<PAGE> 1
As filed electronically with the Securities and Exchange Commission on February
27, 1998
Securities Act File No. 33-64915
Investment Company Act File No. 811-7447
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 7
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10
HARRIS INSIGHT FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, MA 02109
(Address of Principal Executive Offices including Zip Code)
Registrant's Telephone Number, including Area Code: (617) 557-0700
Name and Address of Agent for Service: Copies to:
Christopher J. Kelley, Esq. Cameron S. Avery, Esq.
Harris Insight Funds Trust Bell, Boyd & Lloyd
60 State Street Three First National Plaza
Suite 1300 70 West Madison Street
Boston, MA 02109 Chicago, IL 60602-4207
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
___ on __________ pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ 75 days after filing pursuant to paragraph (a)
X on May 1, 1998 pursuant to paragraph (a) of Rule 485
___
If appropriate, check the following box:
____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE> 2
CROSS REFERENCE SHEET
Pursuant to Rule 495(b)
under the Securities Act of 1933
(Prospectuses offering Class A and Institutional Shares of Harris Insight Funds
Trust)
Part A
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------- --------
<S> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Expense Summary; Financial Highlights
Item 3. Condensed Financial Information Financial Highlights; General Information - How
Performance is Reported
Item 4. General Description of Registrant Cover Page; Fund Summary; Investment Objectives and
Policies; Additional Investment Information; General
Information - More Information About the Trust and
the Company
Item 5. Management of the Fund Management
Item 5A. Management: Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Cover Page; Shareholder Services and Policies; How
the Funds Make Distributions to Shareholders; Tax
Information; General Information - More Information
About the Trust and the Company
Item 7. Purchase of Securities Being Offered Management; How to Buy Shares; How to Sell Shares;
Shareholder Services and Policies; General
Information - How Share Value is Determined
Item 8. Redemption or Repurchase How to Buy Shares; How to Sell Shares; Shareholder
Services and Policies
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE> 3
(SAI offering Class A and Institutional Shares of Harris Insight Funds Trust)
Part B
------
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------- --------
<S> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Strategies; Investment Restrictions;
Portfolio Transactions
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Holders of Management
Securities
Item 16. Investment Advisory and Other Services Management; Service Plans; Custodian; Independent
Accountants
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities Capital Stock and Beneficial Interest
Item 19. Purchase, Redemption and Pricing of Determination of Net Asset Value; Financial
Securities Being Offered Statements
Item 20. Tax Status Federal Income Taxes
Item 21. Underwriters Management; Service Plans
Item 22. Calculation of Performance Data Calculation of Yield and Total Return
Item 23. Financial Statements Financial Statements
</TABLE>
<PAGE> 4
PROSPECTUS BEGINS ON PAGE 1.
MAY 1, 1998
THE HARRIS INSIGHT(R) FAMILY OF FUNDS
CLASS A SHARES
- HARRIS INSIGHT EQUITY FUNDS
- HARRIS INSIGHT FIXED INCOME FUNDS
- HARRIS INSIGHT MONEY MARKET FUNDS
HARRIS INSIGHT(R) FUNDS
POWERFUL INSIGHT. SOLID INVESTMENTS.(SM)
<PAGE> 5
HARRIS INSIGHT(R) FUNDS
60 State Street, Suite 1300
Boston, Massachusetts 02109
Telephone: (800) 982-8782
Class A Shares
Harris Insight Emerging Markets Fund
Harris Insight International Fund
Harris Insight Small-Cap Opportunity Fund
Harris Insight Small-Cap Value Fund
Harris Insight Growth Fund
Harris Insight Equity Fund
Harris Insight Equity Income Fund
Harris Insight Index Fund
Harris Insight Balanced Fund
Harris Insight Convertible Securities Fund
Harris Insight Tax-Exempt Bond Fund
Harris Insight Bond Fund
Harris Insight Intermediate Tax-Exempt Bond Fund
Harris Insight Short/Intermediate Bond Fund
Harris Insight Intermediate Government Bond Fund
Harris Insight Tax-Exempt Money Market Fund
Harris Insight Money Market Fund
Harris Insight Government Money Market Fund
<PAGE> 6
This Prospectus offers Class A shares ("Class A Shares") of eighteen investment
portfolios advised by Harris Trust and Savings Bank (collectively, the "Funds").
The Equity Fund, the Short/Intermediate Bond Fund, the Tax-Exempt Money Market
Fund, the Money Market Fund and the Government Money Market Fund are investment
portfolios of HT Insight Funds, Inc., doing business as Harris Insight Funds
(the "Company"). Each other Fund is an investment portfolio of Harris Insight
Funds Trust (the "Trust"). The Company and the Trust are registered as open-end
management investment companies (mutual funds). The Funds, together with the
other investment portfolios of the Trust and the Company, are known as the
Harris Insight Funds.
Please read this Prospectus before investing and keep it on file for future
reference. The Prospectus contains the information that a prospective investor
should know before investing, including how each Fund invests and the many
services available to shareholders.
To learn more about the Funds and their investments, you may obtain a copy of
the Harris Insight Funds' most recent financial report and portfolio listing or
Statement of Additional Information dated May 1, 1998 (the "SAI") simply by
calling (800) 982-8782. The SAI has been filed with the Securities and Exchange
Commission (the "SEC") and (as supplemented from time to time) is incorporated
by reference into this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI and other information regarding the
Funds.
THE HARRIS INSIGHT FUNDS ARE A FAMILY OF OPEN-END INVESTMENT COMPANIES COMMONLY
KNOWN AS MUTUAL FUNDS. SHARES OF MUTUAL FUNDS ARE NOT INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, HARRIS TRUST AND SAVINGS BANK OR
ANY OTHER BANK OR BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO ASSURANCE THAT THE
TAX-EXEMPT MONEY MARKET FUND, THE MONEY MARKET FUND OR THE GOVERNMENT MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
May 1, 1998
<PAGE> 7
TABLE OF CONTENTS
PAGE
Fund Summary..........................................................
Expense Summary.......................................................
Financial Highlights..................................................
Investment Objectives and Policies....................................
Equity Funds.................................................
Fixed Income Funds...........................................
Money Market Funds...........................................
Additional Investment Information.....................................
Additional Investment Policies...............................
Risk Considerations..........................................
Management............................................................
How to Buy Shares.....................................................
How to Sell Shares....................................................
Shareholder Services and Policies.....................................
How the Funds Make Distributions to Shareholders; Tax Information.....
General Information...................................................
Banking Law Matters..........................................
How Share Value Is Determined................................
How Performance Is Reported..................................
More Information About the Trust and the Company.............
Appendix A: Permitted Investments.....................................
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI 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 or the Company.
This Prospectus does not constitute an offer in any jurisdiction in which, or to
any person to whom, such offer may not lawfully be made.
2
<PAGE> 8
FUND SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
WHAT ARE THE OBJECTIVES OF THE FUNDS? HOW DO THE FUNDS ATTEMPT TO ACHIEVE THEIR
OBJECTIVES?
Each of the Funds has distinct investment objectives and policies, which are
summarized below in order of descending risk. For more complete information, see
INVESTMENT OBJECTIVES AND POLICIES and ADDITIONAL INVESTMENT INFORMATION.
Although no single Fund is intended to provide a complete or balanced investment
program, each can serve as a component of an investor's investment program.
EQUITY FUNDS
EMERGING MARKETS FUND seeks to provide capital appreciation by
investing in equity securities of companies in emerging markets that
the investment adviser believes to be undervalued.
INTERNATIONAL FUND seeks to provide international diversification and
capital appreciation by investing primarily in the equity securities of
foreign issuers that the investment adviser believes are undervalued.
Current income is a secondary objective.
SMALL-CAP OPPORTUNITY FUND seeks to provide long-term capital
appreciation by investing primarily in equity securities of smaller to
medium capitalization companies that the investment adviser believes
have above-average growth potential.
SMALL-CAP VALUE FUND seeks to provide capital appreciation by investing
primarily in equity securities of smaller to medium capitalization
companies that the investment adviser believes have above-average
growth potential and appear to be undervalued.
GROWTH FUND seeks to provide capital appreciation by investing
primarily in common stocks and convertible securities of companies that
the investment adviser believes have above-average growth potential.
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.
INDEX FUND seeks to provide the return and risk characteristics of the
Standard & Poor's 500 Index, by investing primarily in securities of
companies that comprise that index.
BALANCED FUND seeks to provide current income and capital appreciation
by investing in a balanced portfolio of fixed income and equity
securities.
FIXED INCOME FUNDS
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.
TAX-EXEMPT BOND FUND seeks to provide a high level of current income
that is exempt
3
<PAGE> 9
from federal income tax by investing, under normal market conditions,
at least 80% of its assets in municipal obligations of varying
maturities.
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.
INTERMEDIATE TAX-EXEMPT BOND 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.
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.
INTERMEDIATE GOVERNMENT BOND FUND seeks to provide a high level of
current income, consistent with preservation of capital, by investing
primarily in U.S. Government securities having an intermediate-term
average maturity.
MONEY MARKET FUNDS
TAX-EXEMPT MONEY MARKET FUND seeks to provide investors with as high a
level of current income that is exempt from federal income tax as is
consistent with its investment policies, and with preservation of
capital and liquidity, by investing primarily in high-quality,
short-term municipal obligations.
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.
GOVERNMENT 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
exclusively in short-term U.S. Government securities and repurchase
agreements backed by those securities.
WHO MANAGES EACH FUND'S INVESTMENTS?
Harris Trust and Savings Bank ("Harris Trust" or the "Adviser") serves as the
investment adviser for each Fund. Harris Trust and its predecessors have
provided investment management services to clients for over 100 years. In
addition to the services it performs for the Funds, Harris Trust provides
investment management services for pension, profit-sharing and personal
portfolios. As of December 31, 1997, total discretionary trust assets under
management totaled approximately $___ billion.
Harris Investment Management, Inc. ("HIM" or the "Portfolio Management Agent")
provides daily portfolio management services for each of the Funds except for
the Tax-Exempt Money Market Fund. As of December 31, 1997, HIM had a staff of
___, including ___ professionals, providing investment expertise to the
management of the Harris Insight Funds and for pension, profit-sharing and
institutional portfolios. As of that date, assets under management were
approximately $10.7 billion.
Subject to the general oversight of Harris Trust and HIM, Hansberger Global
Investors, Inc.
4
<PAGE> 10
("Hansberger" or the "Investment Sub-Adviser") serves as investment sub-adviser
to the Emerging Markets Fund and the International Fund. Each of Harris Trust,
HIM and Hansberger is sometimes referred to as an "investment adviser."
Harris Trust and HIM are subsidiaries of Harris Bankcorp, Inc. See MANAGEMENT.
WHO SHOULD INVEST IN THE FUNDS?
The EQUITY FUNDS -- the Emerging Markets Fund, the International Fund, the
Small-Cap Opportunity Fund, the Small-Cap Value Fund, the Growth Fund, the
Equity Fund, the Equity Income Fund, the Index Fund and the Balanced Fund -- are
designed for long-term investors who can tolerate changes in the value of their
investments in return for the possibility of higher returns. The FIXED INCOME
FUNDS -- the Convertible Securities Fund, the Tax-Exempt Bond Fund, the Bond
Fund, the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund
and the Intermediate Government Bond Fund -- are designed for investors seeking
some degree of current income. The MONEY MARKET FUNDS -- the Tax-Exempt Money
Market Fund, the Money Market Fund and the Government Money Market Fund -- are
designed for conservative investors seeking stability of principal, current
income at money market rates, and liquidity. The Tax-Exempt Bond Fund, the
Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Money Market Fund are
specifically designed for those investors who seek income that is exempt from
federal income tax.
In making your investment decisions, consider your investment goals, your time
horizon to achieve them, and your tolerance for risk. For more information about
each Fund and its investments, see INVESTMENT OBJECTIVES AND POLICIES.
WHAT ADVANTAGES DO THE FUNDS OFFER?
An investment gives the investor benefits customarily available only to large
investors, such as diversification, greater liquidity, professional management,
and relief from bookkeeping, safekeeping of securities and other administrative
details.
WHEN ARE DIVIDENDS PAID?
Dividends from the Emerging Markets Fund, the International Fund, the Small-Cap
Opportunity Fund and the Small-Cap Value Fund are declared and paid
semi-annually. Dividends from the Growth Fund, the Equity Income Fund, the
Equity Fund, the Index Fund, the Balanced Fund and the Convertible Securities
Fund are declared and paid quarterly. Dividends from the Tax-Exempt Bond Fund,
the Bond Fund, the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate
Bond Fund and the Intermediate Government Bond Fund are declared daily and paid
monthly. Dividends from each of the Money Market Funds are declared daily and
paid monthly. Any net capital gains will be declared and paid at least annually.
See HOW THE FUNDS MAKE DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION.
5
<PAGE> 11
HOW ARE SHARES BOUGHT AND SOLD?
Class A Shares are offered through this Prospectus at a price equal to their net
asset value.
Shares may be bought or sold by mail, by bank wire or through your broker-dealer
or other financial institution. The minimum initial investment in Class A Shares
is $1,000. The minimum subsequent investment is $50. See HOW TO BUY SHARES and
HOW TO SELL SHARES.
WHAT RISKS ARE ASSOCIATED WITH THE FUNDS?
There can be no assurance that any Fund will achieve its investment objective or
that the Money Market Funds will be able to maintain a stable net asset value.
The net asset value of each of the Equity Funds and the Fixed Income Funds will
fluctuate based upon changes in the value of the Fund's portfolio securities
and, when shares are sold, an investment may be worth more or less than the
investment's original value. As with any mutual fund, the fundamental risk is
that the value of securities that a Fund holds may decrease. Each Fund's
performance and price per share changes daily based on many factors, including
the perceived quality of the Fund's investments, U.S. and international economic
conditions and general market conditions.
The market value of equity securities is based upon the market's perception of
the issuing company's value. Normally, the values of fixed income securities
vary inversely with changes in prevailing interest rates. However, the potential
for appreciation in mortgage-backed fixed income securities in the event of a
decline in interest rates may be limited or negated by increased principal
prepayments on these securities. Fixed income securities also are subject to
"credit risk" relating to the financial condition of the issuer of the
securities.
Certain investments and investment techniques entail additional risks, such as
investments in foreign issuers, issuers with limited market capitalization,
mortgage- or asset-backed securities, zero coupon securities and options,
futures contracts and forward contracts. The use of leverage by certain Funds
through borrowings, reverse repurchase agreements and other investment
techniques involves additional risks.
The policy of investing in smaller companies employed by the Small-Cap Value
Fund, the Small-Cap Opportunity Fund and the other Funds that invest in small
company securities entails certain risks in addition to those normally
associated with equity securities. Similarly, the International Fund's policy of
investing in foreign securities entails certain risks in addition to those
normally associated with equity securities. The Emerging Markets Fund's policy
of investing in securities of foreign issuers, particularly in countries with
smaller, emerging capital markets, involves certain risks not associated with
domestic investing, including fluctuations in foreign exchange rates, uncertain
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions.
