As filed electronically with the Securities and Exchange Commission
on November 1, 1996
Securities Act File No. 33-64915
Investment Company Act File No. 811-7447
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5
HARRIS INSIGHT FUNDS TRUST
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(Exact Name of Registrant as Specified in Charter)
60 State Street, Boston, MA 02109
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(Address of Principal Executive Offices including Zip Code)
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Registrant's Telephone Number, including Area Code: (800) 982-8782
Name and Address of Agent for Service: Copies to:
John E. Pelletier, Esq. Cameron S. Avery, Esq.
Harris Insight Funds Trust Bell, Boyd & Lloyd
60 State Street Three First National Plaza
Boston, MA 02109 Chicago, IL 60602
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b), or
[ ] on _______________ pursuant to paragraph (b),
[ ] 60 days after filing pursuant to paragraph (a),
[X ] 75 days after filing pursuant to paragraph (a),
[ ] on _______________ pursuant to paragraph (a) 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.
Registrant has previously elected to register an indefinite number of shares of
beneficial interest under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. In accordance with Rule 24f-2, a
registration fee in the amount of $500.00 has previously been paid. Registrant
will file a Rule 24f-2 notice for the most recent fiscal year of its various
portfolios on or before 60 days from its fiscal year end of December 31, 1996.
CROSS REFERENCE SHEET
Pursuant to Rule 495 (b)
under the Securities Act of 1933
(Prospectus offering Harris Insight Small-Cap Value Fund)
<TABLE>
<CAPTION>
N-1A Item No.
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Part A Location
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<S> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Expense Table
Item 3. Condensed Financial Information Calculation of Yield and Total Return
Item 4. General Description of Registrant Cover Page; Investment Objective and
Policies; Investment Strategies;
Investment Limitations; Highlights;
Organization and Beneficial Interest
Item 5. Management of the Fund Management
Item 6. Capital Stock and Other Securities Cover Page; Dividends and Distributions;
Federal Income Taxes; Account Services;
Organization and Beneficial Interest
Item 7. Purchase of Securities Being Offered Management; Determination of Net Asset
Value; Purchase of Shares; Exchange
Privilege; Service Plan
Item 8. Redemption or Repurchase Redemption of Shares; Exchange Privilege
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
(SAI offering Harris Insight Small-Cap Value Fund)
<TABLE>
<CAPTION>
N-1A Item No.
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Part B Location
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<S> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Strategies; Investment
Restrictions; Portfolio Transactions
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Holders Management; Organization and Beneficial
of Securities Interest (Prospectus)
Item 16. Investment Advisory and Other Services Management; Service Plan; Custodian;
Independent Accountants
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Beneficial Interest
Item 19. Purchase, Redemption and Pricing of Determination of Net Asset Value
Securities Being Offered
Item 20. Tax Status Federal Income Taxes
Item 21. Underwriters Management; Service Plan
Item 22. Calculation of Performance Data Calculation of Yield and Total Return
Item 23. Financial Statements Not Applicable
</TABLE>
CROSS REFERENCE SHEET
Pursuant to Rule 495 (b)
under the Securities Act of 1933
Part A
(All other Prospectuses)
Not Applicable in this Filing
Part B
(All other SAIs)
Not Applicable in this Filing
HARRIS INSIGHT SMALL-CAP VALUE FUND
HARRIS INSIGHT FUNDS
60 State Street, Suite 1300, Boston, Massachusetts 02109
Telephone: (800) 982-8782
The Harris Insight Funds Trust (the "Trust"), currently offers shares
representing interests in twelve mutual funds. This Prospectus describes two
classes of shares ("Shares") of the Trust's Harris Insight Small-Cap Value Fund
(the "Fund"), a fund investing in equity securities of smaller to medium
capitalization companies. The Fund's investment objective is to provide capital
appreciation.
Harris Trust and Savings Bank is the Fund's Investment Adviser and Harris
Investment Management, Inc., a subsidiary of Harris Bankcorp, Inc., acts as the
Fund's Portfolio Management Agent. Shares of the Fund are offered by Funds
Distributor, Inc., the distributor of the Trust's Shares.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. Please read and retain it for future
reference. A Statement of Additional Information dated ______, 1996, containing
more detailed information about the Fund has been filed with the Securities and
Exchange Commission (the "Commission") and (together with any supplements
thereto) is incorporated by reference into this Prospectus. The Statement of
Additional Information and the most recent financial statements may be obtained
without charge by writing or calling the Trust at the address and telephone
number printed above. The Commission maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information and other information
regarding the Fund. Separate Prospectuses for the other investment portfolios
offered by the Trust may be obtained without charge by writing or calling the
Trust at the address and telephone number printed above.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. AN
INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS COMMUNICATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATES.
1
TABLE OF CONTENTS
PAGE
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Expense Table ..........................................................3
Highlights .............................................................4
Investment Objective and Policies ......................................5
Investment Strategies ..................................................6
Investment Limitations ................................................12
Management ............................................................12
Determination of Net Asset Value ......................................15
Purchase of Shares ....................................................16
Redemption of Shares ..................................................17
Service Plan ..........................................................18
Dividends and Distributions ...........................................19
Federal Income Taxes ..................................................19
Account Services ......................................................19
Organization and Beneficial Interest...................................20
Reports to Shareholders ...............................................20
Calculation of Yield and Total Return .................................21
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND INFORMATION OR
REPRESENTATIONS NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OF ANY SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE
UNLAWFUL.
2
EXPENSE TABLE
Expenses and fees payable by Class A and Institutional shareholders are
summarized in this table and presented as a percentage of average net assets.
The following table illustrates the expenses and fees expected to be
incurred by an investment in each of the two classes of shares of the Fund.
<TABLE>
<CAPTION>
CLASS A INSTITUTIONAL
SHARES SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases 4.50% None
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net assets)
Advisory Fees .80% .80%
Rule 12b-1 Fees .25% None
Other Expenses .19% .19%
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Total Fund Operating Expenses 1.24% 0.99%
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* With respect to each class of shares of the Fund, the amount of "Other
Expenses" in the table above is based on estimated expenses and projected assets
of approximately [$__] million for the current fiscal year. Customers of a
financial institution, such as Harris Trust and Savings Bank ("Harris Trust"),
may be charged certain fees and expenses by their institution. These fees may
vary depending on the capacity in which the institution provides fiduciary and
investment services to the particular client (e.g., personal trust, estate
settlement, advisory and custodian services).
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) a
hypothetical 5% gross annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
CLASS A INSTITUTIONAL
SHARES SHARES
<S> <C> <C>
1 year $57 $10
3 years $83 $32
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
The purpose of the expense table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For more information concerning the various costs and expenses, see
"Management."
3
HIGHLIGHTS
At least 65% of the Fund's assets will be invested in equity securities of
smaller to medium capitalization companies.
HARRIS INSIGHT SMALL-CAP VALUE FUND seeks to provide capital appreciation
by investing, under normal circumstances, at least 65% of the value of its total
assets in equity securities of smaller to medium capitalization companies (i.e.,
with market capitalizations between $100 million and $2.5 billion).
WHO MANAGES THE FUND'S INVESTMENTS?
Harris Trust and Savings Bank ("Harris Trust" or the "Investment Adviser")
is the investment adviser for the Fund. Harris Trust has provided investment
management service to clients for over 100 years. Harris Trust provides
investment services for pension, profit-sharing and personal portfolios. As of
December 31, 1995, assets under management totaled approximately $12 billion.
Harris Investment Management, Inc. ("HIM" or the "Portfolio Management
Agent") provides daily portfolio management services to the Fund. HIM and its
predecessors have managed client assets for over 80 years. HIM has a staff of
96, including 64 professionals, providing investment expertise to the management
of Harris Insight Funds and for pension, profit-sharing and institutional
portfolios. As of December 31, 1995, assets under management exceeded $13
billion. Each of Harris Trust and HIM is a subsidiary of Harris Bankcorp, Inc.,
which in turn is a subsidiary of Bank of Montreal. See page 13.
WHAT ADVANTAGES DOES THE FUND OFFER?
The Fund is designed for individual and institutional investors. A single
investment in shares of the Fund gives the investor benefits customarily
available only to large investors, such as diversification of investments,
greater liquidity and professional management, block purchases of securities and
relief from bookkeeping, safekeeping of securities and other administrative
details.
WHEN ARE DIVIDENDS PAID?
Dividends from the Fund are declared and paid semi-annually. Any capital
gains distributions will be declared and paid annually. See page 19.
HOW ARE SHARES REDEEMED?
Shares may be redeemed at the Fund's next determined net asset value after
receipt of a request in proper form by the registered representative servicing
your account or the Distributor, or through any Service Agent. See page 17.
WHAT RISKS ARE ASSOCIATED WITH THE FUND?
The Fund's perfor-mance and price per share will change daily based on many
factors, including economic, market and exchange rate factors.
The Fund's performance and price per share will change daily based on many
factors, including the quality of the Fund's investments, U.S. and international
economic conditions, general market conditions and international exchange rates.
There is no assurance that the Fund will achieve its investment objective. See
"Investment Strategies."
4
INVESTMENT OBJECTIVE AND POLICIES
This section describes some of the securities that the Fund may purchase and
certain investment techniques that may be used to pursue its investment
objective.
The investment objective of the Fund is to provide investors with capital
appreciation. The Fund seeks to achieve its investment objective by investing,
under normal market conditions, at least 65% of the value of its total assets in
equity securities of smaller to medium capitalization companies (i.e., companies
with market capitalizations between $100 million and $2.5 billion) at the time
of purchase. The Fund is appropriate for investors able to assume above-average
risk. In investing the Fund's assets, the Portfolio Management Agent focuses on
securities that are conservatively valued in the marketplace relative to their
underlying fundamentals. The Portfolio Management Agent seeks to invest in
securities priced low relative to the securities of comparable companies,
determined by price/earnings ratios, earnings expectations or other measures.
In addition to investing in common stocks, the Fund may invest in preferred
stocks and securities convertible into or exchangeable for common stocks or
preferred stocks as well as securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities ("Government Securities") and
debt obligations of domestic corporations rated "Baa" or better by Moody's
Investors Service ("Moody's"), "BBB" or better by Standard & Poor's ("S&P") or
an equivalent rating by another nationally recognized statistical rating
organization at the time of purchase or, if not rated, considered by the
Portfolio Management Agent to be of comparable quality. Debt obligations rated
"BBB" by S&P, "Baa" by Moody's or the equivalent by such other rating
organization may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. In addition, the Fund may invest in securities purchased in an initial
public offering. The Fund also may invest in American Depositary Receipts
("ADRs"), European Depository Receipts ("EDRs") and, with respect to 10% of
total assets, debt and equity securities of foreign issuers. The Fund may
purchase and sell covered put and call options on securities, index and interest
rate futures contracts and options on futures contracts.
The Fund may invest, to the extent permitted by its investment policies, in
the securities of other investment companies, when-issued securities and forward
commitments, floating/variable rate obligations, as well as commercial paper,
short-term money market instruments and cash equivalents, such as certificates
of deposit, demand and time deposits and bankers' acceptance notes. In addition,
the Fund may enter into repurchase agreements.
The Fund may lend its portfolio securities with respect to up to one-third
of its net assets and may enter into reverse repurchase agreements.
Holdings of the Fund are continuously supervised and changes may be made if a
security no longer seems to meet the objective of the Fund.
Securities owned by the Fund are kept under continuing supervision, and
changes may be made whenever a security no longer seems to meet the objective of
the Fund. Portfolio changes also may be made to increase or decrease investments
in anticipation of changes in security prices in general or to provide funds
required for redemptions, distributions to shareholders or other corporate
purposes. Neither the length of time a security has been held nor the rate of
turnover of the Fund's portfolio is considered a limiting factor on such
changes. See "Investment Strategies -- Portfolio Turnover."
5
INVESTMENT STRATEGIES
These bond or debt securities may be collateralized by a pool of assets, such as
automobile loans, home equity loans, equipment leases or other obligations.
ASSET-BACKED SECURITIES. The Fund may purchase asset-backed securities,
which represent a participation in, or are secured by and payable from, a stream
of payments generated by particular assets which are most often a pool of assets
similar to one another. With respect to asset-backed securities purchased by the
Fund, assets generating payments will consist of motor vehicle installment
purchase obligations, credit card receivables, home equity loans, equipment
leases, manufactured housing loans and marine loans. In accordance with
guidelines established by the Board of Trustees, asset-backed securities may be
considered illiquid securities and, therefore, may be subject to the Fund's 15%
limitation on such investments.
The estimated life of an asset-backed security varies with prepayment
experience with respect to underlying debt instruments. The rate of such
prepayments, and therefore the life of the asset-backed security, will be
primarily a function of current market interest rates, although other economic
and demographic factors may be involved. In periods of falling interest rates,
the rate of prepayments tends to increase. During such period, the reinvestment
of prepayment proceeds by the Fund will generally be at lower rates than the
rates that were carried by the obligations that have been prepaid. Because of
these and other reasons, an asset-backed security's total return may be
difficult to predict precisely. If the Fund purchases asset-backed securities at
a premium, prepayments may result in some loss of the Fund's principal
investment to the extent of the premium paid.
COMMON AND PREFERRED STOCK. The Fund may invest in common and preferred
stock. Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company,
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, in the alternative, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company.
Equity securities owned by the Fund may be traded in the over-the-counter
market or on a securities exchange and may not be traded every day or in the
volume typical of securities traded on a major U.S. national securities
exchange. As a result, disposition by the Fund of a portfolio security to meet
redemptions by shareholders or otherwise may require the Fund to sell these
securities at a discount from market prices, to sell during periods when
disposition is not desirable, or to make many small sales over a lengthy period
of time. The market value of all securities, including equity securities, is
based upon the market's perception of value and not necessarily the book value
of an issuer or other objective measure of a company's worth.
Convertible bonds, debentures, and notes are debt obligations offering a stated
interest rate; convertible preferred stocks are senior securities offering a
stated dividend rate.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities.
Because convertible securities have the characteristics of both fixed-income
securities and common stock, they are sometimes called "hybrid" securities.
Convertible bonds, debentures and notes are debt obligations offering a stated
interest rate; convertible preferred stocks are senior securities offering a
stated dividend rate. Convertible securities will at times be priced in the
market like other fixed-income securities: that is, their prices will tend to
rise when interest rates decline and will tend to fall when interest rates rise.
However, because a convertible security provides an option to the holder to
exchange the security for either a specified number of the issuer's common
shares at a stated price per share or the cash value of such common shares, the
security market price will tend to fluctuate in relation to the price
6
of the common shares into which it is convertible. Thus, convertible securities
ordinarily will provide opportunities both for producing current income and
longer term capital appreciation. Because convertible securities are usually
viewed by the issuer as future common stock, they are generally subordinated to
other senior securities and therefore are rated one category lower than the
issuer's non-convertible debt obligations or preferred stock.
The Fund may purchase instruments having a floating or variable rate of
interest.
FLOATING AND VARIABLE RATE INSTRUMENTS. The Fund may purchase instruments
having a floating or variable rate of interest. These obligations bear interest
at rates that are not fixed, but vary with changes in specified market rates or
indices, such as the prime rate, or at specified intervals. Certain of these
obligations may carry a demand feature that would permit the holder to tender
them back to the issuer at par value prior to maturity. The Fund will limit its
purchases of floating and variable rate obligations to those of the same quality
as it otherwise is allowed to purchase.
A floating or variable rate instrument may be subject to the Fund's
percentage limitation on illiquid investments if there is no reliable trading
market for the investment or if the Fund may not demand payment of the principal
amount within seven days.
FOREIGN SECURITIES. The Fund may invest up to 10% of its total assets in
dollar-denominated foreign equity and debt securities. The Fund may also invest
in ADRs and EDRs. ADRs are certificates issued by a U.S. depository (usually a
bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. EDRs are typically issued
by foreign banks and trust companies (although they may also be issued by U.S.
banks or trust companies) and evidence ownership of underlying securities issued
by either a foreign or a U.S. corporation. Investment in foreign securities
involves certain considerations that are not typically associated with investing
in U.S. securities. Investments in foreign securities typically involve higher
transaction costs than investments in U.S. securities. Foreign investments may
have risks associated with currency exchange rates, less complete financial
information about the issuers, less market liquidity and political instability.
Future political and economic developments, possible imposition of withholding
taxes on income, seizure or nationalization of foreign holdings, establishment
of exchange controls or the adoption of other governmental restrictions might
adversely affect the payment of principal and interest on foreign obligations.
In addition, foreign banks and foreign branches of domestic banks may be subject
to less stringent reserve requirements and to different accounting, auditing and
recordkeeping requirements than domestic banks.
Forward foreign currency exchange contracts allow the purchase and sale of a
fixed quantity of a foreign currency at a future date.
FORWARD CONTRACTS. The Fund may enter into forward foreign currency
exchange contracts for the purchase and sale of a fixed quantity of a foreign
currency at a future date ("Forward Contracts"). The Fund may enter into Forward
Contracts for hedging purposes as well as non-hedging purposes. By entering into
transactions in Forward Contracts, however, the Fund may be required to forego
the benefits of advantageous changes in exchange rates and, in the case of
Forward Contracts entered into for non-hedging purposes, the Fund may sustain
losses which will reduce its gross income. The Fund may also enter into a
Forward Contract on one currency in order to hedge against risk of loss arising
from fluctuations in the value of a second currency (referred to as a "cross
hedge") if, in the judgment of the Portfolio Management Agent, a reasonable
degree of correlation can be expected between movements in the values of the two
currencies. Forward Contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves certain
risks beyond those associated with transactions in futures contracts or options
traded on exchanges. The Fund has established procedures consistent with
statements of the Commission and its staff regarding the use of Forward
Contracts by registered investment companies, which require use of segregated
assets or "cover" in connection with the purchase and sale of such securities.
