As filed with the Securities and Exchange Commission on February 21,
1996
Securities Act File No. 811-7447
Investment Company Act File No. 33-64915
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. 2 X
Post-Effective Amendment No.
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 2 X
HARRIS INSIGHT FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
One Exchange Place, Boston, Massachusetts 02109
(Address of Principal Executive Offices including Zip Code)
Registrant's Telephone Number, including Area Code: (800) 982-8782
Name and Address of Agent for Service: Copies to:
Lisa Anne Rosen Cameron S. Avery, Esq.
Harris Insight Funds Trust Bell, Boyd & Lloyd
One Exchange Place Three First National Plaza
Boston, MA 02109 Chicago, IL 60602
Approximate Date of Proposed Public Offering:
As soon as possible after this Registration Statement becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
on pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a) of Rule 485
Page 1 of Pages
Registrant amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant files a further
amendment that specifically states that this Registration Statement will
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, as amended, or until this Registration Statement becomes
effective on such date as the Commission, acting pursuant to Section 8(a) of
the Securities Act of 1933, as amended, may determine.
Part A (the Prospectuses of Harris Insight Funds Trust) of Form N-1A is
incorporated by reference to Registrant's filing of Pre-Effective Amendment
No. 1 filed with the Securities and Exchange Commission on February 9, 1996
(Accession No.00000927405-96-000050).
HARRIS INSIGHT FUNDS TRUST
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495 (b)
Part A.
Item No. Prospectus Caption
1. Cover Page Cover Page
2. Synopsis Expense Table; Financial Highlights
3. Condensed Financial Information Financial Highlights; Calculation of
Yield and Total Return
4. General Description of Registrant Cover Page; Investment Strategies;
Organization and Capital Stock
5. Management of the Fund Management
6. Capital Stock and Other Securities Cover Page; Dividends and
Distributions; Federal Income Taxes; Account Services; Organization and
Capital Stock
7. Purchase of Securities Management, Determination of Net Asset Value;
Purchase of Shares; Exchange Privilege
8. Redemption or Repurchase Redemption of Shares; Exchange Privilege
9. Legal Proceedings Not Applicable
Part B. Statement of Additional
Item No. Information Caption
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Management of the Fund; Organization
of the Trust
13. Investment Objectives and Policies Investment Strategies; Investment
Restrictions; Portfolio Transactions
14. Management of the Fund Management
15. Control Persons and Principal Holders of Securities Management;
Organization and Capital Stock (Prospectus)
16. Investment Advisory and Other Services Management; Service Plans;
Custodian; Independent Auditors
17. Brokerage Allocation and other Practices Portfolio Transactions
18. Capital Stock Capital Stock
19. Purchase, Redemption and Pricing of Determination of Net Asset
Value
Securities Being Offered
20. Tax Status Federal Income Taxes
21. Underwriters Management; Service Plan
22. Calculation of Performance Calculation of Yield and Total Returns
23. Financial Statements Not Applicable
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
HARRIS INSIGHT FUNDS
One Exchange Place, Boston, Massachusetts 02109
Telephone: (800) 982-8782
Statement of Additional Information
The Harris Insight Funds Trust (the "Trust") is an open-end,
diversified management investment company that currently offers a selection of
eleven investment portfolios. HT Insight Funds, Inc. (the "Company") is an
open-end, diversified management investment company that currently offers six
investment portfolios. The eleven portfolios of the Trust and five of the six
portfolios of the Company (collectively, the "Funds") are detailed in this
Statement of Additional Information. The investment objectives of the Funds are
described in the Prospectus. See "Investment Objectives and Policies." The Funds
are as follows:
o Harris Insight Equity Fund (the "Equity Fund")
o Harris Insight Equity Income Fund (the "Equity Income Fund")
o Harris Insight Growth Fund (the "Growth Fund")
o Harris Insight Small-Cap Opportunity Fund (the "Small-Cap Fund")
o Harris Insight Index Fund (the "Index Fund")
o Harris Insight International Fund (the "International Fund")
o Harris Insight Balanced Fund (the "Balanced Fund")
o Harris Insight Convertible Securities Fund ( the "Convertible
Securities Fund")
o Harris Insight Short / Intermediate Fund (the "Short / Intermediate
Fund")
o Harris Insight Bond Fund (the "Bond Fund")
o Harris Insight Intermediate Government Bond Fund (the "Government
Fund")
o Harris Insight Intermediate Tax-Exempt Bond Fund (the "Intermediate
Tax-Exempt Fund")
o Harris Insight Tax-Exempt Bond Fund (the "Tax-Exempt Fund")
o Harris Insight Government Money Market Fund (the "Government Money
Fund")
o Harris Insight Money Market Fund (the "Money Fund")
o Harris Insight Tax-Exempt Money Market Fund (the "Tax-Exempt Money
Fund")
Each of the Trust's eleven Funds has two classes of shares, Class A
Shares and Institutional Shares. Two of the Company's Funds also each have two
classes of shares, Class A Shares and Institutional Shares. The remaining three
Funds of the Company described in this Statement of Additional Information, the
Government Money Fund, the Money Fund and the Tax-Exempt Money Fund
(collectively, the "Money Market Funds") each have three classes of Shares,
Class A, Class B and Institutional Shares.
This Statement of Additional Information is not a prospectus and is
authorized for distribution only when preceded or accompanied by the Funds'
related Prospectuses dated February 21, 1996 and any supplement thereto (the
"Prospectuses"). This Statement of Additional Information contains additional
information that should be read in conjunction with each of the Prospectuses,
additional copies of which may be obtained without charge from the Company's and
the Trust's distributor, Funds Distributor, Inc., by writing or calling the
Funds at the address or telephone number given above.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
Investment Strategies ................3 Capital Stock..........................39
Ratings...............................20 Other..................................41
Investment Restrictions...............20 Custodian..............................41
Management............................23 Independent Accountants................41
Service Plans.........................28 Experts................................41
Calculation of Yield and Financial Statements...................42
Total Return........................31 Appendix...............................A-1
Determination of Net
Asset Value ........................34
Portfolio Transactions................35
Federal Income Taxes..................37
</TABLE>
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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.
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 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 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. Securities rated "B" or "CCC" (or "Caa") are regarded as having
predominantly speculative characteristics with respect to the issuer's capacity
to pay interest and repay principal, with "B" indicating a lesser degree of
speculation than "CCC" (or "Caa"). While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions. Securities rated "CCC" (or "Caa") have a
currently identifiable vulnerability to default and are dependent upon favorable
business, financial, and economic conditions to meet timely payment of interest
and repayment of principal. In the event of adverse business, financial, or
economic conditions, they are not likely to have the capacity to pay interest
and repay principal.
While the market values of low-rated and comparable unrated securities
tend to react less to fluctuations in interest rate levels than the market
values of higher-rated securities, the market values of certain low-rated and
comparable unrated securities also tend to be
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more sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, low-rated securities and
comparable unrated securities generally present a higher degree of credit risk,
and yields on such securities will fluctuate over time. Issuers of low-rated and
comparable unrated securities are often highly leveraged and may not have more
traditional methods of financing available to them so that their ability to
service their debt obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. The risk of loss due to
default by such issuers is significantly greater because low-rated and
comparable unrated securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. A Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings. The
existence of limited markets for low-rated and comparable unrated securities may
diminish the Fund's ability to obtain accurate market quotations for purposes of
valuing such securities and calculating its net asset value.
Fixed-income securities, including low-rated securities and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as a 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.
To the extent that there is no established retail secondary market for
low-rated and comparable unrated securities, there may be little trading of such
securities in which case the responsibility of the Trust's Board of Trustees or
the Company's Board of Directors, as the case may be, to value such securities
becomes more difficult and judgment plays a greater role in valuation because
there is less reliable, objective data available. In addition, a Fund's ability
to dispose of the bonds may become more difficult. Furthermore, adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds, especially
in a thinly traded market.
The market for certain low-rated and comparable unrated securities is
relatively new and has not weathered a major economic recession. The effect that
such a recession might have on such securities is not known. Any such recession,
however, could likely disrupt severely the market for such securities and
adversely affect the value of such securities. Any such economic downturn also
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and could result in a higher incidence of
defaults.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Portfolio Management Agent
(or the Investment Adviser with respect to the Tax-Exempt Money Fund) 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. A 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
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day settlement. To facilitate settlement, these same day demand instruments may
be held in book entry form at a bank other than the Funds' custodian subject to
a sub-custodian agreement between the bank and the Funds' custodian.
The floating and variable rate obligations that the Funds may purchase
include certificates of participation in such obligations purchased from banks.
A certificate of participation gives a 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 Money Market Funds may invest in certificates
of participation even if the underlying obligations carry stated maturities in
excess of thirteen months upon compliance with certain conditions contained in a
rule of the Securities and Exchange Commission (the "Commission"). 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, a 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.
The International Fund may purchase non-dollar securities denominated
in the currency of countries where the interest rate environment as well as the
general economic climate provide an opportunity for declining interest rates and
currency appreciation. If interest rates decline, such non-dollar securities
will appreciate in value. If the currency also appreciates against the dollar,
the total investment in such non-dollar securities would be enhanced further.
(For example, if United Kingdom bonds yield 14% during a year when interest
rates decline causing the bonds to appreciate by 5% and the pound rises 3%
versus the dollar, then the annual total return of such bonds would be 22%. This
example is illustrative only.) Conversely, a rise in interest rates or decline
in currency exchange rates would adversely affect the Fund's return.
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) 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.
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FORWARD CONTRACTS. Forward Contracts may be entered into by the Equity
Fund, the Equity Income Fund, the Growth Fund, the Small-Cap Fund, the Index
Fund, the International Fund and the Balanced Fund (collectively, the "equity
Funds") 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. A
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 Adviser believes that the value of a
particular foreign currency will increase or decrease relative to the value of
the U.S. dollar, a Fund may purchase or sell such currency, respectively,
through a Forward Contract. If the expected changes in the value of the currency
occur, a 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, a Fund may sustain losses which will reduce its gross income. Such
transactions, therefore, could be considered speculative.
The equity Funds have 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 a 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
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.
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INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS. All equity Funds,
the Convertible Securities Bond Fund, the Bond Fund, the Government Fund, the
Intermediate Tax-Exempt Fund and the Tax-Exempt 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 a 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 a 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 a Fund upon the purchase or sale of a futures contract. Initially, a
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, a
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.
A 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 a 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 national 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 a 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 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
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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, a 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 a 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 a 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. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.
In addition, the ability of a 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.
A 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
no daily cash payments to reflect changes in the value of the underlying
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contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of a 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 a 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, a 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 or the Investment Adviser with respect to the Tax-Exempt Money
Fund, are of investment quality comparable to other permitted investments of a
Fund, may be used for letter of credit backed investments.
LOANS OF PORTFOLIO SECURITIES. Each Fund, except the Money Market
Funds, 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. No Fund will enter into any
portfolio security lending arrangement having a duration of longer than one
year. Any securities that a 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
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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 a
Fund will be subject to termination at the Fund's or the borrower's option. Each
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 Company, the Trust, the Investment Adviser, the Portfolio
Management Agent, the Investment Sub-Adviser or the Distributor.
MORTGAGE-RELATED SECURITIES. All equity Funds, the Short/Intermediate
Fund, the Bond Fund and the Government Fund may invest in mortgage-backed
securities, including collateralized mortgage obligations ("CMOs") and
Government Stripped Mortgage-Backed Securities. The Government Fund may purchase
such securities only if they represent interests in an asset-backed trust
collateralized by the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), or the Federal Home Loan
Mortgage Corporation ("FHLMC").
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.
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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 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 a 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 a Fund will be able to
effect a trade of a Government Stripped Mortgage-Backed Security at a time when
it wishes to do so.
MUNICIPAL LEASES. Each of the Intermediate Tax-Exempt Fund and the
Tax-Exempt Fund may acquire participations in lease obligations or installment
purchase contract obligations (hereinafter collectively called "lease
obligations") of municipal authorities or entities. Although lease obligations
do not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is ordinarily backed
by the municipality's covenant to budget for, appropriate, and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds. In the case of a "non-appropriation" lease, a Fund's
ability to recover under the lease in the event of non-appropriation or default
will be limited solely to the repossession of the leased property in the event
foreclosure might prove difficult.
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In evaluating the credit quality of a municipal lease obligation and
determining whether such lease obligation will be considered "liquid," the
Portfolio Management Agent will consider: (1) whether the lease can be canceled;
(2) what assurance there is that the assets represented by the lease can be
sold; (3) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (4) the likelihood
that the municipality will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operations of
the municipality (e.g., the potential for an "event of non-appropriation"); and,
(5) the legal recourse in the event of failure to appropriate.