For information about particular risks, see ADDITIONAL INVESTMENT INFORMATION -
RISK
6
<PAGE> 12
CONSIDERATIONS.
7
<PAGE> 13
EXPENSE SUMMARY
The following tables illustrate information concerning annual fund operating
expenses for Class A Shares of the Funds. Annual operating expenses are factored
into each Fund's share price and are not charged directly to shareholder
accounts.
ANNUAL OPERATING EXPENSES (as a percentage of average net assets after
applicable fee waivers and expense reimbursements)*
<TABLE>
<CAPTION>
INVESTMENT SHAREHOLDER TOTAL
ADVISORY FEES RULE SERVICING FEES OTHER OPERATING
12b-1 FEES EXPENSES EXPENSES
EQUITY FUNDS
<S> <C> <C> <C> <C> <C>
Emerging Markets Fund ___% None ___% ___% ___%
International Fund ___ None ___ ___ ___
Small-Cap Opportunity Fund ___ None ___ ___ ___
Small-Cap Value Fund ___ None ___ ___ ___
Growth Fund ___ None ___ ___ ___
Equity Fund ___ None ___ ___ ___
Equity Income Fund ___ None ___ ___ ___
Index Fund ___ None ___ ___ ___
Balanced Fund ___ None ___ ___ ___
FIXED-INCOME FUNDS
Convertible Securities Fund ___ None ___ ___ ___
Tax-Exempt Bond Fund ___ None ___ ___ ___
Bond Fund ___ None ___ ___ ___
Intermediate Tax-Exempt Bond Fund ___ None ___ ___ ___
Short/Intermediate Bond Fund ___ None ___ ___ ___
Intermediate Government Bond Fund ___ None ___ ___ ___
MONEY MARKET FUNDS
Tax-Exempt Money Market Fund ___ ___ ___ ___ ___
Money Market Fund ___ ___ ___ ___ ___
Government Money Market Fund ___ ___ ___ ___ ___
</TABLE>
* The amounts for expenses are based on amounts incurred during the
Funds' most recent fiscal periods. Without fee waivers or expense
reimbursements, investment advisory fees and total operating expenses
would be ___% and ___% for the Emerging Markets Fund, ___% and ___% for
the International Fund, ___% and ___% for the Small-Cap Opportunity
Fund, ___% and ___% for the Growth Fund, ___% and ___% for the Equity
Income Fund, ___% and ___% for the Index Fund, ___% and ___% for the
Tax-Exempt Bond Fund, ___% and ___% for the Bond Fund, ___% and ___%
for the Intermediate Tax-Exempt Bond Fund, and ___% and ___% for the
Short/Intermediate Bond Fund; and Rule 12b-1 fees, other expenses and
total operating expenses would be ___%, ___% and ___% for the
Tax-Exempt Money Market Fund, ___%, ___% and ___% for the Money Market
Fund, and ___%, ___% and ___% for the Government Money Market Fund.
Customers of a financial institution, such as Harris Trust, also may be
charged certain fees and expenses by the institution. These fees may
vary depending on the capacity in which the institution provides
fiduciary and investment services to the particular client (such as
trust, estate settlement, advisory or custodian services).
8
<PAGE> 14
EXAMPLE
The table below shows what you would pay if you invested $1,000 over the time
frames indicated. The example assumes you reinvested all dividends and that the
average annual return was 5%.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
EQUITY FUNDS
<S> <C> <C> <C> <C>
Emerging Markets Fund $___ $___ $___ $___
International Fund ___ ___ ___ ___
Small-Cap Opportunity Fund ___ ___ ___ ___
Small-Cap Value Fund ___ ___ ___ ___
Growth Fund ___ ___ ___ ___
Equity Fund ___ ___ ___ ___
Equity Income Fund ___ ___ ___ ___
Index Fund ___ ___ ___ ___
Balanced Fund ___ ___ ___ ___
FIXED-INCOME FUNDS
Convertible Securities Fund ___ ___ ___ ___
Tax-Exempt Bond Fund ___ ___ ___ ___
Bond Fund ___ ___ ___ ___
Intermediate Tax-Exempt Bond Fund ___ ___ ___ ___
Short/Intermediate Bond Fund ___ ___ ___ ___
Intermediate Government Bond Fund ___ ___ ___ ___
MONEY MARKET FUNDS
Tax-Exempt Money Market Fund ___ ___ ___ ___
Money Market Fund ___ ___ ___ ___
Government Money Market Fund ___ ___ ___ ___
</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 tables is to help you understand the various costs
and expenses that an investor in a Fund will bear directly or indirectly. For
more information concerning these costs and expenses, see MANAGEMENT.
9
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FINANCIAL HIGHLIGHTS
The financial highlights on the following pages represent selected data for a
single Class A Share of each Fund for the periods shown. This information has
been derived from the financial statements audited by [ ], independent
accountants. The Funds' financial statements for the year ended December 31,
1997 and independent accountants' report thereon are included in the Funds'
Annual Report and are incorporated by reference into (are legally a part of) the
Funds' SAI. The financial highlights should be read in conjunction with the
financial statements. Further information about each Fund's performance is
contained in the Annual Report, which may be obtained from the Harris Insight
Funds without charge.
[FINANCIAL HIGHLIGHTS]
10
<PAGE> 16
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds has distinct investment objectives and policies, which are set
forth below. Investments that may be made by all of the Funds are listed under
ADDITIONAL INVESTMENT INFORMATION - ADDITIONAL INVESTMENT POLICIES. For a
further description of each Fund's investments and investment techniques, see
ADDITIONAL INVESTMENT INFORMATION, APPENDIX A: PERMITTED INVESTMENTS ("Appendix
A") and the SAI. There is no assurance that any Fund will achieve its investment
objective or that the Money Market Funds will be able to maintain a stable net
asset value. As used throughout this Prospectus, the term "U.S. Government
Securities" means obligations issued or guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises.
EQUITY FUNDS
EMERGING MARKETS FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing primarily in a diversified portfolio of publicly traded
equity securities of companies located in emerging markets that the
investment adviser believes are undervalued. To a lesser degree, the
Fund also may invest in emerging market equity securities offered in
"private placements." Dividend and interest income from portfolio
securities is largely an incidental consideration.
The Fund's investment approach relies heavily on a fundamental analysis
of securities with a long-term investment perspective. The Fund seeks
to maximize this approach by extending the search for value into many
countries around the world. This global search provides the Fund with
more diverse opportunities and flexibility to shift portfolio
investments not only from company to company and industry to industry,
but also from country to country, in search of undervalued securities.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in securities of issuers located in emerging market
countries. As used in this Prospectus, the terms "emerging market
country," "emerging country," or "developing country" apply to any
country that, in the investment adviser's opinion, is generally
considered to be an emerging or developing country by the international
financial community, which includes the International Bank for
Reconstruction and Development (the "World Bank") and the International
Finance Corporation. There are currently over 130 countries that are
emerging or developing countries under this standard; approximately 40
of these countries currently have stock markets. These countries
generally include every nation in the world except the U.S., Canada,
Japan, Australia, New Zealand and most nations located in Western
Europe. Securities of issuers located in emerging market countries or
traded in emerging markets present greater liquidity risks and other
risks than securities of issuers located in developed
11
<PAGE> 17
countries or traded in more established markets.
By engaging in its own research and by reviewing research obtained
through outside sources, the investment adviser seeks to identify
appropriate investments for the Fund. The investment adviser may
consider a number of factors in evaluating potential investments,
including political risks, classic macro-economic variables and equity
market valuations. The investment adviser also focuses on the quality
of a company's management, growth prospects, and financial well being.
The Fund's investments generally will reflect a broad cross-section of
countries, industries, and companies in order to minimize risk. In
situations where the market for a particular security is determined by
the investment adviser to be sufficiently liquid, the Fund may engage
in short sales.
The Fund may invest in certain debt securities of any grade, rated or
unrated, such as convertible bonds and bonds selling at discount, when
the investment adviser believes the potential for appreciation will
equal or exceed that available from investments in common stock. The
Fund also may engage in securities of companies or investment trusts
that invest in, or securities backed by, mortgages, real estate or
interests in real estate, including real estate investment trusts
("REITs").
INTERNATIONAL FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide international
diversification and capital appreciation. Current income is a secondary
objective.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing in equity securities of issuers outside the U.S. that the
investment adviser believes are undervalued.
The Fund's investment approach relies heavily on a fundamental analysis
of securities with a long-term investment perspective. The Fund seeks
to maximize this approach by extending the search for value into many
countries around the world. This global search provides the Fund with
more diverse opportunities and flexibility to shift portfolio
investments not only from company to company and industry to industry,
but also from country to country, in search of undervalued securities.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in securities of foreign issuers (i.e., issuers
organized outside the U.S. or whose principal trading market is outside
the U.S.). The Fund invests in the securities of issuers located in at
least three foreign countries. The Fund seeks to manage risk through
the diversification of its investments.
The 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.
12
<PAGE> 18
SMALL-CAP OPPORTUNITY FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide long-term capital
appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing primarily in the securities of companies with smaller to
medium capitalizations that the investment adviser believes are
attractively valued in the market. Market capitalization refers to the
total market value of a company's outstanding shares of common stock.
Smaller to medium capitalization companies are those with market
capitalizations, at the time of the Fund's investment, between $3.0
million and $1.5 billion.
In investing the Fund's assets, the investment adviser follows a
discipline that seeks to identify companies offering above-average
earnings, sales and asset value growth. These securities will tend to
be represented in the Russell 2000 Index.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in securities of smaller to medium capitalization
companies.
SMALL-CAP VALUE FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing primarily in the securities of companies with smaller to
medium capitalizations that the investment adviser believes are
conservatively valued in the marketplace. Market capitalization refers
to the total market value of a company's outstanding shares of common
stock. Smaller to medium capitalization companies are those with market
capitalizations, at the time of the Fund's investment, between $3.0
million and $1.5 billion.
In managing the Fund's assets, the investment adviser seeks to invest
in securities that are undervalued relative to the securities of
comparable companies, as determined by price/earnings ratios, earnings
expectations or other fundamental measures.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in securities of smaller to medium capitalization
companies.
GROWTH FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing in equity securities that the investment adviser believes
are undervalued
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but represent growth opportunities. The Fund also may invest in
securities issued by medium to larger capitalization companies that
provide returns more closely aligned with the Lipper Growth Fund Index.
The Fund's investment management discipline emphasizes growth in sales,
earnings and asset values.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in equity securities.
EQUITY FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with capital
appreciation and current income.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing primarily in the securities of larger capitalization
companies (i.e., companies with market capitalization in excess of $500
million at the time of the Fund's investment) and is managed to provide
equity-based returns characteristic of these securities. Market
capitalization refers to the total market value of a company's
outstanding shares of common stock. The selected issuers will be
representative of those sectors found within the Standard & Poor's 500
Index (the "S&P 500 Index"). Using both "quantitative" and
"fundamental" analysis, the investment adviser selects investments that
it believes will provide returns greater than the securities comprising
the S&P 500 Index over the long-term with a risk level approximating
that of the index, with risk measured by volatility.
The Fund's investments are expected to be diversified among all major
sectors of the market. The Fund's investment adviser 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. The Fund's portfolio is generally comprised
of approximately 50 different issues. Risk is managed by
diversification of investments.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in common stocks of larger capitalization
companies.
EQUITY INCOME FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide current income and,
secondarily, capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing in equities that are found within the Standard & Poor's
500 Index (the "S&P 500 Index"), or other attractive issues.
Convertible securities may also be utilized. The investment adviser
believes that the combination of these securities should produce
returns that are similar to the performance of the S&P 500 Index and
its corresponding sectors, yet with a higher income yield.
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Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in common stocks and securities convertible into
common stock. The Fund is managed with a disciplined investment process
designed 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 that the investment adviser believes provides attractive
long-term growth potential, while offering an attractive current yield.
INDEX FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide the return and risk
characteristics of the Standard & Poor's 500 Index.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing, under normal market conditions, primarily in securities
of companies that comprise the Standard & Poor's 500 Index (the "S&P
500 Index"), an unmanaged index that emphasizes large capitalization
companies. As of December 31, 1997, the index represented approximately
___% of the market capitalization of publicly owned stocks in the U.S.
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 S&P 500 Index through statistical
procedures. As a result, the investment adviser 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 one percentage-point of the
performance of the index (i.e., the percentage return of the index + or
- 1%). On at least a monthly basis, the investment adviser compares the
Fund's performance to that of the index. In the event the Fund's
performance for the preceding three-month period does not adequately
track the performance of the index, the investment adviser may adjust
the Fund's holdings accordingly.
The Fund seeks to closely match the weight of each security in the
portfolio to its approximate weight in the S&P 500 Index. Although the
Fund may not hold all 500 securities included in the index, it will
generally hold at least 90% of these securities. The Fund also may
maintain positions in S&P 500 Index futures contracts. Generally, index
futures contracts are bilateral agreements whereby two parties agree to
take or make delivery of an amount of cash equal to a specified dollar
amount times the difference between the index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. As no physical delivery of securities comprising the
index is made, purchasers of index futures contracts may participate in
the performance of the securities contained in the index without the
required capital commitment. The Fund may use S&P 500 Index futures
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<PAGE> 21
contracts for several reasons: to simulate full investment in the index
while retaining a cash balance for Fund management purposes, to
facilitate trading or to reduce transaction costs.
Standard & Poor's ("S&P") makes no representation or warranty,
expressed or implied, to the purchasers of the 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 the S&P
500 Index or any data included therein.
Furthermore, S&P makes no warranty, express or implied, as to the
results to be obtained by the Fund, owners of the Fund, any person or
any entity from the use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties and expressly
disclaims all such warranties of merchantability or fitness for a
particular purpose for use with respect to the S&P 500 Index or any
data included therein.
BALANCED FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide current income and
capital appreciation by investing in a balanced portfolio of fixed
income and equity securities.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by actively allocating investments between equity and fixed income
securities. Through utilizing this approach, the Fund seeks to provide
capital appreciation similar to larger-capitalization equities, with a
portion of the Fund's total return resulting from investment in fixed
income securities. The Fund seeks to provide an overall return
comprising between 40% and 65% of the return of the Standard & Poor's
500 Index (a broad U.S. stock market index) and between 35% and 60% of
the return of the Lehman Brothers Aggregate Index (a broad U.S. bond
market index).
The Fund's investment process considers, on a continuing basis, the
attractiveness of equities versus fixed income securities. 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.
FIXED INCOME FUNDS
CONVERTIBLE SECURITIES FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation
and current income.
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<PAGE> 22
INVESTMENT POLICIES. Convertible securities have unique return
characteristics. Convertible securities tend to rise in price when
overall equity markets rise and, conversely, tend to decline relatively
less when interest rates rise. The Fund strives to reflect these unique
performance characteristics while seeking to provide income that is
more characteristic of short/intermediate maturity corporate bonds.
The Fund seeks to achieve its investment objective by investing
primarily in convertible securities, which are bonds, debentures, notes
or preferred stock that are convertible into common stock, or warrants,
which are options to purchase common stock at a specified price.