7
GOVERNMENT SECURITIES. Government Securities consist of obligations issued
or guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises.
The Fund will not invest more than 15% of the value of its net assets in
securities that are considered illiquid.
ILLIQUID SECURITIES. The Fund will not invest more than 15% of the value of
its net assets in securities that are considered illiquid. Repurchase agreements
and time deposits that do not provide for payment to the Fund within seven days
after notice or which have a term greater than seven days are deemed illiquid
securities for this purpose (unless such securities are variable amount master
demand notes with maturities of nine months or less or unless the Portfolio
Management Agent or Investment Adviser has determined under the supervision and
direction of the Trust's Board of Trustees that an adequate trading market
exists for such securities or that market quotations are readily available).
The Fund may also purchase Rule 144A securities sold to institutional
investors without registration under the Securities Act of 1933 and commercial
paper issued in reliance upon the exemption in Section 4(2) of the Securities
Act of 1933. These securities may be determined to be liquid in accordance with
guidelines established by the Portfolio Management Agent and Investment Adviser
and approved by the Trust's Board of Trustees. The Board of Trustees will
monitor the Investment Adviser's implementation of these guidelines on a
periodic basis.
These securities may be used as a hedge against anticipated changes in the value
of securities that the Fund holds or intends to purchase, or as a hedge against
the Fund's cash position.
INDEX FUTURES CONTRACTS; OPTIONS ON INDICES; OPTIONS ON SECURITIES. The
Fund may attempt to reduce the risk of investments in equity securities by
hedging a portion of its portfolio through the use of futures contracts on
indices and options on such indices traded on national securities exchanges. The
Fund may attempt to reduce the risk of investment in debt securities by hedging
a portion of its portfolio through the use of interest rate futures and options
on such futures contracts. The Fund may use futures contracts and options on
such futures contracts as a hedge against anticipated changes in the values of
securities held in its portfolio or in the value of securities that it intends
to purchase. The Fund also may use index futures contracts as a hedge against
its cash position, simulating investment in the underlying index while retaining
a cash balance for fund management purposes.
The Fund may invest in covered put and covered call options and may write
covered put and covered call options on securities in which they may invest
directly and that are traded on registered domestic security exchanges or
over-the-counter.
The use of index and interest rate futures contracts and options may expose
the Fund to additional risks and transaction costs. Risks inherent in the use of
such instruments include (1) the risk that interest rates, securities prices or
currency markets will not move in the direction that the Portfolio Management
Agent anticipates; (2) the existence of an imperfect correlation between the
price of such instruments and movements in the prices of the securities,
interest rates or currencies being hedged; (3) the fact that skills needed to
use these strategies are different than those needed to select portfolio
securities; (4) the possible inability to close out certain hedged positions may
result in adverse tax consequences; (5) the possible absence of a liquid
secondary market for any particular instrument and possible exchange-imposed
price fluctuation limits, either of which may make it difficult or impossible to
close out a position when desired; (6) the leverage risk, that is, the risk that
adverse price movements in an instrument can result in a loss substantially
greater than the Fund's initial investment in that instrument (in some cases,
the potential loss is unlimited); and (7) particularly in the case of
privately-negotiated instruments, the risk that the
8
counterparty will fail to perform its obligations, which could leave the Fund
worse off than if it had not entered into the position.
When the Fund invests in index and interest rate futures contracts and
options, it may be required to segregate cash and other high-grade liquid assets
or certain portfolio securities to "cover" the Fund's position. Assets
segregated or set aside generally may not be disposed of as long as the Fund
maintains the positions requiring segregation or cover. Segregating assets could
diminish the Fund's return due to the opportunity losses of foregoing other
potential investments with the segregated assets.
See "Investment Strategies" in the Statement of Additional Information.
Subject to certain limitations, the Fund may invest in the securities of other
investment companies.
INVESTMENT COMPANY SECURITIES. In connection with the management of its
daily cash position, the Fund may invest in securities issued by investment
companies that invest in short-term debt securities (which may include municipal
obligations that are exempt from federal income taxes) and which seek to
maintain a $1.00 net asset value per share. The Fund may also invest in
securities issued by investment companies that invest in securities in which the
Fund could invest directly. Securities of other investment companies will be
acquired by the Fund within the limits prescribed by the Investment Company Act
of 1940, as amended (the "1940 Act"). These limit the Fund so that: (i) not more
than 5% of the value of its total assets will be invested in the securities of
any one investment company; (ii) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of investment companies
as a group; and (iii) not more than 3% of the outstanding voting stock of any
one investment company will be owned by the Fund or by the Trust as a whole. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations.
The Fund may lend to brokers, dealers and financial institutions securities from
its portfolio representing up to one-third of the Fund's net assets.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to brokers, dealers and
financial institutions securities from its portfolio representing up to
one-third of the Fund's net assets. However, such loans may be made only if cash
or cash equivalent collateral, including letters of credit, marked-to-market
daily and equal to at least 100% of the current market value of the securities
loaned (including accrued interest and dividends thereon) plus the interest
payable to the Fund with respect to the loan maintained by the borrower in a
segregated account. In determining whether to lend a security to a particular
broker, dealer or financial institution, the Portfolio Management Agent will
consider all relevant facts and circumstances, including the creditworthiness of
the broker, dealer or financial institution. The Fund will not enter into any
portfolio security lending arrangement having a duration longer than one year.
Any securities that the Fund may receive as collateral will not become part of
the Fund's portfolio at the time of the loan and, in the event of a default by
the borrower, the Fund will, if permitted by law, dispose of such collateral
except for such part thereof that is a security in which the Fund is permitted
to invest. During the time securities are on loan, the borrower will pay the
Fund any accrued income on those securities, and the Fund may invest the cash
collateral and earn additional income or receive an agreed upon fee from the
borrower. Loans of securities by the Fund will be subject to termination at the
Fund's or the borrower's option. The Fund may pay reasonable administrative and
custodial fees in connection with a securities loan and may pay a negotiated fee
to the borrower or the placing broker. Borrowers and placing brokers may
9
not be affiliated, directly or indirectly, with the Trust, the Investment
Adviser, the Portfolio Management Agent or the Distributor.
The Fund may invest in mortgage-backed securities, including collateralized
mortgage obligations.
MORTGAGE-RELATED SECURITIES. The Fund may invest in mortgage-backed
securities, including collateralized mortgage obligations ("CMOs") and
Government Stripped Mortgage-Backed Securities. CMOs are types of bonds secured
by an underlying pool of mortgages or mortgage pass-through certificates that
are structured to direct payments on underlying collateral to different series
or classes of obligations. To the extent that CMOs are considered to be
investment companies, investment in such CMOs will be subject to the percentage
limitation described above under "Investment Company Securities."
Government Stripped Mortgage-Backed Securities are mortgage-backed
securities issued or guaranteed by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA"), or Federal Home Loan
Mortgage Corporation ("FHLMC"). These securities represent beneficial ownership
interests in either periodic principal distributions ("principal-only") or
interest distributions ("interest-only") on mortgage-backed certificates issued
by GNMA, FNMA or FHLMC, as the case may be. The certificates underlying the
Government Stripped Mortgage-Backed Securities represent all or part of the
beneficial interest in pools of mortgage loans.
The Fund may purchase securities subject to an agreement by the seller to
repurchase them at a specified time and place.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The Fund may
purchase portfolio securities subject to the seller's agreement to repurchase
them at a mutually agreed upon time and price, which includes an amount
representing interest on the purchase price. The Fund may enter into repurchase
agreements only with respect to obligations that could otherwise be purchased by
the Fund. The seller will be required to maintain a segregated account for the
Fund cash or cash equivalent collateral equal to at least 100% of the purchase
price (including accrued interest). Default or bankruptcy of the seller would
expose the Fund to possible loss because of adverse market action, delays in
connection with the disposition of the underlying obligations or expenses of
enforcing its rights.
The Fund may borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
The Fund may not enter into a repurchase agreement or reverse repurchase
agreement if, as a result, more than 15% of the Fund's net assets would be
invested in repurchase agreements or reverse repurchase agreements with a
maturity of more than seven days and in other illiquid securities. The Fund will
enter into repurchase agreements and reverse repurchase agreements only with
registered broker/dealers and commercial banks that meet guidelines established
by the Trust's Board of Trustees.
10
These securities allow the Fund to purchase securities with the right, but not
the obligation, to sell the security at a specific price valid for a specific
period of time.
SECURITIES WITH PUTS. In order to maintain liquidity, the Fund may enter
into puts with respect to portfolio securities with banks or broker/dealers
that, in the opinion of the Portfolio Management Agent, present minimal credit
risks. The ability of the Fund to exercise a put will depend on the ability of
the bank or broker/dealer to pay for the underlying securities at the time the
put is exercised. In the event that a bank or broker/dealer defaults on its
obligation to repurchase an underlying security, the Fund might be unable to
recover all or a portion of any loss sustained by having to sell the security
elsewhere.
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in U.S. Government
Obligations which consist of bills, notes and bonds issued by the U.S. Treasury
and are backed by the full faith and credit of the U.S. They are direct
obligations of the U.S. Government and differ primarily in the length of their
maturities and payment of interest.
U.S. GOVERNMENT AGENCY AND INSTRUMENTALITY OBLIGATIONS. Obligations of U.S.
Government agencies and instrumentalities are debt securities issued by U.S.
Government-sponsored enterprises and federal agencies. Some of these obligations
are supported by: (a) the full faith and credit of the U.S. Treasury (such as
Government National Mortgage Association participation certificates); (b) the
limited authority of the issuer to borrow from the U.S. Treasury (such as
securities of the Federal Home Loan Bank); (c) the authority of the U.S.
Government to purchase certain obligations of the issuer (such as securities of
the Federal National Mortgage Association); or (d) the credit of the issuer
only. In the case of obligations not backed by the full faith and credit of the
U.S., the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment.
The Fund may invest up to 5% of its net assets in warrants.
WARRANTS. The Fund may invest up to 5% of its net assets at the time of
purchase in warrants (other than those that have been acquired in units or
attached to other securities) on securities in which it may invest directly.
Warrants represent rights to purchase securities at a specific price valid for a
specific period of time.
WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued
basis, in which case delivery and payment normally take place within 45 days
after the date of the commitment to purchase. The Fund will make commitments to
purchase securities on a when-issued basis only with the intention of actually
acquiring the securities, but may sell them before the settlement date, if
deemed advisable. The purchase price and the interest rate that will be received
are fixed at the time of the commitment. When-issued securities are subject to
market fluctuation, and no income accrues to the purchaser prior to issuance.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed upon purchase price.
The Fund will establish a segregated account in which it will maintain
liquid assets in an amount at least equal in value to the Fund's commitments to
purchase when-issued securities. If the value of these assets declines, the Fund
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is at least equal to the amount of the Fund's
commitments.
11
The Fund may invest in debt obligations that do not entitle the holder to
periodic interest payments prior to maturity and are issued and traded at a
discount.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities,
which are debt obligations that do not entitle the holder to any periodic
payments of interest prior to maturity and are issued and traded at a discount.
The values of zero coupon securities are subject to greater fluctuations than
are the values of income securities that distribute income regularly. Zero
coupon securities (which are not issued or guaranteed by the U.S. Government)
may be created by separating the interest and principal component of U.S.
Government Obligations or securities issued by private corporate issuers. In
addition, the Fund's investment in zero coupon securities will result in special
tax consequences. Although zero coupon securities do not make interest payments,
for tax purposes, a portion of the difference between the security's maturity
value and its purchase price is imputed to be income to the Fund each year.
Because imputed income must be paid to shareholders annually, the Fund may need
to borrow money or sell securities to meet certain dividend and redemption
obligations. In addition, the sale of securities by the Fund may increase its
expense ratio and decrease its rate of return.
PORTFOLIO TURNOVER. Although the Trust cannot accurately predict the
portfolio turnover rate of the Fund, it expects that Fund's annual turnover rate
generally will not exceed 80%. High portfolio turnover rates can result in
corresponding increases in brokerage commissions and other transaction costs,
which are borne directly by the Fund, and may result in the realization of
short-term capital gains that are taxable to shareholders as ordinary income.
The Portfolio Management Agent and Investment Adviser will not consider the rate
of portfolio turnover a limiting factor in making investment decisions
consistent with the Fund's investment objective and policies.
INVESTMENT LIMITATIONS
Unless otherwise noted, the foregoing investment objective and related
policies and activities of the Fund are not fundamental and may be changed by
the Board of Trustees of the Trust without the approval of the shareholders. If
there is a change in the Fund's investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs.
This paragraph outlines the Fund's policies that may be changed only by a
majority vote of shareholders.
As matters of fundamental policy, which may be changed only with approval by the
vote of the holders of a majority of the Fund's outstanding voting securities,
as described in the Statement of Additional Information, the Fund may not: (1)
purchase the securities of issuers conducting their principal business activity
in the same industry if, immediately after the purchase and as a result thereof,
the value of its investments in that industry would exceed 25% of the current
value of its total assets, provided that there is no limitation with respect to
investments in obligations of the U.S. Government, its agencies or
instrumentalities; (2) invest more than 5% of the current value of its total
assets in the securities of any one issuer, other than obligations of the U.S.
Government, its agencies or instrumentalities, except that up to 25% of the
value of the total assets of the Fund may be invested without regard to this
limitation; (3) purchase securities of an issuer if, as a result, with respect
to 75% of its total assets, it would own more than 10% of the voting securities
of such issuer; or (4) borrow from banks, except that it may borrow up to 10% of
the current value of its total assets for temporary purposes only in order to
meet redemptions, and these borrowings may be secured by the pledge of up to 10%
of the current value of the Fund's net assets (but investments may not be
purchased while borrowings are in excess of 5%). It is also a fundamental policy
that the Fund may make loans of portfolio securities, and invest up to 15% of
the current value of its net assets in repurchase agreements having maturities
of more than seven days, variable amount master demand notes having notice
periods of more than seven days, fixed time deposits subject to withdrawal
penalties having maturities of more than seven days, and securities that are not
readily marketable. The Fund considers the securities of foreign governments and
supra-national entities to be
12
separate industries for purposes of the 25% asset limits on investments in the
securities of issuers conducting their principal business activity in the same
industry.
MANAGEMENT
The Board of Trustees has overall responsibility for the conduct of the
affairs of the Fund and Trust. The members of the Board and their principal
occupations are as follows:
BOARD OF TRUSTEES
<TABLE>
<CAPTION>
<S> <C>
C. Gary Gerst Chairman of the Board of Trustees; Chairman Emeri-
tus, LaSalle Partners, Ltd. (real estate developer and
manager).
Edgar R. Fiedler Senior Fellow and Economic Counsellor, The Confer-
ence Board.
John W. McCarter, Jr. President and Chief Executive Officer, The Field Museum of
Natural History (Chicago); Senior Vice President and
former Director, Booz-Allen & Hamilton, Inc. (consulting
firm); Director of W.W. Grainger, Inc. and A.M. Castle,
Inc.
Ernest M. Roth Consultant; Retired Senior Vice President and Chief
Financial Officer, Commonwealth Edison Company.
</TABLE>
INVESTMENT ADVISER
The Fund has entered into an Advisory Contract with Harris Trust and
Savings Bank located at 111 West Monroe Street, Chicago, Illinois. The Advisory
Contract provides that Harris Trust is responsible for the supervision and
oversight of the Portfolio Management Agent's performance (as discussed below).
Harris Trust is the successor to the investment banking firm of N.W. Harris &
Co., organized in 1882, and was incorporated in 1907 under its present name. It
is an Illinois state-chartered bank and a member of the Federal Reserve System.
At December 31, 1995, Harris Trust had estimated assets under management of more
than $12 billion and was the largest of 14 banks owned by Harris Bankcorp, Inc.
Harris Bankcorp, Inc. is a wholly-owned subsidiary of Bankmont Financial Corp.,
which is a wholly-owned subsidiary of Bank of Montreal, a publicly traded
Canadian banking institution.
As of December 31, 1995, Harris Trust managed more than $9.4 billion in
personal trust assets, and acted as custodian of more than $164 billion in
assets.
For its services under the Advisory Contract with the Fund, Harris Trust is
entitled to receive monthly advisory fees at the annual rate of 0.80% of the
average daily net assets of the Fund.
PORTFOLIO MANAGEMENT AGENT
The Portfolio Management Agent, Harris Investment Management, Inc., provides
investment expertise to various portfolios and manages over $13 billion in
assets.
Harris Trust has entered into a Portfolio Management Contract with Harris
Investment Management, Inc., located at 190 South LaSalle Street, Chicago,
Illinois. Under the Portfolio Management Contract, HIM undertakes to furnish
investment guidance and policy direction in connection with the daily portfolio
management of the Fund. For the services provided by HIM, Harris Trust will pay
to HIM the advisory fees it receives from the Fund. As of December 31, 1995, HIM
managed an estimated $13.1 billion in assets.
13
Mr. Thomas M. Corkill, CFA, is portfolio manager of the Fund and, as such,
is primarily responsible for the day-to-day management of the Fund's portfolio.
Since 1990, he has served as Principal, Portfolio Manager and Equity Analyst for
HIM; he is also the portfolio manager of the Harris Insight Index Fund. Mr.
Corkill has 26 years of experience in portfolio management and research.
GLASS-STEAGALL ACT
The Glass-Steagall Act, among other things, generally prohibits federally
chartered or supervised banks from engaging to any extent in the business of
issuing, underwriting, selling or distributing securities, although bank holding
company subsidiaries such as Harris Trust and HIM are permitted to purchase and
sell securities upon the order and for the account of their customers.