MUNICIPAL OBLIGATIONS. As discussed in the applicable Prospectus, the
Balanced Fund, the Short/Intermediate Fund, the Bond Fund, the Intermediate
Tax-Exempt Fund, the Tax-Exempt Fund and the Tax-Exempt Money Fund may invest in
tax exempt obligations to the extent consistent with each Fund's investment
objective and policies. Notes sold as interim financing in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes as
a result of such events as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The Short/Intermediate Fund the Balanced Fund, the Bond Fund, the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund may also invest in: (1)
municipal bonds having a maturity at the time of issuance of up to 40 years that
are rated at the date of purchase "Baa" or better by Moody's Investors Service,
Inc. ("Moody's") or "BBB" or better by Standard & Poor's Corporation ("S&P");
(2) municipal notes having maturities at the time of issuance of 15 years or
less that are rated at the date of purchase "MIG 1" OR "MIG 2" (or "VMIG 1" or
"VMIG 2" in the case of an issue having a variable rate with a demand feature)
by Moody's or "SP-1+," "SP-1," or "SP-2" by S&P; and (3) municipal commercial
paper with a stated maturity of one year or less that is rated at the date of
purchase "P-2" or better by Moody's or "A-2" or better by S&P.
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PUT AND CALL OPTIONS. All equity Funds, the Convertible Securities
Fund, the Bond Fund, the Government Fund, the Intermediate Tax-Exempt Fund and
the Tax-Exempt 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.
These Funds each 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 a 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 a 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
high-grade short-term obligations in a segregated account with its custodian. A
put option is "covered" if a 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, a 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, a 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. A 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. A
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.
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Each 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, a 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 and the Company have agreed that, pending resolution of
the issue, each of the Funds will treat such options and assets as subject to
such 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. A 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. A
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 a 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.
A Fund may not enter into a repurchase agreement if, as a result, more
than 15% (10% with respect to the Equity Fund, the Short/Intermediate Fund and
the Money Market Funds) 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. A Fund will enter into repurchase agreements only
with registered broker/dealers and commercial banks that meet guidelines
established by the Board of Directors or Trustees, as the case may be.
Certain of the Funds may enter into reverse repurchase agreements,
which are detailed in the Prospectus.
SECURITIES WITH PUTS. A put is not transferable by a Fund, although a
Fund may sell the underlying securities to a third party at any time. If
necessary and advisable, any 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
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otherwise available for the same securities). The Funds expect, however, that
puts generally will be available without the payment of any direct or indirect
consideration.
All equity Funds, the Short/Intermediate Fund, the Bond Fund, the
Government Fund, the Intermediate Tax-Exempt Fund, the Tax-Exempt Fund, the
Government Money Fund, the Money Fund and the Tax-Exempt Money Fund intend to
enter into puts solely to maintain liquidity and do not intend to exercise their
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 a Fund of the underlying security. The
actual put will be valued at zero in determining net asset value in the case of
the Money Market Funds. Where a 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 a Fund will not be considered
shortened by any put to which the obligation is subject.
INDEX FUTURES CONTRACTS AND OPTIONS ON INDEX FUTURES CONTRACTS. All
equity Funds, the Convertible Securities Fund, the Bond Fund, the Government
Fund, the Intermediate Tax-Exempt Fund and the Tax-Exempt 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. Each of these
Funds 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, a 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 securities that may later by purchased in a more advantageous manner.
A 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 a 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.
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Municipal bond index futures contracts, which are based on an index of
40 tax-exempt, municipal bonds with an original issue size of at least $50
million and a rating of A or higher by S&P or A or higher by Moody's, began
trading in mid-1985. No physical delivery of the underlying municipal bonds in
the index is made. The Fund may utilize any such contracts and associated put
and call options for which there is an active trading market.
A 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. A 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, a 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 a 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 a 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, a 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 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
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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 a 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 a 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 a 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 a 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. A
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, a 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 a
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 a Fund has written an
option on an industry or market segment index, it will segregate, escrow, or
pledge "qualified securities," all of 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 a 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, a Fund will segregate,
escrow or pledge
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an amount in cash, Treasury bills or other high-grade short-term obligations
equal in value to the difference. In addition, when a Fund writes a call on an
index that is in-the-money at the time the call is written, a 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 a 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 Equity Fund has not written a stock call option.
However, if a 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.
A 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 a Fund's portfolio diverges from the composition
of the relevant index. In addition, if a 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, a Fund's ability to
establish and maintain positions will depend on market liquidity. In addition,
the ability of a Fund to close out an option depends on a liquid secondary
market. The risk of loss to a 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.
Although no Fund has a present intention to invest 5% or more of its
assets in index futures and options on indices, a 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 a 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.
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When a 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 a 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 Investment Adviser expects that its
commitments to purchase when-issued securities and forward commitments will not
exceed 25% of the value of a Fund's total assets absent unusual market
conditions.
A 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, a 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 a 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
a Fund starting on the day the Fund agrees to purchase the securities. A Fund
does not earn interest on the securities it has committed to purchase until they
are paid for and delivered on the settlement date.
ZERO COUPON SECURITIES. A zero coupon security, which may be purchased
by each of the Funds except the Convertible Securities 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
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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, a 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 a Fund each year. Under the federal tax laws
applicable to investment companies, a 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, a Fund may need to
borrow money or sell securities to meet certain dividend and redemption
obligations. In addition, the sale of securities by a Fund may increase its
expense ratio and decrease its rate of return.
RATINGS
After purchase by the Funds, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Funds.
Neither event will require the Funds to sell such security unless the amount of
such securities exceeds permissible limits established in the Prospectuses.
However, the 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. A Money Market Fund may be
required to sell a security downgraded below the minimum required for purchase,
absent a specific finding by the Company's Board of Directors that a sale is not
in the best interests of the Fund. To the extent the ratings given by any
nationally recognized statistical rating organization may change as a result of
changes in such organizations or in their rating systems, the Funds will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained in the Prospectuses and in this Statement of
Additional Information.
For additional information on ratings, see Appendix A to this Statement
of Additional Information.
INVESTMENT RESTRICTIONS
No Fund may:
(1) issue senior securities or borrow money (except that each Fund may
borrow from banks up to 10% of the current value of such Fund's net assets for
temporary purposes
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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 such Fund while, with respect to the Equity
Fund, the Short/Intermediate Fund and the Money Market Funds, any such borrowing
exists and, with respect to the remaining Funds, any aggregate borrowings in
excess of 5% exist);
(2) pledge or mortgage its assets (except that each 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
each 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) if such Fund is the Equity Fund, the Short/Intermediate Fund or a
Money Market Fund, invest an amount in excess of 10% of the current value of
such Fund's 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 that are subject to withdrawal penalties
and have maturities of more than seven days, securities that are not readily
marketable and other illiquid securities (including certain GICs and BICs);
(5) 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 (i) with
respect to the Short/Intermediate Fund, the Equity Fund and the Money Market
Funds, stock index futures and options on stock indices, (ii) with respect to
the International Fund, futures, options, options on futures and forward
contracts, and (iii) with respect to the remaining Funds, futures, options and
options on futures);
(6) purchase securities on margin (except (i) with respect to the
Equity Fund, the Short/Intermediate Fund and the Money Market Funds, for
short-term credits necessary for the clearance of transactions and margin
payments in connection with transactions in stock index futures contracts, and
(ii) with respect to the remaining Funds, 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;
(7) 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
21
<PAGE>
an underwriter for an issuer and the later disposition of such securities in
accordance with any Fund's investment program may be deemed to be an
underwriting;
(8) make investments for the purpose of exercising control or
management; or
(9) if the Fund is the Short/Intermediate Fund, the Equity Fund or a
Money Market Fund, purchase securities of other investment companies, except
securities of certain money market funds in accordance with the respective
Fund's investment objectives and policies and to the extent permissible under
the 1940 Act, and except in connection with a merger, consolidation,
acquisition, spin-off or reorganization.
In addition, the Money Market Funds may not write, purchase, or sell
puts, calls, warrants or options or any combinations thereof, except that these
Funds may purchase securities with put rights in order to maintain liquidity,
nor may they purchase equity securities or securities convertible into equity
securities, except as provided in investment restriction number 9.
In addition, the Equity Fund may not invest in securities of companies
that have been in business less than three years.
In addition, the Short/Intermediate Fund may not invest more than 5% in
securities of issuers that have been in business less than three years. (For
purposes of the above-described investment limitation, issuers include
predecessors, sponsors, controlling persons, general partners, guarantors and
originators of underlying assets which have less than three years of continuous
operation or relevant business experience.)
Each of the foregoing investment restrictions is a fundamental policy
of each of the Funds that may be changed only when permitted by law and approved
by the holders of a majority of such Fund's outstanding voting securities, as
described under "Capital Stock."
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 or Directors, as the case may be.
No Fund may:
(1) invest more than 5% 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 or partners of the Trust or the Company, as the case may be, its
Investment Adviser, Investment Sub-
22
<PAGE>
Adviser (with respect to the International Fund), 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 a
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, except that at no time may the value of the illiquid securities
held by a Money Market Fund exceed 10% of the Fund's total assets.
For purposes of these investment restrictions as well as for purposes
of diversification under the 1940 Act, the identification of the issuer of a
municipal obligation depends on the terms and conditions of the obligation. If
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
subdivision and the obligation is backed only by the assets and revenues of the
subdivision, such subdivision would be regarded as the sole issuer. Similarly,
in the case of a "private activity bond," if the bond is backed only by the
assets and revenues of the non-governmental user, the non-governmental user
would be deemed to be the sole issuer. If in either case the creating government
or another entity guarantees an obligation, the guarantee would be considered a
separate security and be treated as an issue of such government or entity.
The Trust cannot accurately predict the portfolio turnover of the
Funds. With respect to each of the equity Funds, other than the Equity Fund and
the Small-Cap Fund, portfolio turnover generally will be less than 100%. With
respect to the Small-Cap Fund, portfolio turnover generally will be less than
200%. With respect to the fixed income Funds, other than the Short/Intermediate
Fund, portfolio turnover generally will be less than 200%. The portfolio
turnover rates for the Equity Fund and the Short/Intermediate Fund are shown in
the Prospectuses relating to those Funds under "Financial Highlights." High
portfolio turnover rates can result in corresponding increases in borkerage
commissions and other transaction costs, which are borne directly by a Fund, and
may result in the realization of short-term capital gains which are taxable to
shareholders as ordinary income. See "Portfolio Transactions" and "Federal
Income Taxes."
MANAGEMENT
TRUSTEES, DIRECTORS AND OFFICERS
The principal occupations of the Trustees and executive officers of the
Trust and the Directors and executive officers of the Company for the past five
years and their ages are listed below. The address of each, unless otherwise
indicated, is One Exchange Place, Boston, Massachusetts 02109. Trustees and
Directors deemed to be "interested persons" of the Trust or the Company, as the
case may be, for purposes of the 1940 Act are indicated by an asterisk.
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<PAGE>
*EDGAR R. FIEDLER, Trustee and Director - 845 Third Avenue, New York, New York
10022. Age 65. Vice President and Economic Counsellor, The Conference Board
since 1975; Director or Trustee, The Stanley Works, AARP Income Trust, AARP
Insured Tax Free Income Trust, AARP Cash Investment Fund, Brazil Fund, Scudder
Institutional Fund, Scudder Fund, Inc., Zurich American Insurance Company,
Emerging Mexico Fund and Center for Policy Research of the American Council for
Capital Formation. Formerly Assistant Secretary of the Treasury for Economic
Policy (1971-1975).
C. GARY GERST, Trustee and Director and Chairman of the Board of Directors and
Trustees - 11 South La Salle Street, Chicago, Illinois 60603. Age 56. Chairman
Emeritus since 1993 and formerly Co-Chairman, La Salle Partners Ltd. (Real
Estate Developer and Manager). Director, Trustee or Partner, La Salle Street
Fund Inc., La Salle Street Fund Inc. of Delaware, DEL-LPL Limited Partnership
and DEL-LPAML Limited Partnership.
JOHN W. McCARTER, JR., Trustee and Director - 225 West Wacker Drive, Suite 1700,
Chicago, Illinois 60606. Age 57. Senior Vice President and former Director of
Boozo Allen & Hamilton, Inc. (Consulting Firm); Director of W.W. Grainger, Inc.
and A.M. Castle, Inc.
ERNEST M. ROTH, Trustee and Director - 205 Abingdon Avenue, Kenilworth, Illinois
60043. Age 67. Consultant since 1992. Formerly, Senior Vice President and Chief
Financial Officer, Commonwealth Edison Company. Director of LaRabida Children's
Hospital and Chairman of LaRabida Children's Foundation.
RICHARD H. ROSE, President and Treasurer of the Trust and the Company - Age 39.
Vice President, First Data Investor Services Group, Inc., since May 6, 1994.
Formerly Senior Vice President, The Boston Company Advisors, Inc.
PATRICIA L. BICKIMER, President and Secretary of the Trust and the Company - Age
42. Vice President and Associate General Counsel, First Data Investor Services
Group, Inc., since May 6, 1994; Formerly, Vice President and Associate General
Counsel, The Boston Company Advisors, Inc.