The Fund also may 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 circumstances, the Fund
invests at least 65% of the value of its total assets in convertible
securities.
Under normal market conditions, the 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 Standard & Poor's ("S&P") or "B" ("b" in the
case of preferred stocks) or better by Moody's Investors Service
("Moody's") at the time of purchase, or, if not rated, considered by
the investment adviser 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 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 Fund may invest up to 35% of its total assets in "synthetic
convertibles" created by combining separate securities that together
possess the two principal components of a convertible security: fixed
income and the right to acquire equity securities. In addition, the
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 Fund also may write (sell) covered put and call
options, buy covered put and call options, buy and sell interest rate
futures contracts and buy and write covered options on those futures
contracts.
In periods of unusual market conditions, when the investment adviser
believes that convertible securities would not best serve the Fund's
objectives, the Fund may for defensive purposes invest part or all of
its total assets in (a) U.S. 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
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<PAGE> 23
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 397 days or less. During such periods, the Fund will continue to
seek current income but will put less emphasis on capital appreciation.
RISK FACTORS AND OTHER CONSIDERATIONS RELATING TO LOW-RATED 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 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 S&P and Moody's 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 Fund's
investment adviser uses these ratings as a criterion for the selection
of securities for the Fund, it also relies on its own independent
analysis to evaluate potential investments for the Fund. The Fund's
achievement of its investment objective may be more dependent on the
investment adviser's credit analysis of low-rated and unrated
securities than would be the case for a portfolio of high-rated
securities.
TAX-EXEMPT BOND FUND
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<PAGE> 24
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current
income that is exempt from federal income tax.
INVESTMENT POLICIES. The Fund seeks to achieve its objective by
investing in municipal securities with varying maturities. As a result,
the Fund seeks to generate a higher level of income than that of short
or intermediate average maturity municipal bond funds, although it will
experience corresponding higher volatility of principal during periods
of changing interest rates.
The Fund attempts to anticipate 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 invests 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.
In addition, the Fund may invest in U.S. Government Obligations (as
defined in Appendix A) and securities secured by letters of credit. The
Fund also may write (sell) covered put and call options, buy covered
put and call options, buy and sell interest rate futures contracts and
buy and write covered options on those futures contracts.
BOND FUND
INVESTMENT OBJECTIVE. The 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.
INVESTMENT POLICIES. The Fund seeks to provide the higher income
generally associated with a broad range of longer-term bonds typically
having 5 to 10 years remaining to maturity. As a result, principal
value of these longer-term bonds is likely to fluctuate more than that
of bonds with shorter maturities.
The Fund seeks to achieve its objective by utilizing a
highly-disciplined, quantitative process designed to identify fixed
income securities that 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 circumstances, the Fund invests 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, U.S. Government Securities, debt obligations of domestic
and foreign corporations, debt obligations of foreign governments and
their political subdivisions, asset-backed securities, various
mortgage-backed securities (including those issued or collateralized by
U.S. Government agencies and inverse floating rate mortgage-backed
securities), other
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<PAGE> 25
floating/variable rate obligations, municipal obligations and zero
coupon debt securities.
INTERMEDIATE TAX-EXEMPT BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current
income that is exempt from federal income tax.
INVESTMENT POLICIES. The Fund seeks to achieve its objective by
investing in municipal securities with a dollar-weighted average
portfolio maturity, under normal market conditions, of between 3 and 10
years. The investment adviser believes that this income will generally
be higher than that provided by shorter term municipal funds, although
the Fund will reflect greater share price volatility during periods of
changing interest rates than comparable shorter-term funds. Individual
portfolio securities will have varying maturities.
As a matter of fundamental policy, the Fund invests 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 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
investment adviser.
In addition, the Fund may invest in U.S. Government Obligations (as
defined in Appendix A) and securities secured by letters of credit. The
Fund also may write (sell) covered put and call options, buy covered
put and call options, buy and sell interest rate futures contracts and
buy and write covered options on those futures contracts.
SHORT/INTERMEDIATE BOND FUND
INVESTMENT OBJECTIVE. The 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.
INVESTMENT POLICIES. The Fund seeks to provide income and share price
volatility of a 2- to 5-year average maturity taxable bond portfolio.
Thus, it is anticipated that when interest rates rise, share price of
the Fund will tend to fall less than longer-term bond funds and
appreciate less when interest rates fall.
The Fund seeks to achieve its objective by utilizing a combination of
investment disciplines, including the assessment of yield advantages
among different classes of bonds and among different maturities,
independent review by the investment
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<PAGE> 26
adviser of the credit quality of individual issues, and the analysis by
the investment adviser of economic and market conditions affecting the
fixed income markets.
The Fund may invest in a broad range of fixed income obligations,
including fixed and variable rate bonds, debentures, U.S. Government
Securities, and Government Stripped Mortgage-Backed Securities. The
Fund also may invest in U.S. Government Securities placed into
irrevocable trusts and evidenced by a trust receipt. Under normal
circumstances, the Fund invests 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, U.S.
Government Securities, debt obligations of domestic and foreign
corporations, debt obligations of foreign governments and their
political subdivisions, asset-backed securities, various
mortgage-backed 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 debt securities.
The Fund also may hold short-term U.S. Government Obligations (as
defined in Appendix A), "high-quality" money market instruments (i.e.,
those within the two highest rating categories or, if unrated,
determined by the investment adviser 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 investment adviser's
opinion, existing circumstances warrant.
The Fund's dollar-weighted average portfolio maturity (or average life
with respect to mortgage-backed and asset-backed securities), under
normal market conditions, will be between 2 and 5 years.
INTERMEDIATE GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current
income, consistent with preservation of capital.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing primarily in U.S. Government Securities, including
mortgage-backed securities, having an intermediate-term average
maturity. Under normal circumstances, at least 65% of the Fund's total
assets will be invested in U.S. Government Securities and in repurchase
agreements collateralized by U.S. Government Securities. The average
portfolio maturity (or average life with respect to mortgage-backed
securities) generally will be between 3 and 10 years.
The Fund's investments may include asset-backed securities, zero coupon
securities and debt securities of U.S. corporations (with respect to
20% of the Fund's total assets at the time of purchase). In addition,
the Fund may invest in foreign debt securities guaranteed by the U.S.
Government, its agencies or instrumentalities (with
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<PAGE> 27
respect to 10% of the Fund's total assets at the time of purchase). The
Fund also may write (sell) covered put and call options, buy covered
put and call options, buy and sell interest rate futures contracts and
buy and write covered options on those futures contracts.
MONEY MARKET FUNDS
TAX-EXEMPT MONEY MARKET FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with as high
a level of current income that is exempt from federal income taxes as
is consistent with its investment policies and with preservation of
capital and liquidity.
INVESTMENT POLICIES. The Fund invests only in high quality, short-term
money market instruments that are determined by the investment adviser,
pursuant to procedures established by the Company's Board of Directors,
to be eligible for purchase and to present minimal credit risks. The
Fund invests primarily in high-quality municipal obligations. 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 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.
The Fund will not purchase a security (other than a U.S. Government
Security) unless the security is rated by at least two nationally
recognized rating agencies (such as Standard & Poor's or Moody's
Investors Service) within the two highest rating categories 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.
The Fund invests only in U.S. dollar-denominated securities that have a
remaining maturity of 397 days or less (as calculated pursuant to Rule
2a-7 under the Investment Company Act of 1940, as amended) and
maintains a dollar-weighted average maturity of 90 days or less.
Current income provided by the securities in which the Fund invests 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.
Under ordinary market conditions, the 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 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,
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<PAGE> 28
elect to hold temporarily up to 20% of the current value of its total
assets in cash reserves or invest in securities whose interest income
is subject to taxation.
From time to time, the 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.
MONEY MARKET FUND
INVESTMENT OBJECTIVE. The 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.
INVESTMENT POLICIES. The Fund invests only in high quality, short-term
money market instruments that are determined by the investment adviser,
pursuant to procedures established by the Company's Board of Directors,
to be eligible for purchase and to present minimal credit risks. The
Fund invests in a broad range of short-term money market instruments,
including U.S. Government Securities and bank and commercial
obligations. The commercial paper purchased by the Fund will consist of
U.S. dollar-denominated direct obligations of domestic and foreign
corporate issuers, including bank holding companies.
The Fund invests only in U.S. dollar-denominated securities that have a
remaining maturity of 397 days or less (as calculated pursuant to Rule
2a-7 under the Investment Company Act of 1940, as amended) and
maintains a dollar-weighted average maturity of 90 days or less.
Current income provided by the securities in which the Fund invests 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.
The Fund will not purchase a security (other than U.S. Government
Securities) unless the security is rated by at least two nationally
recognized rating agencies (such as Standard & Poor's or Moody's
Investors Service) within the two highest rating categories 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
in the second highest rating category. Determinations of comparable
quality shall be made in accordance with procedures established by the
Company's Board of Directors.
The Fund also may 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 Fund may invest
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<PAGE> 29
in tax-exempt municipal obligations when the yields on such obligations
are higher than the yields on taxable investments. See INVESTMENT
OBJECTIVES AND POLICIES - TAX-EXEMPT MONEY MARKET FUND.
GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVE. The 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.
INVESTMENT POLICIES. The Fund invests only in high quality, short-term
money market instruments that are determined by the investment adviser,
pursuant to procedures established by the Company's Board of Directors,
to be eligible for purchase and to present minimal credit risks. The
Fund invests exclusively in U.S. Government Securities and repurchase
agreements backed by those securities.
The Fund invests only in securities that have a remaining maturity of
397 days or less (as calculated pursuant to Rule 2a-7 under the
Investment Company Act of 1940, as amended) and maintains a
dollar-weighted average maturity of 90 days or less. Current income
provided by the securities in which the Fund invests 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.
The Fund invests in obligations of U.S. Government agencies and
instrumentalities only when the investment adviser is satisfied that
the credit risk with respect to the issuer is minimal.
ADDITIONAL INVESTMENT INFORMATION
Unless otherwise noted, each Fund's investment objective and policies are not
fundamental and may be changed by the Board of Trustees of the Trust (or Board
of Directors of the Company) without approval by the Fund's shareholders.
Investment policies that are designated as fundamental may be changed only with
approval of the holders of a majority of the Fund's outstanding voting
securities. A majority of outstanding voting securities means the lesser of 67%
of the shares present or represented at a shareholders meeting at which the
holders of more than 50% of the outstanding shares are present or represented,
or more than 50% of the outstanding shares.
For a further description of the Funds' investment policies, including
additional fundamental policies, see Appendix A and the SAI.
ADDITIONAL INVESTMENT POLICIES
Each Fund may invest in the securities of other investment companies, zero
coupon
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<PAGE> 30
securities, 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. Each Fund may also enter into
repurchase agreements. Each Fund also may lend its portfolio securities in an
amount not exceeding one-third of its net assets and may enter into reverse
repurchase agreements.
In addition, each of the Equity Funds may invest in securities purchased in
initial public offerings. Each of the Equity Funds also may invest in foreign
securities, including American Depository Receipts, European Depository Receipts
and, with respect to 10% (100% for the Emerging Markets Fund and the
International Fund) of each Fund's total assets, debt and equity securities of
foreign issuers. Further, each of the Equity Funds may purchase and sell covered
put and call options on securities, index and interest rate futures contracts
and options on futures contracts. The Equity Funds and the Convertible
Securities Fund may invest in warrants.
DIVERSIFICATION. Each Fund is diversified as that term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). As a matter of
fundamental policy, no Fund may invest more than 5% of the current value of its
total assets in the securities of any one issuer (other than U.S. Government
Securities), except that up to 25% of the value of the total assets of a Fund
(other than the Money Market Fund and the Government Money Market Fund) may be
invested without regard to this limitation. Notwithstanding this policy, each of
the Money Market Fund and the Government Money Market 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. As a matter of fundamental
policy, no Fund may 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.
CONCENTRATION. Each Fund is prohibited from concentrating its assets in the
securities of issuers in a single industry. As a matter of fundamental policy,
the Funds may not purchase the securities of issuers conducting their principal
business activity in the same industry if, as an immediate result of the
purchase, the value of its investments in that industry would exceed 25% of the
current value of its total assets. This limitation does not apply to investments
in (i) 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); (ii) U.S. Government Securities; and (iii) in the case
of the Money Market Fund, bank obligations that are otherwise permitted as
investments.
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
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same industry.
ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% with respect to the
Equity Fund, the Short/Intermediate Bond Fund and the Money Market Funds) of its
net assets in securities that are considered illiquid. Illiquid securities are
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and include, among other things, repurchase agreements not entitling
the holder to payment within seven days and restricted securities (other than
those determined to be liquid pursuant to guidelines established by the Trust's
Board of Trustees (and the Company's Board of Directors)). See Appendix A.
BORROWING. As a matter of fundamental policy, no Fund may borrow from banks,
except that a Fund may borrow up to 10% of the current value of its net 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 any aggregate borrowings in
excess of 5% exist).
RATING MATTERS. Each of the Equity Funds and the Fixed Income Funds may invest
in securities convertible into or exchangeable for common stocks or preferred
stocks, as well as U.S. Government Securities and debt obligations of domestic
corporations rated "BBB" or better by Standard & Poor's ("S&P") or "Baa" or
better by Moody's Investors Service ("Moody's"), or that have an equivalent
rating by another nationally recognized statistical rating organization
("NRSRO") at the time of purchase or, if not rated, are considered by the
investment adviser to be of comparable quality. Debt obligations rated in the
lowest categories of investment grade (that is, BBB by S&P or Baa by Moody's)
and equivalent securities 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. The Emerging Markets Fund may invest in securities of any
grade and the Convertible Securities Fund may invest in securities that are less
than investment grade. See INVESTMENT OBJECTIVES AND POLICIES - EMERGING MARKETS
FUND and INVESTMENT OBJECTIVES AND POLICIES - CONVERTIBLE SECURITIES FUND.
Each Fund may purchase debt obligations that are not rated if, in the opinion of
the investment adviser, 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 the security unless the amount of the
security exceeds permissible limits. However, the investment adviser 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 NRSRO
for securities may change as a result of changes in the rating systems or due to
the corporate reorganization of an NRSRO, 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 SAI. A Money Market Fund may be
required to sell a security downgraded below the minimum required for
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purchase, absent a specific finding by the Company's Board of Directors that a
sale is not in the best interests of the Fund.
TEMPORARY DEFENSIVE POSITION. When business or financial conditions warrant,
each of the Emerging Markets Fund and the International Fund may assume a
temporary defensive position by investing in money market investments. These
money market investments include obligations of the U.S. Government and its
agencies and instrumentalities, obligations of foreign sovereignties, other debt
securities, commercial paper including bank obligations, certificates of deposit
(including Eurodollar certificates of deposit) and repurchase agreements.