It is the position of Harris Trust and HIM that they may perform the
services contemplated by the Advisory Contract, the Portfolio Management
Contract and this Prospectus without violation of the Glass-Steagall Act or
other applicable federal banking laws or regulations. It is noted, however, that
there are no controlling judicial or administrative interpretations or decisions
and that future judicial or administrative interpretations of, or decisions
relating to, present federal statutes and regulations relating to the
permissible activities of banks and their subsidiaries or affiliates, as well as
future changes in federal statutes or regulations and judicial or administrative
decisions or interpretations thereof, could prevent Harris Trust or HIM from
continuing to perform, in whole or in part, such services. If Harris Trust or
HIM were prohibited from performing any of such services, it is expected that
the Board of Trustees of the Trust would recommend to the Fund's shareholders
that they approve a new agreement with another entity or entities qualified to
perform such services and selected by the Board of Trustees.
To the extent permitted by the Commission, the Fund may pay brokerage
commissions to certain affiliated persons.
ADMINISTRATOR, CUSTODIAN AND TRANSFER AGENT
Harris Trust (the "Administrator") serves as the administrator of the
Fund and in that capacity generally assists the Fund in all aspects of its
administration and operation. Harris Trust also serves as the transfer and
dividend disbursing agent of the Fund (the "Transfer Agent").
The Administrator has entered into a Sub-Administration Agreement with
Funds Distributor, Inc. (the "Sub-Administrator"), pursuant to which the
Sub-Administrator performs certain administrative services for the Fund. The
Administrator has also entered into a Sub-Administration and Accounting Services
Agreement with PFPC Inc. ("PFPC" or the "Sub-Administrator and Accounting
Services Agent"). Under these Agreements, the Administrator compensates the
Sub-Administrator and the Sub-Administrator and Accounting Services Agent for
providing such services.
The Transfer Agent has entered into a Sub-Transfer Agency Services
Agreement with PFPC (the "Sub-Transfer Agent"), pursuant to which the
Sub-Transfer Agent performs certain transfer agency and dividend disbursing
agency services. Under this Agreement, the Transfer Agent compensates the
Sub-Transfer Agent for providing such services.
PNC Bank, N.A. (the "Custodian") serves as custodian of the assets of the
Fund. PFPC and the Custodian are indirect, wholly-owned subsidiaries of PNC Bank
Corp.
As compensation for their services, the Administrator, the Transfer
Agent and the Custodian are entitled to receive a combined fee based on the
aggregate average daily net
14
assets of the portfolios of HT Insight Funds, Inc. (the "Company") and the
Trust, payable monthly at an annual rate of .17% of the first $300 million of
average daily net assets; .15% of the next $300 million; and .13% of average net
assets in excess of $600 million. In addition, the Fund pays a separate fee to
the Sub-Transfer Agent for certain retail sub-transfer agent services and
reimburses the Custodian for various custody transactional expenses.
DISTRIBUTOR
Funds Distributor, Inc. (in this capacity, the "Distributor") has entered
into a Distribution Agreement with the Trust pursuant to which it has
responsibility for distributing shares of the Fund. The Distributor bears the
cost of printing and mailing prospectuses to potential investors and any
advertising expenses incurred by it in connection with the distribution of
shares, subject to the terms of the Service Plan described below and pursuant to
a contractual arrangement between the Trust and the Distributor and approved by
the Board of Trustees of the Trust.
See "Management" and "Custodian" in the Statement of Additional Information
for additional information regarding the Trust's Investment Adviser, Portfolio
Management Agent, Administrator, Custodian, Transfer Agent and Distributor.
EXPENSES
Except for certain expenses borne by the Distributor, Harris Trust and HIM,
the Trust bears all costs of its operations, including the compensation of its
Trustees who are not affiliated with Harris Trust, HIM or the Distributor or any
of their affiliates; advisory and administration fees; payments pursuant to any
Service Plan; interest charges; taxes; fees and expenses of its independent
accountants, legal counsel, transfer agent and dividend disbursing agent;
expenses of preparing and printing prospectuses (except the expense of printing
and mailing prospectuses used for promotional purposes, unless otherwise payable
pursuant to a Service Plan), shareholders' reports, notices, proxy statements
and reports to regulatory agencies; insurance premiums and certain expenses
relating to insurance coverage; trade association membership dues; brokerage and
other expenses connected with the execution of portfolio securities
transactions; fees and expenses of the Fund's custodian including those for
keeping books and accounts and calculating the net asset value per share of the
Fund; expenses of trustees' and shareholders' meetings; expenses relating to the
issuance, registration and qualification of shares of the Fund; pricing
services; organizational expenses; and any extraordinary expenses. Expenses
attributable to the Fund are charged against the assets of the Fund. Other
general expenses of the Trust are allocated among the Fund and the other funds
of the Trust in an equitable manner as determined by the Board of Trustees.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined daily.
Net asset value per share for the Fund is determined on each day that the
New York Stock Exchange ("NYSE") and the Federal Reserve Bank of Philadelphia
(the "Fed") are open for trading. For a list of the days on which the net asset
value will not be determined, see "Determination of Net Asset Value" in the
Statement of Additional Information. The net asset value per share of each class
of the Fund is determined by dividing the net assets of the Fund allocable to
that class by the total number of outstanding shares of that class.
The net asset value per share of the Fund is determined at the close of
regular trading on the NYSE on each day the Fund is open for business. The value
of securities owned by the Fund (other than bonds purchased by the Fund and debt
obligations maturing in 60 days or less) is determined based on the last sale
price on the principal exchange on which the securities are traded as of the
close of regular trading on the NYSE (which is currently 4:00 P.M., New York
City time). In the absence of any sale on the valuation date, the securities
15
are valued at the closing bid price. Securities traded only on over-the-counter
markets are valued at closing over-the-counter bid prices. Portfolio securities
which are primarily traded on foreign securities exchanges are generally valued
at the preceding closing values of such securities on their respective
exchanges, except when an occurrence subsequent to the time a value was so
established is likely to have changed such value. In such an event, the fair
value of those securities will be determined through the consideration of other
factors by or under the direction of the Board of Trustees. Bonds purchased by
the Fund are valued at the mean of the last bid and asked prices. In the event
that such prices are not readily available, securities are valued at fair value
as determined in good faith by the Board of Trustees. Prices used for valuations
of securities are provided by independent pricing services. Debt obligations
with remaining maturities of 60 days or less are valued at amortized cost when
the Trust's Board of Trustees has determined that amortized cost valuation is
fair value.
The different expenses borne by each class of Shares will result in
different net asset values and dividends. The per share net asset value of Class
A Shares of the Fund generally will be lower than that of the Institutional
Shares of the Fund because of the higher expenses borne by Class A Shares.
PURCHASE OF SHARES
Fund shares may be purchased any day the New York Stock Exchange and the Federal
Reserve are open for business.
Shares of the Fund may be purchased on any day the NYSE and the Fed are
open for business through authorized broker/dealers, financial institutions and
service agents ("Institutions"). Institutions are responsible for the prompt
transmission to the Sub-Transfer Agent of purchase, exchange or redemption
orders, and may independently establish and charge additional fees to their
customers for such services, which would reduce the customers' yield or return.
The Trust does not impose any minimum initial or subsequent investment
limitations. Each Institution through which shares may be purchased may
establish its own terms with respect to the requirement of a minimum initial
investment and minimum subsequent investments.
The Trust reserves the right to reject any purchase order. All funds, net
of sales charge with respect to Class A Shares, received from a share purchase
will be invested in full and fractional shares at the Fund's offering price next
determined after receipt of a purchase order by the Sub-Transfer Agent. Checks
will be accepted for the purchase of the Fund's shares subject to collection at
full face value in U.S. dollars. Inquiries may be directed to the Trust at the
address and telephone number on page one of this Prospectus.
Purchase orders for shares of the Fund received in good order by the
Distributor prior to the close of regular trading (4:00 P.M., New York City
time) on the NYSE will be executed at the offering price, which includes a sales
charge for Class A Shares, next determined on that day. Orders placed directly
with the Sub-Transfer Agent must be paid for by check or bank wire on the next
business day. Payment for the shares purchased through an Institution will not
be due until settlement date, normally three business days after the order has
been executed.
Although Class A Shares of the Fund are sold with a sales load of up to 4.50%,
there are several ways to reduce the sales load.
When Class A Shares of the Fund are purchased through an Institution, the
Distributor reallows to the Institution a portion of the sales charge. No sales
charge will be assessed on the reinvestment of distributions.
16
Sales charges for Class A Shares of the Fund are as follows:
<TABLE>
<CAPTION>
SALES
CHARGE DEALER
AS % OF ALLOWANCE
SALES NET AMOUNT AS % OF
AMOUNT OF PURCHASE CHARGE INVESTED OFFERING PRICE
------------------ ------ -------- --------------
<S> <C> <C> <C>
Less than $100,000.................................... 4.50% 4.71% 4.25%
$100,000 up to (but less than) $200,000.............. 4.00 4.17 3.75
$200,000 up to (but less than) $400,000............... 3.50 3.63 3.25
$400,000 up to (but less than) $600,000.............. 2.50 2.56 2.25
$600,000 up to (but less than) $800,000.............. 2.00 2.04 1.75
$800,000 up to (but less than) $1,000,000............ 1.00 1.01 0.75
$1,000,000 and over................................... .00 .00 .00
</TABLE>
No sales charge will be assessed on purchases by (a) any bank, trust
company, or other institution acting on behalf of its fiduciary customer
accounts or any other trust account (including pension, profit-sharing or other
employee benefit trusts created pursuant to a plan qualified under Section 401
of the Internal Revenue Code of 1986, as amended (the "Code")); (b) individuals
with an investment account or relationship with HIM; (c) trustees and officers
of the Trust; (d) directors, current and retired employees of Harris Bankcorp,
Inc. or any of its affiliates and the immediate family members of such
individuals (spouses and children under 21); (e) brokers, dealers, and agents
who have a sales agreement with the Distributor, and their employees (and the
immediate family members of such individuals); and (f) financial institutions,
financial planners, employee benefit plan consultants or registered investment
advisers acting for the accounts of their clients.
Depending upon the terms of the particular customer account, financial
services institutions, including Harris Trust and HIM, may charge account fees
for automatic investment and other cash management services which they provide,
including, for example, account maintenance fees, compensating balance
requirements, or fees based upon account transactions, assets, or income. This
Prospectus should be read in connection with any related information received
from financial institutions.
The Right of Accumulation allows an investor to combine the amount being
invested in Class A Shares of the non-money market funds of the Trust with the
total net asset value of Class A Shares currently being purchased or already
owned of such funds to determine reduced sales charges in accordance with the
above sales charge schedule. To obtain such discount, the purchaser must provide
sufficient information at the time of purchase to permit verification that the
purchase qualifies for the reduced sales charge, and confirmation of the order
is subject to such verification. The Right of Accumulation may be modified or
discontinued at any time by the Funds with respect to all Class A Shares
purchased thereafter.
A Letter of Intent allows an investor to purchase Class A Shares of the
non-money market funds of the Trust over a 13-month period at reduced sales
charges based on the total amount intended to be purchased plus the total net
asset value of Class A Shares already owned pursuant to the terms of the letter
of such Fund. Each investment made during the period receives the reduced sales
charge applicable to the total amount of the intended investment. If such amount
is not invested within the period, the investor must pay the difference between
the sales charges applicable to the purchases made and the charges previously
paid.
17
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net asset value after receipt of
a proper request by the Sub-Transfer Agent.
Shares may be redeemed at their next determined net asset value after
receipt of a proper request by the Sub-Transfer Agent directly or through any
Institution.
The Trust charges no fee for redemption transactions, but an Institution
may charge an account-based service fee. Redemption orders received by an
Institution before the close of the NYSE with respect to shares of the Fund and
received by the Sub-Transfer Agent before the close of business on the same day
will be executed at the Fund's net asset value per share next determined on that
day. Redemption orders received by an Institution after the close of the NYSE,
or not received by the Sub-Transfer Agent prior to the close of business, will
be executed at the Fund's net asset value next determined on the next business
day.
Redemption orders for shares of the Fund that are received in good order by
4:00 P.M. (New York City time) will normally be remitted within five business
days but not more than seven days. In the case of a redemption request made
shortly after a recent purchase, the redemption proceeds will be distributed
only upon clearance of the shareholder's check used to purchase the Trust's
shares; such clearance may take 15 days or more after the investment. The
proceeds may be more or less than cost and, therefore, a redemption may result
in a gain or loss for federal income tax purposes. Payment of redemption
proceeds may be made in readily marketable securities.
REDEMPTION THROUGH INSTITUTIONS
Proceeds of a redemption made through an authorized Institution will be credited
to the shareholder's account with the Institution.
Proceeds of a redemption made through an authorized Institution will be
credited to the shareholder's account with the Institution. A redeeming
shareholder may request a check from the Institution or may elect to retain the
redemption proceeds in such shareholder's account. The Institution may benefit
from the use of the redemption proceeds prior to the clearance of a check issued
to a redeeming shareholder for the proceeds or prior to disbursement or
reinvestment of the proceeds on behalf of the shareholder.
Due to the high cost of maintaining small accounts, the Trust reserves the
right to redeem accounts involuntarily on behalf of shareholders whose share
balances fall below $500 in value unless this is due to a decline in the market
value of the Fund's assets. Prior to such a redemption, a shareholder will be
notified in writing and permitted 30 days to make additional investments to
raise the account balance to the specified minimum.
SERVICE PLAN
Class A Shares of the Fund pay advertising and marketing expenses in addition to
other shareholder servicing costs.
Under its Service Plan, Class A Shares of the Fund bear costs and expenses in
connection with advertising and marketing the Fund's shares and pay the fees of
financial institutions (which may include banks), securities dealers and other
industry professionals, such as investment advisers, accountants and estate
planning firms (collectively, "Service Agents") for servicing activities, as
described below, at a rate up to 0.25% per annum of the average daily net asset
value of Class A Shares of the Fund serviced by such Service Agent. However,
HIM, from time to time in its sole discretion, may volunteer to bear the costs
of such fees to certain Service Agents that
18
would otherwise be borne by Class A Shares of the Fund. The Administrator,
Sub-Administrators and the Distributor may act as Service Agents and receive
fees under the Service Plan. In addition to the fees paid by Class A Shares of
the Fund, the Fund may, pursuant to the Service Plan, defray all or part of the
cost of preparing and printing brochures and other promotional materials and of
delivering prospectuses and those materials to prospective shareholders of Class
A Shares of the Fund by paying on an annual basis up to the greater of $100,000
or 0.05% of the average daily net asset value of Class A Shares of the Fund (but
not in any case greater than such costs). For more information concerning
expenses pursuant to the Service Plan, see "Management."
Servicing activities provided by Service Agents to their customers
investing in Class A Shares of the Fund may include, among other things, one or
more of the following: establishing and maintaining shareholder accounts and
records; processing purchase and redemption transactions; answering customer
inquiries regarding Class A Shares of the Fund; assisting customers in changing
dividend options, account designations and addresses; performing sub-accounting;
investing customer cash account balances automatically in Class A Shares of the
Fund; providing periodic statements showing a customer's account balance and
integrating such statements with those of other transactions and balances in the
customer's other accounts serviced by the Service Agent; arranging for bank
wires, distribution and such other services as the Fund may request, to the
extent the Service Agent is permitted to provide such services by applicable
statute, rule or regulation.
DIVIDENDS AND DISTRIBUTIONS
The Fund pays dividends semi-annually.
Dividends from net investment income of the Fund are declared and paid
semi-annually. The Fund's net capital gains, if any, will be distributed at
least annually (to the extent required to avoid imposition of the 4% excise tax
described below). Dividends and other distributions paid by the Fund with
respect to its Class A and Institutional Shares are calculated at the same time.
Dividends and distributions paid by the Fund are, at the shareholder's election,
invested in additional shares of the same class of the Fund at net asset value
and credited to the shareholder's account on the payment date or paid in cash.
Dividend checks and Statements of Account are mailed approximately two business
days after the dividend payment date. The Fund forwards to the Transfer Agent
the monies for dividends to be paid in cash on the payment date.
FEDERAL INCOME TAXES
The Fund will be treated as a separate entity for tax purposes and thus the
provisions of the Code generally will be applied to the Fund separately, rather
than to the Trust as a whole. As a result, net capital gains, net investment
income, and operating expenses will be determined separately for the Fund. The
Trust intends to qualify the Fund as a regulated investment company under
Subchapter M of the Code. As a portfolio of a regulated investment company, the
Fund will not be subject to federal income taxes with respect to net investment
income and net capital gains distributed to its shareholders, as long as it
distributes 90% or more of its net investment income (including net short-term
capital gains) each year.
Dividends from net investment income (including net short-term capital
gains) will be taxable as ordinary income whether received in cash or reinvested
in additional shares.
Distributions of net long-term capital gains, if any, will be taxable as
long-term capital gains, whether received in cash or reinvested in additional
shares, regardless of how long the shareholder has held the shares, and will not
qualify for the dividends-received deductions.
19
A taxable gain or loss may also be realized by a holder of shares in the
Fund upon the redemption or exchange of shares of the Fund depending on the tax
basis of the shares and their price at the time of the transaction.
Any loss realized on a sale or exchange of shares of the Fund will be
disallowed to the extent shares of the Fund are acquired within the 61-day
period beginning 30 days before and ending 30 days after the disposition of
shares.
The Trust will be required to withhold, subject to certain exemptions, a
portion (currently 31%) from dividends paid or credited to individual
shareholders and from redemption proceeds, if a correct taxpayer identification
number, certified when required, is not on file with the Trust or the Transfer
Agent.
