustees may maintain insurance for the
protection of the Trust Property or the Trust Property of the applicable Series,
its Shareholders, Trustees, officers, employees and agents in such amount as the
Trustees, officers or Shareholders shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable and as required by the 1940 Act.
Reliance on Experts, Etc. Each Trustee, officer or employee of the Trust or a
Series thereof shall, in the performance of his duties, powers and discretion
hereunder be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust or a Series or Class thereof, upon an
opinion of counsel, or upon reports made to the Trust or a Series or Class
thereof by any of its officers or employees or by the Investment Adviser, the
Administrator, the Distributor, Transfer Agent, selected dealers, accountants,
appraisers or other experts or consultants selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel
or other Person may also be a Trustee.
No Accounting. Except to the extent required by the 1940 Act, or by the other
Trustees if determined by them to be necessary or appropriate under
circumstances which would justify his removal for cause, no person ceasing to be
a Trustee for reasons including, but not limited to, death, resignation,
retirement, removal or incapacity (nor the estate of any such person) shall be
required to make an accounting to the Shareholders or remaining Trustees upon
such cessation.
SERIES; CLASSES, SHARES
Establishment of Series or Class. The Trust shall consist of one or more Series.
Without limiting the authority of the Trustees to establish and designate any
further Series, the Trustees hereby establish the following thirty-one (31)
Series: Money Market Fund, U.S. Government Money Market Fund, U.S. Government
Select Money Market Fund, Tax-Exempt Money Market Fund, Municipal Money Market
Fund, California Municipal Money Market Fund, U.S. Government Fund,
Short-Intermediate U.S. Government Fund, Intermediate Tax- Exempt Fund,
California Intermediate Tax-Exempt Fund, Florida Intermediate Tax- Exempt Fund,
Fixed Income Fund, Tax-Exempt Fund, Arizona Tax-Exempt Fund, California
Tax-Exempt Fund, International Fixed Income Fund, High Yield Municipal Fund,
High Yield Fixed Income Fund, Income Equity Fund, Stock Index Fund, Growth
Equity Fund, Select Equity Fund, MarketCommand Fund, Mid Cap Growth Fund, Small
Cap Index Fund, Small Cap Fund, Small Cap Growth Fund, International Growth
Equity Fund, International Select Equity Fund, Technology Fund and Global
Communications Fund (the "Existing Series"). Each additional Series shall be
established and is effective upon the adoption of a resolution of a majority of
the Trustees or any alternative date specified in such resolution. The Trustees
may designate the relative rights and preferences of the Shares of each Series.
The Trustees may divide the Shares of any Series into Classes. Without limiting
the authority of the Trustees to establish and designate any further Classes of
any Existing Series or future Series, the Trustees hereby establish the
following Classes of Shares with respect to the Series set forth below:
Shares: Money Market Fund, U.S. Government Money Market Fund, U.S.
Government Select Money Market Fund, Tax-Exempt Money Market Fund, Municipal
Money Market Fund, California Municipal Money Market Fund, U.S. Government Fund,
Short-Intermediate U.S. Government Fund, Intermediate Tax-Exempt Fund,
California Intermediate Tax-Exempt Fund, Florida Intermediate Tax-Exempt Fund,
Fixed Income Fund, Tax-Exempt Fund, Arizona Tax-Exempt Fund, California Tax-
Exempt Fund, International Fixed Income Fund, High Yield Municipal Fund, High
Yield Fixed Income Fund, Income Equity Fund, Stock Index Fund, Growth Equity
Fund, Select Equity Fund, MarketCommand Fund, Mid Cap Growth Fund, Small Cap
Index Fund, Small Cap Fund, Small Cap Growth Fund, International Growth Equity
Fund, International Select Equity Fund, Technology Fund and Global
Communications Fund
(the "Existing Classes"). The Shares of the Existing Series and each Class
thereof herein established and designated and any Shares of any further Series
and Classes that may from time to time be established and designated by the
Trustees shall be established and designated, and the variations in the relative
rights and preferences as between the different Series shall be fixed and
determined, by the Trustees; provided, that all Shares shall be identical except
for such variations as shall be fixed and determined between different Series or
Classes by the Trustees in establishing and designating such Class or Series. In
connection therewith with respect to the Existing Classes, the purchase price,
the method of determining the net asset value and allocating expenses, and the
relative dividend and voting rights of holders shall be as set forth in the
Trust's Registration Statement under the Securities Act of 1933 and/or the 1940
Act, as amended from time to time.
All references to Shares in this Declaration shall be deemed to be
Shares of any or all Series or Classes as the context may require. The Trust
shall maintain separate and distinct records for each Series and hold and
account for the assets thereof separately from the other assets of the Trust and
of any other Series. A Series may issue any number of Shares or any Class
thereof and need not issue Shares. Each Share of a Series shall represent a
proportionate beneficial interest in the net assets of such Series, subject to
the liabilities charged to a particular Class. Each holder of Shares of a Series
or a Class thereof shall be entitled to receive his pro rata share of all
distributions made with respect to such Series or Class. Upon redemption of his
Shares, such Shareholder shall be paid solely out of the funds and property of
such Series. The Trustees may adopt and change the name of any Series or Class.
Shares. The beneficial interest in the Trust shall be divided into transferable
Shares of one or more separate and distinct Series or Classes established by the
Trustees. The number of Shares of each Series and Class is unlimited and each
Share shall have $.0001 par value per Share or such other amount as the Trustees
may establish. All Shares issued hereunder shall be fully paid and
nonassessable. Shareholders shall have no preemptive or other right to subscribe
to any additional Shares or other securities issued by the Trust. The Trustees
shall have full power and authority, in their sole discretion and without
obtaining Shareholder approval, to issue original or additional Shares at such
times and on such terms and conditions and for such consideration as they deem
appropriate; to issue fractional Shares; to establish and to change in any
manner Shares of any Series or Classes with such preferences, terms of
conversion, voting powers, rights and privileges as the Trustees may determine;
to divide or combine the Shares of any Series or Classes into a greater or
lesser number; to classify or reclassify any unissued Shares of any Series or
Classes into one or more Series or Classes of Shares; to abolish any one or more
Series or Classes of Shares; to issue Shares to acquire other assets (including
assets subject to, and in connection with, the assumption of liabilities) and
businesses; and to take such other action with respect to the Shares as the
Trustees may deem desirable.
Investment in the Trust. Subject to applicable law, the Trustees shall accept
investments in any Series or Class from such persons and on such terms as they
may from time to time authorize. Without limiting the generality of the
foregoing, at the Trustees' discretion, such investments may be in the form of
cash or securities in which that Series is authorized to invest, valued as
provided in Article VI, Section 3. The value of an investment in a Class or a
Series shall be credited to each Shareholder's account in the form of full
Shares at the Net Asset Value per Share next determined after the investment is
received or accepted as may be determined by the Trustees; provided, however,
that the Trustees may, in their sole discretion, (a) impose a sales charge or
purchase price adjustment upon investments in any Series or Class, (b) issue
fractional Shares, (c) determine the Net Asset Value per Share of the initial
capital contribution or (d) authorize the issuance of Shares at a price other
than Net Asset Value to the extent permitted by the 1940 Act or any rule, order
or interpretation of the Commission thereunder. The Trustees shall have the
right to refuse to accept investments in any Series at any time without any
cause or reason therefor whatsoever.
Assets and Liabilities of Series. All consideration received by the Trust for
the issue or sale of Shares of a particular Series, together with all assets in
which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof (including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be), shall be
held and accounted for separately from the assets of every other Series and the
Trust generally and are referred to as "assets belonging to" that Series. The
assets belonging to a Series shall belong only to that Series for all purposes,
and to no other Series, subject only to the rights of creditors of that Series.
Any assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular Series shall
be allocated by the Trustees between and among one or more Series as the
Trustees deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series for all purposes, and such assets,
earnings, income, profits or funds, or payments and proceeds thereof shall be
referred to as assets belonging to that Series. The assets belonging to a Series
shall be so recorded upon the books of such Series in a manner that is separate
and distinct from the records of any other Series of the Trust generally and
such assets shall be held by the Trustees in trust for the benefit of the
Shareholders of that Series. The assets belonging to a Series shall be charged
with the liabilities of that Series and all expenses, costs, charges and
reserves attributable to that Series, except that liabilities, expenses, costs,
charges and reserves allocated by the Trustees solely to a particular Class
shall be borne by that Class. Any general liabilities, expenses, costs, charges
or reserves of the Trust which are not readily identifiable as belonging to any
particular Series or Class shall be allocated and charged by the Trustees
between or among any one or more of the Series or Classes in such manner as the
Trustees deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series and Classes for all purposes.
Without limiting the foregoing, but subject to the right of the
Trustees to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets of such Series only, and not against the
assets of the Trust generally, including the assets of any other Series. Notice
of this contractual limitation on liabilities among Series may, in the Trustees'
discretion, be set forth in the certificate of trust of the Trust (whether
originally or by amendment) as filed or to be filed in the Office of the
Secretary of State of the State of Delaware pursuant to the Delaware Act, and
upon the giving of such notice in the certificate of trust, the statutory
provisions of Section 3804 of the Delaware Act relating to limitations on
liabilities among Series (and the statutory effect under Section 3804 of setting
forth such notice in the certificate of trust) shall become applicable to the
Trust and each Series. Any person extending credit to, contracting with or
having any claim against any Series may look only to the assets of that Series
to satisfy or enforce any debt, with respect to that Series. No Shareholder or
former Shareholder of any Series shall have a claim on or any right to any
assets allocated or belonging to any other Series.
Ownership and Transfer of Shares. The Trust or a transfer or similar agent for
the Trust shall maintain a register containing the names and addresses of the
Shareholders of each Series and Class thereof, the number of Shares of each
Series and Class held by such Shareholders, and a record of all Share transfers.
The register shall be conclusive as to the identity of Shareholders of record
and the number of Shares held by them from time to time. The Trustees may
authorize the issuance of certificates representing Shares and adopt rules
governing their use. The Trustees may make rules governing the transfer of
Shares, whether or not represented by certificates. Except as otherwise provided
by the Trustees, Shares shall be transferable on the books of the Trust only by
the record holder thereof or by his duly authorized agent upon delivery to the
Trustees or the Trust's Transfer Agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence or the genuineness of each such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the Shareholder of record of Shares shall be deemed to
be the holder of such Shares for all purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or registrar or any officer, employee or
agent of the Trust, shall be affected by any notice of a proposed transfer.
Status of Shares; Limitation of Shareholder Liability. Shares shall be deemed to
be personal property giving Shareholders only the rights provided in this
Declaration. Every Shareholder, by virtue of having acquired a Share, shall be
held expressly to have assented to and agreed to be bound by the terms of this
Declaration and to have become a party hereto. No Shareholder shall be
personally liable for the debts, liabilities, obligations and expenses incurred
by, contracted for, or otherwise existing with respect to, the Trust or any
Series. The death, incapacity, dissolution, termination or bankruptcy of a
Shareholder during the existence of the Trust shall not operate to terminate the
Trust, nor entitle the representative of any such Shareholder to an accounting
or to take any action in court or elsewhere against the Trust or the Trustees,
but entitles such representative only to the rights of such Shareholder under
this Trust. Ownership of Shares shall not entitle the Shareholder to any title
in or to the whole or any part of the Trust Property or right to call for a
partition or division of the same or for an accounting, nor shall the ownership
of Shares constitute the Shareholders as partners. Neither the Trust nor the
Trustees shall have any power to bind any Shareholder personally or to demand
payment from any Shareholder for anything, other than as agreed by the
Shareholder. Shareholders shall have the same limitation of personal liability
as is extended to shareholders of a private corporation for profit incorporated
in the State of Delaware.
