As filed with the Securities and Exchange Commission on
February 8, 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
Pre-Effective Amendment No. 1 X
Post-Effective Amendment No.
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 1 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.
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
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 the six
portfolios of the
Company are collectively referred to herein as the ``Harris
Insight Funds'' or
the ``Funds.'') This Prospectus describes one class of shares
(the ``Shares'' or
the ``Institutional Shares'') of each of the eleven
investment portfolios
offered by the Trust and one class of shares (the
``Shares'' or the
``Institutional Shares'') of five of the portfolios offered by
the Company. 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 Bond 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'')
Harris Trust & Savings Bank is the Investment Adviser
to the Funds and
Harris Investment Management, Inc., a subsidiary of Harris
Bankcorp, Inc., acts
as the Portfolio Management Agent for each of the Funds, except
the Tax-Exempt
Money Fund. Shares of each Fund are offered by Funds
Distributor, Inc., the
distributor for the Trust and the Company.
This Prospectus sets forth concisely the information a
prospective investor
should know before investing in the Funds. Please read and
retain it for future
reference. A Statement of Additional Information dated
February 21, 1996,
containing more detailed information about the Funds has been
filed with the
Securities and Exchange Commission and (together with any
supplements thereto)
is incorporated by reference into this Prospectus. The
Statement of Additional
Information may be obtained without charge by writing or
calling the Harris
Insight Funds at the address and telephone number printed above.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR
ENDORSED BY HARRIS TRUST & SAVINGS BANK, OR ANY OF ITS
AFFILIATES, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
SHARES OF THE GOVERNMENT MONEY FUND, THE MONEY FUND AND
THE TAX-EXEMPT
MONEY FUND (COLLECTIVELY, THE ``MONEY MARKET FUNDS'') ARE
NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. ALTHOUGH EACH MONEY MARKET
FUND IS ACTIVELY
MANAGED TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE, THERE IS NO
ASSURANCE THAT IT WILL BE ABLE TO DO SO.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION (THE ``COMMISSION'') OR ANY STATE SECURITIES
COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
February 21, 1996
<PAGE>
TABLE OF CONTENTS
Page
Expense Table
...................................................... 3
Highlights
......................................................... 6
Financial Highlights
............................................... 8
Investment Objectives and Policies
................................. 9
Equity Fund
................................................... 9
Equity Income Fund
............................................ 9
Growth Fund
................................................... 9
Small-Cap Fund
................................................ 10
Index Fund
.................................................... 10
International Fund
............................................ 11
Balanced Fund
................................................. 11
Convertible Securities Fund
................................... 11
Short/Intermediate Fund
....................................... 13
Bond Fund
..................................................... 13
Government Fund
............................................... 14
Intermediate Tax-Exempt Fund
.................................. 14
Tax-Exempt Fund
............................................... 14
The Money Market Funds
........................................ 15
Government Money Fund
......................................... 15
Money Fund
.................................................... 15
Tax-Exempt Money Fund
......................................... 16
All Funds; All Equity and Fixed Income Funds
.................. 16
Investment Strategies
.............................................. 17
Investment Limitations
............................................. 28
Management
......................................................... 29
Determination of Net Asset Value
................................... 32
Purchase of Shares
................................................. 33
Redemption of Shares
............................................... 34
Exchange Privilege
................................................. 35
Dividends and Distributions
........................................ 35
Federal Income Taxes
............................................... 36
Account Services
................................................... 37
Organization and Capital Stock
..................................... 37
Reports to Shareholders
............................................ 38
Calculation of Yield and Total Return
.............................. 39
No person has been authorized to give any information
or to make any
representations other than those contained in this Prospectus,
the Statement of
Additional Information and/or in the Funds' official sales
literature in
connection with the offering of the Funds' shares and, if given
or made, such
other information or representations must not be relied upon
as having been
authorized by the Company, the Trust or the Distributor. This
Prospectus does
not constitute an offer in any state in which, or to any person
to whom, such
offer may not lawfully be made.
2
<PAGE>
EXPENSE TABLE
Expenses and fees payable by shareholders are summarized in
this table and
expressed as a percentage of average net assets.
The following table sets forth certain information
concerning shareholder
transaction expenses and projected annual fund operating
expenses for
Institutional Shares of the Funds during the current fiscal year.
<TABLE>
<CAPTION>
EQUITY INTER-
EQUITY
INCOME GROWTH SMALL-CAP INDEX NATIONAL BALANCED
FUND
FUND FUND FUND FUND FUND FUND
----
- ---- ---- ---- ---- ---- ----
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
<C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases None
None None None None None None
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net assets)
Advisory Fees 0.70%
0.70% 0.90% 1.00% 0.25% 1.05% 0.60%
Rule 12b-1 Fees None
None None None None None None
Other Expenses+ 0.26%
0.23% 0.20% 0.20% 0.20% 0.27% 0.28%
----
- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses 0.96%
0.93% 1.10% 1.20% 0.45% 1.32% 0.88%
====
==== ==== ==== ==== ==== ====
</TABLE>
- --------
* Customers of a financial institution, such as Harris Trust &
Savings Bank,
may also be charged certain fees and expenses by their
institution. These
fees may vary depending on the capacity in which the
institution provides
fiduciary and investment services to the particular client
(e.g., trust,
estate settlement, advisory and custodian services).
+ With respect to each Fund, other than the Equity Fund, the
amount of ``Other
Expenses'' in the table above is based on estimated expenses
and projected
assets for the current fiscal year. With respect to the
Equity Fund, the
amount of ``Other Expenses'' is based on amounts incurred
during the most
recent fiscal year. EXPENSE TABLE (continued)
3
<PAGE>
EXPENSE TABLE (CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE
SHORT INTERMEDIATE
SECURITIES
INTERMEDIATE BOND GOVERNMENT TAX-EXEMPT TAX-
EXEMPT
FUND
FUND FUND FUND FUND FUND
----
- ---- ---- ---- ---- ----
<S> <C>
<C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases None
None None None None None
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net assets)
Advisory Fees 0.70%
0.34%+ 0.40%+ 0.30%+ 0.60%+ 0.60%+
Rule 12b-1 Fees None
None None None None None
Other Expenses++ 0.22%
0.26% 0.20% 0.20% 0.20% 0.20%
----
- ---- ---- ---- ---- ----
Total Fund Operating Expenses 0.92%
0.60%+ 0.60%+ 0.50%+ 0.80%+ 0.80%+
====
==== ==== ==== ==== ====
</TABLE>
- --------
* Customers of a financial institution, such as Harris
Trust, may also be
charged certain fees and expenses by their institution.
These fees may vary
depending on the capacity in which the institution provides
fiduciary and
investment services to the particular client (e.g., trust,
estate settlement,
advisory and custodian services).
+ Reflects advisory fees after waivers.
++ With respect to each Fund, other than the Short/Intermediate
Fund, the amount
of ``Other Expenses'' in the table above is based on
estimated expenses and
projected assets for the current fiscal year. With
respect to the
Short/Intermediate Fund, the amount of ``Other Expenses'' is
based on amounts
incurred during the most recent fiscal year.
Without waivers, the ratio of total fund operating expenses
to average net
assets would be 0.96% with respect to the Short/Intermediate
Fund and 0.85%
with respect to the Bond Fund, Government Fund, Intermediate
Tax-Exempt Fund
and Tax-Exempt Fund. The investment adviser has voluntarily
agreed to waive a
portion of its advisory fees with respect to the
Short/Intermediate Fund, the
Bond Fund, the Government Fund, the Intermediate Tax-
Exempt Fund and the
Tax-Exempt Fund and will not increase its advisory fee without
prior approval
of the Company's Board of Directors and 30 days'
prior notice to
shareholders. Without waivers, the advisory fee for the
Short/Intermediate
Fund would be 0.70% of the Fund's average net assets. Without
waivers, the
advisory fee for each of the Bond, Government, Intermediate
Tax-Exempt and
Tax-Exempt Funds would be 0.65% of each Fund's average net
assets.
<TABLE>
<CAPTION>
GOVERNMENT
MONEY TAX-EXEMPT
MONEY FUND
FUND MONEY FUND
----------
- ---- ----------
<S> <C>
<C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases None
None None
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net assets after
voluntary fee waivers)
Advisory Fees 0.11%
0.11% 0.11%
Other Expenses 0.20%
0.18% 0.18%
----
- ---- ----
Total Fund Operating Expenses 0.31%
0.29% 0.29%
====
==== ====
</TABLE>
- --------
* Reflects expenses after waivers of advisory fees and other
expenses based on
net expenses incurred during the most recent fiscal year.
Without any fee and
expense waivers, total operating expenses for the fiscal years
ended December
31, 1995 and 1994 would have been 0.32% and 0.31% for the
Government Money
Fund, 0.30% and 0.30% for the Money Fund and 0.29% and
0.30% for the
Tax-Exempt Money Fund. Customers of a financial institution,
such as Harris
Trust, may also be charged certain fees and expenses by
their institution.
These fees may vary depending on the capacity in which
the institution
provides fiduciary and investment services to the particular
client (e.g.,
trust, estate settlement, advisory and custodian services).
4
<PAGE>
EXPENSE TABLE (CONTINUED)
EXAMPLE
You would pay the following expenses on a $1,000 investment in
Institutional
Shares, assuming (1) a hypothetical 5% gross annual return and
(2) redemption at
the end of each time period:
<TABLE>
<CAPTION>
EQUITY
INTER-
EQUITY INCOME GROWTH SMALL-CAP INDEX
NATIONAL BALANCED
FUND FUND FUND FUND FUND
FUND FUND
---- ---- ---- ---- ----
- ---- ----
<S> <C> <C> <C> <C> <C>
<C> <C>
1 year $ 10 $ 9 $11 $12 $ 5
$13 $ 9
3 years 31 30 35 38 14
42 28
5 years 53 N/A N/A N/A N/A
N/A N/A
10 years 118 N/A N/A N/A N/A
N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CONVERTIBLE SHORT/
INTERMEDIATE
SECURITIES INTERMEDIATE BOND GOVERNMENT TAX-
EXEMPT TAX-EXEMPT
FUND FUND FUND FUND
FUND FUND
---- ---- ---- ---- --
- -- ----
<S> <C> <C> <C> <C>
<C> <C>
1 year $ 9 $ 6 $ 6 $ 5 $
8 $ 8
3 years 29 19 19 16
26 26
5 years N/A 33 N/A N/A
N/A N/A
10 years N/A 75 N/A N/A
N/A N/A
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT MONEY TAX-EXEMPT
MONEY FUND FUND MONEY FUND
---------- ---- ----------
<S> <C> <C> <C>
1 year $ 3 $ 3 $ 3
3 years 10 9 9
5 years 17 16 16
10 years 39 37 37
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE
EXPENSES OR PERFORMANCE WHICH MAY BE MORE OR LESS THAN THOSE
SHOWN.
The purpose of the expense table is to assist the investor in
understanding the
various costs and expenses that an investor in a Fund will
bear directly or
indirectly. For more information concerning the various costs
and expenses, see
``Management.''
5
<PAGE>
HIGHLIGHTS
The following sixteen investment portfolios are described in this
Prospectus:
EQUITY FUND -- seeks to provide capital appreciation and
current income by
investing primarily in common stocks.
EQUITY INCOME FUND -- seeks to provide current income and,
secondarily, capital
appreciation by investing primarily in common stocks and
convertible securities.
GROWTH FUND -- seeks to provide capital appreciation and,
secondarily, current
income by investing primarily in common stocks and convertible
securities of
companies with above-average growth potential.
SMALL-CAP FUND -- seeks to provide long term capital growth
by investing
primarily in equity securities of smaller to medium
capitalization companies.
INDEX FUND -- seeks to provide the return and risk
characteristics of the S&P
500 Index, by investing primarily in securities of companies
that comprise that
index.
INTERNATIONAL FUND -- seeks to provide international
diversification and capital
appreciation by investing primarily in common stocks of
foreign companies.
Current income is a secondary objective.
BALANCED FUND -- seeks to provide current income and capital
appreciation by
investing in a balanced portfolio of fixed income and equity
securities.
CONVERTIBLE SECURITIES FUND -- seeks to provide capital
appreciation and current
income by investing primarily in securities such as bonds,
debentures, notes,
preferred stocks or warrants that are convertible into common
stocks.
SHORT/INTERMEDIATE FUND -- seeks to provide a high level of
total return,
including a competitive level of current income, by
investing primarily in
investment grade debt securities with a short/intermediate
term average
maturity.
BOND FUND -- seeks to provide a high level of total
return, including a
competitive level of current income, by investing primarily in
investment grade
debt securities of varying maturities.
GOVERNMENT FUND -- seeks to provide a high level of current
income, consistent
with preservation of capital, by investing primarily in
Government Securities
(as defined below in ``Investment Strategies'') having an
intermediate term
average maturity.
INTERMEDIATE TAX-EXEMPT FUND -- seeks to provide a high level of
current income
that is exempt from federal income tax by investing, under
normal market
conditions, at least 80% of its assets in municipal
obligations with an
intermediate term average maturity.
TAX-EXEMPT FUND -- seeks to provide a high level of current
income that is
exempt from federal income tax by investing, under normal market
conditions, at
least 80% of its assets in municipal obligations of varying
maturities.
GOVERNMENT MONEY FUND -- (money market fund) -- seeks to provide
investors with
as high a level of current income as is consistent with its
investment policies
and with preservation of capital and liquidity, by investing
in short-term
Government Securities and certain repurchase agreements.
MONEY FUND -- (money market fund) -- seeks to provide investors
with as high a
level of current income as is consistent with its investment
policies and with
preservation of capital and liquidity, by investing in a
broad range of
short-term money market instruments.
TAX-EXEMPT MONEY FUND -- (money market fund) -- seeks to provide
investors with
as high a level of current income as is consistent with its
investment policies
and with preservation of capital and liquidity, by investing
primarily in high-
quality, short-term municipal obligations.
6
<PAGE>
WHO MANAGES EACH FUND'S INVESTMENTS?
Harris Trust & Savings Bank (``Harris Trust'' or
the ``Investment
Adviser'') is the investment adviser for each Fund. Harris
Trust has provided
investment management service to clients for over 100 years.
Harris Trust
provides investment services for pension, profit-sharing
and personal
portfolios. As of June 30, 1995, assets under management total
approximately $23
billion. See page 27.
Harris Investment Management, Inc. (``HIM'' or the
``Portfolio Management
Agent'') provides daily portfolio management services for the
Funds, other than
the Tax-Exempt Money Fund. HIM and its predecessors have
managed client assets
for over 100 years. HIM has a staff of 96, including 64
professionals, providing
investment expertise to the management of the Harris Insight
Funds and for
pension, profit-sharing and institutional portfolios. As of
June 30, 1995,
assets under management are estimated to exceed $13 billion. See
page 28.
Harris Trust and HIM are subsidiaries of Harris Bankcorp.,
Inc.
WHAT ADVANTAGES DO THE FUNDS OFFER?
The Funds are designed for individual and institutional
investors. A single
investment in shares of the Funds gives the investor
benefits customarily
available only to large investors, such as diversification
of investment,
greater liquidity and professional management, block purchases
of securities,
and relief from bookkeeping, safekeeping of securities and other
administrative
details.
WHEN ARE DIVIDENDS PAID?
Dividends from each of the Money Market Funds are declared
daily and paid
monthly. Dividends from the Short/Intermediate Fund, the
Bond Fund, the
Government Fund, the Intermediate Tax-Exempt Fund and the Tax-
Exempt Fund are
declared daily and paid monthly. Dividends from the Convertible
Securities Fund,
the Equity Fund, the Equity Income Fund, the Growth Fund, the
Index Fund and the
Balanced Fund are declared and paid quarterly. Dividends from the
Small-Cap Fund
and the International Fund are declared and paid semi-annually.
Any net capital
gains will be declared and paid annually. See page 33.
HOW ARE SHARES REDEEMED?
Shares may be redeemed at their next determined net
asset value after
receipt of a proper request by the Registered Representative
servicing your
account, the Distributor, or through any Service Agent. See page
32.
WHAT RISKS ARE ASSOCIATED WITH THE FUNDS?
Each Fund's performance will change daily based on many
factors, including
the quality of the Fund's investments, U.S. and
international economic
conditions, general market conditions and international exchange
rates. Certain
of the Funds invest in securities of foreign issuers that
involve risks not
typically associated with U.S. issuers. There is no assurance
that any Fund will
achieve its investment objective. See ``Investment Strategies.''
7
<PAGE>
FINANCIAL HIGHLIGHTS
This table shows the total return on one Institutional Share
for each period
illustrated.
The following financial highlights are derived from
the financial
statements of the Company for the year ended December 31, 1995
audited by Price
Waterhouse LLP, independent accountants. This information
should be read in
conjunction with the financial statements and notes thereto
that appear in the
Statement of Additional Information and which are incorporated
by reference in
this Prospectus. Institutional Shares of the Money Market
Funds were formerly
known as Class C Shares. Institutional Shares of the other
Funds were not
previously offered.
<TABLE>
<CAPTION>
GOVERNMENT MONEY FUND
MONEY FUND TAX-EXEMPT MONEY FUND
INSTITUTIONAL SHARES
INSTITUTIONAL SHARES INSTITUTIONAL SHARES
--------------------- -------
- ------------- ---------------------
YEAR YEAR
YEAR
ENDED 5/16/94* TO ENDED
1/5/94* TO ENDED 1/5/94* TO
12/31/95 12/31/94 12/31/95
12/31/94 12/31/95 12/31/94
-------- ----------- --------
- ---------- -------- ----------
<S> <C> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of
Period $ 1.00 $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00
------ ------ ------
- ------ ------ ------
Income From Investment
Operations:
Net Investment Income .056 .028 .057
.039 .035 .025
------ ------ ------
- ------ ------ ------
Total from Investment
Operations .056 .028 .057
.039 .035 .025
------ ------ ------
- ------ ------ ------
Less Distributions:
Net Investment Income (.056) (.028) (.057)
(.039) (.035) (.025)
------ ------ ------
- ------ ------ ------
Total Distributions (.056) (.028) (.057)
(.039) (.035) (.025)
------ ------ ------
- ------ ------ ------
Net Asset Value, End of
Period $ 1.00 $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00
====== ====== ======
====== ====== ======
Total Return(3) 5.79% 2.82% 5.86%
4.08% 3.60% 2.56%
Ratios/Supplemental Data:
Net Assets, End of Period
$(000) 18,367 9,617 98,837
31,990 212,146 237,100
Ratio of Expenses to
Average Net Assets(1)(2) 0.31% 0.29% 0.29%
0.29% 0.29% 0.28%
Ratio of Net Investment
Income to Average Net
Assets(2) 5.62% 4.52% 5.69%
4.79% 3.52% 2.99%
</TABLE>
- --------
* Date commenced operations.
(1) Without the voluntary waiver of fees, the expense ratios
(annualized) for
the period ended December 31, 1994 and the year ended
December 31, 1995
would have been 0.32% and 0.31% for Government Money Fund
0.30% and 0.30%
for Money Fund and 0.29% and 0.30% for Tax-Exempt Money
Fund, respectively.
(2) Annualized.
(3) Total returns for periods of less than one year are not
annualized.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Set forth below are the investment objectives and policies
of each of the
Funds. Listed on page 16 following the specific description
of each Fund are
those investments that may be made by (i) all of the Funds, or
(ii) all of the
equity Funds (i.e., Equity, Equity Income, Growth,
Small-Cap, Index,
International and Balanced Funds) and fixed income Funds
(i.e., Convertible
Securities, Short/Intermediate, Bond, Government, Intermediate
Tax-Exempt and
Tax-Exempt Funds). Each Fund may also invest in securities
described in
``Investment Strategies'' below and the Statement of Additional
Information.
EQUITY FUND
The Equity Fund seeks to provide capital appreciation and current
income.
The Equity Fund seeks to provide investors with capital
appreciation and
current income. The Fund seeks to attain its investment
objective by investing,
under normal market conditions, at least 65% of its total
assets in common
stocks of larger capitalization companies (i.e.
companies with market
capitalizations in excess of $500 million). The Fund's
portfolio is generally
comprised of approximately 50 different issues. Risk
is managed by
diversification of investments.
The Fund's investment process considers valuation
and improving
fundamentals. The Fund's investments are expected to encompass
all major sectors
of the market resulting in a diversified portfolio. The
Fund's Portfolio
Management Agent believes that an investment process which
combines carefully
monitored risk control with an emphasis on value and
fundamental research is
suited for long-term equity investing.
EQUITY INCOME FUND
The Equity Income Fund seeks to provide current income and,
secondarily, capital
appreciation.
The Equity Income Fund seeks to provide current income
and secondarily,
capital appreciation. The Fund seeks to achieve its investment
objective by
investing, under normal market conditions, at least 65% of its
total assets in
common stocks and convertible securities that the Fund's
Portfolio Management
Agent believes offer good value, an attractive yield and
dividend growth
potential.
The Fund is managed with a disciplined investment process
which seeks to
maintain a diversified portfolio of high quality equity
securities. The Fund
generally emphasizes securities with higher than average
dividend yields and/or
stronger than average growth characteristics. The result of
this investment
process is a diversified portfolio which the Fund's Portfolio
Management Agent
believes provides attractive long-term growth potential
while striving to
maintain an attractive current yield.
GROWTH FUND
The Growth Fund seeks to provide capital appreciation and,
secondarily, current
income.
The Growth Fund seeks to provide capital appreciation
and, secondarily,
current income. The Fund seeks to achieve its investment
objective by investing,
under normal market conditions, primarily in common stocks
and convertible
securities of companies that the Fund's Portfolio Management
Agent believes
offer above-average growth potential. The Fund's
investment management
discipline emphasizes growth in sales, earnings and asset values.
9
<PAGE>
SMALL-CAP FUND
The Small-Cap Fund seeks to provide long- term capital
appreciation by investing
at least 65% of the value of its total assets in equity
securities of smaller to
medium capitalization companies.
The Small-Cap Fund seeks to provide long term capital
appreciation. The
Fund seeks to achieve its investment objective by investing,
under normal market
conditions, at least 65% of the value of its total assets in
equity securities
of smaller to medium capitalization companies (i.e.
companies with market
capitalizations between $100 million and $2.5 billion).
The investment management discipline of the Fund
searches for companies
offering above-average earnings, sales, and asset value growth.
INDEX FUND
The Index Fund seeks to provide the return and risk
characteristics of the S&P
500 Index.
The Index Fund seeks to provide the return and risk
characteristics of the
Standard & Poor's 500 Index (the ``S&P 500 Index'' or the
``Index''), an index
which emphasizes large capitalization companies. As of
December 31, 1994, the
Index represented approximately 76% of the market
capitalization of publicly
owned stocks in the United States. The Fund seeks to achieve
its investment
objective by investing, under normal market conditions,
primarily in securities
of companies that comprise the S&P 500 Index.
The Fund is managed through the use of a ``quantitative''
or ``indexing''
investment discipline, which attempts to duplicate the
investment composition
and performance of the Index through statistical procedures.
As a result, the
Portfolio Management Agent does not employ traditional
methods of fund
investment management, such as selecting securities on the
basis of economic,
financial and market analysis. The Fund seeks quarterly
performance within a .95
correlation to the Index. On at least a monthly basis,
the Portfolio Management Agent compares the correlation
of the Fund's performance to that of the Index.
In the event the Fund's performance for the preceding
three month period is not within a .95 correlation to the
performance of the Index, the Portfolio Management
Agent may adjust the Fund's holdings in issues included
in the Index to seek a closer performance correlation.
The Fund seeks to match closely the
weight of each
security in the portfolio approximating its weight in the
S&P 500 Index.
Although the Fund may not hold all 500 issues included in the
Index, it will
generally hold at least 90% of such issues. In addition, the
Fund may maintain
positions in S&P 500 Stock Index futures contracts in an
effort to ensure
adequate liquidity and to reduce transaction costs.
Standard & Poor's Corporation (``S&P'') makes no
representation or
warranty, expressed or implied, to the purchasers of the
Index Fund or any
member of the public regarding the advisability of investing in
either the Index
Fund or the ability of the S&P 500 Index to track general
stock market
performance. The Fund is not sponsored, endorsed, sold or
promoted by S&P. S&P
does not guarantee the accuracy and/or completeness of its
index or any data
included therein. Furthermore, S&P makes no warranty, express or
implied, as to
the results to be obtained by the Index Fund, owners of the
Fund, any person or
any entity from the use of the index sponsored by S&P or any
data included
therein. S&P makes no express or implied warranties and
expressly disclaims all
such warranties of merchantability or fitness for a particular
purpose for use
with respect to its index or any data included therein.
10
<PAGE>
INTERNATIONAL FUND
The International Fund seeks to provide international
diversification and
capital appreciation by investing at least 65% of the value of
its total assets
in common stocks of foreign issuers. Current income is a
secondary objective.
The International Fund seeks to provide international
diversification and
capital appreciation. Current income is a secondary objective.
The Fund seeks to
achieve its investment objective by investing, under normal
market conditions,
at least 65% of the value of its total assets in securities of
foreign issuers
(i.e., issuers organized outside the United States or whose
principal trading
market is outside the United States) and such issuers will
be located in at
least three countries other than the United States. The Fund
seeks to manage
risk through the diversification of its investments.
The International Fund also may invest in exchange rate-
related securities,
securities convertible into or exchangeable for foreign equity
securities, and
custodial receipts for U.S. Treasury securities. In
addition, the Fund may
engage in the purchase and sale of foreign currency for hedging
purposes.
BALANCED FUND
The Balanced Fund seeks to provide current income and
capital appreciation
through a balanced portfolio of fixed income and equity
securities.
The Balanced Fund seeks to provide current income and
capital appreciation
by investing in a balanced portfolio of fixed income and equity
securities. The
Fund seeks to achieve its investment objective by utilizing
an active asset
allocation approach. Under normal market conditions, equity
securities are
expected to comprise between 40% and 65% of the Fund's total
assets and fixed
income securities are expected to comprise at least 25% of
the Fund's total
assets.
CONVERTIBLE SECURITIES FUND
The Convertible Securities Fund seeks to provide capital
appreciation and
current income.
The Convertible Securities Fund seeks to provide capital
appreciation and
current income. The Fund intends, under normal market
conditions, to invest at
least 65% of the value of its total assets in convertible
securities, that is,
securities including bonds, debentures, notes or preferred
stock that are
convertible into common stock, or warrants that provide the
owner the right to
purchase shares of common stock at a specified price. The Fund
may also invest
in equity securities of U.S. corporations. The Fund seeks to
diversify among
issuers in a manner that will enable the Fund to minimize the
volatility of the
Fund's net asset value in erratic or declining markets.
Under normal market conditions, the Convertible Securities
Fund will invest
without limitation in convertible securities of U.S.
corporations and in
Eurodollar securities convertible into common stocks of U.S.
corporations that
are rated ``B'' or better by S&P or ``B'' (``b'' in the
case of preferred
stocks) or better by Moody's Investors Service, Inc.
(``Moody's'') at the time
of purchase, or, if not rated, considered by the Portfolio
Management Agent to
be of comparable quality, except that investment in securities
rated ``B\-'' by
S&P or Moody's will be limited to 15% of its total assets.
Up to 5% of the
Convertible Securities Fund's total assets may be invested
in convertible
securities that are rated ``CCC'' by S&P or ``Caa'' by Moody's
at the time of
purchase. Securities that are rated ``BB'' or below by S&P or
``Ba'' or below by
Moody's are ``high yield securities'', commonly known as junk
bonds. By their
nature, convertible securities may be more volatile in price
than higher rated
debt obligations.
The Convertible Securities Fund may also invest up to
35% of its total
assets in ``synthetic convertibles'' created by combining
separate securities
that possess the two principal characteristics of a true
convertible security,
i.e., fixed income and the right to acquire equity securities.
In addition, the
Convertible Securities Fund may
11
<PAGE>
invest: up to 15% of its net assets in convertible
securities offered in
``private placements'' and other illiquid securities; up to
15% of its total
assets in common stocks; and up to 5% of its net assets in
warrants. The
Convertible Securities Fund may purchase and sell index and
interest rate
futures contracts and covered put and call options on securities
and on indices.
In periods of unusual market conditions, when the
Portfolio Management
Agent believes that convertible securities would not best
serve the Fund's
objectives, the Convertible Securities Fund may for defensive
purposes invest
part or all of its total assets in: (a) Government
Securities; (b)
non-convertible debt obligations of domestic corporations,
including bonds,
debentures, notes or preferred stock rated ``BBB'' or better by
S&P or ``Baa''
or better by Moody's at the time of purchase, which ordinarily
are less volatile
in price than convertible securities and serve to increase
diversification of
risk; and (c) short-term money market instruments, including
U.S. Government,
bank and commercial obligations with remaining maturities of
thirteen months or
less. During such periods, the Convertible Securities Fund will
continue to seek
current income but will put less emphasis on capital
appreciation.
Risk Factors and Other Considerations Relating to Low-Rated
and Comparable
Unrated Securities. Low-rated and comparable unrated securities
(a) will likely
have some quality and protective characteristics that, in the
judgment of the
rating organization, are outweighed by large uncertainties
or major risk
exposures to adverse conditions and (b) are predominantly
speculative with
respect to the issuer's capacity to pay interest and repay
principal in
accordance with the terms of the obligation.
The market values of low-rated and comparable unrated
securities are less
sensitive to interest rate changes but more sensitive to
economic changes or
individual corporate developments than higher-rated securities;
they present a
higher degree of credit risk and their yields will fluctuate
over time. During
economic downturns or sustained periods of rising interest rates,
the ability of
highly leveraged issuers to service debt obligations may be
impaired.
The existence of limited or no established trading
markets for low-rated
and comparable unrated securities may result in thin trading of
such securities
and diminish the Convertible Securities Fund's ability to
dispose of such
securities or to obtain accurate market quotations for valuing
such securities
and calculating net asset value. The responsibility of the
Trust's Board of
Trustees to value such securities becomes greater and judgment
plays a greater
role in valuation because there is less reliable objective data
available. In
addition, adverse publicity and investor perceptions may decrease
the values and
liquidity of low-rated and comparable unrated securities bonds,
especially in a
thinly traded market.
A major economic recession would likely disrupt the
market for such
securities, adversely affect their value and the ability of
issuers to repay
principal and pay interest, and result in a higher incidence of
defaults.
The ratings of Moody's and S&P represent the
opinions of those
organizations as to the quality of securities. Such ratings
are relative and
subjective, not absolute standards of quality and do not
evaluate the market
risk of the securities. Although the Convertible Securities
Fund's Portfolio
Management Agent uses these ratings as a criterion for the
selection of
securities for the Convertible Securities Fund, it also
relies on its
independent analysis to evaluate potential investments for
the
12
<PAGE>
Convertible Securities Fund. The Convertible Securities Fund's
achievement of
its investment objective may be more dependent on the
Portfolio Management
Agent's credit analysis of low-rated and unrated securities
than would be the
case for a portfolio of high-rated securities.
SHORT/INTERMEDIATE FUND
The Short/Intermediate Bond Fund seeks to provide a high level
of total return,
including a competitive level of current income, by
investing primarily in
investment grade debt securities with a short/ intermediate
term average
maturity.
The Short/Intermediate Fund, formerly known as Harris
Insight Managed Fixed
Income Fund, seeks to provide a high level of total
return, including a
competitive level of current income, by investing primarily in
investment grade
debt securities with a short/intermediate term average
maturity. The Fund
intends, under normal market conditions, to invest at least 65%
of the value of
its total assets in bonds. For purposes of this 65%
limitation, the term
``bond'' shall include debt obligations such as bonds and
debentures, Government
Securities, debt obligations of domestic and foreign
corporations, debt
obligations of foreign governments and their political
subdivisions,
asset-backed securities, various mortgage-related securities
(including those
issued or collateralized by U.S. Government agencies and
inverse floating rate
mortgage-backed securities), other floating/variable rate
obligations, municipal
obligations and zero coupon securities. The Fund seeks to
achieve its objective
by utilizing a number of investment disciplines, including the
assessment of
yield advantages among different classes of bonds and
among different
maturities, the independent review by the Fund's Portfolio
Management Agent of
the credit quality of individual issues, and the analysis
by the Fund's
Portfolio Management Agent of economic and market conditions
affecting the fixed
income markets. The Intermediate Bond Fund may invest in a broad
range of fixed
income obligations. The Fund may invest in fixed and
variable rate bonds,
debentures, Government Securities, and Government Stripped
Mortgage- Backed
Securities. The Fund also may invest in U.S. Treasury or
agency securities
placed into irrevocable trusts and evidenced by a trust receipt.
The Fund's dollar-weighted average portfolio maturity (or
average life with
respect to mortgage-related and asset-backed securities),
under normal market
conditions, will be between two and five years. The Fund
may also hold
short-term U.S. Government Obligations, ``high-quality''
money market
instruments (i.e., those within the two highest rating
categories or, if
unrated, determined by the Portfolio Management Agent to be
comparable in
quality to instruments so rated) and cash. Such obligations
may include those
issued by foreign banks and foreign branches of U.S. banks.
These investments
may be in such proportions as, in the Portfolio Management
Agent's opinion,
existing circumstances warrant.
BOND FUND
The Bond Fund seeks to provide a high level of total
return, including a
competitive level of current income, by investing primarily in
investment grade
debt securities of varying maturities.
The Bond Fund seeks to provide a high level of total
return, including a
competitive level of current income, by investing primarily in
investment grade
debt securities of varying maturities. The Fund seeks to
achieve its objective
by utilizing a highly-disciplined, quantitatively-based
process to identify
fixed income securities which the Fund's Portfolio Management
Agent believes are
undervalued and are positioned to offer the best relative
value to enable the
Fund to benefit from anticipated changes in interest rates.
Under normal market
conditions, at least 65% of the Bond Fund's total assets will
be invested in
bonds. For purposes of this 65% limitation, the term ``bond''
shall include debt
obligations such as bonds and debentures, Government
Securities, debt
obligations of domestic and foreign corporations, debt
obligations of foreign
governments and their political subdivisions, asset-backed
securities, various
mortgage-related securities (including those issued or
collateralized by U.S.
Government agencies and inverse floating rate mortgage-backed
securities), other
floating/variable rate obligations, municipal obligations
and zero coupon
securities.
13
<PAGE>
GOVERNMENT FUND
The Government Fund seeks to provide a high level of current
income, consistent
with preservation of capital.
The Government Fund seeks to provide a high level of
current income,
consistent with preservation of capital. The Fund seeks
to achieve its
investment objective by investing primarily in Government
Securities, including
mortgage- backed securities, having an intermediate term average
maturity. Under
normal market conditions, at least 65% of the Fund's total
assets will be
invested in Government Securities and in repurchase agreements
collateralized by
Government Securities. The average portfolio maturity (or
average life with
respect to mortgage-related securities) generally will be
between three and ten
years.
In addition, the Fund may also invest in asset-
backed securities
collateralized by the U.S. Treasury and certain U.S. Government
agencies. It may
also hold foreign debt securities guaranteed by the U.S.
Government, its
agencies or instrumentalities (with respect to 10% of its
total assets).
Further, the Government Fund may invest in covered put and
call options on
securities and on indices.
INTERMEDIATE TAX-EXEMPT FUND
The Intermediate Tax-Exempt Fund seeks a high level of current
income that is
exempt from federal income tax.
The Intermediate Tax-Exempt Fund seeks to provide a high
level of current
income that is exempt from federal income tax. As a matter
of fundamental
policy, the Fund seeks to achieve its investment objective by
investing at least
80% of its assets, under normal market conditions, in a broad
range of municipal
bonds and other obligations issued by state and local
governments to finance
their operations or special projects. These securities, which
are of varying
maturities, make interest payments that are exempt from federal
income tax. The
Fund's dollar-weighted average portfolio maturity, under
normal market
conditions, will be between three and ten years.
The Fund's selection of individual securities is based
on a number of
factors, including anticipated changes in interest rates, the
assessment of the
yield advantages of different classes of bonds, and an
independent analysis of
credit quality of individual issues by the Fund's Portfolio
Management Agent or
the Investment Adviser.
The Intermediate Tax-Exempt Fund may also invest in
letters of credit and
U.S. Government Obligations. In addition, the Fund may purchase
and sell covered
put and call options on securities and on indices.
TAX-EXEMPT FUND
The Tax-Exempt Fund seeks to provide a high level of current
income that is
exempt from federal income tax.
The Tax-Exempt Fund seeks to provide a high level of current
income that is
exempt from federal income tax. The Fund seeks to achieve its
objective by
anticipating changes in interest rates, analyzing yield
differentials for
different types of bonds, and analyzing credit for
specific issues and
municipalities. As a matter of fundamental policy, the Fund seeks
to achieve its
investment objective by investing at least 80% of its assets,
under normal
market conditions, in a broad range of municipal bonds and
other obligations
issued by state and local governments to finance their
operations or special
projects. These securities make interest payments that are
exempt from federal
income tax.
The Tax-Exempt Fund may also invest in letters of
credit and U.S.
Government Obligations. Further, the Fund may purchase and sell
covered put and
call options on securities and on indices.
14
<PAGE>
THE MONEY MARKET FUNDS
The investment objective of each of the Money Market
Funds is to provide
investors with as high a level of current income (which, in
the case of the
Tax-Exempt Money Fund, is exempt from federal income taxes)
as is consistent
with its investment policies and with preservation of capital
and liquidity.
Current income provided by the securities in which the Money
Market Funds invest
is not likely to be as high as that provided by
securities with longer
maturities or lower quality, which may involve greater
risk and price
volatility. Each Money Market Fund will invest in U.S.
dollar-denominated
securities with maturities of thirteen months or less. The
Money Fund will not
purchase a security (other than Government Securities) unless
the security is
rated by at least two nationally recognized rating agencies
(such as S&P or
Moody's) within the two highest ratings assigned to short-term
debt securities
(or, if not rated or rated only by one rating agency, is
determined to be of
comparable quality), and not more than 5% of the total assets of
the Fund would
be invested in securities bearing the second highest rating.
The Tax-Exempt
Money Fund will not purchase a security (other than a
Government Security)
unless the security is rated by at least two such rating agencies
within the two
highest ratings assigned to short-term debt securities (or,
if not rated or
rated by only one rating agency, is determined to be of
comparable quality).
Determinations of comparable quality shall be made in accordance
with procedures
established by the Company's Board of Directors. Each Money
Market Fund will
maintain a dollar-weighted average maturity of 90 days or less
in an effort to
maintain a net asset value per share of $1.00. There is no
assurance that the
net asset value per share of the Money Market Funds will be
maintained at $1.00.
GOVERNMENT MONEY FUND
The Government Money Fund invests in obligations issued or
guaranteed by the U.S
Government, its agencies, instrumentalities or sponsored
enterprises, and that
have remaining maturities of thirteen months or less.
The Government Money Fund, formerly known as Harris
Insight Government
Assets Fund, invests exclusively in Government Securities that
have remaining
maturities not exceeding thirteen months and certain
repurchase agreements
described below.
The Government Money Fund invests in obligations of
U.S. Government
agencies and instrumentalities only when the Portfolio
Management Agent is
satisfied that the credit risk with respect to the issuer is
minimal.
MONEY FUND
The Money Fund invests in short-term money market instruments,
including U.S.
Government, bank and commercial obligations with remaining
maturities of
thirteen months or less.
The Money Fund, formerly known as Harris Insight Cash
Management Fund,
invests in a broad range of short-term money market
instruments that have
remaining maturities not exceeding thirteen months,
including Government
Securities and bank and commercial obligations.
The commercial paper purchased by the Money Fund will
consist of U.S.
dollar-denominated direct obligations of domestic and foreign
corporate issuers,
including bank holding companies.
The Money Fund may also invest in guaranteed
investment contracts
(``GICs'') issued by U.S. and Canadian insurance companies, and
convertible and
non- convertible debt securities of domestic corporations
and of foreign
corporations and governments that are denominated, and pay
interest, in U.S.
dollars. In addition, the Money Fund may invest in tax-
exempt municipal
obligations in which
15
<PAGE>
the Tax-Exempt Money Fund may invest, described below, when the
yields on such
obligations are higher than the yields on taxable investments.
All securities
acquired by the Fund will have remaining maturities of thirteen
months or less
and will be subject to the applicable quality requirements
described above.
TAX-EXEMPT MONEY FUND
The Tax-Exempt Money Fund invests in debt instruments issued by
or for states,
cities, municipalities and other public authorities and that
provide interest
income exempt from federal income tax.
The Tax-Exempt Money Fund, formerly known as Harris Insight
Tax-Free Money
Market Fund, invests primarily in high-quality municipal
obligations that have
remaining maturities not exceeding thirteen months and meet
the applicable
quality requirements described above. Municipal obligations are
debt obligations
issued by or on behalf of states, cities, municipalities
and other public
authorities. Except for temporary investments in taxable
obligations described
below, the Tax-Exempt Money Fund will invest only in municipal
obligations that
are exempt from federal income taxes in the opinion of bond
counsel. Such
obligations include municipal bonds, municipal notes and
municipal commercial
paper.
From time to time, the Tax-Exempt Money Fund may invest 25%
or more of its
assets in municipal obligations that are related in such a way
that an economic,
business or political development or change affecting one of
these obligations
would also affect the other obligations, for example, municipal
obligations the
interest on which is paid from revenues of similar type
projects or municipal
obligations whose issuers are located in the same state.
Under ordinary market conditions, the Tax-Exempt Money
Fund will maintain
as a fundamental policy at least 80% of the value of its
total assets in
obligations that are exempt from federal income tax and not
subject to the
alternative minimum tax. The Tax-Exempt Money Fund may, pending
the investment
of proceeds of sales of its shares or proceeds from the
sale of portfolio
securities, in anticipation of redemptions, or to maintain a
``defensive''
posture when, in the opinion of the Investment Adviser, it is
advisable to do so
because of market conditions, elect to hold temporarily up to 20%
of the current
value of its total assets in cash reserves or invest in taxable
securities in
which the Money Fund may invest.