ACCOUNT SERVICES
Shareholders receive a Statement of Account whenever a share transaction,
dividend or capital gain distribution is effected in the accounts, or at least
annually. Shareholders can write or call the Trust at the address and telephone
number on page one of this Prospectus with any questions relating to their
investment in shares of the Fund.
ORGANIZATION AND BENEFICIAL INTEREST
Harris Insight Funds Trust (the "Trust") is a diversified open-end
management investment company which was organized on December 6, 1995 as a
business trust under the laws of the Commonwealth of Massachusetts. The Trust
offers shares of beneficial interest, $.001 par value, for sale to the public.
Currently, the Trust has twelve portfolios in operation. The Board has
authorized each of the twelve Funds that are portfolios of the Trust to issue
two classes of shares, Class A and Institutional Shares.
Class A Shares of the Fund bear certain expenses payable to the Fund
pursuant to the Service Plan. For more information, see "Service Plan."
Institutional Shares of the Fund, which are offered only to certain classes of
investors, do not bear any sales, marketing or distribution expenses. In the
future, the Board of Trustees of the Trust may authorize the issuance of
additional investment portfolios and additional classes of shares of any
portfolio. Different classes of shares of a single portfolio may bear different
sales charges and other expenses which may affect their relative performance.
Information regarding the other classes of shares may be obtained by calling the
Fund at the telephone number shown on page one of this Prospectus or from any
institution which makes available shares of the Fund. All shares of the Trust
have equal voting rights and will be voted in the aggregate, and not by class,
except where voting by class is required by law or where the matter involved
affects only one class. A more detailed statement of the voting rights of
shareholders is contained in the Statement of Additional Information. All shares
of the Trust, when issued, will be fully paid and non-assessable.
Prior to the public issuance of shares of the Fund, due to its initial
investment, Funds Distributor, Inc. ("FDI") owned all outstanding shares of the
Fund, and, accordingly, may have been deemed a controlling person of the Fund.
Upon the investment in the Fund by public shareholders, FDI ceased to be a
controlling person. From time to time, certain shareholders may own a large
percentage of the shares of the Fund. Accordingly, those shareholders may be
able to greatly affect, if not determine, the outcome of a shareholder vote.
The Trustees, when requested by holders of at least 10% of the Trust's
outstanding shares, will call a meeting of shareholders for the purpose of
voting upon the question of
20
removal of a Trustee or Trustees and will assist in communications with other
shareholders as required by Section 16(c) of the 1940 Act. The Trust does not
hold annual meetings of shareholders.
REPORTS TO SHAREHOLDERS
The fiscal year of the Trust ends on December 31. The Trust sends to its
shareholders a semi-annual report showing the investments held by the Fund and
other information (including unaudited financial statements) pertaining to the
Trust. An annual report, containing financial statements audited by the Trust's
independent accountants, is also sent to shareholders.
"Yield" refers to the amount of income generated over a 30-day period which is
then "annualized."
"Total return" shows what would have been earned over a specified period of time
assuming payment of the maximum sales load and reinvestment of dividends and
distributions less recurring fees.
CALCULATION OF YIELD AND TOTAL RETURN
From time to time the Fund may advertise the yield and total return of each
class of the Fund. These figures are based on historical earnings and are not
intended to indicate future performance. The yield of a class of the Fund refers
to the income generated by an investment in that class of the Fund over a 30-day
period (which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
the 30-day period is assumed to be earned and reinvested at a constant rate and
compounded semi-annually. The annualized income is then shown as a percentage of
the investment. The total return of a class of the Fund shows what an investment
in that class of the Fund would have earned over a specified period of time
(such as one, five or ten years, or the period of time since commencement of
operations) assuming the reinvestment of all distributions and dividends by the
class of Fund shares on their reinvestment dates during the period less all
recurring fees and, with respect to Class A Shares, the payment of the maximum
sales load when the investment was first made. When the Fund compares its total
return with that of other mutual funds or relevant indices, its total return may
also be computed without reflecting the sales load so long as the sales load is
stated separately in connection with the comparison.
The Fund's performance figures for a class of shares represent past
performance, will fluctuate and should not be considered as representative of
future results. The yield of any investment is generally a function of portfolio
quality and maturity, type of instrument and operating expenses.
21
INVESTMENT ADVISER, ADMINISTRATOR,
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Harris Trust & Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
PORTFOLIO MANAGEMENT AGENT
Harris Investment Management, Inc.
190 South LaSalle Street
Chicago, Illinois 60603
SUB-ADMINISTRATOR AND ACCOUNTING
SERVICES AGENT, SUB-TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
SUB-ADMINISTRATOR AND DISTRIBUTOR
Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, Massachusetts 02109
CUSTODIAN
PNC Bank, N.A.
Broad & Chestnut Streets
Philadelphia, Pennsylvania 19101
INDEPENDENT ACCOUNTANTS
[To be determined]
LEGAL COUNSEL
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street
Chicago, Illinois 60602-4207
HARRIS INSIGHT SMALL-CAP VALUE FUND
HARRIS INSIGHT FUNDS
60 State Street, Suite 1300, Boston, Massachusetts 02109
Telephone: (800) 982-8782
STATEMENT OF ADDITIONAL INFORMATION
___________, 1996
The Harris Insight Small-Cap Value Fund (the "Fund") is one of
twelve portfolios of Harris Insight Funds Trust (the "Trust"), a professionally
managed, open-end, diversified management investment company. The investment
objective of the Fund is described in the Prospectus. See "Investment Objective
and Policies."
This Statement of Additional Information is not a prospectus
and is authorized for distribution only when preceded or accompanied by the
Fund's Prospectus dated _______, 1996 and any supplement thereto (the
"Prospectus"). This Statement of Additional Information contains additional
information that should be read in conjunction with the Prospectus, additional
copies of which may be obtained without charge from the Trust's distributor,
Funds Distributor, Inc., by writing or calling the Trust at the address or
telephone number given above.
---------------------
TABLE OF CONTENTS
Investment Strategies................2 Portfolio Transactions...........25
Ratings.............................16 Federal Income Taxes.............26
Investment Restrictions.............17 Beneficial Interest..............28
Management..........................18 Other............................29
Service Plan........................23 Custodian........................29
Calculation of Yield and Independent Accountants..........29
Total Return....................24 Appendix A......................A-1
Determination of Net Asset Value....25
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS COMMUNICATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATES.
INVESTMENT STRATEGIES
ASSET-BACKED SECURITIES. Asset-backed securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations and are generally issued as the debt of
a special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. Asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different parties. Payments
of principal and interest may be guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
unaffiliated with the entities issuing the securities.
The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. The rate
of such prepayments, and hence the life of the asset-backed security, will be
primarily a function of current market interest rates, although other economic
and demographic factors may be involved.
COMMON AND PREFERRED STOCK. The Fund may invest in common and preferred
stock. Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company,
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, in the alternative, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company.
Equity securities owned by the Fund may be traded in the
over-the-counter market or on a securities exchange and may not be traded every
day or in the volume typical of securities traded on a major U.S. national
securities exchange. As a result, disposition by the Fund of a portfolio
security to meet redemptions by shareholders or otherwise may require the Fund
to sell these securities at a discount from market prices, to sell during
periods when disposition is not desirable, or to make many small sales over a
lengthy period of time. The market value of all securities, including equity
securities, is based upon the market's perception of value and not necessarily
the book value of an issuer or other objective measure of a company's worth.
CONVERTIBLE SECURITIES. Because they have the characteristics of both
fixed-income securities and common stock, convertible securities sometimes are
called "hybrid" securities. Convertible bonds, debentures and notes are debt
obligations offering a fixed interest rate; convertible preferred stocks are
senior securities offering a fixed dividend rate. Convertible securities will at
times be priced in the market like other fixed income securities: that is, their
prices will tend to rise when interest rates decline and will tend to fall when
interest rates rise. However, because a convertible security provides an option
to the holder to exchange the
2
security for a specified number of the issuer's common shares at a stated price
per share, the security market price will tend to fluctuate in relationship to
the price of the common shares into which it is convertible. Thus, convertible
securities ordinarily will provide opportunities both for producing current
income and longer-term capital appreciation. Because convertible securities are
usually viewed by the issuer as future common stock, they are generally
subordinated to other senior securities and therefore are rated one category
lower than the issuer's non-convertible debt obligations or preferred stock.
Fixed income securities frequently have call or buy-back features that
permit their issuers to call or repurchase the securities from their holders,
such as the Fund. If an issuer exercises these rights during periods of
declining interest rates, the Fund may have to replace the security with a lower
yielding security, thus resulting in a decreased return to the Fund.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Portfolio Management Agent
will monitor, on an ongoing basis, the ability of an issuer of a Floating or
Variable Rate demand instrument to pay principal and interest on demand. The
Fund's right to obtain payment at par on a demand instrument could be affected
by events occurring between the date the Fund elects to demand payment and the
date payment is due that may affect the ability of the issuer of the instrument
to make payment when due, except when such demand instrument permits same day
settlement. To facilitate settlement, these same day demand instruments may be
held in book entry form at a bank other than the Trust's custodian subject to a
sub-custodian agreement approved by the Trust between the bank and the Trust's
custodian.
The floating and variable rate obligations that the Fund may purchase
include certificates of participation in such obligations purchased from banks.
A certificate of participation gives the Fund an undivided interest in the
underlying obligations in the proportion that the Fund's interest bears to the
total principal amount of the obligation. Certain certificates of participation
may carry a demand feature that would permit the holder to tender them back to
the issuer prior to maturity. The income received on certificates of
participation in tax-exempt municipal obligations constitutes interest from
tax-exempt obligations.
FOREIGN SECURITIES. As discussed in the Prospectus, investing in
foreign securities generally represents a greater degree of risk than investing
in domestic securities, due to possible exchange rate fluctuations, less
publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions, war or expropriation. As a result of
its investments in foreign securities, the Fund may receive interest or dividend
payments, or the proceeds of the sale or redemption of such securities, in the
foreign currencies in which such securities are denominated.
Investments in non-dollar securities are evaluated primarily on the
strength of a particular currency against the dollar and on the interest rate
climate of that country. Currency is judged on the basis of fundamental economic
criteria (e.g., relative inflation levels and trends, growth rate forecasts,
balance of payments status and economic policies)
3
as well as technical and political data. In addition to the foregoing, interest
rates are evaluated on the basis of differentials or anomalies that may exist
between different countries.
FORWARD CONTRACTS. Forward Contracts may be entered into by the Fund
for hedging purposes as well as for non-hedging purposes. Forward Contracts may
also be entered into for "cross hedging" as noted in the Prospectus.
Transactions in Forward Contracts entered into for hedging purposes will include
forward purchases or sales of foreign currencies for the purpose of protecting
the dollar value of securities denominated in a foreign currency or protecting
the dollar equivalent of interest or dividends to be paid on such securities. By
entering into such transactions, however, the Fund may be required to forego the
benefits of advantageous changes in exchange rates. The Fund may also enter into
transactions in Forward Contracts for other than hedging purposes which presents
greater profit potential but also involves increased risk. For example, if the
Portfolio Management Agent believes that the value of a particular foreign
currency will increase or decrease relative to the value of the U.S. dollar, the
Fund may purchase or sell such currency, respectively, through a Forward
Contract. If the expected changes in the value of the currency occur, the Fund
will realize profits which will increase its gross income. Where exchange rates
do not move in the direction or to the extent anticipated, however, the Fund may
sustain losses which will reduce its gross income. Such transactions, therefore,
could be considered speculative.
The Fund has established procedures consistent with statements by the
Commission and its staff regarding the use of Forward Contracts by registered
investment companies, which require the use of segregated assets or "cover" in
connection with the purchase and sale of such contracts. In those instances in
which the Fund satisfies this requirement through segregation of assets, it will
maintain, in a segregated account, cash, cash equivalents or high grade debt
securities, which will be marked to market on a daily basis, in an amount equal
to the value of its commitments under Forward Contracts.
GOVERNMENT SECURITIES. Government Securities consist of obligations
issued or guaranteed by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises. Obligations of the United States Government agencies and
instrumentalities are debt securities issued by United States
Government-sponsored enterprises and federal agencies. Some of these obligations
are supported by: (a) the full faith and credit of the United States Treasury
(such as Government National Mortgage Association participation certificates);
(b) the limited authority of the issuer to borrow from the United States
Treasury (such as securities of the Federal Home Loan Bank); (c) the
discretionary authority of the United States Government to purchase certain
obligations (such as securities of the Federal National Mortgage Association);
or (d) the credit of the issuer only. In the case of obligations not backed by
the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment. In cases where United States Government support of agencies or
4
instrumentalities is discretionary, no assurance can be given that the United
States Government will provide financial support, since it is not lawfully
obligated to do so.
INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
invest in interest rate futures contracts and options on such contracts that are
traded on a domestic exchange or board of trade. Such investments may be made by
the Fund solely for the purpose of hedging against changes in the value of its
portfolio securities due to anticipated changes in interest rates and market
conditions, and not for purposes of speculation. A public market exists for
interest rate futures contracts covering a number of debt securities, including
long-term United States Treasury Bonds, ten-year United States Treasury Notes,
three-month U.S. Treasury Bills and three-month domestic bank certificates of
deposit. Other financial futures contracts may be developed and traded. The
purpose of the acquisition or sale of an interest rate futures contract by the
Fund, as the holder of municipal or other debt securities, is to protect the
Fund from fluctuations in interest rates on securities without actually buying
or selling such securities.
Unlike the purchase or sale of a security, no consideration is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker an amount of cash or cash
equivalents equal to approximately 10% of the contract amount (this amount is
subject to change by the board of trade on which the contract is traded and
members of such board of trade may charge a higher amount). This amount is known
as initial margin and 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 that all contractual obligations have been satisfied.
Subsequent payments, known as variation margin, to and from the broker, will be
made on a daily basis as the price of the index fluctuates making the long and
short positions in the futures contract more or less valuable, a process known
as marking-to-market. At any time prior to the expiration of the contract, the
Fund may elect to close the position by taking an opposite position, which will
operate to terminate the Fund's existing position in the futures contract.
The Fund may not purchase or sell futures contracts or purchase options
on futures contracts if, immediately thereafter, more than one-third of its net
assets would be hedged, or the sum of the amount of margin deposits on the
Fund's existing futures contracts and premiums paid for options would exceed 5%
of the value of the Fund's total assets. When the Fund enters into futures
contracts to purchase an index or debt security or purchase call options, an
amount of cash, U.S. government securities or other high grade debt securities
equal to the notional market value of the underlying contract will be deposited
and maintained in a segregated account with the Fund's custodian to
collateralize the positions, thereby insuring that the use of the contract is
unleveraged.
Although the Fund will enter into futures contracts only if an active
market exists for such contracts, there can be no assurance that an active
market will exist for the contract at any particular time. Most domestic futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
5
establishes the maximum amount the price of a futures contract may vary either
up or down from the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular contract, no
trades may be made that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. It is possible that futures contract prices could move to
the daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, it will not be possible to
close a futures position and, in the event of adverse price movements, the Fund
would be required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the portfolio being
hedged, if any, may partially or completely offset losses on the futures
contract. As described above, however, there is no guarantee the price of
municipal bonds or of other debt securities will, in fact, correlate with the
price movements in the futures contract and thus provide an offset to losses on
a futures contract.
If the Fund has hedged against the possibility of an increase in
interest rates adversely affecting the value of municipal bonds or other debt
securities held in its portfolio and rates decrease instead, the Fund will lose
part or all of the benefit of the increased value of the securities 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, but will not necessarily, be at increased prices which reflect
the decline in interest rates. The Fund may have to sell securities at a time
when it may be disadvantageous to do so.
In addition, the ability of the Fund to trade in futures contracts and
options on futures contracts may be materially limited by the requirements of
the Internal Revenue Code of 1986, as amended (the "Code"), applicable to a
regulated investment company. See "Federal Income Taxes" below.
The Fund may purchase put and call options on interest rate futures
contracts which are traded on a domestic exchange or board of trade as a hedge
against changes in interest rates, and may enter into closing transactions with
respect to such options to terminate existing positions. There is no guarantee
such closing transactions can be effected.
Options on futures contracts, as contrasted with the direct investment
in such contracts, give the purchaser the right, in return for the premium paid,
to assume a position in futures contracts at a specified exercise price at any
time prior to the expiration date of the options. Upon exercise of an option,
the delivery of the futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of an option on interest rate futures
contracts is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
6
no daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the Fund.
There are several risks in connection with the use of interest rate
futures contracts and options on such futures contracts as hedging devices.
Successful use of these derivative securities by the Fund is subject to the
Portfolio Management Agent's ability to predict correctly movements in the
direction of interest rates. Such predictions involve skills and techniques
which may be different from those involved in the management of long-term
municipal bond portfolio. There can be no assurance that there will be a
correlation between price movements in interest rate futures, or related
options, on the one hand, and price movements in the municipal bond or other
debt securities which are the subject to the hedge, on the other hand. Positions
in futures contracts and options on futures contracts may be closed out only on
an exchange or board of trade that provides an active market, therefore, there
can be no assurance that a liquid market will exist for the contract or the
option at any particular time. Consequently, the Fund may realize a loss on a
futures contract that is not offset by an increase in the price of the municipal
bonds or other debt securities being hedged or may not be able to close a
futures position in the event of adverse price movements. Any income earned from
transactions in futures contracts and options on futures contracts will be
taxable. Accordingly, it is anticipated that such investments will be made only
in unusual circumstances, such as when the Portfolio Management Agent
anticipates an extreme change in interest rates or market conditions.
See additional risk disclosure below under "Index Futures Contracts and
Options on Index Futures Contracts."