DISTRIBUTIONS AND REDEMPTIONS
Distributions. The Trustees or a committee of one or more Trustees and/or one or
more officers may declare and pay dividends and other distributions, including
dividends on Shares of a particular Series and other distributions from the
assets belonging to that Series. No dividend or distribution, including, without
limitation, any distribution paid upon termination of the Trust or of any Series
(or Class) with respect to, nor any redemption or repurchase of, the Shares of
any Series (or Class) shall be effected by the Trust other than from the assets
held with respect to such Series, nor shall any Shareholder of any particular
Series otherwise have any right or claim against the assets held with respect to
any other Series except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other Series. The Trustees shall have
full discretion to determine which items shall be treated as income and which
items as capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders. The amount and payment of dividends or
distributions and their form, whether they are in cash, Shares or other Trust
Property, shall be determined by the Trustees. Dividends and other distributions
may be paid pursuant to a standing resolution adopted once or more often as the
Trustees determine. All dividends and other distributions on Shares of a
particular Class shall be distributed pro rata to the Shareholders of that Class
in proportion to the number of Shares of that Class they held on the record date
established for such payment, except that in connection with any dividend or
distribution program or procedure the Trustees may determine that no dividend or
distribution shall be payable on Shares as to which the Shareholder's purchase
order and/or payment in the prescribed form has not been received by the time or
times established by the Trustees under such program or procedure. The Trustees
may adopt and offer to Shareholders such dividend reinvestment plans, cash
dividend payout plans or similar plans as the Trustees deem appropriate.
Redemptions. Unless the Trustees otherwise determine with respect to a
particular Series or Class at the time of establishing and designating the same,
each Shareholder of a Series shall have the right at such times as may be
permitted by the Trustees to require the Series to redeem all or any part of his
Shares at such redemption price and at such times as the Trustees shall
prescribe by resolution to the extent permitted by the 1940 Act. In the absence
of such resolution, the redemption price per Share shall be the Net Asset Value
next determined after receipt by the Series of a request for redemption in
proper form less such charges as are determined by the Trustees and described in
the Trust's Registration Statement for that Series, as from time to time in
effect, under the Securities Act of 1933. The Trustees may specify conditions,
prices, and places of redemption, may specify binding requirements for the
proper form or forms of requests for redemption and may specify the amount of
any deferred sales charge to be withheld from redemption proceeds. Payment of
the redemption price may be wholly or partly in securities or other assets, or
may be in cash, as determined in the sole discretion of the Trustees or their
delegate. Upon redemption, Shares may be reissued from time to time. Unless the
Trustees otherwise determine with respect to a particular Series or Class at the
time of establishing and designating the same, the Trustees may require
Shareholders to redeem Shares for any reason at the redemption price which would
be applicable if such Shares were then being redeemed by the Shareholder
pursuant to this Section 2 under terms set by the Trustees, including, but not
limited to: (a) the failure of a Shareholder to supply a taxpayer identification
number, or to have the minimum investment required (which may vary by Series or
Class), or to pay when due for the purchase of Shares issued to him or to pay
any charge relating to a transaction effected for the benefit of such
Shareholder as provided in the prospectus relating to such Shares; or (b) the
determination by the Trustees in their sole discretion that failure to so redeem
may have materially adverse consequences to the Shareholders of any Series or
Class of the Trust. To the extent permitted by law, the Trustees may retain the
proceeds of any redemption of Shares required by them for payment of amounts due
and owing by a Shareholder to the Trust or any Series or Class or any
governmental authority. Notwithstanding the foregoing, the Trustees may postpone
payment of the redemption price and may suspend the right of the Shareholders to
require any Series or Class to redeem Shares during any period of time when and
to the extent permissible under the 1940 Act.
Determination of Net Asset Value. The Trustees shall cause the Net Asset Value
of Shares of each Series or Class to be determined from time to time in a manner
consistent with applicable laws and regulations. The Trustees may delegate the
power and duty to determine Net Asset Value per Share to one or more Trustees or
officers of the Trust or to a custodian, depository or other agent appointed for
such purpose. The Net Asset Value of Shares shall be determined separately for
each Series or Class at such times as may be prescribed by the Trustees or, in
the absence of action by the Trustees, as of the close of regular trading on the
New York Stock Exchange on each day for all or part of which such Exchange is
open for unrestricted trading.
The Trustees may determine to maintain the Net Asset Value per Share of
any Series or Class at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declarations of income attributable to that Series or Class as
dividends payable in additional Shares of that Series or Class at the designated
constant dollar amount and for the handling of any losses attributable to that
Series or Class. Such procedures may provide that in the event of any loss each
Shareholder of a Series or Class shall be deemed to have contributed to the
capital of the Trust attributable to that Series or Class his pro rata portion
of the total number of Shares required to be cancelled in order to permit the
Net Asset Value per Share of that Series or Class to be maintained, after
reflecting such loss, at the designated constant dollar amount. Each Shareholder
of the Trust shall be deemed to have agreed, by his investment in the Trust, to
make the contribution referred to in the preceding sentence in the event of any
such loss.
Suspension of Right of Redemption. If, as referred to in Section 2 of this
Article, the Trustees suspend the right of Shareholders to redeem their Shares,
such suspension shall take effect at the time the Trustees shall specify.
Thereafter, Shareholders shall have no right of redemption or payment until the
Trustees declare the end of the suspension. If the right of redemption is
suspended, any Shareholder having tendered a redemption request may either
withdraw his request for redemption or receive payment based on the Net Asset
Value per Share next determined after the suspension terminates.
Repurchase by Agreement. In addition to the redemption of Shares otherwise
provided in this Article VII, the Trust may repurchase Shares directly, or
through the Distributor or another agent designated for the purpose, by
agreement with the owner thereof at a price not exceeding the Net Asset Value
per Share determined as of the time when the purchase or contract of purchase is
made or the Net Asset Value as of any time which may be later determined.
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Voting Powers. The Shareholders shall have power to vote only with respect to
(a) the election of Trustees to the extent and as provided in Section 4 of
Article II; (b) the removal of Trustees as provided in Article II, Section 5(d);
(c) any matter required to be approved by Shareholders of the Trust or any
Series or Class thereof under the 1940 Act; (d) any termination of the Trust to
the extent and as provided in Article IX, Section 4; (e) the amendment of this
Declaration to the extent and as provided in Article IX, Section 8; (f) the
matters referred to in Article IX, Section 12; and (g) such additional matters
relating to the Trust as may be required or authorized by law, this Declaration,
or the By-laws or any registration of the Trust with the Commission or any
State, or as the Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, unless the
Trustees determine otherwise, all Shares shall be voted in the aggregate and not
by individual Series or Class, except (a) when required by the 1940 Act, other
applicable law or the attributes applicable to any Series or Class, Shares shall
be voted by individual Series or Class, and (b) when the Trustees have
determined that the matter affects the interests of only one or more Series or
Class, then only the Shareholders of all such Series or Classes shall be
entitled to vote thereon. As determined by the Trustees without the vote or
consent of Shareholders, on any matter submitted to a vote of Shareholders,
either (i) each whole Share shall be entitled to one vote as to such matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote or (ii) each dollar of Net Asset Value (number of
Shares owned times Net Asset Value per share of such Series or Class, as
applicable) shall be entitled to one vote on such matter on which such Shares
are entitled to vote and each fractional dollar amount shall be entitled to a
proportionate fractional vote. Without limiting the power of the Trustees in any
way to designate otherwise in accordance with the preceding sentence, the
Trustees hereby establish that each whole Share shall be entitled to one vote as
to any matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. There shall be no cumulative voting
in the election of Trustees. Shares may be voted in person or by proxy or in any
manner provided for in the By-laws. The By-laws may provide that proxies may be
given by any electronic or telecommunications device or in any other manner, but
if a proposal by anyone other than the officers or Trustees is submitted to a
vote of the Shareholders of any Series or Class, or if there is a proxy contest
or proxy solicitation or proposal in opposition to any proposal by the officers
or Trustees, Shares may be voted only in person or by written proxy. Until
Shares of a Series are issued, as to that Series the Trustees may exercise all
rights of Shareholders and may take any action required or permitted to be taken
by Shareholders by law, this Declaration or the By-laws. Meetings of
Shareholders (including meetings involving only the holders of Shares of one or
more but less than all Series or Classes) may be called by the Trustees from
time to time to be held at such place within or without the State of Delaware,
and on such date as may be designated in the call thereof for the purpose of
taking action upon any matter as to which the vote or authority of the
Shareholders is required or permitted as provided in this Declaration. Special
meetings of the Shareholders shall be called by the Trustees upon the written
request of Shareholders owning at least a majority of the Shares outstanding and
entitled to vote, except to the extent that a lesser percentage is prescribed by
the 1940 Act. Notice thereof and record dates therefor shall be given and set as
provided in the By-laws.
Quorum, Required Vote. Except when a larger vote is required by law, this
Declaration, the By-laws or the Trustees, holders of Shares of the Trust, Series
or Class, as applicable, representing one-third of the votes entitled to be cast
at the meeting in person or by proxy shall be a quorum for the transaction of
business at a Shareholders' meeting. Any lesser number shall be sufficient for
adjournments. Any adjourned session of a Shareholders' meeting may be held
within a reasonable time without further notice. Except when a larger vote is
required by law, this Declaration, the By-laws or the Trustees, holders of
Shares representing a majority of votes present and voted at a Shareholders'
meeting in person or by proxy shall decide any matters to be voted upon with
respect to the entire Trust except that a plurality of such votes shall elect a
Trustee; provided, that if this Declaration or applicable law permits or
requires that Shares be voted on any matter by individual Series or Classes,
then holders, except when a larger vote is required by law, this Declaration,
the By-laws or the Trustees, of Shares of that Series or Class representing a
majority of the votes present and voted at a Shareholders' meeting in person or
by proxy on the matter shall decide that matter insofar as that Series or Class
is concerned, except that a plurality of such votes shall elect a Series
Trustee. With respect to any matter presented to the Shareholders for approval,
the Shareholders may act as to the Trust or any Series or Class by the written
consent of holders of Shares of the Trust, Series or Class, as the case may be,
representing a majority (or such other amount as may be required by applicable
law) of the votes entitled to be cast on the matter subject to such consent.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
Additional Provisions. The By-laws may include further provisions for
Shareholders' votes and meetings and related matters.
EXPENSES OF THE TRUST AND SERIES
Payment of Expenses by the Trust. Subject to Article IV, Section 4, and Article
IV, Section 3, the Trust or a particular Series shall pay, or shall reimburse
the Trustees from the assets belonging to all Series or the particular Series,
for their expenses (or the expenses of a Class of such Series) and
disbursements, including, but not limited to, interest charges, taxes, brokerage
fees and commissions; expenses of issue, repurchase and redemption of Shares;
insurance premiums; applicable fees, interest charges and expenses of third
parties, including the Trust's investment advisers, managers, administrators,
distributors, custodians, transfer agents and fund accountants; fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; telecommunications expenses; funds transmission expenses;
auditing, legal and compliance expenses (including, if approved by the Trustees,
an allocated portion of the legal, accounting and compliance expenses incurred
by the Investment Adviser, Administrator or other service provider to the
Trust); costs of forming the Trust and its Series and maintaining its existence;
costs of preparing and printing the prospectuses of the Trust and each Series,
statements of additional information and Shareholder reports and delivering them
to Shareholders; expenses of meetings of Shareholders and proxy solicitations
therefor; costs of maintaining books and accounts; costs of reproduction,
stationery and supplies; fees and expenses of the Trustees; compensation of the
Trust's officers and employees and costs of other personnel performing services
for the Trust or any Series; costs of Trustee meetings; Commission registration
fees and related expenses; state or foreign securities laws registration fees
and related expenses; and for such non-recurring items as may arise, including
litigation to which the Trust or a Series (or a Trustee or officer of the Trust
acting as such) is a party, and for all losses and liabilities by them incurred
in administering the Trust. The Trustees shall have a lien on the assets
belonging to the appropriate Series, or in the case of an expense allocable to
more than one Series, on the assets of each such Series, prior to any rights or
interests of the Shareholders thereto, for the reimbursement to them of such
expenses, disbursements, losses and liabilities.