ALL FUNDS; ALL EQUITY AND FIXED INCOME FUNDS
Each Fund may invest in the securities of other
investment companies,
when-issued securities and forward commitments,
floating/variable rate
obligations (and inverse floating rate obligations with
respect to the fixed
income Funds), as well as commercial paper, short-term money
market instruments
and cash equivalents, such as certificates of deposit, demand
and time deposits
and banker's acceptance notes. In addition, each Fund may enter
into repurchase
agreements.
Each equity and fixed income Fund may lend its portfolio
securities with
respect to up to one-third of its net assets and may enter
into reverse
repurchase agreements.
Each equity and fixed income Fund may invest in securities
convertible into
or exchangeable for common stocks or preferred stocks, as
well as Government
Securities and debt obligations of domestic corporations rated
``Baa'' or better
by Moody's, ``BBB'' or better by S&P or an equivalent
rating by another
nationally recognized statistical rating organization at the
time of purchase
or, if not rated are considered by the Portfolio Management
Agent to be of
comparable quality. (The Convertible Securities Fund may also
invest in lower
rated securities, as described above.) Debt obligations rated
``BBB'' by S&P,
``Baa'' by Moody's or the equivalent by such other rating
organization may have
speculative characteristics, and changes in economic
conditions or other
circumstances are more likely to lead to a
16
<PAGE>
weakened capacity to make principal and interest payments than
is the case with
higher grade bonds. In addition, each equity Fund may invest
in securities
purchased in an initial public offering. Each equity Fund
also may invest in
American Depositary Receipts, European Depositary Receipts and,
with respect to
10% (100% for the International Fund) of total assets,
debt and equity
securities of foreign issuers. Further, each equity Fund may
purchase and sell
covered put and call options on securities, index and
interest rate futures
contracts and options on futures contracts.
--------
Portfolio securities of each Fund are kept under continuing
supervision and
changes may be made whenever, in the opinion of the Portfolio
Management Agent,
a security no longer seems to meet the objective of the Fund.
Portfolio changes
also may be made to increase or decrease investments in
anticipation of changes
in security prices in general or to provide funds required
for redemptions,
distributions to shareholders or other corporate purposes.
Neither the length of
time a security has been held nor the rate of turnover of a
Fund's portfolio is
considered a limiting factor on such changes.
--------
Each Fund may purchase debt obligations that are not
rated if, in the
opinion of the Portfolio Management Agent, they are of
investment quality at
least comparable to other rated investments that may be
purchased by the Fund.
After purchase by a Fund, a security may cease to be rated or
its rating may be
reduced below the minimum required for purchase by the Fund.
Neither event will
require a Fund (other than a Money Market Fund) to sell such
security unless the
amount of such security exceeds permissible limits. 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. To the extent that the ratings given
by Moody's, S&P
or another nationally recognized statistical rating organization
for securities
may change as a result of changes in the rating systems or
due to corporate
reorganization of such rating organizations, a Fund will
attempt to use
comparable ratings as standards for its investments in
accordance with the
investment objectives and policies of the Fund. The ratings of
Moody's and S&P
are more fully described in the Appendix to the Statement
of Additional
Information. 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.
INVESTMENT STRATEGIES
ASSET-BACKED SECURITIES. All of the equity Funds as
well as the
Short/Intermediate Fund, the Bond Fund, the Government Fund,
the Intermediate
Tax- Exempt Fund, the Tax-Exempt Fund and the Money Fund may
purchase asset-
backed securities, which represent a participation in, or are
secured by and
payable from, a stream of payments generated by particular
assets, most often a
pool of assets similar to one another. With respect to asset-
backed securities
purchased by the equity Funds, the Intermediate Bond Fund and
the Bond Fund,
assets generating payments will consist of motor vehicle
installment purchase
obligations, credit card receivables and home equity loans,
equipment leases,
manufactured housing loans and marine loans. The asset-
backed securities
purchased by the Intermediate Tax-Exempt Fund, the Tax-
Exempt Fund and the
Tax-Exempt Money Fund represent units of beneficial
interest in pools of
purchasing contracts, financing leases and sales agreements
entered into by
municipalities. The Govern-
17
<PAGE>
ment Fund may invest in asset-backed trusts collateralized by
the U.S. Treasury
or certain other U.S. government agencies and instrumentalities.
In accordance
with guidelines established by the Boards of Trustees and
Directors, as the case
may be, asset-backed securities may be considered illiquid
securities and,
therefore, may be subject to a Fund's 15% (or, in the case of
the Intermediate
Bond Fund, the Equity Fund and the Money Market Funds, 10%)
limitation on such
investments.
The estimated life of an asset-backed security varies
with prepayment
experience with respect to underlying debt instruments.
The rate of such
prepayments, and therefore the life of the asset-backed
security, will be
primarily a function of current market interest rates, although
other economic
and demographic factors may be involved. In periods of falling
interest rates,
the rate of prepayments tends to increase. During such periods,
the reinvestment
of prepayment proceeds by a Fund will generally be at lower rates
than the rates
that were carried by the obligations that have been prepaid.
Because of these
and other reasons, an asset-backed security's total return may
be difficult to
predict precisely. If a Fund purchases asset-backed
securities at a premium,
prepayments may result in some loss of the Fund's principal
investment to the
extent of premium paid.
BANK INVESTMENT CONTRACTS. The Short/Intermediate Fund,
the Bond Fund and
the Money Fund may invest in bank investment contracts (``BICs'')
which are debt
obligations issued by banks. BICs require a Fund to make cash
contributions to a
deposit account at a bank in exchange for payments at
negotiated, floating or
fixed interest rates. A BIC is a general obligation of the
issuing bank. BICs
are considered illiquid securities and will be subject to each
Fund's 10% (15%
with respect to the Bond Fund) limitation on such investments,
unless there is
an active and substantial secondary market for the particular
instrument and
market quotations are readily available in accordance
with guidelines
established by the Board of Directors or the Board of Trustees,
as the case may
be. All purchases of BICs will be subject to the applicable
quality requirements
described under ``Investment Objectives and Policies.''
BANK OBLIGATIONS. Bank obligations include negotiable
certificates of
deposit, bankers' acceptances and fixed time deposits. The Money
Fund limits its
investments in domestic bank obligations to obligations of U.S.
banks (including
foreign branches and thrift institutions) that have more
than $1 billion in
total assets at the time of investment and are members of the
Federal Reserve
System, are examined by the Comptroller of the Currency or
whose deposits are
insured by the Federal Deposit Insurance Corporation (``U.S.
banks''). The Money
Fund limits its investments in foreign bank
obligations to U.S.
dollar-denominated obligations of foreign banks (including U.S.
branches): (a)
which banks at the time of investment (i) have more than $10
billion, or the
equivalent in other currencies, in total assets and (ii) are
among the 100
largest banks in the world, as determined on the basis of
assets, and have
branches or agencies in the U.S.; and (b) which obligations, in
the opinion of
the Portfolio Management Agent, are of an investment quality
comparable to
obligations of U.S. banks that may be purchased by the Money
Fund. Each of the
Intermediate Bond Fund and the Money Fund may invest more
than 25% of the
current value of its total assets in obligations
(including repurchase
agreements) of: (a) U.S. banks; (b) U.S. branches of foreign
banks that are
subject to the same regulation as U.S. banks by the U.S.
Government or its
agencies or instrumentalities; or (c) foreign branches of U.S.
banks if the U.S.
banks would be unconditionally liable in the event the foreign
branch failed to
pay on such obligations for any reason. The profitability
of the banking
industry is largely
18
<PAGE>
dependent upon the availability and cost of funds to finance
lending operations
and the quality of underlying bank assets. In addition,
domestic and foreign
banks are subject to extensive but different government
regulation which may
limit the amount and types of their loans and the interest
rates that may be
charged. Obligations of foreign banks involve somewhat
different investment
risks from those associated with obligations of U.S. banks.
See ``Foreign
Securities.''
CONVERTIBLE SECURITIES. All of the equity Funds, the
Convertible Securities
Fund and the Bond Fund may invest in convertible securities.
Appropriate ratings
and types of convertible securities for each of these Funds are
provided in the
description of each Fund starting on page 9 above.
Because convertible
securities have the characteristics of both fixed-income
securities and common
stock, they 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 relation 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.
EXCHANGE RATE-RELATED SECURITIES. The International
Fund may invest in
securities for which the principal repayment at maturity,
while paid in U.S.
dollars, is determined by reference to the exchange rate between
the U.S. dollar
and the currency of one or more foreign countries
(``Exchange Rate-Related
Securities''). The interest payable on these securities is
denominated in U.S.
dollars and is not subject to foreign currency risk and, in most
cases, is paid
at rates higher than most other similarly rated securities in
recognition of the
foreign currency risk component of Exchange Rate-Related
Securities.
Investments in Exchange Rate-Related Securities entail
certain risks. There
is the possibility of significant changes in rates of exchange
between the U.S.
dollar and any foreign currency to which an Exchange Rate-
Related Security is
linked. In addition, there is no assurance that sufficient
trading interest to
create a liquid secondary market will exist for a
particular Exchange
Rate-Related Security due to conditions in the debt and
foreign currency
markets. Illiquidity in the forward foreign exchange market
and the high
volatility of the foreign exchange market may, from time to
time, combine to
make it difficult to sell an Exchange Rate-Related Security
prior to maturity
without incurring a significant price loss.
FLOATING AND VARIABLE RATE INSTRUMENTS. All of the
Funds may purchase
instruments (municipal obligations in the case of the
Intermediate Tax-Exempt
Fund and the Tax-Exempt Fund and instruments issued by the
U.S. Treasury or
certain U.S. Government agencies or instrumentalities in
the case of the
Government Fund) having a floating or variable rate of
interest. These
obligations bear interest at rates that are not fixed, but vary
with changes in
specified market rates or indices, such as the prime rate,
or at specified
intervals. Certain of these obligations may carry a demand
feature that would
permit the holder to tender them back to the issuer at par
value prior to
maturity. The Money Market Funds may each invest in a floating
or variable rate
obligation even if it carries a stated
19
<PAGE>
maturity in excess of thirteen months upon compliance with
certain conditions
contained in a rule of the Commission, in which case such
obligation will be
treated as having a maturity not exceeding thirteen months. Each
Fund will limit
its purchases of floating and variable rate obligations to
those of the same
quality as it otherwise is allowed to purchase.
A floating or variable rate instrument may be subject
to the Fund's
percentage limitation on illiquid investments if there is no
reliable trading
market for the investment or if the Fund may not demand payment
of the principal
amount within seven days.
FOREIGN SECURITIES. The International Fund may invest up
to 100% of its
total assets, and each of the remaining equity Funds may
invest up to 10% of
total assets in dollar-denominated foreign equity and debt
securities. Each
equity Fund may also invest in American Depositary Receipts
(``ADRs'') and
European Depositary Receipts. ADRs are certificates issued by a
U.S. depository
(usually a bank) and represent a specified quantity of shares
of an underlying
non-U.S. stock on deposit with a custodian bank as
collateral. European
Depository Receipts are typically issued by foreign banks and
trust companies
(although they may also be issued by U.S. banks or trust
companies) and evidence
ownership of underlying securities issued by either a
foreign or a U.S.
corporation.
The Intermediate Bond Fund and the Bond Fund (each with
respect to 20% of
its total assets) as well as the Money Fund may invest in non-
convertible (and
convertible in the case of the Bond Fund) debt obligations of
foreign banks,
foreign corporations and foreign governments which obligations
are denominated
in and pay interest in U.S. dollars. The Convertible Securities
Fund may invest
in dollar-denominated Eurodollar securities convertible into the
common stock of
domestic corporations. The Government Fund may invest in
dollar-denominated
Eurodollar securities that are guaranteed by the U.S. Government
or its agencies
or instrumentalities. Investments in foreign securities
involve certain
considerations that are not typically associated with
investing in domestic
securities. For example, investments in foreign securities
typically involve
higher transaction costs than investments in U.S.
securities. Foreign
investments may have risks associated with currency exchange
rates, political
instability, less complete financial information about the
issuers and less
market liquidity than domestic securities. Future political
and economic
developments, possible imposition of withholding taxes on
income, seizure or
nationalization of foreign holdings, establishment of exchange
controls or the
adoption of other governmental restrictions might adversely
affect the payment
of principal and interest on foreign obligations. In addition,
foreign banks and
foreign branches of domestic banks may be subject to less
stringent reserve
requirements and to different accounting, auditing and
recordkeeping
requirements than domestic banks.
FORWARD CONTRACTS. All equity Funds may enter into forward
foreign currency
exchange contracts for the purchase and sale of a fixed
quantity of a foreign
currency at a future date (``Forward Contracts''). These Funds
may enter into
Forward Contracts for hedging purposes as well as non-hedging
purposes. By
entering into transactions in Forward Contracts, however, a Fund
may be required
to forego the benefits of advantageous changes in exchange
rates and, in the
case of Forward Contracts entered into for non-hedging
purposes, the Fund may
sustain losses which will reduce its gross income. A Fund may
also enter into a
Forward Contract on one currency in order to hedge against risk
of loss arising
from fluctuations in the value of a second currency (referred
to as a ``cross
hedge'') if, in the judgment of the Portfolio Management
Agent, a reasonable
degree of correlation can be expected between movements in the
values of the two
currencies. Forward Contracts are traded over-the-counter, and
not on organized
commodities or securities exchanges. As a
20
<PAGE>
result, such contracts operate in a manner distinct from
exchange-traded
instruments, and their use involves certain risks beyond those
associated with
transactions in futures contracts or options traded on
exchanges. Each equity
Fund has established procedures consistent with statements of the
Securities and
Exchange Commission and its staff regarding the use of
Forward Contracts by
registered investment companies, which require use of
segregated assets or
``cover'' in connection with the purchase and sale of such
contracts.
GOVERNMENT SECURITIES. Government Securities consist of
obligations issued
or guaranteed by the U.S. Government, its agencies,
instrumentalities or
sponsored enterprises.
GUARANTEED INVESTMENT CONTRACTS. The Short/Intermediate
Fund, the Bond Fund
and the Money Fund may invest in guaranteed investment
contracts (``GICs'')
issued by U.S. and Canadian insurance companies. GICs require
a Fund to make
cash contributions to a deposit fund of an insurance company's
general account.
The insurance company then makes payments to the Fund based
on negotiated,
floating or fixed interest rates. A GIC is a general obligation
of the issuing
insurance company and not a separate account. The purchase price
paid for a GIC
becomes part of the general assets of the insurance company, and
the contract is
paid from the insurance company's general assets.
Generally, GICs are not
assignable or transferable without the permission of the
issuing insurance
companies, and an active secondary market in GICs does not
currently exist. In
accordance with guidelines established by the Trust's Board of
Trustees (or the
Company's Board of Directors with respect to the Money
Fund), GICs may be
considered illiquid securities and, therefore, subject to the
Short/Intermediate
Fund's, the Bond Fund's 15% and the Money Fund's 10%
limitation on such
investments. All purchases of GICs by the Fund will be subject to
the applicable
quality requirements described under ``Investment Objectives and
Policies.''
ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% in
the case of the
Equity Fund, the Short/Intermediate Fund and the Money Market
Funds) of the
value of its net assets in securities that are considered
illiquid. Repurchase
agreements and time deposits that do not provide for payment to
the Fund within
seven days after notice or which have a term greater than seven
days are deemed
illiquid securities for this purpose, unless such securities are
variable amount
master demand notes with maturities of nine months or less
or unless the
Portfolio Management Agent or Investment Adviser has
determined under the
supervision and direction of the Trust's Board of Trustees or
the Company's
Board of Directors, as the case may be, that an adequate
trading market exists
for such securities or that market quotations are readily
available.
Each Fund may also purchase Rule 144A securities sold to
institutional
investors without registration under the Securities Act of 1933
and commercial
paper issued in reliance upon the exemption in Section 4(2) of
the Securities
Act of 1933. These securities may be determined to be liquid in
accordance with
guidelines established by the Portfolio Management Agent or
Investment Adviser
and approved by the Trust's Board of Trustees or the
Company's Board of
Directors, as the case may be. The Board of Trustees or
Directors will monitor
the Portfolio Management Agent's or Investment Adviser's
implementation of these
guidelines on a periodic basis.
INDEX AND INTEREST RATE FUTURES CONTRACTS; 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
attempt to reduce the
risk of investments in 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
21
<PAGE>
exchanges. 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 debt securities by
hedging a portion
of its portfolio through the use of interest rate futures and
options on such
futures contracts. Each such Fund will use futures contracts and
options on such
futures contracts only as a hedge against anticipated changes
in the values of
securities held in its portfolio or in the values of securities
that it intends
to purchase.
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 may write
covered put and
covered call options on securities in which they may invest
directly and that
are traded on registered domestic security exchanges or over-the-
counter.
The use of index and interest rate futures contracts and
options may expose
a Fund to additional risks and transaction costs. Risks
inherent in the use of
such instruments include: (1) the risk that interest rates,
securities prices or
currency markets will not move in the direction that the
Portfolio Management
Agent anticipates; (2) the existence of an imperfect
correlation between the
price of such instruments and movements in the prices of
the securities,
interest rates or currencies being hedged; (3) the fact that
skills needed to
use these strategies are different than those needed to
select portfolio
securities; (4) the possible inability to close out certain
hedged positions may
result in adverse tax consequences; (5) the possible
absence of a liquid
secondary market for any particular instrument and possible
exchange-imposed
price fluctuation limits, either of which may make it difficult
or impossible to
close out a position when desired; (6) the leverage risk, that
is, the risk that
adverse price movements in an instrument can result in a loss
substantially
greater than a Fund's initial investment in that instrument (in
some cases, the
potential loss is unlimited); and (7) particularly in the
case of privately-
negotiated instruments, the risk that the counterparty will fail
to perform its
obligations, which could leave a Fund worse off than if it had
not entered into
the position.
When a Fund invests in index and interest rate futures
contracts and
options, it may be required to segregate cash and other high-
grade liquid assets
or certain portfolio securities to ``cover'' the Fund's
position. Assets
segregated or set aside generally may not be disposed of so
long as a Fund
maintains the positions requiring segregation or cover.
Segregating assets could
diminish a Fund's return due to the opportunity losses of
foregoing other
potential investments with the segregated assets.
See ``Investment Strategies'' in the Statement of Additional
Information.
INVERSE FLOATING RATE OBLIGATIONS. All fixed income Funds
may invest in so
called ``inverse floating rate obligations'' or ``residual
interest'' bonds, or
other related obligations or certificates structured to have
similar features.
Such obligations generally have floating or variable interest
rates that move in
the opposite direction of short-term interest rates and
generally increase or
decrease in value in response to changes in short-term interest
rates at a rate
which is a multiple (typically two) of the rate at which fixed-
rate, long-term,
tax-exempt securities increase or decrease in response to such
changes. As a
result, such obligations have the effect of providing
investment leverage and
may be more volatile than long-term, fixed-rate, tax-exempt
obligations.
The Bond Fund, the Short/Intermediate Fund and the
Government Fund may
invest in mortgage-backed securities (see description of
``mortgage-related
securities'' below) that have an inverse floating rate.
22
<PAGE>
INVESTMENT COMPANY SECURITIES. In connection with the
management of its
daily cash positions, each Fund may invest in securities
issued by investment
companies that invest in short-term debt securities (which may
include municipal
obligations that are exempt from federal income taxes) and
which seek to
maintain a $1.00 net asset value per share. To the extent that
the Tax-Exempt
Money Fund invests in such investment companies, it will
invest in investment
companies that invest primarily in municipal obligations that
are exempt from
federal income taxes. Each Fund, other than the Equity
Fund and the
Short/Intermediate Fund, may also invest in securities issued
by investment
companies that invest in securities in which such Fund could
invest directly.
Securities of investment companies may be acquired by any of
the Funds within
the limits prescribed by the Investment Company Act of 1940,
as amended (the
``1940 Act''). These limit each such Fund so that: (i) not more
than 5% of the
value of its total assets will be invested in the
securities of any one
investment company; (ii) not more than 10% of the value of its
total assets will
be invested in the aggregate in securities of investment
companies as a group;
and (iii) not more than 3% of the outstanding voting stock of any
one investment
company will be owned by the Fund or by the Trust or the Company
as a whole. As
a shareholder of another investment company, a Fund would bear,
along with other
shareholders, its pro rata portion of the other investment
company's expenses,
including advisory fees. These expenses would be in addition to
the advisory and
other expenses that a Fund bears directly in connection with its
own operations.
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. Only
banks that, in the opinion of the Portfolio Management Agent,
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 of the Funds (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. However,
such loans may be made only if cash or cash equivalent
collateral, including
letters of credit, marked-to-market daily and equal to at
least 100% of the
current market value of the securities loaned (including
accrued interest and
dividends thereon) plus the interest payable to the Fund with
respect to the
loan 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 or
Investment Sub-Adviser
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 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 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 Trust, the Company, the Investment Adviser,
the Investment
Sub-Adviser, the Portfolio Management Agent or the Distributor.
23
<PAGE>
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'').
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.
CMOs are types of bonds secured by an underlying pool of
mortgages or
mortgage pass-through certificates that are structured to
direct payments on
underlying collateral to different series or classes of
obligations. To the
extent that CMOs are considered to be investment companies,
investment in such
CMOs will be subject to the percentage limitations described
under ``Investment
Company Securities.''
The average life of a mortgage-backed instrument, in
particular, is likely
to be substantially less than the original maturity of the
mortgage pools
underlying the securities as the result of scheduled
principal payments and
mortgage prepayments. The rate of such mortgage prepayments, and
hence the life
of the certificates, will be primarily a function of current
market rates and
current conditions in the relevant housing markets. In
calculating the average
weighted maturity of the fixed income Funds, the maturity of
mortgage-backed
instruments will be based on estimates of average life.
MUNICIPAL LEASES. The Intermediate Tax-Exempt Fund and the
Tax-Exempt Fund
may each invest in municipal leases, which are generally
participations in
intermediate- and short-term debt obligations issued by
municipalities and
consisting of leases or installment purchase contracts
for property or
equipment. 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. Although ``non-appropriation'' lease obligations
are secured by
the leased property, disposition of the property in the event of
foreclosure may
prove difficult. Municipal lease obligations may be
considered illiquid
securities and may be subject to each Fund's 15% limitation on
such investments.
These securities may be determined to be liquid by the
Portfolio Management
Agent in accordance with its procedures and subject to the
supervision and
direction by the Board of Trustees of the Trust. See ``Investment
Strategies --
Municipal Leases'' in the Statement of Additional Information.
MUNICIPAL OBLIGATIONS. 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 purchase municipal obligations.
As a matter of
fundamental policy, the Intermediate Tax-Exempt Fund and the
Tax-Exempt Fund
will invest primarily (i.e., at least 80% of assets under normal
circumstances)
in municipal obligations. Municipal bonds generally have a
maturity at the time
of
24
<PAGE>
issuance of up to 30 years. (The Tax-Exempt Money Fund may
invest only in
short-term municipal obligations that have remaining
maturities not exceeding
thirteen months.) Municipal notes generally have maturities
at the time of
issuance of three years or less. These notes are
generally issued in
anticipation of the receipt of tax funds, the proceeds of bond
placements or
other revenues. The ability of an issuer to make payments is
therefore dependent
on these tax receipts, proceeds from bond sales or other
revenues, as the case
may be. Municipal commercial paper is a debt obligation
with an effective
maturity or put date of 270 days or less that is issued to
finance seasonal
working capital needs or as short-term financing in anticipation
of longer-term
debt.
The two principal classifications of municipal
obligations are ``general
obligation'' securities and ``revenue'' securities.
General obligation
securities are secured by the issuer's pledge of its full
faith, credit and
taxing power for the payment of principal and interest. Revenue
securities are
payable only from the revenues derived from a particular
facility or class of
facilities or, in some cases, from the proceeds of a special
excise tax or from
other specific revenue sources such as the user of the facility
being financed.
Revenue securities include private activity bonds (also
known as industrial
revenue bonds), which may be purchased only by the Intermediate
Tax-Exempt Fund
and the Tax-Exempt Fund and which are not payable from the
unrestricted revenues
of the issuer. Consequently, the credit quality of private
activity bonds is
usually directly related to the credit standing of the
corporate user of the
facility involved.
Certain other of the municipal obligations in which the
Funds may invest
are:
TANS. The Intermediate Tax-Exempt Fund and the Tax-Exempt
Fund may invest
in tax anticipation notes (``TANs''). The possible inability
or failure of a
municipal issuer 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
include various tax proceeds in 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 Intermediate Tax-Exempt Fund and the Tax-Exempt
Fund may invest
in bond anticipation notes (``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. The Intermediate Tax-Exempt Fund and the Tax-Exempt
Fund may invest
in revenue anticipation notes (``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 adversely affect the
ability of the issuer
to pay the principal of, and interest on, RANs.
See ``Investment Strategies'' in the Statement of Additional
Information.
REPURCHASE AGREEMENTS. Each of the Funds 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. Each of the Funds 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).
25
<PAGE>
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.
REVERSE REPURCHASE AGREEMENTS. All equity and fixed income
Funds may borrow
funds for temporary purposes by selling portfolio securities
to financial
institutions such as banks and broker/dealers and agreeing to
repurchase them at
a mutually specified date and price (``reverse repurchase
agreements''). Reverse
repurchase agreements involve the risk that the market value of
the securities
sold by a Fund may decline below the repurchase price. A Fund
would pay interest
on amounts obtained pursuant to a reverse repurchase agreement.
A Fund may not enter into a repurchase agreement or
reverse repurchase
agreements if, as a result, more than 15% (10% with respect to
the Equity Fund,
the Intermediate Bond Fund and the Money Market Funds) of the
market value of
the Fund's total net assets would be invested in repurchase
agreements or
reverse repurchase agreements with a maturity of more than
seven days and in
other illiquid securities. The Funds will enter into repurchase
agreements and
reverse repurchase agreements only with registered broker/dealers
and commercial
banks that meet guidelines established by the Trust's Board of
Trustees or the
Company's Board of Directors, as the case may be.
SECURITIES WITH PUTS. In order to maintain liquidity, 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 may enter into puts with
respect to portfolio
securities with banks or broker/dealers that, in the opinion
of the Portfolio
Management Agent or, the Investment Adviser with respect to the
Tax-Exempt Money
Market Fund or, with respect to the International Fund,
the Investment
Sub-Adviser, present minimal credit risks. The ability of
these Funds to
exercise a put will depend on the ability of the bank or
broker/dealer to pay
for the underlying securities at the time the put is
exercised. In the event
that a bank or broker/dealer defaults on its obligation to
repurchase an
underlying security, the Fund might be unable to recover all or a
portion of any
loss sustained from having to sell the security elsewhere.
STAND-BY COMMITMENTS. The Balanced Fund, the Intermediate
Tax-Exempt Fund
and the Tax-Exempt Fund may acquire ``stand-by commitments''
with respect to
obligations held by it. Under a stand-by commitment, a
dealer agrees to
purchase, at the Fund's option, specified obligations at a
specified price. The
acquisition of a stand-by commitment may increase the cost, and
thereby reduce
the yield, of the obligations to which the commitment relates.
These Funds will
acquire stand-by commitments solely to facilitate portfolio
liquidity and do not
intend to exercise their rights thereunder for trading
purposes. Stand-by
commitments acquired by a Fund will be valued at zero in
determining the Fund's
net asset value.
STRIPPED SECURITIES. The International Fund and the Money
Market Funds may
purchase participations in trusts that hold U.S. Treasury and
agency securities
(such as TIGRs and CATs) and also may purchase Treasury
receipts and other
stripped securities, which represent beneficial ownership
interests in either
future interest payments or the future principal payments on the
securities held
by the trust. These instruments are issued at a discount
from their ``face
value'' and may (particularly in the case of stripped
mortgage-backed
securities) exhibit greater price volatility than ordinary
debt securities
because of the manner in which their principal and interest
are returned to
investors. Participations in TIGRs, CATs and other similar
trusts are not
considered U.S. Government securities. Stripped securities
will normally be
considered illiquid investments and will be acquired subject to
the limitations
on illiquid investments unless determined to be liquid
under guidelines
established by the Boards of Trustees and Directors.
26
<PAGE>
U.S. GOVERNMENT OBLIGATIONS. U.S. Government Obligations
consist of bills,
notes and bonds issued by the U.S. Treasury. They are direct
obligations of the
U.S. Government and differ primarily in the length of their
maturities.
U.S. GOVERNMENT AGENCY AND INSTRUMENTALITY OBLIGATIONS.
Obligations of the
U.S. Government agencies and instrumentalities are debt
securities issued by
U.S. Government-sponsored enterprises and federal agencies.
Some of these
obligations are supported by: (a) the full faith and credit of
the U.S. Treasury
(such as Government National Mortgage Association participation
certificates);
(b) the limited authority of the issuer to borrow from the U.S.
Treasury (such
as securities of the Federal Home Loan Bank); (c) the
authority of the U.S.
Government to purchase certain obligations of the issuer (such
as securities of
the Federal National Mortgage Association); or (d) the
credit of the issuer
only. In the case of obligations not backed by the full faith
and credit of the
U.S., the investor must look principally to the agency issuing
or guaranteeing
the obligation for ultimate repayment.
VARIABLE AMOUNT MASTER DEMAND NOTES. The
Short/Intermediate Fund and the
Money Fund may invest in variable amount master demand notes and
in convertible
and non-convertible debt securities of domestic corporations
and of foreign
corporations and governments that are denominated in and pay
interest in U.S.
dollars, consisting of notes, bonds and debentures (i) in the
case of the Money
Fund, that have thirteen months or less remaining to maturity
and (ii) in the
case of the remaining Funds, that are rated ``Baa'' or
better by Moody's or
``BBB'' or better by S&P. Such securities must meet the
applicable quality
standards described under ``Investment Objectives and
Policies''. Variable
amount master demand notes differ from ordinary commercial
paper in that they
are issued pursuant to a written agreement between the issuer
and the holder.
Their amounts may from time to time be increased by the holder
(subject to an
agreed maximum) or decreased by the holder or the issuer; they
are payable on
demand or after an agreed-upon notice period, e.g., seven days;
and the rates of
interest vary pursuant to an agreed-upon formula. Generally,
master demand notes
are not rated by a rating agency. However, a Fund may
invest in these
obligations if, in the opinion of the Portfolio Management Agent,
they are of an
investment quality comparable to rated securities in which the
Fund may invest.
The Portfolio Management Agent monitors the creditworthiness
of issuers of
master demand notes on a daily basis. Transfer of these
notes is usually
restricted by the issuer, and there is no secondary trading
market for these
notes. A Fund may not invest in a master demand note with a
demand notice period
of more than seven days, if, as a result, more than 15% (10% in
the case of the
Intermediate Bond Fund and Money Fund) of the value of the
Fund's total net
assets would be invested in these notes, together with
other illiquid
securities.
WARRANTS. Each of the Growth Fund, the Equity Fund, the
Equity Income Fund,
the Small-Cap Fund, the International Fund, the Balanced
Fund and the
Convertible Securities Fund may invest up to 5% of its
respective net assets at
the time of purchase, and the Index Fund may invest without such
limitation, in
warrants (other than those that have been acquired in units or
attached to other
securities) on securities in which it may invest directly.
Warrants represent
rights to purchase securities at a specific price valid for a
specific period of
time.
WHEN-ISSUED SECURITIES. Each of the Funds may
purchase securities
(including securities issued pursuant to an initial public
offering) on a
when-issued basis, in which case delivery and payment normally
take place within
45 days after the date of the commitment to purchase. The
Funds will make
commitments to purchase securities on a when-issued basis
only with the
intention of actually acquiring the securities, but may sell
them before the
settlement date, if deemed
27
<PAGE>
advisable. The purchase price and the interest rate that will
be received are
fixed at the time of the commitment. When-issued securities
are subject to
market fluctuation and no income accrues to the purchaser
prior to issuance.
Purchasing a security on a when-issued basis can involve a risk
that the market
price at the time of delivery may be lower than the agreed upon
purchase price.
ZERO COUPON SECURITIES. Each of the Funds except the
Convertible Securities
Fund and the Money Market Funds may invest in zero coupon
securities. These
securities are debt obligations that do not entitle the holder
to any periodic
payments of interest prior to maturity and are issued and traded
at a discount.
The values of zero coupon securities are subject to greater
fluctuations than
are the values of income securities that distribute income
regularly. Zero
coupon securities (which are not issued or guaranteed by the
U.S. Government)
may be created by separating the interest and principal
component of government
securities or securities issued by private corporate issuers.
INVESTMENT LIMITATIONS
This section outlines each Fund's policies that only may be
changed by a
majority vote of shareholders.
Unless otherwise noted, the foregoing investment
objectives and related
policies and activities of each of the Funds are not
fundamental and may be
changed by the Trust's Board of Trustees or the Company's Board
of Directors, as
the case may be, without the approval of shareholders,
provided that, with
respect to the Short/Intermediate, Equity and Money Market
Funds, the policy
relating to investment company securities is a fundamental
investment policy. If
there is a change in a Fund's investment objective, shareholders
should consider
whether the Fund remains an appropriate investment in light
of their then
current financial position and needs.
As matters of fundamental policy, which only may be
changed with approval
by the vote of the holders of a majority of the Fund's
outstanding voting
securities, as described in the Statement of Additional
Information, no Fund
may: (1) purchase the securities of issuers conducting their
principal business
activity in the same industry if, immediately after the purchase
and as a result
thereof, the value of its investments in that industry would
exceed 25% of the
current value of its total assets, provided that there is no
limitation with
respect to investments (a) in municipal obligations (for the
purpose of this
restriction, private activity bonds shall not be deemed municipal
obligations if
the payment of principal and interest on such bonds is
the ultimate
responsibility of non-governmental users); (b) in
obligations of the U.S.
Government, its agencies or instrumentalities; or (c) in the
case of the Money
Fund, in certain bank obligations in which the Fund may invest,
as set forth in
this Prospectus; (2) invest more than 5% of the current
value of its total
assets in the securities of any one issuer, other than
obligations of the U.S.
Government, its agencies or instrumentalities, except that
up to 25% of the
value of the total assets of a Fund (other than the Money
Fund and the
Government Money Fund) may be invested without regard to this
limitation; (3)
purchase securities of an issuer if, as a result, with
respect to 75% of its
total assets, it would own more than 10% of the voting
securities of such
issuer; or (4) borrow from banks, except that a Fund may borrow
up to 10% of the
current value of its total assets for temporary purposes only
in order to meet
redemptions, and these borrowings may be secured by the pledge
of up to 10% of
the current value of the Fund's net assets (but investments may
not be purchased
while borrowings are in excess of 5%). It is also a fundamental
policy that each
Fund may make loans of portfolio securities, and, with
respect to the Equity
Fund, the Short/Intermediate Fund and the Money Market Funds,
invest up to 10%
of the current value of its net assets in repurchase
agreements having
maturities of more than seven days,
28
<PAGE>
variable amount master demand notes having notice periods of
more than seven
days, fixed time deposits subject to withdrawal penalties having
maturities of
more than seven days, and securities that are not readily
marketable. Although
not a matter of fundamental policy, the Funds consider the
securities of foreign
governments to be a separate industry for purposes of the 25%
asset limitation
on investments in the securities of issuers conducting their
principal business
activity in the same industry.
With respect to the second investment limitation set forth
above, each of
the Money Fund and the Government Money Fund may invest more
than 5% of its
total assets in the securities of a single issuer for a period
of up to three
business days after the purchase thereof, so long as it does not
make more than
one such investment at any one time.
MANAGEMENT
The Trust and the Company are managed under the
direction of their
governing Boards of Trustees and Directors, respectively. Each
individual listed
below is a member of both the Trust's Board of Trustees and the
Company's Board
of Directors. The principal occupation of each individual is also
listed below.
Trustees and Directors
Edgar R. Fiedler Vice President and Economic Counsellor,
The Conference
Board.
C. Gary Gerst Chairman of the Board of Directors
and Trustees;
Chairman Emeritus, La Salle
Partners, Ltd. (Real
Estate Developer and Manager).
John W. McCarter, Jr. Senior Vice President, Booz-Allen &
Hamilton, Inc.
(Consulting Firm); Director of W.W.
Grainger, Inc.
Ernest M. Roth Consultant; Retired Senior Vice
President and Chief
Financial Officer, Commonwealth Edison
Company.
INVESTMENT ADVISER
This section high- lights the experience, services offered, and
compensation of
the Funds' Adviser.
Prior to the initial public offering
of the Trust's shares, the Trust will enter into
an Advisory Contract with Harris Trust with respect to
the investment portfolios of the Trust. The Company has
entered into Advisory
Contracts with
Harris Trust with respect to each of the investment
portfolios of the Company. Harris Trust,
located at 111
West Monroe Street, Chicago, Illinois, is the successor to
the investment
banking firm of N.W. Harris & Co. that was organized in
1882 and was
incorporated in 1907 under the present name of the bank. It
is an Illinois
state-chartered bank and a member of the Federal Reserve System.
At December 31,
1995, Harris Trust had assets of more than $13 billion and was
the largest of 14
banks owned by Harris Bankcorp, Inc. Harris Bankcorp, Inc. is
a wholly-owned
subsidiary of Bankmont Financial Corp., which is a wholly-owned
subsidiary of
Bank of Montreal, a publicly traded Canadian banking institution.
As of December 31, 1995, Harris Trust managed more
than $8 billion in
personal trust assets, and acted as custodian of more than
$151 billion in
assets.
With respect to the Tax-Exempt Money Fund, the Advisory
Contract provides
that Harris Trust shall make investments for the Fund in
accordance with its
best judgment. With respect to the remaining Funds, the
Advisory Contracts
provide that Harris Trust is responsible for the supervision
and oversight of
the Portfolio Management Agent's performance (as discussed
below).
29
<PAGE>
For all its services under the Advisory Contracts with the
Funds, Harris
Trust is entitled to receive monthly advisory fees at the
following annual
rates:
<TABLE>
<CAPTION>
FUND ANNUAL RATE
---- -----------
<S> <C>
Equity Fund 0.70%
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%
Short/Intermediate Fund 0.70%
Bond Fund 0.65%
Government Fund 0.65%
Intermediate Tax-Exempt Fund 0.65%
Tax-Exempt Fund 0.65%
Government Money Fund* } *0.14% of first $100m of
Money Fund* } average daily net assets,
Tax-Exempt Money Fund* } plus 0.10% of average
daily
net assets over $100m.
</TABLE>
For the fiscal year ended December 31, 1995, Harris Trust
received fees,
after waivers, at the effective rate of 0.34% of the average
daily net assets of
the Short/Intermediate Fund. Harris Trust expects to receive,
after waivers,
advisory fees for the current fiscal year at the annual rate
of 0.34% of the
average daily net assets of the Short/Intermediate Fund; 0.40%
of the average
daily net assets of the Bond Fund; 0.30% of the average daily
net assets of the
Government Fund; and 0.60% of each of the average daily net
assets of the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund,
respectively.
PORTFOLIO MANAGEMENT AGENT
Harris Trust has entered into Portfolio Management
Contracts with Harris
Investment Management, Inc. (``HIM'' or the ``Portfolio
Management Agent'')
under which HIM undertakes to furnish investment guidance and
policy direction
in connection with the daily portfolio management of all of the
Funds except the
Tax-Exempt Money Fund. For the services provided by HIM, Harris
Trust will pay
to HIM the advisory fees it receives from the Funds. As of June
30, 1995, HIM
managed an estimated $13.8 billion in assets.
Purchase and sale orders of the securities held by each of
the Funds may be
combined with other accounts that HIM manages, and for which
it has brokerage
placement authority, in the interest of seeking the most
favorable overall net
results. When HIM determines that a particular security should be
bought or sold
for any of the Funds and other accounts managed by HIM, HIM
undertakes to
allocate those transactions among the participants equitably.
PORTFOLIO MANAGEMENT
The organizational arrangements of the Investment Adviser
and the Portfolio
Management Agent require that all investment decisions be made
by a committee
and no one person is responsible for making recommendations to
that committee.
GLASS-STEAGALL ACT
The Glass-Steagall Act, among other things, generally
prohibits federally
chartered or supervised banks from engaging to any extent in
the business of
issuing, underwriting, selling or distributing securities,
although subsidiaries
of
30
<PAGE>
bank holding companies such as Harris Trust and HIM are
permitted to purchase
and sell securities upon the order and for the account of their
customers.
It is the position of Harris Trust and HIM that they
may perform the
services contemplated by the Advisory Contracts, the
Portfolio Management
Contracts and this Prospectus without violation of the Glass-
Steagall Act or
other applicable federal banking laws or regulations. It is
noted, however, that
there are no controlling judicial or administrative
interpretations or decisions
and that future judicial or administrative interpretations
of, or decisions
relating to, present federal statutes and regulations
relating to the
permissible activities of banks and their subsidiaries or
affiliates, as well as
future changes in federal statutes or regulations and judicial or
administrative
decisions or interpretations thereof, could prevent Harris
Trust or HIM from
continuing to perform, in whole or in part, such services. If
Harris Trust or
HIM were prohibited from performing any of such services, it
is expected that
the Boards of Trustees and Directors of the Trust and the
Company, respectively,
would recommend to the Funds' shareholders that they approve new
agreements with
another entity or entities qualified to perform such services
and selected by
the Boards of Trustees and Directors.
To the extent permitted by the Commission, the Funds may
pay brokerage
commissions to certain affiliated persons. No such commission
payments were made
during the last fiscal year by the Equity Fund, the
Intermediate Bond Fund or
the Money Market Funds.
ADMINISTRATORS, CUSTODIAN AND TRANSFER AGENT
These service providers are responsible for maintaining the books
and records of
the Funds, handling compliance and regulatory issues,
processing buy/ sell
orders, customer service and the safekeeping of securities.
First Data Investor Services Group, Inc. formerly known as
(The Shareholder
Services Group, Inc.) (``First Data'' or the ``Administrator'')
and PFPC Inc.