LISA A. ROSEN, Assistant Secretary of the Trust and the Company - Age 28.
Counsel, First Data Investor Services Group, Inc., since May 6, 1994. Formerly,
Assistant Vice President and Counsel with The Boston Company Advisors, Inc.;
Associate with Hutchins, Wheeler & Dittmar.
Trustees of the Trust and Directors of the Company receive from the
Trust and the Company, respectively, an annual fee in addition to a fee for each
Board of Trustees or Directors meeting, as the case may be, and Board committee
meeting attended and are reimbursed for all out-of-pocket expenses relating to
attendance at meetings.
24
<PAGE>
The following table summarizes the compensation paid by the Company to
the Directors of the Company for the fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
Pension or
Retirement Benefits Estimated Annual Total Compensation
Name of Person, Aggregate Compensation Accrued as Part Benefits upon from the Company
Position from the Company of Fund Expenses Retirement and Fund Complex
- -------- ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Edgar R. Fiedler, $20,000 (1) None None $20,000
Director
C. Gary Gerst, $20,000 None None $20,000
Director
John W. $ 0 None None $ 0
McCarter, Jr.
Director(2)
Ernest M. Roth, $20,000 None None $20,000
Director
- --------------------------
</TABLE>
(1) For the period June 1988 through December 31, 1995, the total amount of
compensation (including interest) payable or accrued for Mr. Fiedler was
$171,192.07 pursuant to the Company's Deferred Compensation Plan for its
Independent Directors.
(2) Mr. McCarter became a Director of the Company in October, 1995.
The Trust was not in operation during the fiscal year ended December
31, 1995.
As of January 31, 1996, the principal holders of each Fund of the
Company were as follows:
The Government Money Fund - Class A Shares. Harris Trust & Savings
Bank, Chicago, Illinois 60603, held of record 255,211,536 shares, equal to
96.40% of the outstanding shares of the Government Money Fund - Class A Shares.
The Government Money Fund - Institutional Shares. Harris Trust &
Savings Bank, Chicago, Illinois 60603, held of record 31,248,318 shares, equal
to 99.99% of the outstanding shares of the Government Money Fund - Institutional
Shares.
The Money Fund - Class A Shares. Harris Trust & Savings Bank, Chicago,
Illinois 60603, held of record 512,077,635 shares, equal to 95.79% of the
outstanding shares of the Money Fund - Class A Shares.
25
<PAGE>
The Money Fund - Institutional Shares. Harris Trust & Savings Bank,
Chicago, Illinois 60603, held of record 214,334,587 shares, equal to 99.99% of
the outstanding shares of the Money Fund - Institutional Shares.
The Tax-Exempt Money Fund - Class A Shares. Harris Trust & Savings
Bank, Chicago, Illinois 60603, held of record 174,081,221 shares equal to 90.05%
of the outstanding shares of the Tax-Exempt Money Fund - Class A Shares.
The Tax-Exempt Money Fund - Institutional Shares. Harris Trust &
Savings Bank, Chicago, Illinois 60603, held of record 280,623,069 shares equal
to 99.99% of the outstanding shares of the Tax-Exempt Money Fund - Institutional
Shares.
The Equity Fund - Class A Shares. Harris Trust & Savings Bank, Chicago,
Illinois 60603, Integra Trust Services, Pittsburgh, Pennsylvania 15278-2232,
FNRO/Arvest Bank, 201 West Walnut Street, P.O. Box 939, Rogers, Arizona 72756,
American State Bank & Trust, Dickenson, North Dakota 58602-1408, and Herget &
Co., 33 S. 4th Street, Pekin, Illinois 61554-4202, held of record 1,543,359,
1,283,579, 373,186,244, 244,203 and 294,927, respectively, equal to 32.63%,
27.14%, 7.89%, 5.16% and 6.24%, respectively of the outstanding shares of the
Equity Fund - Class A Shares.
The Short/Intermediate Fund - Class A Shares. Harris Trust & Savings
Bank, Chicago, Illinois 60603, and Eastern Illinois University, 1200 Harbor
Blvd., 3rd Floor, Weehaukin, New Jersey, 07087, held of record, 4,031,259 and
250,646 shares, equal to 81.62% and 5.07%, respectively of the outstanding
shares of the Short/Intermediate Fund - Class A Shares.
The shareholders described above have indicated that they each hold
their shares on behalf of various accounts and not as beneficial owners. To the
extent that any shareholder is the beneficial owner of more than 25% of the
outstanding shares of any Fund, such shareholder may be deemed to be a "control
person" of that Fund for purposes of the 1940 Act.
As of January 31, 1996, Directors and officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of each of the
Company's Funds.
As of January 31, 1996, Trustees and officers of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust's Funds.
Investment Adviser, Investment and Portfolio Management Agent. Each of the Funds
is advised by Harris Trust. With respect to the Tax-Exempt Money Fund, the
Advisory Contract with Harris Trust provides that Harris Trust is responsible
for all Fund purchase and sale transactions and that Harris Trust shall furnish
to the Fund investment guidance and policy direction in connection with the
daily portfolio management of the Fund. With
26
<PAGE>
respect to Funds other than the Tax-Exempt Money Fund, Harris Trust has entered
into Portfolio Management Contracts with Harris Investment Management, Inc.
("HIM") under which HIM is responsible for all Fund purchase and sale
transactions and for providing all such daily portfolio management services to
such Funds. Under the Portfolio Management Contracts, Harris Trust remains
responsible for the supervision and oversight of HIM's performance.
Harris Trust or HIM provides to the Funds, among other things, money
market security and fixed income research, analysis and statistical and economic
data and information concerning interest rate and security market trends,
portfolio composition and credit conditions. HIM analyzes key financial ratios
that measure the growth, profitability, and leverage of issuers in order to help
maintain a portfolio of above-average quality. Emphasis placed on a particular
type of security will depend on an interpretation of underlying economic,
financial and security trends. The selection and performance of securities is
monitored by a team of analysts dedicated to evaluating the quality of each
portfolio holding.
The Advisory Contract and the Portfolio Management Contract with
respect to the Equity Income Fund, the Growth Fund, the Small-Cap Fund, the
Index Fund, the International Fund, the Balanced Fund, the Convertible
Securities Fund, the Bond Fund, the Government Fund, the Intermediate Tax-Exempt
Fund and the Tax-Exempt Fund will continue in effect for a period of two years
from February 23, 1996, and thereafter from year to year provided the
continuance is approved annually (i) by the holders of a majority of the
respective Fund's outstanding voting securities or by the Board of Trustees and
(ii) by a majority of the Trustees of the Trust who are not parties to the
Advisory Contract or the Portfolio Management Contract or "interested persons"
(as defined in the 1940 Act) of any such party. Such Advisory Contract may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
With respect to the remaining Funds, the Advisory Contracts and, with
respect to the remaining Funds other than the Tax-Exempt Money Fund, the
Portfolio Management Contracts will continue in effect from year to year,
provided that such continuance is specifically approved as described in the
immediately preceding paragraph.
For the fiscal years ended December 31, 1995, 1994, 1993 and 1992, the
Investment Adviser was entitled to receive fees from the Funds in the following
amounts: the Government Money Fund, $335,725, $274,034, $968,132, and $768,659;
the Money Fund, $675,821, $490,129, $1,294,047 and $1,287,743; the Tax-Exempt
Money Fund, $454,684, $238,488, $712,327 and $806,494; the Equity Fund,
$365,839, $332,754, $276,938 and $223,464; and the Short/Intermediate Fund,
$327,473, $411,562, $561,536 and $411,570, respectively. The remaining Funds
were not in operation during the fiscal years ended December 31, 1995, 1994,
1993 and 1992.
27
<PAGE>
Waivers by the Investment Adviser of fees to which it was entitled for
each period amounted to: the Government Money Fund, $0, $0, $154,970 and
$54,784; the Money Fund, $0, $0, $314,673 and $332,996; the Tax-Exempt Money
Fund, $0, $0, $227,660 and $174,440; the Equity Fund, $0, $4,974, $3,823 and
$5,222; and the Short/Intermediate Fund, $166,376, $191,603, $231,916 and
$173,550.
Administrators. First Data Investor Services Group, Inc. ("First Data")
and PFPC Inc. ("PFPC") (the "Administrators") serve as the Funds' administrators
pursuant to an Administration Agreement and an Administration and Accounting
Services Agreement, respectively. First Data has agreed to maintain office
facilities for the Funds; furnish clerical support and stationery and office
supplies; prepare and file various reports with the appropriate regulatory
agencies; and prepare various materials required by the Commission or any state
securities commission having jurisdiction over the Company. PFPC has agreed to
provide accounting and bookkeeping services for the Funds, including the
computation of each Fund's net asset value, net income and realized capital
gains, if any.
Distributor. Funds Distributor, Inc. (the "Distributor") has entered
into a Distribution Agreement with the Company and with the Trust, as the case
may be, pursuant to which it has the responsibility of distributing shares of
the Funds.
Other Information Pertaining to Distribution, Administration, Custodian
and Transfer Agency Agreements. PFPC Inc., the Funds' Transfer Agent and one of
the Funds' two administrators, is an affiliate of PNC Bank, N.A., the Company's
Custodian. PFPC Inc. and PNC Bank, N.A. are not affiliates of First Data and
Funds Distributor, Inc., and none of the aforenamed entities is an affiliate of
Harris Investment Management, Inc.
The Trust's (or the Company's, as the case may be) contracts with the
Investment Adviser, Investment Sub-Adviser, Portfolio Management Agent,
Administrators, Transfer Agent and Custodian (the "Contractors") provide that
if, in any fiscal year, the total expenses of a Fund incurred by, or allocated
to, 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 in the
Advisory Contracts and the Administration Agreement) exceed the most restrictive
expense limitation applicable to the Fund imposed by the securities laws or
regulations of the states 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 Tax-Exempt Money Fund and the Portfolio Management Contracts
with respect to all other Funds and fee agreement with the Funds'
Administrators, Transfer Agent and Custodian for the fiscal year to the extent
of the excess or reimburse the excess, but only to the extent of their
respective fees. The Trust and the Company believe 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. No such waivers were necessary in
1994.
28
<PAGE>
SERVICE PLANS
As indicated in the Prospectuses, the Funds have adopted Service Plans
under Section 12(b) of the 1940 Act and Rule 12b-1 promulgated thereunder ("Rule
12b-1"). With respect to the Money Market Funds, the Service Plans only relate
to Class A and Class B Shares of each such Fund. With respect to the remaining
Funds (the "Non-Money Market Funds"), the Service Plans only relate to Class A
Shares of each such Fund. Each Service Plan has been adopted by the Board of
Trustees or Directors, as the case may be, including a majority of the Trustees
or Directors who were not "interested persons" (as defined by the 1940 Act) of
the Trust or the Company, 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" or "Qualified Directors", as the case may be). Each
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 Trust or the Directors
of the Company, as the case may be, and the Qualified Trustees or Directors.
Agreements related to the Service Plans must also be approved by such vote of
the Trustees or Directors and the Qualified Directors or Qualified Trustees. The
Service Plans 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 proper Fund. No Service Plan may be amended
to increase materially the amounts payable to Service Agents without the
approval of a majority of the outstanding voting securities of the proper Fund,
and no material amendment to a Service Plan may be made except by a majority of
both the Trustees of the Trust or Directors of the Company, as the case may be,
and the Qualified Trustees or Directors.
Each Service Plan requires that certain service providers furnish to
the Trustees or Directors, as the case may be, and the Trustees or Directors
shall review, at least quarterly, a written report of the amounts expended (and
purposes therefore) under such Service Plan. Rule 12b-1 also requires that the
selection and nomination of the Trustees or Directors who are not "interested
persons" of the Trust or the Company, respectively, be made by such
disinterested Trustees or Directors.
Service Plan - Money Market Funds
Each Money Market Fund has entered into an agreement with each
institution ("Service Organization") which purchases Class A or Class B Shares
on behalf of its customers ("Customers"). In the case of Class A Shares, the
Service Organization is required to provide shareholder support services to its
Customers who beneficially own such Shares in consideration of the payment of up
to 0.35% (on an annualized basis) of the average daily net asset value of that
Money Market Fund's Class A Shares held by the Service Organization for the
benefit of Customers. Support services will include: (i) aggregating and
processing purchase and redemption requests from Customers and placing net
purchase and redemption orders with the Money Market Fund's Distributor; (ii)
processing dividend payments from the Money Market Fund on behalf of Customers;
(iii) providing information periodically to Customers showing their positions in
the Money Market Fund's shares; (iv) arranging for bank wires; (v) responding to
Customer inquiries
29
<PAGE>
relating to the services performed by the Service Organization and handling
correspondence; (vi) forwarding shareholder communications from the Money Market
Fund (such as proxies, shareholder reports, annual and semi-annual financial
statements, and dividend, distribution and tax notices) to Customers; (vii)
acting as shareholder of record and nominee; (viii) arranging for the
reinvestment of dividend payments; and (ix) other similar account administrative
services. In addition, the Service Organization will provide assistance in
connection with the distribution of shares to Customers, including the
forwarding to Customers of prospectuses, sales literature and advertising
materials provided by the Distributor of shares.