Payment of Expenses by Shareholders. The Trustees shall have the power, as
frequently as they may determine, to cause each Shareholder, or each Shareholder
of any particular Series or Class thereof, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, shareholder servicing
or similar agent, an amount fixed from time to time by the Trustees, by setting
off such charges due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of Shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such charges due from such Shareholder.
MISCELLANEOUS
Trust Not a Partnership. This Declaration creates a trust and not a
partnership. No Trustee shall have any power to bind personally either the
Trust's officers or any Shareholder.
Trustee Action. The exercise by the Trustees of their powers and discretion
hereunder in good faith and with reasonable care under the circumstances then
prevailing shall be binding upon everyone interested. Subject to the provisions
of Article IV, the Trustees shall not be liable for errors of judgment or
mistakes of fact or law.
Record Dates. The Trustees may close the Share transfer books of the Trust or
any Series or Class for a period not exceeding one hundred twenty (120) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividends or other distributions, or the date for the allotment of
rights, or the date when any change or conversion or exchange of Shares shall go
into effect; or in lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date not exceeding one hundred twenty (120) days
before the scheduled date of any Shareholders' meeting, or the date for the
payment of any dividends or other distributions, or the date for the allotment
of rights, or the date when any change or conversion or exchange of Shares shall
go into effect as a record date for the determination of the Shareholders
entitled to notice of, and to vote at, any such meeting, or entitled to receive
payment of such dividend or other distribution, or to receive any such allotment
of rights, or to exercise such rights in respect of any such change, conversion
or exchange of Shares, and in such case such Shareholders and only such
Shareholders shall be Shareholders of record on the date so fixed and entitled
to such notice of, and to vote at, such meeting, or to receive payment of such
dividend or other distribution, or to receive such allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
Shares on the books of the Trust after any such record date fixed as aforesaid.
Nothing in this Section shall be construed as precluding the Trustees from
setting different record dates for, or from closing the register or transfer
books with respect to, different Series (or Classes).
Termination of the Trust. This Trust shall have perpetual existence. Subject to
the provisions of subsection (b) below, upon the vote of a majority of the
Outstanding Shares entitled to vote of the Trust or of each Series or Class to
be affected, the Trustees may:
sell and convey all or substantially all of the assets of all Series or any
affected Series or Class to another Series or to another trust, partnership,
association, corporation or other entity, or to a separate series or class
thereof, organized under the laws of any jurisdiction, for adequate
consideration, which may include the assumption of all outstanding obligations,
taxes and other liabilities, accrued or contingent, of the Trust or any affected
Series or Class, and which may include shares of or interests in such Series,
trust, partnership, association, corporation or other entity, or series or class
thereof; or
at any time sell and convert into money all or substantially all of the assets
of all Series or any affected Series or Class.
Subject to the provisions of Article IX, Section 12, upon paying or
making reasonable provision for the payment of all known liabilities of all
Series or any affected Series or Class in either (i) or (ii), by such assumption
or otherwise, the Shareholders of each Class of a Series involved in such sale
or conversion shall be entitled to receive, as a Class, when and as declared by
the Trustees, the excess of the assets belonging to that Series that are
allocated to such Class over the liabilities belonging to that Series that are
allocated to such Class. The assets so distributable to the Shareholders of any
particular Class of a Series shall be distributed among such Shareholders in
proportion to the number of Shares of that Class held by them and recorded on
the books of the Trust.
Subject to the provisions of Article IX, Section 12, the Trustees may take any
of the actions specified in subsection (a) (i) and (ii) above without obtaining
the vote of a majority of the Outstanding Shares entitled to vote of the Trust
or any Series or Class if a majority of the Trustees determines, in their sole
discretion, that the continuation of the Trust or such Series or Class is not in
the best interests of the Trust, such Series, such Class or their respective
Shareholders. In reaching such determination, the Trustees may consider such
factors as the Trustees, in their sole discretion, deem to be appropriate, which
factors may include the inability of the Trust or a Series or Class to maintain
its assets at an appropriate size, changes in laws or regulations governing the
Trust or the Series or Class or affecting assets of the type in which the Trust
or such Series invests, or economic developments or trends having a significant
adverse impact on the business or operations of the Trust or such Series or
Class.
Upon completion of the distribution of the remaining proceeds or assets pursuant
to subsection (a), the Trust or any affected Series or Class shall terminate and
the Trustees and the Trust shall be discharged of any and all further
liabilities and duties hereunder with respect thereto and the right, title and
interest of all parties therein shall be canceled and discharged. Upon
termination of the Trust, following completion of winding up of its business,
the Trustees shall cause a certificate of cancellation of the Trust's
certificate of trust to be filed in accordance with the Delaware Act, which
certificate of cancellation may be signed by any one Trustee.
Reorganization and Master/Feeder. Notwithstanding anything else herein other
than the provisions of Article IX, Section 12, a majority of the Trustees may,
without Shareholder approval unless such approval is required by applicable
federal law, (i) cause the Trust to merge or consolidate with or into one or
more trusts, partnerships, associations, corporations or other entities
organized under the laws of any jurisdiction, (ii) cause the Shares to be
exchanged under or pursuant to any state or federal statute to the extent
permitted by law, or (iii) cause the Trust to incorporate under the laws of
Delaware or any other jurisdiction. Any agreement of merger or consolidation or
certificate of merger may be signed by a majority of Trustees and facsimile
signatures conveyed by electronic or telecommunication means shall be valid.
Pursuant to and in accordance with the provisions of Section 3815(f) of the
Delaware Act, an agreement of merger or consolidation approved by the Trustees
in accordance with this Section 5 may effect any amendment to the Declaration or
effect the adoption of a new trust instrument of the Trust if it is the
surviving or resulting trust in the merger or consolidation.
The Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust, partnership,
association or other organization to take over all or portion of the Trust
Property or the Trust Property allocated or belonging to any one or more Series
or to carry on any business in which the Trust shall directly or indirectly have
any interest, or to sell, convey and transfer all or a portion of the Trust
Property or the Trust Property allocated or belonging to such Series to any such
corporation, trust, association or organization in exchange for the shares or
securities thereof or otherwise, and to lend money to, subscribe for the shares
or securities of, and enter into any contracts with any such corporation, trust,
partnership, association, or organization or any corporation, partnership,
trust, association or organization in which the Trust or such Series holds or is
about to acquire shares or any other interest. The Trustees may also cause a
merger or consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporations,
trusts, partnerships, associations or other organizations and to sell, convey or
transfer all or a portion of the Trust Property to such organizations or
entities.
Notwithstanding anything else herein, the Trustees may, without Shareholder
approval unless such approval is required by applicable law, invest all or a
portion of the Trust Property of any Series, or dispose of all or a portion of
the Trust Property of any Series, and invest the proceeds of such disposition in
interests issued by one or more other investment companies or pooled portfolios.
Any such other investment company or pooled portfolio may (but need not) be a
trust (formed under the laws of any state or jurisdiction) (or subtrust thereof)
which is classified as a partnership for federal income tax purposes.
Notwithstanding anything else herein, the Trustees may, without Shareholder
approval unless such approval is required by applicable law, cause a Series that
is organized in the master/feeder fund structure to withdraw or redeem its Trust
Property from the master fund and cause such Series to invest its Trust Property
directly in securities and other financial instruments or in another master
fund.
Declaration of Trust. The original or a copy of this Declaration of Trust and of
each amendment hereto or Declaration of Trust supplemental shall be kept at the
office of the Trust where it may be inspected by any Shareholder. Anyone dealing
with the Trust may rely on a certificate by a Trustee or an officer of the Trust
as to the authenticity of the Declaration of Trust or any such amendments or
supplements and as to any matters in connection with the Trust. Headings herein
are for convenience only and shall not affect the construction of this
Declaration of Trust. This Declaration of Trust may be executed in any number of
counterparts, each of which shall be deemed an original.
Applicable Law. This Declaration and the Trust created hereunder are governed by
and construed and administered according to the Delaware Act and the applicable
laws of the State of Delaware; provided, however, that there shall not be
applicable to the Trust, the Trustees or this Declaration of Trust (a) the
provisions of Section 3540 of Title 12 of the Delaware Code, or (b) any
provisions of the laws (statutory or common) of the State of Delaware pertaining
to trusts which relate to or regulate (i) the filing with any court or
governmental body or agency of trustee accounts or schedules of trustee fees and
charges, (ii) affirmative requirements to post bonds for trustees, officers,
agents or employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Declaration. The Trust shall be of the type commonly called a Delaware
business trust, and, without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
Amendments. The Trustees may, without any Shareholder vote, amend or otherwise
supplement this Declaration by making an amendment, a Declaration of Trust
supplemental hereto or an amended and restated trust instrument; provided, that
Shareholders shall have the right to vote on any amendment (a) which would
adversely affect the voting rights of Shareholders granted in Article VII,
Section 1, (b) to this Section 8, (c) required to be approved by Shareholders by
law or by the Trust's registration statements filed with the Commission, and (d)
submitted to them by the Trustees in their discretion. Any amendment submitted
to Shareholders which the Trustees determine would affect the Shareholders of
one or more Series or Classes shall be authorized by vote of the Shareholders of
each Series or Class affected and no vote shall be required of Shareholders of a
Series or Class not affected. Notwithstanding anything else herein, any
amendment to Article IV which would have the effect of reducing the
indemnification and other rights provided thereby to Trustees or officers of the
Trust or to Shareholders or former Shareholders, and any repeal or amendment of
this sentence shall each require the affirmative vote of the holders of
two-thirds of the Outstanding Shares of the Trust entitled to vote thereon.
Derivative Actions. In addition to the requirements set forth in Section 3816 of
the Delaware Act, a Shareholder may bring a derivative action on behalf of the
Trust only if the following conditions are met:
Shareholders eligible to bring such derivative action under the Delaware Act 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, shall
join in the request for the Trustees to commence such action; and
the Trustees must be afforded a reasonable amount of time to consider such
Shareholder request and to investigate the basis of such claim. The Trustees
shall be entitled to retain counsel or other advisers in considering the merits
of the request and shall 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.
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.
Fiscal Year. The fiscal year of the Series shall end on a specified date as set
forth in the By-laws; provided that different Series may have different fiscal
years. The Trustees may change the fiscal year of any Series without Shareholder
approval.
Severability. The provisions of this Declaration are severable. If the Trustees
determine, with the advice of counsel, that any provision hereof conflicts with
the 1940 Act, the regulated investment company provisions of the Internal
Revenue Code or with other applicable laws and regulations, the conflicting
provision shall be deemed never to have constituted a part of this Declaration;
provided, however, that such determination shall not affect any of the remaining
provisions of this Declaration or render invalid or improper any action taken or
omitted prior to such determination. If any provision hereof shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision only in such jurisdiction
and shall not affect any other provision of this Declaration.