For temporary defensive purposes, during periods in which the investment adviser
believes changes in economic, financial or political conditions make it
advisable, these Funds may reduce their holdings in equity and other securities
and may invest up to 100% of their assets in certain short-term (less than
twelve months to maturity) and medium-term (not greater than five years to
maturity) debt securities and in cash (U.S. dollars, foreign currencies, or
multicurrency units). These short-term and medium-term debt securities consist
of (a) obligations of governments, agencies or instrumentalities of any member
state of the Organization for Economic Cooperation and Development ("OECD");
(b) bank deposits and bank obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks organized under the laws of any
member state of the OECD, denominated in any currency; (c) floating rate
securities and other instruments denominated in any currency issued by
international development agencies; (d) finance company and corporate commercial
paper and other short-term corporate debt obligations of corporations organized
under the laws of any member state of the OECD meeting the Fund's credit quality
standards; and (e) repurchase agreements with banks and broker-dealers covering
any of the foregoing securities. The short-term and medium-term debt securities
in which the Fund may invest for temporary defensive purposes will be those that
the investment adviser believes to be of high quality, i.e., subject to
relatively low risk of loss of interest or principal (there is currently no
rating system for debt securities in most emerging countries). If rated, these
securities will be rated in one of the three highest rating categories by rating
services such as Moody's or S&P (i.e., rated at least A).
PORTFOLIO TRANSACTIONS. Portfolio securities of each Fund are kept under
continuing supervision and changes may be made whenever, in the judgment of the
investment adviser, 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 the cash
necessary for redemptions, distributions to shareholders or other Fund
management purposes. Portfolio changes may be made without regard to the length
of time a particular security has been held or the frequency of portfolio
transactions of a Fund (the portfolio turnover rate).
The realization of taxable capital gains and, with respect to equity securities,
the amount of brokerage commissions will tend to increase as the level of
portfolio activity increases. Portfolio turnover rates for the Funds are
included in the Financial Highlights for that Fund. An annual portfolio turnover
rate of 100% would occur if all of the securities held by the
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Fund were replaced once in a period of one year.
The investment advisers seek "best execution" for all portfolio transactions,
but a Fund may pay higher than the lowest available commission rates when its
investment adviser believes it is reasonable to do so in light of the value of
the brokerage, research and other services provided by the broker effecting the
transaction. Purchase and sale orders for securities on behalf any Fund may be
combined with those of other accounts that the investment advisers manage, and
for which it has brokerage placement authority, in the interest of seeking the
most favorable overall net results. When an investment adviser determines that a
particular security should be bought or sold for any of the Funds and other
accounts it manages, the investment adviser undertakes to allocate the
transactions among the participants equitably. To the extent permitted by the
SEC, the Funds may pay brokerage commissions to certain affiliated persons.
[During the last fiscal year, no Fund paid commissions to these persons.]
The Trust, the Company, the investment advisers and other service providers to
the Funds have adopted codes of ethics which contain policies on personal
securities transactions by "access persons," including portfolio managers and
investment analysts.
RISK CONSIDERATIONS
THE RISKS OF INVESTING IN EACH FUND VARY DEPENDING UPON THE NATURE OF THE
SECURITIES HELD, AND THE INVESTMENT PRACTICES EMPLOYED, ON ITS BEHALF. THE
FUNDAMENTAL RISK ASSOCIATED WITH THE FUNDS, LIKE OTHER MUTUAL FUNDS THAT INVEST
IN FIXED INCOME AND EQUITY SECURITIES, IS "MARKET RISK." Market risk is the risk
that the market value of a security that a Fund holds will decrease. The market
value of a security may move up and down, sometimes rapidly and unpredictably.
These fluctuations may cause a security to be worth less than it was worth at
the time of purchase. Market risk may apply to a single issuer, industry, sector
of the economy or the market as a whole.
Certain specific risks are described in this section. If you would like to know
more about risks associated with certain types of securities, see Appendix A.
RISKS OF EQUITY SECURITIES. Stock values may fluctuate in response to the
activities of an individual company or in response to general market and/or
economic conditions. Historically, common stocks have provided greater long-term
returns and have entailed greater short-term risks than other types of
securities. Smaller or newer issuers are more likely to realize more substantial
growth or suffer more significant losses than larger or more established
issuers. Investments in these companies can be both more volatile and more
speculative. THE SMALL-CAP OPPORTUNITY FUND AND THE SMALL-CAP VALUE FUND HAVE
HEIGHTENED EXPOSURE TO THESE RISKS DUE TO THEIR POLICY OF INVESTING IN SMALLER
COMPANIES.
RISKS OF FIXED INCOME SECURITIES. The value of fixed income (debt) securities
generally varies inversely with prevailing levels of interest rates: the values
of these securities tend to decrease when interest rates are rising, and
increase when interest rates are declining. Changes in interest rates will
generally cause larger changes in the prices of longer-term securities than in
the prices of shorter-term securities. The risk of market losses attributable
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to changes in interest rates is known as "interest rate risk."
Debt securities are subject to "credit risk" relating to the financial condition
of the issuers of the securities. Prices of debt securities may fluctuate based
on changes in the actual and perceived creditworthiness of issuers. The prices
of lower-rated securities often fluctuate more than those of higher-rated
securities.
It is possible that some issuers will not make payments on debt securities held
by a Fund. Investors should be aware that securities offering above-average
yields may involve above-average risks. Securities rated in the lowest
categories of investment grade (that is, BBB by S&P or Baa by Moody's) and
equivalent securities may have speculative characteristics. In adverse economic
or other circumstances, issuers of these securities are more likely to have
difficulty making principal and interest payments than issuers of higher-grade
obligations.
Low-Rated Fixed Income Securities. The debt securities of issuers in emerging
market countries in which the Emerging Markets Fund may invest are subject to
significant risk and will not be required to meet any minimum rating standard or
equivalent. 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 Emerging Markets 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 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.
An economic recession in a country would likely disrupt the market in that
country 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.
Certain fixed income securities, such as municipal and mortgage-backed
securities, are subject to additional risks. See Appendix A.
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RISKS OF INVESTING IN FOREIGN AND EMERGING MARKETS. Investments in the
securities of foreign (non-U.S.) issuers may involve risks in addition to those
normally associated with investments in the securities of U.S. issuers. All
foreign investments are subject to risks of foreign political and economic
instability, adverse movements in foreign exchange rates, the imposition or
tightening of exchange controls or other limitations on repatriation of foreign
capital, and changes in foreign governmental attitudes towards private
investment, possibly leading to nationalization, increased taxation or
confiscation of foreign investors' assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to a
Fund's shareholders; commission rates payable on foreign transactions are
generally higher than in the U.S.; foreign accounting, auditing and financial
reporting standards differ from those in the U.S. and, accordingly, less
information may be available about foreign companies than is available about
issuers of comparable securities in the U.S.; and foreign securities may trade
less frequently and with lower volume and may exhibit greater price volatility
than U.S. securities. THE EMERGING MARKETS FUND AND THE INTERNATIONAL FUND HAVE
HEIGHTENED EXPOSURE TO THESE RISKS DUE TO THEIR POLICY OF INVESTING PRIMARILY IN
THE SECURITIES OF FOREIGN ISSUERS.
With respect to the Emerging Markets Fund, investments in the securities of
issuers located in countries with smaller, emerging capital markets may involve
risks in addition to those normally associated with investments in the
securities of U.S. issuers.
Political and Economic Risks. In any emerging market country, there is the
possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could affect investments in
that country. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as economic growth rate, rate
of inflation, capital reinvestment, resources, self-sufficiency and balance of
payments positions. Certain foreign investments may also be subject to foreign
withholding or other governmental taxes that could reduce the return on these
investments.
Certain emerging market countries may restrict investment by foreign entities.
For example, a country may limit the level of foreign investment in certain
issuers, require prior approval of foreign investment by the government, impose
additional tax on foreign investors or limit holdings by foreign investors to
specific classes of securities of an issuer that have less advantageous rights
(with regard to convertibility, for example) than classes available to
domiciliaries of the country.
Substantial limitations may also exist in certain countries with respect to a
foreign investor's ability to repatriate investment income, capital or the
proceeds of sales of securities. The Emerging Markets Fund could be adversely
affected by delays in, or refusals to grant, any required governmental approvals
for repatriation of capital. Securities that are subject to material legal
restrictions on repatriation may be considered illiquid securities and,
therefore, may be subject to the Emerging Markets Fund's 15% limitation on such
investments.
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Financial Information and Standards. Often the regulation of, and available
information about, issuers and their securities is less extensive in emerging
market countries than in the U.S. Foreign companies may not be subject to
uniform accounting, auditing and financial reporting standards or to
requirements or practices comparable to those applicable to U.S. companies.
Regulation and Liquidity of Markets. Government supervision and regulation of
exchanges and brokers in emerging market countries is frequently less extensive
than in the U.S. These markets may have different clearance and settlement
procedures. In certain cases, settlements have not kept pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could adversely affect or interrupt the Emerging Markets
Fund's intended investment program or result in investment losses due to
intervening declines in security values.
Securities markets in emerging market countries are substantially smaller than
U.S. securities markets and have substantially less trading volume, resulting in
diminished liquidity and greater price volatility. Reduced secondary market
liquidity may make it more difficult for the Emerging Markets Fund to determine
the value of its portfolio securities or to dispose of particular instruments
when necessary. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher as well.
Inflation. Several emerging market countries have experienced substantial, and
in some periods extremely high, rates of inflation in recent years. Inflation
and rapid fluctuations in inflation rates may have very negative effects on the
economies and securities markets of certain emerging market countries. Further,
inflation accounting rules in some emerging market countries require, for
companies that keep accounting records in the local currency, that certain
assets and liabilities be restated on the company's balance sheet in order to
express items in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits for certain emerging market
companies.
RISKS OF FOREIGN CURRENCY. Changes in exchange rates between the U.S. dollar and
a foreign currency also will affect the value in U.S. dollars of the securities
denominated in that currency that are held by the Funds. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the U.S., many of which may be difficult, if not impossible, to predict.
Income from foreign securities will be received and realized in foreign
currencies, while each Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar occurring after a Fund's income has been earned and
computed in U.S. dollars may require the Fund to liquidate portfolio securities
to acquire sufficient U.S. dollars to make a distribution. Similarly, if the
exchange rate declines between the time that a Fund incurs expenses in U.S.
dollars and the time such expenses are paid, the Fund may be required to
liquidate additional foreign securities to purchase the U.S. dollars required to
meet such expenses. THE
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EMERGING MARKETS FUND AND THE INTERNATIONAL FUND HAVE HEIGHTENED EXPOSURE TO
THESE RISKS DUE TO THEIR POLICY OF INVESTING PRIMARILY IN THE SECURITIES OF
FOREIGN ISSUERS.
RISKS OF DERIVATIVE SECURITIES. To the extent permitted by its investment
objectives and policies, each of the Funds may invest in securities that are
commonly referred to as "derivatives." Generally, a derivative is a financial
instrument whose value is based on, or "derived" from, a traditional security,
asset, or market index. Certain derivative securities are more accurately
described as "index/structured" securities. Index/structured securities are
derivative securities whose value or performance is linked to other equity
securities (such as depository receipts), currencies, interest rates, indices or
other financial indicators.
Some derivatives, such as mortgage-backed and other asset-backed securities, are
in many respects like other fixed income securities, although they may be more
volatile or less liquid than their more traditional counterparts.
There are many different types of derivatives and many different ways to use
them. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a Fund from exposure to changing interest rates, securities
prices, or currency exchange rates and for cash management purposes as a
low-cost method of gaining exposure to a particular securities market without
investing directly in those securities.
There are several risks that are associated with derivatives, including
counterparty risk and liquidity risk, which are discussed below. For more
information about the risks associated with certain types of derivatives, see
Appendix A.
BORROWING RISK. Borrowing also involves special risk considerations. Interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on the borrowed funds (or on the
assets that were retained rather than sold to meet the needs for which funds
were borrowed). Under adverse market conditions, the Fund might have to sell
portfolio securities to meet interest or principal payments at a time when
fundamental investment considerations would not favor such sales. To the extent
a Fund enters into reverse repurchase agreements, the Fund is subject to risks
that are similar to those associated with borrowing.
COUNTERPARTY RISK. A number of transactions in which a Fund may engage are
subject to the risks of default by the other party to the transaction. When a
Fund engages in repurchase, reverse repurchase, derivative, when-issued, forward
commitment, delayed settlement and securities lending transactions, it relies on
the other party to consummate the transaction. Failure of the other party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price believed to be advantageous.
LIQUIDITY RISK. Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like. The seller may have to lower the
price, sell other securities instead, or forego an investment opportunity, any
of which could have a negative effect on Fund management or performance.
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INFORMATION RISK. Certain key information about a security or market may be
inaccurate or unavailable, which may limit the investment adviser's ability to
make an appropriate investment decision with regard to the security or market.
OBJECTIVE RISK. Returns from the particular type of security that a Fund
emphasizes in its investments may trail returns from the overall stock or bond
market. For example, the growth stocks in which the Growth Fund invests and the
emerging market equity securities in which the Emerging Markets Fund invests
tend to go through periods of relative underperformance and outperformance in
comparison to other types of equity securities. These periods may last for as
long as several years.
MANAGEMENT RISK. A strategy used by an investment adviser may fail to produce
the intended result, which could have a negative effect on fund performance.
MANAGEMENT
TRUSTEES AND DIRECTORS
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.
C. Gary Gerst Chairman of the Board of Directors and Board of
Trustees; and Chairman Emeritus, LaSalle Partners,
Ltd. (real estate investment management and
consulting).
Edgar R. Fiedler Senior Fellow and Economic Counsellor, The Conference
Board; Director, The Stanley Works, Scudder
Institutional Funds, AARP Income Trust, Brazil Fund,
Emerging Mexico Fund, and Scudder Pathway Series.
John W. McCarter, Jr. President and Chief Executive Officer, The Field
Museum Natural History (Chicago); Director and
Trustee, LaSalle Partners Funds, Inc.; Former Senior
Vice President and Director, Booz-Allen & Hamilton,
Inc. (consulting firm); Director, W.W. Grainger, Inc.
and A.M. Castle, Inc.
Ernest M. Roth Consultant; Director, La Rabida Children's
Hospital; Chairman, La Rabida Children's Foundation;
Retired Senior Vice President and Chief Financial
Officer,
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Commonwealth Edison Company.
Paula Wolff President, Governors State University.
INVESTMENT ADVISER
Harris Trust is the investment adviser for each of the Funds pursuant to
Advisory Contracts with the Trust and 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,
1997, Harris Trust had total discretionary trust assets under management of more
than $___ billion and was the largest of __ 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, 1997, Harris Trust managed more than $___ billion in
discretionary personal trust assets, and managed more than $___ billion in
non-discretionary trust assets.
With respect to the Tax-Exempt Money Market 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 and the Investment Sub-Adviser's performance
(as discussed below).