LETTERS OF CREDIT. Debt obligations, including municipal obligations,
certificates of participation, commercial paper and other short-term
obligations, may be backed by an irrevocable letter of credit of a bank that
assumes the obligation for payment of principal and interest in the event of
default by the issuer. Only banks that, in the opinion of the Portfolio
Management Agent, are of investment quality comparable to other permitted
investments of the Fund, may be used for letter of credit backed investments.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to brokers, dealers
and financial institutions securities from its portfolio representing up to
one-third of the Fund's net assets if cash or cash equivalent collateral,
including letters of credit, marked-to-market daily and equal to at least 100%
of the current market value of the securities loaned (including accrued interest
and dividends thereon) plus the interest payable to the Fund with respect to the
loan is maintained by the borrower with the Fund in a segregated account. In
determining whether to lend a security to a particular broker, dealer or
financial institution, the Portfolio Management Agent will consider all relevant
facts and circumstances, including the creditworthiness of the broker, dealer or
financial institution. The Fund will not enter into any portfolio security
lending arrangement having a duration of longer than one year. Any securities
that the Fund may receive as collateral will not become part of the Fund's
7
portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral except
for such part thereof that is a security in which the Fund is permitted to
invest. During the time securities are on loan, the borrower will pay the Fund
any accrued income on those securities, and the Fund may invest the cash
collateral and earn additional income or receive an agreed upon fee from a
borrower that has delivered cash equivalent collateral. Loans of securities by
the Fund will be subject to termination at the Fund's or the borrower's option.
The Fund may pay reasonable administrative and custodial fees in connection with
a securities loan and may pay a negotiated fee to the borrower or the placing
broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Trust, the Investment Adviser, the Portfolio Management
Agent or the Distributor.
MORTGAGE-RELATED SECURITIES. The Fund may invest in mortgage-backed
securities, including collateralized mortgage obligations ("CMOs") and
Government Stripped Mortgage-Backed Securities.
CMOs are types of bonds secured by an underlying pool of mortgages or
mortgage pass-through certificates that are structured to direct payments on
underlying collateral to different series or classes of the obligations. To the
extent that CMOs are considered to be investment companies, investments in such
CMOs will be subject to the percentage limitations described under "Investment
Company Securities" in the Prospectus.
Government Stripped Mortgage-Backed Securities are mortgage-backed
securities issued or guaranteed by GNMA, FNMA, or FHLMC. These securities
represent beneficial ownership interests in either periodic principal
distributions ("principal-only") or interest distributions ("interest-only") on
mortgage-backed certificates issued by GNMA, FNMA or FHLMC, as the case may be.
The certificates underlying the Government Stripped Mortgage-Backed Securities
represent all or part of the beneficial interest in pools of mortgage loans.
Mortgage-backed securities provide a monthly payment consisting of
interest and principal payments. Additional payments may be made out of
unscheduled repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Prepayments of principal on mortgage-related securities may tend to
increase due to refinancing of mortgages as interest rates decline. Prompt
payment of principal and interest on GNMA mortgage pass-through certificates is
backed by the full faith and credit of the United States. FNMA guaranteed
mortgage pass-through certificates and FHLMC participation certificates are
solely the obligations of those entities but are supported by the discretionary
authority of the U.S. Government to purchase the agencies' obligations.
Investments in interest-only Government Stripped Mortgage-Backed
Securities will be made in order to enhance yield or to benefit from anticipated
appreciation in value of the securities at times when the Portfolio Management
Agent believes that interest rates will
8
remain stable or increase. In periods of rising interest rates, the value of
interest-only Government Stripped Mortgage-Backed Securities may be expected to
increase because of the diminished expectation that the underlying mortgages
will be prepaid. In this situation the expected increase in the value of
interest-only Government Stripped Mortgage-Backed Securities may offset all or a
portion of any decline in value of the portfolio securities of the Fund.
Investing in Government Stripped Mortgage-Backed Securities involves the risks
normally associated with investing in mortgage-backed securities issued by
government or government-related entities. In addition, the yields on
interest-only and principal-only Government Stripped Mortgage-Backed Securities
are extremely sensitive to the prepayment experience on the mortgage loans
underlying the certificates collateralizing the securities. If a decline in the
level of prevailing interest rates results in a rate of principal prepayments
higher than anticipated, distributions of principal will be accelerated, thereby
reducing the yield to maturity on interest-only Government Stripped
Mortgage-Backed Securities and increasing the yield to maturity on
principal-only Government Stripped Mortgage-Backed Securities. Conversely, if an
increase in the level of prevailing interest rates results in a rate of
principal prepayments lower than anticipated, distributions of principal will be
deferred, thereby increasing the yield to maturity on interest-only Government
Stripped Mortgage-Backed Securities and decreasing the yield to maturity on
principal-only Government Stripped Mortgage-Backed Securities. Sufficiently high
prepayment rates could result in the Fund's not fully recovering its initial
investment in an interest-only Government Stripped Mortgage-Backed Security.
Government Stripped Mortgage-Backed Securities are currently traded in an
over-the-counter market maintained by several large investment banking firms.
There can be no assurance that the Fund will be able to effect a trade of a
Government Stripped Mortgage-Backed Security at a time when it wishes to do so.
PUT AND CALL OPTIONS. The Fund may invest in covered put and covered
call options and write covered put and covered call options on securities in
which they may invest directly and that are traded on registered domestic
securities exchanges. The writer of a call option, who receives a premium, has
the obligation, upon exercise of the option, to deliver the underlying security
against payment of the exercise price during the option period. The writer of a
put, who receives a premium, has the obligation to buy the underlying security,
upon exercise, at the exercise price during the option period.
The Fund may write put and call options on securities only if they are
"covered," and such options must remain "covered" as long as the Fund is
obligated as a writer. A call option is "covered" if the Fund owns the
underlying security or its equivalent covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration if held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds on a share-for-share
or equal principal amount basis a call on the same security as the call written
where the exercise price of the call held is equal to or less than the exercise
price of the call written or greater than the exercise price of the call written
if the difference is maintained by the Fund in cash, Treasury bills or other
9
high-grade short-term obligations in a segregated account with its custodian. A
put option is "covered" if the Fund maintains cash, Treasury bills, or other
high-grade short-term obligations with a value equal to the exercise price in a
segregated account with its custodian, or owns on a share-for-share or equal
principal amount basis a put on the same security as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written.
The principal reason for writing call options is to attempt to realize,
through the receipt of premiums, a greater current return than would be realized
on the underlying securities alone. In return for the premium, the Fund would
give up the opportunity for profit from a price increase in the underlying
security above the exercise price so long as the option remains open, but
retains the risk of loss should the price of the security decline. Upon exercise
of a call option when the market value of the security exceeds the exercise
price, the Fund would receive less total return for its portfolio than it would
have if the call had not been written, but only if the premium received for
writing the option is less than the difference between the exercise price and
the market value. Put options are purchased in an effort to protect the value of
a security owned against an anticipated decline in market value. The Fund may
forego the benefit of appreciation on securities sold or be subject to
depreciation on securities acquired pursuant to call or put options,
respectively, written by the Fund. The Fund may experience a loss if the value
of the securities remains at or below the exercise price, in the case of a call
option, or at or above the exercise price, in the case of a put option.
The Fund may purchase put options in an effort to protect the value of
a security owned against an anticipated decline in market value. Exercise of a
put option will generally be profitable only if the market price of the
underlying security declines sufficiently below the exercise price to offset the
premium paid and the transaction costs. If the market price of the underlying
security increases, the Fund's profit upon the sale of the security will be
reduced by the premium paid for the put option less any amount for which the put
is sold.
The staff of the Commission has taken the position that purchased
options not traded on registered domestic securities exchanges and the assets
used as cover for written options not traded on such exchanges are illiquid
securities. The Trust has agreed that, pending resolution of the issue, the Fund
will treat such options and assets as subject to the Fund's limitation on
investment in securities that are not readily marketable.
Writing of options involves the risk that there will be no market in
which to effect a closing transaction. An exchange-traded option may be closed
out only on an exchange that provides a secondary market for an option of the
same series, and there is no assurance that a liquid secondary market on an
exchange will exist.
REPURCHASE AGREEMENTS. The Fund may purchase portfolio securities
subject to the seller's agreement to repurchase them at a mutually agreed upon
time and price, which
10
includes an amount representing interest on the purchase price. The Fund may
enter into repurchase agreements only with respect to obligations that could
otherwise be purchased by the Fund. The seller will be required to maintain in a
segregated account for the Fund cash or cash equivalent collateral equal to at
least 100% of the repurchase price (including accrued interest). Default or
bankruptcy of the seller would expose the Fund to possible loss because of
adverse market action, delays in connection with the disposition of the
underlying obligations or expenses of enforcing its rights.
The Fund may not enter into a repurchase agreement if, as a result,
more than 15% of the market value of the Fund's total net assets would be
invested in repurchase agreements with a maturity of more than seven days and in
other illiquid securities. The Fund will enter into repurchase agreements only
with registered broker/dealers and commercial banks that meet guidelines
established by the Board of Trustees.
The Fund may enter into reverse repurchase agreements, which are
detailed in the Prospectus.
SECURITIES WITH PUTS. A put is not transferable by the Fund, although
the Fund may sell the underlying securities to a third party at any time. If
necessary and advisable, the Fund may pay for certain puts either separately, in
cash or by paying a higher price for portfolio securities that are acquired
subject to such a put (thus reducing the yield to maturity otherwise available
for the same securities). The Fund expects, however, that puts generally will be
available without the payment of any direct or indirect consideration.
The Fund intends to enter into puts solely to maintain liquidity and
does not intend to exercise its rights thereunder for trading purposes. The puts
will only be for periods substantially less than the life of the underlying
security. The acquisition of a put will not affect the valuation by the Fund of
the underlying security. Where the Fund pays directly or indirectly for a put,
its costs will be reflected as an unrealized loss of the period during which the
put is held by the Fund and will be reflected in realized gain or loss when the
put is exercised or expires. If the value of the underlying security increases,
the potential for unrealized or realized gain is reduced by the cost of the put.
The maturity of a municipal obligation purchased by the Fund will not be
considered shortened by any put to which the obligation is subject.
INDEX FUTURES CONTRACTS AND OPTIONS ON INDEX FUTURES CONTRACTS. The
Fund may attempt to reduce the risk of investment in equity and other securities
by hedging a portion of its portfolio through the use of futures contracts on
indices and options on such indices traded on national securities exchanges. The
Fund may hedge a portion of its portfolio by selling index futures contracts to
limit exposure to decline. During a market advance or when the Portfolio
Management Agent anticipates an advance, the Fund may hedge a portion of its
portfolio by purchasing index futures or options on indices. This affords a
hedge against the Fund's not participating in a market advance at a time when it
is not fully invested and serves as a temporary substitute for the purchase of
individual
11
securities that may later by purchased in a more advantageous manner. The Fund
will sell options on indices only to close out existing hedge positions.
A securities index assigns relative weightings to the securities in the
index, and the index generally fluctuates with changes in the market values of
these securities. A securities index futures contract is an agreement in which
one party agrees to deliver to the other an amount of cash equal to a specific
dollar amount times the difference between the value of a specific securities
index at the close of the last trading day of the contract and the price at
which the agreement is made. Unlike the purchase or sale of an underlying
security, no consideration is paid or received by the Fund upon the purchase or
sale of a securities index futures contract. When the contract is executed, each
party deposits with a broker or in a segregated custodial account a percentage
of the contract amount which may be as low as 5%, called the "initial margin."
During the term of the contract, the amount of this deposit is adjusted based on
the current value of the futures contract by payments of variation margin to or
from the broker or segregated account.
The Fund will use index futures contracts only as a hedge against
changes resulting from market conditions in the values of securities held in the
Fund's portfolio or which it intends to purchase and where the transactions are
economically appropriate to the reduction of risks inherent in the ongoing
management of the Fund. The Fund will sell index futures only if the amount
resulting from the multiplication of the then current level of the indices upon
which its futures contracts which would be outstanding, do not exceed one-third
of the value of the Fund's net assets. Also, the Fund may not purchase or sell
index futures if, immediately thereafter, the sum of the premiums paid for
unexpired options on futures contracts and margin deposits on the Fund's
outstanding futures contracts would exceed 5% of the market value of the Fund's
total assets. When the Fund purchases index futures contracts, it will deposit
an amount of cash and cash equivalents equal to the market value of the futures
contracts in a segregated account with its custodian.
There are risks that are associated with the use of futures contracts
for hedging purposes. The price of a futures contract will vary from day to day
and should parallel (but not necessarily equal) the changes in price of the
underlying securities that are included in the index. The difference between
these two price movements is called "basis." There are occasions when basis
becomes distorted. For instance, the increase in value of the hedging
instruments may not completely offset the decline in value of the securities in
the portfolio. Conversely, the loss in the hedged position may be greater than
the capital appreciation that the Fund experiences in its securities positions.
Distortions in basis are more likely to occur when the securities hedged are not
part of the index covered by the futures contract. Further, if market values do
not fluctuate, the Fund will sustain a loss at least equal to the commissions on
the financial futures transactions.
All investors in the futures market are subject to initial margin and
variation margin requirements. Rather than providing additional variation
margin, an investor may close out a futures position. Changes in the initial and
variation margin requirements may influence an investor's decision to close out
the position. The normal relationship between the securities
12
and futures markets may become distorted if changing margin requirements do not
reflect changes in value of the securities. The margin requirements in the
futures market are substantially lower than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary basis distortion.
In the futures market, it may not always be possible to execute a buy
or sell order at the desired price, or to close out an open position due to
market conditions limits on open positions, and/or daily price fluctuation
limits. Each market establishes a limit on the amount by which the daily market
price of a futures contract may fluctuate. Once the market price of a futures
contract reaches its daily price fluctuation limit, positions in the commodity
can be neither taken nor liquidated unless traders are willing to effect trades
at or within the limit. The holder of a futures contract (including the Fund)
may therefore be locked into its position by an adverse price movement for
several days or more, which may be to its detriment. If the Fund could not close
its open position during this period, it would continue to be required to make
daily cash payments of variation margin. The risk of loss to the Fund is
theoretically unlimited when it writes (sells) a futures contract because it is
obligated to settle for the value of the contract unless it is closed out,
regardless of fluctuations in the price of the underlying index. When the Fund
purchases a put option or call option, however, unless the option is exercised,
the maximum risk of loss to the Fund is the price of the put option or call
option purchased.
Options on securities indices are similar to options on securities
except that, rather than the right to take or make delivery of securities at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to the difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike options
on securities, all settlements are in cash, and gain or loss depends on price
movements in the securities market generally (or in a particular industry or
segment of the market) rather than price movements in individual securities. The
Fund will write put options on indices only if they are covered by segregating
with the Fund's custodian an amount of cash or short-term investments equal to
the aggregate exercise price of the puts.
Except as described below, the Fund will write call options on indices
only if on such date it holds a portfolio of securities at least equal to the
value of the index times the multiplier times the number of contracts. When the
Fund writes a call option on a broadly based stock market index, it will
segregate or put into escrow with its custodian, or pledge to a broker as
collateral for the option, "qualified securities" with a market value at the
time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts. If the Fund has written an
option on an industry or market segment index, it will segregate, escrow, or
pledge "qualified securities," all of
13
which are stocks of issuers in such industry or market segment, with a market
value at the time the option is written of not less than 100% of the current
index value times the multiplier times the number of contracts. These stocks
will include stocks that represent at least 50% of the weighting of the industry
or market segment index and will represent at least 50% of the Fund's holdings
in that industry or market segment. No individual security will represent more
than 15% of the amount segregated, pledged or escrowed in the case of broadly
based stock market index options or 25% of this amount in the case of industry
or market segment index options. If at the close of business on any day the
market value of the qualified securities so segregated, escrowed or pledged
falls below 100% of the current index value times the multiplier times the
number of contracts, the Fund will segregate, escrow or pledge an amount in
cash, Treasury bills or other high-grade short-term obligations equal in value
to the difference. In addition, when the Fund writes a call on an index that is
in-the-money at the time the call is written, the Fund will segregate with its
custodian or pledge to the broker as collateral cash, U.S. Government or other
high-grade short-term debt obligations equal in value to the amount by which the
call is in-the-money times the multiplier times the number of contracts. Any
amount segregated pursuant to the foregoing sentence may be applied to the
Fund's obligation to segregate additional amounts in the event that the market
value of the qualified securities falls below 100% of the current index value
times the multiplier times the number of contracts. A "qualified security" is an
equity security that is listed on a national securities exchange or traded on
the National Association of Securities Dealers Automated Quotation System
against which the Fund has not written a stock call option. However, if the Fund
owns a call on the same index as the call written where the exercise price of
the call owned is equal to or less than the exercise price of the call written,
or greater than the call written if the difference is maintained by the Fund in
cash, Treasury bills or other high-grade short-term obligations in a segregated
account with its custodian, it will not be subject to the requirements described
in this paragraph.
The Fund's successful use of index futures contracts and options on
indices depends upon the Portfolio Management Agent's ability to predict the
direction of the market and is subject to various additional risks. The
correlation between movements in the price of the index future and the price of
the securities being hedged is imperfect and the risk from imperfect correlation
increases as the composition of the Fund's portfolio diverges from the
composition of the relevant index. In addition, if the Fund purchases futures to
hedge against market advances before it can invest in a security in an
advantageous manner and the market declines, the Fund might create a loss on the
futures contract. Particularly in the case of options on stock indices, the
Fund's ability to establish and maintain positions will depend on market
liquidity. In addition, the ability of the Fund to close out an option depends
on a liquid secondary market. The risk of loss to the Fund is theoretically
unlimited when it writes (sells) a futures contract because a Fund is obligated
to settle for the value of the contract unless it is closed out, regardless of
fluctuations in the underlying index. There is no assurance that liquid
secondary markets will exist for any particular option at any particular time.