Special Treatment of Holders of Shares of Same Class. Notwithstanding anything
else herein, in connection with the termination or reorganization of the Trust
or any Series or Class by way of merger, consolidation, the sale of all or
substantially all of the assets, or otherwise, the Trustees may classify the
holders of Shares of a Class into one or more separate groups by reference to
any facts or circumstances that the Trustees deem relevant in their sole
discretion and may provide for the mandatory treatment for Shares of the Class
held by particular groups of Shareholders that differs materially from the
treatment accorded other groups of Shareholders holding Shares of the same
Class, provided that (a) each group of holders of any Shares of a Class so
classified who are to receive the same treatment shall be entitled to vote as a
special class in respect of such termination or reorganization regardless of any
limitations stated in this Declaration or the By-laws on the voting rights of
any Class, and (b) such termination or reorganization shall be approved by a
majority of the outstanding voting securities (as defined in the 1940 Act) of
each such special class.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the date first written above.
/s/ Jeffrey A. Dalke
Jeffrey A. Dalke
as sole initial Trustee and not individually
Exhibit (b)(5)
BY-LAWS
OF
NORTHERN FUNDS
DEFINITIONS
All capitalized terms have the respective meanings given them in the
Agreement and Declaration of Trust of Northern Funds (the "Trust") dated
February 7, 2000, as amended or restated from time to time.
OFFICES
Principal Office. Until changed by the Trustees, the principal office of the
Trust shall be in Chicago, Illinois. A separate principal office may be
designated with respect to any Series of the Trust.
Other Offices. The Trust may have offices in such other places without as well
as within the State of Delaware as the Trustees may from time to time determine.
Registered Office and Registered Agent. The Board of Trustees shall establish a
registered office in the State of Delaware and shall appoint as the Trust's
registered agent for service of process in the State of Delaware an individual
resident of the State of Delaware or a Delaware corporation or a corporation
authorized to transact business in the State of Delaware; in each case the
business office of such registered agent for service of process shall be
identical with the registered Delaware office of the Trust.
SHAREHOLDERS
Meetings. Meetings of the Shareholders of the Trust or a Series or Class thereof
shall be held as provided in the Declaration at such place within or without the
State of Delaware as the Trustees shall designate.
Notice of Meetings. Notice of all meetings of the Shareholders, stating the
time, place and purposes of the meeting, shall be given by the Trustees by mail
or telegraphic or electronic means to each Shareholder at his address as
recorded on the register of the Trust mailed or transmitted at least seven (7)
days before the meeting provided, however, that notice of a meeting need not be
given to a Shareholder to whom such notice need not be given under the proxy
rules of the Commission under the 1940 Act and the Securities Exchange Act of
1934, as amended. Any adjourned meeting may be held as adjourned without further
notice. No notice need be given to any Shareholder who shall have failed to
inform the Trust of his current address or if a written waiver of notice,
executed before or after the meeting by the Shareholder or his attorney
thereunto authorized, is filed with the records of the meeting.
Organization. The Chairman of the Board, any Vice Chairman or the President, and
in their absence, any Vice President, and in their absence, any person chosen by
the Shareholders present shall call all meetings of the Shareholders to order
and shall act as chairman of such meetings, and the Secretary, and in his
absence any Assistant Secretary, shall act as secretary of all meetings of the
Shareholders but, in the absence of the Secretary and all Assistant Secretaries,
the presiding officer may appoint any other person to act as secretary of any
meeting.
Proxies. Subject to the provisions of the Declaration, every Person entitled to
vote for Trustees or on any other matter shall have the right to do so either in
person or by proxy, provided that either (i) an instrument authorizing such a
proxy to act is executed by the Shareholder in writing and dated not more than
eleven (11) months before the meeting, unless the instrument specifically
provides for a longer period or (ii) the Trustees adopt an electronic,
telephonic, computerized or other alternative to execution of a written
instrument authorizing the proxy to act which authorization is received not more
than eleven (11) months before the meeting. A proxy shall be deemed executed by
a Shareholder if the Shareholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission or otherwise) by the
Shareholder or the Shareholder's attorney-in-fact or other authorized agent. A
valid proxy that does not state that it is irrevocable shall continue in full
force and effect unless (i) revoked by the person executing it before the vote
pursuant to that proxy by a writing delivered to the Trust stating that the
proxy is revoked by a subsequent proxy executed by, or attendance at the meeting
and voting in person by, the person executing that proxy or revoked by such
person using any electronic, telephonic, computerized or other alternative means
authorized by the Trustees for authorizing the proxy to act; or (ii) written
notice of the death or incapacity of the maker of that proxy is received by the
Trust before the vote pursuant to that proxy is counted. A proxy with respect to
Shares held in the name of two or more Persons shall be valid if executed by any
one of them unless at or prior to exercise of the proxy the Trust receives a
specific written notice to the contrary from any of them. A proxy purporting to
be executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. Proxies shall be delivered to the Secretary of the
Trust or other person responsible for recording the proceedings before being
voted. Unless otherwise specifically limited by their terms, proxies shall
entitle the holder thereof to vote at any adjournment of a meeting. At all
meetings of the Shareholders, unless the voting is conducted by inspectors, all
questions relating to the qualifications of voters, the validity of proxies, and
the acceptance or rejection of votes shall be decided by the chairman of the
meeting. Except as otherwise provided herein or in the Declaration, all matters
relating to the giving, voting or validity of proxies shall be governed by the
General Corporation Law of the state of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.
Abstentions and Broker Non-Votes. Outstanding Shares represented in person or by
proxy (including Shares which abstain or do not vote with respect to one or more
of any proposals presented for Shareholder approval) will be counted for
purposes of determining whether a quorum is present at a meeting. Abstentions
will be treated as Shares that are present and entitled to vote for purposes of
determining the number of Shares that are present and entitled to vote with
respect to any particular proposal, but will not be counted as a vote in favor
of such proposal. If a broker or nominee holding Shares in "street name"
indicates on the proxy that it does not have discretionary authority to vote as
to a particular proposal, those Shares will not be considered as present and
entitled to vote with respect to such proposal.
Inspection of Records. The records of the Trust shall be open to inspection by
Shareholders to the same extent as is permitted shareholders of a Delaware
business corporation.
TRUSTEES
Meetings of the Trustees. The Trustees may in their discretion provide for
regular or stated meetings of the Trustees. Notice of regular or stated meetings
need not be given. Meetings of the Trustees other than regular or stated
meetings shall be held whenever called by the President, the Chairman or by any
one of the Trustees, at the time being in office. Notice of the time and place
of each meeting other than regular or stated meetings shall be given by the
Secretary or an Assistant Secretary or by the officer or Trustee calling the
meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be given by telephone, cable, wireless, facsimile or other
electronic mechanism to each Trustee at his business address (or such other
location designated by the Trustee to an officer of the Trust), or personally
delivered to him at least one day before the meeting. Such notice may, however,
be waived by any Trustee. Notice of a meeting need not be given to any Trustee
if a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A notice or waiver of notice need not specify the purpose of any meeting.
Participation in a meeting held by telephone conference (or any other means
provided in the Declaration) shall constitute presence in person at such
meeting, and participation by such means (or any other means provided in the
Declaration) shall be deemed to have been held at a place designated by the
Trustees at the meeting. Any action required or permitted to be taken at any
meeting of the Trustees may be taken by the Trustees without a meeting if a
majority of the Trustees consent to the action in writing and the written
consents are filed with the records of the Trustees' meetings, except for the
approval of an Advisory Agreement or Rule 12b-1 Plan or other action that may
not be taken by written consent under the provisions of the 1940 Act. Such
consents shall be treated as a vote for all purposes.
Trustee Qualification. A Trustee shall cease to serve as a Trustee effective as
of the last calendar day in the semi-annual fiscal period of the Trust
(currently these periods end on March 31 and September 30) in which the earlier
of the following events occurs: (a) the date such Trustee attains the age of
seventy-three years; and (b) the twelfth anniversary of the date of such
Trustee's acceptance to serve as a trustee pursuant to Article II, Section 6 of
the Agreement and Declaration of Trust of Northern Funds.
COMMITTEES
Executive and Other Committees. The Trustees by vote of a majority of all the
Trustees may elect from their own number an Executive Committee to consist of
not fewer than two (2) members to hold office at the pleasure of the Trustees,
which shall have the power to conduct the current and ordinary business of the
Trust while the Trustees are not in session, including the purchase and sale of
securities and the designation of securities to be delivered upon redemption of
Shares of the Trust or a Series or Class thereof, and such other powers of the
Trustees as the Trustees may delegate to them, from time to time, except those
powers which by law, the Declaration or these By-laws they are prohibited from
delegating. The Trustees may also elect from their own number and from the
officers of the Trust other Committees from time to time; the number composing
such Committees, the powers conferred upon the same (subject to the same
limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees may
designate a chairman of any such Committee. In the absence of such designation
the Committee may elect its own Chairman. The creation of other committees,
including committees comprised of persons other than Trustees, and the
delegation of specific authority to one or more Trustees, may also be
accomplished as provided in the Declaration.
Meetings, Quorum and Manner of Acting. The Trustees, or in the absence of action
by the Trustees, the members of the particular Committee, may (1) provide for
stated meetings of a Committee, (2) specify the manner of calling and notice
required for special meetings of a Committee, (3) authorize the making of
decisions to exercise specified powers by written assent of the requisite number
of members of a Committee without a meeting , and (4) authorize the members of a
Committee to meet by means of conference telephone, teleconference or other
electronic media or communication equipment by means of which all persons
participating in the meeting can communicate with each other.
The Executive Committee, if constituted, shall keep regular minutes of
its meetings and records of decisions taken without a meeting and cause them to
be recorded in a book designated for that purpose and kept in the office of the
Trust.
OFFICERS
General Provisions. The officers of the Trust shall be a President, a Treasurer
and a Secretary, who shall be elected by the Trustees. The Trustees may elect or
appoint such other officers or agents as the business of the Trust may require,
including one or more Vice Presidents, one or more Assistant Secretaries, and
one or more Assistant Treasurers. The Trustees may delegate to any officer or
committee the power to appoint any subordinate officers or agents.
Term of Office and Qualifications. Except as otherwise provided by law, the
Declaration or these By-laws, the President, the Treasurer, the Secretary and
any other officer shall each hold office at the pleasure of the Board of
Trustees or until his successor shall have been duly elected and qualified. Any
two or more offices may be held by the same person. Any officer may be but none
need be a Trustee or Shareholder.
Removal. The Trustees may remove any officer with or without cause, by a vote of
a majority of the Trustees then in office. Any officer or agent appointed by an
officer or committee may be removed with or without cause by such appointing
officer or committee.
Powers and Duties of the President. The President may call meetings of the
Trustees and of any Committee thereof when he deems it necessary and shall
preside at all meetings of the Shareholders. Subject to the control of the
Trustees and to the control of any Committees of the Trustees, within their
respective spheres, as provided by the Trustees, he shall at all times exercise
a general supervision and direction over the affairs of the Trust and shall be
the chief executive officer of the Trust. He shall have the power to employ
attorneys and counsel for the Trust or any Series or Class thereof and to employ
such subordinate officers, agents, clerks and employees as he may find necessary
to transact the business of the Trust or any Series or Class thereof. He shall
also have the power to grant, issue, execute or sign such powers of attorney,
proxies or other documents as may be deemed advisable or necessary in
furtherance of the interests of the Trust or any Series thereof. The President
shall have such other powers and duties as from time to time may be conferred
upon or assigned to him by the Trustees.
Powers and Duties of Vice Presidents. In the absence or disability of the
President, the Vice President or, if there be more than one Vice President, any
Vice President designated by the Trustees, shall perform all the duties and may
exercise any of the powers of the President, subject to the control of the
Trustees. Each Vice President shall perform such other duties as may be assigned
to him from time to time by the Trustees and the President.