The investment advisory fees payable to Harris Trust with respect to each Fund
are based on the average daily net assets of the respective Fund at the
following annual rates:
Emerging Markets Fund 1.25%
International Fund 1.05%
Small-Cap Opportunity Fund 1.00%
Small-Cap Value Fund 0.80%
Growth Fund 0.90%
Equity Fund 0.70%
Equity Income Fund 0.70%
Index Fund 0.25%
Balanced Fund 0.60%
Convertible Securities Fund 0.70%
Tax-Exempt Bond Fund 0.60%
Bond Fund 0.65%
Intermediate Tax-Exempt Bond Fund 0.60%
Short/Intermediate Bond Fund 0.70%
Intermediate Government Bond Fund 0.65%
Tax-Exempt Money Market Fund 0.14% of each Fund's first
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Money Market Fund $100 million of assets plus 0.10% of
Government Money Market Fund the Fund's remaining assets
PORTFOLIO MANAGEMENT AGENT
Harris Trust has entered into Portfolio Management Contracts with Harris
Investment Management, under which HIM undertakes to furnish investment guidance
and policy direction in connection with the daily portfolio management of all of
the Funds except for the Tax-Exempt Money Market Fund. For the services provided
by HIM, Harris Trust pays HIM the advisory fees it receives from the Funds. As
of December 31, 1997, HIM managed an estimated $10.7 billion in assets.
INVESTMENT SUB-ADVISER
To assist HIM in carrying out its obligations under the Portfolio Management
Contract, HIM has entered into Investment Sub-advisory Contracts with Hansberger
on behalf of the Emerging Markets Fund and the International Fund. Hansberger is
an investment adviser registered under the Investment Advisers Act of 1940, as
amended, and provides a broad range of portfolio management services to clients
in the U.S. and abroad. Hansberger, 515 East Las Olas Blvd., Suite 1300, Fort
Lauderdale, Florida 33301, is controlled by Mr. Thomas L. Hansberger, who
founded the firm in 1994. As of December 31, 1997, Hansberger managed assets
with a value of approximately $___ billion.
Pursuant to the Investment Sub-advisory Contracts (the "Sub-advisory
Contracts"), Hansberger makes investment decisions for the Emerging Markets Fund
and the International Fund and continuously reviews, supervises and administers
the Funds' investment program. HIM supervises the performance of Hansberger,
including Hansberger's adherence to the Funds' investment objectives and
policies. Pursuant to the Sub-advisory Contracts, HIM pays Hansberger fees for
its investment sub-advisory services from the advisory fees HIM receives from
Harris Trust and indirectly from the advisory fees paid by the Funds to Harris
Trust pursuant to the Advisory Contract.
PORTFOLIO MANAGEMENT
Many persons on the staffs of the Adviser and the Portfolio Management Agent
contribute to the investment management services provided to the Funds. The
following persons, however, are primarily responsible for the day-to-day
investment management of the Funds:
EMERGING MARKETS FUND -- Thomas L. Hansberger, Francisco Alzuru, Ajit Dayal,
Aureole L.W. Foong, Robert Mazuelos and Vladimir Tyurenkov. Mr. Hansberger is
the Chairman and Chief Executive Officer of Hansberger. Before forming
Hansberger in 1994, Mr. Hansberger had served as Chairman, President and Chief
Executive Officer of Templeton Worldwide, Inc., the parent holding company of
the Templeton group of companies. While at Templeton, Mr. Hansberger served as
director of research and was an officer, director or primary portfolio manager
for several Templeton mutual funds. Mr.
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Alzuru joined Hansberger in 1994 as a Managing Director, portfolio manager and
research analyst, specializing in Latin America. Prior to joining Hansberger, he
worked at Vestcorp Partners as their Latin American analyst. Mr. Dayal is
Managing Director of India Research. Prior to joining Hansberger, he was
employed by Ashok Biria and S.G. Warburg. He also was the director on all
Jardine Fleming companies in India. Mr. Dayal was responsible for setting up the
research and fund management operations with a focus on identifying key Indian
personnel for brokering and investment banking. Mr. Dayal has 13 years of
investment management experience. He received his Bachelor of Arts in Economics
from Bombay University and his MBA from the University of North Carolina at
Chapel Hill. Mr. Foong is Director of Asian Research. He is responsible for
overseeing the Asian research effort as well as covering the global cellular and
European telecom industries. Prior to joining Hansberger, Mr. Foong was a
Director of Peregine Asset Management where he was a portfolio manager
responsible for several mutual funds and private accounts investing in regional
Asian markets. He was part of the original team that helped build a US$700
million business in three years for the Peregrine group. Prior to Peregrine, Mr.
Foong was with Unifund, a private investment firm headquartered in Geneva with
over US$2.5 billion in global assets. Mr. Foong was based in Bangkok and Hong
Kong where he was a portfolio manager responsible for the Asian markets. Prior
to that, Mr. Foong was with Morgan Stanley Inc. in New York, Los Angeles and
Hong Kong where he worked in the Private Client Services department responsible
for high net worth individual accounts. Mr. Foong holds an MBA and a Bachelors
of Science in Computer Science from the University of Southern California in Los
Angeles. Mr. Mazuelos joined Hansberger in 1995 as a research analyst. Prior to
joining Hansberger, he was a performance analyst at Templeton Investment
Counsel, Inc., where he was responsible for return analysis on separate accounts
and mutual funds. Mr. Tyurenkov joined Hansberger in 1995 as Managing Director
of Eastern Europe and Russia, portfolio manager and research analyst. Prior to
joining Hansberger, he spent several years working for the Russian government
and worked extensively on the Pepperdine University Russian Conversion and
Privatization Program.
INTERNATIONAL FUND -- James Chaney, Victoria Gretsky and John Hock. Mr. Chaney,
who joined Hansberger in 1996 as Chief Investment Officer, will be the Fund's
leader. Prior to joining Hansberger, he was Executive Vice President for
Templeton Worldwide and a senior member of its Portfolio Management/Strategy
Committee. While at Templeton, Mr. Chaney managed numerous accounts, including
the $2.5 billion Foreign Equity Series of Templeton Institutional Funds Inc. Ms.
Gretzky joined Hansberger in 1995 as a research analyst. Prior to joining
Hansberger, she was a research analyst for Optimum Consulting, a Russian-based
firm which specialized in restructuring Russian companies during privatization.
Mr. Hock joined Hansberger in 1996 as a research analyst. Prior to joining
Hansberger, he was a senior analyst in the global securities research and
economics group at Merrill Lynch.
SMALL-CAP OPPORTUNITY FUND -- Douglas G. Madigan, CFA. Mr. Madigan joined Harris
Trust in 1994 and serves as Principal and Portfolio Manager. He has served as
portfolio manager of the Fund since the Fund commenced operations in February
1996 and has over 25 years of academic and applied experience analyzing
equities, fixed income and convertible securities with a number of financial
institutions. Prior to joining HIM, he served as senior portfolio manager for
the trust operation of a large banking institution.
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SMALL-CAP VALUE FUND -- Thomas M. Corkill, CFA. Mr. Corkill joined Harris Trust
in 1982 and serves as Partner and Portfolio Manager. He has served as portfolio
manager of the Fund since the Fund commenced operations in March 1997 and has 28
years of experience in portfolio management and research.
GROWTH FUND -- James E. Depies, CFA. Mr. Depies joined Harris Trust in 1981 and
serves as Senior Partner and Portfolio Manager. He has served as portfolio
manager of the Fund since the Fund commenced operations in February 1996 and has
37 years of investment experience.
EQUITY FUND -- Donald G. M. Coxe. Mr. Coxe joined HIM in 1993 and serves as
Chairman and Chief Strategist. He has served as portfolio manager of the Fund
since February 1996 and has nearly 30 years of institutional investment
management experience. Prior to joining HIM, he served on Wall Street as a
sell-side portfolio strategist advising institutional investors and as chief
executive officer for a Canadian investment counseling firm.
EQUITY INCOME FUND -- Daniel L. Sido Mr. Sido joined HIM in 1994 and serves as
Senior Partner and Portfolio Manager. He has served as portfolio manager of the
Fund since the Fund commenced operations in February 1996 and has over 14 years
of investment management experience. Prior to joining HIM, he served as
portfolio manager for a trust company, managing equity and fixed income
portfolios.
INDEX FUND -- Thomas M. Corkill, CFA. Mr. Corkill has served as portfolio
manager of the Fund since the Fund commenced operations in February 1996. For a
description of Mr. Corkill, see Small-Cap Value Fund above.
BALANCED FUND -- C. Thomas Johnson, CFA. Mr. Johnson joined Harris Trust in 1969
and serves as Senior Partner and Portfolio Manager. He has served as portfolio
manager of the Fund since the Fund commenced operations in March 1997 and has 28
years of experience in portfolio management.
CONVERTIBLE SECURITIES FUND -- Douglas G. Madigan, CFA. Mr. Madigan has served
as portfolio manager of the Fund since the Fund commenced operations in March
1997. For a description of Mr. Madigan, see Small-Cap Opportunity Fund above.
TAX-EXEMPT BOND FUND -- Kathleen A. Bramlage. Ms. Bramlage joined Harris Trust
in 1993 and serves as Principal and Portfolio Manager. She has served as
portfolio manager of the Fund since the Fund commenced operations in February
1996 and has 15 years of experience managing fixed-income funds, specializing in
tax-exempt and money market securities. Prior to joining Harris Trust, she
served as portfolio manager for a bank proprietary mutual fund complex.
BOND FUND -- Laura Alter and Maureen Svagera. Ms. Alter joined HIM in 1994 and
serves as Senior Partner and Portfolio Manager. She has served as portfolio
manager of the Fund
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since the Fund commenced operations in April 1996 and has 13 years of experience
in the fixed-income investment area. Prior to joining HIM, she served as
portfolio manager for a major mutual fund investment management firm. Ms.
Svagera joined HIM in 1994 and serves as Senior Partner and Portfolio Manager.
She has served as portfolio manager of the Fund since the Fund commenced
operations and has 15 years of experience in the fixed-income markets. Prior to
joining HIM, she spent five years at an investment management firm as
principal/vice president focusing on the mortgage and asset-backed markets.
INTERMEDIATE TAX-EXEMPT BOND FUND -- Kathleen A. Bramlage. She has served as
portfolio manager of the Fund since the Fund commenced operations in February
1996. For a description of Ms. Bramlage, see Tax-Exempt Bond Fund above.
SHORT/INTERMEDIATE BOND FUND -- Laura Alter and Maureen Svagera. Ms. Alter has
served as portfolio manager of the Fund since September 1994. Ms. Svagera has
served as portfolio manager of the Fund since January 1996. For a description of
Ms. Alter and Ms. Svagera, see Bond Fund above.
INTERMEDIATE GOVERNMENT BOND FUND -- Maureen Svagera. Ms. Svagera has served as
portfolio manager of the Fund since the Fund commenced operations in March 1997.
For a description of Ms. Svagera, see Bond Fund above.
HARRIS INSIGHT TAX-EXEMPT MONEY MARKET FUND -- Kathleen A. Bramlage. Ms.
Bramlage has served as portfolio manager of the Fund since August 1993. For a
description of Ms. Bramlage, see Tax-Exempt Bond Fund above.
HARRIS INSIGHT MONEY MARKET FUND -- Randall T. Royther. Mr. Royther joined
Harris Trust in 1990 and serves as partner and portfolio manager. Mr. Royther
has served as portfolio manager of the Fund since June 1995 and has nine years
of investment experience.
HARRIS INSIGHT GOVERNMENT MONEY MARKET FUND -- Randall T. Royther. Mr. Royther
has served as portfolio manager of the Fund since June 1995. For a description
of Mr. Royther, see Money Market Fund above.
ADMINISTRATORS, CUSTODIAN AND TRANSFER AGENT
Harris Trust (in this capacity, the "Administrator") is the administrator of the
Funds and, as such, generally assists the Funds in all aspects of their
administration and operation.
The Administrator has a Sub-Administration Agreement with Funds Distributor,
Inc. ("FDI"), whereby FDI performs certain administrative services for the
Funds. The Administrator has Sub-Administration and Accounting Services
Agreements with PFPC Inc. ("PFPC"), whereby PFPC performs certain administrative
and accounting services for the Funds. Under these agreements, the Administrator
compensates FDI and PFPC for providing their services. The Administrator, FDI
and PFPC are referred to collectively as the "Administrators."
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<PAGE> 44
Harris Trust is also the transfer and dividend disbursing agent of the Funds (in
this capacity, the "Transfer Agent"). The Transfer Agent has entered into
Sub-Transfer Agency Services Agreements with PFPC (the "Sub-Transfer Agent")
whereby the Sub-Transfer Agent performs certain transfer agency and dividend
disbursing agency services.
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 Administrator, the Transfer Agent and
the Custodian are entitled to receive a combined fee based on the aggregate
average daily net assets of the portfolios of the Company and the Trust, payable
monthly at an annual rate of 0.17% of the first $300 million of average daily
net assets; 0.15% of the next $300 million; and 0.13% of average daily net
assets in excess of $600 million. In addition, the Funds pay a separate fee to
the Sub-Transfer Agent for certain retail sub-transfer agent services and
reimburse the Custodian for various custody transactional expenses.
DISTRIBUTOR
Funds Distributor, Inc. (the "Distributor") has entered into Distribution
Agreements with the Trust and the Company pursuant to which it has the
responsibility for distributing shares of the Funds. Fees for services rendered
by the Distributor are paid by the Administrator. 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 or the Company and the Distributor
and approved by the Board of Trustees of the Trust or the Board of Directors of
the Company.
SERVICE PLAN
Under a complex-wide Service Plan relating to Class A Shares of the Funds,
each Fund may pay the fees of financial institutions (which may include banks),
securities dealers and other industry professionals, such as the investment
advisers, accountants and estate planning firms (collectively, "Service
Organizations") for servicing activities, as described below, at a rate of up to
0.25% of the average daily net assets attributable to the Fund's Class A Shares.
From their own resources, Harris Trust and HIM from time to time may voluntarily
pay fees to certain Service Organizations. Under a separate Service Plan adopted
by the Money Market Funds, those Funds also may bear the costs and expenses
connected with advertising and marketing Class A Shares and may make additional
payments to Service Organizations for servicing activities as described below,
at a rate of up to 0.10% of the average daily assets attributable to Class A
Shares. The Administrators and the Distributor may act as Service Organizations
and receive fees under a Service Plan.
Servicing activities provided by Service Organizations to their customers
investing in the Funds may include establishing and maintaining shareholder
accounts and records; processing purchase and redemption transactions; answering
customer inquiries; assisting customers in changing dividend options, account
designations and addresses; sub-accounting; investing customer cash account
balances automatically in Fund shares; providing periodic account
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<PAGE> 45
balance statements and integrating these statements with those of other
transactions and balances in the customer's other accounts serviced by the
Service Organization; arranging for bank wires; and performing other services to
the extent permitted by applicable statute, rule or regulation.
EXPENSES
Except for certain expenses borne by the Distributor, Harris Trust, or HIM, the
Trust and the Company bear all costs of their operations, including the
compensation of their 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); interest charges; taxes; fees and expenses of 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; 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; fees of pricing services;
organizational expenses; and any extraordinary expenses. Expenses attributable
to each Fund are borne by that Fund. Other general expenses of the Trust or the
Company are allocated among the Funds in an equitable manner as determined by
the Boards of Trustees and Directors.