14
Although the Fund has no present intention to invest 5% or more of its
assets in index futures and options on indices, the Fund has the authority to
invest up to 25% of its net assets in such securities.
See additional risk disclosure above under "Interest Rate Futures
Contracts and Related Options."
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS (DELAYED-DELIVERY).
When-issued purchases and forward commitments (delayed-delivery) are commitments
by the Fund to purchase or sell particular securities with payment and delivery
to occur at a future date (perhaps one or two months later). These transactions
permit the Fund to lock-in a price or yield on a security, regardless of future
changes in interest rates.
When the Fund agrees to purchase securities on a when-issued or forward
commitment basis, the Custodian will segregate on the books of the Fund the
liquid assets of the Fund. Normally, the Custodian will set aside portfolio
securities to satisfy a purchase commitment, and in such a case the Fund may be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of the
Fund's commitments. Because the Fund's liquidity and ability to manage its
portfolio might be affected when it sets aside cash or portfolio securities to
cover such purchase commitments, the Portfolio Management Agent expects that its
commitments to purchase when-issued securities and forward commitments will not
exceed 25% of the value of the Fund's total assets absent unusual market
conditions.
The Fund will purchase securities on a when-issued or forward
commitment basis only with the intention of completing the transaction and
actually purchasing the securities. If deemed advisable as a matter of
investment strategy, however, the Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Fund on the settlement
date. In these cases the Fund may realize a capital gain or loss for federal
income tax purposes.
When the Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or
a forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
the Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
15
ZERO COUPON SECURITIES. A zero coupon security, which may be purchased
by the Fund, is a debt obligation that does not entitle the holder to any
periodic payments of interest prior to maturity and therefore is issued and
traded at a discount from its face amount. Zero coupon securities may be created
by separating the interest and principal components of securities issued or
guaranteed by the United States Government or one of its agencies or
instrumentalities or issued by private corporate issuers. These securities are
not obligations issued or guaranteed by the United States Government. Typically,
a custodian bank or investment brokerage firm holding the security has separated
("stripped") the unmatured interest coupons from the underlying principal. The
holder may then resell the stripped securities. The stripped coupons are sold
separately from the underlying principal, usually at a deep discount because the
buyer receives only the right to receive a fixed payment on the security upon
maturity and does not receive any rights to reinvestment of periodic interest
(cash) payments. Because the rate to be earned on these reinvestments may be
higher or lower than the rate quoted on the interest-paying obligations at the
time of the original purchase, the investor's return on investments is uncertain
even if the securities are held to maturity. This uncertainty is commonly
referred to as reinvestment risk. With zero coupon securities, however, there
are no cash distributions to reinvest, so investors bear no reinvestment risk if
they hold the zero coupon securities to maturity; holders of zero coupon
securities, however, forego the possibility of reinvesting at a higher yield
than the rate paid on the originally issued security. With both zero coupon
securities and interest-paying securities there is no reinvestment risk on the
principal amount of the investment. When held to maturity, the entire return
from such instruments is determined by the difference between such instrument's
purchase price and its value at maturity. Because interest on zero coupon
securities is not paid on a current basis, the values of securities of this type
are subject to greater fluctuations than are the values of securities that
distribute income regularly. In addition, the Fund's investment in zero coupon
securities will result in special tax consequences. Although zero coupon
securities do not make interest payments, for tax purposes, a portion of the
difference between the security's maturity value and its purchase price is
imputed income to the Fund each year. Under the federal tax laws applicable to
investment companies, the Fund will not be subject to tax on its income if it
pays annual dividends to its shareholders substantially equal to all the income
received from, and imputed to, its investments during the year. Because imputed
income must be paid to shareholders annually, the Fund may need to borrow money
or sell securities to meet certain dividend and redemption obligations. In
addition, the sale of securities by the Fund may increase its expense ratio and
decrease its rate of return.
RATINGS
After purchase by the Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the Fund to sell such security unless the amount of
such securities exceeds permissible limits established in the Prospectus.
However, the Trust's Portfolio Management Agent will reassess promptly whether
the security presents minimal credit risks and determine whether continuing to
hold the security is in the best interests of the Fund. To the extent the
ratings given by any
16
nationally recognized statistical rating organization may change as a result of
changes in such organizations or in their rating systems, the Fund will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained in the Prospectus and in this Statement of
Additional Information.
For additional information on ratings, see Appendix A to this Statement
of Additional Information.
INVESTMENT RESTRICTIONS
In addition to the fundamental investment limitations disclosed in the
Fund's Prospectus, the Fund is subject to the investment limitations enumerated
in this section which may be changed only when permitted by law and approved by
the holders of a majority of the Fund's outstanding voting securities, as
described under "Beneficial Interest."
The Fund may not:
-----------------
(1) issue senior securities or borrow money (except that the Fund may
borrow from banks up to 10% of the current value of the Fund's net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of not more than 10% of the current value of the Fund's
total assets, but investments may not be purchased by the Fund while any such
borrowing exists);
(2) pledge or mortgage its assets (except that the Fund may pledge its
assets as described in (1) above and (i) to secure letters of credit solely for
the purpose of participating in a captive insurance company sponsored by the
Investment Company Institute to provide fidelity and directors' and officers'
liability insurance or (ii) to a broker for the purpose of collateralizing
investments, such as stock index futures contracts and put options);
(3) make loans, except loans of portfolio securities and except that
the Fund may purchase or hold a portion of an issue of publicly distributed
bonds, debentures or other obligations, purchase negotiable certificates of
deposit and bankers' acceptances and enter into repurchase agreements with
respect to its portfolio securities;
(4) purchase or sell real estate (other than securities secured by real
estate or interests therein, securities backed by mortgages or securities issued
by companies that invest in real estate or interests therein), real estate
limited partnerships, commodities or commodity contracts (except futures,
options and options on futures);
(5) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and margin payments in connection
with transactions in futures, options and options on futures) or make short
sales of securities;
(6) underwrite securities of other issuers, except to the extent that
the purchase of municipal obligations or other permitted investments directly
from the issuer thereof or from
17
an underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or
management; or
(8) purchase securities of other investment companies, except
securities of certain money market funds in accordance with the Fund's
investment objective and policies and to the extent permissible under the 1940
Act, and except in connection with a merger, consolidation, acquisition,
spin-off or reorganization.
Each of the foregoing investment restrictions is a fundamental policy
of the Fund that may be changed only when permitted by law and approved by the
holders of a majority of the Fund's outstanding voting securities, as described
under "Beneficial Interest."
In addition to the above fundamental investment policies, each of the
following investment restrictions may be changed at any time by the Board of
Trustees.
The Fund may not:
-----------------
(1) invest more than 5% of the current value of its net assets in
warrants, valued at the lower of cost or market, and no more than 2% of its net
assets may be invested in warrants that are not listed on the New York or
American Stock Exchanges. (Warrants acquired in units or attached to securities
may be deemed to be without value.);
(2) invest in oil, gas and other mineral leases, exploration or
development programs; or
(3) purchase or retain the securities of any issuer if the officers,
directors/trustees or partners of the Trust, its Investment Adviser, Portfolio
Management Agent, or Administrator owning beneficially more than one-half of 1%
of the securities of each issuer together own beneficially more than 5% of such
securities.
Whenever any investment restriction states a maximum percentage of the
Fund's assets, it is intended that if the percentage limitation is met at the
time the action is taken, subsequent percentage changes resulting from
fluctuating asset values will not be considered a violation of such
restrictions.
MANAGEMENT
TRUSTEES AND OFFICERS
- ---------------------
The principal occupations of the trustees and executive officers of the
Trust for the past five years are listed below. The address of each, unless
otherwise indicated, is 60 State Street, Suite 1300, Boston, Massachusetts
02109. Trustees deemed to be "interested persons" of the Trust for purposes of
the 1940 Act are indicated by an asterisk.
18
C. GARY GERST, Trustee; Chairman of the Board of Trustees - 11 South LaSalle
Street, Chicago, Illinois 60603. Age [56]. Chairman Emeritus since 1993 and
formerly Co-Chairman, LaSalle Partners Ltd. (Real Estate Developer and Manager).
Director, Trustee or Partner, LaSalle Street Fund Inc., LaSalle Street Fund Inc.
of Delaware, DEL-LPL Limited Partnership and DEL-LPAML Limited Partnership
EDGAR R. FIEDLER, Trustee - 50114 Manly, Chapel Hill, North Carolina 27514. Age
[65]. Senior Fellow and Economic Counsellor, The Conference Board; Director or
Trustee, The Stanley Works, AARP Income Trust, The Brazil Fund, Scudder
Institutional Funds, Zurich-American Insurance Company and The Emerging Mexico
Fund. Formerly Assistant Secretary of the Treasury for Economic Policy
(1971-1975).
JOHN W. MCCARTER, JR., Trustee - The Field Museum of Natural History, Chicago,
Illinois 60606. Age [57]. President and Chief Executive Officer, The Field
Museum of Natural History (Chicago), Senior Vice President (until April 1, 1997)
and former Director of Booz-Allen & Hamilton, Inc. (Consulting Firm); Director
of W.W. Grainger, Inc. and A.M. Castle, Inc.
ERNEST M. ROTH, Trustee - 205 Abingdon Avenue, Kenilworth, Illinois 60043. Age
[67]. Consultant since 1992. Consultant; Formerly, Senior Vice President and
Chief Financial Officer, Commonwealth Edison Company. Director of LaRabida
Children's Hospital and Chairman of LaRabida Children's Foundation.
[OFFICER BIOGRAPHIES TO BE COMPLETED]
RICHARD W. INGRAM, President, Treasurer and Chief Financial Officer. Age [ ].
JOHN E. PELLETIER, Vice President and Secretary. Age [ ].
CHRISTOPHER J. KELLEY, Vice President and Assistant Secretary. Age 31.
MARY A. NELSON, Assistant Treasurer. Age 32.
THOMAS J. RYAN, Assistant Treasurer, 103 Bellevue Parkway, Wilmington, Delaware
19809. Age [ ].
ELIZABETH A. BACHMAN, Assistant Secretary, 200 Park Avenue, 6th Floor, New York,
New York 10166. Age [ ].
JOSEPH T. GRAMLICH, Assistant Secretary, 400 Bellevue Parkway, Wilmington,
Delaware 19809. Age [ ].
KAREN JACOPPO-WOOD, Assistant Secretary. Age 29.
19
ANDREA M. PASSARELLA, Assistant Secretary, 400 Bellevue Parkway, Wilmington,
Delaware 19809. Age [ ].
SHARON VANDIVER, Assistant Secretary, 400 Bellevue Parkway, Wilmington, Delaware
19809. Age [ ].
Prior to the public issuance of shares of the Fund, due to its initial
investment, Funds Distributor, Inc. ("FDI") owned all outstanding shares of the
Fund, and, accordingly, may have been deemed a controlling person of the Fund.
Upon the investment in the Fund by public shareholders, FDI ceased to be a
controlling person. From time to time, certain shareholders may own a large
percentage of the shares of the Fund. Accordingly, those shareholders may be
able to greatly affect, if not determine, the outcome of a shareholder vote.
As of ________, 1996, the Trustees and officers owned, in the
aggregate, less than (1%) in each class of the outstanding shares of the Fund.
Trustees of the Trust who are not interested persons receive from the
Trust an annual fee in addition to a fee for each Board of Trustees and Board
committee meeting attended and are reimbursed for all out-of-pocket expenses
relating to attendance at meetings.
The following table summarizes the compensation paid by the Trust to
Trustees of the Trust for the fiscal year ended December 31, 1996:
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefit Estimated Total Com-
Name of Person, Compensation Accrued as Part Annual Benefits pensation from the Trust
Position from the Trust of Fund Expenses Upon Retirement and Fund Complex
-------- -------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
C. Gary Gerst, $ None None $
Chairman and
Trustee
Edgar R. Fiedler $ None None $
Trustee (1)
John W. McCarter, Jr. $ None None $
Trustee
Ernest M. Roth $ None None $
Trustee
- -------------------
(1) For the period June 1988 through December 31, 1996, the total amount of
compensation (including interest) payable or accrued for Mr. Fiedler was $_____
pursuant to the Trust's and the Company's Deferred Compensation Plan for its
Independent Trustees and Directors.
</TABLE>
20
Investment Adviser and Portfolio Management Agent. The Fund is advised
by Harris Trust and Savings Bank ("Harris Trust"). Harris Trust has entered into
a Portfolio Management Contract with Harris Investment Management, Inc. ("HIM"),
under which HIM is responsible for providing daily portfolio management services
to the Fund. Under the Portfolio Management Contract, Harris Trust remains
responsible for the supervision and oversight of HIM's performance.
The Advisory Contract and Portfolio Management Contract with respect to
the Fund will continue in effect for a period of two years from the commencement
of the Fund's operations, and thereafter from year to year provided the
continuance is approved annually (i) by the holders of a majority of the Fund's
outstanding voting securities or by the Trust's Board of Trustees and (ii) by a
majority of the Trustees of the Trust who are not parties to the Advisory
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
Such Contracts may be terminated on 60 days' written notice by either party and
will terminate automatically if assigned.
Portfolio Management. The skilled teams behind the Harris Insight Funds
believe that consistent investment performance requires discipline, focus,
knowledge, and excellent informational resources.
The money management philosophy that Harris Investment Management
employs focuses on two key points:
o Active management is a key component of superior performance.
o A systematic investment process may increase both consistency and levels
of relative performance.
Experience and creativity, combined with technological support, are
most likely to result in successful investment decisions. Harris Investment
Management offers investors that powerful combination for managing their money.
More importantly, instead of relying on individual stars to manage its mutual
funds, Harris Investment Management has established a strong professional team
of seasoned portfolio managers and analysts. Together, they take a
quantitatively-driven approach to investing, focusing on their investors' needs,
concerns and investment goals.
Harris Investment Management is a leader in the application of analytic
techniques used in the selection of portfolios. Harris Investment Management's
equity investment process focuses on maintaining a well-diversified portfolio of
stocks whose prices are determined to be attractively ranked based upon their
future potential.
After identifying the appropriate type of universe for each Fund -
whether the stocks are issued by large, established companies, or by smaller
firms, - Harris Investment Management gathers fundamental, quality and liquidity
data. A multi-factor model then ranks
21
and/or scores the stocks. Stocks which fail to meet Harris Investment
Management's hurdles are removed from further consideration.
Attractive stocks are periodically identified and added to the
portfolio, while those that have become unattractive are systematically
replaced. Fund portfolio managers, in conjunction with Harris Investment
Management's experienced research analysts, play a role throughout the process.
Administrator. Harris Trust serves as the Fund's administrator
("Administrator") pursuant to an Administration Agreement and in that capacity
generally assists the Fund in all aspects of its administration and operation.
The Administrator has entered into a Sub-Administration Agreement with Funds
Distributor, Inc. ("Funds Distributor") and a Sub-Administration and Accounting
Services Agreement with PFPC, Inc. ("PFPC") (the "Sub-Administrators"). Funds
Distributor has agreed to furnish officers for the Trust; provide corporate
secretarial services; prepare and file various reports with the appropriate
regulatory agencies; and prepare various materials required by the Commission.
PFPC has agreed to furnish officers for the Trust; provide accounting and
bookkeeping services for the Fund, including the computation of the Fund's net
asset value, net income and realized capital gains, if any; and prepare various
materials required by any state securities commission having jurisdiction over
the Trust.
Distributor. Funds Distributor, Inc. (the "Distributor") has entered
into a Distribution Agreement with the Trust pursuant to which it is responsible
for distributing shares of the Fund.
Other Information Pertaining to Distribution, Administration,
Sub-Administration, Custodian, Transfer Agency and Sub-Transfer Agency
Agreements. Harris Trust serves as the transfer agent and dividend disbursing
agent ("Transfer Agent") of the Fund pursuant to a Transfer Agency Services
Agreement. The Transfer Agent has entered into a Sub-Transfer Agency Services
Agreement with PFPC (the "Sub-Transfer Agent"). PFPC is an affiliate of PNC
Bank, N.A., the Custodian for the Trust. PFPC and PNC Bank, N.A. are not
affiliates of Funds Distributor, Harris Trust or Harris Investment Management,
Inc.
The contracts of the Trust with the Investment Adviser, Investment
Sub-Adviser and Portfolio Management Agent (the "Contractors") provide that if,
in any fiscal year, the total expenses of the Fund (excluding taxes, interest,
brokerage commissions and other portfolio transaction expenses, other
expenditures that are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses and payments under plans of the
Fund adopted pursuant to Rule 12b-1 under the Act (the "Service Plans"), but
including the fees provided for pursuant to the Fund's agreements relating to
the provision of various advisory and administration services) exceed the most
restrictive expense limitation applicable to the Fund imposed by the securities
laws or regulations of any state in which the Fund's shares are registered for
sale, such parties shall waive their fees proportionately under the Advisory
Contract with respect to the Fund and fee arrangement with the Fund's
Administrator, Sub-Administrators, Transfer Agent, Sub-Transfer Agent and
Custodian for the
22
fiscal year to the extent of the excess or reimburse the excess, but only to the
extent of their respective fees. The Trust believes that currently the most
restrictive applicable expense limitation is 2.5% of the first $30 million of
average net assets, 2% of the next $70 million of average net assets and 1.5% of
average net assets in excess of $100 million.