Powers and Duties of the Treasurer. The Treasurer shall be the principal
financial and accounting officer of the Trust. He shall deliver all funds of the
Trust or any Series or Class thereof which may come into his hands to such
Custodian as the Trustees may employ. He shall render a statement of condition
of the finances of the Trust or any Series or Class thereof to the Trustees as
often as they shall require the same and he shall in general perform all the
duties incident to the office of a Treasurer and such other duties as from time
to time may be assigned to him by the Trustees and the President.
Powers and Duties of the Secretary. The Secretary shall keep the minutes of all
meetings of the Trustees and of the Shareholders in proper books provided for
that purpose; he shall have custody of the seal of the Trust; he shall have
charge of the Share transfer books, lists and records unless the same are in the
charge of a transfer agent. He shall attend to the giving and serving of all
notices by the Trust in accordance with the provisions of these By-laws and as
required by law; and subject to these By-laws, he shall in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the Trustees and the President.
Powers and Duties of Assistant Officers. In the absence or disability of the
Treasurer, any Assistant Treasurer or other officer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer or other officer shall perform such other
duties as from time to time may be assigned to him by the Trustees and the
Treasurer. Each officer performing the duties and exercising the powers of the
Treasurer, if any, and any Assistant Treasurer, shall give a bond for the
faithful discharge of his duties, if required so to do by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
Powers and Duties of Assistant Secretaries. In the absence or disability of the
Secretary, any Assistant Secretary designated by the Trustees shall perform all
the duties, and may exercise any of the powers, of the Secretary. Each Assistant
Secretary shall perform such other duties as from time to time may be assigned
to him by the Trustees or the Secretary.
Compensation of Officers and Trustees and Members of the Advisory Board.
Subject to any applicable provisions of the Declaration, the compensation of the
officers and Trustees and members of an advisory board shall be fixed from time
to time by the Trustees or, in the case of officers, by any Committee or officer
upon whom such power may be conferred by the Trustees. No officer shall be
prevented from receiving such compensation as such officer by reason of the fact
that he is also a Trustee.
FISCAL YEAR
The fiscal years of the Series of the Trust shall end on the date in
each year as set forth in the Trust's Registration Statement on Form N-lA, as
amended from time to time; provided that in the absence of such designation, the
fiscal year of any Series shall end on March 31st of each year; provided,
however, that the Trustees may from time to time change the fiscal years of any
one or more Series. The taxable year of each Series of the Trust shall be as
determined by the Trustees or officers of the Trust from time to time.
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
SUFFICIENCY OF NOTICE
A notice shall be deemed to have been sent by mail, telegraph, cable,
wireless, facsimile or other electronic means for the purposes of these By-laws
when it has been deposited with the U.S. Postal Service with prepaid postage or
delivered to a representative of any company holding itself out as capable of
sending notice by such means with instructions that it be so sent.
AMENDMENTS
Except as otherwise provided by applicable law or by the Declaration,
these By-laws may be amended, restated, supplemented or repealed by the
Trustees.
END OF BY-LAWS
Exhibit (b)(6)
NORTHERN FUNDS
(a Delaware business trust)
By-Law Amendment No. 1
Adopted on May 2, 2000
ARTICLE IV
Trustees
* * *
RESOLVED, that Article IV, Section 2 of the By-Laws of Northern Funds be, and
hereby is, amended as set forth below:
Section 2. Trustee Qualification. Effective December 31, 2001, a Trustee shall
retire and cease to serve as a Trustee as of the last day of the calendar year
in which the Trustee attains the age of seventy-two years.
Exhibit (d)(12)
NORTHERN FUNDS
ADDENDUM NO. 10 TO THE INVESTMENT ADVISORY AGREEMENT
----------------------------------------------------
This Addendum, dated as of the 8th day of February, 2000, is entered into
between NORTHERN FUNDS (the "Trust"), a Massachusetts business trust, and THE
NORTHERN TRUST COMPANY (the "Investment Adviser"), an Illinois state bank.
WHEREAS, the Trust and the Investment Adviser have entered into an
Investment Advisory and Ancillary Services Agreement dated as of April 1, 1994
as amended by Addendum No. 1 dated November 29, 1994, by Addendum No. 2 dated
March 29, 1996, by Addendum No. 3 dated August 7, 1996, by Addendum No. 4 dated
March 24, 1997, by Addendum No. 5 dated February 12, 1997, by Addendum No. 6
dated November 18, 1997, by Addendum No. 7 dated December 21, 1998, by Addendum
No. 8 dated September 15, 1999 and Addendum No. 9 dated December 28, 1999 (the
"Advisory Agreement") pursuant to which the Trust has appointed the Investment
Adviser to act as investment adviser to the Trust for the Money Market Fund,
U.S. Government Money Market Fund, Municipal Money Market Fund, U.S. Government
Select Money Market Fund, California Municipal Money Market Fund, U.S.
Government Fund, Fixed Income Fund, Intermediate Tax-Exempt Fund, Tax-Exempt
Fund, International Fixed Income Fund, Income Equity Fund, Growth Equity Fund,
Select Equity Fund, Small Cap Fund, International Growth Equity Fund,
International Select Equity Fund, Technology Fund, Stock Index Fund,
Short-Intermediate U.S. Government Fund, California Intermediate Tax-Exempt
Fund, Arizona Tax-Exempt Fund, California Tax-Exempt Fund, Florida Intermediate
Tax-Exempt Fund, Small Cap Index Fund, Mid Cap Growth Fund, High Yield Municipal
Fund, High Yield Fixed Income Fund, Tax-Exempt Money Market Fund, Small Cap
Growth Fund and the MarketCommand Fund; and
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 Investment Adviser to act as investment
adviser under the Advisory Agreement, the Trust shall so notify the Investment
Adviser in writing and if the Investment Adviser is willing to render such
services it shall notify the Trust in writing, and the compensation to be paid
to the Investment Adviser shall be that which is agreed to in writing by the
Trust and the Investment Adviser; and
WHEREAS, pursuant to Section 1(b) of the Advisory Agreement, the Trust has
notified the Investment Adviser that it is establishing the Global
Communications Fund (the "Fund"), and that it desires to retain the Investment
Adviser to act as the investment adviser for the Fund and the Investment Adviser
has notified the Trust that it is willing to serve as investment adviser for the
Fund;
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Appointment. The Trust hereby appoints the Investment Adviser to
-----------
act as investment adviser to the Trust for the Fund in accordance with the terms
set forth in the Advisory Agreement. The Investment Adviser hereby accepts such
appointment and agrees to render the services set forth in the Advisory
Agreement for the compensation herein provided.
2. Compensation. For the services provided and the expenses assumed
------------
pursuant to the Advisory Agreement regarding the Fund, the Trust will pay the
Investment Adviser, and the Investment Adviser will accept as full compensation
therefor from the Trust, a fee at the annual rate of 1.25% of the Global
Communications Fund's average net assets.
3. Capitalized Terms. From and after the date hereof, the term
-----------------
"Current Funds" as used in the Advisory Agreement shall be deemed to include the
Fund. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Advisory Agreement.
4. Miscellaneous. The initial term of the Advisory Agreement with
-------------
respect to the Fund shall continue, unless sooner terminated in accordance with
the Advisory Agreement, until March 31, 2001. 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.
All signatures need not appear on the same copy of this Addendum.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as
of the date and year first above written.
NORTHERN FUNDS
Attest: __________________ By: /s/Jylanne M. Dunne
Title: President
THE NORTHERN TRUST COMPANY
Attest: __________________ By: /s/Archibald E. King
Title: Senior Vice President
-2-
Exhibit (e)(3)
AMENDED AND RESTATED
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BY AND BETWEEN
NORTHERN FUNDS
AND
NORTHERN FUNDS DISTRIBUTORS, LLC
DATED FEBRUARY 8, 2000
Intending to be legally bound, the undersigned hereby amend and restate
Schedule A to the aforesaid Agreement to include the following investment
portfolios:
Money Market Fund International Fixed Income Fund
U.S. Government Money Market Fund High Yield Municipal Fund
U.S. Government Select Money Market Fund High Yield Fixed Income Fund
Tax-Exempt Money Market Fund Income Equity Fund
Municipal Money Market Fund Stock Index Fund
California Municipal Money Market Fund Growth Equity Fund
U.S. Government Fund Select Equity Fund
Short-Intermediate U.S. Government Fund Mid Cap Growth Fund
Intermediate Tax-Exempt Fund Small Cap Index Fund
California Intermediate Tax-Exempt Fund Small Cap Fund
Florida Intermediate Tax-Exempt Fund Small Cap Growth Fund
Fixed Income Fund International Growth Equity Fund
Tax-Exempt Fund International Select Equity Fund
Arizona Tax-Exempt Fund Technology Fund
California Tax-Exempt Fund MarketCommand Fund
Global Communications Fund
All signatures need not appear on the same copy of this Amended and
Restated Schedule A.
NORTHERN FUNDS
By: /s/Jylanne M. Dunne
Title: President
Date: February 8, 2000
NORTHERN FUNDS DISTRIBUTORS, LLC
By: /s/Philip H. Rinnander
Title: President
Date: February 8, 2000
Exhibit (g)(15)
NORTHERN FUNDS
ADDENDUM NO. 2 TO THE FOREIGN CUSTODY AGREEMENT
-----------------------------------------------
This Addendum No. 2, dated as of the 8th day of February,
2000, is entered into between NORTHERN 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 Foreign Custody
Agreement dated April 1, 1994, as amended by Addendum No. 1 dated as of April 1,
1998 (the "Agreement"), pursuant to which the Trust has appointed Northern to
act as custodian to the Trust for its International Growth Equity, International
Select Equity and International Fixed Income Funds (collectively, the "Funds");
and
WHEREAS, the Trust is establishing the Global Communications Fund (the "New
Fund"), and it desires to retain Northern to act as custodian therefor under the
Foreign Custody Agreement, and Northern is willing to so act; and
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 New Fund for the period and on the terms set forth in
the Foreign Custody Agreement. Northern hereby accepts such
appointment and agrees to render the services set forth in the Foreign
Custody Agreement for the compensation therein provided.
3. Capitalized Terms. From and after the date hereof, the term "Funds"
-----------------
as used in the Foreign Custody Agreement shall be deemed to include
the International Growth Equity Fund, International Select Equity
Fund, International Fixed Income Fund and the Global Communications
Fund. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the foreign Custody 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
date and year first above written.
NORTHERN FUNDS
Attest: _____________ By: /s/Brian R. Curran
Name: _______________ Name: Brian R. Curran
Title: Vice President and Treasurer
THE NORTHERN TRUST COMPANY
Attest: _____________ By: /s/William H. Belden III
Name: _______________ Name: William H. Belden III
Title: Vice President
Exhibit (h)(15)
NORTHERN FUNDS
ADDENDUM NO. 10 TO THE TRANSFER AGENCY AGREEMENT
------------------------------------------------
This Addendum, dated as of the 8th day of February, 2000, is entered into
between NORTHERN FUNDS (the "Trust"), a Massachusetts business trust, and THE
NORTHERN TRUST COMPANY, an Illinois state bank (the "Transfer Agent").
WHEREAS, the Trust and the Transfer Agent have entered into a Transfer
Agency Agreement dated as of April 1, 1994 as amended by Addendum No. 1 dated
November 29, 1994, by Addendum No. 2 dated March 29, 1996, by Addendum No. 3
dated August 7, 1996, by Addendum No. 4 dated March 24, 1997, by Addendum No. 5
dated February 12, 1997, by Addendum No. 6 dated November 18, 1997, Addendum No.