(``PFPC'' or the ``Administrator and Accounting Services Agent'')
(collectively,
the ``Administrators'') serve as the administrators of the
Funds. In such
capacity, the Administrators generally assist the Funds in all
aspects of their
administration and operation. PFPC also serves as the
transfer and dividend
disbursing agent of the Funds (the ``Transfer Agent'').
PNC Bank, N.A. (the ``Custodian'') serves as custodian of
the assets of the
Funds. PFPC and the Custodian are indirect, wholly-owned
subsidiaries of PNC
Bank Corp.
As compensation for their services, the Administrators, the
Custodian, and
the Transfer Agent are entitled to receive a combined fee based
on the aggregate
average daily net assets of the Funds and the Trust's and the
Company's other
investment portfolios, payable monthly at an annual rate of
.17% of the first
$300 million of average daily net assets; .15% of the next $300
million; and
.13% of average net assets in excess of $600 million. In
addition, a separate
fee is charged by PFPC for certain retail transfer agent
services and for
various custody transactional charges.
DISTRIBUTOR
The Distributor underwrites the Funds' shares which are then
available for
purchase or redemption.
Funds Distributor, Inc. (the ``Distributor'') has
entered into a
Distribution Agreement with the Trust (and, with respect to the
Equity Fund, the
Intermediate Bond Fund and the Money Market Funds, the
Company) pursuant to
which it has the responsibility for distributing shares of
the Funds. The
Distributor bears the cost of printing and mailing
prospectuses to potential
investors and any advertising expenses incurred by it in
connection with the
distribution of shares.
See ``Management'' and ``Custodian'' in the Statement
of Additional
Information for additional information regarding the Funds'
Investment Adviser,
Portfolio Management Agent, Administrators, Custodian,
Transfer Agent and
Distributor.
31
<PAGE>
EXPENSES
Except for certain expenses borne by the Distributor,
Harris Trust, HIM,
Dunedin, the Trust and the Company each bears all costs of
its operations,
including the compensation of its Trustees or Directors who are
not affiliated
with Harris Trust, HIM or the Distributor or any of their
affiliates; advisory
and administration fees; payments pursuant to any Service Plan
(with respect to
only Class A Shares and in the case of the Money Market Funds,
Class A and Class
B Shares); interest charges; taxes; fees and expenses of
its independent
accountants, legal counsel, transfer agent and dividend
disbursing agent;
expenses of preparing and printing prospectuses (except the
expense of printing
and mailing prospectuses used for promotional purposes, unless
otherwise payable
pursuant to a Service Plan), shareholders' reports, notices,
proxy statements
and reports to regulatory agencies; insurance premiums and
certain expenses
relating to insurance coverage; trade association membership
dues; brokerage and
other expenses connected with the execution of
portfolio securities
transactions; fees and expenses of the Funds' custodian
including those for
keeping books and accounts and calculating the net asset value
per share of the
Funds; expenses of shareholders' meetings and meetings of Boards
of Trustees and
Directors; expenses relating to the issuance, registration and
qualification of
shares of the Funds; pricing services; organizational
expenses; and any
extraordinary expenses. Expenses attributable to each Fund are
charged against
the assets of that Fund. Other general expenses of the Trust and
the Company are
allocated among the Funds in an equitable manner as determined
by the Boards of
Trustees and Directors.
DETERMINATION OF NET ASSET VALUE
The Net Asset Value (NAV) is the price or value of one share of a
Fund.
Net asset value per share for each Fund is determined on
each day that the
New York Stock Exchange (``NYSE'') and the Federal Reserve Bank
of Philadelphia
(the ``Fed'') are open for trading. For a list of the days on
which the net
asset value will not be determined, see ``Determination of Net
Asset Value'' in
the Statement of Additional Information. The net asset value
per share of each
of the Funds is determined by dividing the value of the total
assets of a Fund
less all of its liabilities by the total number of outstanding
shares of that
Fund.
The net asset value per share of each of the Funds
that are not Money
Market Funds (the ``Non-Money Market Funds'') is determined
at the close of
regular trading on the NYSE on each day the Funds are open for
business. The
value of securities of the Non-Money Market Funds (other than
bonds and debt
obligations maturing in 60 days or less) is determined based
on the last sale
price on the principal exchange on which the securities are
traded as of the
close of regular trading on the NYSE (which is currently 4:00
P.M., New York
City time). In the absence of any sale on the valuation date, the
securities are
valued at the closing bid price. Securities traded only on
over-the-counter
markets are valued at closing over-the-counter bid prices.
Bonds are valued at
the mean of the last bid and asked prices. Portfolio
securities which are
primarily traded on foreign securities exchanges are generally
valued at the
preceding closing values of such securities on their
respective exchanges,
except when an occurrence subsequent to the time a value was so
established is
likely to have changed such value. In such an event and in those
instances where
prices of securities are not readily available, the fair
value of those
securities will be determined in good faith by the Board
of Trustees or
Directors, as the case may be. Prices used for valuations of
securities are
provided by independent pricing services. Debt obligations
with remaining
maturities of 60 days or less are valued at amortized cost
when the Trust's
Board of Trustees or the Company's Board of Directors, as the
case may be, has
determined that amortized cost valuation represents fair value.
32
<PAGE>
The net asset value per share of each of the Money
Market Funds is
determined at 12:00 Noon, New York City time. Each of the
Funds uses the
amortized cost method to value its portfolio securities and
each attempts to
maintain a constant net asset value of $1.00 per share. 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.
PURCHASE OF SHARES
Contact your broker, financial institution or service agent for
answers to any
questions you may have about purchasing shares.
Institutional shares are sold to fiduciary and
discretionary accounts of
institutions, ``institutional investors'', Directors,
Trustees, officers and
employees of the Company, the Trust, the Investment Adviser,
the Portfolio
Management Agent, and the Distributor and the Adviser's
investment advisory
clients. ``Institutional investors'' may include financial
institutions (such as
banks, savings institutions and credit unions); pension and
profit sharing and
employee benefit plans and trusts; insurance companies;
investment companies;
investment advisers; and broker/dealers acting for their own
accounts or for the
accounts of such institutional investors.
The Trust, or the Company as the case may be, reserves the
right to reject
any purchase order. All funds will be invested in full and
fractional shares.
Checks will be accepted for the purchase of any Fund's
shares subject to
collection at full face value in U.S. dollars. Inquiries may be
directed to the
Funds at the address and telephone number on the cover of this
Prospectus.
Purchase orders for shares of the Fund received in
good order by the
Distributor prior to the close of regular trading (4:00 P.M.,
New York City
time) on the NYSE (on or before 12:00 Noon, New York City time,
in the case of
the Money Market Funds) will be executed at the net asset value
next determined
on that day. The net asset value of shares of the Money Market
Funds is expected
to remain constant at $1.00. Orders placed with the Distributor
must be paid for
by check or bank wire on the next business day for Funds other
than the Money
Market Funds. Orders for the Money Market Funds placed with the
Distributor must
be paid for by check or bank wire on the order date.
There is no sales charge by the Funds for purchases of shares.
No sales charge will be assessed on purchases of
shares of the Funds.
Neither the Company nor the Trust imposes any minimum initial
or subsequent
investment limitations.
Depending upon the terms of the particular customer
account, financial
services institutions, including Harris Trust and HIM, may
charge account fees
for automatic investment and other cash management services
which they provide,
including, for example, account maintenance fees,
compensating balance
requirements, or fees based upon account transactions, assets,
or income. This
Prospectus should be read in connection with any information
received from
financial institutions.
Each Fund also offers Class A Shares and, in addition,
each Money Market
Fund offers another class of shares which are known as Class B
Shares but the
terms of which differ from the Institutional Shares offered in
this Prospectus.
Different classes of shares of a single portfolio may bear
different sales
charges and other expenses which may affect their
relative performance.
Investors may call 1-800-982-8782 to obtain more information
concerning other
classes of the Funds.
33
<PAGE>
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net
asset value after
receipt of a proper request by the Distributor. Shares held by an
institution on
behalf of its customers must be redeemed in accordance with
instructions and
limitations pertaining to the account at the institution.
There is no charge by the Funds for redemptions, although
Institutions may
charge an account- based service fee.
There is no charge for redemption transactions, but an
institution may
charge an account-based service fee. Redemption orders
received by an
institution before the close of the NYSE with respect to
shares of a Fund and
received by the Distributor before the close of business on the
same day will be
executed at the Fund's net asset value per share next
determined on that day.
Redemption orders received by an institution after the close of
the NYSE, or not
received by the Distributor prior to the close of business, will
be executed at
the Fund's net asset value next determined on the next business
day.
Redemption orders for a Non-Money Market Fund that are
received in good
order by 4:00 P.M. New York City time, or 12:00 Noon in the
case of the Money
Market Funds, will normally be remitted within five business
days but not more
than seven days. In the case of a redemption request made shortly
after a recent
purchase, the redemption proceeds will be distributed upon the
clearance of the
shareholder's check used to purchase the Fund's shares which
may take up to 15
days or more after the investment. The proceeds may be more or
less than cost
and, therefore, a redemption may result in a gain or loss for
federal income tax
purposes. Payment of redemption proceeds may be made in
readily marketable
securities.
REDEMPTION THROUGH INSTITUTIONS
Proceeds of redemptions made through authorized
institutions will be
credited to the shareholder's account with the
institution. A redeeming
shareholder may request a check from the institution or may
elect to retain the
redemption proceeds in such shareholder's account. The
institution may benefit
from the use of the redemption proceeds prior to the clearance of
a check issued
to a redeeming shareholder for the proceeds or prior to
disbursement or
reinvestment of the proceeds on behalf of the shareholder.
REDEMPTION BY EXPEDITED REDEMPTION SERVICE
If shares of the Money Market Funds are held directly by the
Transfer Agent
in book credit form and the Expedited Redemption Service has been
elected on the
Purchase Application on file with the Transfer Agent,
redemption of shares may
be requested by telephone, on any day the Company and the
Transfer Agent are
open for business. The Company and its Transfer Agent will
attempt to confirm
that telephone instructions are genuine and will use such
procedures as are
considered reasonable. In this regard the Company and its
Transfer Agent require
personal identification information before accepting
telephonic redemption
instructions. The shareholder will bear the risk of loss due to
fraud, although
the Company and its agents may have a risk of loss if reasonable
procedures are
not used. The Distributor can be reached by calling (800) 982-
8782.
Upon request, proceeds of Expedited Redemptions of $1,000
or more will be
wired to the shareholder's bank indicated in the Purchase
Application. If an
Expedited Redemption request is received by the Transfer
Agent by 12:00 Noon
(New York City time) on a day the Company and the Transfer
Agent are open for
business, the redemption proceeds will be transmitted to the
shareholder's bank
that same day. A check for the proceeds of less than $1,000
will be mailed to
the
34
<PAGE>
shareholder's address of record, except that, in the case of
investments in the
Company that have been effected through Institutions, the
full amount of the
redemption proceeds will be transmitted by wire.
--------
Due to the high cost of maintaining small accounts, the
Trust, or the
Company as the case may be, reserves the right to redeem accounts
involuntarily
on behalf of shareholders whose share balances fall below
$500 unless this
balance condition results from a decline in the market value of a
Fund's assets.
Prior to such a redemption, a shareholder will be notified
in writing and
permitted 30 days to make additional investments to raise the
account balance to
the specified minimum.
EXCHANGE PRIVILEGE
Once you have held shares for 7 days or more, you can exchange
these shares for
other eligible Harris Insight Fund Institutional Shares
Institutional Shares of any of the Funds that have been held
for seven days
or more may be exchanged at their respective net asset values for
Institutional
Shares of any other Harris Insight Fund in an identically
registered account,
provided shares of the Harris Insight Fund to be acquired are
registered for
sale in the shareholder's state of residence.
Procedures applicable to redemption of a Fund's shares are
also applicable
to exchanging shares. The Trust or the Company, as the case may
be, reserves the
right to limit the number of times shares may be exchanged
between the Harris
Insight Funds, to reject any telephone exchange order or
otherwise to modify or
discontinue exchange privileges at any time upon 60 days
written notice. A
capital gain or loss for tax purposes may be realized
upon an exchange,
depending upon the cost or other basis of shares redeemed.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the
Short/Intermediate Fund, the
Bond Fund, the Government Fund, the Intermediate Tax-
Exempt Fund and the
Tax-Exempt Fund are declared daily and paid monthly.
Dividends from the
Convertible Securities Fund, the Equity Fund, the Equity Income
Fund, the Growth
Fund, the Index Fund and the Balanced Fund are declared and
paid quarterly.
Dividends from the Small-Cap Fund and the International Fund
are declared and
paid semi-annually. Dividends from net investment income from
each of the Money
Market Funds are declared at the close of each business day to
shareholders of
record at 12:00 Noon (New York City time) on the day of
declaration and paid
monthly. Shares purchased will begin earning dividends on the
day the purchase
order is executed and shares redeemed will earn dividends
through the previous
day, except that, with respect to the Check Redemption Service,
shares redeemed
will cease to earn dividends on the day the check is charged to
the Custodian's
account at its Federal Reserve Bank. Net investment income
for a Saturday,
Sunday or holiday will be declared as a dividend on the previous
business day to
shareholders of record at 12:00 Noon (New York City time) on that
day.
Each Fund's net taxable capital gains, if any, will be
distributed at least
annually (to the extent required to avoid imposition of the
4% excise tax
described below). Dividends and distributions paid by any of
the Funds will be
invested in additional shares of the same Fund at net asset
value and credited
to the shareholder's account on the payment date or, at the
shareholder's
election, paid
36
<PAGE>
in cash. Dividend checks and Statements of Account will be mailed
approximately
two business days after the payment date. Each Fund will forward
to the Transfer
Agent the monies for dividends to be paid in cash on the payment
date.
Shareholders who redeem all their shares of any of the fixed
income and the
money market Funds prior to a dividend payment will receive, in
addition to the
redemption proceeds, dividends declared but unpaid. Shareholders
who redeem only
a portion of their shares will be entitled to all dividends
declared but unpaid
on such shares on the next dividend payment date.
FEDERAL INCOME TAXES
Each Fund will be treated as a separate entity for tax
purposes and thus
the provisions of the Internal Revenue Code (the ``Code'')
generally will be
applied to each Fund separately, rather than to the Trust or the
Company, as the
case may be, as a whole. As a result, net capital gains, net
investment income,
and operating expenses will be determined separately for each
Fund. The Trust or
the Company, as the case may be, intends to qualify each Fund
as a regulated
investment company under Subchapter M of the Code. As a portfolio
of a regulated
investment company, each Fund will not be subject to federal
income taxes with
respect to net investment income and net capital gains
distributed to its
shareholders, as long as it distributes 90% or more of its net
investment income
(including net short-term capital gains) each year.
Dividends from net investment income (including net
short-term capital
gains), except ``exempt-interest dividends'' (described below),
will be taxable
as ordinary income.
Because more than 50% of the value of the total assets
of each of the
Tax-Exempt Fund, the Intermediate Tax-Exempt Fund and the Tax-
Exempt Money Fund
at the close of each quarter of its taxable year is expected
to consist of
obligations the interest on which is exempt from federal income
tax, these Funds
expect to qualify under the Code to pay ``exempt-interest
dividends.'' Dividends
distributed by each of these Funds that are attributable to
interest from
tax-exempt securities will be designated by the Fund as an
``exempt-interest
dividend,'' and, as such, will generally be exempt from federal
income tax.
Because substantially all of the income of each Fund
except the equity
Funds will arise from interest, no part of the distributions to
shareholders of
these Funds is expected to qualify for the dividends-received
deduction allowed
to Corporations under the Code.
Distributions of net long-term capital gains, if any,
will be taxable as
long-term capital gains, whether received in cash or
reinvested in additional
shares, regardless of how long the shareholder has held the
shares, and will not
qualify for the dividends-received deductions.
A taxable gain or loss may also be realized by a holder of
Shares in a Fund
upon the redemption or transfer of shares depending on the
tax basis of the
shares and their price at the time of the transaction.
In the case of the shareholders of each of the Tax-
Exempt Fund, the
Intermediate Tax-Exempt Fund or the Tax-Exempt Money
Fund, interest on
indebtedness incurred or continued to purchase or carry shares
of the Fund will
not be deductible to the extent that the Fund's distributions
are exempt from
federal income tax. In addition, the portion of an exempt-
interest dividend
allocable to certain tax-exempt obligations will be treated as a
preference item
for purposes of the alternative minimum tax imposed
36
<PAGE>
on both individuals and corporations. Persons who may be
``substantial users''
(or ``related persons'' of substantial users) of facilities
financed by private
activity bonds should consult their tax advisers before
purchasing shares in the
Tax- Exempt Fund, the Intermediate Tax-Exempt Fund or the Tax-
Exempt Money Fund.
The exemption of exempt-interest dividends paid by each of
the Tax-Exempt
Fund, the Intermediate Tax-Exempt Fund and the Tax-Exempt Money
Fund for federal
income tax purposes may not result in similar exemptions under
the tax law of
state and local authorities. In general, only interest earned
on obligations
issued by the state or locality in which the investor resides
will be exempt
from state and local taxes. Shareholders should consult their
advisers about the
status of dividends from these Funds in their own states and
localities. Each
year the Trust or the Company, as the case may be, will notify
shareholders of
the tax status of distributions.
Any loss realized on a sale or exchange of shares of
a Fund will be
disallowed to the extent shares are acquired within the 61-day
period beginning
30 days before and ending 30 days after the disposition of
shares.
The Trust or the Company, as the case may be, will be
required to withhold,
subject to certain exemptions, currently at a rate of 31%,
a portion of
dividends paid or credited to individual shareholders and
of redemption
proceeds, if a correct taxpayer identification number, certified
when required,
is not on file with the Trust or the Company, as the case may
be, or Transfer
Agent.
ACCOUNT SERVICES
Shareholders receive a Statement of Account whenever a
share transaction,
dividend or capital gain distribution is effected in the
accounts, or at least
annually. Shareholders can write or call the Funds at the
address and telephone
number on page one of this Prospectus with any questions
relating to their
investment in shares of the Funds.
ORGANIZATION AND CAPITAL STOCK
The Trust is a diversified open-end management investment
company which was
organized on December 6, 1995 as a business trust under
the laws of The
Commonwealth of Massachusetts. The Trust offers shares of
beneficial interest,
$.001 par value, for sale to the public. Currently, the
Trust has eleven
portfolios in operation. The Trust's Board has authorized
each of the eleven
Funds which are portfolios of the Trust to issue two classes of
shares, Class A
and Institutional Shares.
The Company, which was incorporated in Maryland on September
16, 1987, is a
diversified, open-end management investment company. The
authorized capital
stock of the Company consists of 10,000,000,000 shares having
a par value of
$.001 per share. Currently, the Company has six portfolios in
operation. The
Company's Board has authorized the Money Market Funds to issue
three classes of
shares, Class A, Class B and Institutional Shares and the
remaining Funds (the
``Company's Non-Money Market Funds'') to issue two classes of
shares, Class A
and Institutional Shares.
In the future, the Board of Trustees of the Trust
and the Board of
Directors of the Company may authorize the issuance of shares
of additional
investment portfolios and additional classes of shares of
any portfolio.
Different classes of shares of a single portfolio may bear
different sales
charges and other expenses which may affect their
relative performance.
Information regarding other classes of
37
<PAGE>
shares may be obtained by calling the Funds at the telephone
number shown on the
cover page of this Prospectus or from any institution which
makes available
shares of the Funds. All shares of the Trust and all shares of
the Company have
equal voting rights and will be voted in the aggregate, and not
by class, except
where voting by class is required by law or where the matter
involved affects
only one class. A more detailed statement of the voting rights
of shareholders
is contained in the Statement of Additional Information. All
shares of the Trust
and all shares of the Company, when issued, will be
fully paid and
non-assessable.
As of January 31, 1996, the holders of record of 25%
or more of the
outstanding shares of the Funds were as follows: ACO/Integra
Trust Services held
of record 1,283,579 shares, equal to 27.14% of the outstanding
shares of the
Equity Fund and Harris Trust held of record 1,543,359 shares,
equal to 32.63% of
the outstanding shares of the Equity Fund; 4,031,259 shares,
equal to 81.62% of
the Short/Intermediate Fund; 512,077,635 shares, equal to
95.79% of the
outstanding shares of the Money Market Fund -- Class A
Shares; 214,334,587
shares, equal to 99.99% of the Money Market Fund --
Institutional Shares;
255,211,536 shares, equal to 96.40% of the Government Money
Market Fund -- Class
A Shares; 31,248,318 shares, equal to 99.99% of the
outstanding shares of the
Government Market Fund -- Institutional Shares; 174,081,221
shares, equal to
90.05% of the outstanding shares of the Tax-Exempt Money Market
Fund -- Class A
Shares; and 280,623,069 shares, equal to 99.99% of the
outstanding shares of the
Tax Exempt Money Market Fund -- Institutional Shares. Harris
Trust has indicated
that it holds its shares on behalf of various client
accounts and not as
beneficial owner.
The Trust and the Company may dispense with annual meetings
of shareholders
in any year in which Trustees and Directors are not required
to be elected by
shareholders. The Board of Trustees of the Trust and the Board
of Directors of
the Company, when requested by at least 10% of the Trust's or
the Company's
outstanding shares, will call a meeting of shareholders for
the purpose of
voting upon the question of removal of a Trustee or Trustees or
of a Director or
Directors and will assist in communications with other
shareholders as required
by Section 16(c) of the 1940 Act.
There is a possibility that the Trust might become
liable for any
misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning
the Company. There is a possibility that the Company might become
liable for any
misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning
the Trust.
REPORTS TO SHAREHOLDERS
The fiscal year of both the Trust and the Company ends on
December 31. Each
of the Trust and the Company, as the case may be, will send to
its shareholders
a semi-annual report showing the investments held by each of the
Funds and other
information (including unaudited financial statements)
pertaining to the Trust
or the Company, as appropriate. An annual report,
containing financial
statements audited by independent accountants, is also sent to
shareholders.
38
<PAGE>
CALCULATION OF YIELD AND TOTAL RETURN
The total return of each Fund shows what an investment in
Institutional Shares
of the Fund would have earned over a specific period of time.
From time to time each of the Funds may advertise its
yield, effective
yield, tax-equivalent yield and ``total return'' with
respect to the
Institutional Shares. ``Total return'' refers to the amount
an investment in
Institutional Shares of a Fund would have earned, including
any increase or
decrease in net asset value, over a specified period of
time and assumes
reinvestment of all dividends and distributions.
The total return of each Fund shows what an investment in
the Fund would
have earned over a specified period of time (such as one, five
or ten years or
the period of time since commencement of operations, if
shorter) assuming the
payment of the maximum sales loads (if any) when the investment
was first made
and reinvestment of all distributions and dividends by the
Fund on their
reinvestment dates during the period less all recurring fees.
The yield of each Fund refers to the income generated by an
investment in
Institutional Shares of the Fund over a 30-day period (which
period will be
stated in the advertisement). This income is then
``annualized.'' That is, the
amount of income generated by the investment during the 30-day
period is assumed
to be earned and reinvested at a constant rate and compounded
semi-annually. The
annualized income is then shown as a percentage of the
investment.
The effective yield is calculated similarly but, when
annualized, the
income earned by an investment in Institutional Shares of the
Fund is assumed to
be reinvested. The effective yield will be slightly higher
than the yield
because of the compounding effect of this assumed
reinvestment. The
``tax-equivalent yield'', which will be calculated only for
the Intermediate
Tax-Exempt Fund, the Tax- Exempt Fund and the Tax-Exempt Money
Fund, refers to
the yield on a taxable investment necessary to produce an after-
tax yield equal
to a Fund's tax-free yield, and is calculated by increasing the
yield shown for
the Fund to the extent necessary to reflect the payment of
specified tax rates.
Thus, the tax-equivalent yield for a Fund will always exceed that
Fund's yield.
From time to time the Money Market Funds advertise ``30-day
average yield''
and ``monthly average yield.'' Such yields refer to the
average daily income
generated by an investment in such Fund over a 30-day or
monthly period, as
appropriate (which period will be stated in the advertisement).
A Fund's performance figures for a class of shares
represent past
performance, will fluctuate and should not be considered as
representative of
future results. The yield of any investment is generally a
function of portfolio
quality and maturity, type of instrument and operating expenses.
39
<PAGE>
INVESTMENT ADVISER
Harris Trust & Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
PORTFOLIO MANAGEMENT AGENT
Harris Investment Management, Inc.
190 South LaSalle Street
Chicago, Illinois 60603
ADMINISTRATORS
First Data Investor Services Group, Inc.
53 State Street
Boston, Massachusetts 02109
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
DISTRIBUTOR
Funds Distributor, Inc.
One Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
PNC Bank, N.A.
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
PFPC Inc.
P.O. Box 8950
Wilmington, Delaware 19885
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Philadelphia, Pennsylvania
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
HARRIS INSIGHT EQUITY FUNDS
HARRIS INSIGHT FUNDS
One Exchange Place, Boston, Massachusetts 02109
Telephone: (800) 982-8782
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 are collectively referred to herein as the
``Harris Insight
Funds'' or the ``Funds.'') This Prospectus describes one
class of shares
(``Class A Shares'' or ``Shares'') of each of six investment
portfolios offered
by the Trust and the Class A Shares of the Harris Insight
Equity Fund, a
portfolio offered by the Company. The Funds are as follows:
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'')
Harris Trust & Savings Bank is the Investment Adviser
to the Funds and
Harris Investment Management, Inc., a subsidiary of Harris
Bankcorp, Inc., acts
as each Fund's Portfolio Management Agent. Shares of each Fund
are offered by
Funds Distributor, Inc., the distributor for the Trust and the
Company.
This Prospectus sets forth concisely information a
prospective investor
should know before investing in the Funds. Please read and
retain it for future
reference. A Statement of Additional Information dated
February 21, 1996,
containing more detailed information about the Funds has been
filed with the
Securities and Exchange Commission and (together with any
supplements thereto)
is incorporated by reference into this Prospectus. The
Statement of Additional
Information and separate Prospectuses for the other
investment portfolios
offered by the Trust or the Company may be obtained without
charge by writing or
calling the Harris Insight Funds at the address and telephone
number printed
above.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR
ENDORSED BY, HARRIS TRUST & SAVINGS BANK, OR ANY OF ITS
AFFILIATES, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION (THE ``COMMISSION'') OR ANY STATE SECURITIES
COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
February 21, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Expense Table 3
Highlights 4
Financial Highlights 6
Investment Objectives and Policies 7
Equity Fund 7
Equity Income Fund 7
Growth Fund 7
Small-Cap Fund 7
Index Fund 8
International Fund 8
Balanced Fund 8
All Funds 9
Investment Strategies 10
Investment Limitations 16
Management 17
Determination of Net Asset Value 20
Purchase of Shares 20
Redemption of Shares 22
Exchange Privilege 23
Service Plans 23
Dividends and Distributions 24
Federal Income Taxes 24
Account Services 25
Organization and Capital Stock 25
Reports to Shareholders 26
Calculation of Yield and Total Return 26
No person has been authorized to give any information
or to make any
representations other than those contained in this Prospectus,
the Statement of
Additional Information and/or in the Funds' official sales
literature in
connection with the offering of the Funds' shares and, if given
or made, such
other information or representations must not be relied upon
as having been
authorized by the Trust, the Company or the Distributor. This
Prospectus does
not constitute an offer in any state in which, or to any person
to whom, such
offer may not lawfully be made.
2
<PAGE>
EXPENSE TABLE
Expenses and fees payable by shareholders are summarized in
this table and
expressed as a percentage of average net assets. The following
table sets forth
certain information concerning shareholder transaction
expenses and projected
annual fund operating expenses for Class A Shares of the
Funds during the
current fiscal year.
<TABLE>
<CAPTION>
Equity
Equity
Income Growth Small-Cap Index International
Balanced
Fund
Fund Fund Fund Fund Fund
Fund
<S> <C> <C>
<C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 4.50%
4.50% 4.50% 4.50% 4.50% 4.50%
4.50%
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net assets)
Advisory Fees 0.70%
0.70% 0.90% 1.00% 0.25% 1.05%
0.60%
Rule 12b-1 Fees 0.25%
0.25% 0.25% 0.25% 0.25% 0.25%
0.25%
Other Expenses 0.26%
0.23% 0.20% 0.20% 0.20% 0.27%
0.28%
Total Fund Operating Expenses 1.21%
1.18% 1.35% 1.45 0.70% 1.57%
1.13%
</TABLE>
- --------
* Customers of a financial institution, such as Harris Trust
& Savings Bank,
may also be charged certain fees and expenses by their
institution. These
fees may vary depending on the capacity in which the
institution provides
fiduciary and investment services to the particular client
(e.g., personal
trust, estate settlement, advisory and custodian services).
With respect to each Fund, other than the Equity Fund,
the amount of
``Other Expenses'' in the table above is based on
estimated expenses and
projected assets for the current fiscal year. With
respect to the Equity
Fund, the amount of ``Other Expenses'' is based on amounts
incurred during
the most recent fiscal year.
EXAMPLE
You would pay the following expenses on a $1,000
investment in Class A
Shares, assuming (1) a hypothetical 5% gross annual return and
(2) redemption at
the end of each time period:
<TABLE>
<CAPTION>
Equity
Equity Income Growth Small-Cap Index
International Balanced
Fund Fund Fund Fund Fund
Fund Fund
<S> <C> <C> <C> <C> <C>
<C> <C>
1 year $57 $56 $58 $59 $52
$60 $56
3 years 82 81 86 89 66
92 79
5 years 108 N/A N/A N/A N/A
N/A N/A
10 years 185 N/A N/A N/A N/A
N/A N/A
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE
EXPENSES OR PERFORMANCE WHICH MAY BE MORE OR LESS THAN THOSE
SHOWN.
The purpose of the expense table is to assist the investor in
understanding the
various costs and expenses that an investor in a Fund will
bear directly or
indirectly. For more information concerning the various costs
and expenses, see
``Management.''
3
<PAGE>
HIGHLIGHTS
The following seven investment portfolios are described in this
Prospectus:
EQUITY FUND -- seeks to provide capital appreciation and
current income by
investing primarily in common stocks.
EQUITY INCOME FUND -- seeks to provide current income and,
secondarily, capital
appreciation by investing primarily in common stocks and
convertible securities.
GROWTH FUND -- seeks to provide capital appreciation and,
secondarily, current
income by investing primarily in common stocks and convertible
securities of
companies with above-average growth potential.
SMALL-CAP FUND -- seeks to provide long term capital growth
by investing
primarily in equity securities of smaller to medium
capitalization companies.
INDEX FUND -- seeks to provide the return and risk
characteristics of the S&P
500 Index, by investing primarily in securities of companies
that comprise that
index.
INTERNATIONAL FUND -- seeks to provide international
diversification and capital
appreciation by investing primarily in common stocks of
foreign companies.
Current income is a secondary objective.
BALANCED FUND -- seeks to provide current income and capital
appreciation by
investing in a balanced portfolio of fixed income and equity
securities.
See page 7 below.
WHO MANAGES EACH FUND'S INVESTMENTS?
Harris Trust & Savings Bank (``Harris Trust'' or
the ``Investment
Adviser'') is the investment adviser for each Fund. Harris
Trust has provided
investment management service to clients for over 100 years.
Harris Trust
provides investment services for pension, profit-sharing
and personal
portfolios. As of June 30, 1995, assets under management total
approximately $23
billion. See page 17.
Harris Investment Management, Inc. (``HIM'' or the
``Portfolio Management
Agent'') provides daily portfolio management services for the
Funds. HIM and its
predecessors have managed client assets for over 100 years. HIM
has a staff of
96, including 64 professionals, providing investment expertise to
the management
of the Harris Insight Funds and for pension, profit-sharing and
institutional
portfolios. As of June 30, 1995, assets under management are
estimated to exceed
$13 billion. See page 17.
Harris Trust and HIM are subsidiaries of Harris Bankcorp.,
Inc.
WHAT ADVANTAGES DO THE FUNDS OFFER?
The Funds are designed for individual and institutional
investors. A single
investment in shares of the Funds gives the investor
benefits customarily
available only to large investors, such as diversification
of investment,
greater liquidity and professional management, block purchases
of securities,
relief from bookkeeping, safekeeping of securities and other
administrative
details.
WHEN ARE DIVIDENDS PAID?
Dividends from each of the Equity, Equity Income,
Growth, Index and
Balanced Funds are declared and paid quarterly. Dividends from
the Small-Cap and
International Funds are declared and paid semi-annually. Any
net capital gains
will be declared and paid annually. See page 24.
4
<PAGE>
HOW ARE SHARES REDEEMED?
Shares may be redeemed at their next determined net
asset value after
receipt of a proper request by the registered representative
servicing your
account, the Distributor, or through any Service Agent. See page
22.
WHAT RISKS ARE ASSOCIATED WITH THE FUNDS?
Each Fund's performance and price per share will change
daily based on many
factors, including the quality of the Fund's investments, U.S.
and international
economic conditions, general market conditions and international
exchange rates.
The Funds may invest in securities of foreign issuers that
involve risks not
typically associated with U.S. issuers. There is no assurance
that any Fund will
achieve its investment objective. See ``Investment Strategies.''
5
<PAGE>
FINANCIAL HIGHLIGHTS
This table shows the total return on one Class A Share of
the Equity Fund
for each period illustrated.
The following financial highlights are derived from
the financial
statements of the Company for the year ended December 31, 1995
audited by Price
Waterhouse LLP, independent accountants. This information
should be read in
conjunction with the financial statements and notes thereto
that appear in the
Statement of Additional Information and which are incorporated
by reference in
this Prospectus. Only the Equity Fund was in operation during the
periods shown.
As of February 21, 1996, all outstanding shares of the Equity
Fund were renamed
Class A Shares. No fees for distribution and support services
under the Equity
Fund's Service Plan were paid by that Fund for the periods
through December 31,
1995.
<TABLE>
<CAPTION>
EQUITY FUND
YEAR YEAR
YEAR YEAR YEAR YEAR YEAR 2/26/88*
ENDED ENDED
ENDED ENDED ENDED ENDED ENDED TO
12/31/95 12/31/94+
12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C>
<C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.28 $ 12.86
$ 11.57 $ 12.08 $ 10.05 $ 11.22 $ 10.58 $ 10.00
Income From Investment Operations:
Net Investment Income .229 .263
.197 .267 .282 .323 .347 .265
Net Realized and Unrealized Gain
(Loss) on Investments 3.827 (.514)
1.904 .703 2.418 (1.203) 2.573 .555
Total from Investment Operations 4.056 (.251)
2.101 .970 2.700 (.880) 2.920 .820
Less Distributions:
Net Investment Income (.232) (.263)
(.204) (.290) (.280) (.290) (.450) (.240)
Net Realized Gains (1.114) (1.066)
(.607) (1.190) (.390) -- (1.830) --
Total Distributions (1.346) (1.329)
(.811) (1.480) (.670) (.290) (2.280) (.240)
Net Asset Value, End of Period $ 13.99 $ 11.28
$ 12.86 $ 11.57 $ 12.08 $ 10.05 $ 11.22 $ 10.58
Total Return(4) 36.26% (2.05)%
18.23% 8.19% 27.29% (7.78)% 27.81% 8.23%(3)
Ratios/Supplemental Data:
Net Assets, End of Period $(000) 61,256 38,920
47,241 31,809 34,150 24,649 15,885 24,524
Ratio of Expenses to Average
Net Assets(1) 0.96% 0.90%
0.93% 0.96% 0.98% 1.00% 1.00% 1.00%(2)
Ratio of Net Investment Income to
Average Net Assets 1.75% 1.94%
1.59% 2.16% 2.52% 3.29% 2.95% 3.03%(2)
Portfolio Turnover Rate 75.93% 87.83%
57.31% 63.79% 77.85% 52.27% 42.00% 33.03%
</TABLE>
- --------
+ Restated.
* Date commenced operations.
(1) Reflects expenses after waivers of advisory fees and other
expenses based
on net expenses incurred during the most recent fiscal
year. Without the
voluntary waiver of fees, the expense ratios for the years
ended December
31, 1995, 1994, 1993, 1992, 1991, 1990 and 1989 and
the period ended
December 31, 1988, would have been 0.97%, 0.92%, 0.96%,
0.98%, 1.01%,
1.21%, 1.47% and 1.41% (annualized).
(2) Annualized.
(3) Total returns for periods of less than one year are not
annualized.
(4) Sales load is not reflected in total return.
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Set forth below are the investment objectives and policies
of each of the
Funds. Those investments that may be made by all of the Funds are
listed on page
8 following the specific description of each Fund. Each Fund may
also invest in
securities described in ``Investment Strategies'' below and
the Statement of
Additional Information.
EQUITY FUND
Primarily, the Equity Fund seeks to provide capital
appreciation and
current income.
The Equity Fund seeks to provide investors with capital
appreciation and
current income. The Fund seeks to attain its investment
objective by investing,
under normal market conditions, at least 65% of its total
assets in common
stocks of larger capitalization companies, (i.e.
companies with market
capitalization in excess of $500 million). The Fund's
portfolio is generally
comprised of at least approximately 50 different issues. Risk
is tempered by
diversification of investments.
The Fund's investment process considers valuation
and improving
fundamentals. The Fund's investments are expected to encompass
all major sectors
of the market resulting in a diversified portfolio. The
Fund's Portfolio
Management Agent believes that an investment process which
combines carefully
monitored risk control with an emphasis on value and
fundamental research is
better suited for long-term equity investing.
EQUITY INCOME FUND
The Equity Income Fund seeks to provide current income
and, secondarily,
capital appreciation.
The Equity Income Fund seeks to provide current income
and, secondarily,
capital appreciation. The Fund seeks to achieve its investment
objective by
investing, under normal market conditions, at least 65% of its
total assets in
common stocks and convertible securities that the Fund's
Portfolio Management
Agent believes offer good value, an attractive yield and
dividend growth
potential.
The Fund is managed with a disciplined investment process
which seeks to
maintain a diversified portfolio of high quality equity
securities. The Fund
generally emphasizes securities with higher than average
dividend yields and/or
stronger than average growth characteristics. The result of
this investment
process is a diversified portfolio which the Fund's Portfolio
Management Agent
believes provides attractive long-term growth potential
while striving to
maintain an attractive current yield.
GROWTH FUND
The Growth Fund seeks to provide capital appreciation
and, secondarily,
current income.
The Growth Fund seeks to provide capital appreciation
and, secondarily,
current income. The Fund seeks to achieve its investment
objective by investing,
under normal market conditions, primarily in common stocks
and convertible
securities of companies that the Fund's Portfolio Management
Agent believes
offer above-average growth potential. The Fund's
investment management
discipline emphasizes growth in sales, earnings and asset values.
SMALL-CAP FUND
The Small-Cap Fund seeks to provide long-term capital
appreciation by
investing at least 65% of the value of its total assets in equity
securities of
smaller to medium capitalization companies.
The Small-Cap Fund seeks to provide long term capital
appreciation. The
Fund seeks to achieve its investment objective by investing,
under normal market
conditions, at least 65% of the value of its total assets in
equity securities
of smaller to medium capitalization companies (i.e.
companies with
capitalizations between $100 million and $2.5 billion.)
The investment management discipline of the Fund
searches for companies
offering above-average earnings, sales and asset value growth.
7
<PAGE>
INDEX FUND
The Index Fund seeks to provide the return and risk
characteristics of the
S&P 500 Index.
The Index Fund seeks to provide the return and risk
characteristics of the
Standard & Poor's 500 Index (the ``S&P 500 Index'' or the
``Index''), an index
which emphasizes large capitalization companies. As of
December 31, 1994, the
Index represented approximately 76% of the market
capitalization of publicly
owned stocks in the United States. The Fund seeks to achieve
its investment
objective by investing, under normal market conditions,
primarily in securities
of companies that comprise the S&P 500 Index.
The Fund is managed through the use of a ``quantitative''
or ``indexing''
investment discipline, which attempts to duplicate the
investment composition
and performance of the Index through statistical procedures.
As a result, the
Portfolio Management Agent does not employ traditional
methods of fund
investment management, such as selecting securities on the
basis of economic,
financial and market analysis. The Fund seeks quarterly
performance within a .95
correlation to the Index. On at least a monthly basis,
the Portfolio Management Agent compares the correlation
of the Fund's performance to that of the Index.
In the event the Fund's performance for the preceding
three month period is not within a .95 correlation to the
performance of the index, the Portfolio Management Agent
may adjust the Fund's holdings in issues included in
the Index to seek a closer performance correlation.
The Fund seeks to closely match the weight of each
security in the
portfolio approximating its weight in the S&P 500 Index.
Although the Fund may
not hold all 500 issues included in the Index, it will
generally hold at least
90% of such issues. In addition, the Fund may maintain
positions in S&P 500
Stock Index futures contracts in an effort to ensure adequate
liquidity and to
reduce transaction costs.
Standard & Poor's Corporation (``S&P'') makes no
representation or
warranty, expressed or implied, to the purchasers of the
Index Fund or any
member of the public regarding the advisability of investing in
either the Index
Fund or the ability of the S&P 500 Index to track general
stock market
performance. The Fund is not sponsored, endorsed, sold or
promoted by S&P. S&P
does not guarantee the accuracy and/or completeness of its
index or any data
included therein. Furthermore, S&P makes no warranty, express or
implied, as to
the results to be obtained by the Index Fund, owners of the
Fund, any person or
any entity from the use of the index sponsored by S&P or any
data included
therein. S&P makes no express or implied warranties and
expressly disclaims all
such warranties of merchantability or fitness for a particular
purpose for use
with respect to its index or any data included therein.
INTERNATIONAL FUND
The International Fund seeks to provide international
diversification and
capital appreciation by investing at least 65% of the value
of its assets in
common stocks of foreign issuers. Current income is a secondary
objective.
The International Fund seeks to provide international
diversification and
capital appreciation. Current income is a secondary objective.