SERVICE PLAN
As indicated in the Prospectus, the Fund has adopted a Service Plan
under Section 12(b) of the 1940 Act and Rule 12b-1 promulgated thereunder ("Rule
12b-1") with respect to Class A Shares of the Fund. The Service Plan has been
adopted by the Board of Trustees, including a majority of the Trustees who were
not "interested persons" (as defined by the 1940 Act) of the Trust and who had
no direct or indirect financial interest in the operation of the Service Plan or
in any agreement related to the Plan (the "Qualified Trustees"). The Service
Plan will continue in effect from year to year if such continuance is approved
by a majority vote of both the Trustees of the Trustees and the Qualified
Trustees. Agreements related to the Service Plan must also be approved by such
vote of the Trustees and the Qualified Trustees. The Service Plan will terminate
automatically if assigned, and may be terminated at any time, without payment of
any penalty, by a vote of a majority of the outstanding voting securities of the
Fund. The Service Plan may not be amended to increase materially the amounts
payable to Service Agents without the approval of a majority of the outstanding
voting securities of the Fund, and no material amendment to the Service Plan may
be made except by a majority of both the Trustees of the Trustees and the
Qualified Trustees.
The Service Plan requires that certain service providers furnish to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes therefore) under the Service Plan. Rule 12b-1
also requires that the selection and nomination of Trustees who are not
"interested persons" of the Trust be made by such disinterested Trustees.
Class A Shares of the Fund bear the costs and expenses connected with
advertising and marketing the Fund's Class A Shares and pay the fees of
financial institutions (which may include banks), securities dealers and other
industry professionals, such as investment advisors, accountants and estate
planning firms (collectively, "Service Agents") for servicing activities, as
described below, at a rate of up to 0.25% per annum of the value of Class A
Shares of the Fund's average daily net assets.
Servicing activities provided by Service Agents to their customers
investing in Class A Shares of the Fund may include, among other things, one or
more of the following: establishing and maintaining shareholder accounts and
records; processing purchase and redemption transactions; answering customer
inquiries regarding Class A Shares of the Fund; assisting customers in changing
dividend options; account designations and addresses; performing sub-accounting;
investing customer cash account balances automatically in Class A Shares of the
Fund; providing periodic statements showing a customer's account balance and
integrating such statements with those of other transactions and balances in the
customer's other accounts serviced by the Service Agent; arranging for bank
wires; distribution and such
23
other services as the Fund may request, to the extent the Service Agent is
permitted by applicable statute, rule or regulation.
CALCULATION OF YIELD AND TOTAL RETURN
The Trust may make available 30-day yield quotations with respect to
each class of shares of the Fund. As required by regulations of the Securities
and Exchange Commission, the 30-day yield is computed by dividing the Fund's net
investment income per share earned during the period by the net asset value on
the last day of the period. The average daily number of shares outstanding
during the period that are eligible to receive dividends is used in determining
the net investment income per share. Income is computed by totaling the interest
earned on all debt obligations during the period and subtracting from that
amount the total of all recurring expenses incurred during the period. The
30-day yield is then annualized assuming semi-annual reinvestment and
compounding of net investment income.
The Trust may also make available total return quotations for the Fund.
Total return is computed by assuming a hypothetical initial investment of $1,000
and reflects the imposition of the maximum sales charge. It is assumed that all
of the dividends and distributions by the Fund over the specified period of time
were reinvested. It is then assumed that at the end of the specified period, the
entire amount was redeemed. The average annual total return is then calculated
by calculating the annual rate required for the initial investment to grow to
the amount that would have been received upon redemption.
The Fund may also calculate an aggregate total return which reflects
the cumulative percentage change in value over the measuring period. The
aggregate total return can be calculated by dividing the amount received upon
redemption by the initial investment and subtracting one from the result.
Current yield and total return for the Fund will fluctuate from time to
time, unlike bank deposits or other investments which pay a fixed yield for a
stated period of time, and do not provide a basis for determining future yields.
Yield (or total return) is a function of portfolio quality, composition,
maturity and market conditions as well as expenses allocated to the Fund.
Performance data of the Fund may be compared to those of other mutual
funds with similar investment objectives and to other relevant indices, such as
those prepared by Salomon Brothers Inc. or Lehman Brothers Inc., or any of their
affiliates or to ratings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
such data is reported in national financial publications such as IBC/Donoghue's
Money Fund Report and Bank Rate Monitor (for money market deposit accounts
offered by the 50 leading banks and thrift institutions in the top five
metropolitan statistical areas), Money, Forbes, Barron's, The Wall Street
Journal and The New York Times, reports prepared by Lipper Analytical Services
and publications of a local or regional nature. Performance information may be
quoted numerically or may be presented in a table,
24
graph or other illustrations. All performance information advertised by the Fund
is historical in nature and is not intended to represent or guarantee future
results.
In addition, investors should recognize that changes in the net asset
value of shares of the Fund will affect the yield of the Fund for any specified
period, and such changes should be considered together with the Fund's yield in
ascertaining the Fund's total return to shareholders for the period. Yield
information for the Fund may be useful in reviewing the performance of the Fund
and for providing a basis for comparison with investment alternatives. The yield
of the Fund, however, may not be comparable to other investment alternatives
because of differences in the foregoing variables and differences in the methods
used to value portfolio securities, compute expenses and calculate yield.
DETERMINATION OF NET ASSET VALUE
As described under "Determination of Net Asset Value" in the
Prospectus, net asset value per share is determined at least as often as each
day that the Federal Reserve Board of Philadelphia and the New York Stock
Exchange are open, i.e., each weekday other than New Year's Day, Martin Luther
King, Jr Day, Presidents' Day (the third Monday in February), Good Friday,
Memorial Day (the last Monday in May), Independence Day, Labor Day (the first
Monday in September), Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas Day (each, a "Holiday").
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Trust's Board of Trustees, HIM is responsible for the Fund's
portfolio decisions and the placing of such portfolio transactions. In placing
orders, it is the policy of the Trust to obtain the best results taking into
account the dealer's general execution and operational facilities, the type of
transaction involved and other factors such as the dealer's risk in positioning
the securities involved. While HIM generally seeks reasonably competitive
spreads or commissions, the Fund will not necessarily be paying the lowest
spread or commission available.
Fixed income securities transactions are normally made on a principal
basis. Portfolio securities normally will be purchased to or sold from dealers
serving as market makers for the securities at a net price. The Fund will also
purchase portfolio securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing the Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Trust are
prohibited from dealing with the Trust as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the Commission.
25
HIM may, in circumstances in which two or more dealers are in a
position to offer comparable results for the Fund, give preference to a dealer
that has provided statistical or other research services to such adviser. By
allocating transactions in this manner, HIM is able to supplement its own
research and analysis with the views and information of other securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed under the Portfolio Management Contract, and the
expenses of such portfolio management agent will not necessarily be reduced as a
result of the receipt of this supplemental research information. Furthermore,
research services furnished by dealers through whom HIM effects securities
transactions for the Fund may be used by HIM in servicing their other accounts,
and not all of these services may be used by HIM in connection with advising the
Fund.
Purchases and sales of securities on a securities exchange are effected
through brokers who charge a negotiated commission for their services. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Harris Investors Direct, Inc. ("Harris Investors
Direct" or "HID"). In the over-the-counter market, securities are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually includes
a profit to the dealer. In underwritten offerings, securities are purchased at a
fixed price that includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. The Fund will
not deal with the Distributor or Harris Investors Direct in any transaction in
which either one acts as principal except as may be permitted by the Securities
and Exchange Commission.
In placing orders for portfolio securities of the Fund, HIM is required
to give primary consideration to obtaining the most favorable price and
efficient execution. This means that HIM will seek to execute each transaction
at a price and commission, if any, that provide the most favorable total cost or
proceeds reasonably attainable in the circumstances. While HIM will generally
seek reasonably competitive spreads or commissions, the Fund will not
necessarily be paying the lowest spread or commission available. Commission
rates are established pursuant to negotiations with the broker based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The allocation of orders among brokers and the
commission rates paid are reviewed periodically by the Board of Trustees.
FEDERAL INCOME TAXES
The Prospectus describes generally the tax treatment of distributions
by the Trust. This section of the Statement includes additional information
concerning federal taxes.
The Fund will be treated as a separate entity for federal income tax
purposes and thus the provisions of the Code generally will be applied to each
portfolio of the Trust separately, rather than to the Trust as a whole.
26
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code") generally requires, among other
things, that (a) at least 90% of the Fund's annual gross income (without offset
for losses) be derived from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of stocks, securities or
options thereon and certain other income including, but not limited to, gains
from futures contracts; (b) the Fund derives less than 30% of its gross income
from gains (without offset for losses) from the sale or other disposition of
stocks, securities or options thereon and certain futures contracts held for
less than three months; and (c) the Fund diversifies its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, government securities and
other securities, with such other securities limited in respect of any one
issuer to an amount not greater than 5% of each Fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government securities). As a regulated investment company, each Fund will
not be subject to federal income tax on its net investment income and net
capital gains distributed to its shareholders, provided that it distributes to
its shareholders at least 90% of its net investment income (including net
short-term capital gains) earned in each year.
The Fund will generally be subject to an excise tax of 4% of the amount
of any income or capital gains distributed to shareholders on a basis such that
such income or gain is not taxable to shareholders in the calendar year in which
it was earned by the Fund. The Fund intends that it will distribute
substantially all of its net investment income and net capital gains in
accordance with the foregoing requirements, and, thus, expects not to be subject
to the excise tax. Dividends declared by the Fund in October, November or
December payable to shareholders of record on a specified date in such a month
and paid in the following January will be treated as having been paid by the
Fund and received by shareholders on December 31 of the calendar year in which
declared.
Income received by the Fund from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested in
various countries is not known.
Gains or losses on sales of securities by the Fund generally will be
long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases where the Fund acquires a put or
writes a call thereon. Other gains or losses on the sale of securities will be
short-term capital gains or losses.
If an option written by the Fund lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund may realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount paid by the Fund
in the closing transaction.
27
If securities are sold by the Fund pursuant to the exercise of a call
option written by it, the Fund will add the premium received to the sale price
of the securities delivered in determining the amount of gain or loss on the
sale. If securities are purchased by the Fund pursuant to the exercise of a put
option written by it, the Fund will subtract the premium received from its cost
basis in the securities purchased. The requirement that the Fund derive less
than 30% of its gross income from gains from the sale of securities held for
less than three months may limit the Fund's ability to write options.
If, in the opinion of the Trust, ownership of its shares has or may
become concentrated to an extent that could cause the Trust to be deemed a
personal holding company within the meaning of the Code, the Trust may require
the redemption of shares or reject any order for the purchase of shares in an
effort to prevent such concentration.
BENEFICIAL INTEREST
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, $.001 par
value, and to create one or more classes of these shares. Pursuant thereto, the
Trustees have authorized the issuance of two classes of shares, Class A Shares
and Institutional Shares, for each of the twelve Funds of the Trust.
Generally, all shares of the Trust have equal voting rights and will be
voted in the aggregate, and not by class, except where voting by class is
required by law or where the matter involved affects only one class. As used in
the Prospectus and in this Statement of Additional Information, the term
"majority," when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Funds (e.g., annual election of
directors and ratification of independent accountants), means the vote of the
lesser of (i) 67% of the Trust's shares represented at a meeting if the holders
of more than 50% of the outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Trust's outstanding shares. The term "majority," when
referring to the approvals to be obtained from shareholders in connection with
matters affecting a single Fund or any other single Fund (e.g., annual approval
of advisory contracts), means the vote of the lesser of (i) 67% of the shares of
the Fund represented at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (ii) more
than 50% of the outstanding shares of the Fund. Shareholders are entitled to one
vote for each full share held and fractional votes for fractional shares held.
Each share of the Fund represents an equal proportionate interest in
the Fund with each other share of the Fund and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Trust's Board of Trustees. Notwithstanding
the foregoing, the Fund's Class A Shares bear exclusively the expense of fees
paid to Service Organizations with respect to Class A Shares. In the event of
the liquidation or dissolution of the Trust (or the Fund), shareholders of the
Fund are entitled to receive the assets attributable to the Fund that are
available for distribution, and a distribution of any general assets not
attributable to a particular Fund that are available for
28
distribution in such manner and on such basis as the Trustees in their sole
discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Trust.
OTHER
The Registration Statement, including the Prospectus, the Statement of
Additional Information and the exhibits filed therewith, may be examined at the
office of the Commission in Washington, D.C. Statements contained in the
Prospectus or this Statement of Additional Information as to the contents of any
contract or other document referred to herein or in the Prospectus 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, each such statement being qualified in all respects by such
reference.
CUSTODIAN
As the Trust's custodian, PNC Bank, N.A., among other things, maintains
a custody account or accounts in the name of the Fund, receives and delivers all
assets for the Fund upon purchase and upon sale or maturity, collects and
receives all income and other payments and distributions on account of the
assets of the Fund, and pays all expenses of the Fund.
INDEPENDENT ACCOUNTANTS
_______________ has been selected as the independent accountants for
the Trust. ________________ provides audit services and assistance and
consultation in connection with review of certain Commission filings
__________________ . address is ___________________ .
29
APPENDIX A
Description of Bond Ratings
The following summarizes the highest four ratings used by Standard &
Poor's Corporation ("S&P") for corporate and municipal debt:
AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in a small
degree.
A - Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for those in higher rated categories.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest four ratings used by Moody's
Investors Service, Inc. ("Moody's") for corporate and municipal long-term debt:
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger
than in Aaa securities.
A-1
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds that are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa, A and Baa. The modifier 1 indicates that the bond
being rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category. With regard to municipal
bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1 or
Baa1, respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds:
AAA - Debt rated AAA is of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Debt rated AA is of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from
time to time because of economic conditions.
A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable and
greater in periods of economic stress.
BBB - Bonds that are rated BBB have below average protection
factors but are still considered sufficient for prudent
investment. Considerable variability in risk during economic
cycles.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
A-2
The following summarizes the ratings used by IBCA Limited and IBCA Inc.
("IBCA") for bonds:
Obligations rated AAA by IBCA have the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial, such that adverse changes in business,
economic or financial conditions are unlikely to increase
investment risk significantly.
IBCA also assigns a rating to certain international and U.S.
banks. An IBCA bank rating represents IBCA's current assessment
of the strength of the bank and whether such bank would receive
support should it experience difficulties. In its assessment of a
bank, IBCA uses a dual rating system comprised of Legal Ratings
and Individual Ratings. In addition, IBCA assigns banks Longand
Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5,
address the question of whether the bank would receive support
provided by central banks or shareholders if it experienced
difficulties, and such ratings are considered by IBCA to be a
prime factor in its assessment of credit risk. Individual
Ratings, which range in gradations from A through E, represent
IBCA's assessment of a bank's economic merits and address the
question of how the bank would be viewed if it were entirely
independent and could not rely on support from state authorities
or its owners.
Description of Municipal Notes Ratings
The following summarizes the two highest ratings used by Moody's for
short-term notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations are of the
best quality, enjoying strong protection by established cash
flows, superior liquidity support or demonstrated broad-based
access to the market for refinancing.
MIG-2/VMIG-2. Obligations bearing these designations are of high
quality with margins of protection ample although not as large as
in the preceding group.
The following summarizes the two highest ratings by Standard & Poor's
for short-term municipal notes:
SP-1 - Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
A-3
SP-2 - Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt are Duff
1, Duff 2, and Duff 3. D&P employs three designations, Duff 1+, Duff 1 and Duff
1-, within the highest rating category. Duff 1+ indicates highest certainty of
timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small. Duff 2 indicates good certainty of timely
payment. Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small. Duff 3 indicates satisfactory liquidity
and other protection factors qualify issue as to investment grade. Risk factors
are larger and subject to more variation. Nevertheless, timely payment is
expected.
D&P uses the fixed-income ratings described above under "Description of
Bond Ratings" for tax-exempt notes and other short-term obligations.
Description of Commercial Paper Ratings
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted in A-1+. Capacity for timely payment
on commercial paper rated A-2 is satisfactory but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
Issuers rated Prime-2 (or related supporting institutions) are
considered to have strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
A-4
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or ready access
to alternative sources of funds, is judged to be "outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations" Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by strong fundamental protection factors. Risk factors are considered to be
minor. Duff 1 minus indicates high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
The following summarizes the highest ratings used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess exceptionally strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated F-1+.
Commercial paper rated A-1 by Standard & Poor's indicates that the
degree of safety regarding timely payment is strong. Those issued determined to
possess extremely strong safety characteristics are denoted A-1+.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
Thomson BankWatch, Inc. (TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned.
The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.
A-5
TBW-1 The highest category; indicates a very high degree
of likelihood that principal and interest will be
paid on a timely basis.
TBW-2 The second highest category; 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 The lowest investment grade category; indicates
that while more susceptible to adverse developments
(both internal and external) than obligations with
higher ratings, capacity to service principal and
interest in a timely fashion is considered
adequate.
TBW-4 The lowest rating category; this rating is regarded
as non-investment grade and therefore speculative.
A-6
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
- -------- ----------------------------------
(a) Included in Part A of this Registration Statement: Not applicable to this
filing.
Included in Part B of this Registration Statement: Not applicable to this
filing.
(b) Exhibits:
Note: As used herein the term "Registration Statement" refers to the
Registration Statement of Registrant under the Securities Act of 1933 on Form
N-1A, No. 33-64915. All references to a Post-Effective Amendment ("PEA") or
Pre-Effective Amendment ("PreEA") are to Post-Effective Amendments and
Pre-Effective Amendments to the Registration Statement.
(1)(a) Declaration of Trust dated December 6, 1995 (incorporated by
reference to Exhibit No. 1 to the Registration Statement filed on
December 12, 1995).
(1)(b) Amendment to Declaration of Trust (to be filed by amendment).
(2)(a) By-Laws (incorporated by reference to Exhibit No. 2 to the
Registration Statement).
(2)(b) Amendment to By-Laws (to be filed by amendment).
(3) Not applicable.
(4) Not applicable.
(5)(a)(i) Form of Advisory Contract between Registrant and Harris Trust and
Savings Bank (incorporated by reference to Exhibit 5(a) to PreEA No.