7 dated December 21, 1998, by Addendum No. 8 dated September 15, 1999 and by
Addendum No. 9 dated December 28, 1999 (the "Transfer Agency Agreement")
pursuant to which the Trust has appointed the Transfer Agent to act as transfer
agent to the Trust for the Money Market Fund, U.S. Government Money Market Fund,
Municipal Money Market Fund, U.S. Government Select Money Market Fund,
California Municipal Money Market Fund, U.S. Government Fund, Fixed Income Fund,
Intermediate Tax-Exempt Fund, Tax-Exempt Fund, International Fixed Income Fund,
Income Equity Fund, Growth Equity Fund, Select Equity Fund, Small Cap Fund,
International Growth Equity Fund, International Select Equity Fund, Technology
Fund, Stock Index Fund, Florida Intermediate Tax-Exempt Fund, Short-Intermediate
U.S. Government Fund, California Intermediate Tax-Exempt Fund, Arizona
Tax-Exempt Fund, California Tax-Exempt Fund, Small Cap Index Fund, Mid Cap
Growth Fund, High Yield Municipal Fund, High Yield Fixed Income Fund, Tax-Exempt
Money Market Fund, Small Cap Growth Fund and the MarketCommand Fund; and
WHEREAS, the Trust is establishing the Global Communications Fund (the
"Fund"), and the Trust desires to retain the Transfer Agent under the terms of
the Transfer Agency Agreement to render transfer agency and other services with
respect to the Fund and the record and/or beneficial owners of the Fund, 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 Fund in accordance with the terms 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
------------------
Funds" as used in the Transfer Agency Agreement shall be deemed to
include the Fund. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Transfer
Agency Agreement.
3. Miscellaneous. The initial term of the Transfer Agency Agreement with
-------------
respect to the Fund shall continue, unless sooner terminated in
accordance with the Transfer Agency Agreement, until March 31, 2001.
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
date and year first above written.
All signatures need not appear on the same copy of this Addendum.
NORTHERN FUNDS
Attest: ____________________ By: /s/Jylanne M. Dunne
Title: President
THE NORTHERN TRUST COMPANY
Attest: ____________________ By: /s/Archibald E. King
Title: Senior Vice President
Exhibit (h)(16)
AMENDED AND RESTATED
SCHEDULE A
TO THE
CO-ADMINISTRATION AGREEMENT
BY AND BETWEEN
NORTHERN FUNDS,
THE NORTHERN TRUST COMPANY
AND
PFPC INC.
(formerly known as FIRST DATA INVESTOR SERVICES GROUP, INC.)
DATED FEBRUARY 8, 2000
Intending to be legally bound, the undersigned hereby amend and restate Schedule
A to the aforesaid Agreement to include the following investment portfolios:
Money Market Fund International Fixed Income Fund
U.S. Government Money Market Fund High Yield Municipal Fund
U.S. Government Select Money Market Fund High Yield Fixed Income Fund
Tax-Exempt Money Market Fund Income Equity Fund
Municipal Money Market Fund Stock Index Fund
California Municipal Money Market Fund Growth Equity Fund
U.S. Government Fund Select Equity Fund
Short-Intermediate U.S. Government Fund Mid Cap Growth Fund
Intermediate Tax-Exempt Fund Small Cap Index Fund
California Intermediate Tax-Exempt Fund Small Cap Fund
Florida Intermediate Tax-Exempt Fund Small Cap Growth Fund
Fixed Income Fund International Growth Equity Fund
Tax-Exempt Fund International Select Equity Fund
Arizona Tax-Exempt Fund Technology Fund
California Tax-Exempt Fund MarketCommand Fund
Global Communications Fund
All signatures need not appear on the same copy of this Amended and
Restated Schedule A.
NORTHERN FUNDS NORTHERN TRUST COMPANY
By: /s/Brian R. Curran By: /s/William H. Belden III
Title: Vice President and Treasurer Title: Vice President
Date: 5/9/00 Date: 5/10/00
PFPC INC.
By: /s/James L. Fox
Title: Vice Chairman
Date: 5/9/00
Exhibit (j)(1)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our Firm
under the caption "Counsel" in the Statement of Additional Information that is
included in Post-Effective Amendment No. 30 to the Registration Statement (No.
33-73404/811-8236) on Form N-1A of Northern Funds, under the Securities Act of
1933 and the Investment Company Act of 1940, respectively. This consent does not
constitute a consent under section 7 of the Securities Act of 1933, and in
consenting to the use of our name and the references to our Firm under such
caption we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
said section 7 or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/ DRINKER BIDDLE & REATH LLP
------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
May 12, 2000
Exhibit (l)(13)
PURCHASE AGREEMENT
------------------
Northern Funds (the "Trust"), a Massachusetts business trust, and Martin
C. Gawne hereby agree as follows:
1. The Trust hereby offers Martin C. Gawne, and Martin C. Gawne hereby
purchases, one share of the Trust's MarketPower Fund (the "Share") at $10 per
Share. The Trust hereby acknowledges receipt from Martin C. Gawne of funds in
full payment for the foregoing Share.
2. Martin C. Gawne represents and warrants to the Trust that the foregoing
Share is being acquired for investment purposes and not with a view to the
distribution thereof.
IN AGREEMENT WHEREOF, and intending to be legally bound hereby, the
parties hereto have executed this Agreement as of February 14, 2000.
NORTHERN FUNDS
By: /s/Jylanne M. Dunne
MARTIN C. GAWNE
/s/Martin C. Gawne
Exhibit (l)(14)
PURCHASE AGREEMENT
------------------
Northern Funds (the "Trust"), a Massachusetts business trust, and Brian R.
Curran hereby agree as follows:
1. The Trust hereby offers Brian R. Curran, and Brian R.Curran hereby
purchases, five shares of the Trust's Global Communications Fund (the "Shares")
at $10.00 per Share. The Trust hereby acknowledges receipt from Brian R. Curran
of funds in full payment for the foregoing Shares.
2. Brian R. Curran represents and warrants to the Trust that the foregoing
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
IN AGREEMENT WHEREOF, and intending to be legally bound hereby, the
parties hereto have executed this Agreement as of May 8, 2000.
NORTHERN FUNDS
By: /s/Jylanne M.Dunne
BRIAN R. CURRAN
/s/Brian R.Curran
Exhibit (l)(15)
PURCHASE AGREEMENT
------------------
Northern Funds (the "Trust"), a Massachusetts business trust, and Martin
C. Gawne hereby agree as follows:
1. The Trust hereby offers Martin C. Gawne, and Martin C. Gawne hereby
purchases, one share of the Trust's Tax-Exempt Money Market Fund (the "Share")
at $1.00 per Share. The Trust hereby acknowledges receipt from Martin C. Gawne
of funds in full payment for the foregoing Share.
2. Martin C. Gawne represents and warrants to the Trust that the foregoing
Share is being acquired for investment purposes and not with a view to the
distribution thereof.
IN AGREEMENT WHEREOF, and intending to be legally bound hereby, the
parties hereto have executed this Agreement as of February 14, 2000.
NORTHERN FUNDS
By: /s/Jylanne M. Dunne
MARTIN C. GAWNE
/s/Martin C. Gawne
Exhibit (o)(1)
NORTHERN FUNDS
(the "Company")
CODE OF ETHICS
Legal Requirement.
Rule 17j-1(a) under the Investment Company Act of 1940, as amended (the
"1940 Act"), makes it unlawful for any officer or trustee of the Company or of
its investment advisers or distributor (as well as other persons) in connection
with the purchase or sale by such person of a security "held or to be acquired"
by the Company:
To employ any device, scheme or artifice to defraud the Company; To make to the
Company any untrue statement of a material fact or omit to state to the Company
a material fact necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading; To engage in any act,
practice, or course of business which operates or would operate as a fraud or
deceit upon the Company; or To engage in any manipulative practice with respect
to the Company's investment portfolios.
Purpose of the Code of Ethics.
The Company expects that its officers and trustees will conduct their
personal investment activities in accordance with (1) the duty at all times to
place the interests of the Company's shareholders first, (2) the requirement
that all personal securities transactions be conducted consistent with this Code
of Ethics and in such a manner as to avoid any actual or potential conflict of
interest or any abuse of an individual's position of trust and responsibility,
and (3) the fundamental standard that investment company personnel should not
take inappropriate advantage of their positions.
In view of the foregoing, the provisions of Section 17(j) of the 1940
Act, the "Report of the Advisory Group on Personal Investing" issued by the
Investment Company Institute on May 9, 1994 and the Securities and Exchange
Commission's September 1994 Report on "Personal Investment Activities of
Investment Company Personnel," the Company's Board of Trustees has determined to
adopt this Code of Ethics on behalf of the Company to specify a code of conduct
for certain types of personal securities transactions which might involve
conflicts of interest or an appearance of impropriety, and to establish
reporting requirements and enforcement procedures.
The Company expects that its investment advisers and distributor will
adopt separate codes of ethics for their directors, officers and personnel that
are consistent with the purpose of this Code and applicable regulations.
Definitions.
An "Access Person" means: (1) each trustee or officer of the Company; (2) each
employee (if any) of the Company (or of any company in a control relationship to
the Company) who in connection with his or her regular functions or duties,
makes, participates in, or obtains information regarding the purchase or sale of
a security by the Company or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (3) any natural
person in a control relationship to the Company who obtains information
concerning recommendations made to the Company with regard to the purchase or
sale of a security.
For purposes of this Code of Ethics, an "Access Person" does
not include any person who is subject to the codes of ethics adopted by the
Company's investment advisers or principal underwriter in compliance with Rule
17j-1 of the 1940 Act and Rule 204-2(a)(12) of the Investment Advisers Act of
1940 or Section 15(f) of the Securities Exchange Act of 1934, as applicable.
"Restricted Trustee" or "Restricted Officer" means each trustee or officer of
the Company who is not also a director, officer, partner, employee or
controlling person of the Company's investment advisers, custodian, transfer
agent, or distributor. An Access Person's "immediate family" includes a spouse,
minor children and adults living in the same household as the Access Person. A
security is "held or to be acquired" if within the most recent 15 days it (1) is
or has been held by the Company, or (2) is being or has been considered by the
Company or either of its investment advisers for purchase by the Company. A
purchase or sale includes the writing of an option to purchase or sell. "Exempt
Security" means: Securities which the Company's investment portfolios are not
permitted to purchase under the investment objectives and policies set forth in
the Company's then current prospectus(es) under the Securities Act of 1933 or
the Company's registration statement on Form N-1A. Securities issued by the
Government of the United States (i.e., U.S. Treasury securities), short-term
debt securities which are "government securities" within the meaning of section
2(a)(16) of the 1940 Act (which includes securities of the U.S. Government and
its instrumentalities), bankers' acceptances, bank certificates of deposit,
commercial paper, and shares of registered open-end investment companies.
Securities purchased or sold in any account over which the Access Person has no
direct or indirect influence or control. Securities purchased or sold in a
transaction which is non-volitional on the part of either the Access Person or
the Company. Securities acquired as a part of an automatic dividend reinvestment
plan. Securities acquired upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired.
Policies of the Company Regarding Personal Securities Transactions.
General Policy.
No Access Person of the Company shall engage in any act,
practice or course of business that would violate the provisions of Rule
17j-1(a) set forth above, or in connection with any personal investment
activity, engage in conduct inconsistent with this Code of Ethics.
Specific Policies. Restrictions on Personal Securities Transactions By Access
Persons Other Than Restricted Trustees and Restricted Officers. No Access Person
who is not a Restricted Trustee or Restricted Officer may buy or sell securities
other than Exempt Securities for his or her personal portfolio or the portfolio
of a member of his or her immediate family without obtaining oral authorization
from the compliance officer ("Compliance Officer") of The Northern Trust Company
("Northern") prior to effecting such security transaction. A written
authorization for such security transaction will be provided by the Compliance
Officer of Northern to the person receiving the authorization (if granted) to
memorialize the oral authorization that was granted.