A Service Organization serving holders of Class B Shares of a Money
Market Fund will provide the services set forth in (i), (v) and (vii) and may
receive one or more of the services set forth in (ii), (iii), (iv) and (viii)
above. In consideration of the services to be rendered under the Servicing
Agreement with respect to Class B Shares, the Fund will pay the Service
Organization up to 0.25% (on an annualized basis) of the average daily net asset
value of the Class B Shares held by the Service Organization.
In addition, a Service Organization, at its option, may also provide to
its holders of either Class A or Class B Shares (a) a service that invests the
assets of their other accounts with the Service Organization in the Money Market
Fund's shares (sweep program); (b) sub-accounting with respect to shares owned
beneficially or the information necessary for sub-accounting; and (c)
checkwriting services.
There is no Service Plan in existence with respect to the Class C
Shares (known herein as Institutional Shares) of the Money Market Funds.
Service Plan - Non-Money Market Funds
Each Non-Money Market Fund (i.e. the Equity Fund, the Equity Income
Fund, the Growth Fund, the Small-Cap Fund, the Index Fund, the International
Fund, the Balanced Fund, the Convertible Securities Fund, the Short/Intermediate
Fund, the Bond Fund, the Government Fund, the Intermediate Tax-Exempt Fund and
the Tax-Exempt Fund) bears the costs and expenses in connection with advertising
and marketing the Fund's Class A Shares and pays 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 the Fund's average
daily net assets with respect to its Class A Shares.
Servicing activities provided by Service Agents to their customers
investing in Class A Shares of the Non-Money Market Funds 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 the Fund; assisting
customers in changing dividend options; account designations and addresses;
performing sub-accounting; investing customer cash account balances
automatically in Fund shares; providing periodic statements showing a customer's
account balance and integrating
30
<PAGE>
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 a Fund may request, to the extent the
Service Agent is permitted by applicable statute, rule or regulation.
There is no Service Plan in existence with respect to the Institutional
Shares of the Non-Money Market Funds.
Service Organization fees paid to Harris Trust for the period ended
December 31, 1995 were $719,382, $1,390,583 and $418,768 (net of voluntary
waivers of $246,666, $435,596 and $117,751) for the Class A Shares of the
Government Money Fund, Money Fund and Tax-Exempt Money Fund, respectively. There
were no Service Organization fees payable during the period ended December 31,
1995 for the Institutional Shares of the Money Market Funds. To date, no
payments have been made with respect to the Non-Money Market Funds' Service
Plans.
CALCULATION OF YIELD AND TOTAL RETURN
The Company makes available various yield quotations with respect to
shares of each class of shares of the Money Market Funds. Each of these amounts
was calculated based on the 7-day period ended December 31, 1995, by calculating
the net change in value, exclusive of capital changes, of a hypothetical account
having a balance of one share at the beginning of the period, dividing the net
change in value by the value of the account at the beginning of the base period
to obtain the base period return, and multiplying the base period return by
365/7, with the resulting yield figure carried to the nearest hundredth of one
percent. The net change in value of an account consists of the value of
additional shares purchased with dividends from the original share plus
dividends declared on both the original share and any such additional shares
(not including realized gains or losses and unrealized appreciation or
depreciation) less applicable expenses. Effective yield quotations for Class A
Shares and Institutional Shares of each of the Money Market Funds are also made
available. These amounts are calculated in a similar fashion to yield, except
that the base period return is compounded by adding 1, raising the sum to a
power equal to 365 divided by 7, and subtracting 1 from the result, according to
the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) 365/7 ] -1
Current yield for all of the Money Market Funds will fluctuate from
time to time, unlike bank deposits or other investments that pay a fixed yield
for a stated period of time, and does not provide a basis for determining future
yields.
The yields of Class A Shares and Institutional Shares of each of the
following Money Market Funds for the 7-day period ended December 31, 1995, were
5.08% and 5.37% for the Government Money Fund, 5.37% and 5.63% for the Money
Fund and 3.72% and 3.98% for the Tax-Exempt Money Fund. The effective yields for
the same period were
31
<PAGE>
5.21% and 5.51% for the Government Money Fund, 5.51% and 5.79% for the Money
Fund and 3.79% and 4.06% for the Tax-Exempt Money Fund, respectively. Class A
and Class B Shares of the Money Market Funds bear the expenses of fees paid to
Service Organizations. As a result, at any given time, the net yield of Class A
Shares could be up to 0.35% lower than the net yield of Institutional Shares,
and the net yield of Class B Shares could be up to 0.25% lower than the net
yield of Institutional Shares of the Money Market Funds. Class B Shares of the
Money Market Funds had not been issued as of December 31, 1995.
From time to time each of the Money Market Funds may advertise its
"30-day average yield" and its "monthly average yield." Such yields refer to the
average daily income generated by an investment in such Fund over a 30-day
period, as appropriate, (which period will be stated in the advertisement).
A standardized "tax-equivalent yield" may be quoted for the Tax-Exempt
Money Fund, the Tax-Exempt Fund and the Intermediate Tax-Exempt Fund, which is
computed by: (a) dividing the portion of the Fund's yield (as calculated above)
that is exempt from Federal income tax by one minus a stated Federal income
rate; and (b) adding the figure resulting from (a) above to that portion, if
any, of the yield that is not exempt from federal income tax. For the 7-day
period ended December 31, 1995, the effective tax equivalent yield of the Class
A Shares and Institutional Shares of the Tax-Exempt Money Fund were 5.49% and
5.88% respectively, based on a stated tax rate of 31%.
The Trust or the Company, as the case may be, makes available 30-day
yield quotations with respect to Class A and Class B Shares of the Non-Money
Market Funds. As required by regulations of the Commission, the 30-day yield is
computed by dividing a 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 30-day yields for the period ended December 31, 1995, were 1.29%
for Class A Shares of the Equity Fund and 5.33% for Class A Shares of the
Short/Intermediate Fund. Institutional Shares of these Funds had not been issued
as of December 31, 1995.
The Trust or the Company, as the case may be, also makes available
total return quotations for Class A and Institutional Shares of each of the
Non-Money Market Funds. Average annual total return for Class A Shares of the
Equity Fund from February 26, 1988 (commencement of operations) through December
31, 1995 and the annual total return for the fiscal years ended December 31,
1994 and 1995 were 13.21%, (6.48)% and (30.14)%, respectively. The average
annual total return for Class A Shares of the Equity Fund for the five year
period ended December 31, 1995 was 15.72%. Average annual total return for Class
A Shares of the Short/Intermediate Fund from April 1, 1991 (commencement of
32
<PAGE>
operations) through December 31, 1995 was 7.00%. The annual total return for the
fiscal years ended December 31, 1994 and 1995 were (5.75)% and 8.70%,
respectively. Each of these amounts is computed by assuming a hypothetical
initial investment of $10,000 and reflects the imposition of the maximum sales
charge. It is assumed that all of the dividends and distributions by each Fund
over the specified period of time were reinvested. It was then assumed that at
the end of the specified period, the entire amount was redeemed. The average
annual total return was 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 Funds 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. The
aggregate total return for Class A Shares of the Equity Fund from February 26,
1988 (commencement of operations) through December 31, 1995 and the aggregate
total return for the fiscal years ended December 31, 1994 and 1995 were 164.93%,
(6.48)% and 30.14%, respectively. The aggregate total return for Class A Shares
of the Short/Intermediate Fund for the period from April 1, 1991 (commencement
of operations) through December 31, 1995 and the aggregate total return for the
fiscal years ended December 31, 1994 and 1995 were 37.94%, and (5.75)% and
8.70%, respectively. The remaining Non-Money Market Funds had not commenced
operations as of December 31, 1995.
Current yield and total return for the Non-Money Market Funds 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 Funds.
Performance data of the Funds 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 Magazine, 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, graph or other
illustrations. All performance information advertised by the Funds 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 Non-Money Market Funds will affect the yield of such
Funds for any specified period, and such changes should be considered together
with each such Fund's yield in ascertaining
33
<PAGE>
the Fund's total return to shareholders for the period. Yield information for
all of the Funds may be useful in reviewing the performance of the Fund and for
providing a basis for comparison with investment alternatives. The yield of a
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.
OTHER INFORMATION REGARDING INVESTMENT RETURNS. The Intermediate
Tax-Exempt Fund, the Tax-Exempt Fund and the Tax-Exempt Money Fund may
illustrate in advertising or sales literature the benefits of tax-exempt
investing. For example, Table 1 shows taxpayers how to translate Federal tax
savings from investments the income on which is not subject to Federal income
tax into an equivalent yield from a taxable investment. The yields shown in
Table 1 are for illustration purposes only and are not intended to represent
current or future yields for the Funds, which may be higher or lower than the
yields shown.
TABLE 1
[To Be Provided]
DETERMINATION OF NET ASSET VALUE
As described under "Determination of Net Asset Value" in the
Prospectuses, 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.'s 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, Veteran's Day, Thanksgiving Day and
Christmas Day (each, a "Holiday").
As also indicated under "Determination of Net Asset Value" in the
Prospectuses, each of the Money Market Funds uses the amortized cost method to
determine the value of its portfolio securities pursuant to Rule 2a-7 under the
1940 Act ("Rule 2a-7"). The amortized cost method involves valuing a security at
its cost and amortizing any discount or premium over the period until maturity,
regardless of the impact of fluctuating interest rates on the market value of
the security. While this method provides certainty in valuation, it may result
in periods during which the value, as determined by amortized cost, is higher or
lower than the price that a Fund would receive if the security were sold. During
these periods the yield to a shareholder may differ somewhat from that which
could be obtained from a similar fund that uses a method of valuation based upon
market prices. Thus, during periods of declining interest rates, if the use of
the amortized cost method resulted in a lower value of a Fund's portfolio on a
particular day, a prospective investor in that Fund would be able to obtain a
somewhat higher yield than would result from investments in a fund using solely
market values, and existing Fund shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
34
<PAGE>
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, each of the Money Market Funds must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase
securities having remaining maturities (as defined in Rule 2a-7) of thirteen
months or less and invest only in securities determined by the Board of
Directors to meet the quality and minimal credit risk requirements of Rule 2a-7.
The maturity of an instrument is generally deemed to be the period remaining
until the date when the principal amount thereof is due or the date on which the
instrument is to be redeemed. Rule 2a-7, however, provides that the maturity of
an instrument may be deemed shorter in the case of certain instruments,
including certain variable and floating rate instruments subject to demand
features. Pursuant to Rule 2a-7, the Board is required to establish procedures
designed to stabilize, to the extent reasonably possible, the price per share of
each of the Money Market Funds as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of the portfolio holdings
of each of the Money Market Funds by the Board of Directors, at such intervals
as it may deem appropriate, to determine whether a Fund's net asset value
calculated by using available market quotations deviates from $1.00 per share
based on amortized cost. The extent of any deviation will be examined by the
Board of Directors. If such deviation exceeds 1/2 of 1%, the Board will promptly
consider what action, if any, will be initiated. In the event the Board
determines that a deviation exists that may result in material dilution or other
unfair results to investors or existing shareholders, the Board will take such
corrective action as it regards as necessary and appropriate, including the sale
of portfolio instruments prior to maturity to realize capital gains or losses or
to shorten average portfolio maturity, withholding dividends or establishing a
net asset value per share by using available market quotations.
PORTFOLIO TRANSACTIONS
The Trust or the Company, as the case may be, 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 and the Company's Board of Directors, as the case may be, Harris Trust,
with respect to the Tax-Exempt Money Fund, and HIM, with respect to all other
Funds, are responsible for each Fund's portfolio decisions and the placing of
portfolio transactions. In placing orders, it is the policy of the Company 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 Harris Trust
and HIM generally seek reasonably competitive spreads or commissions, the Funds
will not necessarily be paying the lowest spread or commission available.
Purchases and sales of securities for the fixed income Funds and the
Money Market Funds will usually be principal transactions. Portfolio securities
normally will be purchased or sold from or to dealers serving as market makers
for the securities at a net price. Each of the Funds 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 a Fund's portfolio securities
transactions will consist
35
<PAGE>
primarily of dealer spreads, and underwriting commissions. Under the 1940 Act,
persons affiliated with the Company or the Trust are prohibited from dealing
with the Company or the Trust as a principal in the purchase and sale of
securities unless an exemptive order allowing such transactions is obtained from
the Commission.
Harris Trust or HIM may, in circumstances in which two or more dealers
are in a position to offer comparable results for a Fund, give preference to a
dealer that has provided statistical or other research services to such adviser.