2 filed on February 21, 1996).
(5)(a)(ii) Notice to Harris Trust and Savings Bank as investment adviser
relating to the addition of a new series (to be filed by amendment).
(5)(b)(i) Form of Portfolio Management Contract between Harris Trust & Savings
Bank and Harris Investment Management, Inc. (incorporated by
reference to Exhibit 5(b) to PreEA No. 2 filed on February 21,
1996).
(5)(b)(ii) Notice to Harris Investment Management, Inc. as portfolio management
agent relating to the addition of a new series (to be filed by
amendment).
(6)(a) Form of Distribution Agreement between the Registrant and Funds
Distributor, Inc. (incorporated by reference to Exhibit 6(a) to
PreEA No. 3 filed on February 22, 1996).
(6)(b) Notice to Funds Distributor, Inc. as distributor relating to the
addition of a new series (to be filed by amendment).
(7) Not applicable.
(8)(a) Form of Custodian Agreement between Registrant and PNC Bank
(incorporated by reference to Exhibit 8 to PreEA No. 3 filed on
February 22, 1996).
(8)(b) Notice to PNC Bank as custodian relating to the addition of a new
series (to be filed by amendment).
(9)(a) Form of Transfer Agency Agreement between Registrant and PFPC Inc.
(incorporated by reference to Exhibit 9(a) to PreEA No. 3 filed on
February 22, 1996).
(9)(b) Form of Administration Agreement between Registrant and First Data
Investor Services Group (f/k/a The Shareholder Services Group, Inc.)
(incorporated by reference to Exhibit 9(b) to PreEA No. 3 filed on
February 22, 1996).
(9)(c) Form of Administration and Accounting Services Agreement between
Registrant and PFPC Inc. (incorporated by reference to Exhibit 9(c)
to PreEA No. 3 filed on February 22, 1996).
(9)(d)(i) Administration Agreement between Registrant and Harris Trust &
Savings Bank (to be filed by amendment).
(9)(d)(ii) Notice to Harris Trust and Savings Bank as Administrator relating to
the addition of a new series (to be filed by amendment).
(9)(e)(i) Sub-Administration Agreement between Harris Trust & Savings Bank and
Funds Distributor, Inc. (to be filed by amendment).
(9)(e)(ii) Notice to Funds Distributor, Inc as Sub-Administration Agent
relating to the addition of a new series (to be filed by amendment).
(9)(f)(i) Sub-Administration and Accounting Services Agreement between Harris
Trust & Savings Bank and PFPC Inc. (to be filed by amendment).
(9)(f)(ii) Notice to PFPC Inc. as sub-administration and accounting services
agent relating to the addition of a new series (to be filed by
amendment).
(9)(g)(i) Transfer Agency Services Agreement between Registrant and Harris
Trust & Savings Bank (to be filed by amendment).
(9)(g)(ii) Notice to Harris Trust and Savings Bank as transfer agent relating
to the addition of a new series (to be filed by amendment).
(9)(h)(i) Sub-Transfer Agency Services Agreement between Harris Trust &
Savings Bank and PFPC Inc. (to be filed by amendment).
(9)(h)(ii) Notice to PFPC Inc. as sub-transfer agent relating to the addition
of a new series (to be filed by amendment).
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Form of Purchase Agreement relating to Initial Capital (incorporated
by reference to Exhibit 13 to the Registration Statement filed on
December 12, 1995).
(14) Not applicable.
(15) Form of Service Plan relating to Class A Shares (incorporated by
reference to Exhibit 15 to the Registration Statement filed on
December 12, 1995).
(16) Not applicable.
(17) Not applicable.
(18) Form of Multi-Class Plan (incorporated by reference to Exhibit No.
18 to PreEA No. 1 filed on February 9, 1996).
Item 25. Persons Controlled by or under Common Control with Registrant.
- -------- --------------------------------------------------------------
Not Applicable.
Item 26. Number of Holders of Securities.
- -------- --------------------------------
As of October 28, 1996, the number of record holders of each class of securities
of the Registrant were as follows:
<TABLE>
<CAPTION>
Title of Series Number of Record Holders
- --------------- ------------------------
<S> <C>
Bond Fund - Institutional Class Shares 8
Bond Fund - Class A Shares 9
Intermediate Tax-Exempt Bond Fund - Institutional Class Shares 6
Intermediate Tax-Exempt Bond Fund - Class A Shares 3
Tax-Exempt Bond Fund - Institutional Class Shares 6
Tax-Exempt Bond Fund - Class A Shares 5
Equity Income Fund - Institutional Class Shares 6
Equity Income Fund - Class A Shares 20
Growth Fund - Institutional Class Shares 7
Growth Fund - Class A Shares 49
Small-Cap Opportunity Fund - Institutional Class Shares 11
Small-Cap Opportunity Fund - Class A Shares 49
Index Fund - Institutional Class Shares 6
Index Fund - Class A Shares 41
International Fund - Institutional Class Shares 5
International Fund - Class A Shares 42
Convertible Securities Fund - Institutional Class Shares 0
Convertible Securities Fund - Class A Shares 0
Balanced Fund - Institutional Class Shares 0
Balanced Fund - Class A Shares 0
Intermediate Government Fund - Institutional Class Shares 0
Intermediate Government Fund - Class A Shares 0
</TABLE>
Item 27. Indemnification.
- -------- ----------------
Under Section 4.3 of the Registrant's Declaration of Trust, any past or
present Trustee or officer of Registrant (including persons who serve at
Registrant's request as directors, officers or trustees of another organization
in which Registrant has any interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person") shall be indemnified to the
fullest extent permitted by law against all liability and all expenses
reasonably incurred by him or her in connection with any claim, action, suit or
proceeding to which he or she may be a party or otherwise involved by reason of
his or her being or having been a Covered Person. That provision does not
authorize indemnification when it is determined, in the manner specified in the
Declaration of Trust, that such Covered Person has not acted in good faith in
the
reasonable belief that his or her actions were in or not opposed to the best
interests of Registrant. Moreover, that provision does not authorize
indemnification when it is determined, in the manner specified in the
Declaration of Trust, that such covered person would otherwise be liable to
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties. Expenses may be
paid by Registrant in advance of the final disposition of any claim, action,
suit or proceeding upon receipt of an undertaking by such Covered Person to
repay such expenses to Registrant in the event that it is ultimately determined
that indemnification of such expenses is not authorized under the Declaration of
Trust and the Covered Person either provides security for such undertaking or
insures Registrant against losses from such advances or the disinterested
Trustees or independent legal counsel determines, in the manner specified in the
Declaration of Trust, that there is reason to believe the Covered Person will be
found to be entitled to indemnification. This description is modified in its
entirety by the provision of Section 4.3 of Registrant's Declaration of Trust
contained in this Registration Statement as Exhibit 1 and incorporated herein by
reference.
The Distribution Agreement, the Custodian Agreement, the Transfer
Agency Services Agreement and the Administration and Accounting Services
Agreement (the "Agreements"), forms of which have been filed hereto as Exhibit
6, Exhibit 8, Exhibit 9(a) and Exhibit 9(c), respectively, provide for
indemnification. The general effect of these provisions is to indemnify entities
contracting with the Trust against liability and expenses in certain
circumstances. This description is modified in its entirety by the provisions of
the Agreements as contained in this Registration Statement and incorporated
herein by reference.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to Trustees,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a Trustee, officer
or controlling person of the Registrant in connection with the successful
defense of any claim, action, suit or proceeding) is asserted against the
Registrant by such Trustee, officer or controlling person in connection with the
shares being registered, the 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 Securities Act and will be governed by
the final adjudication of such issue.
Registrant and its trustees, officers and employees are insured, under
a policy of insurance maintained by Registrant, within the limits and subject to
the limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such directors or officers. The policy
expressly excludes coverage for any trustee or officer for any claim arising out
of any fraudulent act or omission, any dishonest act or omission or any criminal
act or omission of the trustee or officer.
Item 28. Business and Other Connections of Investment Adviser.
- -------- -----------------------------------------------------
(a) Harris Trust & Savings Bank ("Harris Trust"), an indirect,
wholly-owned subsidiary of the Bank of Montreal, serves as investment adviser to
the Harris Insight Equity Income Fund, Growth Fund, Small-Cap Opportunity Fund,
Index Fund, International Fund, Balanced Fund, Convertible Securities Fund, Bond
Fund, Intermediate Government Bond Fund, Intermediate Tax-Exempt Bond Fund and
Tax-Exempt Bond Fund. Harris Trust's business is that of an Illinois
state-chartered bank with respect to which it conducts a variety of commercial
banking and trust activities.
To the knowledge of Registrant, none of the directors or executive
officers of Harris Trust except those set forth below, is or has been at any
time during the past two fiscal years engaged in any other
business, profession, vocation or employment of a substantial nature. Set forth
below are the names and principal businesses of the directors and executive
officers of Harris Trust who are or during the past two fiscal years have been
engaged in any other business, profession, vocation or employment of a
substantial nature for their own account or in the capacity of director,
officer, employee, partner or trustee. All directors of Harris Trust also serve
as directors of Harris Bankcorp, Inc., the immediate parent of Harris Trust.
<TABLE>
<CAPTION>
Position(s) with Principal Business(es) During
Name Harris Trust the Last Two Fiscal Years
- ---- ------------ -------------------------
<S> <C> <C>
Alan G. McNally Chairman and Chairman of the Board and Chief
Chief Executive Executive Officer of Harris Trust & Savings
Officer Bank and Harris Bankcorp, Inc. Formerly,
Vice Chairman of Personal and Commercial
Financial Services of Bank of Montreal.
James O. Webb Director President, James O. Webb & Associates
Inc.
Matthew W. Barrett Director Chairman of the Board and Chief Executive
Officer of the Bank of Montreal.
F. Anthony Comper Director President and Chief Operating Officer of the
Bank of Montreal.
Susan T. Congalton Director Managing Director of Lupine Partners.
Formerly General Counsel and Chief
Financial Officer, Finance and Law of
Carson Pierre Scott Company.
Roxanne J. Decyk Director Vice President -- Corporate Planning,
Amoco Chemical Company. Formerly,
Senior Vice President of Commercial and
Industrial Sales, Amoco Chemical
Corporation.
Wilbur H. Gantz Director President and Chief Executive Officer,
PathoGenesis Corporation.
James J. Glasser Director Retired Chairman, President and Chief
Executive Officer of GATX Corporation.
Daryl F. Grisham Director President and Chief Executive Officer of
Parker House Sausage Company.
Dr. Leo M. Henikoff Director President and Chief Executive Officer of
Rush-Presbyterian - St. Luke's Medical
Center.
Dr. Stanley O. Ikenberry Director President of the University of Illinois.
Charles H. Shaw Director Chairman of the Shaw Company.
Richard E. Terry Director Chairman and Chief Executive Officer of
Peoples Energy Corporation.
William J. Weisz Director Chairman of the Board of Motorola, Inc.
Edward W. Lyman, Jr. Director Vice Chairman and Senior Executive Vice
President -- Corporate and Institutional
Financial Services, Harris Trust & Savings
Bank. Formerly, Department Executive,
Corporate Banking, Harris Trust & Savings
Bank.
Maribeth S. Rahe Director Vice Chairman and Senior Executive Vice
President -- Personal & Commercial
Services, Harris Trust & Savings Bank.
Formerly, Department Executive, Personal
Financial Services, Harris Trust & Savings
Bank.
</TABLE>
(b) Harris Investment Management, Inc. ("HIM"), an indirect subsidiary
of Bank of Montreal, serves as the Portfolio Management Agent of the Harris
Insight Equity Income Fund, Growth Fund, Small-Cap Opportunity Fund, Index Fund,
International Fund, Balanced Fund, Convertible Securities Fund, Bond Fund,
Intermediate Government Bond Fund, Intermediate Tax-Exempt Bond Fund and
Tax-Exempt Bond Fund pursuant to Portfolio Management Agreements with Harris
Trust. HIM's business is that of a Delaware corporation registered as an
investment adviser under the Investment Advisers Act of 1940.
To the knowledge of the Registrant, none of the directors or executive
officers of HIM, except those set forth below, is or has been at anytime during
the past two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature with respect to publicly traded companies for
their own account or in the capacity of director, officer, employees, partner or
trustee.
<TABLE>
<CAPTION>
Position(s) Principal Business(es) During
Name with HIM the Last Two Fiscal Years
- ---- -------- -------------------------
<S> <C> <C>
Brian J. Steck Director and Chairman of the Board of Harris
Chairman of the Investment Management, Inc. Vice-
Board Chairman of Investment Banking of Bank
of Montreal, President of the Bank of
Montreal Investment Management Limited.
Donald G.M. Coxe Director, President and President and Chief Investment Officer of
Chief Investment Officer Harris Investment Management, Inc.
Formerly, Chief Strategist of Nesbitt
Thomson, Inc.
William O. Leszinske President, Chief Manager of Equities, Harris
Investment Officer Investment Management, Inc.
Edward W. Lyman, Jr. Director Senior Executive Vice President --
Corporate & Institutional Financial Services,
Harris Trust & Savings Bank. Formerly,
Department Executive of Corporate
Banking, Harris Trust & Savings Bank.
Maribeth S. Rahe Director Senior Executive Vice President - -Personal
& Commercial Services, Harris Trust &
Savings Bank. Prior to January, 1994
Personal Financial Services Department
Executive of Harris Trust & Savings Bank.
Nancy B. Wolcott Director Executive Vice President -- Corporate &
Institutional Trust, Harris Trust & Savings
Bank. Formerly, Senior Vice President,
Harris Trust & Savings Bank.
Terry A. Jackson Director Executive Vice President, Bank of Montreal
Asset Management Services, President of
the Trust Company of the Bank of Montreal
and President of the Bank of Montreal
Investment Management. Vice President of
Nesbitt Thompson, Inc. Formerly,
Executive Vice President -- Retail and
Institutional Sales, Bank of Montreal.
Wayne Thomas Director Senior Vice President -- Personal
Investment Management, Harris Trust &
Savings Bank.
Carla Eyre Chief Financial and Senior Partner, Harris Investment
Chief Operating Officer Management, Inc.
Blanche Hurt Secretary Director of Harris Trust & Savings Bank
Trust and Investment Compliance Office.
Formerly, Corporate Fiduciary Officer of
Harris Trust & Savings Bank.
</TABLE>
Item 29. Principal Underwriter.
- -------- ----------------------
(a) In addition to the Harris Insight Funds Trust, Funds Distributor,
Inc. ("Funds Distributor") currently acts as distributor for BEA Investment
Funds, Inc., BJB Investment Funds, Foreign Fund, Inc., Fremont Mutual Funds,
Inc., HT Insight Funds, Inc., JPM Advisors Funds, JPM Institutional Funds, LKCM
Fund, The Munder Funds Trust, The Munder Funds, Inc., The PanAgora Institutional
Funds, RCM Capital Funds, Inc., RCM Equity Funds, Inc., Sierra Trust Funds, St.
Clair Money Market Fund, The Skyline Funds, The Pierpont Funds and Waterhouse
Investors Cash Management Fund, Inc. Funds Distributor is registered with the
Securities and Exchange Commission as a broker-dealer and is a member of the
National Association of Securities Dealers. Funds Distributor is an indirect
wholly-owned subsidiary of Boston Institutional Group, Inc., a holding company
all of whose outstanding shares are owned by key employees.
(b) The information required by this Item 29 (b) with respect to each
director, officer, or partner of Funds Distributor is incorporated by reference
to Schedule A of Form BD filed by Funds Distributor with the Securities and
Exchange Commission pursuant to the Securities Act of 1934 (File No. 8-20518).
(c) Not applicable.
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules promulgated thereunder are
maintained at one or more of the following offices: Harris Insight Funds Trust,
60 State Street, Boston, Massachusetts 02109; PNC Bank, N.A., Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19107; PFPC Inc., 103 Bellevue Parkway,
Wilmington, Delaware 19809; or Harris Trust & Savings Bank, 111 West Monroe
Street, Chicago, Illinois 60690.
Item 31. Management Services.
- -------- --------------------
Other than as set forth under the captions "Management" in the
Prospectuses constituting Part A of this Registration Statement and "Management"
in the Statement of Additional Information constituting Part B of this
Registration Statement, Registrant is not a party to any management-related
service contracts.
Item 32. Undertakings.
- -------- -------------
(a) Not applicable.
(b) The undersigned Registrant hereby undertakes to file a
post-effective amendment, using financial statements which need not be certified
with respect to Harris Insight Small-Cap Value Fund within four to six months
after the effective date of the Registration Statement under the Securities Act
of 1933.
(c) The undersigned Registrant will afford to shareholders of Harris
Insight Small-Cap Value Fund the rights provided by section 16(c) of the
Investment Company Act of 1940 so long as Registrant does not hold annual
meetings of its shareholders.
(d) The Registrant will furnish each person to whom a Prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 2 to the Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Boston and Commonwealth of Massachusetts on the 29th day of October, 1996.
Harris Insight Funds Trust
By: /s/ Richard W. Ingram
------------------------------
Richard W. Ingram, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 1 to the Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Richard W. Ingram President, Treasurer and October 28, 1996
- ------------------------ Chief Financial Officer
Richard W. Ingram
/s/ C. Gary Gerst Trustee and Chairman October 28, 1996
- ------------------------ of the Board
C. Gary Gerst
/s/ Edgar R. Fiedler Trustee October 28, 1996
- ------------------------
Edgar R. Fiedler
/s/ John W. McCarter, Jr. Trustee October 28, 1996
- ------------------------
John W. McCarter, Jr.
/s/ Ernest M. Roth Trustee October 28, 1996
- ------------------------
Ernest M. Roth
</TABLE>