HOW TO BUY SHARES
OPENING AN ACCOUNT. To open an account, complete and sign an application for
Class A Shares and mail it along with your check. You also may open your account
by wire, as described below. Please be sure to furnish your taxpayer
identification number. (You must also certify whether you are subject to
withholding for failing to report income to the Internal Revenue Service
("IRS")). Investments received without a certified taxpayer identification
number may be returned.
If you register your account as belonging to multiple owners (e.g., as joint
tenants), you must provide specific authorization on your application in order
for us to accept instructions from a single owner. Otherwise, all owners will
have to agree to any transactions that involve the account.
MINIMUM INVESTMENTS. The Funds have the following minimum investments:
<TABLE>
<S> <C>
To open an account $1,000
To open a retirement account 250
</TABLE>
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<PAGE> 46
<TABLE>
<S> <C>
To add to an existing account 50
Investing through an Automatic Investment Plan 50
</TABLE>
If you are opening an account through a financial institution or other
intermediary, this organization may have different minimum initial and
subsequent investment requirements. Please contact this organization if you have
questions. See BUYING SHARES - THROUGH FINANCIAL INSTITUTIONS below.
BUYING SHARES. Shares may be purchased by investing automatically (see AUTOMATIC
INVESTING below) or by any of the following three methods:
1. BY MAIL. Make your check payable to the Fund of your choice. If you are
adding to your existing account, indicate your Fund account number directly on
the check and send to:
Harris Insight Funds
c/o PFPC Inc.
P.O. Box 8952
Wilmington, Delaware 19899-8952
2. BY BANK WIRE. Call the Funds at (800) 625-7073 to initiate your purchase.
Then wire your investment to:
PNC Bank, N.A.
Philadelphia, Pennsylvania
ABA #0310-0005-3
For Credit to: Harris Insight Funds
85-5093-2950
Re: [Name of Fund] -- Class A Shares
Account No.:
Account Name:
If you are opening an account, please promptly complete and mail the account
application form to the Funds at the address above under BY MAIL. The Funds
currently do not charge investors for the receipt of wire transfers, although
your bank may charge you for their wiring services.
3. THROUGH FINANCIAL INSTITUTIONS. Shares of any of the Funds may be purchased
through authorized broker-dealers, financial institutions and service agents
with whom the Distributor has a selling agreement, including Harris Trust and
HIM and their affiliates ("Institutions"), on any day the Funds are open for
business. See GENERAL PURCHASE INFORMATION. Institutions are responsible for the
prompt transmission of buy, exchange or sell orders.
Each Institution may establish its own terms with respect to the requirement of
a minimum initial investment and minimum subsequent investments. Depending upon
the terms of your account, Institutions may charge account fees for automatic
investment and other services
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<PAGE> 47
they provide, including account maintenance fees, compensating balance
requirements, or fees based upon account transactions, assets, or income, which
would reduce your yield or return. Please read this Prospectus in connection
with any information received from your Institution.
AUTOMATIC INVESTING. Automatic investing is an easy way to add to your Harris
Insight Funds and can help you achieve your financial goals as simply and
conveniently as possible. Through the Harris Insight Funds Automatic Investment
Plan you can have as little as $50 a month electronically withdrawn from your
checking account and invested in the Fund of your choice. This feature can be
established when you open your account. For more information or to receive an
application, please call (800) 982-8792.
GENERAL PURCHASE INFORMATION
The Funds are open for business each day that both of the New York Stock
Exchange (the "Exchange") and the Federal Reserve Bank of Philadelphia are open
for business (i.e., each weekday other than New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day) ("Fund
Business Day"). Except for the Money Market Funds, each Fund normally calculates
its net asset value ("NAV") and offering price at the close of business of the
Exchange, which is normally 4:00 p.m., Eastern time. Each of the Tax-Exempt
Money Market Fund and the Government Money Market Fund normally calculates its
NAV on or before 12:00 Noon, Eastern time. The Money Market Fund normally
calculates its NAV on or before 2:30 p.m., Eastern time. Shares are purchased at
the next share price calculated after your investment is received and accepted.
Orders placed directly with the Funds must be paid for by check or bank wire on
the same 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. The Company and Trust, as applicable, reserve the right to reject
any purchase order.
HOW TO SELL SHARES
Shares may be sold (redeemed) at their next determined net asset value after
receipt of a proper request by the Funds directly or through any Institution.
1. BY MAIL. Shareholders may sell shares by writing the Funds at the following
address:
Harris Insight Funds
c/o PFPC Inc.
P.O. Box 8952
Wilmington, Delaware 19899-8952
Certain requests for redemption must be signed by the shareholder with signature
guaranteed. See SHAREHOLDER SERVICES AND POLICIES - SIGNATURE GUARANTEES.
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<PAGE> 48
2. BY TELEPHONE. If you have chosen the telephone redemption privilege, you may
make a telephone redemption request by calling the Funds at (800) 625-7073 and
providing the your account number, the exact name of your account and your
social security or taxpayer identification number. The Fund then will mail a
check to your account address or, if you have elected the wire redemption
privilege, wire the proceeds on the following business day.
3. BY BANK WIRE. If you have chosen the wire redemption privilege, you may
request the Funds to transmit your proceeds by federal funds wire to a bank
account previously designated by you in writing. See GENERAL REDEMPTION
INFORMATION - WIRE REDEMPTION PRIVILEGE below.
4. THROUGH FINANCIAL INSTITUTIONS. If you bought your shares through an
Institution, you may redeem your shares through the Institution. Please contact
the Institution for this service.
GENERAL REDEMPTION INFORMATION
There is no charge for redemptions, but if you bought your shares through an
Institution, the Institution may charge an account-based service fee. A
redemption order received in good order by your Institution or the Funds before
the close of the Exchange and before the close of the Fund Business Day will be
executed at the Fund's net asset value per share next determined on that day. A
redemption order received after the close of the Exchange, or not received by
the Funds prior to the close of the Fund Business Day, will be executed at the
Fund's net asset value next determined on the next Fund Business Day.
Proceeds of redemption orders received in good order will normally be remitted
within five but not more than seven business days, except that if a redemption
request is made shortly after a recent purchase by check, proceeds will be
distributed once the check used to purchase the Fund's shares clears, which may
take up to 15 days or more after the investment. The proceeds may be more or
less than the amount originally invested and, therefore, a redemption may result
in a gain or loss for federal income tax purposes.
The Funds intend to pay redemption proceeds in cash, but reserve the right to
pay in kind by delivery of investment securities equal in value to the
redemption price to the extent permitted by applicable laws and regulations. In
these cases, you might incur brokerage costs in converting the securities to
cash. The right of any shareholder to receive payment of redemption proceeds may
be suspended, or payment may be postponed, in certain circumstances. These
circumstances include any period when the Exchange is closed (other than
weekends or holidays) or trading on the Exchange is restricted, any period when
an emergency exists and any time the SEC permits mutual funds to postpone
payments for the protection of investors.
WIRE REDEMPTION PRIVILEGE. If the wire redemption privilege has been elected on
the shareholder application, redemption of shares may be requested by telephone,
on any day the Funds and the Transfer Agent are open for business, by calling
the Funds at (800) 625-7073.
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<PAGE> 49
The minimum amount that may be wired is $1,000. Otherwise, a check is mailed to
the shareholder's address of record. The Funds reserve the right to change this
minimum or to terminate the privilege. Redemption proceeds normally are
transmitted by wire on the business day after a redemption request is made. For
each of the Tax-Exempt Money Market Fund and the Government Money Market Fund,
if a request is received by the Transfer Agent by 12:00 Noon, Eastern time on a
day the Funds and the Transfer Agent are open for business, the redemption
proceeds will be transmitted to the shareholder's bank that same day. For the
Money Market Fund, if a request is received by the Transfer Agent by 2:30 p.m.,
Eastern time on a day the Fund and the Transfer Agent are open for business,
the redemption proceeds will be transmitted to the shareholder's bank that same
day.
SYSTEMATIC WITHDRAWAL PLAN. You can arrange for periodic, automatic redemptions
from your account. For more information or to sign up for this service, please
call (800) 982-8782.
SHAREHOLDER SERVICES AND POLICIES
EXCHANGING SHARES. YOU CAN EXCHANGE CLASS A SHARES OF A FUND FOR CLASS A SHARES
OF THE OTHER HARRIS INSIGHT FUNDS OFFERING THOSE SHARES. Class A Shares of any
of the Funds that you have held for seven days or more may be exchanged for
shares of any other Harris Insight Fund in an identically registered account,
provided that Class A Shares of the Fund to be acquired are registered for sale
in the your 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 acquired by exchange pursuant to this privilege may be
re-exchanged for Class A Shares of the Fund in which they were originally
invested at the Funds' respective net asset values.
Procedures applicable to redemption of a Fund's shares are also applicable to
exchanging shares. If you would like the ability to exchange shares by
telephone, please choose this option when you complete your application. The
Funds reserve the right to limit the number of exchanges between Funds, to
reject any telephone exchange order or otherwise to modify or discontinue the
exchange privilege 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.
SIGNATURE GUARANTEES. A signature guarantee assures that a signature is genuine
and protects shareholders from unauthorized account transfers. In addition to
certain signature requirements, a signature guarantee is required in any of the
following circumstances:
- A redemption check is to be made payable to anyone other than
the shareholder(s) of record.
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<PAGE> 50
- A redemption check is to be mailed to an address other than
the address of record.
- A redemption amount is to be wired to a bank other than one
previously authorized.
At the Funds' discretion, signature guarantees also may be required for other
redemptions. Banks, savings and loan associations, trust companies, credit
unions, broker-dealers and member firms of a national securities exchange may
guarantee signatures. Call your financial institution to see if it has this
capability.
TELEPHONE TRANSACTIONS. Investors may buy (by bank wire), sell and exchange
shares by telephone. Shareholders engaging in telephone transactions should be
aware that they may be foregoing some of the security associated with written
requests. A shareholder may bear the risk of any resulting losses from a
telephone transaction. The Funds will employ reasonable procedures to confirm
that telephonic instructions are genuine. If the Funds or their service
providers fail to employ these measures, they may be liable for any losses
arising from unauthorized or fraudulent instructions. In addition, the Funds
reserve the right to record all telephone conversations. Please verify the
accuracy of telephone instructions immediately upon receipt of confirmation
statements.
During times of drastic economic or market changes, telephone redemption and
exchange privileges may be difficult to implement. In the event that you are
unable to reach the Funds by telephone, requests may be mailed or hand-delivered
to the Funds at the address listed in HOW TO SELL SHARES.
REDEMPTION OF SHARES IN SMALLER ACCOUNTS. Because of the high cost of
maintaining small accounts, each Fund reserves the right to redeem all shares in
an account whose value falls below $500 ($250 in the case of a retirement
account) unless this is a result of a decline in the market value of the shares.
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.
SHARE CERTIFICATES. Share certificates are not issued.
ELIGIBILITY BY STATE. You may only invest in, or exchange into, Class A Shares
legally available in your jurisdiction of residence.
CHECKWRITING. The Money Market Fund, the Government Money Market Fund and the
Tax-Exempt Money Market Fund offer a checkwriting privilege. If you are an
investor in one of these Funds and have completed the checkwriting application
and signature card, you may redeem shares by writing a check against your
account. If you are opening a new account and wish to use checkwriting, you must
complete the checkwriting application and signature card when completing the
account application. If you already have an account, you may contact the Harris
Insight Funds at (800) 982-8782 for the necessary forms.
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<PAGE> 51
Upon receipt of the necessary forms, checks will be forwarded to you. The
minimum check amount is $500. The checkwriting privilege will be subject to the
customary rules and regulations governing checkwriting. If your account is
registered as belonging to multiple owners (e.g., as joint tenants), each
shareholder must sign each check, unless the shareholders have authorized fewer
signatures and such election is on file with the Funds' transfer agent. When the
check is presented to the Transfer Agent for payment, the Fund's custodian will
cause the Fund to redeem a sufficient number of shares in your account to cover
the amount of the check, which enables you to continue earning income on those
shares until the check is presented for payment. You should make certain that
you own a sufficient number of shares to cover the amount of the check. If you
do not own enough shares to cover a check when presented, the check will be
returned to the payee marked "insufficient funds." Checks written for amounts
that would require the redemption of shares purchased by check or electronic
funds transfer within the previous 10 business days or checks written in amounts
of less than $500 may be returned. Charges may be imposed for returned checks,
stop payment orders, copies of cancelled checks and other special services. The
Funds and the Custodian reserve the right to terminate or modify this privilege
or to impose a service fee in connection with the privilege.
REPORTS TO SHAREHOLDERS. You will receive an account statement after every
transaction that affects your share balance, except for reinvestments of
dividend and capital gain distributions, or at least annually, as well as a
quarterly consolidated statement. In addition, each year you will receive an
annual and semi-annual report to shareholders of each Fund in which you invest.
If you would like copies of these reports, please call (800) 982-8782.
HOW THE FUNDS MAKE DISTRIBUTIONS TO
SHAREHOLDERS; TAX INFORMATION
Dividends of net investment income currently are declared and paid at least
annually by each Fund in accordance with the Fund's dividend policy. Dividends
from the Emerging Markets Fund, the International Fund, the Small-Cap
Opportunity Fund and the Small-Cap Value Fund are declared and paid
semi-annually. Dividends from each of the Growth Fund, the Equity Income Fund,
the Equity Fund, the Index Fund, the Balanced Fund and the Convertible
Securities Fund are declared and paid quarterly. Dividends from the Tax-Exempt
Bond Fund, the Bond Fund, the Intermediate Tax-Exempt Bond Fund, the
Short/Intermediate Bond Fund and the Intermediate Government Bond Fund are
declared daily and paid monthly. Dividends from each of the Money Market Funds
are declared daily and paid monthly. Any net capital gains will be declared and
paid at least annually. Dividend and capital gain distributions may be invested
in additional shares of the same Fund at net asset value and credited to your
account on the payment date or paid in cash. Distribution checks and account
statements will be mailed approximately two business days after the payment
date.
Each Fund is treated as a separate entity for tax purposes and thus the
provisions of the
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<PAGE> 52
Internal Revenue Code (the "Code") generally are 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 are determined
separately for each Fund. The Trust and the Company intend to qualify each Fund
as a regulated investment company under the Code and to distribute to the
shareholders of each Fund sufficient net investment income and net realized
capital gains of that Fund so that the Fund will not be subject to federal
income taxes.
Dividends (including net short-term capital gains), except "exempt-interest
dividends" (described below), will be taxable to shareholders 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 also may be realized by a shareholder upon the redemption
or transfer of shares depending on the tax basis of the shares and their value
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 other shares of that Fund are
acquired within the 61-day period beginning 30 days before and ending 30 days
after disposition of the shares.