By allocating transactions in this manner, Harris Trust and/or HIM are able to
supplement their 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 Advisory and
Portfolio Management Contracts, and the expenses of such adviser will not
necessarily be reduced as a result of the receipt of this supplemental research
information. Furthermore, research services furnished by dealers through whom
Harris Trust or HIM effect securities transactions for a Fund may be used by
Harris Trust or HIM in servicing its other accounts, and not all of these
services may be used by Harris Trust or HIM in connection with advising the
Funds.
Brokerage commissions and the total dollar amount of transactions on
which commissions were paid during 1993 were $71,647 and $51,408,027,
respectively, for the Equity Fund and $0 and $0, respectively, for the
Short/Intermediate Fund. Total brokerage commissions and the total dollar amount
of transactions on which commissions were paid during 1994 were $113,552 and
$82,318,090, respectively, for the Equity Fund and $0 and 0, respectively for
the Short/Intermediate Fund. Total brokerage commissions and the total dollar
amount of transactions on which commissions were paid during 1995 were $118,896
and $80,699,744, respectively, for the Equity Fund and $0 and $143,948,579,
respectively, for the Short/Intermediate Fund.
With respect to transactions directed to brokers because of research
services provided, total brokerage commissions, and the total dollar amount of
the transactions on which such commissions were paid during 1993, 1994 and 1995
were $29,144 and $22,553,022; $59,958 and $42,856,997; $55,932 and $21,429,156,
respectively, for the Equity Fund. No such commissions were paid for the
Short/Intermediate Fund for 1993, 1994 or 1995.
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. ("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 Funds will not deal with the
Distributor or HID in any transaction in which either one acts as principal
except as may be permitted by the Commission.
36
<PAGE>
In placing orders for portfolio securities of the Funds, 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 Funds 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 and
Board of Directors.
Subject to the above considerations, HID may act as a main broker for
the Funds. For it to effect any portfolio transactions for the Funds, the
commissions, fees or other remuneration received by it must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. This standard would allow HID to receive no more than the remuneration
that would be expected to be received by an unaffiliated broker on a
commensurate arm's-length transaction. Furthermore, the Trustees of the Trust
and the Directors of the Company, including a majority who are not "interested"
Trustees or Directors, as the case may be, have adopted procedures that are
reasonably designed to provide that any commissions, fees or other remuneration
paid to either one are consistent with the foregoing standard. Brokerage
transactions with either one are also subject to such fiduciary standards as may
be imposed upon each of them by applicable law.
FEDERAL INCOME TAXES
The Prospectuses describe generally the tax treatment of distributions
by the Trust and the Company, as the case may be. This section of the Statement
includes additional information concerning federal taxes.
Each 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
Fund separately, rather than to the Trust or the Company as a whole.
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
37
<PAGE>
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
and, in the case of the Tax-Exempt Money Fund, the Intermediate Tax-Exempt Fund
and the Tax-Exempt Fund, that it distributes to its shareholders at least 90% of
its net tax-exempt income (including net short-term capital gains). In addition,
the Tax-Exempt Money Fund, the Intermediate Tax-Exempt Fund and the Tax-Exempt
Fund intend that at least 50% of the value of its total assets at the close of
each quarter of its taxable year will consist of obligations the interest on
which is exempt from federal income tax, so that such Funds will qualify under
the Code to pay "exempt-interest dividends."
As described in the relevant Prospectus, certain of the Funds may
invest in municipal bond index futures contracts and options on interest rate
futures contracts. The Funds do not anticipate that these investment activities
will prevent the Funds from qualifying as regulated investment companies. As a
general rule, these investment activities will increase or decrease the amount
of long-term and short-term capital gains or losses realized by a Fund and,
accordingly, will affect the amount of capital gains distributed to the Fund's
shareholders.
For Federal income tax purposes, gain or loss on the futures contracts
and options described above (collectively referred to as "section 1256
contracts") is taxed pursuant to a special "mark-to-market" system. Under the
mark-to-market system, a Fund may be treated as realizing a greater or lesser
amount of gains or losses than actually realized. As a general rule, gain or
loss on section 1256 contracts is treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss, and, accordingly, the mark-to-market
system will generally affect the amount of capital gains or losses taxable to a
Fund and the amount of distributions taxable to a shareholder. Moreover, if a
Fund invests in both section 1256 contracts and offsetting positions in such
contracts, then the Fund might not be able to receive the benefit of certain
recognized losses for an indeterminate period of time. Each Fund expects that
its activities with respect to section 1256 contracts and offsetting positions
in such contracts (a) will not cause it or its shareholders to be treated as
receiving a materially greater amount of capital gains or distributions than
actually realized or received and (b) will permit it to use substantially all of
the losses of the Fund for the fiscal years in which the losses actually occur.
Each Fund (except the Tax-Exempt Money Fund, the Intermediate
Tax-Exempt Fund and the Tax-Exempt Fund to the extent of this tax-exempt
interest) 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
38
<PAGE>
calendar year in which it was earned by the Fund. Each 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 a 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 a 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 a Fund's assets to be invested in
various countries is not known.
Gains or losses on sales of securities by a 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.
In the case of the Growth Fund, the Equity Fund, the Small-Cap Fund,
the Equity Income Fund, the Index Fund, the International Fund, the Balanced
Fund, the Convertible Securities Fund, the Bond Fund, the Government Fund, the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund, if an option written by a
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.
In the case of the Growth Fund, the Equity Fund, the Small-Cap Fund,
the Equity Income Fund, the Index Fund, the International Fund, the Balanced
Fund, the Convertible Securities Fund, the Bond Fund, the Government Fund, the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund, if securities are sold by
the Fund pursuant to the exercise of a call option written by it, such 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 a Fund derive less than 30% of its gross income
from gains from the sale of securities held for less than three months may limit
a Fund's ability to write options.
If, in the opinion of the Trust or the Company, as the case may be,
ownership of its shares has or may become concentrated to an extent that could
cause the Trust or the Company to be deemed a personal holding company within
the meaning of the Code, the Trust or the Company may require the redemption of
shares or reject any order for the purchase of shares in an effort to prevent
such concentration.
39
<PAGE>
CAPITAL STOCK
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 eleven Funds of the Trust.
The authorized capital stock of the Company consists of an aggregate of
10,000,000,000 shares ("Shares"), par value of $.001 per share. With respect to
the Company's Funds detailed in this Statement of Additional Information, the
Company's capital stock is currently classified as follows: "Government Money
Fund-Class A," consisting of 500,000,000 Shares, "Government Money Fund-Class
B," consisting of 200,000,000 Shares, "Government Money Fund-Institutional
Shares," consisting of 500,000,000 Shares, "Money Fund-Class A," consisting of
500,000,000 Shares, "Money Fund-Class B," consisting of 200,000,000 Shares,
"Money Fund-Institutional Shares," consisting of 500,000,000 Shares, "Tax-Exempt
Money Fund-Class A," consisting of 500,000,000 Shares, "Tax-Exempt Money
Fund-Class B," consisting of 200,000,000 Shares, "Tax-Exempt Money
Fund-Institutional Shares," consisting of 500,000,000 Shares, "Harris Insight
Equity Fund-Class A," consisting of 100,000,000 Shares, "Harris Insight Equity
Fund-Institutional Shares," consisting of 100,000,000 Shares, "Harris Insight
Short/Intermediate Fund-Class A," consisting of 100,000,000 Shares, and "Harris
Insight Short/Intermediate Fund Institutional Shares," consisting of 100,000,000
Shares.
Generally, all shares of the Trust and all shares of the Company have
equal voting rights with other shares of the Trust or the Company, respectively,
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 Prospectuses 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.,
election of Trustees or Directors and ratification of independent accountants),
means the vote of the lesser of (i) 67% of the Trust's or the Company'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
or the Company'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 a Fund represents an equal proportionate interest in that
Fund with each other share of the same Fund and is entitled to such dividends
and distributions out of the income earned on the assets belonging to that Fund
as are declared in the discretion of
40
<PAGE>
the Trust's Board of Trustees or the Company's Board of Directors, as the case
may be. Notwithstanding the foregoing, each class of shares of each Fund bears
exclusively the expense of fees paid to Service Organizations with respect to
that class of shares. In the event of the liquidation or dissolution of the
Trust or the Company (or a Fund), shareholders of each Fund (or the Fund being
dissolved) are entitled to receive the assets attributable to that Fund that are
available for distribution, and a distribution of any general assets not
attributable to a particular Fund that are available for distribution in such
manner and on such basis as the Trustees or the Directors, as the case may be,
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 or the Company,
as the case may be.
OTHER
The Registration Statement, including the Prospectuses, 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
Prospectuses or this Statement of Additional Information as to the contents of
any contract or other document referred to herein or in the Prospectuses 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 Funds' custodian, PNC Bank, N.A., among other things, maintains
a custody account or accounts in the name of each Fund, receives and delivers
all assets for each Fund upon purchase and upon sale or maturity, collects and
receives all income and other payments and distributions on account of the
assets of each Fund, and pays all expenses of each Fund.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has been selected as the independent accountants
for both the Trust and the Company. Price Waterhouse LLP provides audit services
and assistance and consultation in connection with review of certain Commission
filings. Price Waterhouse LLP's address is 30 South 17th Street, Philadelphia,
Pennsylvania 19103.
EXPERTS
The financial statements incorporated by reference into the
Prospectuses and included in this Statement of Additional Information have been
incorporated by reference or included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of that firm as
experts in auditing and accounting.
41
<PAGE>
Specimen Computations of Net Asset
Values and Offering Prices Per Share
Equity Fund (specimen computations)
Net Asset Value and Redemption Price per
Share of Capital Stock at December 31, 1995................... $13.99
======
Maximum Offering Price per Share ($13.99 divided by .955)
----- ----
(reduced on purchases of $100,000 or more)............ $14.65
======
Short/Intermediate Fund (specimen computations)
Net Asset Value and Redemption Price per
Share of Capital Stock at October 31, 1995.................... $10.38
======
Maximum Offering Price per Share ($10.38 divided by .955)
----- ----
(reduced on purchases of $100,000 or more)............ $10.87
======
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Harris Insight Funds Trust
Statement of Assets and Liabilities
February 9, 1996
Equity Small-Cap
Income Growth Opportunity Index International
Fund Fund Fund Fund Fund
Intermediate Convertible Intermediate
Tax-Exempt Tax-Exempt Balanced Securities Bond Government
Bond Fund Bond Fund Fund Fund Fund Bond Fund
Assets:
<S> <C> <C> <C> <C> <C>
Cash $99,050 $130 $200 $200 $200
<C> <C> <C> <C> <C> <C>
$100 $100 $ 40 $ 40 $ 40 $ 40
Deferred Organization
Expenses 20,000 20,000 20,000 20,000 20,000
20,000 20,000 20,000 20,000 20,000 20,000
Total Assets 119,050 20,130 20,200 20,200 20,200
20,100 20,100 20,040 20,040 20,040 20,040
</TABLE>
<TABLE>
<CAPTION>
Liabilities:
<S> <C> <C> <C> <C> <C>
Organization Expenses
Payable to the Advisor 20,000 20,000 20,000 20,000 20,000
<C> <C> <C> <C> <C> <C>
20,000 20,000 20,000 20,000 20,000 20,000
Total Liabilities 20,000 20,000 20,000 20,000 20,000
20,000 20,000 20,000 20,000 20,000 20,000
Net Assets $99,050 $130 $200 $200 $200
$100 $100 $ 40 $ 40 $ 40 $ 40
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Shares issued and
outstanding:
Class A Shares 9,900 8 10 10 10
<C> <C> <C> <C> <C> <C>
5 5 2 2 2 2
Institutional Shares 5 5 10 10 10
5 5 2 2 2 2
Net asset value per share
each for Class A Shares
and Institutional Shares $10.00 $10.00 $10.00 $10.00 $10.00
$10.00 $10.00 $10.00 $10.00 $10.00 $10.00
See accompanying notes to Statement of Assets and Liabilities.
</TABLE>
Harris Insight Funds Trust
Notes to Statement of Assets and Liabilities
1. Organization
The Harris Insight Funds Trust (the "Trust") is an open-end, diversified
management investment
company which was organized on December 6, 1995 and currently offers a
selection of eleven
investment portfolios. HT Insight Funds, Inc. (the "Company")
is an open-end, diversified
management investment company that currently offers six investment portfolios.