The Fund seeks to
achieve its investment objective by investing, under normal
market conditions,
at least 65% of the value of its total assets in securities of
foreign issuers
(i.e., issuers organized outside the United States or whose
principal trading
market is outside the United States) and such issuers will
be located in at
least three countries other than the United States. The Fund
seeks to manage
risk through the diversification of its investments.
The International Fund also may invest in exchange rate-
related securities,
securities convertible into or exchangeable for foreign equity
securities, and
custodial receipts for Treasury securities. In addition, the
Fund may engage in
the purchase and sale of foreign currency for hedging purposes.
BALANCED FUND
The Balanced Fund seeks to provide current income and
capital appreciation
through a balanced portfolio of fixed income and equity
securities.
The Balanced Fund seeks to provide current income and
capital appreciation
by investing in a balanced portfolio of fixed income and equity
securities. The
Fund seeks to achieve its investment objective by utilizing
an active asset
allocation approach. Under normal market conditions, equity
securities are
expected to comprise between 40% to 65% of the Fund's total
assets and fixed
income securities are expected to comprise at least 25% of
the Fund's total
assets.
8
<PAGE>
ALL FUNDS
Each Fund may invest in securities convertible into or
exchangeable for
common stocks or preferred stocks, as well as Government
Securities and debt
obligations of domestic corporations rated ``Baa'' or
better by Moody's
Investors Services, Inc. (``Moody's'') or ``BBB'' or better
by S&P, or an
equivalent rating by another nationally recognized
statistical rating
organization at the time of purchase or, if not rated are
considered by the
Portfolio Management Agent to be of comparable quality. Debt
obligations rated
``BBB'' by S&P, ``Baa'' by Moody's or the equivalent by
such other rating
organization may have speculative characteristics, and
changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity
to make principal and interest payments than is the case
with higher grade
bonds. In addition, each Fund may invest in asset-backed
securities, securities
of other investment companies, securities with puts, warrants
(not representing
more than 5% of net assets), when-issued securities and
forward commitments,
forward foreign currency exchange contracts, mortgage-related
securities, zero
coupon securities, securities purchased in an initial
public offering,
floating/variable rate obligations, commercial paper, short-
term money market
instruments and cash equivalents, such as certificates of
deposit, demand and
time deposits and banker's acceptance notes. Each Fund also
may invest in
American Depositary Receipts, European Depository Receipts and,
with respect to
10% (100% for the International Fund) of total assets,
debt and equity
securities of foreign issuers. Further, each Fund may purchase
and sell covered
put and call options on securities, index and interest rate
futures contracts
and options on futures contracts as well as enter into repurchase
agreements and
reverse repurchase agreements. In addition, each Fund may
lend its portfolio
securities with respect to up to one-third of its net assets.
--------
Portfolio securities of each Fund are kept under continuing
supervision and
changes may be made whenever, in the judgment of the Portfolio
Management Agent,
a security no longer meets the objective of the Fund. Portfolio
changes also may
be made to increase or decrease investments in anticipation
of changes in
security prices in general or to provide funds required
for redemptions,
distributions to shareholders or other corporate purposes.
Neither the length of
time a security has been held nor the rate of turnover of a
Fund's portfolio is
considered a limiting factor on such changes.
--------
Each Fund may purchase debt obligations that are not
rated if, in the
opinion of the Portfolio Management Agent, they are of
investment quality at
least comparable to other rated investments that may be
purchased by the Fund.
After purchase by a Fund, a security may cease to be rated or
its rating may be
reduced below the minimum required for purchase by the Fund.
Neither event will
require the Fund to sell the security unless the amount of the
security exceeds
permissible limits. 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. To
the extent that the ratings given by Moody's, S&P or
another nationally
recognized statistical rating organization for securities may
change as a result
of changes in the rating systems or due to corporate
reorganization of such
rating organizations, each Fund will attempt to use
comparable ratings as
standards for its investments in accordance with the investment
objectives and
policies of that Fund. The ratings of Moody's and S&P are more
fully described
in the Appendix to the Statement of Additional Information.
9
<PAGE>
INVESTMENT STRATEGIES
ASSET-BACKED SECURITIES. Each Fund may purchase asset-
backed securities,
which represent a participation in, or are secured by and payable
from, a stream
of payments generated by particular assets, most often a pool of
assets similar
to one another. Assets generating such payments will consist
of motor vehicle
installment purchase obligations, credit card receivables,
home equity loans,
equipment leases, manufactured housing loans and marine loans.
In accordance
with guidelines established by the Boards of Trustees
and Directors,
asset-backed securities may be considered illiquid securities
and, therefore,
may be subject to a Fund's 15% (10% with respect to the Equity
Fund) limitation
on such investments.
The estimated life of an asset-backed security varies
with prepayment
experience with respect to underlying debt instruments.
The rate of such
prepayments, and therefore the life of the asset-backed
security, will be
primarily a function of current market interest rates, although
other economic
and demographic factors may be involved. In periods of falling
interest rates,
the rate of prepayments tends to increase. During such periods,
the reinvestment
of prepayment proceeds by a Fund will generally be at lower rates
than the rates
that were carried by the obligations that have been prepaid.
Because of these
and other reasons, an asset-backed security's total return may
be difficult to
predict precisely. If a Fund purchases asset-backed
securities at a premium,
prepayments may result in some loss of the Fund's principal
investment to the
extent of premium paid.
CONVERTIBLE SECURITIES. Each Fund may invest in
convertible securities.
Because convertible securities have the characteristics of
both fixed-income
securities and common stocks, they 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 relation 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
issuers non-convertible debt obligations or preferred stock.
EXCHANGE RATE-RELATED SECURITIES. The International
Fund may invest in
securities for which the principal repayment at maturity,
while paid in U.S.
dollars, is determined by reference to the exchange rate between
the U.S. dollar
and the currency of one or more foreign countries
(``Exchange Rate-Related
Securities''). The interest payable on these securities is
denominated in U.S.
dollars and is not subject to foreign currency risk and, in most
cases, is paid
at rates higher than most other similarly rated securities in
recognition of the
foreign currency risk component of Exchange Rate-Related
Securities.
Investments in Exchange Rate-Related Securities entail
certain risks. There
is the possibility of significant changes in rates of exchange
between the U.S.
dollar and any foreign currency to which an Exchange Rate-
Related Security is
linked. In addition, there is no assurance that sufficient
trading interest to
create a liquid
10
<PAGE>
secondary market will exist for a particular Exchange Rate-
Related Security due
to conditions in the debt and foreign currency markets.
Illiquidity in the
forward foreign exchange market and the high volatility of the
foreign exchange
market may, from time to time, combine to make it difficult to
sell an Exchange
Rate-Related Security prior to maturity without incurring a
significant price
loss.
FLOATING AND VARIABLE RATE INSTRUMENTS. Each Fund may
purchase instruments
having a floating or variable rate of interest. These
obligations bear interest
at rates that are not fixed, but vary with changes in specified
market rates or
indices, such as the prime rate, or at specified intervals.
Certain of these
obligations may carry a demand feature that would permit the
holder to tender
them back to the issuer at par value prior to maturity. Each Fund
will limit its
purchases of floating and variable rate obligations to those of
the same quality
as it otherwise is allowed to purchase.
A floating or variable rate instrument may be subject
to the Fund's
percentage limitation on illiquid investments if there is no
reliable trading
market for the instrument or if the Fund may not demand payment
of the principal
amount within seven days.
FOREIGN SECURITIES. The International Fund may invest in
dollar-denominated
and non-dollar-denominated foreign equity and debt securities.
Each other Fund
may invest up to 10% of its total assets in dollar denominated
foreign equity
and debt securities. Each Fund also may invest in American
Depositary Receipts
(``ADRs'') and European Depository Receipts. ADRs are
certificates issued by a
U.S. depository (usually a bank) and represent a specified
quantity of shares of
an underlying non-U.S. stock on deposit with a custodian bank
as collateral.
European Depository Receipts are typically issued by foreign
banks and trust
companies (although they may also be issued by U.S. banks or
trust companies)
and evidence ownership of underlying securities issued by either
a foreign or a
U.S. corporation.
Investments in foreign securities involve certain
considerations that are
not typically associated with investing in domestic
securities. For example,
investments in foreign securities typically involve higher
transaction costs
than investments in U.S. securities. Foreign investments
may have risks
associated with currency exchange rates, political instability,
less complete
financial information about the issuers and less market
liquidity. Future
political and economic developments, possible imposition of
withholding taxes on
income, seizure or nationalization of foreign holdings,
establishment of
exchange controls or the adoption of other governmental
restrictions might
adversely affect the payment of principal and interest on
foreign obligations.
In addition, foreign banks and foreign branches of domestic banks
may be subject
to less stringent reserve requirements than and to
different accounting,
auditing and recordkeeping requirements from domestic banks.
FORWARD CONTRACTS. Each Fund may enter into forward
foreign currency
exchange contracts for the purchase and sale of a fixed
quantity of a foreign
currency at a future date (``Forward Contracts''). A Fund may
enter into Forward
Contracts for hedging purposes as well as non-hedging purposes.
By entering into
transactions in Forward Contracts, however, a Fund may be
required to forego the
benefits of advantageous changes in exchange rates and, in the
case of Forward
Contracts entered into for non-hedging purposes, the Fund may
sustain losses
which will reduce its gross income. A Fund may also enter
into a Forward
Contract on one currency in order to hedge against risk of
loss arising from
fluctuations in the value of a second currency (referred
to as a ``cross
hedge'') if, in the judgment of the Portfolio Management
Agent, a reasonable
degree of correlation can be
11
<PAGE>
expected between movements in the values of the two
currencies. Forward
Contracts are traded over-the-counter, and not on organized
commodities or
securities exchanges. As a result, such contracts operate in a
manner distinct
from exchange-traded instruments, and their use involves
certain risks beyond
those associated with transactions in futures contracts or
options traded on
exchanges. Each Fund has established procedures consistent
with statements of
the Securities and Exchange Commission and its staff
regarding the use of
Forward Contracts by registered investment companies, which
require use of
segregated assets or ``cover'' in connection with the purchase
and sale of such
contracts.
GOVERNMENT SECURITIES. Government Securities consist of
obligations issued
or guaranteed by the U.S. Government, its agencies,
instrumentalities or
sponsored enterprises.
ILLIQUID SECURITIES. Each Fund may invest up to 15% (10%
with respect to
the Equity Fund) of its net assets in securities that are
considered illiquid.
Repurchase agreements and time deposits that do not provide for
payment to the
Fund within seven days after notice or which have a term greater
than seven days
are deemed illiquid securities for this purpose unless such
securities are
variable amount master demand notes with maturities of nine
months or less or
unless the Portfolio Management Agent or Investment Adviser has
determined under
the supervision and direction of the Trust's Board of Trustees
(or, with respect
to the Equity Fund, the Company's Board of Directors) that an
adequate trading
market exists for such securities or that market
quotations are readily
available.
Each Fund may also purchase Rule 144A securities sold to
institutional
investors without registration under the Securities Act of 1933
and commercial
paper issued in reliance upon the exemption in Section 4(2) of
the Securities
Act of 1933. These securities may be determined to be liquid in
accordance with
guidelines established by the Portfolio Management Agent or
Investment Adviser
and approved by the Trust's Board of Trustees (or, with
respect to the Equity
Fund, the Company's Board of Directors). The Board of Trustees or
Directors will
monitor the Portfolio Management Agent's or Investment Adviser's
implementation
of these guidelines on a periodic basis.
INDEX FUTURES CONTRACTS; OPTIONS ON INDICES; OPTIONS ON
SECURITIES. Each
Fund may attempt to reduce the risk of investment in equity
securities by
hedging a portion of its portfolio through the use of futures
contracts on
indices and options on such indices traded on national
securities exchanges.
Each Fund also may attempt to reduce the risk of investment in
debt securities
by hedging a portion of its portfolio through the use of
interest rate futures
and options on such futures contracts. A Fund will use futures
contracts and
options on such futures contracts only as a hedge against
anticipated changes in
the values of securities held in its portfolio or in the
values of securities
that it intends to purchase.
Each Fund may invest in covered put and covered call
options and may write
covered put and covered call options on securities in which
they may invest
directly and that are traded on registered domestic
securities exchanges or
over-the-counter.
The use of index and interest rate futures contracts and
options may expose
a Fund to additional risks and transaction costs. Risks
inherent in the use of
such instruments include: (1) the risk that interest rates,
securities prices or
currency markets will not move in the direction that the
Portfolio Management
Agent anticipates; (2) the existence of an imperfect
correlation between the
price of such instruments and movements in the prices of
the securities,
interest rates or currencies being hedged; (3) the fact that
skills needed to
use these strategies are
12
<PAGE>
different than those needed to select portfolio securities;
(4) the possible
inability to close out certain hedged positions may result
in adverse tax
consequences; (5) the possible absence of a liquid secondary
market for any
particular instrument and possible exchange-imposed price
fluctuation limits,
either of which may make it difficult or impossible to close out
a position when
desired; (6) the leverage risk, that is, the risk that adverse
price movements
in an instrument can result in a loss substantially greater
than a Fund's
initial investment in that instrument (in some cases, the
potential loss is
unlimited); and (7) particularly in the case of
privately- negotiated
instruments, the risk that the counterparty will fail
to perform its
obligations, which could leave a Fund worse off than if it had
not entered into
the position.
When a Fund invests in index and interest rate futures
contracts and
options, it may be required to segregate cash and other high-
grade liquid assets
or certain portfolio securities to `cover' the Fund's
position. Assets
segregated or set aside generally may not be disposed of so
long as a Fund
maintains the positions requiring segregation or cover.
Segregating assets could
diminish a Fund's return due to the opportunity losses of
foregoing other
potential investments with the segregated assets.
See ``Investment Strategies'' in the Statement of Additional
Information.
INVESTMENT COMPANY SECURITIES. In connection with the
management of its
daily cash positions, each Fund may invest in securities
issued by investment
companies that invest in short-term, debt securities
(which may include
municipal obligations that are exempt from federal income taxes)
and which seek
to maintain a $1.00 net asset value per share. Each Fund, other
than the Equity
Fund, may also invest in securities issued by investment
companies that invest
in securities in which such Fund could invest directly.
Securities of investment
companies may be acquired by any of the Funds within the limits
prescribed by
the Investment Company Act of 1940, as amended (the ``1940
Act''). These limit
each such Fund so that: (i) not more than 5% of its total
assets will be
invested in the securities of any one investment company; (ii)
not more than 10%
of its total assets will be invested in the aggregate in
securities of
investment companies as a group; and (iii) not more than 3% of
the outstanding
voting stock of any one investment company will be owned by the
Fund or by the
Trust or the Company as a whole. As a shareholder of another
investment company,
a Fund would bear, along with other shareholders, its pro rata
portion of the
other investment company's expenses, including advisory fees.
These expenses
would be in addition to the advisory and other expenses
that a Fund bears
directly in connection with its own operations.
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend to
brokers, dealers and
financial institutions securities from its portfolio
representing up to
one-third of the Fund's net assets. However, such loans may be
made only if cash
or cash equivalent collateral, including letters of credit,
marked-to-market
daily and equal to at least 100% of the current market value of
the securities
loaned (including accrued interest and dividends thereon)
plus the interest
payable to the Fund with respect to the loan is maintained by
the borrower in a
segregated account. In determining whether to lend a security
to a particular
broker, dealer or financial institution, the Portfolio
Management Agent or the
Investment Sub-Adviser 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 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 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
13
<PAGE>
the Fund may invest the cash collateral and earn additional
income or receive an
agreed upon fee from the borrower. 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 Trust, the Company, the Investment Adviser, the
Investment Sub-Adviser,
the Portfolio Management Agent or the Distributor.
MORTGAGE-RELATED SECURITIES. Each Fund may invest in
mortgage-backed
securities, including collateralized mortgage obligations
(``CMOs'') and
Government Stripped Mortgage-Backed Securities. CMOs are types
of bonds secured
by an underlying pool of mortgages or mortgage pass-through
certificates that
are structured to direct payments on underlying collateral to
different series
or classes of obligations. To the extent that CMOs are
considered to be
investment companies, investment in such CMOs will be subject to
the percentage
limitations described above under ``Investment Company
Securities.''
Government Stripped Mortgage-Backed Securities are
mortgage-backed
securities issued or guaranteed by Government National
Mortgage Association
(``GNMA''), Federal National Mortgage Association (``FNMA''),
or Federal Home
Loan Mortgage Corporation (``FHLMC''). These securities
represent beneficial
ownership interests in either periodic principal
distributions
(``principal-only'') or interest distributions
(``interest-only'') on
mortgage-backed certificates issued by GNMA, FNMA or FHLMC, as
the case may be.
The certificates underlying the Government Stripped Mortgage-
Backed Securities
represent all or part of the beneficial interest in pools of
mortgage loans.
MUNICIPAL OBLIGATIONS. The Balanced Fund may
purchase municipal
obligations. Municipal bonds generally have a maturity at the
time of issuance
of up to 30 years. Municipal notes generally have maturities
at the time of
issuance of three years or less. These notes are
generally issued in
anticipation of the receipt of tax funds, the proceeds of bond
placements or
other revenues. The ability of an issuer to make payments is
therefore dependent
on these tax receipts, proceeds from bond sales or other
revenues, as the case
may be. Municipal commercial paper is a debt obligation
with an effective
maturity or put date of 270 days or less that is issued to
finance seasonal
working capital needs or as short-term financing in anticipation
of longer-term
debt.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS.
Each 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.
Each Fund may borrow funds for temporary purposes by
selling portfolio
securities to financial institutions such as banks and
broker/dealers and
agreeing to repurchase them at a mutually specified date and
price (``reverse
repurchase agreements''). Reverse repurchase agreements
involve the risk that
the market value of the securities sold by a Fund may
decline below the
repurchase price. A Fund would pay interest on amounts obtained
pursuant to a
reverse repurchase agreement.
14
<PAGE>
A Fund may not enter into a repurchase agreement or
reverse repurchase
agreements if, as a result, more than 15% (10% with respect to
the Equity Fund)
of the Fund's net assets would be invested in repurchase
agreements or reverse
repurchase agreements with a maturity of more than seven
days and in other
illiquid securities. The Funds will enter into repurchase
agreements and reverse
repurchase agreements only with registered broker/dealers and
commercial banks
that meet guidelines established by the Trust's Board of
Trustees or the
Company's Board of Directors.
SECURITIES WITH PUTS. In order to maintain liquidity, each
Fund may enter
into puts with respect to portfolio securities with banks or
broker/dealers
that, in the opinion of the Portfolio Management Agent, or, with
respect to the
International Fund, the Investment Sub-Adviser, present
minimal credit risks.
The ability of these Funds to exercise a put will depend on the
ability of the
bank or broker/dealer to pay for the underlying securities at
the time the put
is exercised. In the event that a bank or broker/dealer
defaults on its
obligation to repurchase an underlying security, the Fund
might be unable to
recover all or a portion of any loss sustained by having to
sell the security
elsewhere.
STAND-BY COMMITMENTS. The Balanced Fund may
acquire ``stand-by
commitments'' with respect to obligations held by it.
Under a stand-by
commitment, a dealer agrees to purchase, at the Fund's
option, specified
obligations at a specified price. The acquisition of a stand-by
commitment may
increase the cost, and thereby reduce the yield, of the
obligations to which the
commitment relates. The Balanced Fund will acquire stand-by
commitments solely
to facilitate portfolio liquidity and does not intend to
exercise its rights
thereunder for trading purposes. Stand-by commitments acquired by
a Fund will be
valued at zero in determining the Fund's net asset value.
STRIPPED SECURITIES. The International Fund may purchase
participations in
trusts that hold U.S. Treasury and agency securities (such as
TIGRs and CATs)
and also may purchase Treasury receipts and other stripped
securities, which
represent beneficial ownership interests in either future
interest payments or
the future principal payments on the securities held by the
trust. These
instruments are issued at a discount from their ``face
value'' and may
(particularly in the case of stripped mortgage-backed
securities) exhibit
greater price volatility than ordinary debt securities because
of the manner in
which their principal and interest are returned to investors.
Participations in
TIGRs, CATs and other similar trusts are not considered
U.S. Government
securities. Stripped securities will normally be considered
illiquid investments
and will be acquired subject to the limitations on illiquid
investments unless
determined to be liquid under guidelines established by the Board
of Trustees.
U.S. GOVERNMENT OBLIGATIONS. Each of the Funds may
invest in U.S.
Government Obligations which consist of bills, notes and
bonds issued by the
U.S. Treasury. They are direct obligations of the U.S.
Government and differ
primarily in the length of their maturities.
U.S. GOVERNMENT AGENCY AND INSTRUMENTALITY OBLIGATIONS.
Each of the Funds
may invest in obligations of the U.S. Government agencies and
instrumentalities,
which are debt securities issued by U.S. Government-sponsored
enterprises and
federal agencies. Some of these obligations are supported by: (a)
the full faith
and credit of the U.S. Treasury (such as Government
National Mortgage
Association participation certificates); (b) the limited
authority of the issuer
to borrow from the U.S. Treasury (such as securities of the
15
<PAGE>
Federal Home Loan Bank); (c) the authority of the U.S.
Government to purchase
certain obligations of the issuer (such as securities of the
Federal National
Mortgage Association); or (d) the credit of the issuer only.
In the case of
obligations not backed by the full faith and credit of the U.S.,
the investor
must look principally to the agency issuing or guaranteeing the
obligation for
ultimate repayment.
WARRANTS. Each Fund (except the Index Fund) may invest up
to 5% of its net
assets at the time of purchase, and the Index Fund may invest
without such
limitation, in warrants on securities in which they may
invest directly.
Warrants that have been acquired in units or attached to other
securities are
not subject to the percentage limitation. Warrants represent
rights to purchase
securities at a specific price during a specified period of time.
WHEN-ISSUED SECURITIES. Each Fund may purchase
securities (including
securities issued pursuant to an initial public offering) on
a when-issued
basis, in which case delivery and payment normally take place
within 45 days
after the date of the commitment to purchase. A Fund will make
a commitment to
purchase securities on a when-issued basis only with the
intention of actually
acquiring the securities, but may sell them before the
settlement date, if
deemed advisable. The purchase price and the interest rate that
will be received
are fixed at the time of the commitment. When-issued securities
are subject to
market fluctuation and no income accrues to the purchaser
prior to issuance.
Purchasing a security on a when-issued basis can involve a risk
that the market
price at the time of delivery may be lower than the agreed upon
purchase price.
ZERO COUPON SECURITIES. Each Fund may invest in zero
coupon securities.
These securities are debt obligations that do not entitle
the holder to any
periodic payments of interest prior to maturity and are issued
and traded at a
discount. The values of zero coupon securities are
subject to greater
fluctuations than are the values of income securities that
distribute income
regularly. Zero coupon securities (which are not issued or
guaranteed by the
U.S. Government) may be created by separating the interest
and principal
component of Government Securities or securities issued by
private corporate
issuers.
INVESTMENT LIMITATIONS
This section outlines each Fund's policies that may be
changed only by a
majority vote of shareholders.
Unless otherwise noted, the foregoing investment
objectives and related
policies and activities of each of the Funds are not
fundamental and may be
changed by the Board of Trustees of the Trust (or, with
respect to the Equity
Fund, the Board of Directors of the Company) without
the approval of
shareholders, provided that, with respect to the Equity
Fund, the policy
relating to investment company securities is a fundamental
investment policy. If
there is a change in a Fund's investment objective, shareholders
should consider
whether the Fund remains an appropriate investment in light
of their then
current financial position and needs.
As matters of fundamental policy, which may be changed
only with approval
by the vote of the holders of a majority of the Fund's
outstanding voting
securities, as described in the Statement of Additional
Information, no Fund
may: (1) purchase the securities of issuers conducting their
principal business
activity in the same industry if, immediately after the purchase
and as a result
thereof, the value of its investments in that industry would
exceed 25% of the
current value of its total assets, provided that there is no
limitation with
respect to investments (a) in municipal obligations (for the
purpose of this
restriction, private activity bonds shall not be deemed municipal
obligations if
the payment of principal and interest on such bonds is
the ultimate
responsibility of non-governmental users) and (b) in
obligations of the U.S.
Government, its agencies or instrumentalities; (2) invest more
than 5% of the
current value of its total assets in the securities of any one
issuer, other
than obligations of the U.S.
16
<PAGE>
Government, its agencies or instrumentalities, except that
up to 25% of the
value of the total assets of a Fund may be invested without
regard to this
limitation; (3) purchase securities of an issuer if, as a
result, with respect
to 75% of its total assets, it would own more than 10% of the
voting securities
of such issuer; or (4) borrow from banks, except that a Fund
may borrow up to
10% of the current value of its total assets for temporary
purposes only in
order to meet redemptions, and these borrowings may be secured
by the pledge of
up to 10% of the current value of the Fund's net assets (but
investments may not
be purchased while borrowings are in excess of 5%). It is also
a fundamental
policy that each Fund may make loans of portfolio securities. In
addition, it is
a fundamental policy that the Equity Fund may only invest
up to 10% of the
current value of its net assets in repurchase agreements having
maturities of
more than seven days, variable amount master demand notes having
notice periods
of more than seven days, fixed time deposits subject to
withdrawal penalties
having maturities of more than seven days, and securities that
are not readily
marketable. Although not a matter of fundamental policy, the
Funds consider the
securities of foreign governments to be a separate industry for
purposes of the
25% asset limitation on investments in the securities of
issuers conducting
their principal business activity in the same industry.
MANAGEMENT
The Trust and the Company are managed under the
direction of their
governing Boards of Trustees and Directors, respectively. Each
individual listed
below is a member of both the Trust's Board of Trustees and the
Company's Board
of Directors. The principal occupation of each individual is also
listed below.
TRUSTEES AND DIRECTORS
Edgar R. Fiedler Vice President and Economic Counsellor,
The Conference
Board.
C. Gary Gerst Chairman of the Board of Directors
and Trustees;
Chairman Emeritus, La Salle Partners,
Ltd. (Real Estate
Developer and Manager).
John W. McCarter, Jr. Senior Vice President, Booz Allen &
Hamilton, Inc.
(Consulting Firm); Director of W.W.
Grainger, Inc. and
A.M. Castle, Inc.
Ernest M. Roth Consultant; Retired Senior Vice
President and Chief
Financial Officer, Commonwealth Edison
Company.
INVESTMENT ADVISER
This section highlights the experience, services offered,
and compensation
of the Funds' Adviser.
Prior to the initial public offering of the Trust's
shares, the Trust will enter into an Advisory Contract
with Harris Trust with respect to the investment
portfolios of the Trust. The Company has entered into an Advisory
Contract with
Harris Trust with respect to each of the investment portfolios
of the Company. Harris Trust,
located at 111
West Monroe Street, Chicago, Illinois, is the successor to
the investment
banking firm of N.W. Harris & Co. that was organized in 1882 and
incorporated in
1907 under the present name of the bank. It is an Illinois
state-chartered bank
and a member of the Federal Reserve System. At December 31,
1994, Harris Trust
had assets of more than $13 billion and was the largest of 14
banks owned by
Harris Bankcorp, Inc. Harris Bankcorp, Inc. is a wholly-owned
subsidiary of
Bankmont Financial Corp., which is a wholly-owned
subsidiary of Bank of
Montreal, a publicly traded Canadian banking institution.
As of December 31, 1994, Harris Trust managed more
than $8 billion in
personal trust assets, and acted as custodian of more than
$151 billion in
assets.
17
<PAGE>
With respect to the Funds, the Advisory Contracts provide
that Harris Trust
is responsible for the supervision and oversight of the
Portfolio Management
Agent's performance (as discussed below).
For all its services under the Advisory Contracts with the
Funds, Harris
Trust is entitled to receive monthly advisory fees at the annual
rate of 0.70%,
0.70%, 0.90%, 1.00%, 0.25%, 1.05% and 0.60% of the average
daily net assets of
the Equity Fund, the Equity Income Fund, the Growth Fund, the
Small-Cap Fund,
the Index Fund, the International Fund and the Balanced Fund,
respectively.
PORTFOLIO MANAGEMENT AGENT
Harris Trust has entered into Portfolio Management
Contracts with Harris
Investment Management, Inc. (``HIM'' or the ``Portfolio
Management Agent'')
under which HIM undertakes to furnish investment guidance and
policy direction
in connection with the daily portfolio management of the Funds.
For the services
provided by HIM, Harris Trust will pay to HIM the advisory fees
it receives from
the Funds. As of June 30, 1995, HIM managed an estimated $13
billion in assets.
Purchase and sale orders of the securities held by each of
the Funds may be
combined with those of other accounts that HIM manages, and
for which it has
brokerage placement authority, in the interest of seeking the
most favorable
overall net results. When HIM determines that a particular
security should be
bought or sold for any of the Funds and other accounts
managed by HIM, HIM
undertakes to allocate those transactions among the participants
equitably.
PORTFOLIO MANAGEMENT
The organizational arrangements of the Investment Adviser
and the Portfolio
Management Agent require that all investment decisions be made
by a committee
and no one person is responsible for making recommendations to
that committee.
GLASS-STEAGALL ACT
The Glass-Steagall Act, among other things, generally
prohibits federally
chartered or supervised banks from engaging to any extent in
the business of
issuing, underwriting, selling or distributing securities,
although subsidiaries
of bank holding companies such as Harris Trust and HIM are
permitted to purchase
and sell securities upon the order and for the account of their
customers.
It is the position of Harris Trust and HIM that they
may perform the
services contemplated by the Advisory Contracts, the
Portfolio Management
Contracts and this Prospectus without violation of the Glass-
Steagall Act or
other applicable federal banking laws or regulations. It is
noted, however, that
there are no controlling judicial or administrative
interpretations or decisions
and that future judicial or administrative interpretations
of, or decisions
relating to, present federal statutes and regulations
relating to the
permissible activities of banks and their subsidiaries or
affiliates, as well as
future changes in federal statutes or regulations and judicial or
administrative
decisions or interpretations thereof, could prevent Harris
Trust or HIM from
continuing to perform, in whole or in part, such services. If
Harris Trust or
HIM were prohibited from performing any of such services, it
is expected that
the Boards of Trustees and Directors of the Trust and the
Company, respectively,
would recommend to the Funds' shareholders that they approve new
agreements with
another entity or entities qualified to perform such services
and selected by
the Boards of Trustees and Directors.
To the extent permitted by the Commission, the Funds may
pay brokerage
commissions to certain affiliated persons. No such commission
payments were made
during the last fiscal year by the Equity Fund.
18
<PAGE>
ADMINISTRATORS, CUSTODIAN AND TRANSFER AGENT
These service providers are responsible for maintaining
the books and
records of the Funds, handling compliance and regulatory
issues, processing
buy/sell orders, customer service and the safekeeping of
securities.
First Data Investor Services Group, Inc. (formerly known as
The Shareholder
Services Group, Inc.) (``First Data'' or the ``Administrator'')
and PFPC Inc.
(``PFPC'' or the ``Administrator and Accounting Services Agent'')
(collectively,
the ``Administrators'') serve as the administrators of the
Funds. In such
capacity, the Administrators generally assist the Funds in all
aspects of their
administration and operation. PFPC also serves as the
transfer and dividend
disbursing agent of the Funds (the ``Transfer Agent'').
PNC Bank, N.A. (the ``Custodian'') serves as custodian of
the assets of the
Funds. PFPC and the Custodian are indirect, wholly-owned
subsidiaries of PNC
Bank Corp.
As compensation for their services, the Administrators, the
Custodian, and
the Transfer Agent are entitled to receive a combined fee based
on the aggregate
average daily net assets of the Funds and the Trust's and the
Company's other
investment portfolios, payable monthly at an annual rate of
.17% of the first
$300 million of average daily net assets; .15% of the next $300
million; and
.13% of average net assets in excess of $600 million. In
addition, a separate
fee is charged by PFPC for certain retail transfer agent
services and for
various custody transactional charges.
DISTRIBUTOR
The Distributor underwrites the Funds' shares which are
then available for
purchase or redemption.
Funds Distributor, Inc. (the ``Distributor'') has
entered into a
Distribution Agreement with the Trust (and, with respect to the
Equity Fund, the
Company) pursuant to which it has the responsibility for
distributing shares of
the Funds. The Distributor bears the cost of printing and
mailing prospectuses
to potential investors and any advertising expenses incurred by
it in connection
with the distribution of Shares, subject to the terms of the
Service Plans
described below, if implemented pursuant to contractual
arrangements between the
Trust and the Distributor or the Company and the Distributor and
approved by the
Board of Trustees of the Trust (or, with respect to the Equity
Fund, the Board
of Directors of the Company).
See ``Management'' and ``Custodian'' in the Statement
of Additional
Information for additional information regarding the Funds'
Investment Adviser,
Portfolio Management Agent, Administrators, Custodian,
Transfer Agent and
Distributor.
EXPENSES
Except for certain expenses borne by the Distributor, Harris
Trust, HIM and
the Trust and the Company each bears all costs of its operations,
including the
compensation of its Trustees or Directors who are not
affiliated with Harris
Trust, HIM or the Distributor or any of their affiliates;
advisory and
administration fees; payments pursuant to any Service Plan;
interest charges;
taxes; fees and expenses of its independent accountants, legal
counsel, transfer
agent and dividend disbursing agent; expenses of preparing
and printing
prospectuses (except the expense of printing and mailing
prospectuses used for
promotional purposes, unless otherwise payable pursuant to a
Service Plan),
shareholders' reports, notices, proxy statements and reports
to regulatory
agencies; insurance premiums and certain expenses relating
to insurance
coverage; trade association membership dues; brokerage and
other expenses
connected with the execution of portfolio securities
transactions; fees and
expenses of the Funds' custodian including those for keeping
books and accounts
and calculating the net asset value per share of the
Funds; expenses of
shareholders' meetings and meetings of Boards of Trustees
and Directors;
expenses relating to the issuance, registration and
qualification of shares
19
<PAGE>
of the Funds; pricing services; organizational expenses; and
any extraordinary
expenses. Expenses attributable to each Fund are charged
against the assets of
the Fund. Other general expenses of the Trust and the Company
are allocated
among the Funds in an equitable manner as determined by the
Boards of Trustees
and Directors.
DETERMINATION OF NET ASSET VALUE
The Net Asset Value (NAV) is the price or value of one share
of a Fund.
Net asset value per share for each Fund is determined on
each day that the
New York Stock Exchange (``NYSE'') and the Federal Reserve Bank
of Philadelphia
(the ``Fed'') are open for trading. For a list of the days on
which the net
asset value will not be determined, see ``Determination of Net
Asset Value'' in
the Statement of Additional Information. The net asset value
per share of each
of the Funds is determined by dividing the value of the total
assets of a Fund
less all of its liabilities by the total number of outstanding
shares of that
Fund.
The net asset value per share of each of the Funds is
determined at the
close of regular trading on the NYSE on each day the Funds
are open for
business. The value of securities of the Funds (other than
bonds and debt
obligations maturing in 60 days or less) is determined based
on the last sale
price on the principal exchange on which the securities are
traded as of the
close of regular trading on the NYSE (which is currently 4:00
P.M., New York
City time). In the absence of any sale on the valuation date, the
securities are
valued at the closing bid price. Securities traded only on
over-the-counter
markets are valued at closing over-the-counter bid prices.
Portfolio securities
which are primarily traded on foreign securities exchanges are
generally valued
at the closing values of such securities on their respective
exchanges, except
when an occurrence subsequent to the time a value was so
established is likely
to have changed such value. In such an event, the fair value of
those securities
will be determined through the consideration of other factors
by or under the
direction of the Boards of Trustees and Directors. Bonds are
valued at the mean
of the last bid and asked prices. In the event that such prices
are not readily
available, securities are valued at fair value as determined
in good faith by
the Board of Trustees or Directors, as the case may be.
Prices used for
valuations of securities are provided by independent pricing
services. Debt
obligations with remaining maturities of 60 days or less are
valued at amortized
cost when the Trust's Board of Trustees or the Company's Board of
Directors, as
the case may be, has determined that amortized cost valuation
represents fair
value.
PURCHASE OF SHARES
Contact your broker, financial institution or service agent
for answers to
any questions you may have about purchasing shares.
Shares of any of the Funds may be purchased
through authorized
broker/dealers, financial institutions and service agents
(``Institutions'') on
any day the NYSE and the Fed are open for business. Individual
investors will
purchase all shares directly through Institutions which will
transmit purchase
orders directly to the Distributor. Institutions are responsible
for the prompt
transmission of purchase, exchange or redemption orders, and
may independently
establish and charge additional fees to their customers for such
services, which
would reduce the customers' yield or return. No minimum
initial or subsequent
investment limitations have been imposed. Each Institution
through which shares
may be purchased may establish its own terms with respect to the
requirement of
a minimum initial investment and minimum subsequent investments.
20
<PAGE>
The Trust (or the Company with respect to the Equity
Fund) reserves the
right to reject any purchase order. All funds, net of sales
charge, if any, will
be invested in full and fractional shares. Checks will be
accepted for the
purchase of any Fund's shares subject to collection at full
face value in U.S.
dollars. Inquiries may be directed to the Funds at the address
and telephone
number on the cover of this Prospectus. Purchase orders for
shares of the Fund
received in good order by the Distributor prior to the close of
regular trading
(4:00 P.M., New York City time) on the NYSE will be executed
at the offering
price, which includes a sales charge, next determined on that
day. Orders placed
directly with the Distributor must be paid for by check or bank
wire on the next
business day. Payment for the shares purchased through an
Institution will not
be due until settlement date, normally three business days
after the order has
been executed.
Although Class A Shares of the Funds are sold with a sales
load of up to
4.50%, there are a number of ways to reduce the sales load.
When Class A Shares of the Funds are purchased through an
Institution, the
Distributor reallows a portion of the sales charge. No sales
charge will be
assessed on the reinvestment of distributions.
Sales charges for Class A Shares of the Funds are as
follows:
<TABLE>
<CAPTION>
SALES CHARGE DEALER ALLOWANCE
SALES AS
% OF NET AS % OF
AMOUNT OF PURCHASE CHARGE
AMOUNT INVESTED OFFERING PRICE
<S> <C> <C>
<C>
Less than $100,000 4.50%
4.71% 4.25%
$100,000 up to (but less than) $200,000 4.00
4.17 3.75
$200,000 up to (but less than) $400,000 3.50
3.63 3.25
$400,000 up to (but less than) $600,000 2.50
2.56 2.25
$600,000 up to (but less than) $800,000 2.00
2.04 1.75
$800,000 up to (but less than) $1,000,000 1.00
1.01 0.75
$1,000,000 and over .00
.00 .00
</TABLE>
No sales charge will be assessed on purchases by (a)
any bank, trust
company, or other institution acting on behalf of its
fiduciary customer
accounts or any other trust account (including a pension,
profit-sharing or
other employee benefit trust created pursuant to a plan
qualified under Section
401 of the Internal Revenue Code of 1986, as amended (the
``Code'')); (b)
individuals with an investment account or relationship with
HIM; (c) directors
and officers of the Company; (d) directors, current and
retired employees of
Harris Bankcorp, Inc. or any of its affiliates and the immediate
family members
of such individuals (spouses and children under 21); (e)
brokers, dealers, and
agents who have a sales agreement with the Distributor, and their
employees (and
the immediate family members of such individuals); (f) financial
institutions,
financial planners, employee benefit plan consultants or
registered investment
advisers acting for the accounts of their clients; and (g)
customers of Harris
Trust and its affiliate banks.
Depending upon the terms of the particular customer
account, financial
services institutions, including Harris Trust and HIM, may
charge account fees
for automatic investment and other cash management services
which they provide,
including, for example, account maintenance fees,
compensating balance
requirements, or fees based upon account transactions, assets,
or income. This
Prospectus should be read in connection with any information
received from
financial services institutions.
21
<PAGE>
The Right of Accumulation allows an investor to combine
the amount being
invested in Class A Shares of the non-money market funds of
the Trust and the
Company with the total net asset value of Class A Shares
currently being
purchased or already owned of such funds to determine reduced
sales charges in
accordance with the above sales charge schedule. To obtain such
discount, the
purchaser must provide sufficient information at the time of
purchase to permit
verification that the purchase qualifies for the reduced
sales charge, and
confirmation of the order is subject to such verification.
The Right of
Accumulation may be modified or discontinued at any time by
the Funds with
respect to all Class A Shares purchased thereafter.
A Letter of Intent allows an investor to purchase Class
A Shares of the
non-money market funds of the Trust and the Company over a 13-
month period at
reduced sales charges based on the total amount intended to be
purchased plus
the total net asset value of Class A Shares already owned
pursuant to the terms
of the letter of such fund. Each investment made during the
period receives the
reduced sales charge applicable to the total amount of the
intended investment.
If such amount is not invested within the period, the
investor must pay the
difference between the sales charges applicable to the
purchases made and the
charges previously paid.
Each Fund also offers Institutional Shares. Different
classes of shares of
a single portfolio may bear different sales charges and other
expenses which may
affect their relative performance. Investors may call 1-800-
982-8782 to obtain
more information concerning Institutional Shares of the Funds.
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net
asset value after
receipt of a proper request by the Distributor directly
or through any
Institution.
There is no charge by the Funds for redemptions, although
Institutions may
charge an account-based service fee.
There is no charge for redemption transactions, but an
Institution may
charge an account-based service fee. Redemption orders
received by an
Institution before the close of the NYSE with respect to
shares of a Fund and
received by the Distributor before the close of business on the
same day will be
executed at the Fund's net asset value per share next
determined on that day.
Redemption orders received by an Institution after the close of
the NYSE, or not
received by the Distributor prior to the close of business, will
be executed at
the Fund's net asset value next determined on the next business
day.
Redemption orders for a Fund that are received in good
order by 4:00 P.M.
(New York City time) will normally be remitted within five
business days but not
more than seven days. In the case of a redemption request made
shortly after a
recent purchase, the redemption proceeds will be distributed
upon the clearance
of the shareholder's check used to purchase the Fund's shares
which may take up
to 15 days or more after the investment. The proceeds may be
more or less than
cost and, therefore, a redemption may result in a gain or
loss for federal
income tax purposes. Payment of redemption proceeds may be
made in readily
marketable securities.