Dividends paid by each of the Tax-Exempt Bond Fund, the Intermediate Tax-Exempt
Bond Fund and the Tax-Exempt Money Market Fund (the "Tax-Exempt Funds") out of
tax-exempt interest income earned by the Fund ("exempt-interest dividends")
generally will not be subject to Federal income tax in the hands of the Fund's
shareholders. However, persons who are substantial users or related persons
thereof of facilities financed by private activity bonds held by a Fund may be
subject to Federal income tax on their pro rata share of the interest income
from such bonds and should consult their tax advisers before purchasing shares
of such Fund.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
a Fund generally is not deductible for Federal income tax purposes. Under rules
of the IRS for determining when borrowed funds are used for purchasing or
carrying particular assets, shares of a Fund may be considered to have been
purchased or carried with borrowed funds even though those funds are not
directly linked to the shares. Substantially all of the dividends paid by each
Tax-Exempt Fund are anticipated to be exempt from Federal income taxes.
Shareholders of the Tax-Exempt Funds may be exempt from state and local taxes on
distributions of tax-exempt interest income derived from obligations of the
state and/or municipalities of the state in which they reside but may be subject
to tax on income derived from the municipal securities of other jurisdictions.
Shareholders are advised to consult with their tax advisers concerning the
application of state and local taxes to investments in the Fund which may differ
from the Federal income tax consequences described above.
The Trust and the Company, as applicable, will be required to withhold, subject
to certain
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<PAGE> 53
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) or Transfer Agent.
GENERAL INFORMATION
BANKING LAW MATTERS
Federal banking laws and regulations generally prohibit federally chartered or
supervised banks from engaging directly 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.
Harris Trust and HIM believe that they may perform the services contemplated by
this Prospectus and their respective agreements with the Company and Trust
without violating 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, these services. If this were to happen, the Funds would seek alternative
sources for these services.
HOW SHARE VALUE IS DETERMINED
Net asset value per share is the value of one share of a Fund, which is
determined on each Fund Business Day. Net asset value per share of each class is
determined by dividing the value of a Fund's net assets (i.e., the value of its
securities and other assets less its liabilities) allocable to that class by the
number of shares of that class outstanding.
The net asset value per share of each of the non-Money Market Funds is
determined at the close of regular trading on the Exchange (currently 4:00 p.m.,
Eastern time) on each Fund Business Day. The value of securities held by 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 time of valuation. 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 that are primarily
traded on foreign securities exchanges are generally valued at their closing
values on the exchange. Bonds are valued at the mean of the last bid and asked
prices. In the absence of readily available market quotations (or when, in the
view of the investment adviser, available market quotations do not accurately
reflect a security's fair value), securities are valued at their fair value as
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determined by the Trust's Board of Trustees or Company's Board of Directors.
Prices used for valuations of securities are provided by independent pricing
services. Debt obligations with remaining maturities of 60 days or less
generally are valued at amortized cost. 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.
The net asset value per share of the Tax-Exempt Money Market Fund and the
Government Money Market Fund is determined at 12:00 Noon, Eastern time. The net
asset value per share of the Money Market Fund is determined at 2:30 p.m.,
Eastern time. In order to maintain a stable net asset value of $1.00 per share,
each of the Money Market Funds uses the amortized cost method to value its
portfolio securities.
HOW PERFORMANCE IS REPORTED
From time to time, each of the Funds may advertise its performance. Performance
may be quoted in terms of total return, yield, effective yield and
tax-equivalent yield. All performance information is based on historical results
and is not intended to indicate future performance.
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 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 that all distributions and dividends by the Fund were reinvested on
their reinvestment dates during the period less all recurring fees.
A Fund's yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. To calculate standardized
yield, a Fund divides the interest income it earned from its investments for a
30-day period (net of expenses) by the average number of shares entitled to
receive dividends. The result is then expressed as an annualized percentage rate
based on the Fund's share price at the end of the 30-day period (which period
will be stated in the advertisement). The yield of any investment is generally a
function of portfolio quality and maturity, type of instrument and operating
expenses.
The effective yield is calculated similarly but, when annualized, the income
earned by an investment in 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 Tax-Exempt Funds, refers to the yield on a
taxable investment necessary to produce an after-tax yield equal to a Fund's
tax-exempt 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
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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).
The Funds' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc. and Lipper
Analytical Services, Inc. The comparative material found in the Funds'
advertisements, sales literature or reports to shareholders may contain
performance ratings. That material is not to be considered an indication of
future performance. All performance information for a Fund is calculated on a
class basis. In addition, a Fund may use a benchmark securities index as a
measure of the Fund's performance. The Balanced Fund may measure performance
using a composite of securities indices to reflect that Fund's policy of
investing in both equity and fixed income securities. The Funds may from time to
time advertise a comparison of their performance against relevant indices.
MORE INFORMATION ABOUT THE TRUST AND THE COMPANY
The Trust is an 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 13 portfolios in operation. The
Board has authorized each Fund of the Trust to issue two classes of shares,
Class A Shares and Institutional Shares.
The Company, which was incorporated in Maryland on September 16, 1987, is an
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 five portfolios in operation. The Company's Board has
authorized the Funds of the Company to issue two classes of shares, Class A and
Institutional Shares.
Institutional Shares of the Funds, which are offered only to certain classes of
investors, do not impose any sales charges or 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. Information regarding other classes of shares may be obtained by
calling the Funds at (800) 982-8782 or from any institution that 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 SAI. All shares of the Trust and all shares of the Company,
when issued, will be fully paid and non-assessable.
As of April 1, 1998, Harris Trust owned of record _______________ of the
Institutional Shares of the Funds and, for purposes of the 1940 Act, may be have
been deemed to control the Funds. Harris Trust has indicated that it holds its
shares on behalf of various client accounts and not as beneficial owner. From
time to time, certain shareholders may own a large percentage of the shares of a
Fund. Accordingly, those shareholders may be able to
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greatly affect (if not determine) the outcome of a shareholder vote.
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. It is anticipated generally that shareholder meetings will be held
only when specifically required by federal or state law. Shareholders have
available certain procedures for the removal of Trustees and Directors.
There is a possibility that the Trust might become liable for any misstatement,
inaccuracy or incomplete disclosure in this Prospectus concerning the Company.
Likewise, there is a possibility that the Company might become liable for any
misstatement, inaccuracy or incomplete disclosure in this Prospectus concerning
the Trust.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable for the trust's obligations. However,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which both the trust itself was unable
to meet its obligations and inadequate insurance existed. To guard against this
risk, the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides for
indemnification out of Trust property of any shareholder held personally liable
for obligations of the Trust.
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APPENDIX A: PERMITTED INVESTMENTS
AMERICAN DEPOSITARY RECEIPTS, EUROPEAN DEPOSITARY RECEIPTS AND GLOBAL DEPOSITARY
RECEIPTS. The Emerging Markets Fund and the International Fund may purchase
sponsored and unsponsored American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and similar
securities ("Depositary Receipts"). Each of the Equity Funds also may invest in
ADRs and EDRs. Depositary Receipts are typically issued by a financial
institution ("depository") and evidence ownership interests in a security or a
pool of securities ("underlying securities") that have been deposited with the
depository. For ADRs, the depository is typically a U.S. financial institution
and the underlying securities are issued by a foreign issuer. For other
Depositary Receipts, the depository may be a foreign or a U.S. entity, and the
underlying securities may have a foreign or a U.S. issuer. Depositary Receipts
will not necessarily be denominated in the same currency as their underlying
securities. Depositary Receipts may be issued pursuant to sponsored or
unsponsored programs. In sponsored programs, an issuer has made arrangements to
have its securities traded in the form of Depositary Receipts. In unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the Depositary Receipts. For purposes of a Fund's investment policies,
investments in Depositary Receipts will be deemed to be investments in the
underlying securities. Thus, a Depositary Receipt representing ownership of
common stock will be treated as common stock.
ASSET-BACKED SECURITIES. The Equity Funds, the Short/Intermediate Bond Fund, the
Bond Fund, the Intermediate Government Bond Fund, the Intermediate Tax-Exempt
Bond Fund, the Tax-Exempt Bond Fund and the Money Market Fund may purchase
asset-backed securities, which represent direct or indirect participations in,
or are secured by and payable from, assets other than mortgage-backed assets
such as motor vehicle installment sales contracts, installment loan contracts,
leases of various types of real and personal property and receivables from
revolving credit (credit card) agreements. 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, the Short/Intermediate Bond Fund and the
Money Market Funds) limitation on such investments. Asset-backed securities,
including adjustable rate asset-backed securities, have yield characteristics
similar to those of mortgage-backed securities and, accordingly, are subject to
many of the same risks, including prepayment risk.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that 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.
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Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-backed
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-backed securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
BANK OBLIGATIONS. A Fund may invest in obligations of bank obligations,
including negotiable certificates of deposit, bankers' acceptances and time
deposits of U.S. banks (including savings banks and savings associations),
foreign branches of U.S. banks, foreign banks and their non-U.S. branches
(Eurodollars), U.S. branches and agencies of foreign banks (Yankee dollars), and
wholly-owned banking-related subsidiaries of foreign banks.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand but may be subject
to early withdrawal penalties which could reduce the Fund's yield. Deposits
subject to early withdrawal penalties or that mature in more than seven days are
treated as illiquid securities if there is no readily available market for the
securities. A Fund's investments in the obligations of foreign banks and their
branches, agencies or subsidiaries may be obligations of the parent, of the
issuing branch, agency or subsidiary, or both.
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 associated
with obligations of U.S. banks. See "Foreign Securities."
BRADY BONDS. The Emerging Markets Fund may invest a portion of its assets in
certain sovereign debt obligations known as "Brady Bonds." Brady Bonds are
issued under the framework of the Brady Plan, an initiative announced by former
U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor
nations to restructure their outstanding external indebtedness. The Brady Plan
contemplates, among other things, the debtor nation's adoption of certain
economic reforms and the exchange of commercial bank debt for newly issued
bonds. In restructuring its external debt under the Brady Plan framework, a
debtor nation negotiates with its existing bank lenders as well as the World
Bank or the International Monetary Fund (the "IMF"). The World Bank or IMF
supports the restructuring by providing funds pursuant to loan agreements or
other arrangements that enable the debtor nation to collateralize the new Brady
Bonds or to replenish reserves used to reduce outstanding bank debt. Under these
loan agreements or other arrangements with
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the World Bank or IMF, debtor nations have been required to agree to implement
certain domestic monetary and fiscal reforms. The Brady Plan sets forth only
general guiding principles for economic reform and debt reduction, emphasizing
that solutions must be negotiated on a case-by-case basis between debtor nations
and their creditors.
Brady Bonds are recent issues and do not have a long payment history. Agreements
implemented under the Brady Plan are designed to achieve debt and debt-service
reduction through specific options negotiated by a debtor nation with its
creditors. As a result, each country offers different financial packages.
Options have included the exchange of outstanding commercial bank debt for bonds
issued at 100% of face value of such debt, bonds issued at a discount of face
value of such debt, and bonds bearing an interest rate that increases over time
and the advancement of the new money for bonds. The principal of certain Brady
Bonds has been collateralized by U.S. Treasury zero coupon bonds with a maturity
equal to the final maturity of the Brady Bonds. Collateral purchases are
financed by the IMF, World Bank and the debtor nations' reserves. Interest
payments may also be collateralized in part in various ways.
Brady Bonds are often viewed as having three or four valuation components: (i)
the collateralized repayment of principal at final maturity; (ii) the
collateralized interest payments; (iii) the uncollateralized interest payments;
and (iv) any uncollateralized and of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds can be viewed as
speculative.
COMMON AND PREFERRED STOCK. The Equity Funds and the Convertible Securities Fund
may invest in common and preferred stock. Common stockholders are the owners of
the company issuing the stock and, accordingly, usually have the right to vote
on various corporate governance matters such as mergers. They are not creditors
of the company, but rather, upon liquidation of the company, are entitled to
their pro rata share of the company's assets after creditors (including fixed
income security holders) and, if applicable, preferred stockholders are paid.
Preferred stock is a class of stock having a preference over common stock as to
dividends or upon liquidation. A preferred stockholder is a shareholder in the
company and not a creditor of the company as is a holder of the company's fixed
income securities. Dividends paid to common and preferred stockholders are
distributions of the earnings or other surplus of the company and not interest
payments, which are expenses of the company. Equity securities owned by a Fund
may be traded in the over-the-counter market or on a securities exchange and may
not be traded every day or in the volume typical of securities traded on a major
U.S. national securities exchange. As a result, disposition by a Fund of a
portfolio security to meet redemptions by shareholders or otherwise may require
the Fund to sell the security at less than the reported value of the security,
to sell during periods when disposition is not desirable, or to make many small
sales over a lengthy period of time. The market value of all securities,
including equity securities, is based upon the market's perception of value and
not necessarily the book value of an issuer or other objective measure of a
company's worth.
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CONVERTIBLE SECURITIES. The Equity Funds, the Convertible Securities Fund and
the Bond Fund may invest in convertible preferred stock and bonds, which are
fixed income securities that are convertible into common stock at a specified
price or conversion ratio. Because these securities have the characteristics of
both fixed income and equity securities, they sometimes are called "hybrid"
securities. In general, the value of a convertible security is the higher of its
investment value (its value as a fixed income security) and its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the value of a convertible security
generally increases when interest rates decline and generally decreases when
interest rates rise. The value of convertible securities, however, is also
influenced by the value of the underlying common stock. Thus, convertible
securities ordinarily will provide opportunities for producing both current
income and longer-term capital appreciation. Convertible securities rank senior
to common stock in a corporation's capital structure but are usually subordinate
to any nonconvertible fixed income securities.
EXCHANGE RATE-RELATED SECURITIES. The Emerging Markets Fund and 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
generally 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.
FLOATING AND VARIABLE RATE SECURITIES. Each Fund may purchase securities having
a floating or variable rate of interest. These securities pay interest at rates
that are adjusted periodically according to a specified formula, usually with
reference to a some interest rate index or market interest rate. These
adjustments tend to decrease the security's price sensitivity to changes in
interest rates. 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.
Similar to fixed rate debt instruments, variable and floating rate instruments
are subject to changes in value based on changes in market interest rates or
changes in the issuer's creditworthiness.
Certain variable rate securities pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as inverse
floaters). For example, upon reset the interest rate payable on a security may
go down when the underlying index has risen. During periods when short-term
interest rates are relatively low as compared to long-term interest rates, a
Fund may attempt to enhance its yield by purchasing inverse floaters. Certain
inverse floaters may have an interest rate reset mechanism that multiplies the
effects
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of changes in the underlying index. While this form of leverage may increase the
security's yield, it may also increase the volatility of the security's market
value.
A floating or variable rate instrument may be subject to the Fund's percentage
limitation on illiquid securities 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 EXCHANGE CONTRACTS AND RELATED FUTURES AND OPTIONS. When investing in
foreign securities a Fund usually effects currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
market. The Fund incurs foreign exchange expenses in converting assets from one
currency to another.