(The eleven
portfolios of the Trust and the six portfolios of the Company are collectively
referred to herein
as the "Harris Insight Funds" or the "Funds".) Each of the eleven
investment portfolios offered
by the Trust has two classes of shares (Institutional Shares and
Class A Shares). Five of the
six portfolios offered by the Company have two classes of shares
(Institutional Shares and Class
A shares). The Trust has had no other operations other than the sale
of shares of each of the
Portfolios in the Trust to Funds Distributor, Inc. The Portfolios
of the Trust are as follows:
Harris Insight Equity Income Fund (the "Equity Income Fund")
Harris Insight Growth Fund (the "Growth Fund")
Harris Insight Small-Cap Opportunity Fund (the "Small-Cap Fund")
Harris Insight Index Fund (the "Index Fund")
Harris Insight International Fund (the "International Fund")
Harris Insight Balanced Fund (the "Balanced Fund")
Harris Insight Convertible Securities Fund (the "Convertible
Securities Fund")
Harris Insight Bond Fund (the "Bond Fund")
Harris Insight Intermediate Government Bond Fund (the "Government Fund")
Harris Insight Intermediate Tax-Exempt Bond Fund (the "Intermediate
Tax-Exempt Fund")
Harris Insight Tax-Exempt Bond Fund (the "Tax-Exempt Fund")
Costs incurred and to be incurred in connection with the organization and
initial registration of
the Trust of approximately $220,000 in the aggregate will be paid initially by
the Harris Trust
& Savings Bank (the "Advisor") and reimbursed by each portfolio of the Trust
equally when it
commences operations. The organizational expenses will be deferred and
amortized on a
straight-line basis over a period of five years from the commencement of
operations of each
portfolio of the Trust. In the event any of the initial shares in portfolios
of the Trust are
redeemed during the five-year amortization period, the redemption proceeds will
be reduced by
a pro rata portion of any unamortized deferred organizational expenses in the
same proportion
as the number of initial shares of the portfolios of the Trust being redeemed
bears to the number
of initial shares outstanding at the time of redemption.
Harris Insight Funds Trust
Notes to Statement of Assets and Liabilities
2. Agreements
The Trust is expected to enter into an Advisory Agreement, Administration and
Accounting Services Agreement, Administration Agreement, Distribution Agreement
and Service Plan Agreements as described below.
Under an advisory agreement, the Advisor will manage each Portfolio's business
and investment
affairs. For these services, the Advisor will be entitled to a monthly fee at
an annual rate of
each Portfolio's average daily net assets as follows:
Annual Rate
Equity Income Fund 0.70%
Growth Fund 0.90
Small-Cap Fund 1.00
Index Fund 0.25
International Fund 1.05
Balanced Fund 0.60
Convertible Securities Fund 0.70
Bond Fund 0.65
Government Fund 0.65
Intermediate Tax-Exempt Fund 0.60
Tax-Exempt Fund 0.60
The Advisor has voluntarily agreed to reduce its advisory fee for each
Portfolio to the extent
necessary to limit the Portfolio's operating expenses to a certain percentage
of its average net
assets.
Pursuant to an Administration and Accounting Service Agreement and an
Administration
Agreement, the Trust retains PFPC Inc. ("PFPC"), an indirect wholly-owned
subsidiary of PNC
Bank Corp., and First Data Investor Services Group, Inc. ("First Data") as
Co-Administrator
and Accounting Service Agent and Co-Administrator, respectively. Funds
Distributor, Inc.
("Funds Distributor") serves as the distributor of shares of the Funds pursuant
to a distribution
agreement and assists in the sale of shares of the Funds. For their services,
PFPC and First
Data will be paid a combined monthly fee, based on the aggregate average net
assets of the
Funds as follows: 0.17% of the first $300 million of the aggregate average net
assets of the
Funds, 0.15% of the next $300 million of aggregate average net assets of the
Funds, and 0.13%
of aggregate average net assets in excess of $600 million. The combined fee
includes fees
payable to First Data as follows:
Aggregate average net assets
of the Funds First Data
Up to $1.4 billion 0.0770%
Next $1.1 billion 0.0635%
Next $900 million 0.0767%
Next $900 million 0.0924%
In excess of $4.3 billion 0.0947%
Harris Insight Funds Trust
Notes to Statement of Assets and Liabilities
The combined monthly fee also covers certain services of PNC Bank, National
Association, as
the Fund's custodian and PFPC as the Fund's transfer agent. Fees for services
rendered by
Funds Distributor will be paid by First Data.
3. Service Plans
Under each Portfolio's Service Plan relating to Class A Shares, each Portfolio
bears the costs
and expenses in connection with advertising and marketing the Portfolio's
shares and pays 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 at a rate up to 0.25% per annum of
the average daily
net asset value of the Portfolio's Class A Shares. However, the Advisor, in
lieu of a Portfolio,
from time to time in its sole discretion, may volunteer to bear the costs of
such fees to certain
Service Agents.
Report of Independent Accountants
To the Shareholder and Board of Trustees
of the Harris Insight Funds Trust
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all
material respects, the financial position of the Equity Income Fund, Growth
Fund, Small-Cap
Opportunity Fund, Index Fund, International Fund, Tax-Exempt Bond Fund,
Intermediate Tax-Exempt Bond Fund, Balanced Fund, Convertible Securities Fund,
Bond Fund and Intermediate
Government Bond Fund (constituting Harris Insight Funds Trust, hereafter
referred to as the
"Trust") at February 9, 1996, in conformity with generally accepted accounting
principles. This
financial statement is the responsibility of the Trust's management; our
responsibility is to
express an opinion on this financial statement based on our audit. We
conducted our audit of
this financial statement in accordance with generally accepted auditing
standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial
statement is free of material misstatement. An audit includes examining, on a
test basis,
evidence supporting the amounts and disclosures in the financial statement,
assessing the
accounting principles used and significant estimates made by management, and
evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103
February 12, 1996
42
<PAGE>
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
<PAGE>
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
<PAGE>
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 Long and
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.
SP-2 - Satisfactory capacity to pay principal and interest.
A-3
<PAGE>
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.
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.
A-4
<PAGE>
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
<PAGE>
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) Financial Statements:
The Financial Statements included in Parts A and B of this
Registration
Statement are as follows:
Statements of Assets and Liabilities
Report of Independent Accountants
(b) Exhibits:
Exhibit
Number Description
(1) Declaration of Trust incorporated by reference to Exhibit No. 1 to the
Registration Statement filed on December 12, 1995 (Accession No. 0000927405-
95-000160).
(2) By-Laws incorporated by reference to Exhibit No. 2 to the Registration
Statement filed on December 12, 1995 (Accession No. 0000927406-95-000160).
(3) Not applicable.
(4) Not applicable.
(5)(a) Form of Advisory Contract between Registrant and Harris Trust &
Savings Bank filed herein.
___________________
*To be filed by amendment.
Exhibit
Number Description
(5)(b) Form of Portfolio Management Contract between Harris Trust &
Savings Bank and Harris Investment Management, Inc. filed herein.
(6)(a) Form of Distribution Agreement between the Registrant and Funds
Distributor, Inc.*
(7) Not applicable.
(8) Form of Custodian Agreement between Registrant and PNC Bank, N.A.*
(9)(a) Form of Transfer Agency Agreement between Registrant and PFPC,
Inc.*
(9)(b) Form of Administration Agreement between Registrant and First Data
Investor Services Group (f/k/a The Shareholder Services Group, Inc.).*
(10) Opinion and Consent of First Data Investor Services Group, Inc.
incorporated by reference to Exhibit No. 10 to the Registration Statement
filed on December 12, 1995 (Accession No. 0000927405-95-00160).
(11) Consent of Price Waterhouse, LLP filed herein.
(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(Accession No. 0000927405-95-000160).
(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 (Accession No. 0000927405-95-000160).
___________________
*To be filed by amendment.
Exhibit
Number Description
(16) Not applicable.
(17) Not applicable.
(18) Form of Multi-Class Plan incorporated by reference to Exhibit No. 18
to Pre-Effective Amendment No. 1 to the Registration Statement filed on
February 9, 1996 Accession No.00000927405-96-000050).
Item 25. Persons Controlled by or under Common Control with Registrant.
It is anticipated that, as of the effective date of this Registration
Statement, all of the shares of the Registrant will be owned by Funds
Distributor, Inc.
Item 26. Number of Holders of Securities.
It is anticipated that there will be one record holder of the
Registrant's shares of beneficial interest, $.001 par value, on the date the
Registrant's Registration Statement becomes effective.
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.
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 will be 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 will expressly exclude 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.
Position(s) with Principal Business(es) During
Name Harris Trust the Last Two Fiscal Years
Alan G. McNally Director and Chairman of the Board and Chief
Vice Chairman Executive Officer of Harris Trust &
of the Board Savings Bank and Harris Bankcorp, Inc. Formerly,
Vice Chairman of Personal and Commercial Financial Services of the 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 Chairman, President and Chief Executive Officer
of GATX Corporation.
Daryl F. Grisham Director President and Chief Executive Officer of Parker
House Sausage Company.
Position(s) with Principal Business(es) During
Name Harris Trust the Last Two Fiscal Years
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. Vice Chairman and Senior Executive Vice
President --
Director Corporate and Institutional Financial
Services, Harris Trust & Savings Bank. Formerly, Department
Executive, Corporate Banking, Harris Trust & Savings Bank.
Maribeth S. Rahe Vice Chairman and Senior Executive Vice President --
Director Personal & Commercial Services, Harris Trust & Savings
Bank. Formerly, Department Executive, Personal Financial Services, Harris
Trust & Savings Bank.
(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.
Position(s) Principal Business(es) During
Name with HIM the Last Two Fiscal Years
Brian J. Steck Director and Chairman of the Board of
Chairman of the Harris Investment Management,
Board Inc. Vice-Chairman of
Investment Banking of Bank of Montreal, President of the
Bank of Montreal Investment Management Limited.
Donald G.M. Coxe Director, President and Chief Investment Officer of
Chairman and Chief Harris Investment Management, Inc.
Strategist Formerly, Chief Strategist of Nesbitt Thomson Inc.
William O. President, Chief Manager of Equities, Harris Investment
Leszinske Investment Officer Management.
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.
Position(s) Principal Business(es) During
Name with HIM the Last Two Fiscal Years
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 Senior Partner and Chief
Officer Operating, Harris Investment Management
Blanche Hurt Secretary Director of Harris Trust & Savings Bank Trust
and Investment Compliance Office. Formerly, Corporate Fiduciary Officer of
Harris Trust & Savings Bank.
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 Investment Fund, Inc., Fremont
Mutual Funds, HT Insight Funds, Inc., The Munder Funds Trust, The Munder
Funds, Inc., PanAgora Funds, Sierra Trust Funds, St. Clair Money Market Fund,
Skyline Funds and Waterhouse Investors Cash Managers Fund. 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: The Harris Insight Funds
Trust, One Exchange Place, Boston, Massachusetts 02109; PNC Bank, N.A., Broad
and Chestnut Streets, Philadelphia, Pennsylvania 19107; PFPC Inc., 103
Bellevue Parkway, Wilmington, Delaware 19809; First Data Investor Services
Group, Inc., 53 State Street, Boston, Massachusetts 02109; 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,
regarding each of the Funds 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 each of
the Funds 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 Pre-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 20th day of February, 1996.
HARRIS INSIGHT FUNDS TRUST
By: /s/ Patricia L. Bickimer
Patricia L. Bickimer, President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective Amendment
No. 2 has been signed below by the following persons in the
capacities and on the date indicated:
Signature Title Date
/s/ Patricia L. Bickimer President & Chief February 20, 1996
Patricia L. Bickimer Executive Officer
/s/ C. Gary Gerst Trustee & Chairman February 20, 1996
C. Gary Gerst of the Board
/s/ Edgar R. Fiedler Trustee February 20, 1996
Edgar R. Fiedler
/s/ John W. McCarter, Jr. Trustee February 20, 1996
John W. McCarter, Jr.
/s/ Ernest M. Roth Trustee February 20, 1996
Ernest M. Roth
/s/ Richard H. Rose Treasurer (Principal February 20, 1996
Richard H. Rose Financial Officer)
EXHIBIT INDEX
Exhibit Number Description
(5)(a) Form of Advisory Contract between Registrant and Harris Trust &
Savings Bank.
(5)(b) Form of Portfolio Management Contract between Harris Trust &
Savings Bank and Harris Investment Management, Inc.
(11) Consent of Price Waterhouse, LLP.
bankgrp\hitrust\partc\other#2doc
G:\SHARED\BANKGRP\HITRUST\PARTC\EXHIB296.DOC 11
G:\SHARED\BANKGRP\HITRUST\PARTC\EXHIB296.DOC
INVESTMENT ADVISORY CONTRACT
Harris Insight Funds (the "Trust"), a
Massachusetts business trust registered under the
Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end diversified management investment
company, and Harris Trust and Savings Bank, an Illinois
bank (the "Adviser"), agree as follows:
1. Appointment of Adviser. The Trust appoints
the Adviser to furnish investment advisory and other
services to the Trust for its Equity Income Fund,
Growth Fund, Index Fund, Small-Cap Opportunity Fund,
International Fund, Balanced Fund, Convertible
Securities Fund, Bond Fund, Intermediate Government
Bond Fund, Tax-Exempt Bond Fund and Intermediate Tax-
Exempt Bond Fund (the "Funds"), and the Adviser accepts
that appointment, for the period and on the terms set
forth below. In the event that the Trust establishes
one or more portfolios other than the Funds named above
with respect to which it desires to retain the Adviser
to act as investment adviser hereunder, it shall notify
the Adviser in writing. If the Adviser is willing to
render such services under this Agreement, it shall
notify the Trust in writing whereupon such portfolio
shall become a Fund hereunder and shall be subject to
the provisions of this Agreement to the same extent as
the Funds named above except to the extent that said
provisions (including those relating to the
compensation payable by the Fund to the Adviser) are
modified with respect to such Fund in writing by the
Trust and the Adviser at the time.