REDEMPTION THROUGH INSTITUTIONS
Proceeds of redemptions made through authorized
Institutions will be
credited to the shareholder's account with the
Institution. A redeeming
shareholder may request a check from the Institution or may
elect to retain the
redemption proceeds in such shareholder's account. The
Institution may benefit
from the use
22
<PAGE>
of the redemption proceeds prior to the clearance of a
check issued to a
redeeming shareholder for the proceeds or prior to disbursement
or reinvestment
of the proceeds on behalf of the shareholder.
Because of the high cost of maintaining small accounts,
the Trust (or the
Company with respect to the Equity Fund) reserves the right to
involuntarily
redeem accounts on behalf of shareholders whose share balances
fall below $500
unless this balance condition results from a decline in the
market value of a
Fund's assets. Prior to such a redemption, a shareholder will
be notified in
writing and permitted 30 days to make additional investments
to raise the
account balance to the specified minimum.
EXCHANGE PRIVILEGE
Once you have held shares for 7 days or more, you can
exchange these shares
for other eligible Harris Insight Fund Class A Shares.
Class A Shares of any of the Funds that have been held for
seven days or
more may be exchanged for shares of any other fund in the Harris
Insight Funds
in an identically registered account, provided Class A Shares of
the Fund to be
acquired are registered for sale in the shareholder's state of
residence, on the
following terms: Class A Shares of the non-money market funds
of the Trust and
the Company may be exchanged for Class A Shares of one another
and for Class A
Shares of each of the money market funds of the Company, all at
respective net
asset values. In addition, Class A Shares of a Fund that have
been exchanged
pursuant to these privileges may be re-exchanged at respective
net asset values
of Class A Shares of the Fund in which they were originally
invested upon
notification.
Procedures applicable to redemption of a Fund's shares are
also applicable
to exchanging shares. The Trust (or the Company with respect to
the Equity Fund)
reserves the right to limit the number of times shares may be
exchanged between
the Harris Insight Funds, to reject any telephone exchange order
or otherwise to
modify or discontinue exchange privileges at any time upon
60 days written
notice. A capital gain or loss for tax purposes may be
realized upon an
exchange, depending upon the cost or other basis of shares
redeemed.
SERVICE PLANS
The Service Plans for the Funds allow these Funds to pay
Service Agents for
certain servicing activities provided to their customers.
Under each Fund's Service Plan relating to Class A Shares,
each Fund bears
the costs and expenses in connection with advertising and
marketing the Fund'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, as described below, at a
rate up to 0.25%
per annum of the average daily net asset value of the Fund's
Class A Shares.
However, Harris Trust or HIM, in lieu of a Fund, from time to
time in its sole
discretion, may volunteer to bear the costs of such fees to
certain Service
Agents. The Administrators and the Distributor may act as
Service Agents and
receive fees under a Service Plan. For more information
concerning expenses
pursuant to the Service Plans, see ``Management.''
Servicing activities provided by Service Agents to
their customers
investing in the 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 Funds; 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
23
<PAGE>
customer's account balance and integrating such statements with
those of other
transactions and balances in the customer's other accounts
serviced by the
Service Agent; arranging for bank wires, distribution and such
other services as
a Fund may request, to the extent the Service Agent is
permitted to do so by
applicable statute, rule or regulation.
DIVIDENDS AND DISTRIBUTIONS
The Equity, Growth, Index and Balanced Funds declare and
pay dividends
quarterly; the Small-Cap and International Funds declare and pay
dividends semi-
annually.
Dividends from net investment income of each of the Equity,
Equity Income,
Growth, Index and Balanced Funds will be declared and paid
quarterly. Dividends
from net investment income of each of the Small-Cap and
International Funds will
be declared and paid semi-annually. Each Fund's net taxable
capital gains, if
any, will be distributed at least annually (to the extent
required to avoid
imposition of the 4% excise tax described below). Dividends and
distributions
paid by any of the Funds will be invested in additional shares
of the same Fund
at net asset value and credited to the shareholder's account on
the payment date
or, at the shareholder's election, paid in cash. Dividend checks
and Statements
of Account will be mailed approximately two business days
after the payment
date. Each Fund will forward to the Transfer Agent the monies
for dividends to
be paid in cash on the payment date.
FEDERAL INCOME TAXES
Each Fund (and each of the other Harris Insight Funds) will
be treated as a
separate entity for tax purposes and thus the provisions of the
Internal Revenue
Code (the ``Code'') generally will be applied to each Fund
separately, rather
than to the Trust or the Company as a whole. As a result, net
capital gains, net
investment income, and operating expenses will be determined
separately for each
Fund. The Trust (or the Company with respect to the Equity
Fund) intends to
qualify each Fund as a regulated investment company under
Subchapter M of the
Code. As a portfolio of a regulated investment company, each
Fund will not be
subject to federal income taxes with respect to net investment
income and net
capital gains distributed to its shareholders, as long as it
distributes 90% or
more of its net investment income (including net short-term
capital gains) each
year.
Dividends from net investment income (including net
short-term capital
gains) will be taxable as ordinary income.
Distributions of net long-term capital gains, if any,
will be taxable as
long-term capital gains, whether received in cash or
reinvested in additional
shares, regardless of how long the shareholder has held the
shares, and will not
qualify for the dividends-received deductions.
A taxable gain or loss may also be realized by a holder of
shares in a Fund
upon the redemption or transfer of shares depending on the
tax basis of the
shares and their price at the time of the transaction.
Any loss realized on a sale or exchange of shares of
a Fund will be
disallowed to the extent shares are acquired within the 61-day
period beginning
30 days before and ending 30 days after disposition of the
shares.
The Trust (or the Company with respect to the Equity Fund)
will be required
to withhold, subject to certain exemptions, a portion
(currently 31%), from
dividends paid or credited to individual shareholders and
from redemption
proceeds, if a correct taxpayer identification number, certified
when required,
is not on file with the Trust (or the Company with respect to
the Equity Fund)
or Transfer Agent.
24
<PAGE>
ACCOUNT SERVICES
Shareholders receive a Statement of Account whenever a
share transaction,
dividend or capital gain distribution is effected in the
accounts, or at least
annually. Shareholders can write or call the Funds at the
address and telephone
number on page one of this Prospectus with any questions
relating to their
investment in shares of the Funds.
ORGANIZATION AND CAPITAL STOCK
The Trust is a diversified open-end management investment
company which was
organized on December 6, 1995 as a business trust under
the laws of The
Commonwealth of Massachusetts. The Trust offers shares of
beneficial interest,
$.001 par value, for sale to the public. Currently, the
Trust has eleven
portfolios in operation. The Board has authorized each of the
eleven Funds which
are portfolios of the Trust to issue two classes of
shares, Class A and
Institutional Shares.
The Company, which was incorporated in Maryland on September
16, 1987, is a
diversified, open-end management investment company. The
authorized capital
stock of the Company consists of 10,000,000,000 shares having
a par value of
$.001 per share. Currently, the Company has six portfolios in
operation. The
Board has authorized the Equity Fund to issue two classes of
shares, Class A and
Institutional Shares.
Institutional Shares of the Fund, which are offered only to
certain classes
of investors, do not bear any sales, marketing or distribution
expenses. In the
future, the Board of Trustees of the Trust and the Board of
Directors of the
Company may authorize the issuance of shares of additional
investment portfolios
and additional classes of shares of any portfolio. Different
classes of shares
of a single portfolio may bear different sales charges and other
expenses which
may affect their relative performance. Information regarding
other classes of
shares may be obtained by calling the Funds at the telephone
number shown on the
cover page of this Prospectus or from any institution which
makes available
shares of the Funds. All shares of the Trust and all shares of
the Company have
equal voting rights and will be voted in the aggregate, and not
by class, except
where voting by class is required by law or where the matter
involved affects
only one class. A more detailed statement of the voting rights
of shareholders
is contained in the Statement of Additional Information. All
shares of the Trust
and all shares of the Company, when issued, will be
fully paid and
non-assessable.
As of January , 1996, [Integra Trust Services] held of
record [1,271,807]
shares, equal to [29.8%] of the outstanding shares of the Equity
Fund and Harris
Trust held of record [1,285,028] shares, equal to [30.1%] of
the outstanding
shares of the Equity Fund. Harris Trust has indicated that it
holds its shares
on behalf of various client accounts and not as beneficial owner.
The Trust and the Company may dispense with annual meetings
of shareholders
in any year in which Trustees and Directors are not required
to be elected by
shareholders. The Board of Trustees of the Trust and the Board
of Directors of
the Company, when requested by at least 10% of the Trust's or
the Company's
outstanding shares, will call a meeting of shareholders for
the purpose of
voting upon the question of removal of a Trustee or Trustees or
of a Director or
Directors and will assist in communications with other
shareholders as required
by Section 16(c) of the 1940 Act.
There is a possibility that the Trust might become
liable for any
misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning
the Company. There is a possibility that the Company might become
liable for any
misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning
the Trust.
25
<PAGE>
REPORTS TO SHAREHOLDERS
The fiscal year of both the Trust and the Company ends on
December 31. Each
of the Trust and the Company will send to its shareholders a
semi-annual report
showing the investments held by each of the Funds and
other information
(including unaudited financial statements) pertaining to the
Trust or the
Company, as the case may be. An annual report, containing
financial statements
audited by independent accountants, is also sent to shareholders.
CALCULATION OF YIELD AND TOTAL RETURN
The total return of each Fund shows what an investment in
the Fund would
have earned over a specific period of time.
From time to time each of the Funds may advertise its
``total return'' and
yield. ``Total return'' refers to the amount an investment in a
Fund would have
earned, including any increase or decrease in net asset value,
over a specified
period of time and assumes the payment of the maximum
sales load and the
reinvestment of all dividends and distributions.
The total return of each Fund shows what an investment in
Class A Shares of
the Fund would have earned over a specified period of time (such
as one, five or
ten years or the period of time since commencement of
operations, if shorter)
assuming the payment of the maximum sales loads when the
investment was first
made and that all distributions and dividends by the Fund were
reinvested on
their reinvestment dates during the period less all recurring
fees. When a Fund
compares its total return to that of other mutual funds or
relevant indices, its
total return may also be computed without reflecting the sales
load so long as
the sales load is stated separately in connection with the
comparison.
The yield of each Fund refers to the income generated by an
investment in
Class A Shares of the Fund over a 30-day period (which period
will be stated in
the advertisement). This income is then ``annualized.'' That
is, the amount of
income generated by the investment during the 30-day period
is assumed to be
earned and reinvested at a constant rate and compounded
semi-annually. The
annualized income is then shown as a percentage of the
investment.
A Fund's performance figures for a class of shares
represent past
performance, will fluctuate and should not be considered as
representative of
future results. The yield of any investment is generally a
function of portfolio
quality and maturity, type of instrument and operating
expenses.
26
<PAGE>
INVESTMENT ADVISER
Harris Trust & Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
PORTFOLIO MANAGEMENT AGENT
Harris Investment Management, Inc.
190 South LaSalle Street
Chicago, Illinois 60603
ADMINISTRATORS
First Data Investor Services Group, Inc.
53 State Street
Boston, Massachusetts 02109
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
DISTRIBUTOR
Funds Distributor, Inc.
One Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
PNC Bank, N.A.
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
PFPC Inc.
P.O. Box 8950
Wilmington, Delaware 19885
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Philadelphia, Pennsylvania
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
27
HARRIS INSIGHT FIXED INCOME FUNDS
HARRIS INSIGHT FUNDS
One Exchange Place, Boston, Massachusetts 02109
Telephone: (800) 982-8782
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 are collectively referred to herein as the
``Harris Insight
Funds'' or the ``Funds'') This Prospectus describes one class of
shares (``Class
A Shares'' or ``Shares'') of each of five investment portfolios
offered by the
Trust and the Class A Shares of the Harris Insight
Short/Intermediate Bond Fund,
a portfolio offered by the Company. The Funds are as follows:
o Harris Insight Convertible Securities Fund (the
``Convertible Securities
Fund'')
o Harris Insight Short/Intermediate Bond 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'')
Harris Trust & Savings Bank is the Investment Adviser
to the Funds and
Harris Investment Management, Inc., a subsidiary of Harris
Bankcorp, Inc., acts
as each Fund's Portfolio Management Agent. Shares of each Fund
are offered by
Funds Distributor, Inc., the distributor for the Trust and the
Company.
This Prospectus sets forth concisely the information a
prospective investor
should know before investing in the Funds. Please read and
retain it for future
reference. A Statement of Additional Information dated
February 21, 1996,
containing more detailed information about the Funds has been
filed with the
Securities and Exchange Commission and (together with any
supplements thereto)
is incorporated by reference into this Prospectus. The
Statement of Additional
Information and separate Prospectuses for the other
investment portfolios
offered by the Trust or the Company may be obtained without
charge by writing or
calling the Harris Insight Funds at the address and telephone
number printed
above.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR
ENDORSED BY HARRIS TRUST & SAVINGS BANK, OR ANY OF ITS
AFFILIATES, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION (THE ``COMMISSION'') OR ANY STATE SECURITIES
COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
February 21, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Expense Table 3
Highlights 4
Financial Highlights 6
Investment Objectives and Policies 7
Convertible Securities Fund 7
Short/Intermediate Fund 8
Bond Fund 9
Government Fund 9
Intermediate Tax-Exempt Fund 10
Tax-Exempt Fund 10
All Funds 10
Investment Strategies 11
Investment Limitations 20
Management 21
Determination of Net Asset Value 23
Purchase of Shares 24
Redemption of Shares 26
Exchange Privilege 27
Service Plans 27
Dividends and Distributions 28
Federal Income Taxes 28
Account Services 29
Organization and Capital Stock 29
Reports to Shareholders 30
Calculation of Yield and Total Return 30
No person has been authorized to give any information
or to make any
representations other than those contained in this Prospectus,
the Statement of
Additional Information and/or in the Funds' official sales
literature in
connection with the offering of the Funds' shares and, if given
or made, such
other information or representations must not be relied upon
as having been
authorized by the Trust, the Company or the Distributor. This
Prospectus does
not constitute an offer in any state in which, or to any person
to whom, such
offer may not lawfully be made.
2
<PAGE>
EXPENSE TABLE
Expenses and fees payable by shareholders are summarized in
this table and
expressed as a percentage of average net assets.
The following table sets forth certain information
concerning shareholder
transaction expenses and projected annual fund operating
expenses for Class A
Shares of the Funds during the current fiscal year.
<TABLE>
<CAPTION>
CONVERTIBLE SHORT/
INTERMEDIATE
SECURITIES
INTERMEDIATE BOND GOVERNMENT TAX-EXEMPT TAX-EXEMPT
FUND FUND
FUND FUND FUND FUND
<S> <C> <C>
<C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 4.50% 4.50%
4.50% 4.50% 4.50% 4.50%
ANNUAL FUND OPERATING EXPENSES*:
(as a percentage of average net assets)
Advisory Fees 0.70% 0.34%+
0.40%+ 0.30%+ 0.60%+ 0.60%+
Rule 12b-1 Fees 0.25% 0.25%
0.25% 0.25% 0.25% 0.25%
Other Expenses++ 0.22% 0.26%
0.20% 0.20% 0.20% 0.20%
---- ----
- ---- ---- ---- ----
Total Fund Operating Expenses 1.17% 0.85%+
0.85%+ 0.75%+ 1.05%+ 1.05%+
==== ====
==== ==== ==== ====
</TABLE>
* Customers of a financial institution, such as Harris Trust
& Savings Bank,
may be charged certain fees and expenses by their
institution. These fees
may vary depending on the capacity in which the
institution provides
fiduciary and investment services to the particular client
(e.g., trust,
estate settlement, advisory and custodian services).
+ Reflects advisory fees after waivers.
++ With respect to each Fund, other than the
Short/Intermediate Fund, the
amount of ``Other Expenses'' in the table above is
based on estimated
expenses and projected assets for the current fiscal year.
With respect to
the Short/Intermediate Fund, the amount of ``Other
Expenses'' is based on
amounts incurred during the most recent fiscal year.
Without waivers, the ratio of total fund operating expenses
to average net
assets would be 1.21% with respect to the Short/Intermediate
Fund and 1.10%
with respect to the Bond Fund, Government Fund,
Intermediate Tax-Exempt
Fund and Tax-Exempt Fund. The investment adviser has
voluntarily agreed to
waive a portion of its advisory fees with respect to the
Short/Intermediate
Fund, the Bond Fund, the Government Fund, the Intermediate
Tax-Exempt Fund
and the Tax-Exempt Fund and will not increase its
advisory fee without
prior approval of the Company's Board of Directors and
30 days' prior
notice to shareholders. Without waivers, the advisory
fee for the
Short/Intermediate Fund would be 0.70% of the Fund's
average net assets.
Without waivers, the advisory fee for each of the
Bond, Government,
Intermediate Tax-Exempt and Tax-Exempt Funds would be 0.65%
of each Fund's
average net assets.
EXAMPLE
You would pay the following expenses on a $1,000 investment in
Class A Shares,
assuming (1) a hypothetical 5% gross annual return and (2)
redemption at the end
of each time period:
<TABLE>
<CAPTION>
CONVERTIBLE SHORT/
INTERMEDIATE
SECURITIES
INTERMEDIATE BOND GOVERNMENT TAX-EXEMPT TAX-EXEMPT
FUND FUND
FUND FUND FUND FUND
<S> <C> <C>
<C> <C> <C> <C>
1 year $56 $ 53
$53 $52 $55 $55
3 years 80 71
71 68 77 77
5 years N/A 90
N/A N/A N/A N/A
10 years N/A 145
N/A N/A N/A N/A
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE
EXPENSES OR PERFORMANCE WHICH MAY BE MORE OR LESS THAN THOSE
SHOWN.
The purpose of the expense table is to assist the investor in
understanding the
various costs and expenses that an investor in a Fund will
bear directly or
indirectly. For more information concerning the various costs
and expenses, see
``Management.''
3
<PAGE>
HIGHLIGHTS
The following six investment portfolios are described in this
Prospectus:
CONVERTIBLE SECURITIES FUND -- seeks to provide capital
appreciation and current
income by investing primarily in securities such as bonds,
debentures, notes,
preferred stocks or warrants that are convertible into common
stocks.
SHORT/INTERMEDIATE BOND FUND -- seeks to provide a high level of
total return,
including a competitive level of current income, by
investing primarily in
investment grade debt securities with a short intermediate
term average
maturity.
BOND FUND -- seeks to provide a high level of total
return, including a
competitive level of current income, by investing primarily in
investment grade
debt securities of varying maturities.
GOVERNMENT FUND -- seeks to provide a high level of current
income, consistent
with preservation of capital, by investing primarily in
Government Securities
having an intermediate term average maturity.
INTERMEDIATE TAX-EXEMPT FUND -- seeks to provide a high level of
current income
that is exempt from federal income tax by investing, under
normal market
conditions, at least 80% of its assets in municipal
obligations with an
intermediate term average maturity.
TAX-EXEMPT FUND -- seeks to provide a high level of current
income that is
exempt from federal income tax by investing, under normal market
conditions, at
least 80% of its assets in municipal obligations of varying
maturities.
See page 7 below.
WHO MANAGES EACH FUND'S INVESTMENTS?
Harris Trust & Savings Bank (``Harris Trust'' or
the ``Investment
Adviser'') is the investment adviser for each Fund. Harris
Trust has provided
investment management service to clients for over 100 years.
Harris Trust
provides investment services for pension, profit-sharing
and personal
portfolios. As of June 30, 1995, assets under management total
approximately $23
billion. See page 20.
Harris Investment Management, Inc. (``HIM'' or the
``Portfolio Management
Agent'') provides daily portfolio management services for the
Funds, other than
the Tax-Exempt Money Fund. HIM and its predecessors have
managed client assets
for over 100 years. HIM has a staff of 96, including 64
professionals, providing
investment expertise to the management of Harris Insight Funds
and for pension,
profit-sharing and institutional portfolios. As of June 30,
1995, assets under
management are estimated to exceed $13 billion. See page 21.
Harris Trust and HIM are subsidiaries of Harris Bankcorp.,
Inc.
WHAT ADVANTAGES DO THE FUNDS OFFER?
The Funds are designed for individual and institutional
investors. A single
investment in shares of the Funds gives the investor
benefits customarily
available only to large investors, such as diversification
of investment,
greater liquidity and professional management, block purchases
of securities,
relief from bookkeeping, safekeeping of securities and other
administrative
details.
4
<PAGE>
WHEN ARE DIVIDENDS PAID?
Dividends from each of the Funds, except the Convertible
Securities Fund,
are declared daily and paid monthly. Dividends from the
Convertible Securities
Fund are declared and paid quarterly. Any net capital gains will
be declared and
paid annually. See page 27.
HOW ARE SHARES REDEEMED?
Shares may be redeemed at their next determined net
asset value after
receipt of a proper request by the Registered Representative
servicing your
account, the Distributor, or through any Service Agent. See page
25.
WHAT RISKS ARE ASSOCIATED WITH THE FUNDS?
Each Fund's performance and price per share will change
daily based on many
factors, including the quality of the Fund's investments, U.S.
and international
economic conditions, general market conditions and international
exchange rates.
There is no assurance that any Fund will achieve its investment
objective. See
``Investment Strategies.''
5
<PAGE>
FINANCIAL HIGHLIGHTS
This table shows the total return on one share of the Short/
Intermediate Fund
for each period illustrated.
The following financial highlights are derived from
the financial
statements of the Company for the year ended December 31, 1995
audited by Price
Waterhouse LLP, independent accountants. This information
should be read in
conjunction with the financial statements and notes thereto
that appear in the
Statement of Additional Information and which are incorporated
by reference in
this Prospectus. Only the Short/Intermediate Fund, formerly
known as Harris
Insight Managed Fixed Income Fund, was in operation during the
period shown. As
of February 21, 1996, all outstanding shares of the
Short/Intermediate Fund were
renamed Class A Shares. No fees for distribution and support
services under the
Intermediate Bond Fund's Service Plan were paid by that Fund
for the periods
through December 31, 1995.
<TABLE>
<CAPTION>
SHORT/INTERMEDIATE FUND
YEAR YEAR
YEAR YEAR
ENDED ENDED
ENDED ENDED 04/01/91* TO
12/31/95 12/31/94
12/31/93 12/31/92 12/31/91
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Period $ 9.66 $ 10.34
$ 10.22 $ 10.57 $ 10.00
Income From Investment Operations:
Net Investment Income .588 .559
.563 .630 .474
Net Realized and Unrealized Gain
(Loss) on Investments .720 (.694)
.435 (.087) .601
Total from Investment Operations 1.308 (.135)
.998 .543 1.075
Less Distributions:
Net Investment Income (.588) (.545)
(.564) (.631) (.475)
Net Realized Gains -- --
(.314) (.262) (.030)
Total distributions (.588) (.545)
(.878) (.893) (.505)
Net Asset Value, End of Period $ 10.38 $ 9.66
$ 10.34 $ 10.22 $ 10.57
Total return(4) 13.88%
(1.29)% 9.91% 5.28% 11.04%(3)
Ratios/Supplemental Data:
Net Assets, End of Period $(000) 51,814 44,333
74,057 71,848 44,313
Ratios of Expenses to Average Net
Assets(1) 0.60% 0.60%
0.60% 0.60% 0.60%(2)
Ratios of Net Investment Income
to Average Net Assets 5.91% 5.29%
5.32% 6.07% 6.60%(2)
Portfolio Turnover Rate 194.94% 140.99%
215.07% 133.78% 108.70%
</TABLE>
- --------
* Date commenced operations.
(1) Reflects expenses after waivers of advisory fees and other
expenses based
on net expenses incurred during the most recent fiscal
year. Without the
voluntary waiver of fees, the expense ratios for the years
ended December
31, 1995, 1994, 1993, and 1992, and the period ended
December 31, 1991,
would have been 0.96%, 0.92%, 0.94%, 0.93%, and 1.01%
(annualized) for the
Short/Intermediate Fund.
(2) Annualized.
(3) Total returns for periods of less than one year are not
annualized.
(4) Sales load is not reflected in total return.
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Set forth below are the investment objectives and policies
of each of the
Funds. Those investments that may be made by all of the Funds are
listed on page
10 following the specific description of each Fund. Each Fund may
also invest in
securities described in ``Investment Strategies'' below and
the Statement of
Additional Information.
CONVERTIBLE SECURITIES FUND
The Convertible Securities Fund seeks to provide capital
appreciation and
current income.
The Convertible Securities Fund seeks to provide capital
appreciation and
current income. The Fund intends, under normal market
conditions, to invest at
least 65% of the value of its total assets in convertible
securities, that is,
securities including bonds, debentures, notes or preferred
stock that are
convertible into common stock, or warrants that provide the
owner the right to
purchase shares of common stock at a specified price. The Fund
may also invest
in equity securities of U.S. corporations. The Fund seeks to
diversify among
issuers in a manner that will enable the Fund to minimize the
volatility of the
Fund's net asset value in erratic or declining markets.
Under normal market conditions, the Convertible Securities
Fund will invest
without limitation in convertible securities of U.S.
corporations and in
Eurodollar securities convertible into common stocks of U.S.
corporations which
securities are rated ``B'' or better by Standard & Poor's
Corporation (``S&P'')
or ``B'' (``b'' in the case of preferred stocks) or better by
Moody's Investors
Service, Inc. (``Moody's'') at the time of purchase, or,
if not rated,
considered by the Portfolio Management Agent to be of comparable
quality, except
that investment in securities rated ``B-'' by S&P or Moody's
will be limited to
15% of its total assets. Up to 5% of the Convertible
Securities Fund's total
assets may be invested in convertible securities that are rated
``CCC'' by S&P
or ``Caa'' by Moody's at the time of purchase. Securities that
are rated ``BB''
or below by S&P or ``Ba'' or below by Moody's are ``high yield
securities'',
commonly known as junk bonds. By their nature, convertible
securities may be
more volatile in price than higher rated debt obligations.
The Convertible Securities Fund may also invest up to
35% of its total
assets in ``synthetic convertibles'' created by combining
separate securities
that possess the two principal characteristics of a true
convertible security,
i.e., fixed income and the right to acquire equity securities.
In addition, the
Convertible Securities Fund may invest: up to 15% of its
net assets in
convertible securities offered in ``private placements'' and
other illiquid
securities; up to 15% of its total assets in common stocks; and
up to 5% of its
net assets in warrants. The Convertible Securities Fund may
purchase and sell
index and interest rate futures contracts and covered put and
call options on
securities and on indices.
In periods of unusual market conditions, when the
Portfolio Management
Agent believes that convertible securities would not best
serve the Fund's
objectives, the Convertible Securities Fund may for defensive
purposes invest
part or all of its total assets in: (a) Government
Securities; (b)
non-convertible debt obligations of domestic corporations,
including bonds,
debentures, notes or preferred stock rated ``BBB'' or better by
S&P or ``Baa''
or better by Moody's at the time of purchase, which ordinarily
are less volatile
in price than convertible securities and serve to increase
diversification of
risk; and (c) short-term money market instruments, including
U.S. Government,
bank and commercial obligations with remaining maturities of
thirteen months or
less. During such periods, the Convertible Securities Fund will
continue to seek
current income but will put less emphasis on capital
appreciation.
7
<PAGE>
RISK FACTORS AND OTHER CONSIDERATIONS RELATING TO LOW-RATED
AND COMPARABLE
UNRATED SECURITIES. Low-rated and comparable unrated securities
(a) will likely
have some quality and protective characteristics that, in the
judgment of the
rating organization, are outweighed by large uncertainties
or major risk
exposures to adverse conditions and (b) are predominantly
speculative with
respect to the issuer's capacity to pay interest and repay
principal in
accordance with the terms of the obligation.
The market values of low-rated and comparable unrated
securities are less
sensitive to interest rate changes but more sensitive to
economic changes or
individual corporate developments than those of higher-rated
securities; they
present a higher degree of credit risk and their yields will
fluctuate over
time. During economic downturns or sustained periods of rising
interest rates,
the ability of highly leveraged issuers to service debt
obligations may be
impaired.
The existence of limited or no established trading
markets for low-rated
and comparable unrated securities may result in thin trading of
such securities,
diminish the Convertible Securities Fund's ability to dispose of
such securities
or to obtain accurate market quotations for valuing such
securities and
calculating net asset value. The responsibility of the Trust's
Board of Trustees
to value such securities becomes greater and judgment plays a
greater role in
valuation because there is less reliable objective data
available. In addition,
adverse publicity and investor perceptions may decrease the
values and liquidity
of low-rated and comparable unrated securities bonds,
especially in a thinly
traded market.
A major economic recession would likely disrupt the
market for such
securities, adversely affect their value and the ability of
issuers to repay
principal and pay interest, and result in a higher incidence of
defaults.
The ratings of Moody's and S&P represent the
opinions of those
organizations as to the quality of securities. Such ratings
are relative and
subjective, not absolute standards of quality and do not
evaluate the market
risk of the securities. Although the Convertible Securities
Fund's Portfolio
Management Agent uses these ratings as a criterion for the
selection of
securities for the Convertible Securities Fund, it also
relies on its
independent analysis to evaluate potential investments for
the Convertible
Securities Fund. The Convertible Securities Fund's achievement of
its investment
objective may be more dependent on the Portfolio Management
Agent's credit
analysis of low-rated and unrated securities than would be
the case for a
portfolio of high-rated securities.
SHORT/INTERMEDIATE FUND
The Short/Intermediate Fund seeks to provide a high level of
total return,
including a competitive level of current income, by investing
at least 65% of
the value of its assets in investment grade debt
securities with a
short/intermediate term average maturity.
The Short/Intermediate Fund, formerly known as Harris
Insight Managed Fixed
Income Fund, seeks to provide a high level of total
return, including a
competitive level of current income, by investing primarily in
investment grade
debt securities with a short/intermediate term average
maturity. The Fund
intends, under normal market conditions, to invest at least 65%
of the value of
its total assets in bonds. For purposes of this 65%
limitation, the term
``bond'' shall include debt obligations such as bonds and
debentures, Government
Securities, debt obligations of domestic and foreign
corporations, debt
obligations of foreign governments and their political
subdivisions,
asset-backed securities, various mortgage-related securities
(including those
issued or collateralized by U.S. Government agencies and
inverse floating rate
mortgage-backed and asset-backed securities), other
floating/variable rate
obligations, municipal obligations and zero coupon securities.
The Fund seeks to
achieve its objective by utilizing a number of investment
disciplines, including
the assessment of yield advantages among different classes of
bonds and among
different maturities, the independent review by the Fund's
Portfolio Management
Agent of the credit quality of individual
8
<PAGE>
issues and the analysis by the Fund's Portfolio Management Agent
of economic and
market conditions affecting the fixed income market. The
Short/Intermediate Fund
may invest in a broad range of fixed income obligations. The
Fund may invest in
fixed and variable rate bonds, debentures, Government Securities,
and Government
Stripped Mortgage-Backed Securities. The Fund also may invest
in U.S. Treasury
or agency securities placed into irrevocable trusts and
evidenced by a trust
receipt.
The Short/Intermediate Fund may invest more than 25% of
the current value
of its total assets in obligations (including repurchase
agreements) of: (a)
U.S. banks; (b) U.S. branches of foreign banks that are
subject to the same
regulation as U.S. banks by the U.S. Government or
its agencies or
instrumentalities; or (c) foreign branches of U.S. banks if the
U.S. banks would
be unconditionally liable in the event the foreign branch failed
to pay on such
obligation for any reason. Obligations of foreign banks
involve somewhat
different investment risks from those associated with obligations
of U.S. banks.
See ``Investment Strategies -- Foreign Securities.''
The Fund's dollar-weighted average portfolio maturity (or
average life with
respect to mortgage-related securities), under normal market
conditions, will be
between two and five years. The Fund may also hold short-term
U.S. Government
Obligations, ``high-quality'' money market instruments (i.e.,
those within the
two highest rating categories or, if unrated, determined by
the Portfolio
Management Agent to be comparable in quality to instruments so
rated) and cash.
Such obligations may include those issued by foreign banks and
foreign branches
of U.S. banks. These investments may be in such proportions as,
in the Portfolio
Management Agent's opinion, existing circumstances warrant.
BOND FUND
The Bond Fund seeks to provide a high level of total
return, including a
competitive level of current income, by investing at least 65%
of the value of
its assets in investment grade debt securities of varying
maturities.
The Bond Fund seeks to provide a high level of total
return, including a
competitive level of current income, by investing primarily in
investment grade
debt securities of varying maturities. The Fund seeks to
achieve its objective
by utilizing a highly-disciplined, quantitatively-based
process to identify
fixed income securities which the Fund's Portfolio Management
Agent believes are
undervalued and are positioned to offer the best relative
value to enable the
Fund to benefit from anticipated changes in interest rates.
Under normal market
conditions, at least 65% of the Bond Fund's total assets will
be invested in
bonds. For purposes of this 65% limitation, the term ``bond''
shall include debt
obligations such as bonds and debentures, Government
Securities, debt
obligations of domestic and foreign corporations, debt
obligations of foreign
governments and their political subdivisions, asset-backed
securities, various
mortgage-related securities (including those issued or
collateralized by U.S.
Government agencies and inverse floating rate mortgage-backed
securities), other
floating/variable rate obligations, municipal obligations
and zero coupon
securities.
GOVERNMENT FUND
The Government Fund seeks to provide a high level of current
income, consistent
with preservation of capital.
The Government Fund seeks to provide a high level of
current income,
consistent with preservation of capital. The Fund seeks
to achieve its
investment objective by investing primarily in Government
Securities, including
mortgage- backed securities, having an intermediate term average
maturity. Under
normal market conditions, the Fund's total assets will be
primarily invested in
Government Securities and in repurchase agreements
collateralized by Government
Securities. The average portfolio maturity (or average life
with respect to
mortgage-related securities) generally will be between three and
ten years.
In addition, the Fund may also invest in asset-
backed securities
collateralized by the U.S. Treasury and certain U.S. Government
agencies. It may
also hold foreign debt securities guaranteed by the U.S.
Government, its
agencies or instrumentalities (with respect to 10% of its
total assets).
Further, the Government Fund may invest in covered put and
call options on
securities and on indices.
9
<PAGE>
INTERMEDIATE TAX-EXEMPT FUND
The Intermediate Tax-Exempt Fund seeks to provide a high level of
current income
that is exempt from federal income tax.
The Intermediate Tax-Exempt Fund seeks to provide a high
level of current
income that is exempt from federal income tax. As a matter
of fundamental
policy, the Fund seeks to achieve its investment objective by
investing at least
80% of its assets, under normal market conditions, in a broad
range of municipal
bonds and other obligations issued by state and local
governments to finance
their operations or special projects. These securities, which
are of varying
maturities, make interest payments that are exempt from federal
income tax. The
Fund's dollar-weighted average portfolio maturity, under
normal market
conditions, will be between three and ten years.
The Fund's selection of individual securities is based
on a number of
factors, including anticipated changes in interest rates, the
assessment of the
yield advantages of different classes of bonds, and an
independent analysis of
credit quality of individual issues by the Fund's Portfolio
Management Agent or
the Investment Adviser.
The Intermediate Tax-Exempt Fund may also invest in
letters of credit and
U.S. Government Obligations. In addition, the Fund may purchase
and sell covered
put and call options on securities and on indices.
TAX-EXEMPT FUND
The Tax-Exempt Fund seeks to provide a high level of current
income that is
exempt from federal income tax.
The Tax-Exempt Fund seeks to provide a high level of current
income that is
exempt from federal income tax. The Fund seeks to achieve its
objective by
anticipating changes in interest rates, analyzing yield
differentials for
different types of bonds, and analyzing credit for specific
issues. As a matter
of fundamental policy, the Fund seeks to achieve its
investment objective by
investing at least 80% of its assets, under normal market
conditions, in a broad
range of municipal bonds and other obligations issued by
state and local
governments to finance their operations or special projects.
These securities
make interest payments that are exempt from federal income tax.
The Tax-Exempt Fund may also invest in letters of
credit and U.S.
Government Obligations and zero coupon securities. Further,
the Fund may
purchase and sell covered put and call options on securities and
on indices.
ALL FIXED INCOME FUNDS
Each Fund may invest in securities of other investment
companies, when-
issued securities and forward commitments, floating/variable
rate obligations
(in the case of the Government Fund, if issued by the U.S.
Government or certain
government agencies) and inverse floating rate obligations.
Further, each Fund
may enter into repurchase agreements and reverse repurchase
agreements. In
addition, each Fund may lend its portfolio securities with
respect to up to
one-third of its net assets.
Each Fund other than the Convertible Securities Fund may
invest only in
securities that are rated ``BBB'' or better by S&P, ``Baa'' or
better by Moody's
or an equivalent rating by another nationally recognized
statistical rating
organization at the time of purchase, or, if not rated, are
considered by the
Portfolio Management Agent to be of comparable quality. Debt
obligations rated
``BBB'' by S&P, ``Baa'' by Moody's, or the equivalent by
such other rating
organization may have speculative characteristics and
changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity
to make principal and interest payments than is the case
with higher grade
bonds.
10
<PAGE>
Portfolio securities of each Fund are kept under continuing
supervision and
changes may be made whenever, in the opinion of the Portfolio
Management Agent,
a security no longer seems to meet the objective of the Fund.
Portfolio changes
also may be made to increase or decrease investments in
anticipation of changes
in security prices in general or to provide funds required
for redemptions,
distributions to shareholders or other corporate purposes.
Neither the length of
time a security has been held nor the rate of turnover of a
Fund's portfolio is
considered a limiting factor on such changes.
--------
Each Fund may purchase debt obligations that are not
rated if, in the
opinion of the Portfolio Management Agent, they are of
investment quality at
least comparable to other rated investments that are
permitted by the Fund.
After purchase by a Fund, a security may cease to be rated or
its rating may be
reduced below the minimum required for purchase by the Fund.
Neither event will
require the Fund to sell such security unless the amount of
such security
exceeds permissible limits. 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. To the extent that the ratings given by Moody's,
S&P or another
nationally recognized statistical rating organization for
securities may change
as a result of changes in the rating systems or because
of corporate
reorganization of such rating organizations, a Fund will
attempt to use
comparable ratings as standards for its investments in
accordance with the
investment objectives and policies of the Fund. The ratings of
Moody's and S&P
are more fully described in the Appendix to the Statement
of Additional
Information.
INVESTMENT STRATEGIES
ASSET-BACKED SECURITIES. The Short/Intermediate Fund, the
Bond Fund, the
Government Fund, the Intermediate Tax-Exempt Fund and the Tax-
Exempt Fund may
purchase asset-backed securities, which represent a
participation in, or are
secured by and payable from, a stream of payments generated
by particular
assets, most often a pool of assets similar to one another.
With respect to
asset-backed securities purchased by the Intermediate Bond
Fund and the Bond
Fund, assets generating payments will include motor vehicle
installment purchase
obligations, credit card receivables and home equity loans,
equipment leases,
manufactured housing loans and marine loans. The asset-
backed securities
purchased by the Intermediate Tax-Exempt Fund and the Tax-Exempt
Fund represent
units of beneficial interest in pools of purchasing contracts,
financing leases
and sales agreements entered into by municipalities. The
Government Fund may
invest in asset-backed trusts collateralized by the U.S.
Treasury or certain
other U.S. Government agencies and instrumentalities. In
accordance with
guidelines established by the Boards of Trustees and
Directors, asset-backed
securities may be considered illiquid securities and, therefore,
may be subject
to a Fund's 15% (10% with respect to the Intermediate Bond
Fund) limitation on
such investments.
The estimated life of an asset-backed security varies
with prepayment
experience with respect to underlying debt instruments.
The rate of such
prepayments, and therefore the life of the asset-backed
security, will be
primarily a function of current market interest rates, although
other economic
and demographic factors may be involved. In periods of falling
interest rates,
the rate of prepayments tends to increase. During such periods,
the reinvestment
of prepayment proceeds by a Fund will generally be at lower rates
than the rates
that were carried by the
11
<PAGE>
obligations that have been prepaid. Because of these and
other reasons, an
asset-backed security's total return may be difficult to predict
precisely. If a
Fund purchases asset-backed securities at a premium,
prepayments may result in
some loss of the Fund's principal investment to the extent of
premium paid.
BANK INVESTMENT CONTRACTS. The Short/Intermediate Fund
and the Bond Fund
may invest in bank investment contracts (``BICs'') which are
debt obligations
issued by banks. BICs require a Fund to make cash
contributions to a deposit
account at a bank in exchange for payments at negotiated,
floating or fixed
interest rates. A BIC is a general obligation of the issuing
bank. BICs are
considered illiquid securities and will be subject to each
Fund's 15% (10% with
respect to the Short/Intermediate Fund) limitation on such
investments, unless
there is an active and substantial secondary market for
the particular
instrument and market quotations are readily available in
accordance with
guidelines established by the Board of Directors or the Board
of Trustees, as
the case may be. All purchases of BICs will be subject to the
applicable quality
requirements described under ``Investment Objectives and
Policies.''
CONVERTIBLE SECURITIES. The Convertible Securities and the
Bond Funds may
invest in convertible securities. Appropriate ratings for
the convertible
securities purchased by each of these Funds are provided
under ``Investment
Objectives and Policies''. Because convertible
securities have the
characteristics of both fixed- income securities and
common stock, they
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's market price
will tend to fluctuate in relation to the price of the common
shares into which
it is convertible. Thus, convertible securities ordinarily
will provide
opportunities for both 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.
FLOATING AND VARIABLE RATE INSTRUMENTS. Each of the
Funds may purchase
instruments (municipal obligations in the case of the
Intermediate Tax-Exempt
Fund and the Tax-Exempt Fund and instruments issued by the
U.S. Treasury or
certain U.S. Government agencies or instrumentalities in
the case of the
Government Fund) having a floating or variable rate of
interest. These
obligations bear interest at rates that are not fixed, but vary
with changes in
specified market rates or indices, such as the prime rate,
or at specified
intervals. Certain of these obligations may carry a demand
feature that would
permit the holder to tender them back to the issuer at par
value prior to
maturity. Each Fund will limit its purchases of floating and
variable rate
obligations to those of the same quality as it otherwise is
allowed to purchase.