Note: If an Access Person has questions as to whether
purchasing or selling a security for his or her personal portfolio or the
portfolio of a member of his or her immediate family requires prior oral
authorization, the Access Person should consult the Compliance Officer of
Northern for clearance or denial of clearance to trade prior to effecting any
securities transactions.
Pre-clearance approval under paragraph (a) will expire at the close of business
on the fifth trading day after the date on which oral authorization is received,
and the Access Person is required to renew clearance for the transaction if the
trade is not completed before the authority expires. No clearance will be given
to an Access Person other than a Restricted Trustee or Restricted Officer to
purchase or sell any security (1) on a day when any portfolio of the Company has
a pending "buy" or "sell" order in that same security until that order is
executed or withdrawn or (2) when the Compliance Officer of Northern has been
advised by an investment adviser that the same security is being considered for
purchase or sale for any portfolio of the Company. Restrictions on Personal
Securities Transactions by Restricted Trustees and Restricted Officers. The
Company recognizes that a Restricted Trustee and a Restricted Officer do not
have on-going, day-to-day involvement with the operations of the Company. In
addition, it has been the practice of the Company to give information about
securities purchased or sold by the Company or considered for purchase or sale
by the Company to Restricted Trustees and Restricted Officers in materials
circulated more than 15 days after such securities are purchased or sold by the
Company or are considered for purchase or sale by the Company. Accordingly, the
Company believes that less stringent controls are appropriate for Restricted
Trustees and Restricted Officers, as set forth below in paragraph V.A.
Procedures.
In order to provide the Company with information to enable it to determine with
reasonable assurance whether the provisions of this Code are being observed by
its Access Persons: Each Access Person of the Company other than a Restricted
Trustee or Restricted Officer shall direct his or her broker to supply to the
Compliance Officer of Northern, on a timely basis, duplicate copies of
confirmations of all securities transactions in which the person has, or by
reason of such transaction acquires any direct or indirect beneficial ownership
and copies of periodic statements for all securities accounts. Each Access
Person of the Company, other than a trustee who is not an "interested person"
(as defined in the 1940 Act), shall submit reports in the form attached hereto
as Exhibit A to the Compliance Officer of Northern, showing all transactions in
securities other than Exempt Securities in which the person has, or by reason of
such transaction acquires, any direct or indirect beneficial ownership. Such
reports shall indicate each transaction in a security where the Access Person
knew at the time of the transaction or, in the ordinary course of fulfilling his
or her official duties as a trustee or officer, should have known that during
the 15-day period immediately preceding or after the date of the transaction,
such security was purchased or sold, or such security was being considered for
purchase or sale, by the Company. Such reports shall be filed no later than 10
days after the end of each calendar quarter. Each trustee who is not an
"interested person" of the Company shall submit the same quarterly report as
required under paragraph 2 to the Compliance Officer of Northern, but only for a
transaction in a security other than an Exempt Security where he or she knew at
the time of the transaction or, in the ordinary course of fulfilling his or her
official duties as a trustee, should have known that during the 15-day period
immediately preceding or after the date of the transaction, such security was
purchased or sold, or such security was being considered for purchase or sale,
by the Company. First Data Investor Services Group, Inc. shall notify each
Access Person of the Company who may be required to make reports pursuant to
this Code that such person is subject to this reporting requirement and shall
deliver a copy of this Code to each such person. The Company's investment
advisers and principal underwriter shall adopt, maintain and enforce separate
codes of ethics with respect to their personnel in compliance with Rule 17j-1
and Rule 204-2(a)(12) of the Investment Advisers Act of 1940 or Section 15(f) of
the Securities Exchange Act of 1934, as applicable. The Compliance Officer of
Northern shall: review all reports required to be made by the Company's "Access
Persons" pursuant to this Code, and as appropriate compare the reports with the
pre- clearance authorizations received; maintain copies of this Code of Ethics
and the names of the persons who are required to report their securities
transactions pursuant to the Code; keep all reports submitted by Access Persons
pursuant to this Code in a safe and secure location, and shall not disclose the
reports or their contents to any person except as necessary to perform the
responsibilities of Compliance Officer; submit to the Chairman of the Board of
Trustees of the Company within 60 days after the end of each calendar quarter a
written report listing (i) any transaction that appears to evidence a possible
violation of this Code, or (ii) any apparent violation of the reporting
requirements stated herein; and promptly investigate any securities transaction
listed pursuant to subparagraph (d)(i) above and submit periodic status reports
with respect to each such investigation to the Chairman of the Board of Trustees
of the Company. The Compliance Officers of each of the Company's investment
advisers and principal underwriter, respectively, shall: maintain copies of the
codes of ethics adopted by such investment advisers and principal underwriter
and the names of the persons who are required to report their securities
transactions pursuant to such codes; submit to the Board of Trustees of the
Company within 60 days after the end of each calendar quarter a written report
listing any transaction that constituted a violation of the code of ethics
adopted by the Company's investment advisers or principal underwriter and the
disciplinary actions3 taken in response to such violation. At each quarterly
Board of Trustees' meeting the Chairman of the Board of Trustees of the Company
shall report on any reported securities transaction that occurred during the
prior quarter that appears to have been inconsistent with the provisions of this
Code. The Board shall consider reports made to it hereunder and shall determine
whether the policies established in this Code have been violated, and what
sanctions, if any, should be imposed on the violator, including but not limited
to a letter of censure, suspension or termination of the employment of the
violator, or the unwinding of the transaction and the disgorgement of any
profits to the Company. The Board shall review the operation of this Code at
least once a year. At least once a year, the Company's investment advisers and
principal underwriter shall provide to the Board a report which contains (a) a
summary of existing procedures concerning personal investing by their access
persons and any changes in the procedures during the past year and (b) an
evaluation of current compliance procedures and a report on any recommended
changes in existing restrictions or procedures based upon the Company's
experience under this Code, industry practices, or developments in applicable
laws and regulations. This Code, the codes of the investment advisers and
principal underwriter, a copy of each report by an Access Person, any written
report hereunder by the Company's investment advisers or principal underwriter
and lists of all persons required to make reports shall be preserved with the
Company's records for the period required by Rule 17j-1.
Certification.
Each Access Person will be required to certify annually that he or she
has read and understood this Code of Ethics, and will abide by them. Each Access
Person will further certify that they have disclosed or reported all personal
securities transactions required to be disclosed or reported under the Code of
Ethics. A form of such certification is attached hereto as Exhibit B.
Adopted: September 15, 1999 orthern Funds Board of Trustees
Effective as of: October 1, 1999
Exhibit A
NORTHERN FUNDS
(the "Company")
Securities Transaction Report
For the Calendar Quarter Ended December 31, 1999
To: Compliance Officer of the Northern Trust Company
During the quarter referred to above, the following
transactions were effected in securities of which I had, or by reason of such
transactions acquired, direct or indirect beneficial ownership, and which are
required to be reported pursuant to the Code of Ethics of the Company:
Number of Nature of Broker/Dealer
Shares or Dollar Amount Transaction or Bank
Date of Principal of (Purchase, Through Whom
Security Transaction Amount Transaction Sale, Other) Price
Effected
* Indicates a transaction in a security where I knew at the time of the
transaction or, in the ordinary course of fulfilling my official duties as a
trustee or officer, should have known that during the 15-day period immediately
preceding or after the date of the transaction, such security was purchased or
sold, or such security was being considered for purchase or sale, by the
Company.
This report (i) excludes transactions with respect to which I
had no direct or indirect influence or control, (ii) excludes other transactions
not required to be reported, and (iii) is not an admission that I have or had
any direct or indirect beneficial ownership in the securities listed above.
Signature:
Print Name:
Exhibit B
NORTHERN FUNDS
(the "Company")
ANNUAL CERTIFICATE
Pursuant to the requirements of the Code of Ethics of the
Company, the undersigned hereby certifies as follows:
1. I have read the Company's Code of Ethics.
2. I understand the Code of Ethics and acknowledge that I am subject to it.
3. Since the date of the last Annual Certificate (if any)
given pursuant to the Code of Ethics, I have reported all personal securities
transactions required to be reported under the requirements of the Code of
Ethics.
Date: __________________________________
Print Name
Signature
Exhibit (o)(2)
CODE OF ETHICS OF
THE NORTHERN TRUST COMPANY AND NORTHERN TRUST QUANTITATIVE ADVISERS, INC.
AS INVESTMENT ADVISERS TO
REGISTERED INVESTMENT COMPANIES
This Code of Ethics ("the Code") has been adopted by The Northern Trust
Company and Northern Trust Quantitative Advisers, Inc. (collectively,
"Northern") in compliance with Rule 17j-1(b)(1) promulgated by the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940. That
rule requires each investment adviser of a registered investment company to
adopt a written code of ethics. In certain respects the Code imposes
requirements that exceed those imposed by law.
The purpose of the Code is to establish general principles governing
the conduct of Northern's employees in connection with Northern's services as
investment adviser to registered investment companies, and to establish
procedures to enhance compliance with those general principles and, in
particular, to prevent Access Persons from engaging in any act, practice, or
course of business prohibited by SEC Rule 17j-1(a).
For the purposes of the Code, an Access Person is a Northern employee
who, with respect to any registered investment company for which Northern serves
as investment adviser (an "Investment Company"), (1) makes any recommendation,
participates in the determination of which recommendation shall be made, or
whose principal function or duties relate to the determination of which
recommendation shall be made to an Investment Company; or (2) who, in connection
with his or her duties, obtains any information concerning securities
recommendations being made by Northern to an Investment Company. For purposes of
the Code, an "Investment Person" -- which is a subcategory of all Access Persons
- -- is a Northern employee who (1) is engaged in the management of securities
held by an Investment Company as a portfolio manager, co-manager or member of
the portfolio management team, whether or not that person is primarily engaged
in the management of other accounts (hereinafter a "Portfolio Manager"); or (2)
is engaged in investment research or fixed income research activities related to
securities held or to be acquired by an Investment Company; or (3) is engaged in
trade execution activities for Investment Company securities.
Rule 17j-1(a) renders it unlawful for any affiliated person of an
investment adviser of a registered investment company, in connection with the
purchase or sale, directly or indirectly, by such person of a security held or
to be acquired1 by such registered investment company --
To employ any device, scheme or artifice to defraud such registered investment
company;
To make to such registered investment company any untrue statement of a material
fact or omit to state to such registered investment company a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading;
To engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon such registered investment company; or
To engage in any manipulative practice with respect to such registered
investment company.
Part I
General Principles
A. The Code governs the conduct of each Access Person of Northern.
B. All Access Persons shall act at all times to give priority to the interests
of each Investment Company and to the interests of the shareholders of each
Investment Company. All Access Persons shall conduct all personal securities
transactions consistent with the Code and in such manner as to avoid any actual
or potential conflict of interest or any abuse of the Access Person's position
of trust and responsibility with respect to any Investment Company. A
fundamental principle underlying the Code is that no Access Person should take
any inappropriate advantage of his or her position. In addition, Access Persons
are generally discouraged from engaging in short-term speculative trading,
excessive trading and trading which interferes with an employee's job
responsibilities. Compliance with the Code is a condition of employment of each
Access Person. Violation of any of the foregoing principles or of any other
specific provision of the Code is grounds for disciplinary action, including
termination of employment.
C. No Access Person shall engage in any of the conduct prohibited by Rule
17j-1(a), quoted above, in connection with an Investment Company.
D. Access Persons are subject to and must comply with the policy on Gifts,
Bequests, Meals, Entertainment and Loans from Client or Vendors to Staff Members
contained in the Northern Trust Corporation Guidelines Relating to Standards of
Conduct.