2. Services of Adviser.
(a) Investment Management. Subject to the overall
supervision and control of the Board of Trustees of the
Trust (the "Board of Trustees"), the Adviser shall have
supervisory responsibility for the general management
and investment of the Funds' assets, giving due
consideration to the investment policies and
restrictions, portfolio transaction policies and the
other statements concerning the Funds in the Trusts
Declaration of Trust, by-laws and registration
statements under the 1940 Act and the Securities Act of
1933, as amended (the "1933 Act"), to the provisions of
the 1933 Act and the 1940 Act and rules and regulations
thereunder, to the provisions of the Internal Revenue
Code applicable to the Funds as regulated investment
companies and to other applicable law (the "Investment
Policies and Restrictions"). It is understood that the
Adviser intends to enter into a portfolio management
contract (a "Subadvisory Contract") with Harris
Investment Management, Inc. (the "Subadviser"). The
Subadviser or any successor to a Subadviser shall have
the responsibilities and duties set forth in Section 3
below and in its respective Subadvisory Contract. As
long as the Subadvisory Contract is in effect, the
services provided by the Adviser will be limited to the
supervision and oversight of the Subadviser's
performance under the Subadvisory Contract.
(b) Monitoring Subadviser. The Adviser shall
monitor and evaluate the investment performance of the
Subadviser; and shall monitor the investment activities
of the Subadviser to ensure compliance with the
Investment Policies and Restrictions.
(c) Reports and Information. The Adviser shall
furnish to the Board of Trustees periodic reports on
the investment strategy and performance of the Funds
and such additional reports and information as the
Board of Trustees or the officers of the Trust may
reasonably request.
(d) Customers of Financial Institutions. It is
understood that the Adviser may, but shall not be
obligated to, provide, either directly or through
agents, administrative and other services with respect
to shareholders who are customers of the Adviser or its
affiliates, including establishing shareholder
accounts, assisting the Trust's transfer agent with
respect to recording purchase and redemption
transactions, advising shareholders about the status of
their accounts, current yield and dividends declared
and such related services as the shareholders or the
Funds may request. It is further understood that the
Adviser may, but shall not be obligated to, make
payments from its own resources to other financial
institutions that provide similar services to
shareholders of the Funds that are customers of such
institutions. Notwithstanding the foregoing, the
Adviser shall not provide any distribution services to
the Trust that the Adviser is legally precluded from
providing under the Glass-Steagall Act or other
applicable law.
(e) Undertakings of Adviser. The Adviser further
agrees that it will:
(i) Comply with the 1940 Act and with all applicable
rules and regulations of the Securities and Exchange
Commission, the provisions of the Internal Revenue Code
relating to regulated investment companies, applicable
banking laws and regulations, and policy decisions and
procedures adopted by the Board of Trustees from time
to time;
(ii) Select broker-dealers in accordance with
guidelines established by the Board of Trustees from
time to time and in accordance with applicable law
(consistent with this obligation, when the execution
and price offered by two or more brokers or dealers are
comparable, the Adviser may, in its discretion,
purchase and sell portfolio securities to and from
brokers and dealers who provide the Adviser with
research advice and other services);
(iii) Maintain books and records with respect to the
securities transactions of the Funds; and
(iv) Treat confidentially and as proprietary
information of the Trust all records and other
information relative to the Trust or to prior, present
or potential shareholders, and will not use such
records or information for any purpose other than in
the performance of its responsibilities and duties
hereunder, except (A) after prior notification to and
approval in writing by the Trust, which approval shall
not be unreasonably withheld, (B) when so requested by
the Trust, (C) as required by tax authorities or (D)
pursuant to a judicial request, requirement or order,
provided that the Adviser takes reasonable steps to
provide the Trust with prior notice in order to allow
the Trust to contest such request, requirement or
order.
(f) Books and Records. In compliance with the
requirements of Rule 31a-3 under the 1940 Act, the
Adviser agrees that all records that it maintains for
the Trust are the property of the Trust and further
agrees to surrender promptly to the Trust any of such
records upon the Trusts request. The Adviser further
agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
(g) Independent Contractor. The Adviser shall for all
purposes herein be deemed to be an independent
contractor and not an agent of the Trust and shall,
unless otherwise expressly provided or authorized, have
no authority to act for or represent the Trust in any
way.
3. Services of Subadviser. Subject to the overall
supervision and control of the Board of Trustees and
the Adviser and pursuant to the terms of its
Subadvisory Contract, the Subadviser shall manage the
investment and reinvestment of the Funds' assets giving
due consideration to the Investment Policies and
Restrictions. The Adviser shall not be responsible or
liable for the investment merits of any decision by a
Subadviser to purchase, hold or sell a security for the
portfolio of a Fund.
4. Expenses Borne by Trust. Except as otherwise
provided in this Agreement or any other contract to
which the Trust is a party, the Trust shall pay all
expenses incidental to its organization, operations and
business including, without limitation: all charges of
depositories, custodians, sub-custodians and other
agencies for the safekeeping and servicing of its cash,
securities and other property, and of its transfer,
shareholder recordkeeping, dividend disbursing and
redemption agents, if any; all charges for equipment or
services used for obtaining price quotations; all
charges for accounting services provided to the Trust
by the custodian, the Adviser or any other provider of
accounting services; all expenses of portfolio pricing,
net asset value computation and reporting portfolio
information to the Adviser or Subadviser; all charges
for services of administration; all charges of
independent auditors and legal counsel; all
compensation of the Trustees other than those
affiliated with any entity providing advisory or
administrative services to the Trust, and all expenses
incurred in connection with their services to the
Trust; all expenses of preparing, printing and
distributing notices, proxy solicitation material and
reports to shareholders of the Funds; all expenses of
meetings of shareholders; all expenses of preparation
and printing of annual or more frequent revisions of
the Funds' prospectus(es) and of supplying each then
existing shareholder or beneficial owner of shares of
the Funds with a copy of such revised prospectus(es);
all expenses related to preparing and transmitting
certificates representing shares of the Funds, if any;
all expenses of bond and insurance coverage required by
law or deemed advisable by the Board of Trustees; all
costs of borrowing money; all taxes and corporate fees
payable to Federal, state or other governmental
agencies, domestic or foreign; all stamp or other
transfer taxes; all expenses of registering and
maintaining the registration of the Trust under the
1940 Act and of shares of the Funds under the 1933 Act,
of qualifying and maintaining qualification of the
Trust and of shares of the Funds for sale under
securities laws of various states or other
jurisdictions and of registration and qualification of
the Trust under all other laws applicable to the Trust
or its business activities; all payments pursuant to a
plan adopted on behalf of the Funds pursuant to Rule
12b-1 under the 1940 Act; all fees, dues and other
expenses incurred by the Trust in connection with
membership of the Trust in any trade association or
other investment company organization; and
extraordinary expenses. In addition the Funds shall
pay all brokers commissions and other charges relating
to the purchase and sale of portfolio securities or
other assets of the Funds.
5. Allocation of Expenses Borne by Trust. Any
expenses borne by the Trust that are attributable
solely to the organization, operation or business of
the Funds shall be paid solely out of assets of the
Funds. Any expense borne by the Trust that is not
solely attributable to the Funds, nor solely to any
other portfolio of the Trust, shall be apportioned in
such manner as the Trust or an administrator for the
Trust determines is fair and appropriate, or as
otherwise specified by the Board of Trustees.
6. Expenses Borne by Adviser. The Adviser at its own
expense shall furnish personnel, office space and
office facilities and equipment required to render its
services pursuant to this Agreement and shall be
responsible for payment of the fees of the Subadviser
pursuant to the Subadvisory Contract (but the Adviser
shall not be responsible for any expenses such
Subadviser may incur in connection with their
performance of services for the Trust).
7. Compensation of Adviser. For the services to be
rendered and the expenses to be assumed and to be paid
by the Adviser under this Agreement, the Trust shall
pay to the Adviser a fee, computed and accrued daily
and payable on the first business day of each month, at
the following annual rates considered separately on a
portfolio-by-portfolio basis: 1.05% of the average
daily net assets of the International Fund; 1.00% of
the average daily net assets of the Small-Cap
Opportunity Fund; 0.90% of the average daily net assets
of the Growth Fund; 0.70% of the average daily net
assets of the Equity Income Fund and the Convertible
Securities Fund; 0.60% of the average daily net assets
of the Tax-Exempt Bond Fund, the Intermediate Tax-
Exempt Bond Fund and the Balanced Fund; 0.65% of the
average daily net assets of the Bond Fund and the
Intermediate Government Bond Fund; and 0.15% of the
average daily net assets of the Index Fund. Such fees
as are attributable to each Fund shall be a separate
charge to such Fund and shall be the several (and not
joint or joint and several) obligation of each such
Fund.
8. Expense Limitation. If for any fiscal year of the
Funds the total expenses allocated to a Fund pursuant
to paragraph 5 (including fees paid to the Adviser and
any other service provider but excluding taxes,
interest, commissions and other normal charges incident
to the purchase and sale of portfolio securities,
extraordinary charges such as litigation costs, and
payments pursuant to a Funds Rule 12b-1 Plan) exceed
the most restrictive applicable limits prescribed by
any state in which shares of the Fund are then being
offered for sale to the public, the Adviser agrees to
reimburse the Trust in an amount equal to such excess,
provided that the Adviser shall not be required to
reimburse a Fund for any year in an amount greater than
the amount of fees received by it with respect to
management of the Fund for that year. Any such
reimbursement by the Adviser, or refund by a Fund of an
excess reimbursement, shall be paid monthly on an
estimated basis.
9. Non-exclusivity. The services of the Adviser to
the Trust under this Agreement are not to be deemed
exclusive and the Adviser shall be free to render
similar services to others so long as its services
under this Agreement are not impaired by such other
activities.
10. Standard of Care. Neither the Adviser, nor any
Subadviser, nor any of their respective directors,
officers, agents or employees shall be liable or
responsible to the Trust or its shareholders for any
error of judgment, or any loss arising out of any
investment, or for any other act or omission in the
performance by the Adviser or a Subadviser of its
duties under this Agreement or a Subadvisory Contract,
respectively, except for liability resulting from
willful misfeasance, bad faith or gross negligence on
the part of the Adviser or Subadviser, respectively, or
from reckless disregard by the Adviser or the
Subadviser of its obligations and duties under this
Agreement or the Subadvisory Contract, respectively.
11. Amendment. This Agreement may not be amended with
respect to a particular Fund without the affirmative
votes (a) of a majority of the Directors of the
Trustees, including a majority of those Trustees who
are not "interested persons" of the Trust or the
Adviser and (b) of a "majority of the outstanding
shares" of such Fund. The terms "interested person"
and "vote of a majority of the outstanding shares"
shall be construed in accordance with their respective
definitions in Sections 2(a)(19) and 2(a)(42) of the
1940 Act and, with respect to the latter term, in
accordance with Rule 18f-2 under the 1940 Act.
12. Termination. This Agreement may be terminated as
to any Fund, at any time, without payment of any
penalty, by the Board of Trustees, or by a vote of a
majority of the outstanding shares of the Fund, upon at
least 60 days written notice to the Adviser. This
Agreement may be terminated by the Adviser at any time
upon at least 60 days written notice to the Trust.
This Agreement shall terminate automatically in the
event of its "assignment" (as defined in Section
2(a)(4) of the 1940 Act). Unless terminated as
hereinbefore provided, this Agreement shall continue in
effect with respect to a particular Fund for a period
of two years from the date hereof and thereafter from
year to year only so long as such continuance is
specifically approved at least annually (a) by a
majority of those Trustees who are not interested
persons of the Trust or of the Adviser, voting in
person at a meeting called for the purpose of voting on
such approval, and (b) by either the Board of Trustees
or by a vote of a majority of the outstanding shares of
such Fund.
13. Non-liability of Trustees and Shareholders.
The names "Harris Insight Funds Trust" and "Trustees of
Harris Insight Funds Trust" refer respectively to the
Trust created and the Trustees as trustees but not
individually or personally, acting from time to time
under a Declaration of Trust dated December 6, 1995
which is hereby referred to and a copy of which is on
file at the office of the Secretary of State of the
Commonwealth of Massachusetts and at the principal
office of the Trust. The obligations of "Harris
Insight Funds Trust" entered into in the name or on
behalf thereof by any of the Trustees, officers,
representatives or agents are not made individually,
but in such capacities, and are not binding upon any of
the Trustees, shareholders, officers, representatives
or agents of the Trust personally, but bind only the
Trust Property, and all persons dealing with any class
of shares of the Trust must look solely to the Trust
Property belonging to such class for the enforcement of
any claims against the Trust.