A floating or variable rate instrument may be subject
to the Fund's
percentage limitation on illiquid investments if there is no
reliable trading
market for the investment or if the Fund may not demand payment
of the principal
amount within seven days.
12
<PAGE>
FOREIGN SECURITIES. The Intermediate Bond Fund (with
respect to 20% of its
total assets), the Bond Fund (with respect to 20% of its total
assets) and the
Government Fund (with respect to 10% of its total assets) may
invest in non-
convertible (and convertible in the case of the Bond Fund) debt
obligations of
foreign banks, foreign corporations and foreign governments,
which obligations
are denominated in and pay interest in U.S. dollars. The
Convertible Securities
Fund may invest in dollar-denominated Eurodollar securities
convertible into the
common stock of domestic corporations. The Government Fund
may invest in
dollar-denominated Eurodollar securities that are guaranteed
by the U.S.
Government or its agencies or instrumentalities.
Investments in foreign securities involve certain
considerations that are
not typically associated with investing in domestic
securities. For example,
investments in foreign securities typically involve higher
transaction costs
than investments in U.S. securities. Foreign investments
may have risks
associated with currency exchange rates, political instability,
less complete
financial information about the issuers and less market
liquidity than domestic
securities. Future political and economic developments,
possible imposition of
withholding taxes on income, seizure or nationalization of
foreign holdings,
establishment of exchange controls or the adoption of
other governmental
restrictions might adversely affect the payment of principal
and interest on
foreign obligations. In addition, foreign banks and foreign
branches of domestic
banks may be subject to less stringent reserve
requirements than and to
different accounting, auditing and recordkeeping requirements
from domestic
banks.
GOVERNMENT SECURITIES. Government Securities consist of
obligations issued
or guaranteed by the U.S. Government, its agencies,
instrumentalities or
sponsored enterprises.
GUARANTEED INVESTMENT CONTRACTS. The Short/Intermediate
Fund and the Bond
Fund may invest in guaranteed investment contracts (``GICs'')
issued by U.S. and
Canadian insurance companies. GICs require a Fund to make cash
contributions to
a deposit fund of an insurance company's general account. The
insurance company
then makes payments to the Fund based on negotiated, floating or
fixed interest
rates. A GIC is a general obligation of the issuing insurance
company and not a
separate account. The purchase price paid for a GIC becomes part
of the general
assets of the insurance company, and the contract is paid from
the insurance
company's general assets. Generally, GICs are not assignable
or transferable
without the permission of the issuing insurance companies,
and an active
secondary market in GICs does not currently exist. In accordance
with guidelines
established by the Trust's Board of Trustees, GICs may be
considered illiquid
securities and, therefore, subject to the Fund's 15% (10% in
the case of the
Short/Intermediate Fund) limitation on such investments. All
purchases of GICs
by the Fund will be subject to the applicable quality
requirements described
under ``Investment Objectives and Policies.''
ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% in
the case of the
Short/Intermediate Fund) of the value of its net assets in
securities that are
considered illiquid. Repurchase agreements and time deposits that
do not provide
for payment to the Fund within seven days after notice or
which have a term
greater than seven days are deemed illiquid securities for this
purpose, unless
such securities are variable amount master demand notes with
maturities of nine
months or less or unless the Portfolio Management Agent or
Investment Adviser
has determined under the supervision and direction of the
Trust's Board of
Trustees (or, with respect to the Intermediate Bond Fund, the
Company's Board of
Directors) that an adequate trading market exists for such
securities or that
market quotations are readily available.
13
<PAGE>
Each Fund may also purchase Rule 144A securities sold to
institutional
investors without registration under the Securities Act of 1933
and commercial
paper issued in reliance upon the exemption in Section 4(2) of
the Securities
Act of 1933. These securities may be determined to be liquid in
accordance with
guidelines established by the Portfolio Management Agent or
Investment Adviser
and approved by the Trust's Board of Trustees (or, with
respect to the
Intermediate Bond Fund, the Company's Board of Directors). The
Board of Trustees
or Directors will monitor the Portfolio Management Agent's
or Investment
Adviser's implementation of these guidelines on a periodic basis.
INDEX AND INTEREST RATE FUTURES CONTRACTS; OPTIONS.
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
investments in
fixed income securities by hedging a portion of their
respective portfolio
through the use of futures contracts on indices and options
on such indices
traded on national securities exchanges. Each of these Funds
may attempt to
reduce the risk of investment in debt securities by hedging a
portion of its
portfolio through the use of interest rate futures. Each
such Fund will use
futures contracts and options on such futures contracts only as
a hedge against
anticipated changes in the values of securities held in its
portfolio or in the
values of securities that it intends to purchase.
Each of the Funds (except the Intermediate Bond Fund) may
invest in covered
put and covered call options and may write covered put and
covered call options
on securities in which they may invest directly and that
are traded on
registered domestic security exchanges or over-the-counter.
See ``Investment Strategies'' in the Statement of Additional
Information.
The use of index and interest rate futures contracts and
options may expose
a Fund to additional risks and transaction costs. Risks
inherent in the use of
such instruments include: (1) the risk that interest rates,
securities prices or
currency markets will not move in the direction that the
Portfolio Management
Agent anticipates; (2) the existence of an imperfect
correlation between the
price of such instruments and movements in the prices of
the securities,
interest rates or currencies being hedged; (3) the fact that
skills needed to
use these strategies are different than those needed to
select portfolio
securities; (4) the possible inability to close out certain
hedged positions may
result in adverse tax consequences; (5) the possible
absence of a liquid
secondary market for any particular instrument and possible
exchange- imposed
price fluctuation limits, either of which may make it difficult
or impossible to
close out a position when desired; (6) the leverage risk, that
is, the risk that
adverse price movements in an instrument can result in a loss
substantially
greater than a Fund's initial investment in that instrument (in
some cases, the
potential loss is unlimited); and (7) particularly in
the case of
privately-negotiated instruments, the risk that the
counterparty will fail to
perform its obligations, which could leave a Fund worse off
than if it had not
entered into the position.
When a Fund invests in index and interest rate futures
contracts and
options, it may be required to segregate cash and other high-
grade liquid assets
or certain portfolio securities to ``cover'' the Fund's
position. Assets
segregated or set aside generally may not be disposed of so
long as a Fund
maintains the positions requiring segregation or cover.
Segregating assets could
diminish a Fund's return due to the opportunity losses of
foregoing other
potential investments with the segregated assets.
INVERSE FLOATING RATE OBLIGATIONS. Each Fund may
invest in so called
``inverse floating rate obligations'' or ``residual interest''
bonds, or other
related obligations or certificates structured to have similar
features. Such
obligations
14
<PAGE>
generally have floating or variable interest rates that move
in the opposite
direction from short-term interest rates and generally increase
or decrease in
value in response to changes in short-term interest rates at a
rate which is a
multiple (typically two) of the rate at which fixed-rate, long-
term, tax-exempt
securities increase or decrease in response to such changes. As
a result, such
obligations have the effect of providing investment leverage
and may be more
volatile than long-term, fixed-rate, tax-exempt obligations.
The Bond Fund, the Short/Intermediate Fund and the
Government Fund may
invest in mortgage-backed securities (see description of
``mortgage-related
securities'' below) that have an inverse floating rate.
INVESTMENT COMPANY SECURITIES. In connection with the
management of its
daily cash positions, each Fund may invest in securities
issued by investment
companies that invest in short-term debt securities (which may
include municipal
obligations that are exempt from federal income taxes) and
which seek to
maintain a $1.00 net asset value per share. Each Fund,
other than the
Short/Intermediate Fund, may also invest in securities issued
by investment
companies that invest in securities in which such Fund could
invest directly.
Securities of investment companies may be acquired by any of
the Funds within
the limits prescribed by the Investment Company Act of 1940,
as amended (the
``1940 Act''). These limit each such Fund so that: (i) not more
than 5% of the
value of its total assets will be invested in the
securities of any one
investment company; (ii) not more than 10% of the value of its
total assets will
be invested in the aggregate in securities of investment
companies as a group;
and (iii) not more than 3% of the outstanding voting stock of any
one investment
company will be owned by the Fund or by the Trust or the Company
as a whole. As
a shareholder of another investment company, the Fund would
bear, along with
other shareholders, its pro rata portion of the other
investment company's
expenses, including advisory fees. These expenses would be in
addition to the
advisory and other expenses that the Fund bears directly in
connection with its
own operations.
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. Only
banks that, in
the opinion of the Portfolio Management Agent, 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 may lend to
brokers, dealers and
financial institutions securities from its portfolio
representing up to
one-third of the Fund's net assets. However, such loans may be
made only if cash
or cash equivalent collateral, including letters of credit,
marked-to-market
daily and equal to at least 100% of the current market value of
the securities
loaned (including accrued interest and dividends thereon)
plus the interest
payable to the Fund with respect to the loan 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 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 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
15
<PAGE>
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 Trust, the Company,
the Investment
Adviser, the Portfolio Management Agent or the Distributor.
MORTGAGE-RELATED SECURITIES. 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
obligations. To the
extent that CMOs are considered to be investment companies,
investment in such
CMOs will be subject to the percentage limitations described
under ``Investment
Company Securities.''
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.
To the extent that a Fund purchases mortgage-related or
mortgage-backed
securities at a premium, mortgage foreclosures and prepayments
of principal by
mortgagors (which may be made at any time without penalty) may
result in loss of
the Fund's principal investment to the extent of the premium
paid. Yield may be
affected by reinvestment of prepayments at higher or lower
rates than the
original investment. Like other debt securities, the value of
mortgage-related
securities will generally fluctuate in response to market
interest rates. The
average life of a mortgage-backed instrument, in particular,
is likely to be
substantially less than the original maturity of the mortgage
pools underlying
the securities as the result of scheduled principal payments
and mortgage
prepayments. The rate of such mortgage prepayments, and hence
the life of the
certificates, will be primarily a function of current market
rates and current
conditions in the relevant housing markets. In calculating the
average weighted
maturity of the Funds, the maturity of mortgage-backed
instruments will be based
on estimates of average life. 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. A Fund will acquire Government Stripped
Mortgage-Backed
Securities only if a liquid secondary market for the securities
exists at the
time of acquisition.
MUNICIPAL LEASES. The Intermediate Tax-Exempt Fund and the
Tax-Exempt Fund
may invest in municipal leases, which are generally
participations in
intermediate-and short-term debt obligations issued by
municipalities and
consisting of leases or installment purchase contracts
for property or
equipment. 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
16
<PAGE>
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. Although ``non-
appropriation''
lease obligations are secured by the leased property,
disposition of the
property in the event of foreclosure may prove difficult.
Municipal lease
obligations may be considered illiquid securities and may be
subject to each
Fund's 15% limitation on such investments. These securities may
be determined to
be liquid by the Portfolio Management Agent in accordance with
its procedures
and subject to the supervision and direction by the Board of
Trustees of the
Trust. See ``Investment Strategies -- Municipal Leases'' in
the Statement of
Additional Information.
MUNICIPAL OBLIGATIONS. The Short/Intermediate Fund, the
Bond Fund, the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund may each
purchase municipal
obligations. As a matter of fundamental policy, the Intermediate
Tax-Exempt Fund
and the Tax-Exempt Fund will invest at least 80% of assets
under normal market
conditions in municipal obligations. Municipal bonds generally
have a maturity
at the time of issuance of up to 30 years. Municipal notes
generally have
maturities at the time of issuance of three years or less.
These notes are
generally issued in anticipation of the receipt of tax funds,
the proceeds of
bond placements or other revenues. The ability of an issuer to
make payments is
therefore dependent on these tax receipts, proceeds from bond
sales or other
revenues, as the case may be. Municipal commercial paper is a
debt obligation
with an effective maturity or put date of 270 days or less
that is issued to
finance seasonal working capital needs or as short-term
financing in
anticipation of longer-term debt.
The two principal classifications of municipal
obligations are ``general
obligation'' securities and ``revenue'' securities.
General obligation
securities are secured by the issuer's pledge of its full
faith, credit and
taxing power for the payment of principal and interest. Revenue
securities are
payable only from the revenues derived from a particular
facility or class of
facilities or, in some cases, from the proceeds of a special
excise tax or from
other specific revenue source such as the user of the facility
being financed.
Revenue securities include private activity bonds (also
known as industrial
revenue bonds), which may be purchased only by the Intermediate
Tax-Exempt Fund
and the Tax-Exempt Fund and which are not payable from the
unrestricted revenues
of the issuer. Consequently, the credit quality of private
activity bonds is
usually directly related to the credit standing of the
corporate user of the
facility involved.
Certain other of the municipal obligations in which the
Funds may invest
are:
TANS. The Intermediate Tax-Exempt Fund and the Tax-Exempt
Fund may invest
in tax anticipation notes (``TANs''). The possible inability
or failure of a
municipal issuer 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
include various tax proceeds in 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 Intermediate Tax-Exempt Fund and the Tax-Exempt
Fund may invest
in bond anticipation notes (``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.
17
<PAGE>
RANS. The Intermediate Tax-Exempt Fund and the Tax-Exempt
Fund may invest
in revenue anticipation notes (``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 adversely affect the
ability of the issuer
to pay the principal of, and interest on, RANs.
See ``Investment Strategies'' in the Statement of Additional
Information.
REPURCHASE AGREEMENTS. Each of the Funds 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. Each of these Funds 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.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds
for temporary
purposes by selling portfolio securities to financial
institutions such as banks
and broker/dealers and agreeing to repurchase them at a mutually
specified date
and price (``reverse repurchase agreements''). Reverse
repurchase agreements
involve the risk that the market value of the securities
sold by a Fund may
decline below the repurchase price. A Fund would pay
interest on amounts
obtained pursuant to a reverse repurchase agreement.
A Fund may not enter into a repurchase agreement or
reverse repurchase
agreements if, as a result, more than 15% (10% with respect to
the Intermediate
Bond Fund) of the market value of the Fund's total net assets
would be invested
in repurchase agreements or reverse repurchase agreements
with a maturity of
more than seven days and in other illiquid securities. The Funds
will enter into
repurchase agreements and reverse repurchase agreements only
with registered
broker/dealers and commercial banks that meet guidelines
established by the
Trust's Board of Trustees or the Company's Board of Directors.
SECURITIES WITH PUTS. In order to maintain
liquidity, the
Short/Intermediate Fund, the Bond Fund, the Government Fund,
the Intermediate
Tax-Exempt Fund and the Tax-Exempt Fund may enter into puts
with respect to
portfolio securities with banks or broker/dealers that, in the
opinion of the
Portfolio Management Agent, present minimal credit risks. The
ability of these
Funds to exercise a put will depend on the ability of the bank or
broker/dealer
to pay for the underlying securities at the time the put is
exercised. In the
event that a bank or broker/dealer defaults on its obligation
to repurchase an
underlying security, the Fund might be unable to recover all or a
portion of any
loss sustained by having to sell the security elsewhere.
STAND-BY COMMITMENTS. The Intermediate Tax-Exempt Fund and
the Tax- Exempt
Fund may acquire ``stand-by commitments'' with respect to
obligations held by
it. Under a stand-by commitment, a dealer agrees to purchase,
at the Fund's
option, specified obligations at a specified price. The
acquisition of a
stand-by commitment may increase the cost, and thereby reduce
the yield, of the
obligations to which the commitment relates. The Funds will
acquire stand-by
18
<PAGE>
commitments solely to facilitate portfolio liquidity and do
not intend to
exercise their rights thereunder for trading purposes. Stand-
by commitments
acquired by a Fund will be valued at zero in determining the
Fund's net asset
value.
U.S. GOVERNMENT OBLIGATIONS. U.S. Government Obligations
consist of bills,
notes and bonds issued by the U.S. Treasury. They are direct
obligations of the
U.S. Government and differ primarily in the length of their
maturities.
U.S. GOVERNMENT AGENCY AND INSTRUMENTALITY OBLIGATIONS.
Obligations of U.S.
Government agencies and instrumentalities are debt securities
issued by U.S.
Government-sponsored enterprises and federal agencies. Some of
these obligations
are supported by: (a) the full faith and credit of the U.S.
Treasury (such as
Government National Mortgage Association participation
certificates); (b) the
limited authority of the issuer to borrow from the U.S.
Treasury (such as
securities of the Federal Home Loan Bank); (c) the
authority of the U.S.
Government to purchase certain obligations of the issuer (such
as securities of
the Federal National Mortgage Association); or (d) the
credit of the issuer
only. In the case of obligations not backed by the full faith
and credit of the
U.S. Government, the investor must look principally to the
agency issuing or
guaranteeing the obligation for ultimate repayment.
VARIABLE AMOUNT MASTER DEMAND NOTES. The
Short/Intermediate Fund may
purchase and sell variable amount master demand notes,
which differ from
ordinary commercial paper in that they are issued pursuant
to a written
agreement between the issuer and the holder. Their amounts may
from time to time
be increased by the holder (subject to an agreed maximum) or
decreased by the
holder or the issuer; they are payable on demand or after an
agreed-upon notice
period, e.g., seven days; and the rates of interest vary
pursuant to an
agreed-upon formula. Generally, master demand notes are not
rated by a rating
agency. However, the Fund may invest in these obligations if, in
the opinion of
the Portfolio Management Agent, they are of an investment
quality comparable to
rated securities in which the Fund may invest. The Portfolio
Management Agent
monitors the creditworthiness of issuers of master demand
notes on a daily
basis. Transfer of these notes is usually restricted by the
issuer, and there is
no secondary trading market for these notes. The Intermediate
Bond Fund may not
invest in a master demand note with a demand notice period of
more than seven
days if, as a result, more than 10% of the value of the Fund's
total net assets
would be invested in these notes, together with other illiquid
securities.
WARRANTS. The Convertible Securities Fund may invest up
to 5% of its net
assets at the time of purchase in warrants (other than those
that have been
acquired in units or attached to other securities) on securities
in which it may
invest directly. Warrants represent rights to purchase
securities at a specific
price valid for a specific period of time.
WHEN-ISSUED SECURITIES. Each of the Funds may
purchase securities
(including securities issued pursuant to an initial public
offering) on a
when-issued basis, in which case delivery and payment normally
take place within
45 days after the date of the commitment to purchase. The
Funds will make
commitments to purchase securities on a when-issued basis
only with the
intention of actually acquiring the securities, but may sell
them before the
settlement date, if deemed advisable. The purchase price and
the interest rate
that will be received are fixed at the time of the
commitment. When-issued
securities are subject to market fluctuation and no income
accrues to the
purchaser prior to issuance. Purchasing a security on a when-
issued basis can
involve a risk that the market price at the time of delivery
may be lower than
the agreed upon purchase price.
19
<PAGE>
ZERO COUPON SECURITIES. Each of the Funds except the
Convertible Securities
Fund may invest in zero coupon securities. These securities are
debt obligations
that do not entitle the holder to any periodic payments of
interest prior to
maturity and are issued and traded at a discount. The values
of zero coupon
securities are subject to greater fluctuations than are the
values of income
securities that distribute income regularly. Zero coupon
securities may be
created by separating the interest and principal component
of Government
Securities or securities issued by private corporate issuers.
INVESTMENT LIMITATIONS
This section outlines each Fund's policies that may be
changed only by a
majority vote of shareholders.
Unless otherwise noted, the foregoing investment
objectives and related
policies and activities of each of the Funds are not
fundamental and may be
changed by the Board of Trustees of the Trust (or, with
respect to the
Intermediate Bond Fund, the Board of Directors of the
Company) without the
approval of shareholders, provided that, with respect to the
Intermediate Bond
Fund, the policy relating to investment company securities
is a fundamental
investment policy. If there is a change in a Fund's
investment objective,
shareholders should consider whether the Fund remains an
appropriate investment
in light of their then current financial position and needs.
As matters of fundamental policy, which may be changed
only with approval
by the vote of the holders of a majority of the Fund's
outstanding voting
securities, as described in the Statement of Additional
Information, no Fund
may: (1) purchase the securities of issuers conducting their
principal business
activity in the same industry if, immediately after the purchase
and as a result
thereof, the value of its investments in that industry would
exceed 25% of the
current value of its total assets, provided that there is no
limitation with
respect to investments in municipal obligations (for the
purpose of this
restriction, private activity bonds shall not be deemed municipal
obligations if
the payment of principal and interest on such bonds is
the ultimate
responsibility of non-governmental users) and in obligations
of the U.S.
Government, its agencies or instrumentalities; (2) invest more
than 5% of the
current value of its total assets in the securities of any one
issuer, other
than obligations of the U.S. Government, its agencies or
instrumentalities,
except that up to 25% of the value of the total assets of a Fund
may be invested
without regard to this limitation; (3) purchase securities of an
issuer if, as a
result, with respect to 75% of its total assets, it would own
more than 10% of
the voting securities of such issuer; or (4) borrow from banks,
except that a
Fund may borrow up to 10% of the current value of its total
assets for temporary
purposes only in order to meet redemptions, and these borrowings
may be secured
by the pledge of up to 10% of the current value of the Fund's
net assets (but
investments may not be purchased while borrowings are in
excess of 5%). It is
also a fundamental policy that each Fund may make loans of
portfolio securities.
In addition, it is a fundamental policy that the Intermediate
Bond Fund may only
invest up to 10% of the current value of its net assets in
repurchase agreements
having maturities of more than seven days, variable amount
master demand notes
having notice periods of more than seven days, fixed time
deposits subject to
withdrawal penalties having maturities of more than seven days,
and securities
that are not readily marketable. Although not a matter of
fundamental policy,
the Funds consider the securities of foreign governments
to be a separate
industry for purposes of the 25% asset limitation on
investments in the
securities of issuers conducting their principal business
activity in the same
industry.
20
<PAGE>
MANAGEMENT
The Trust and the Company are managed under the
direction of their
governing Boards of Trustees and Directors, respectively. Each
individual listed
below is a member of both the Trust's Board of Trustees and the
Company's Board
of Directors. The principal occupation of each individual is also
listed below.
TRUSTEES AND DIRECTORS
Edgar R. Fiedler Vice President and Economic Counsellor,
The Conference
Board.
C. Gary Gerst Chairman of the Board of Directors
and Trustees;
Chairman Emeritus, La Salle
Partners, Ltd. (Real
Estate Developer and Manager).
John W. McCarter, Jr. Senior Vice President, Booz Allen &
Hamilton, Inc.
(Consulting Firm); Director of W.W.
Grainger, Inc.
and A.M. Castle, Inc.
Ernest M. Roth Consultant; Retired Senior Vice
President and Chief
Financial Officer, Commonwealth Edison
Company.
INVESTMENT ADVISER
This section highlights the experience, services offered, and
compensation of
the Funds' Adviser.
Prior to the initial public offering of the Trust's
shares, the Trust will enter into an Advisory Contract
with Harris Trust with respect to the investment
portfolios of the Trust. The Company has entered into
Advisory
Contracts with
Harris Trust with respect to each of the investment
portfolios of the Company. Harris Trust,
located at 111
West Monroe Street, Chicago, Illinois, is the successor to
the investment
banking firm of N.W. Harris & Co. that was organized in
1882 and was
incorporated in 1907 under the present name of the bank. It
is an Illinois
state-chartered bank and a member of the Federal Reserve System.
At December 31,
1994, Harris Trust had assets of more than $13 billion and was
the largest of 14
banks owned by Harris Bankcorp, Inc. Harris Bankcorp, Inc. is
a wholly-owned
subsidiary of Bankmont Financial Corp., which is a wholly-owned
subsidiary of
Bank of Montreal, a publicly traded Canadian banking institution.
As of December 31, 1994, Harris Trust managed more
than $8 billion in
personal trust assets, and acted as custodian of more than
$151 billion in
assets.
With respect to the Funds, the Advisory Contracts provide
that Harris Trust
is responsible for the supervision and oversight of the
Portfolio Management
Agent's performance (as discussed below).
For all its services under the Advisory Contracts with the
Funds, Harris
Trust is entitled to receive monthly advisory fees at the annual
rate of 0.70%,
0.70%, 0.65%, 0.65%, 0.65% and 0.65% of the average daily
net assets of the
Convertible Securities Fund, the Short/Intermediate Fund, the
Bond Fund, the
Government Fund, the Intermediate Tax-Exempt Fund and the
Tax-Exempt Fund,
respectively. For the fiscal year ended December 31, 1995, Harris
Trust received
fees, after waivers, at the effective rate of 0.34% of the
average daily net
assets of the Short/Intermediate Fund. Harris Trust expects to
receive, after
waivers, advisory fees for the current fiscal year at the
annual rate of 0.34%
of the average daily net assets of the Short/Intermediate
Fund; 0.40% of the
average daily net assets of the Bond Fund; 0.30% of the average
daily net assets
of the Government Fund; and 0.60% of each of the average daily
net assets of the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund,
respectively.
PORTFOLIO MANAGEMENT AGENT
Harris Trust has entered into Portfolio Management
Contracts with Harris
Investment Management, Inc. (``HIM'' or the ``Portfolio
Management Agent'')
under which HIM undertakes to furnish investment guidance and
policy direction
21
<PAGE>
in connection with the daily portfolio management of the Funds.
For the services
provided by HIM, Harris Trust will pay to HIM the advisory fees
it receives from
the Funds. As of June 30, 1995, HIM managed an estimated
$13.8 billion in
assets.
Purchase and sale orders of the securities held by each of
the Funds may be
combined with those of other accounts that HIM manages, and
for which it has
brokerage placement authority, in the interest of seeking the
most favorable
overall net results. When HIM determines that a particular
security should be
bought or sold for any of the Funds and other accounts
managed by HIM, HIM
undertakes to allocate those transactions among the participants
equitably.
PORTFOLIO MANAGEMENT
The organizational arrangements of the Investment Adviser
and the Portfolio
Management Agent require that all investment decisions be made
by a committee
and no one person is responsible for making recommendations to
that committee.
GLASS-STEAGALL ACT
The Glass-Steagall Act, among other things, generally
prohibits federally
chartered or supervised banks from engaging to any extent in
the business of
issuing, underwriting, selling or distributing securities,
although subsidiaries
of bank holding companies such as Harris Trust and HIM are
permitted to purchase
and sell securities upon the order and for the account of their
customers.
It is the position of Harris Trust and HIM that they
may perform the
services contemplated by the Advisory Contracts, the
Portfolio Management
Contracts and this Prospectus without violation of the Glass-
Steagall Act or
other applicable federal banking laws or regulations. It is
noted, however, that
there are no controlling judicial or administrative
interpretations or decisions
and that future judicial or administrative interpretations
of, or decisions
relating to, present federal statutes and regulations
relating to the
permissible activities of banks and their subsidiaries or
affiliates, as well as
future changes in federal statutes or regulations and judicial or
administrative
decisions or interpretations thereof, could prevent Harris
Trust or HIM from
continuing to perform, in whole or in part, such services. If
Harris Trust or
HIM were prohibited from performing any of such services, it
is expected that
the Boards of Trustees and Directors of the Trust and the
Company, respectively,
would recommend to the Funds' shareholders that they approve new
agreements with
another entity or entities qualified to perform such services
and selected by
the Boards of Trustees and Directors.
To the extent permitted by the Commission, the Funds may
pay brokerage
commissions to certain affiliated persons. No such commission
payments were made
during the last fiscal year by the Short/Intermediate Fund.
ADMINISTRATORS, CUSTODIAN AND TRANSFER AGENT
These service providers are responsible for maintaining the books
and records of
the Funds, handling compliance and regulatory issues,
processing buy/sell
orders, customer service and the safekeeping of securities.
First Data Investor Services Group, Inc. (formerly known as
The Shareholder
Services Group, Inc.) (``First Data'' or the ``Administrator'')
and PFPC Inc.
(``PFPC'' or the ``Administrator and Accounting Services Agent'')
(collectively,
the ``Administrators'') serve as the administrators of the
Funds. In such
capacity, the Administrators generally assist the Funds in all
aspects of their
administration and operation. PFPC also serves as the
transfer and dividend
disbursing agent of the Funds (the ``Transfer Agent'').
PNC Bank, N.A. (the ``Custodian'') serves as custodian of
the assets of the
Funds. PFPC and the Custodian are indirect, wholly-owned
subsidiaries of PNC
Bank Corp.
22
<PAGE>
As compensation for their services, the Administrators, the
Custodian, and
the Transfer Agent are entitled to receive a combined fee based
on the aggregate
average daily net assets of the Funds and the Trust's and the
Company's other
investment portfolios, payable monthly at an annual rate of
.17% of the first
$300 million of average daily net assets; .15% of the next $300
million; and
.13% of average net assets in excess of $600 million. In
addition, a separate
fee is charged by PFPC for certain retail transfer agent
services and for
various custody transactional charges.
DISTRIBUTOR
The Distributor underwrites the Funds' shares which are then
available for
purchase or redemption.
Funds Distributor, Inc. (the ``Distributor'') has
entered into a
Distribution Agreement with the Trust (and, with respect to
the Intermediate
Bond Fund, the Company) pursuant to which it has the
responsibility for
distributing shares of the Funds. The Distributor bears the cost
of printing and
mailing prospectuses to potential investors and any
advertising expenses
incurred by it in connection with the distribution of Shares,
subject to the
terms of the Service Plans described below, pursuant to
contractual arrangements
between the Trust and the Distributor or the Company and the
Distributor and
approved by the Board of Trustees of the Trust (or, with
respect to the
Intermediate Bond Fund, the Board of Directors of the Company).
See ``Management'' and ``Custodian'' in the Statement
of Additional
Information for additional information regarding the Funds'
Investment Adviser,
Portfolio Management Agent, Administrators, Custodian,
Transfer Agent and
Distributor.
EXPENSES
Except for certain expenses borne by the Distributor, Harris
Trust and HIM,
the Trust and the Company each bears all costs of its operations,
including the
compensation of its Trustees or Directors who are not
affiliated with Harris
Trust, HIM or the Distributor or any of their affiliates;
advisory and
administration fees; payments pursuant to any Service Plan;
interest charges;
taxes; fees and expenses of its independent accountants, legal
counsel, transfer
agent and dividend disbursing agent; expenses of preparing
and printing
prospectuses (except the expense of printing and mailing
prospectuses used for
promotional purposes, unless otherwise payable pursuant to a
Service Plan),
shareholders' reports, notices, proxy statements and reports
to regulatory
agencies; insurance premiums and certain expenses relating
to insurance
coverage; trade association membership dues; brokerage and
other expenses
connected with the execution of portfolio securities
transactions; fees and
expenses of the Funds' custodian including those for keeping
books and accounts
and calculating the net asset value per share of the
Funds; expenses of
shareholders' meetings and meetings of Boards of Trustees
and Directors;
expenses relating to the issuance, registration and
qualification of shares of
the Funds; pricing services; organizational expenses; and
any extraordinary
expenses. Expenses attributable to each Fund are charged
against the assets of
the Fund. Other general expenses of the Trust and the Company
are allocated
among the Funds in an equitable manner as determined by the
Boards of Trustees
and Directors.
DETERMINATION OF NET ASSET VALUE
The Net Asset Value (NAV) is the price or value of one share of a
Fund.
Net asset value per share for each Fund is determined on
each day that the
New York Stock Exchange (``NYSE'') and the Federal Reserve Bank
of Philadelphia
(the ``Fed'') are open for trading. For a list of the days on
which the net
asset value will not be determined, see ``Determination of Net
Asset Value'' in
the Statement of Additional Information. The net asset value
per share of each
of the Funds is determined by dividing the value of the total
assets of a Fund
less all of its liabilities by the total number of outstanding
shares of that
Fund.
23
<PAGE>
The net asset value per share of each of the Funds is
determined at the
close of regular trading on the NYSE on each day the Funds
are open for
business. The value of securities of the Funds (other than
bonds and debt
obligations maturing in 60 days or less) is determined based
on the last sale
price on the principal exchange on which the securities are
traded as of the
close of regular trading on the NYSE (which is currently 4:00
P.M., New York
City time). In the absence of any sale on the valuation date, the
securities are
valued at the closing bid price. Securities traded only on
over-the-counter
markets are valued at closing over-the-counter bid prices.
Bonds are valued at
the mean of the last bid and asked prices. Portfolio
securities which are
primarily traded on foreign securities exchanges are generally
valued at the
preceding closing values of such securities on their
respective exchanges,
except when an occurrence subsequent to the time a value was so
established is
likely to have changed such value. In such an event as
well as in those
instances where prices of securities are not readily available,
the fair value
of those securities will be determined in good faith by or
under the direction
of the Board of Trustees or Directors, as the case may be.
Prices used for
valuations of securities are provided by independent pricing
services. Debt
obligations with remaining maturities of 60 days or less are
valued at amortized
cost when the Trust's Board of Trustees or the Company's Board of
Directors, as
the case may be, has determined that amortized cost valuation
represents fair
value.
PURCHASE OF SHARES
Contact your broker, financial institution or service agent for
answers to any
questions you may have about purchasing shares.
Shares of any of the Funds may be purchased
through authorized
broker/dealers, financial institutions and service agents
(``Institutions'') on
any day the NYSE and the Fed are open for business. Individual
investors will
purchase all shares directly through Institutions which will
transmit purchase
orders directly to the Distributor. Institutions are responsible
for the prompt
transmission of purchase, exchange or redemption orders, and
may independently
establish and charge additional fees to their customers for such
services, which
would reduce the customers' yield or return. No minimum
initial or subsequent
investment limitations have been imposed. Each Institution
through which shares
may be purchased may establish its own terms with respect to the
requirement of
a minimum initial investment and minimum subsequent investments.
The Trust (or the Company with respect to the
Intermediate Bond Fund)
reserves the right to reject any purchase order. All funds, net
of sales charge,
if any, will be invested in full and fractional shares. Checks
will be accepted
for the purchase of any Fund's shares subject to collection at
full face value
in U.S. dollars. Inquiries may be directed to the Funds at
the address and
telephone number on the cover of this Prospectus.
Purchase orders for shares of a Fund received in good
order by the
Distributor prior to the close of regular trading (4:00 P.M.,
New York City
time) on the NYSE will be executed at the offering price, which
includes a sales
charge, next determined on that day. Orders placed directly with
the Distributor
must be paid for by check or bank wire on the next business day.
Payment for the
shares purchased through an Institution will not be due until
settlement date,
normally three business days after the order has been executed.
Although Class A Shares of the Funds are sold with a sales load
of up to 4.50%,
there are a number of ways to reduce the sales load.
When Class A Shares of the Funds are purchased through an
Institution, the
Distributor reallows a portion of the sales charge. No sales
charge will be
assessed on the reinvestment of distributions.
24
<PAGE>
Sales charges for Class A Shares of the Funds are as
follows:
<TABLE>
<CAPTION>
SALES
CHARGE DEALER ALLOWANCE
SALES AS %
OF NET AS % OF
AMOUNT OF PURCHASE CHARGE AMOUNT
INVESTED OFFERING PRICE
<S> <C> <C>
<C>
Less than $100,000 4.50%
4.71% 4.25%
$100,000 up to (but less than) $200,000 4.00
4.17 3.75
$200,000 up to (but less than) $400,000 3.50
3.63 3.25
$400,000 up to (but less than) $600,000 2.50
2.56 2.25
$600,000 up to (but less than) $800,000 2.00
2.04 1.75
$800,000 up to (but less than) $1,000,000 1.00
1.01 0.75
$1,000,000 and over .00
.00 .00
</TABLE>
No sales charge will be assessed on purchases by (a)
any bank, trust
company, or other institution acting on behalf of its
fiduciary customer
accounts or any other trust account (including a pension,
profit-sharing or
other employee benefit trust created pursuant to a plan
qualified under Section
401 of the Internal Revenue Code of 1986, as amended (the
``Code'')); (b)
individuals with an investment account or relationship with
HIM; (c) directors
and officers of the Company; (d) directors, current and
retired employees of
Harris Bankcorp, Inc. or any of its affiliates and the immediate
family members
of such individuals (spouses and children under 21); (e)
brokers, dealers, and
agents who have a sales agreement with the Distributor, and their
employees (and
the immediate family members of such individuals); (f) financial
institutions,
financial planners, employee benefit plan consultants or
registered investment
advisers acting for the accounts of their clients and (g)
customers of Harris
Trust and its affiliate banks.
Depending upon the terms of the particular customer
account, financial
services institutions, including Harris Trust and HIM, may
charge account fees
for automatic investment and other cash management services
which they provide,
including, for example, account maintenance fees,
compensating balance
requirements, or fees based upon account transactions, assets,
or income. This
Prospectus should be read in connection with any information
received from
financial services institutions.
The Right of Accumulation allows an investor to combine
the amount being
invested in Class A Shares of the non-money market funds of
the Trust and the
Company with the total net asset value of Class A Shares
currently being
purchased or already owned of such funds to determine reduced
sales charges in
accordance with the above sales charge schedule. To obtain such
discount, the
purchaser must provide sufficient information at the time of
purchase to permit
verification that the purchase qualifies for the reduced
sales charge, and
confirmation of the order is subject to such verification.
The Right of
Accumulation may be modified or discontinued at any time by
the Funds with
respect to all Class A Shares purchased thereafter.
A Letter of Intent allows an investor to purchase Class
A Shares of the
non-money market funds of the Trust and the Company over a 13-
month period at
reduced sales charges based on the total amount intended to be
purchased plus
the total net asset value of Class A Shares already owned
pursuant to the terms
of the
26
<PAGE>
letter of such Fund. Each investment made during the period
receives the reduced
sales charge applicable to the total amount of the intended
investment. If such
amount is not invested within the period, the investor must pay
the difference
between the sales charges applicable to the purchases made
and the charges
previously paid.
Each Fund also offers Institutional Shares. Different
classes of shares of
a single portfolio may bear different sales charges (if any) and
other expenses
which may affect their relative performance. Investors may call
1-800-982-8782
to obtain more information concerning Institutional Shares of the
Funds.
REDEMPTION OF SHARES
There is no charge by the Funds for redemptions, although
Institutions may
charge an account-based service fee.
Shares may be redeemed at their next determined net
asset value after
receipt of a proper request by the Distributor directly
or through any
Institution.
There is no charge for redemption transactions, but an
Institution may
charge an account-based service fee. Redemption orders
received by an
Institution before the close of the NYSE with respect to
shares of a Fund and
received by the Distributor before the close of business on the
same day will be
executed at the Fund's net asset value per share next
determined on that day.
Redemption orders received by an Institution after the close of
the NYSE, or not
received by the Distributor prior to the close of business, will
be executed at
the Fund's net asset value next determined on the next business
day.
Redemption orders for a Fund that are received in good
order by 4:00 P.M.
(New York City time) will normally be remitted within five
business days but not
more than seven days. In the case of a redemption request made
shortly after a
recent purchase, the redemption proceeds will be distributed
upon the clearance
of the shareholder's check used to purchase the Fund's shares
which may take up
to 15 days or more after the investment. The proceeds may be
more or less than
cost and, therefore, a redemption may result in a gain or
loss for federal
income tax purposes. Payment of redemption proceeds may be
made in readily
marketable securities.
REDEMPTION THROUGH INSTITUTIONS
Proceeds of redemptions made through authorized
Institutions will be
credited to the shareholder's account with the
Institution. A redeeming
shareholder may request a check from the Institution or may
elect to retain the
redemption proceeds in such shareholder's account. The
Institution may benefit
from the use of the redemption proceeds prior to the clearance of
a check issued
to a redeeming shareholder for the proceeds or prior to
disbursement or
reinvestment of the proceeds on behalf of the shareholder.
Because of the high cost of maintaining small accounts,
the Trust (or the
Company with respect to the Intermediate Bond Fund)
reserves the right to
involuntarily redeem accounts on behalf of shareholders whose
share balances
fall below $500 unless this balance condition results from a
decline in the
market value of a Fund's assets. Prior to such a redemption, a
shareholder will
be notified in writing and permitted 30 days to make additional
investments to
raise the account balance to the specified minimum.
26
<PAGE>
EXCHANGE PRIVILEGE
Once you have held shares for 7 days or more, you can exchange
these shares for
other eligible Harris Insight Fund Class A Shares
Class A Shares of any of the Funds that have been held for
seven days or
more may be exchanged for shares of any other fund in the Harris
Insight Funds
in an identically registered account, provided Class A Shares of
the Fund to be
acquired are registered for sale in the shareholder's state of
residence, on the
following terms: Class A Shares of the non-money market funds
of the Trust and
the Company may be exchanged for shares of one another and for
Class A Shares of
each of the money market funds of the Company, all at
respective net asset
values. In addition, Class A Shares of a Fund that have been
exchanged pursuant
to these privileges may be re-exchanged at respective net asset
values of Class
A Shares of the Fund in which they were originally invested upon
notification.
Procedures applicable to redemption of a Fund's shares are
also applicable
to exchanging shares. The Trust (or the Company with respect to
the Intermediate
Bond Fund) reserves the right to limit the number of times
shares may be
exchanged between the Harris Insight Funds, to reject any
telephone exchange
order or otherwise to modify or discontinue exchange privileges
at any time upon
60 days written notice. A capital gain or loss for tax purposes
may be realized
upon an exchange, depending upon the cost or other basis of
shares redeemed.
SERVICE PLANS
The Service Plans for the Funds allow these Funds to pay
Service Agents for
certain servicing activities provided to their customers.
Under each Fund's Service Plan relating to Class A Shares,
each Fund bears
the costs and expenses in connection with advertising and
marketing the Fund'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, as described below, at a
rate up to 0.25%
per annum of the average daily net asset value of the Fund's
Class A Shares.
However, Harris Trust or HIM, in lieu of a Fund, from time to
time in its sole
discretion, may volunteer to bear the costs of such fees to
certain Service
Agents. The Administrators and the Distributor may act as
Service Agents and
receive fees under a Service Plan.