E. An Access Person should not serve as a member of a board of directors of a
publicly- held company. Exceptions to this policy require the written approval
of the Access Person's Business Unit Head or President.
F. Each Access Person shall certify annually on the prescribed form that he or
she has read and understood the Code, recognizes that he or she is subject
thereto, has complied with the Code, including the securities trading provisions
in Part II thereof, and will continue to comply with the Code so long as he or
she remains an Access Person.
G. The Chief Investment Officer of Northern shall designate a Review Officer who
shall review all reports of securities holdings and securities transactions
submitted pursuant to the Code or to Rule 17j-1 in order to seek to identify any
possible violation of the Code. The Review Officer shall report any apparent
violation of the Code to Northern's Chief Compliance Officer for appropriate
action.
H. Northern shall preserve in an easily accessible place:
(i) a copy of the predecessor of the Code, the Code and any amendments to the
Code for a period of five years after it was last in effect;
(ii) a record of any violation of the Code and of any action taken as a result
of such violation, for a period of five years from the end of the fiscal year in
which the violation occurred;
(iii) a copy of each report made by an Access Person pursuant to Rule 17j-1 for
a period of five years from the end of the fiscal year in which the report was
made; and
(iv) a list of all persons who are, or within the prior five years have been,
required to make reports pursuant to Rule 17j-1 and a list of all persons
responsible for reviewing such reports.
I. All questions of interpretation of provisions of the Code shall be submitted
in writing to and resolved by the General Counsel or his designee2 ("Legal
Counsel") and resolved by Legal Counsel. Pending resolution of any issue
submitted to Legal Counsel, any uncertainty about the scope of any provision of
the Code should be resolved in favor of a broader rather than narrower
interpretation. The General Counsel also reserves the right in appropriate
circumstances to grant waivers from any requirements under this Code.
Part II
Provisions Regarding Personal Securities Transactions
The following provisions pertain to securities transactions in all
accounts of an Access Person (including accounts of an Investment Person or a
Portfolio Manager whenever specifically indicated). For purposes of these
provisions, the accounts of a person include all accounts in the name of the
person, all accounts of the person's spouse, all accounts of any minor children
or other relatives (by marriage or otherwise) living in the person's home and
all such accounts in which any of the foregoing persons has any beneficial
ownership interest or over which he or she exercises control or investment
influence. References in this Part II to transactions by a person refer to
transactions in any account of the person as defined in this paragraph.
Limitations on the scope of the meaning of "all accounts of an Access Person" in
the circumstances of a particular person may be made in writing by Legal Counsel
upon the written request of an Access Person. Any such request shall set forth
in reasonable detail the facts and circumstances, and shall include an
explanation why the requested limitations will not enable the person to
circumvent the objectives of the Code.
A. All securities accounts of an Access Person shall be maintained at Northern
Trust Securities, Inc. ("NTSI"), or at another brokerage firm selected by the
Access Person, provided that notice pursuant to the prescribed form has been
provided by the Access Person to the Review Officer before placing any orders.
B. Duplicate confirmations for all transactions and duplicate statements for all
accounts of an Access Person, whether or not all such accounts are maintained at
NTSI, shall be provided by the broker/dealer directly to the Review Officer, who
shall review all such information to assure that each Access Person has complied
with the Code in all respects.
C. Each Access Person shall inform the Review Officer, using the prescribed
form, of all securities (whether or not publicly traded) in which the Access
Person has any beneficial ownership not later than ten (10) days after
commencing employment. Not later than January 30 each year, each Access Person
shall provide the Review Officer with a list of all securities (whether or not
publicly traded) in which the Access Person had any beneficial ownership as of
the preceding December 31. In lieu of a separate listing of holdings, where all
securities in question are held in an account with a broker-dealer, another bank
or other custodian, the Access Person may provide written certification of the
accuracy and completeness of statements provided by the Investment Person's
agent(s). An Access Person may exclude from such lists all securities of the
types described in footnote 4. The concept of beneficial ownership is defined in
footnote 5.
D. No Access Person shall engage in any securities transaction without prior
approval by the Review Officer. Requests for approval shall be submitted on the
prescribed form. The purpose of this "preclearance" requirement is to foster
compliance with other provisions of the Code. The preclearance requirement does
not apply to purchases of debt obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities; high quality short-term
debt instruments, including but not limited to, bankers' acceptances, bank
certificates of deposit, commercial paper and repurchase agreements; shares of
registered open-end investment companies; and securities issued by Northern
Trust Corporation. Each approval for a proposed transaction shall be valid until
5 p.m. Central Time on the first day the financial markets are open for trading
following the day of approval.
E. The foregoing prohibition on the purchase of securities without prior
approval does extend to securities purchased in a private placement. The
purchase of securities in a private placement by an Investment Person must be
approved in writing by the Chief Investment Officer ("CIO"). In determining
whether an Investment Person's purchase of privately placed securities will be
approved, the CIO shall take into account, among other factors, whether the
investment opportunity should be reserved for an Investment Company and whether
the investment opportunity is being offered to the Investment Person by virtue
of his or her relationship to an Investment Company. The purchase of securities
in a private placement by the CIO must be approved in writing by the CIO's
immediate supervisor.
F. The fact of an Investment Person's ownership of privately placed securities
shall be disclosed to the CIO at any time when, to the knowledge of the
Investment Person, an Investment Company is considering the purchase or sale of
other securities issued by the issuer of the privately placed securities. This
separate disclosure must be made even though the Investment Person has
previously disclosed the ownership of the privately placed securities in
compliance with Parts II.C and II.E of the Code. No Investment Person may
participate in any investment decision on behalf of an Investment Company which
involves the issuer of securities whose privately placed securities are held by
the Investment Person without first disclosing in writing the fact of his or her
ownership of the privately placed securities to the CIO and the Review Officer.
The CIO shall determine whether the proposed investment is consistent with the
Investment Company's investment objectives and is consistent with the best
interests of the Investment Company before the Investment Company may purchase
the security. The CIO's determination shall be in writing and forwarded to the
Review Officer.
G. Restrictions Applicable to all Access Persons:
No Access Person shall purchase any equity securities issued as part of an
initial public offering until three business days after the public offering
date.
No Access Person shall engage in a securities transaction at a time when an
Investment Company has a pending "buy" or "sell" order in that same security
until that order is executed or withdrawn.
No Access Person shall purchase or sell any security for a period of five
business days after the security has been added to the Guidance List, the
Institutional List or the International List. In addition, no Access Person
shall purchase or sell any security for a period of five business days after the
internal rating on a security within the Guidance List has moved away from
Neutral in either direction.
No Access Person shall engage in a securities transaction when the Access Person
knows at the time of the transaction that such security is being considered for
purchase or sale by an Investment Company.
H. In addition to the restrictions contained in Part II. G. above, no Portfolio
Manager shall engage in a securities transaction during the period beginning
seven calendar days before and ending seven calendar days after the day on which
an Investment Company managed, co-managed or for which the individual is part of
the portfolio management team has purchased or sold that same security.
I. The foregoing prohibitions on transactions by Access Persons and by Portfolio
Managers do not apply where the Investment Company in question limits its
investments to purchases of securities or derivatives for the purpose of
replicating a major stock or bond index.3
J. For purposes of the foregoing prohibitions, "securities transaction" does not
include a transaction in debt obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities; high quality short-term
debt instruments, including but not limited to bankers' acceptances, bank
certificates of deposit, commercial paper and repurchase agreements, and shares
of registered open-end investment companies.
K. Personal securities transactions by Access Persons in stocks of companies
with market capitalization of $50 billion or more at the time of purchase or
sale are not subject to the blackout periods or pending buy or sell order
restrictions noted in Parts II G 2, 3 and 4 and H, above. However, such
transactions are still subject to the preclearance requirement noted in Part II
D, above.
L. Any profit realized as a result of any transaction that is not in compliance
with Part II of the Code must be disgorged to the Northern Trust Company
Charitable Trust for such disposition as such Charitable Trust determines in its
sole discretion.
M. In addition to the disgorgement penalty and consistent with the general
principles set forth in Part I, above, if review of an Access Person's personal
trading activity detects any abuse, appropriate disciplinary action may be
taken. Such action may include, but is not limited to, restricting the Access
person's ability to conduct personal securities transactions, imposing holding
periods on securities acquired by the Access Person or terminating the employee.
N. SEC Rule 17j-1(c) requires that each Access Person shall provide Northern
with the following information with respect to transactions in any security4 in
which such Access Person has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership5 in the security:
(i) The date of the transaction, the title and the number of shares, and the
principal amount of each security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any other type of
acquisition or disposition)
(iii) The price at which the transaction was effected; and
(iv) The name of the broker, dealer or bank with or through whom the transaction
was effected.
Northern shall inform each Access Person who is under a duty to make
such reports. These reports must state the date the report is submitted and must
be submitted within 10 days after the end of the calendar quarter in which the
transaction to which the report relates was effected. Northern will accept in
lieu of such report duplicate trade confirmations and monthly accounts
statements, provided they contain the required information and are received
within the required time frame.
Revised: December 1999
22037
Footnotes
1 For these purposes, a security held or to be acquired by a registered
investment company is a security which, within the most recent 15 days, is or
has been held by the investment company or is being or has been considered by
it, or by Northern as adviser, for purchase by the investment company, and
includes an option to purchase or sell such a security.
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2 Any written communication provided for under the Code may be accomplished by
facsimile or electronic transmission.
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3 It should be noted, however, that the "blackout" periods specified in Part II
do not supersede, but rather supplement, the general prohibitions against
deceptive, fraudulent and manipulative practices in connection with securities
held or to be acquired by a registered investment company. See footnote 1 on
page 1.
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4 For purposes of this requirement, "security" does not include securities
issued by the Government of the United States, bankers' acceptances, bank
certificates of deposit, commercial paper and shares of registered open-end
investment companies.
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5 A person is a "beneficial owner" of a security for purposes of the Code and
Rule 17j-1 if he or she, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in the securities. A pecuniary interest means the
opportunity, directly or indirectly, to profit or share in any profit derived
from a transaction in the subject securities. An indirect pecuniary interest
includes, but is not limited to: (1) securities held by members of a person's
immediate family sharing the same household; (2) a general partner's
proportionate interest in the portfolio securities held by a general or limited
partnership; (3) a person's right to dividends that is separated or separable
from the underlying securities; (4) a person's interest in securities held by a
trust; and (5) a person's right to acquire securities through the exercise or
conversion of any derivative security, whether or not presently exercisable. An
indirect pecuniary interest would include, for example, the right of a Northern
employee to acquire Northern stock pursuant to an employee stock option.
. You will be treated as the "beneficial owner" of a security under this policy
only if you have a direct or indirect pecuniary interest in the security.
(a) A direct pecuniary interest is the opportunity, directly or
indirectly, to profit, or to share the profit, from the transaction.
(b) An indirect pecuniary interest is any nondirect financial interest,
but is specifically defined in the rules to include securities held by members
of your immediate family sharing the same household; securities held by a
partnership of which you are a general partner; securities held by a trust of
which you are the settlor if you can revoke the trust without the consent of
another person, or a beneficiary if you have or share investment control with
the trustee; and equity securities which may be acquired upon exercise of an
option or other right, or through conversion.
For interpretive guidance on this test, you should consult counsel. . See
footnote 1 above. 3 Disciplinary action may include but is not limited to any
action that has a material financial effect upon the indivdual involved, such as
fining, suspending, or demoting an employee, imposing a substantial fine or
requiring the disorgement of profits.
Name and Principal
Name and Position Business Address Connection with
with Investment Adviser of Other Company Other Company
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