14. Notice. Any notice, demand, change of address or
other communication to be given in connection with this
Agreement shall be given in writing and shall be given
by personal delivery, by registered or certified mail
or by transmittal by facsimile or other electronic
medium addressed to the recipient as follows:
To the Adviser: Harris Trust and Savings Bank
Telephone:
Fax:
To the Trust: Harris Insight Funds Trust
Telephone:
Fax:
All notices shall be conclusively deemed to have
been given on the day of actual delivery thereof and,
if given by registered or certified mail, on the fifth
business day following the deposit thereof in the mail
and, if given by facsimile or other electronic medium,
on the day of transmittal thereof.
15. Governing Law. This Agreement shall be construed
and interpreted in accordance with the laws of the
State of Illinois and the laws of the United States of
America applicable to contracts executed and to be
performed therein.
16. References and Headings. In this Agreement and in
any such amendment, references to this Agreement and
all expressions such as "herein," "hereof," and "under
this Agreement" shall be deemed to refer to this
Agreement or this Agreement as amended or affected by
any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as
a part hereof or control or affect the meaning,
construction or effect of this Agreement. This
Agreement may be executed in any number of
counterparts, each of which shall be deemed an
original.
Dated: ________________
HARRIS INSIGHT FUNDS TRUST
By
Name:
Title:
ATTEST:
Patricia L. Bickimer, Secretary
HARRIS TRUST AND SAVINGS BANK
By
Name:
Title:
ATTEST:
______________________, Secretary
7
SHARED/BANKGRP/HARRIS/AGREEMEN/ADVISORY/INADCON2.DOC
PORTFOLIO MANAGEMENT CONTRACT
Harris Trust and Savings Bank (the "Adviser"), an Illinois bank and
Harris Investment Management, Inc., (the "Subadviser") a Delaware corporation
registered under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"), agree as follows:
1. Appointment of Subadviser. The Adviser appoints the Subadviser to
furnish investment advisory and other services to the Harris Insight Funds
Trust (the "Trust") for its Equity Income Fund, Growth Fund, Index Fund,
Small-Cap Opportunity Fund, International Fund, Balanced Fund, Convertible
Securities Fund, Bond Fund, Intermediate Government Bond Fund, Tax-Exempt Bond
Fund and Intermediate Tax-Exempt Bond Fund (the "Funds") and the Subadviser
accepts that appointment for the period and on the terms set forth below.
2. Services of Subadviser.
(a) Investment Management. Subject to the overall control of the Board of
Trustees of the Trust (the "Board of Trustees") and the Adviser, the
Subadviser shall have supervisory responsibility for the general management
and investment of the assets of the Funds giving due consideration to the
investment policies and restrictions, portfolio transaction policies and the
other statements concerning the Funds in the Trust's Declaration of Trust, by-
laws and registration statements under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the Securities Act of 1933, as amended (the
"1933 Act"), to the provisions of the 1933 Act and the 1940 Act and rules and
regulations thereunder, to the provisions of the Internal Revenue Code
applicable to the Funds as regulated investment companies and to other
applicable law (the "Investment Policies and Restrictions").
(b) Monitoring Subadviser. The Adviser shall monitor and evaluate the
investment performance of the Subadviser; and shall monitor the investment
activities of the Subadviser to ensure compliance with the Investment Policies
and Restrictions.
(c) Reports and Information. The Subadviser shall furnish to the Adviser
periodic reports on the investment strategy and performance of the Funds and
such additional reports and information as the Adviser or the Board of
Trustees or the officers of the Trust may reasonably request.
(d) Undertakings of Subadviser. The Subadviser further agrees that it will:
(i) At all times be duly registered as an investment adviser
under the Investment Advisers Act of 1940 and be duly registered and qualified
under other securities legislation in each jurisdiction where such
registration or qualification is required, whether as portfolio manager,
investment counsel or such other category as may be required;
(ii) Comply with the 1940 Act and with all applicable rules and
regulations of the Securities and Exchange Commission, the provisions of the
Internal Revenue Code relating to regulated investment companies, applicable
banking laws and regulations, and policy decisions and procedures adopted by
the Board of Trustees from time to time;
(iii) Select broker-dealers in accordance with guidelines
established by the Board of Trustees from time to time and in accordance with
applicable law (consistent with this obligation, when the execution and price
offered by two or more brokers or dealers are comparable, the Subadviser may,
in its discretion, purchase and sell portfolio securities to and from brokers
and dealers who provide the Subadviser with research advice and other
services);
(iv) Maintain books and records with respect to the securities
transactions of the Funds;
(v) Treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust or to prior,
present or potential shareholders, and will not use such records or
information for any purpose other than in the performance of its
responsibilities and duties hereunder, except (A) after prior notification to
and approval in writing by the Trust, which approval shall not be unreasonably
withheld, (B) when so requested by the Trust, (C) as required by tax
authorities or (D) pursuant to a judicial request, requirement or order,
provided that the Subadviser takes reasonable steps to provide the Trust with
prior notice in order to allow the Trust to contest such request, requirement
or order.
(e) Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Subadviser agrees that all records that it maintains
for the Trust are the property of the Trust and further agrees to surrender
promptly to the Trust any of such records upon the Trusts request. The
Subadviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under
the 1940 Act.
(f) Independent Contractor. The Subadviser shall for all purposes herein be
deemed to be an independent contractor and not an agent of the Trust and
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Trust in any way.
3. Undertakings of Adviser. The Adviser will:
(a) Furnish to the Subadviser promptly a copy of each amendment to the
registration statement of the Trust under the 1940 Act and the 1933 Act and of
each prospectus and statement of additional information relating to the Fund
and any supplement thereto;
(b) Inform the principal custodian of the Funds (the "Custodian") (currently
PNC Bank, N.A.) of the appointment of the Subadviser as investment subadviser
and portfolio manager of the Funds;
(c) Instruct the Custodian to cooperate with the Subadviser in the provision
of custodial services to the Funds; and
(d) Provide the Subadviser with all information that the Subadviser may
reasonably require insofar as it relates to the custodial arrangements in
connection with this Agreement.
4. Expenses Borne by Subadviser. The Subadviser at its own expense shall
furnish personnel, office space and office facilities and equipment required
to render its services pursuant to this Agreement.
5. Compensation of Subadviser. For the services to be rendered and the
expenses to be assumed and to be paid by the Adviser under this Agreement, the
Adviser shall pay to the Subadviser a fee, computed and accrued daily and
payable on the first business day of each month, at the following annual rates
considered separately on a portfolio-by-portfolio basis: 1.05% of the average
daily net assets of the International Fund; 1.00% of the average daily net
assets of the Small-Cap Opportunity Fund; 0.90% of the average daily net
assets of the Growth Fund; 0.70% of the average daily net assets of the Equity
Income Fund and the Convertible Securities Fund; 0.60% of the average daily
net assets of the Tax-Exempt Bond Fund, the Intermediate Tax-Exempt Bond Fund
and the Balanced Fund; ^ 0.65% of the average daily net assets of the Bond
Fund ^ and the Intermediate Government Bond Fund; and 0.15% of the average
daily net assets of the Index Fund.
6. Non-exclusivity. The services of the Subadviser to the Trust under this
Agreement are not to be deemed exclusive and the Subadviser shall be free to
render similar services to others so long as its services under this Agreement
are not impaired by such other activities.
7. Standard of Care. Neither the Subadviser, nor any of its directors,
officers, agents or employees shall be liable or responsible to the Trust or
its shareholders for any error of judgment, or any loss arising out of any
investment, or for any other act or omission in the performance by the
Subadviser of its duties under this Agreement, except for liability resulting
from willful misfeasance, bad faith or gross negligence on its part or from
reckless disregard of its obligations and duties under this Agreement.
8. Inspection. The Adviser (or any authorized agent of the Adviser as
advised in writing to the Subadviser) shall have a right to audit, inspect and
photocopy documents (and remove such photocopies) relating to investment
subadvisory and portfolio management services performed under this Agreement,
during normal business hours of the Subadviser.
9. Authorized Persons.
(a) The Subadviser is authorized to accept instructions and directions with
respect to this Agreement signed by any one of ______________ of the Adviser.
The Adviser will notify the Subadviser of any changes in its officers
empowered to act under this Agreement.
(b) The Adviser is authorized to accept instructions and directions with
respect to this Agreement signed by any Senior Partner or Partner of the
Subadviser. The Subadviser will notify the Adviser of any changes in its
officers empowered to act under this Agreement.
(c) The Subadviser will advise the Custodian of the names of persons from
whom the Custodian is authorized to accept instructions regarding investment
transactions.
10. Use of Subadvisers Name and Marks. The Subadviser grants to the
Adviser and the Trust the right to use, in marketing, promotional and
advertising materials of the Adviser or the Trust, any registered trademarks,
logos or other marks that the Subadviser uses in advertising and publicizing
itself and its services as a portfolio manager or investment counsel. Any
such material shall be subject to the approval by the Subadviser as to form
and content prior to its use by the Adviser or the Trust. The Subadviser
consents to the disclosure, in documents relating to the Funds, of its name as
the investment sub-adviser and portfolio manager of the assets of the Funds.
11. Amendment. This Agreement may not be amended with respect to a
particular Fund without the affirmative votes (a) of a majority of the
Directors of the Trustees, including a majority of those Trustees who are not
"interested persons" of the Trust, the Adviser or the Subadviser and (b) of a
"majority of the outstanding shares" of such Fund. The terms "interested
person" and "vote of a majority of the outstanding shares" shall be construed
in accordance with their respective definitions in Sections 2(a)(19) and
2(a)(42) of the 1940 Act and, with respect to the latter term, in accordance
with Rule 18f-2 under the 1940 Act.
12. Termination. This Agreement may be terminated as to any Fund, at any
time, without payment of any penalty, by the Board of Trustees, or by a vote
of a majority of the outstanding shares of the Fund, upon at least 60 days
written notice to the Adviser. This Agreement may be terminated by the
Adviser at any time upon at least 60 days written notice to the Trust. This
Agreement shall terminate automatically in the event of its "assignment" (as
defined in Section 2(a)(4) of the 1940 Act). Unless terminated as
hereinbefore provided, this Agreement shall continue in effect with respect to
a particular Fund for a period of two years from the date hereof and
thereafter from year to year only so long as such continuance is specifically
approved at least annually (a) by a majority of those Trustees who are not
interested persons of the Trust, the Adviser or the Subadviser, voting in
person at a meeting called for the purpose of voting on such approval, and (b)
by either the Board of Trustees or by a vote of a majority of the outstanding
shares of such Fund.
13. Notice. Any notice, demand, change of address or other communication to
be given in connection with this Agreement shall be given in writing and shall
be given by personal delivery, by registered or certified mail or by
transmittal by facsimile or other electronic medium addressed to the recipient
as follows:
To the Subadviser: Harris Investment Management, Inc.
Telephone:
Fax:
To the Adviser: Harris Trust and Savings Bank
Telephone:
Fax:
To the Trust: Harris Insight Funds Trust
Telephone:
Fax:
All notices shall be conclusively deemed to have been given on the day
of actual delivery thereof and, if given by registered or certified mail, on
the fifth business day following the deposit thereof in the mail and, if given
by facsimile or other electronic medium, on the day of transmittal thereof.
14. Third Party Beneficiaries. This Agreement is intended for the benefit
of the Trust, which shall have all rights against the Subadviser as would
pertain to it if this Agreement were directly between the Trust and the
Subadviser.
15. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Illinois and the laws of the United
States of America applicable to contracts executed and to be performed
therein.
16. References and Headings. In this Agreement and in any such amendment,
references to this Agreement and all expressions such as "herein," "hereof,"
and "under this Agreement" shall be deemed to refer to this Agreement or this
Agreement as amended or affected by any such amendments. Headings are placed
herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
Agreement. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
Dated: ________________
HARRIS TRUST AND SAVINGS BANK
By
Name:
Title:
ATTEST:
______________________, Secretary
HARRIS INVESTMENT MANAGEMENT, INC.
By
Name:
Title:
ATTEST:
______________________, Secretary
6
SHARED/BANKGRP/HARRIS/AGREEMEN/ADVISORY/PORTMGCP.DOC
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 2 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 12, 1996, relating to the Statement of Assets and Liabilities of
Harris Insight Funds Trust, which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectuses which constitutes parts of this Registration Statement. We also
consent to the reference to us under the headings "Independent Accountants",
"Expert" and "Financial Statements" in such Statement of Additional
Information and to the reference to us under the heading "Financial
Highlights" in such Prospectuses.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, PA 19103
February 20, 1996