In addition to the fees paid by a Fund, the Fund may,
pursuant to the
Service Plan, defray all or part of the cost of preparing and
printing brochures
and other promotional materials and of delivering
prospectuses and those
materials to prospective shareholders of the Fund by paying on
an annual basis
up to the greater of $100,000 or 0.05% of the net asset
value of the Fund's
Class A Shares (but not in any case greater than such
costs). For more
information concerning expenses pursuant to the Service
Plans, see
``Management.''
Servicing activities provided by Service Agents to
their customers
investing in the 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 Funds; 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 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 to
do so by applicable statute, rule or regulation.
27
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
All Funds, except the Convertible Securities Fund, declare
and pay dividends
monthly, while the Convertible Securities Fund declares and
pays dividends
quarterly.
Dividends from net investment income of each of the
Funds, except the
Convertible Securities Fund, will be declared daily and paid
monthly. Dividends
from net investment income of the Convertible Securities Fund
will be declared
and paid quarterly. Each Fund's net taxable capital gains,
if any, will be
distributed at least annually (to the extent required to avoid
imposition of the
4% excise tax described below). Dividends and distributions
paid by any of the
Funds will be invested in additional shares of the same Fund at
net asset value
and credited to the shareholder's account on the payment
date or, at the
shareholder's election, paid in cash. Dividend checks and
Statements of Account
will be mailed approximately two business days after the payment
date. Each Fund
will forward to the Transfer Agent the monies for dividends to
be paid in cash
on the payment date.
Shareholders who redeem all their shares of any of the
Funds prior to a
dividend payment will receive, in addition to the redemption
proceeds, dividends
declared but unpaid. Shareholders who redeem only a portion of
their shares will
be entitled to all dividends but unpaid on such shares on the
next dividend
payment date.
FEDERAL INCOME TAXES
Each Fund (and each of the other Harris Insight Funds) will
be treated as a
separate entity for tax purposes and thus the provisions of the
Internal Revenue
Code (the ``Code'') generally will be applied to each Fund
separately, rather
than to the Trust or the Company as a whole. As a result, net
capital gains, net
investment income, and operating expenses will be determined
separately for each
Fund. The Trust (or the Company with respect to the
Short/Intermediate Fund)
intends to qualify each Fund as a regulated investment company
under Subchapter
M of the Code. As a portfolio of a regulated investment company,
each Fund will
not be subject to federal income taxes with respect to net
investment income and
net capital gains distributed to its shareholders, as long as it
distributes 90%
or more of its net investment income (including net short-term
capital gains)
each year.
Because substantially all of the income of each Fund
will arise from
interest, no part of the distributions to shareholders is
expected to qualify
for the dividends- received deduction allowed to Corporations
under the Code.
Distributions of net long-term capital gains, if any,
will be taxable as
long-term capital gains, whether received in cash or
reinvested in additional
shares, regardless of how long the shareholder has held the
shares, and will not
qualify for the dividends-received deductions.
A taxable gain or loss may also be realized by a holder of
shares in a Fund
upon the redemption or transfer of shares depending on the
tax basis of the
shares and their price at the time of the transaction.
Because more than 50% of the value of the total assets
of each of the
Tax-Exempt Fund and the Intermediate Tax-Exempt Fund at the
close of each
quarter of its taxable year is expected to consist of
obligations the interest
on which is exempt from federal income tax, these Funds expect
to qualify under
the Code to pay ``exempt-interest dividends.'' Dividends
distributed by each of
these Funds that are attributable to interest from tax-exempt
securities will be
designated by the Fund as an ``exempt-interest dividend,''
and, as such, will
generally be exempt from federal income tax.
28
<PAGE>
In the case of the shareholders of each of the Tax-
Exempt Fund or the
Intermediate Tax-Exempt Fund, interest on indebtedness incurred
or continued to
purchase or carry shares of the Fund will not be deductible to
the extent that
the Fund's distributions are exempt from federal income tax. In
addition, the
portion of an exempt-interest dividend allocable to
certain tax-exempt
obligations will be treated as a preference item for purposes of
the alternative
minimum tax imposed on both individuals and corporations.
Persons who may be
``substantial users'' (or ``related persons'' of
substantial users) of
facilities financed by private activity bonds should consult
their tax advisers
before purchasing shares in the Tax- Exempt Fund or the
Intermediate Tax-Exempt
Fund.
The exemption of exempt-interest dividends paid by each of
the Tax-Exempt
Fund and the Intermediate Tax-Exempt Fund for federal income
tax purposes may
not result in similar exemptions under the tax law of
state and local
authorities. In general, only interest earned on obligations
issued by the state
or locality in which the investor resides will be exempt from
state and local
taxes. Shareholders should consult their advisers about the
status of dividends
from these Funds in their own states and localities. Each year
the Trust will
notify shareholders of the tax status of distributions.
Any loss realized on a sale or exchange of shares of
a Fund will be
disallowed to the extent shares are acquired within the 61-day
period beginning
30 days before and ending 30 days after disposition of the
shares.
The Trust (or the Company with respect to the
Short/Intermediate Fund) will
be required to withhold, subject to certain exemptions, a
portion (currently,
31%) from dividends paid or credited to individual
shareholders and of
redemption proceeds, if a correct taxpayer identification number,
certified when
required, is not on file with the Trust (or the Company with
respect to the
Intermediate Bond Fund) or Transfer Agent.
ACCOUNT SERVICES
Shareholders receive a Statement of Account whenever a
share transaction,
dividend or capital gain distribution is effected in the
accounts, or at least
annually. Shareholders can write or call the Funds at the
address and telephone
number on page one of this Prospectus with any questions
relating to their
investment in shares of the Funds.
ORGANIZATION AND CAPITAL STOCK
The Trust is a diversified open-end management investment
company which was
organized on December 6, 1995 as a business trust under
the laws of The
Commonwealth of Massachusetts. The Trust offers shares of
beneficial interest,
$.001 par value, for sale to the public. Currently the
Trust has eleven
portfolios in operation. The Board has authorized each of the
eleven Funds which
are portfolios of the Trust to issue two classes of
shares, Class A and
Institutional Shares.
The Company, which was incorporated in Maryland on September
16, 1987, is a
diversified, open-end management investment company. The
authorized capital
stock of the Company consists of 10,000,000,000 shares having
a par value of
$.001 per share. Currently, the Company has six portfolios in
operation. The
Board has authorized the Short/Intermediate Fund to issue two
classes of shares,
Class A and Institutional Shares.
29
<PAGE>
Institutional Shares of the Funds, which are offered
only to certain
classes of investors, do not bear any sales, marketing or
distribution expenses.
In the future, the Board of Trustees of the Trust and the Board
of Directors of
the Company may authorize the issuance of shares of
additional investment
portfolios and additional classes of shares of any portfolio.
Different classes
of shares of a single portfolio may bear different sales
charges and other
expenses which may affect their relative performance.
Information regarding
other classes of shares may be obtained by calling the Funds at
the telephone
number shown on the cover page of this Prospectus or from any
institution which
makes available shares of the Funds. All shares of the Trust
and all shares of
the Company have equal voting rights and the shares of each will
be voted in the
aggregate, and not by class, except where voting by class is
required by law or
where the matter involved affects only one class. A more
detailed statement of
the voting rights of shareholders is contained in the
Statement of Additional
Information. All shares of the Trust and all shares of the
Company, when issued,
will be fully paid and non-assessable.
As of January 31, 1996, Harris Trust held of record
4,031,259 shares, equal
to 81.62% of the outstanding shares of the Short/Intermediate
Fund. Harris Trust
has indicated that it holds its shares on behalf of various
client accounts and
not as beneficial owner.
The Trust and the Company may dispense with annual meetings
of shareholders
in any year in which Trustees and Directors are not required
to be elected by
shareholders. The Board of Trustees of the Trust and the Board
of Directors of
the Company, when requested by at least 10% of the Trust's or
the Company's
outstanding shares, will call a meeting of shareholders for
the purpose of
voting upon the question of removal of a Trustee or Trustees or
of a Director or
Directors and will assist in communications with other
shareholders as required
by Section 16(c) of the 1940 Act.
There is a possibility that the Trust might become
liable for any
misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning
the Company. There is a possibility that the Company might become
liable for any
misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning
the Trust.
REPORTS TO SHAREHOLDERS
The fiscal year of both the Trust and the Company ends on
December 31. Each
of the Trust and the Company will send to its shareholders a
semi-annual report
showing the investments held by each of the Funds and
other information
(including unaudited financial statements) pertaining to the
Trust or the
Company, as the case may be. An annual report, containing
financial statements
audited by independent accountants, is also sent to shareholders.
CALCULATION OF YIELD AND TOTAL RETURN
From time to time each of the Funds may advertise its yield,
tax-equivalent
yield and ``total return.'' ``Total return'' refers to the
amount an investment
in Class A Shares of a Fund would have earned, including
any increase or
decrease in net asset value, over a specified period of time
and assumes the
payment of the maximum sales load and the reinvestment of all
dividends and
distributions. The total return of each Fund shows what an
investment in Class A
Shares of the Fund would have earned over a specified period
of time (such as
one, five or ten years or the period of time since commencement
of operations,
if shorter) assuming the payment of the maximum sales loads when
the investment
was first made and that
30
<PAGE>
all distributions and dividends by the Fund were
reinvested on their
reinvestment dates during the period less all recurring
fees. When a Fund
compares its total return to that of other mutual funds or
relevant indices, its
total return may also be computed without reflecting the sales
load so long as
the sales load is stated separately in connection with the
comparison.
The yield of each Fund refers to the income generated by an
investment in
Class A Shares of the Fund over a 30-day period (which period
will be stated in
the advertisement). This income is then ``annualized.'' That
is, the amount of
income generated by the investment during the 30-day period
is assumed to be
earned and reinvested at a constant rate and compounded
semi-annually. The
annualized income is then shown as a percentage of the
investment.
The ``tax-equivalent yield'', which will be calculated
only for the
Intermediate Tax-Exempt Fund and the Tax-Exempt Fund, refers to
the yield on a
taxable investment necessary to produce an after-tax yield
equal to a Fund's
tax-free yield, and is calculated by increasing the yield shown
for the Fund to
the extent necessary to reflect the payment of specified tax
rates. Thus, the
tax-equivalent yield for a Fund will always exceed that Fund's
yield.
A Fund's performance figures for a class of shares
represent past
performance, will fluctuate and should not be considered as
representative of
future results. The yield of any investment is generally a
function of portfolio
quality and maturity, type of instrument and operating expenses.
31
<PAGE>
INVESTMENT ADVISER
Harris Trust & Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
PORTFOLIO MANAGEMENT AGENT
Harris Investment Management, Inc.
190 South LaSalle Street
Chicago, Illinois 60603
ADMINISTRATORS
First Data Investor Services Group, Inc.
53 State Street
Boston, Massachusetts 02109
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
DISTRIBUTOR
Funds Distributor, Inc.
One Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
PNC Bank, N.A.
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
PFPC Inc.
P.O. Box 8950
Wilmington, Delaware 19885
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Philadelphia, Pennsylvania
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
HARRIS INSIGHT MONEY MARKET FUNDS
HARRIS INSIGHT FUNDS
One Exchange Place, Boston, Massachusetts 02109
Telephone: (800) 982-8782
HT Insight Funds, Inc. (the ``Company'') currently
offers shares
representing interests in six mutual funds. This Prospectus
describes one class
of shares (``Class A Shares'' or ``Shares'') of each of the
Company's three
Money Market Funds (the ``Funds''):
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'')
Harris Trust & Savings Bank is the Investment Adviser
to the Funds and
Harris Investment Management, Inc., a subsidiary of Harris
Bankcorp, Inc., acts
as Portfolio Management Agent for two of the Funds. Shares
of each Fund are
offered by Funds Distributor, Inc., the Company's distributor.
This Prospectus sets forth concisely the information a
prospective investor
should know before investing in the Funds. Please read and
retain it for future
reference. A Statement of Additional Information dated
February 21, 1996,
containing more detailed information about the Funds has been
filed with the
Securities and Exchange Commission and (together with any
supplements thereto)
is incorporated by reference into this Prospectus. The
Statement of Additional
Information and the most recent financial statements may be
obtained without
charge by writing or calling the Company at the address and
telephone number
printed above. Separate Prospectuses for the other investment
portfolios offered
by the Company may be obtained without charge by writing or
calling the Company
at the address and telephone number printed above.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR
ENDORSED BY HARRIS TRUST & SAVINGS BANK, OR ANY OF ITS
AFFILIATES, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
SHARES OF THE MONEY MARKET FUNDS ARE NEITHER INSURED NOR
GUARANTEED BY THE
U.S. GOVERNMENT. ALTHOUGH EACH MONEY MARKET FUND IS ACTIVELY
MANAGED TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE IS NO
ASSURANCE THAT IT WILL
BE ABLE TO DO SO.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION (THE ``COMMISSION'') OR ANY STATE SECURITIES
COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
February 21, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Expense Table 3
Highlights 4
Financial Highlights 5
Investment Objectives and Policies 8
Government Money Fund 8
Money Fund 8
Tax-Exempt Money Fund 9
Investment Strategies 10
Investment Limitations 14
Management 15
Determination of Net Asset Value 18
Purchase of Shares 19
Redemption of Shares 20
Service Plan 21
Dividends and Distributions 21
Federal Income Taxes 22
Account Services 23
Organization and Capital Stock 23
Reports to Shareholders 24
Calculation of Yield 24
No person has been authorized to give any information
or to make any
representations other than those contained in this Prospectus,
the Statement of
Additional Information and/or in the Funds' official sales
literature in
connection with the offering of the Funds' shares and, if given
or made, such
other information or representations must not be relied upon
as having been
authorized by the Company or the Distributor. This
Prospectus does not
constitute an offer in any state in which, or to any person to
whom, such offer
may not lawfully be made.
2
<PAGE>
EXPENSE TABLE
Expenses and fees payable by Class A shareholders are
summarized in this
table and expressed as a percentage of average net assets.
The following table illustrates the expenses and fees
expected to be
incurred by an investment in Class A Shares of each of the Funds.
Class A Shares
of each Fund represent equal, pro rata interests in that Fund.
Class A Shares
bear expenses payable (at the rate of up to 0.35% per annum) to
organizations
for the services they provide to the beneficial owners of Class
A Shares. See
``Service Plan''.
<TABLE>
<CAPTION>
GOVERNMENT TAX-EXEMPT
MONEY
FUND MONEY FUND MONEY FUND
CLASS A
CLASS A CLASS A
<S> <C>
<C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases None
None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets after
voluntary fee waivers)
Advisory Fees 0.11%
0.11% 0.11%
Rule 12b-1 Fees (after waivers) 0.26%
0.27% 0.27%
Other Expenses 0.20%
0.18% 0.18%
Total Fund Operating Expenses 0.57%
0.56% 0.56%
</TABLE>
Without waivers, Rule 12b-1 Fees for Class A shares of each Fund
would have been
0.35% of a Fund's average net assets. Without waivers, total
operating expenses
for the fiscal years ended December 31, 1995 and 1994 (i) for
the Government
Money Fund would have been 0.67% and 0.66%, (ii) for the Money
Fund would have
been 0.65% and 0.65%, and (iii) for the Tax-Exempt Money Fund
would have been
0.65% and 0.65%. Customers of a financial institution, such as
Harris Trust &
Savings Bank, may be charged certain fees and expenses by
their institution.
These fees may vary depending on the capacity in which the
institution provides
fiduciary and investment services to the particular client
(e.g., trust, estate
settlement, advisory and custodian services).
With respect to each Fund, the amount of ``Other Expenses'' in
the table above
is based on amounts incurred during the most recent fiscal year.
EXAMPLE
You would pay the following expenses on a $1,000 investment in
Class A Shares,
assuming (1) a hypothetical 5% gross annual return and (2)
redemption at the end
of each time period:
Government
Tax-Exempt
Money Fund Money Fund
Money Fund
1 year $ 6 $ 6
$ 6
3 years 18 18
18
5 years 32 31
31
10 years 71 70
70
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE
EXPENSES OR PERFORMANCE WHICH MAY BE MORE OR LESS THAN THOSE
SHOWN.
The purpose of the expense table is to assist the investor in
understanding the
various costs and expenses that an investor in a Fund will
bear directly or
indirectly. For more information concerning the various costs
and expenses, see
``Management.''
3
<PAGE>
HIGHLIGHTS
The following three investment portfolios are described in this
Prospectus:
GOVERNMENT MONEY FUND -- a money market fund that invests
in short-term
obligations issued or guaranteed by the U.S. Government or
its agencies and
instrumentalities and certain repurchase agreements.
MONEY FUND -- a money market fund that invests in a broad range
of short-term
money market instruments.
TAX-EXEMPT MONEY FUND -- a money market fund that invests
primarily in
high-quality, short-term municipal obligations.
The investment objective of each Fund is to provide
investors with as high
a level of current income (exempt from federal income tax, in
the case of the
Tax-Exempt Money Fund) as is consistent with its investment
policies and with
preservation of capital and liquidity.
WHO MANAGES EACH FUND'S INVESTMENTS?
Harris Trust & Savings Bank (``Harris Trust'' or
the ``Investment
Adviser'') is the investment adviser for each Fund. Harris
Trust has provided
investment management services to clients for over 100 years.
Harris Trust
provides investment services for pension, profit-sharing
and personal
portfolios. As of June 30, 1995, assets under management total
approximately $23
billion. See page 16.
Harris Investment Management, Inc. (``HIM'' or the
``Portfolio Management
Agent'') provides daily portfolio management services for the
Government Money
Fund and the Money Fund. HIM and its predecessors have managed
client assets for
over 100 years. HIM has a staff of 96, including 64
professionals, providing
investment expertise to the management of Harris Insight Funds
and for pension,
profit-sharing and institutional portfolios. As of June 30,
1995, assets under
management are estimated to exceed $13 billion. See page 17.
Harris Trust and HIM are subsidiaries of Harris Bankcorp,
Inc.
WHAT ADVANTAGES DO THE FUNDS OFFER?
The Funds are designed for individual and institutional
investors. A single
investment in shares of the Harris Insight Funds gives the
investor benefits
customarily available only to large investors, such as
diversification of
investment, greater liquidity and professional management,
block purchases of
securities, relief from bookkeeping, safekeeping of
securities and other
administrative details.
WHEN ARE DIVIDENDS PAID?
Dividends from each of the Funds are declared daily and
paid monthly. See
page 22.
HOW ARE SHARES REDEEMED?
Shares may be redeemed at their next determined net
asset value after
receipt of a proper request by the Registered Representative
servicing your
account, the Distributor, or through any Service Agent. See page
20.
WHAT RISKS ARE ASSOCIATED WITH EACH FUND?
Each Fund's performance may change daily based on many
factors, including
the quality of the Fund's investments, economic conditions and
general market
conditions. There is no assurance that any Fund will achieve
its investment
objective. See ``Investment Strategies.''
4
<PAGE>
FINANCIAL HIGHLIGHTS
This table shows the total return on one Class A share
for each period
illustrated.
The following financial highlights are derived from
the financial
statements of the Company for the year ended December 31, 1995
audited by Price
Waterhouse LLP, independent accountants. This information
should be read in
conjunction with the financial statements and notes thereto
that appear in the
Statement of Additional Information and which are incorporated
by reference in
this Prospectus.
<TABLE>
<CAPTION>
GOVERNMENT MONEY MARKET FUND
YEAR YEAR
YEAR YEAR YEAR YEAR YEAR 02/11/88*
ENDED ENDED
ENDED ENDED ENDED ENDED ENDED TO
12/31/95 12/31/94
12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C>
<C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment Operations:
Net Investment Income .054 .037
.026 .033 .055 .075 .084 .061
Total from Investment Operations .054 .037
.026 .033 .055 .075 .084 .061
Less Distributions:
Net Investment Income (.054) (.037)
(.026) (.033) (.055) (.075) (.084) (.061)
Total distributions (.054) (.037)
(.026) (.033) (.055) (.075) (.084) (.061)
Net Asset Value, End of Period $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return 5.51% 3.72%
2.62% 3.42% 5.67% 7.78% 8.80% 6.27%(3)
Ratios/Supplemental Data:
Net Assets, End of Period $(000) 264,426 229,619
263,909 140,134 632,663 87,098 35,751 43,870
Ratios of Expenses to Average
Net Assets(1) 0.57% 0.60%
0.61% 0.66% 0.71% 0.52% 0.40% 0.54%(2)
Ratios of Net Investment Income
to Average Net Assets 5.36% 3.62%
2.57% 3.34% 5.45% 7.49% 8.45% 7.24%(2)
</TABLE>
- --------
* Date commenced operations.
(1) Reflects expenses after waivers of advisory fees and other
expenses based
on net expenses incurred during the most recent fiscal
year. Without the
voluntary waiver of fees, the expense ratios for the
Government Money Fund
for the years ended December 31, 1995, 1994, 1993, 1992,
1991, 1990 and
1989 and the period ended December 31, 1988, would have been
0.67%, 0.66%,
0.70%, 0.70%, 0.78%, 0.83%, 0.88% and 0.99% (annualized) for
the Government
Money Fund.
(2) Annualized.
(3) Total returns for periods of less than one year are not
annualized.
5
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
MONEY MARKET FUND
YEAR YEAR
YEAR YEAR YEAR YEAR YEAR 02/10/88*
ENDED ENDED
ENDED ENDED ENDED ENDED ENDED TO
12/31/95 12/31/94
12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C>
<C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment Operations
Net Investment Income .054 .037
.027 .034 .057 .077 .086 .064
Total from Investment Operations .054 .037
.027 .034 .057 .077 .086 .064
Less Distributions:
Net Investment Income (.054) (.037)
(.027) (.034) (.057) (.077) (.086) (.064)
Total distributions (0.54) (.037)
(.027) (.034) (.057) (.077) (.086) (.064)
Net Asset Value, End of Period $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return 5.58% 3.79%
2.69% 3.41% 5.87% 7.94% 9.01% 6.59%(3)
Ratios/Supplemental Data:
Net Assets, End of Period $(000) 423,588 530,366
348,984 383,280 263,419 153,934 172,439 112,144
Ratios of Expenses to Average
Net Assets(1) 0.56% 0.55%
0.57% 0.60% 0.71% 0.67% 0.58% 0.46%(2)
Ratios of Net Investment Income
to Average Net Assets 5.42% 3.79%
2.66% 3.34% 5.69% 7.66% 8.60% 7.15%(2)
</TABLE>
- --------
* Date commenced operations.
(1) Reflects expenses after waivers of advisory fees and other
expenses based
on net expenses incurred during the most recent fiscal
year. Without the
voluntary waiver of fees, the expense ratios for the years
ended December
31, 1995, 1994, 1993, 1992, 1991, 1990 and 1989 and the
period for the
Money Fund ended December 31, 1988, would have been 0.65%,
0.65%, 0.72%,
0.73%, 0.74%, 0.78%, 0.85% and 0.87% (annualized).
(2) Annualized.
(3) Total returns for periods of less than one year are not
annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
TAX-EXEMPT MONEY MARKET FUND
YEAR YEAR
YEAR YEAR YEAR YEAR YEAR 02/09/88*
ENDED ENDED
ENDED ENDED ENDED ENDED ENDED TO
12/31/95 12/31/94
12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C>
<C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment Operations:
Net Investment Income .033 .023
.020 .025 .041 .053 .058 .043
Total from Investment Operations .033 .023
.020 .025 .041 .053 .058 .043
Less Distributions:
Net Investment Income (.033) (.023)
(.020) (.025) (.041) (.053) (.058) (.043)
Total distributions (.033) (.023)
(.020) (.025) (.041) (.053) (.058) (.043)
Net Asset Value, End of Period $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return 3.31% 2.30%
1.99% 2.54% 4.16% 5.51% 5.91% 4.39%(3)
Ratios/Supplemental Data:
Net Assets, End of Period $(000) 170,570 123,501
168,440 152,821 157,693 136,117 112,674 103,192
Ratios of Expenses to Average
Net Assets(1) 0.56% 0.54%
0.54% 0.62% 0.49% 0.47% 0.43% 0.51%(2)
Ratios of Net Investment Income
to Average Net Assets 3.25% 2.20%
1.97% 2.50% 4.08% 5.38% 5.76% 4.81%(2)
</TABLE>
- --------
* Date commenced operations.
(1) Reflects expenses after waivers of advisory fees and other
expenses based
on net expenses incurred during the most recent fiscal
year. Without the
voluntary waiver of fees, the expense ratios for the Tax-
Exempt Money Fund
for the years ended December 31, 1995, 1994, 1993, 1992,
1991, 1990 and
1989 and the period ended December 31, 1988, would have been
0.65%, 0.65%,
0.71%, 0.73%, 0.75%, 0.78%, 0.82% and 0.85%.
(2) Annualized.
(3) Total returns for periods of less than one year are not
annualized.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
This section describes some of the securities that the
Funds may purchase
and certain investment techniques which the Funds may use
to pursue their
investment objectives.
The investment objective of each Fund is to provide
investors with as high
a level of current income (which, in the case of the Tax-Exempt
Money Fund, is
exempt from federal income taxes) as is consistent with its
investment policies
and with preservation of capital and liquidity. Current income
provided by the
securities in which the Funds invest is not likely to be
as high as that
provided by securities with longer maturities or lower
quality, which may
involve greater risk and price volatility. Each Fund will
invest in U.S.
dollar-denominated securities with maturities of thirteen
months or less. The
Money Fund will not purchase a security (other than a
Government Security)
unless the security is rated by at least two nationally
recognized rating
agencies (such as Standard & Poor's Corporation (``S&P'') or
Moody's Investors
Service, Inc. (``Moody's'')) within the two highest
ratings assigned to
short-term debt securities (or, if not rated or rated only by one
rating agency,
is determined to be of comparable quality), and not more than
5% of the total
assets of the Fund would be invested in securities bearing the
second highest
rating. The Tax-Exempt Money Fund will not purchase a security
(other than a
Government Security) unless the security is rated by at least
two such rating
agencies within the two highest ratings assigned to short-term
debt securities
(or, if not rated or rated by only one rating agency, is
determined to be of
comparable quality). Determinations of comparable quality
shall be made in
accordance with procedures established by the Board of Directors.
Each Fund will
maintain a dollar-weighted average maturity of 90 days or less
in an effort to
maintain a net asset value per share of $1.00. There is no
assurance that the
net asset value per share of the Funds will be maintained at
$1.00.
GOVERNMENT MONEY FUND
The Government Money Fund invests in obligations issued
or guaranteed by
the U.S Government or its agencies or instrumentalities that
have remaining
maturities of thirteen months or less.
The Government Money Fund, formerly known as Harris
Insight Government
Assets Fund, invests exclusively in obligations issued or
guaranteed by the U.S.
Government or its agencies or instrumentalities (``Government
Securities'') that
have remaining maturities not exceeding thirteen months
and in certain
repurchase agreements described below.
The Government Money Fund invests in obligations of
U.S. Government
agencies and instrumentalities only when the Portfolio
Management Agent is
satisfied that the credit risk with respect to the issuer is
minimal.
A further description of these obligations is included
under ``Investment
Strategies.''
MONEY FUND
The Money Fund invests in short-term money market
instruments, including
U.S. Government, bank and commercial obligations with
remaining maturities of
thirteen months or less.
The Money Fund, formerly known as Harris Insight Cash
Management Fund,
invests in a broad range of short-term money market
instruments that have
remaining maturities not exceeding thirteen months,
including Government
Securities and bank and commercial obligations.
Bank obligations include negotiable certificates of
deposit, bankers'
acceptances and fixed time deposits. The Money Fund limits its
investments in
domestic bank obligations to obligations of U.S. banks
(including foreign
branches and thrift institutions) that have more than $1 billion
in total assets
at the time of investment and are members of the Federal
Reserve System or are
examined by the Comptroller of the Currency, or whose deposits
are insured by
the Federal Deposit Insurance Corporation (``U.S. banks'').
The Money Fund
limits its investments in foreign bank obligations to U.S.
dollar-denominated
obligations of foreign banks (including U.S. branches): (a)
which banks at the
time of investment (i) have more
8
<PAGE>
than $10 billion, or the equivalent in other currencies, in
total assets and
(ii) are among the 100 largest banks in the world, as determined
on the basis of
assets, and have branches or agencies in the U.S.; and (b) which
obligations, in
the opinion of the Portfolio Management Agent, are of an
investment quality
comparable to obligations of U.S. banks that may be purchased by
the Money Fund.
The Money Fund may invest more than 25% of the current value of
its total assets
in obligations (including repurchase agreements) of: (a) U.S.
banks; (b) U.S.
branches of foreign banks that are subject to the same
regulation as U.S. banks
by the U.S. Government agencies or (c) foreign branches of
U.S. banks if the
U.S. banks would be unconditionally liable in the event the
foreign branch
failed to pay on such obligations for any reason.
The profitability of the banking industry is largely
dependent upon the
availability and cost of funds to finance lending operations and
the quality of
underlying bank assets. In addition, domestic and foreign banks
are subject to
extensive but different government regulation which may limit
the amount and
types of their loans and the interest rates that may be charged.
Obligations of
foreign banks involve somewhat different investment risks from
those affecting
obligations of U.S. banks. See ``Investment Strategies -- Foreign
Securities.''
The commercial paper purchased by the Money Fund will
consist of U.S.
dollar-denominated direct obligations of domestic and foreign
corporate issuers,
including bank holding companies.
The Money Fund may also invest in bank investment
contracts (``BICs''),
asset-backed securities, guaranteed investment contracts
(``GICs'') issued by
U.S. and Canadian insurance companies, convertible and non-
convertible debt
securities of domestic corporations and of foreign corporations
and governments
that are denominated, and pay interest, in U.S. dollars, and
variable amount
master demand notes.
In addition, the Money Fund may invest in tax-exempt
municipal obligations
in which the Tax-Exempt Money Fund may invest, described below,
when the yields
on such obligations are higher than the yields on taxable
investments. The Money
Fund may also invest in certain other obligations as described
in ``Investment
Strategies'' below and in the Statement of Additional
Information.
All securities acquired by the Fund will have remaining
maturities of
thirteen months or less and will be subject to the
applicable quality
requirements described above.
TAX-EXEMPT MONEY FUND
The Tax-Exempt Money Fund invests in debt instruments
issued by or for
states, cities, municipalities and other public authorities
that provide
interest income exempt from federal income tax.
The Tax-Exempt Money Fund, formerly known as Harris Insight
Tax-Free Money
Market Fund, invests primarily in high-quality municipal
obligations that have
remaining maturities not exceeding thirteen months and meet
the applicable
quality requirements described above. Municipal obligations are
debt obligations
issued by or on behalf of states, cities, municipalities
and other public
authorities. Except for temporary investments in taxable
obligations described
below, the Tax-Exempt Money Fund will invest only in municipal
obligations that
are exempt from federal income taxes in the opinion of bond
counsel. Such
obligations include municipal bonds, municipal notes and
municipal commercial
paper.
From time to time, the Tax-Exempt Money Fund may invest 25%
or more of its
assets in municipal obligations that are related in such a way
that an economic,
business or political development or change affecting one of
these obligations
would also affect the other obligations, for example, municipal
obligations the
interest on which is paid from revenues of similar type
projects or municipal
obligations whose issuers are located in the same state.
9
<PAGE>
Under ordinary market conditions, the Tax-Exempt Money
Fund will maintain
as a fundamental policy at least 80% of the value of its
total assets in
obligations that are exempt from federal income tax and not
subject to the
alternative minimum tax. The Tax-Exempt Money Fund may, pending
the investment
of proceeds of sales of its shares or proceeds from the
sale of portfolio
securities, in anticipation of redemptions, or to maintain a
``defensive''
posture when, in the opinion of the Investment Adviser, it is
advisable to do so
because of market conditions, elect to hold temporarily up to 20%
of the current
value of its total assets in cash reserves or invest in taxable
securities in
which the Money Fund may invest.
--------
Each Fund may purchase debt obligations that are not
rated if, in the
opinion of the Portfolio Management Agent, or the Investment
Adviser with
respect to the Tax-Exempt Money Fund, they are of investment
quality comparable
to other rated investments that may be purchased by the Fund.
After purchase by
a Fund, a security may cease to be rated or its rating may be
reduced below the
minimum required for purchase by the Fund. A Fund may be
required to sell a
security downgraded below the minimum required for purchase,
absent a specific
finding by the Board of Directors that a sale is not in the
best interests of
the Fund. The ratings of Moody's and S&P are more fully
described in the
Appendix to the Statement of Additional Information.
INVESTMENT STRATEGIES
ASSET-BACKED SECURITIES. The Money Fund may purchase
asset-backed
securities, which represent a participation in, or are secured
by and payable
from, a stream of payments generated by particular assets, most
often a pool of
assets similar to one another. Assets generating such payments
will consist of
motor vehicle installment purchase obligations, credit card
receivables and home
equity loans, equipment leases, manufactured housing loans and
marine loans. In
accordance with guidelines established by the Board of
Directors, asset-backed
securities may be considered illiquid securities and, therefore,
subject to the
Fund's 10% limitation on such investments.
The estimated life of an asset-backed security varies
with prepayment
experience with respect to underlying debt instruments.
The rate of such
prepayments, and therefore the life of the asset-backed
security, will be
primarily a function of current market interest rates, although
other economic
and demographic factors may be involved. In periods of falling
interest rates,
the rate of prepayments tends to increase. During such periods,
the reinvestment
of prepayment proceeds by a Fund will generally be at lower rates
than the rates
that were carried by the obligations that have been prepaid.
Because of these
and other reasons, an asset-backed security's total return may
be difficult to
predict precisely. If a Fund purchases asset-backed
securities at a premium,
prepayments may result in some loss of the Fund's principal
investment to the
extent of premium paid.
BANK INVESTMENT CONTRACTS. The Money Fund may invest in
bank investment
contracts (``BICs'') which are debt obligations issued by
banks. BICs require
the Fund to make cash contributions to a deposit account at a
bank in exchange
for payments at negotiated, floating or fixed interest rates. A
BIC is a general
obligation of the issuing bank. BICs are considered illiquid
securities and will
be subject to each Fund's 10% limitation on such investments,
unless there is an
active and substantial secondary market for the particular
instrument and market
quotatians are readily available in accordance with guidelines
established by
the Board of Directors. All purchases of BICs will be subject to
the applicable
quality requirements described under ``Investment Objectives and
Policies.''
10
<PAGE>
FLOATING AND VARIABLE RATE INSTRUMENTS. The Funds may
purchase instruments
having a floating or variable rate of interest. These
obligations bear interest
at rates that are not fixed, but vary with changes in specified
market rates or
indices, such as the prime rate, or at specified intervals.
Certain of these
obligations may carry a demand feature that would permit the
holder to tender
them back to the issuer at par value prior to maturity. The
Funds may each
invest in a floating or variable rate obligation even if it
carries a stated
maturity in excess of thirteen months upon compliance with
certain conditions
contained in a rule of the Commission, in which case such
obligation will be
treated as having a maturity not exceeding thirteen months. Each
Fund will limit
its purchases of floating and variable rate obligations to
those of the same
quality as it otherwise is allowed to purchase.
A floating or variable rate instrument may be subject
to the Fund's
percentage limitation on illiquid investments if there is no
reliable trading
market for the investment or if the Fund may not demand payment
of the principal
amount within seven days.
FOREIGN SECURITIES. The Money Fund may invest in non-
convertible debt
obligations of foreign banks, foreign corporations and foreign
governments which
obligations are denominated in and pay interest in U.S. dollars.
Investment in
foreign securities involve certain considerations that are
not typically
associated with investing in domestic securities.
Investments in foreign
securities typically involve higher transaction costs than
investments in U.S.
securities. Foreign investments may have risks associated with
currency exchange
rates, political liability, less complete financial
information about the
issuers and less market liquidity. Future political and economic
developments,
possible imposition of withholding taxes on income, seizure or
nationalization
of foreign holdings, establishment of exchange controls or the
adoption of other
governmental restrictions might adversely affect the payment
of principal and
interest on foreign obligations. In addition, foreign banks and
foreign branches
of domestic banks may be subject to less stringent reserve
requirements than and
to different accounting, auditing and recordkeeping
requirements from domestic
banks.
GUARANTEED INVESTMENT CONTRACTS. The Money Fund may
invest in guaranteed
investment contracts (``GICs'') issued by U.S. and Canadian
insurance companies.
GICs require the Fund to make cash contributions to a
deposit fund of an
insurance company's general account. The insurance company then
makes payments
to the Fund based on negotiated, floating or fixed interest
rates. A GIC is a
general obligation of the issuing insurance company and not a
separate account.
The purchase price paid for a GIC becomes part of the general
assets of the
insurance company, and the contract is paid from the insurance
company's general
assets. Generally, GICs are not assignable or
transferable without the
permission of the issuing insurance companies, and an active
secondary market in
GICs does not currently exist. In accordance with guidelines
established by the
Company's Board of Directors, GICs may be considered illiquid
securities and,
therefore, subject to the Fund's 10% limitation on such
investments. All
purchases of GICs by the Fund will be subject to the
applicable quality
requirements described under ``Investment Objectives and
Policies.''
ILLIQUID SECURITIES. A Fund will not invest more than 10%
of the value of
its net assets in securities that are considered illiquid.
Repurchase agreements
and time deposits that do not provide for payment to the Fund
within seven days
after notice or which have a term greater than seven days are
deemed illiquid
securities for this purpose (unless such securities are
variable amount master
demand notes with maturities of nine months or less or unless
the Portfolio
Management Agent or Investment Adviser has determined under the
supervision and
direction of the Company's Board of Directors that an adequate
trading market
exists for such securities or that market quotations are readily
available).
11
<PAGE>
Each Fund may also purchase Rule 144A securities sold to
institutional
investors without registration under the Securities Act of 1933
and commercial
paper issued in reliance upon the exemption in Section 4(2) of
the Securities
Act of 1933. These securities may be determined to be liquid in
accordance with
guidelines established by the Portfolio Management Agent or
Investment Adviser
and approved by the Company's Board of Directors. The Board of
Directors will
monitor the Portfolio Management Agent's or Investment Adviser's
implementation
of these guidelines on a periodic basis.
INVESTMENT COMPANY SECURITIES. In connection with the
management of its
daily cash positions, each Fund may invest in securities
issued by investment
companies that invest in short-term, debt securities and which
seek to maintain
a $1.00 net asset value per share. To the extent that the
Tax-Exempt Fund
invests in such investment companies, it will invest in
investment companies
that invest primarily in municipal obligations that are
exempt from federal
income taxes. Securities of investment companies will be
acquired by a Fund
within the limits prescribed by the Investment Company Act of
1940, as amended
(the ``1940 Act''). These limit each Fund so that: (i) not more
than 5% of the
value of its total assets will be invested in the
securities of any one
investment company; (ii) not more than 10% of the value of its
total assets will
be invested in the aggregate in securities of investment
companies as a group;
and (iii) not more than 3% of the outstanding voting stock of any
one investment
company will be owned by the Fund or by the Company as a whole.
As a shareholder
of another investment company, a Fund would bear, along with
other shareholders,
its pro rata portion of the other investment company's
expenses, including
advisory fees. These expenses would be in addition to the
advisory and other
expenses that a Fund bears directly in connection with its own
operations.
MUNICIPAL OBLIGATIONS. The Tax-Exempt Money Fund may invest
in short- term
tax-exempt obligations issued by or on behalf of states,
territories and
possessions of the U.S., the District of Columbia, and
their respective
authorities, agencies, instrumentalities and political
subdivisions that have
remaining maturities not exceeding thirteen months. Such
Municipal Obligations
include municipal bonds, municipal notes and municipal
commercial paper.
Municipal bonds generally have a maturity at the time of
issuance of up to 30
years. Municipal notes generally have maturities at the time
of issuance of
three years or less. These notes are generally issued in
anticipation of the
receipt of tax funds, the proceeds of bond placements or other
revenues. The
ability of an issuer to make payments is therefore
dependent on these tax
receipts, proceeds from bond sales or other revenues, as
the case may be.
Municipal commercial paper is a debt obligation with an
effective maturity or
put date of 270 days or less that is issued to finance seasonal
working capital
needs or as short-term financing in anticipation of longer-term
debt.
OTHER SHORT-TERM CORPORATE OBLIGATIONS INCLUDING
VARIABLE AMOUNT MASTER
DEMAND NOTES. The Money Fund may invest in convertible and non-
convertible debt
securities of domestic corporations and of foreign corporations
and governments
that are denominated in and pay interest in U.S. dollars,
consisting of notes,
bonds and debentures that have thirteen months or less remaining
to maturity and
meet the applicable quality standards described under
``Investment Objectives
and Policies,'' and in variable amount master demand notes.
Variable amount
master demand notes differ from ordinary commercial paper
in that they are
issued pursuant to a written agreement between the issuer and the
holder. Their
amounts may from time to time be increased by the holder
(subject to an agreed
maximum) or decreased by the holder or the issuer; they are
payable on demand or
after an
12
<PAGE>
agreed-upon notice period, e.g., seven days; and the rates
of interest vary
pursuant to an agreed-upon formula. Generally, master demand
notes are not rated
by a rating agency. However, the Fund may invest in these
obligations if, in the
opinion of the Portfolio Management Agent, they are of an
investment quality
comparable to rated securities in which the Fund may invest.
The Portfolio
Management Agent monitors the creditworthiness of issuers of
master demand notes
on a daily basis. Transfer of these notes is usually restricted
by the issuer,
and there is no secondary trading market for these notes.
The Fund may not
invest in a master demand note with a demand notice period of
more than seven
days, if, as a result, more than 10% of the value of the Fund's
total net assets
would be invested in these notes, together with other illiquid
securities.
REPURCHASE AGREEMENTS. Each 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.
Each 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
10% of the market value of that Fund's total net assets would
be invested in
repurchase agreements with a maturity of more than seven
days and in other
illiquid securities. The Funds will enter into repurchase
agreements only with
registered broker/dealers and commercial banks that meet
guidelines established
by the Company's Board of Directors.
SECURITIES WITH PUT RIGHTS. To maintain liquidity, the Funds
may enter into
puts with respect to portfolio securities with banks or
broker/dealers that, in
the opinion of the Portfolio Management Agent, or Investment
Adviser with
respect to the Tax-Exempt Money Fund, present minimal credit
risks. The ability
of the Funds to exercise a put will depend on the ability
of the bank or
broker/dealer to pay for the underlying securities at the
time the put is
exercised. In the event that a bank or broker/dealer defaults on
its obligation
to repurchase an underlying security, the Fund might be unable to
recover all or
a portion of any loss sustained by having to sell the security
elsewhere.
STRIPPED SECURITIES. The Funds may purchase participations
in trusts that
hold U.S. Treasury and agency securities (such as TIGRs and
CATs) and also may
purchase Treasury receipts and other stripped securities,
which represent
beneficial ownership interests in either future interest
payments or the future
principal payments on the securities held by the trust. These
instruments are
issued at a discount to their ``face value'' and may
(particularly in the case
of stripped mortgage-backed securities) exhibit greater price
volatility than
ordinary debt securities because of the manner in which their
principal and
interest are returned to investors. Participations in TIGRs,
CATs and other
similar trusts are not considered U.S. Government
securities. Stripped
securities will normally be considered illiquid investments and
will be acquired
subject to the limitation on illiquid investments unless
determined to be liquid
under guidelines established by the Board of Directors.
U.S. GOVERNMENT OBLIGATIONS. U.S. Government Obligations
consist of bills,
notes and bonds issued by the U.S. Treasury. They are direct
obligations of the
U.S. Government and differ primarily in the length of their
maturities.
13
<PAGE>
U.S. GOVERNMENT AGENCY AND INSTRUMENTALITY OBLIGATIONS.
Obligations of the
U.S. Government agencies and instrumentalities are debt
securities issued by
U.S. Government-sponsored enterprises and federal agencies.
Some of these
obligations are supported by: (a) the full faith and credit of
the U.S. Treasury
(such as Government National Mortgage Association participation
certificates);
(b) the limited authority of the issuer to borrow from the U.S.
Treasury (such
as securities of the Federal Home Loan Bank); (c) the
authority of the U.S.
Government to purchase certain obligations of the issuer (such
as securities of
the Federal National Mortgage Association); or (d) the
credit of the issuer
only. In the case of obligations not backed by the full faith
and credit of the
U.S., the investor must look principally to the agency issuing
or guaranteeing
the obligation for ultimate repayment.
WHEN-ISSUED SECURITIES. Each Fund may purchase securities on
a when- issued
basis, in which case delivery and payment normally take place
within 45 days
after the date of the commitment to purchase. The Funds will make
commitments to
purchase securities on a when-issued basis only with the
intention of actually
acquiring the securities, but may sell them before the
settlement date, if
deemed advisable. The purchase price and the interest rate that
will be received
are fixed at the time of the commitment. When-issued securities
are subject to
market fluctuation and no income accrues to the purchaser
prior to issuance.
Purchasing a security on a when-issued basis can involve a risk
that the market
price at the time of delivery may be lower than the agreed upon
purchase price.
Each Fund will establish a segregated account in which it
will maintain
liquid assets in an amount at least equal in value to the Fund's
commitments to
purchase when-issued securities. If the value of these assets
declines, the Fund
will place additional liquid assets in the account on a daily
basis so that the
value of the assets in the account is equal to the amount
of the Fund's
commitments.
INVESTMENT LIMITATIONS
Unless otherwise noted, the foregoing investment
objectives and related
policies and activities of each of the Funds are not
fundamental and may be
changed by the Board of Directors of the Company without the
approval of the
shareholders, provided that the policy relating to investment
company securities
is a fundamental investment policy. If there is a change in a
Fund's investment
objective, shareholders should consider whether the Fund remains
an appropriate
investment in light of their then current financial position and
needs.
As matters of fundamental policy, which may be changed
only with approval
by the vote of the holders of a majority of the Fund's
outstanding voting
securities, as described in the Statement of Additional
Information, no Fund
may: (1) purchase the securities of issuers conducting their
principal business
activity in the same industry if, immediately after the purchase
and as a result
thereof, the value of its investments in that industry would
exceed 25% of the
current value of its total assets, provided that there is no
limitation with
respect to investments (a) in the case of the Tax-Exempt
Money Fund, in
municipal obligations (for the purpose of this restriction,
private activity
bonds shall not be deemed municipal obligations if the payment
of principal and
interest on such bonds is the ultimate responsibility of
non-governmental
users), (b) in obligations of the U.S. Government,
its agencies or
instrumentalities, or (c) in the case of the Money Fund,
certain bank
obligations in which the Fund may invest, as set forth in this
Prospectus; (2)
invest more than 5% of the current value of its total assets in
the securities
of any one issuer, other than obligations of the U.S.
Government, its agencies
or instrumentalities, except that up to 25% of the value of the
total assets of
a Fund (other than the Money
14
<PAGE>
Fund and the Government Money Fund) may be invested without
regard to this
limitation; (3) purchase securities of an issuer if, as a
result, with respect
to 75% of its total assets, it would own more than 10% of the
voting securities
of such issuer; or (4) borrow from banks, except that it may
borrow up to 10% of
the current value of its total assets for temporary purposes
only in order to
meet redemptions, and these borrowings may be secured by the
pledge of up to 10%
of the current value of the Fund's net assets (but
investments may not be
purchased while borrowings are in excess of 5%). It is also a
fundamental policy
that each Fund may make loans of portfolio securities, and
invest up to 10% of
the current value of its net assets in repurchase agreements
having maturities
of more than seven days, variable amount master demand notes
having notice
periods of more than seven days, fixed time deposits subject
to withdrawal
penalties having maturities of more than seven days, and
securities that are not
readily marketable. Although not a matter of fundamental
policy, the Funds
consider the securities of foreign governments to be a
separate industry for
purposes of the 25% asset limitation on investments in the
securities of issuers
conducting their principal business activity in the same
industry.
With respect to the second investment limitation set forth
above, each of
the Money Fund and the Government Money Fund may invest more
than 5% of its
total assets in the securities of a single issuer for a period
of up to three
business days after the purchase thereof, so long as it does not
make more than
one such investment at any one time.
MANAGEMENT
The Board of Directors has overall responsibility for the
conduct of the
affairs of the Funds and Company. The members of the Board and
their principal
occupations are as follows:
BOARD OF DIRECTORS
Edgar R. Fiedler Vice President and Economic Counsellor,
The Conference
Board.
C. Gary Gerst Chairman of the Board of Directors
and Trustees;
Chairman Emeritus, La Salle Partners,
Ltd. (Real Estate
Developer and Manager).
John W. McCarter, Jr. Senior Vice President, Booz Allen &
Hamilton, Inc.
(Consulting Firm); Director of W.W.
Grainger, Inc. and
A.M. Castle, Inc.
Ernest M. Roth Consultant; Retired Senior Vice
President and Chief
Financial Officer, Commonwealth Edison
Company.
INVESTMENT ADVISER
The Company has entered into an Advisory Contract with
Harris Trust with
respect to each of the Funds. Harris Trust, located at 111 West
Monroe Street,
Chicago, Illinois, is the successor to the investment
banking firm of N.W.
Harris & Co. that was organized in 1882 and was incorporated in
1907 under the
present name of the bank. It is an Illinois state-chartered bank
and a member of
the Federal Reserve System. At December 31, 1994, Harris
Trust had assets of
more than $13
15
<PAGE>
billion and was the largest of 14 banks owned by Harris
Bankcorp, Inc. Harris
Bankcorp, Inc. is a wholly-owned subsidiary of Bankmont
Financial Corp., which
is a wholly-owned subsidiary of Bank of Montreal, a publicly
traded Canadian
banking institution.
As of December 31, 1994, Harris Trust managed more
than $8 billion in
personal trust assets, and acted as custodian of more than
$151 billion in
assets.
With respect to the Tax-Exempt Money Fund, the Advisory
Contract provides
that Harris Trust shall make investments for the Fund in
accordance with the
Investment Adviser's best judgment. With respect to the
Government Money and
Money Funds, the Advisory Contracts provide that Harris Trust is
responsible for
the supervision and oversight of the Portfolio Management
Agent's performance
(as discussed below).
Because the Funds entered into new Advisory Contracts with
Harris Trust on
October 20, 1993, two Advisory Contracts and related fee
schedules were in
effect during the fiscal year ended December 31, 1993.
Under the Advisory
Contracts then in effect for the period from January 1, 1993
to October 19,
1993, Harris Trust was entitled to receive monthly advisory
fees at the annual
rate of 0.50% of the average daily net assets of each of the
Funds. Under the
Funds' existing Advisory Contracts which became effective
October 20, 1993,
Harris Trust is entitled to receive monthly advisory fees at the
annual rate of
0.14% of the first $100 million of each Fund's average daily
net assets, plus
0.10% of each Fund's average daily net assets in excess of $100
million. The
following are the advisory fees calculated under the
applicable Advisory
Contract, paid to Harris Trust for each Fund as a percentage of
average daily
net assets for the the fiscal year ended December 31, 1995,
respectively: the
Government Money Fund, 0.11%; the Money Fund, 0.11%; and the
Tax-Exempt Money
Fund, 0.11%.
The Investment Adviser had undertaken to waive the fees
payable to it by
each of the Funds to the extent the payment of such fees would
cause the expense
ratios of those Funds to exceed 0.75%; that undertaking
terminated on December
31, 1994. The Investment Adviser may continue to voluntarily
waive a portion of
its fees. No investment advisory fees were waived for the year
ended December
31, 1995.
Purchase and sale orders of the securities held by the
Tax-Exempt Money
Fund may be combined with those of other accounts that Harris
Trust manages, and
for which it has brokerage placement authority, in the interest
of seeking the
most favorable overall net results. When Harris Trust
determines that a
particular security should be bought or sold for the Tax-Exempt
Money Fund and
other accounts managed by Harris Trust, Harris Trust
undertakes to allocate
those transactions among the participants equitably.
PORTFOLIO MANAGEMENT AGENT
Harris Trust has entered into Portfolio Management
Contracts with Harris
Investment Management, Inc. (``HIM'' or the ``Portfolio
Management Agent'')
under which HIM undertakes to furnish investment guidance and
policy direction
in connection with the daily portfolio management of the
Government Money and
Money Funds.
For the services provided by HIM, Harris Trust pays to
HIM the advisory
fees it receives from the Funds other than the Tax-Exempt Money
Fund. For the
fiscal years ended December 31, 1995 and 1994, Harris Trust paid
fees to HIM (i)
at the rate of 0.11% and 0.11% of the average daily net assets of
the Government
Money Fund, and (ii) at the rate of 0.11% and 0.11% of the
average daily net
assets of the Money Fund.
16
<PAGE>
Purchase and sale orders of the securities held by each of
the Funds (other
than the Tax-Exempt Money Fund) may be combined with those of
other accounts
that HIM manages, and for which it has brokerage placement
authority, in the
interest of seeking the most favorable overall net results. When
HIM determines
that a particular security should be bought or sold for any
of the Funds and
other accounts managed by HIM, HIM undertakes to allocate
those transactions
among the participants equitably.
GLASS-STEAGALL ACT
The Glass-Steagall Act, among other things, generally
prohibits federally
chartered or supervised banks from engaging to any extent in
the business of
issuing, underwriting, selling or distributing securities,
although subsidiaries
of bank holding companies such as Harris Trust and HIM are
permitted to purchase
and sell securities upon the order and for the account of their
customers.
It is the position of Harris Trust and HIM that they
may perform the
services contemplated by the Advisory Contracts, the
Portfolio Management
Contracts and this Prospectus without violation of the Glass-
Steagall Act or
other applicable federal banking laws or regulations. It is
noted, however, that
there are no controlling judicial or administrative
interpretations or decisions
and that future judicial or administrative interpretations
of, or decisions
relating to, present federal statutes and regulations
relating to the
permissible activities of banks and their subsidiaries or
affiliates, as well as
future changes in federal statutes or regulations and judicial or
administrative
decisions or interpretations thereof, could prevent Harris
Trust or HIM from
continuing to perform, in whole or in part, such services. If
Harris Trust or
HIM were prohibited from performing any of such services, it
is expected that
the Board of Directors of the Company would recommend to the
Funds' shareholders
that they approve new agreements with another entity or
entities qualified to
perform such services and selected by the Board of Directors.
To the extent permitted by the Commission, the Funds may
pay brokerage
commissions to certain affiliated persons. No such commission
payments have been
made during the last fiscal year.
ADMINISTRATORS, CUSTODIAN AND TRANSFER AGENT
First Data Investor Services Group, Inc. (formerly known as
The Shareholder
Services Group, Inc.) (``First Data'' or the ``Administrator'')
and PFPC Inc.
(``PFPC'' or the ``Administrator and Accounting
Services Agent,''),
(collectively, the ``Administrators'') serve as the Company's
administrators. In
such capacity, the Administrators generally assist the Company in
all aspects of
its administration and operation. PFPC also serves as the
transfer and dividend
disbursing agent of the Funds (the ``Transfer Agent'').
PNC Bank, N.A. (the ``Custodian'') serves as custodian of
the assets of the
Funds. PFPC and the Custodian are indirect, wholly-owned
subsidiaries of PNC
Bank Corp.
As compensation for their services, the Administrators, the
Custodian, and
the Transfer Agent are entitled to receive a combined fee based
on the aggregate
average daily net assets of the Funds and the Company's
other investment
portfolios (Harris Insight Equity Fund, Intermediate Bond Fund
and Hemisphere
Free Trade Fund (``Harris Non-Money Market Funds'')), payable
monthly at an
annual rate of .17% of the first $300 million of average daily
net assets; .15%
of the next $300 million; and .13% of average net assets in
excess of $600
million. In addition, a separate fee is charged by PFPC for
certain retail
transfer agent services and for various custody transactional
charges.
17
<PAGE>
DISTRIBUTOR
Funds Distributor, Inc. (the ``Distributor'') has
entered into a
Distribution Agreement with the Company pursuant to
which it has the
responsibility for distributing shares of the Funds. The
Distributor bears the
cost of printing and mailing prospectuses to potential
investors and any
advertising expenses incurred by it in connection with the
distribution of
shares, subject to the terms of the Service Plans described
below.
See ``Management'' and ``Custodian'' in the Statement
of Additional
Information for additional information regarding the
Company's Investment
Adviser, Portfolio Management Agent, Administrators, Custodian,
Transfer Agent
and Distributor.
EXPENSES
Except for certain expenses borne by the Distributor, Harris
Trust and HIM,
the Company bears all costs of its operations, including the
compensation of its
directors who are not affiliated with Harris Trust, HIM or the
Distributor or
any of their affiliates; advisory and administration fees;
payments pursuant to
any Service Plan; interest charges; taxes; fees and expenses of
its independent
accountants, legal counsel, transfer agent and dividend
disbursing agent;
expenses of preparing and printing prospectuses (except the
expense of printing
and mailing prospectuses used for promotional purposes, unless
otherwise payable
pursuant to a Service Plan), shareholders' reports, notices,
proxy statements
and reports to regulatory agencies; insurance premiums and
certain expenses
relating to insurance coverage; trade association membership
dues; brokerage and
other expenses connected with the execution of
portfolio securities
transactions; fees and expenses of the Funds' custodian
including those for
keeping books and accounts and calculating the net asset value
per share of the
Funds; expenses of directors' and shareholders' meetings;
expenses relating to
the issuance, registration and qualification of shares of the
Funds; pricing
services; organizational expenses; and any extraordinary
expenses. Expenses
attributable to each Fund are charged against the assets of
that Fund. Other
general expenses of the Company are allocated among the Funds
and the Harris
Non-Money Market Funds in an equitable manner as determined
by the Board of
Directors.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Fund is determined on
each day that the
New York Stock Exchange (``NYSE'') and the Federal Reserve Bank
of Philadelphia
(the ``Fed'') are open for trading. For a list of the days on
which the net
asset value will not be determined, see ``Determination of Net
Asset Value'' in
the Statement of Additional Information. The net asset value
per share of each
of the Funds is determined by dividing the value of the total
assets of the Fund
less all of its liabilities by the total number of outstanding
shares of the
Fund.
The net asset value per share of each class of shares
of the Funds is
determined at 12:00 Noon, New York City time. Each of the
Funds uses the
amortized cost method to value its portfolio securities and
each attempts to
maintain a constant net asset value of $1.00 per share. 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.
18
<PAGE>
PURCHASE OF SHARES
Shares of any of the Funds may be purchased
through authorized
broker/dealers, financial institutions and service agents
(``Institutions'') on
any day the NYSE and the Fed are open for business. Individual
investors will
purchase all shares directly through Institutions which will
transmit purchase
orders directly to the Distributor. Institutions are responsible
for the prompt
transmission of purchase, exchange or redemption orders, and
may independently
establish and charge additional fees to their customers for such
services, which
would reduce the customers' yield or return. The Company does
not impose any
minimum initial or subsequent investment limitations. Each
Institution through
which shares may be purchased may establish its own terms with
respect to the
requirement of a minimum initial investment and minimum
subsequent investments.
The Company reserves the right to reject any purchase order.
All funds will
be invested in full and fractional shares. Checks will be
accepted for the
purchase of any Fund's shares subject to collection at full
face value in U.S.
dollars. Inquiries may be directed to the Company at the
address and telephone number on the cover of this Prospectus.
Purchase orders for shares of the Funds received in
good order by the
Distributor before 12:00 Noon (New York City time) will be
executed that day.
Institutions through which orders are placed may set earlier
purchase deadlines.
Purchase orders received in good order after 12:00 Noon (New
York City time)
will be executed on the next business day on which the net
asset value is
calculated.
Shares of the Funds are offered continuously at the net
asset value next
determined after a purchase order is effective; the net asset
value is expected
to remain constant at $1.00. No sales charge is imposed.
A salesperson and any other person entitled to receive
compensation for
selling or servicing shares of a Fund may receive different
compensation for
selling or servicing shares of one class as compared with another
class.
Orders for the shares of Funds will become effective when
an investor's
bank wire order or check is converted into federal funds.
Wires for purchases
will be accepted only in federal funds or other funds
immediately available to
the Custodian. Wire transmissions may, however, be subject to
delays of several
hours, in which event the effectiveness of the order will be
delayed. Payments
transmitted by a bank wire other than the Federal Reserve Wire
System may take
longer to be converted into federal funds. When payment for
shares is by check
drawn on any member bank of the Federal Reserve System, federal
funds normally
become available to the Fund on the business day after the check
is deposited.
Checks drawn on a non-member bank or a foreign bank may take
substantially
longer to be converted into federal funds and, accordingly,
may delay the
execution of an order.
Depending upon the terms of the particular customer
account, financial
services institutions, including Harris Trust and HIM, may
charge account fees
for automatic investment and other cash management services
which they provide,
including, for example, account maintenance fees,
compensating balance
requirements, or fees based upon account transactions, assets,
or income. This
Prospectus should be read in connection with any information
received from
financial services institutions.
Each of the Funds offers two additional classes of shares,
Class B Shares
and Institutional Shares, in addition to the Class A Shares
described in this
Prospectus. Class B Shares and Institutional Shares each have
different expense
levels which may affect performance. Investors may call 1-800-
982-8782 to obtain
more information concerning Class B Shares and Institutional
Shares of the
Funds.
19
<PAGE>
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net
asset value after
receipt of a proper request by the Distributor directly
or through any
Institution. See page .
The Company makes no charge for redemption transactions, but
an Institution
may charge an account-based service fee. Redemption orders
received by an
Institution before 12:00 Noon, New York City time, (on each day
that net asset
value is determined) with respect to shares of the Funds and
received by the
Distributor before the close of business on the same day will
be executed at
such Fund's net asset value per share next determined on that
day. Redemption
orders received by an Institution after the close of the NYSE,
or not received
by the Distributor prior to the close of business, will be
executed at such
Fund's net asset value next determined on the next business day.
If a redemption order for shares of the Funds is received
in good order by
the Distributor before 12:00 Noon (New York City time) payment
will normally be
remitted the same day. In the case of a redemption request made
shortly after a
recent purchase, the redemption proceeds will be distributed
upon the clearance
of the shareholder's check used to purchase the Company's shares
which may take
up to 15 days or more after the investment. The proceeds may
be more or less
than cost and, therefore, a redemption may result in a gain or
loss for federal
income tax purposes. Payment of redemption proceeds may be
made in readily
marketable securities.
REDEMPTION THROUGH INSTITUTIONS
Proceeds of redemptions made through authorized
Institutions will be
credited to the shareholder's account with the
Institution. A redeeming
shareholder may request a check from the Institution or may
elect to retain the
redemption proceeds in such shareholder's account. The
Institution may benefit
from the use of the redemption proceeds prior to the clearance of
a check issued
to a redeeming shareholder for the proceeds or prior to
disbursement or
reinvestment of the proceeds on behalf of the shareholder.
REDEMPTION BY EXPEDITED REDEMPTION SERVICE
If shares of the Funds are held directly by the Transfer
Agent in book
credit form and the Expedited Redemption Service has been
elected on the
Purchase Application on file with the Transfer Agent,
redemption of shares may
be requested by telephone, on any day the Company and the
Transfer Agent are
open for business. The Company and its Transfer Agent will
attempt to confirm
that telephone instructions are genuine and will use
procedures as are
considered reasonable. In this regard the Company and its
Transfer Agent require
personal identification information before accepting
telephonic redemption
instructions. The shareholder will bear the risk of loss due to
fraud, although
the Company and its agents may have a risk of loss if reasonable
procedures are
not used. The Distributor can be reached by calling (800) 982-
8782.
Upon request, proceeds of Expedited Redemptions of $1,000
or more will be
wired to the shareholder's bank indicated in the Purchase
Application. If an
Expedited Redemption request is received by the Transfer
Agent by 12:00 Noon
(New York City time) on a day the Company and the Transfer
Agent are open for
business, the redemption proceeds will be transmitted to the
shareholder's bank
that same day. A check for the proceeds of less than $1,000
will be mailed to
the shareholder's address of record, except that, in the case of
investments in
the Company that have been effected through Institutions, the
full amount of the
redemption proceeds will be transmitted by wire.
20
<PAGE>
Because of the high cost of maintaining small
accounts, the Company
reserves the right to involuntarily redeem accounts on behalf
of shareholders
whose share balances fall below $500 unless this balance
conditions results a
decline in the market value of such Fund's assets. Prior to such
a redemption, a
shareholder will be notified in writing and permitted 30 days to
make additional
investments to raise the account balance to the specified
minimum.
SERVICE PLAN
Under each Fund's Service Plan relating to Class A Shares,
each Fund will
enter into a Servicing Agreement with institutions, such as
banks, savings and
loan associations and other financial institutions (``Service
Organizations''),
that require the Service Organization to provide certain
shareholder support
services and distribution assistance in consideration of the
Fund's payment of
up to 0.35% (on an annualized basis) of the average daily net
asset value of the
Class A Shares, held by or for the benefit of customers
of the Service
Organization (``Customers''). Services, which are
provided by Service
Organizations, and are described more fully in the Statement
of Additional
Information under ``Service Plans - Money Market Funds,''
include aggregating
and processing purchase and redemption orders; processing
dividend payments from
the Funds on behalf of Customers; arranging for the
reinvestment of dividend
payments; providing information periodically to Customers
showing their
positions in shares; arranging for bank wires; responding to
Customer inquiries
relating to the services provided by the Service Organization
and handling
correspondence; acting as shareholder of record and nominee;
and providing
distribution assistance and support services. Under the terms
of the Servicing
Agreements, Service Organizations are required to provide to
their Customers a
schedule of any fees that they may charge Customers in
connection with their
investments in Class A Shares.
DIVIDENDS AND DISTRIBUTIONS
The Company declares as a dividend on the outstanding
shares of each class
of a Fund substantially all of such Fund's net investment income
at the close of
each business day to shareholders of record at 12:00 Noon (New
York City time)
on the day of declaration. Shares purchased will begin earning
dividends on the
day the purchase order is executed and shares redeemed will
earn dividends
through the previous day, except that with respect to the
Check Redemption
Service, shares redeemed will cease to earn dividends on the
day the check is
charged to the Custodian's account at its Federal Reserve Bank.
Net investment
income for a Saturday, Sunday or holiday will be declared as a
dividend on the
previous business day to shareholders of record at 12:00 Noon
(New York City
time) on that day.
Investment income for any class of shares of a Fund
includes, among other
things, interest income, market and original issue discount and
premium. Fund
dividends declared in and attributable to the preceding month
will be paid on
the first business day of each month. Dividends are
determined in the same
manner and are paid in the same amount for each Fund share,
except that Class A
and Class B Shares 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 Funds. Each Fund's net taxable capital gains, if any, will be
distributed at
least annually (except to the extent permitted to avoid
imposition of the 4%
excise tax described below). Dividends and distributions
paid by any of the
Funds will be invested in additional shares of the same Fund at
net asset value
and credited to the shareholder's account on the payment
date or, at the
21
<PAGE>
shareholder's election, paid in cash. Dividend checks and
Statements of Account
will be mailed approximately two business days after the payment
date. Each Fund
forwards to the Transfer Agent the monies for dividends to be
paid in cash on
the payment date.
Shareholders who redeem all their shares of any of the
Funds prior to a
dividend payment will receive, in addition to the redemption
proceeds, dividends
declared but unpaid. Shareholders who redeem only a portion of
their shares will
be entitled to all dividends declared but unpaid on such
shares on the next
dividend payment date.
FEDERAL INCOME TAXES
Each Fund (and each Harris Non-Money Market Fund) will
be treated as a
separate entity for tax purposes and thus the provisions of the
Internal Revenue
Code of 1986, as amended (the ``Code'') generally will be
applied to each Fund
separately, rather than to the Company as a whole. As a
result, net capital
gains, net investment income, and operating expenses will
be determined
separately for each Fund. The Company intends to qualify
each Fund as a
regulated investment company under Subchapter M of the Code. As
portfolios of a
regulated investment company, each Fund will not be subject to
federal income
taxes with respect to net investment income and net capital gains
distributed to
its shareholders, as long as it distributes 90% or more of its
net investment
income (including net short-term capital gains) each year and,
in the case of
the Tax-Exempt Money Fund, as long as it distributes to its
shareholders at
least 90% of its net tax-exempt income (including net short-term
capital gains).
Dividends from net investment income (including net
short-term capital
gains), except ``exempt-interest dividends'' (described below),
will be taxable
as ordinary income. Because more than 50% of the value of the
total assets of
the Tax-Exempt Money Fund at the close of each quarter of its
taxable year is
expected to consist of obligations the interest on which is
exempt from federal
income tax, the Tax-Exempt Money Fund expects to qualify under
the Code to pay
``exempt- interest dividends.'' Dividends distributed by the
Tax-Exempt Money
Fund that are attributable to interest from tax-exempt
securities will be
designated by the Fund as an ``exempt-interest dividend,''
and, as such, will
generally be exempt from federal income tax.
Because substantially all of the income of each Fund
will arise from
interest, no part of the distributions to shareholders is
expected to qualify
for the dividends- received deduction allowed to corporations
under the Code.
Distributions of net long-term capital gains, if any,
will be taxable as
long-term capital gains, whether received in cash or
reinvested in additional
shares, regardless of how long the shareholder has held the
shares, and will not
qualify for the dividends received deductions.
In the case of the shareholders of the Tax-Exempt Money
Fund, interest on
indebtedness incurred or continued to purchase or carry shares
of the Fund will
not be deductible to the extent that the Fund's distributions
are exempt from
federal income tax. In addition, the portion of an exempt-
interest dividend
allocable to certain tax-exempt obligations will be treated as a
preference item
for purposes of the alternative minimum tax imposed on both
individuals and
corporations. Persons who may be ``substantial users'' (or
``related persons''
of substantial users) of facilities financed by private
activity bonds should
consult their tax advisers before purchasing shares in the
Tax-Exempt Money
Fund.
22
<PAGE>
The exemption of exempt-interest dividends paid by the
Tax-Exempt Money
Fund for federal income tax purposes may not result in similar
exemptions under
the tax law of state and local authorities. In general, only
interest earned on
obligations issued by the state or locality in which the
investor resides will
be exempt from state and local taxes. Shareholders should consult
their advisers
about the status of dividends from the Tax-Exempt Money Fund in
their own states
and localities. Each year the Company will notify shareholders of
the tax status
of distributions.
Any loss realized on a sale or exchange of shares of
the Fund will be
disallowed to the extent shares are acquired within the 61-day
period beginning
30 days before and ending 30 days after disposition of the
shares.
The Company will be required to withhold, subject to
certain exemptions,
currently at a rate of 31%, from dividends paid or credited
to individual
shareholders (except shareholders from the Tax-Exempt Money
Fund to the extent
it distributes an exempt-interest dividend) and from redemption
proceeds, if a
correct taxpayer identification number, certified when required,
is not on file
with the Company or Transfer Agent.
ACCOUNT SERVICES
Shareholders receive a Statement of Account whenever a
share transaction,
dividend or capital gain distribution is effected in the
accounts, or at least
annually. Shareholders can write or call the Funds at the
address and telephone
number on page one of this Prospectus with any questions
relating to their
investment in shares of the Funds.
ORGANIZATION AND CAPITAL STOCK
The Company was incorporated in Maryland on September
16, 1987 as an
open-end, diversified management investment company.
The authorized capital stock of the Company consists of
10,000,000,000
shares having a par value of $.001 per share. Currently the
Company has six
portfolios in operation. The Board has authorized each of the
three Money Market
Funds to issue three classes of shares, Class A, Class B and
Institutional
Shares. Only Class A and Institutional Shares are in operation as
of the date of
this Prospectus. In the future, the Board of Directors may
authorize the
issuance of shares of additional investment portfolios and
additional classes of
shares of a single portfolio may bear different sales charges and
other expenses
which may affect their relative performance. Information
regarding other classes
of shares may be obtained by calling the Company at the
telephone number shown
on the cover page of this Prospectus or from any
institution which makes
available shares of the Funds. All shares of the Company
have equal voting
rights and will be voted in the aggregate, and not by class,
except where voting
by class is required by law or where the matter involved affects
only one class.
A more detailed statement of the voting rights of shareholders
is contained in
the Statement of Additional Information. All shares of the
Company, when issued,
will be fully paid and non-assessable. The Directors, when
requested by at least
10% of the Company's outstanding shares, will call a meeting of
shareholders for
the purpose of voting upon the question of removal of a
director or directors
and will assist in communications with other shareholders as
required by Section
16(c) of the 1940 Act.
As of January , 1996, the holders of record of 25%
or more of the
outstanding shares of the Funds were as follows: Harris Trust
held of record
[452,400,831] shares, equal to [95.4%] of the outstanding
shares of the Money
Market Fund -- Class A Shares; [212,568,017] shares, equal to
[99.9%] of the
outstanding shares of the Money
23
<PAGE>
Market Fund -- Institutional Shares; [353,569,130] shares,
equal to [93.8%] of
the outstanding shares of the Government Money Market Fund --
Class A Shares;
[46,202,467] shares, equal to [99.9%] of the outstanding
shares of the
Government Money Market Fund -- Institutional Shares;
[147,351,701] shares,
equal to [90.2%] of the outstanding shares of the Tax-Exempt
Money Market Fund
- -- Class A Shares; and [257,818,062] shares, equal to [99.9%] of
the outstanding
shares of the Tax-Exempt Money Market Fund - Institutional
Shares.
REPORTS TO SHAREHOLDERS
The fiscal year of the Company ends on December 31. The
Company will send
to its shareholders a semi-annual report showing the investments
held by each of
the Funds and other information (including unaudited
financial statements)
pertaining to the Company. An annual report, containing
financial statements
audited by the Company's independent accountants, will
also be sent to
shareholders.
CALCULATION OF YIELD
From time to time the Funds advertise ``yield,''
``effective yield'' and
``total return'' for Class A Shares. The Tax-Exempt Money
Fund may also
advertise its ``tax-equivalent yield'' and ``total return.''
``Total return''
refers to the amount an investment in Class A Shares of a
Fund would have
earned, including any increase or decrease in net asset value,
over a specified
period of time and assumes reinvestment of all dividends and
distributions. The
total return of a Fund shows what an investment in the Fund
would have earned
over a specified period of time (such as one, five or ten years
or the period of
time since commencement of operations, if shorter) assuming the
reinvestment of
all distributions and dividends by the Fund on their
reinvestment dates during
the period less all recurring fees.
The yield of a class of shares in the Funds refers to the
income generated
by an investment in the Fund over a seven-day period (which
period will be
stated in the advertisement). The income is then
``annualized.'' That is, the
amount of income generated by the investment during that week
is assumed to be
generated each week over a 52-week period and is shown as a
percentage of the
investment. The effective yield is calculated similarly but,
when annualized,
the income earned by an investment in the Fund is assumed to be
reinvested. The
effective yield will be slightly higher than the yield
because of the
compounding effect of this assumed reinvestment. The ``tax-
equivalent yield''
refers to the yield on a taxable investment necessary to
produce an after-tax
yield equal to a Fund's tax-free yield, and is calculated by
increasing the
yield shown for the Fund to the extent necessary to reflect
the payment of
specified tax rates. Thus, the tax-equivalent yield for a
Fund will always
exceed that Fund's yield.
From time to time the Funds advertise ``30-day
average yield'' and
``monthly average yield.'' Such yields refer to the average
daily income
generated by an investment in such Fund over a 30-day or
monthly period, as
appropriate (which period will be stated in the advertisement).
A Fund's performance figures for a class of shares
represent past
performance, will fluctuate and should not be considered as
representative of
future results. The yield of any investment is generally a
function of portfolio
quality and maturity, type of instrument and operating expenses.
Investors who purchase and redeem shares of any Fund through
Service Agents
may be subject to service fees imposed by those entities with
respect to the
cash management and other services they provide. Such fees will
have the effect
of reducing the return for those investors.
24
<PAGE>
INVESTMENT ADVISER
Harris Trust & Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
PORTFOLIO MANAGEMENT AGENT
Harris Investment Management, Inc.
190 South LaSalle Street
Chicago, Illinois 60603
ADMINISTRATORS
First Data Investor Services Group, Inc.
53 State Street
Boston, Massachusetts 02109
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
DISTRIBUTOR
Funds Distributor, Inc.
One Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
PNC Bank, N.A.
Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
PFPC Inc.
P.O. Box 8950
Wilmington, Delaware 19885
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Philadelphia, Pennsylvania
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
25
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>
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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.
5
<PAGE>
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.
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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
9
<PAGE>
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.
10
<PAGE>
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.
11
<PAGE>
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.
12
<PAGE>
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.
13
<PAGE>
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
14
<PAGE>
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.
15
<PAGE>
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
16
<PAGE>
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
17
<PAGE>
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.
18
<PAGE>
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
19
<PAGE>
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
20
<PAGE>
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.
23
<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>
FINANCIAL STATEMENTS
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
======
The Financial Statements for the year ended December 31,
1995 including
the notes thereto, have been audited by Price Waterhouse
LLP and are
incorporated by reference in the Statement of Additional
Information from the
Annual Report of the Company dated December 31, 1995.
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.*
___________________
*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.*
(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.
0000927405-95-000160).
(11) Consent of Price Waterhouse, LLP.*
(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.
(16) Not applicable.
(17) Not applicable
(18) Form of Multi-Class Plan filed herein.
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.
Dr. Leo M. Henikoff Director President and Chief Executive
Officer of Rush-Presbyterian - St. Luke's Medical Center.
Position(s) with Principal Business(es) During
Name Harris Trust the Last Two Fiscal Years
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 Officer , 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. 1 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 8th 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. 1 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 8,
1996
Patricia L. Bickimer Executive Officer
/s/ C. Gary Gerst Trustee &
Chairman February 8, 1996
C. Gary Gerst of the Board
/s/ Edgar R. Fiedler Trustee
February 8, 1996
Edgar R. Fiedler
/s/ John W. McCarter, Jr. Trustee
February 8, 1996
John W. McCarter, Jr.
/s/ Ernest M. Roth Trustee
February 8, 1996
Ernest M. Roth
/s/ Richard H. Rose Treasurer
(Principal February 8, 1996
Richard H. Rose Financial Officer)
EXHIBIT INDEX
Exhibit Number Description
Multi-Class Plan
Harris Insight Funds Trust
Multi-Class Plan
Introduction
The purpose of this Plan is to specify the attributes of
the two classes of shares offered by Harris Insight Funds Trust
(the "Trust"), including the sales charges, expense allocations,
conversion features and exchange features of each class, as
required by Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"). In general, shares of each class
will have the same rights and obligations except for one or more
expense variables (which will result in different yields,
dividends and, in the case of the Trust's non-money market
portfolios, net asset values for the different classes), certain
related voting and other rights, exchange privileges, conversion
rights, class designation and sales loads assessed due to
differing distribution methods.
Features of the Classes
Shares of each class of a fund of the Trust shall represent
an equal pro rata interest in such fund, and generally, shall
have identical voting, dividend, liquidation and other rights,
preferences, powers, restrictions, limitations, qualifications,
designations and terms and conditions, except that: (a) each
class shall have a different designation; (b) each class may have
a different sales charge structure; (c) each class of shares
shall bear any class expenses; (d) each class shall have
exclusive voting rights on any matter submitted to shareholders
that relates solely to its arrangement and each class shall have
separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any
other class; and (e) each class may have different exchange
and/or conversion features.
Allocation of Expenses
Pursuant to Rule 18f-3 under the 1940 Act, the Trust shall
allocate to each class of shares in a fund of the Trust (i) any
fees and expenses incurred by the Trust in connection with the
distribution of such class of shares under a distribution plan
adopted for such class of shares pursuant to Rule 12b-1, and (ii)
any fees and expenses incurred by the Trust under a shareholder
servicing plan in connection with the provision of shareholder
services to the holders of such class of shares. In addition,
the President and Chief Financial Officer of the Trust shall
determine, subject to Board approval or ratification, which of
the following fees and expenses may be allocated to a particular
class of shares in a fund of the Trust:
(i) transfer agent fees identified by the transfer agent
as being attributable to such class of shares;
(ii) printing and postage expense related to preparing and
distributing materials such as shareholder reports, prospectuses,
reports, and proxies to current shareholders of such class of
shares or to regulatory agencies with respect to such class of
shares;
(iii) blue sky registration or qualification fees incurred
by such class of shares;
(iv) Securities and Exchange Commission registration fees
incurred by such class of shares;
(v) the expense of administrative personnel and services
(including, but not limited to, those of a portfolio accountant,
custodian or dividend paying agent charged with calculating net
asset values or determining or paying dividends) as required to
support the shareholders of such class of shares;
(vi) litigation or other legal expenses relating solely to
such class of shares;
(vii) fees of the Trust's Trustees incurred as a result of
issues relating to such class of shares; and
(viii) independent accountants' fees relating solely
to such class of shares.
Any changes to the determination of class expenses
allocated to a particular class of shares will be approved by a
vote of the Trustees of the Trust, including a majority of the
Trustees who are not "interested persons" of the Trust as defined
under the 1940 Act.
For purposes of this Plan, a "Daily Dividend Portfolio"
shall be a portfolio which declares distributions of net
investment income daily and/or maintains the same net asset value
per share in each class. Income, realized and unrealized capital
gains and losses, and any expenses of a non-Daily Dividend
Portfolio of the Trust not allocated to a particular class of the
fund pursuant to this Plan shall be allocated to each class of
the fund on the basis of the net asset value of that class in
relation to the net asset value of the fund. Income, realized
and unrealized capital gains and losses, and any expenses of a
Daily Dividend Portfolio, including a money market fund, of the
Trust not allocated to a particular class of the fund pursuant to
this Plan shall be allocated to each class of the fund on the
basis of the relative net assets (settled shares), as defined in
Rule 18f-3, of that class in relation to the net assets of the
fund.
Class A Shares
Class A Shares of a fund are offered at net asset value
plus, for non-money market funds, an initial sales charge as set
forth in the then-current prospectus of a fund. The initial
sales charge may be waived or reduced on certain types of
purchases as set forth in a fund's then-current prospectus.
Class A Shares of a non-money market fund of the Trust may be
exchanged for Class A Shares of another non-money market fund of
the Trust or of HT Insight Funds, Inc. (the "Company") and Class
A Shares of a money market fund of the Trust may be exchanged for
a money market fund of the Trust or the Company without the
imposition of any sales charge.
Class A Shares of funds pay a Rule 12b-1 service fee of up
to 0.25% (annualized) of the average daily net assets of a fund's
Class A Shares. Distribution and support services provided by
brokers, dealers and other institutions may include but are not
limited to: forwarding sales literature and advertising materials
provided by the Trust's distributor; processing purchase,
exchange and redemption requests from customers placing orders
with the Trust's transfer agent; processing dividend and
distribution payments from the funds of the Trust on behalf of
customers; providing information periodically to customers
showing their positions in Class A Shares; providing sub-
accounting with respect to Class A Shares beneficially owned by
customers or the information necessary for sub-accounting;
responding to inquiries from customers concerning their
investment in Class A Shares; arranging for bank wires; and
providing such other similar services as may reasonably be
requested.
Institutional Shares
Institutional Shares of a fund are offered at net asset
value. Institutional Shares of a fund may be exchanged for
Institutional Shares of another fund of the Trust or of the
Company without the imposition of a sales charge. Institutional
Shares pay no Rule 12b-1 distribution or service fees.
Board Review
The Board of Trustees of the Trust shall review this Plan
as frequently as they deem necessary. Prior to any material
amendment(s) to this Plan, the Trust's Board of Trustees,
including a majority of the Trustees who are not interested
persons of the Trust shall find this Plan, as proposed to be
amended (including any proposed amendments to the method of
allocating class and/or fund expenses), is in the best interest
of each class of shares of the Trust individually and the Trust
as a whole. In considering whether to approve any proposed
amendment(s) to the Plan, the Trustees of the Trust shall request
and evaluate such information as they consider reasonably
necessary to evaluate the proposed amendment(s) to the Plan.
3
Harris/misc/mtiplntr.doc