Each of the Equity Funds may enter into forward foreign currency exchange
contracts for the purchase or 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 -- either to "lock in" the U.S. dollar price of the
securities denominated in a foreign currency or the U.S. dollar value of
interest and dividends to be paid on such securities, or to hedge against the
possibility that the currency of a foreign country in which a Fund has
investments may suffer a decline against the U.S. dollar -- or for non-hedging
purposes. By entering into Forward Contracts, 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 also may 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 investment adviser, a reasonable degree of
correlation can be expected between movements in the values of the two
currencies. Forward Contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves certain
risks beyond those associated with transactions in futures contracts or options
traded on exchanges.
For the Emerging Markets Fund, only a limited market, if any, currently exists
for hedging transactions relating to currencies in many emerging market
countries. This may limit the Emerging Market Fund's ability to effectively
hedge its investments in those emerging markets.
The Emerging Markets Fund may purchase put and call options and write covered
put and call options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of foreign currency denominated portfolio
securities and against increases in the U.S. dollar cost of such securities to
be acquired. As in the case of other kinds of options, however, the writing of
an option on a foreign currency constitutes only a partial hedge (up to the
amount of the premium received) and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to the Fund's position, it may forfeit the entire amount
of the premium plus related transaction
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costs. Options on foreign currencies to be written or purchased by the Fund are
traded on U.S. and foreign exchanges or over-the-counter.
FOREIGN SECURITIES. The Emerging Markets Fund and the International Fund may
invest in dollar-denominated and non-dollar-denominated foreign equity and debt
securities. Each of the other Equity Funds may invest up to 10% of its total
assets in dollar-denominated foreign equity and debt securities. The
Short/Intermediate Bond Fund and the Bond Fund (each with respect to 20% of its
total assets) as well as the Money Market Fund may invest in non-convertible
(and convertible in the case of the Bond Fund) debt 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 that are described in the Prospectus.
GUARANTEED INVESTMENT CONTRACTS. The Short/Intermediate Bond Fund, the Bond Fund
and the Money Market 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.
ILLIQUID SECURITIES AND RESTRICTED SECURITIES. Each Fund may invest up to 15%
(10% with respect to the Equity Fund, the Short/Intermediate Bond Fund and the
Money Market Funds) of its net assets in securities that are considered
illiquid. Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 ("restricted securities"),
securities which are otherwise not readily marketable, such as over-the-counter
options, and repurchase agreements not entitling the holder to payment of
principal in seven days. Under the supervision of the Trust's Board of Trustees
(or the Company's Board of Directors), the investment adviser determines and
monitors the liquidity of portfolio securities.
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 investment adviser has determined that an adequate trading market
exists for such securities or that market quotations are readily available.
Historically, illiquid securities have included securities subject to
contractual or legal
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restrictions on resale because they have not been registered under the
Securities Act of 1933 ("restricted securities"), securities which are otherwise
not readily marketable, such as over-the-counter options, and repurchase
agreements not entitling the holder to payment of principal in seven days.
The Funds may 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, for which an institutional market has developed. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on the issuer's ability to honor a demand for repayment
of the unregistered security. A security's contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative of
the liquidity of the security. These securities may be determined to be liquid
in accordance with guidelines established by the Trust's Board of Trustees (or
the Company's Board of Directors). These guidelines take into account trading
activity in the securities and the availability of reliable pricing information,
among other factors. The Board of Trustees or Directors monitors implementation
of these guidelines on a periodic basis.
INDEX FUTURES CONTRACTS; OPTIONS ON INDICES; OPTIONS ON SECURITIES. The Equity
Funds, the Convertible Securities Fund, the Tax-Exempt Bond Fund, the Bond Fund,
the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund and the
Intermediate Government Bond Fund may attempt to reduce the risk of investment
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
exchanges. These Funds 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. Except for the Index Fund, 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. The Index
Fund also may use S&P 500 Index futures contracts to simulate full investment in
the underlying index while retaining a cash balance for liquidity purposes.
Each Fund may invest in covered put and covered call options and may write
covered put and covered call options on securities in which it 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 manager
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
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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 or other appropriate assets 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 SAI.
INVESTMENT COMPANY SECURITIES AND INVESTMENT FUNDS. 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 non-Money Market
Fund, other than the Equity Fund and the Short/Intermediate Bond Fund, also may
invest in securities issued by investment companies that invest in securities in
which the Fund could invest directly.
Securities of investment companies may be acquired by any of the Funds within
the limits prescribed by 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.
With respect to the Emerging Markets Fund, some emerging countries have laws and
regulations that preclude direct foreign investment in the securities of
companies located there. However, indirect foreign investment in the securities
of companies listed and traded on the stock exchanges in these countries is
permitted by certain emerging countries through specifically authorized
investment funds. The Fund may invest in these investment funds.
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 investment adviser, 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
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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 investment 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 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
advisers or the Distributor.
MORTGAGE-BACKED SECURITIES. The Equity Funds, the Bond Fund, the
Short/Intermediate Bond Fund and the Intermediate Government Bond Fund may
invest in mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and Government Stripped Mortgage-Backed Securities.
Mortgage-backed securities represent an interest in a pool of mortgages
originated by lenders such as commercial banks, savings associations and
mortgage bankers and brokers. Mortgage-backed securities may be issued by
government-related entities or by non-governmental entities such as special
purpose trusts created by banks, savings associations, private mortgage
insurance companies or mortgage bankers. U.S. Government-related mortgage-backed
securities may be issued or guaranteed by the U.S. Government or one of its
agencies and backed by the full faith and credit of the U.S. Government, or
supported primarily or solely by the creditworthiness of the issuing U.S.
Government agency or other entity.
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. 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.
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Even if the U.S. Government or one of its agencies guarantees principal and
interest payments of a mortgage-backed security, the market price of a mortgage-
backed security is not insured and may be subject to market volatility. When
interest rates decline, mortgage-backed securities experience higher rates of
prepayment because the underlying mortgages are refinanced to take advantage of
the lower rates. The prices of mortgage-backed securities may not increase as
much as prices of other debt obligations when interest rates decline, and
mortgage-backed securities may not be an effective means of locking in a
particular interest rate. In addition, any premium paid for a mortgage-backed
security may be lost if the security is prepaid. When interest rates rise,
mortgage-backed securities experience lower rates of prepayment. This has the
effect of lengthening the expected maturity of a mortgage-backed security. As a
result, prices of mortgage-backed securities may decrease more than prices of
other debt obligations when interest rates rise.
MUNICIPAL OBLIGATIONS. The Balanced Fund, the Tax-Exempt Bond Fund, the Bond
Fund, the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund
and the Tax-Exempt Money Market Fund may invest in municipal obligations.
Municipal obligations include municipal bonds, municipal notes and municipal
commercial paper. These securities may be 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.
Municipal bonds generally have a maturity at the time of issuance of up to 30
years. Municipal notes are intended to fulfill the short-term capital needs of
the issuer and generally have maturities at the time of issuance of three years
or less. 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 Tax-Exempt Bond Fund and the
Intermediate Tax-Exempt Bond 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.
Municipal 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. The municipal notes in
which the Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond Fund may
invest include tax anticipation notes, bond anticipation notes, and revenue
anticipation notes (which generally are issued in anticipation of various
seasonal revenues).
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The Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond Fund may invest in
municipal leases. Municipal leases, which may take the form of a lease or an
installment purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications equipment
and other capital assets. 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.
REAL ESTATE INVESTMENT TRUSTS. The Emerging Markets Fund may invest in REITs.
REITs are pooled investment vehicles that invest primarily in income
producing real estate or real estate related loans or interests. Investing in
REITs involves certain unique risks in addition to those risks associated with
investing in the real estate industry in general. REITs may be affected by
changes in the value of the underlying property owned by the REITs or the
quality of loans held by the REIT. REITs are dependent upon management skills,
are not diversified, and are subject to the risks of financing projects.
REITs are also subject to interest rate risks. When interest rates decline, the
value of a REIT's investment in fixed rate obligations can be expected to rise.
Conversely, when interest rates rise, the value of a REIT's investment in fixed
rate obligations can be expected to decline.
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities.
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
collateralized only by obligations that could otherwise be purchased by the Fund
(except with respect to maturity). The seller will be required to maintain in a
segregated account for the Fund cash or cash equivalent collateral equal to at
least 102% 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.
The Equity Funds and the Fixed Income Funds may borrow funds for temporary
purposes by selling portfolio securities to financial institutions such as banks
and broker-dealers and
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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 Short/Intermediate Bond Fund and the Money Market Funds) 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, the Equity Funds, the
Tax-Exempt Bond Fund, the Bond Fund, the Intermediate Tax-Exempt Bond Fund, the
Short/Intermediate Bond Fund, the Intermediate Government Bond Fund, and the
Money Market Funds may enter into puts with respect to portfolio securities with
banks or broker-dealers that, in the opinion of the investment 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.
SHORT SALES. The Emerging Markets Fund may from time to time sell securities
short without limitation, although initially it has no intention to sell
securities short. In a short sale, the Fund sells securities it does not own
(but has borrowed) in anticipation of a decline in the securities' market price.
All short sales by the Fund will be fully collateralized. Short sales involve
certain risks and special considerations; possible losses from short sales may
be unlimited, whereas losses from purchases of securities are limited to the
total amount invested. The Fund may also sell short "against the box," that is,
sell a security that the Fund owns or has the right to acquire, for delivery at
a specified date in the future.
SOVEREIGN DEBT. The Emerging Markets Fund may invest in "sovereign debt," which
is issued or guaranteed by emerging market governments (including countries,
provinces and municipalities) or their agencies and instrumentalities. Sovereign
debt may trade at a substantial discount from face value. The Fund may hold and
trade sovereign debt of emerging market countries in appropriate circumstances
and to participate in debt conversion programs. Emerging country sovereign debt
involves a high degree of risk, is generally lower-quality debt, and is
considered speculative in nature. The issuer or governmental authorities that
control sovereign debt repayment ("sovereign debtors") may be unable or
unwilling to repay principal or interest when due in accordance with the terms
of the debt. A sovereign debtor's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment
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is due, the relative size of the debt service burden to the economy as a whole,
the sovereign debtor's policy towards the IMF and the political constraints to
which the sovereign debtor may be subject. Sovereign debtors may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearage on their
debt. The commitment of these third parties to make such disbursements may be
conditioned on the sovereign debtor's implementation of economic reforms or
economic performance and the timely service of the debtor's obligations. The
sovereign debtor's failure to meet these conditions may cause these third
parties to cancel their commitments to provide funds to the sovereign debtor,
which may further impair the debtor's ability or willingness to timely service
its debts. In certain instances, the Fund may invest in sovereign debt that is
in default as to payments of principal or interest. In the event that the Fund
holds non-performing sovereign debt, the Fund may incur additional expenses in
connection with any restructuring of the issuer's obligations or in otherwise
enforcing its rights thereunder.
STAND-BY COMMITMENTS. The Balanced Fund, the Tax-Exempt Bond Fund and the
Intermediate Tax-Exempt Bond Fund may purchase municipal securities together
with the right to resell them to the seller or a third party at an agreed-upon
price or yield within specified periods prior to their maturity dates. Such a
right to resell is commonly known as a stand-by commitment, and the aggregate
price which a Fund pays for securities with a stand-by commitment may increase
the cost, and thereby reduce the yield, of the security. The primary purpose of
this practice is to permit a Fund to be as fully invested as practicable in
municipal securities while preserving the necessary flexibility and liquidity to
meet unanticipated redemptions. 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. Stand-by commitments involve certain expenses and risks, including the
inability of the issuer of the commitment to pay for the securities at the time
the commitment is exercised, non-marketability of the commitment, and
differences between the maturity of the underlying security and the maturity of
the commitment.
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 SECURITIES. Each of the Funds may invest in U.S. Government
Securities: obligations issued or guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises. U.S. Government Securities
may include U.S. Treasury securities and obligations issued or guaranteed by
U.S. Government agencies and instrumentalities and backed by the full faith and
credit of the U.S. Government, such as those guaranteed by the Small Business
Administration or issued by the Government National Mortgage Association. In
addition, U.S. Government Securities may include securities supported primarily
or solely by the creditworthiness of the issuer, such as securities of the
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation and the Tennessee Valley Authority. There is no guarantee that the
U.S.
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Government will support securities not backed by its full faith and credit.
Accordingly, although these securities have historically involved little risk of
loss of principal if held to maturity, they may involve more risk than
securities backed by the U.S. Government's full faith and credit.
WARRANTS. The Equity Funds and the Convertible Securities Fund may invest in
warrants, which are options to purchase an equity security at a specified price
(usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. Unlike convertible securities and preferred
stocks, warrants do not pay a fixed dividend. Investments in warrants involve
certain risks, including the possible lack of a liquid market for the resale of
the warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised (in which case the warrant may
expire without being exercised, resulting in the loss of the Fund's entire
investment therein).
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES. Each Fund may
purchase securities (including securities issued pursuant to an initial public
offering) on a "when-issued," "delayed delivery" or "forward commitment" 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 Funds do not earn income on such securities until settlement and
bear the risk of market value fluctuations in between the purchase and
settlement dates. New issues of stocks and bonds, private placements and
Government Securities may be sold in this manner.
ZERO COUPON SECURITIES. Each of the Funds may invest in zero coupon securities.
Zero coupon securities are debt securities that are issued and traded at a
discount and do not entitle the holder to any periodic payments of interest
prior to maturity. Zero coupon securities include separately traded principal
and interest components of securities issued or guaranteed by the U.S. Treasury.
These components are traded independently under the U.S. Treasury's Separate
Trading of Registered Interest and Principal of Securities ("STRIPS") program or
as Coupons Under Book Entry Safekeeping ("CUBES").
The International Fund, the Intermediate Government Bond Fund, and the Money
Market Funds may invest in other types of related zero coupon securities
commonly known as "stripped" securities. For instance, a number of banks and
brokerage firms separate the principal and interest portions of U.S. Treasury
securities and sell them separately in the form of receipts or certificates
representing undivided interests in these instruments. These instruments are
generally held by a bank in a custodial or trust account on behalf of the owners
of the securities and are known by various names, including Treasury Receipts
("TRs"), Treasury Investment Growth Receipts ("TIGRs") and Certificates of
Accrual on Treasury Securities ("CATS"). Stripped securities also may be issued
by corporations and municipalities. Stripped securities will normally be
considered illiquid investments and will be acquired subject to the limitations
on illiquid investments.
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Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero coupon securities may be subject to greater fluctuation of
market value than the other debt securities in which the Funds may invest. The
Funds distribute all of their net investment income, and may have to sell
portfolio securities to distribute imputed income, which may occur at a time
when the investment adviser would not have chosen to sell such securities and
which may result in a taxable gain or loss.
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INVESTMENT ADVISER, ADMINISTRATOR,
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
PORTFOLIO MANAGEMENT AGENT
Harris Investment Management, Inc.
190 South LaSalle Street
Chicago, Illinois 60603
INVESTMENT SUB-ADVISER
Hansberger Global Investors, Inc.
515 East Las Olas Boulevard, Suite 1300
Fort Lauderdale, Florida 33301
SUB-ADMINISTRATOR AND ACCOUNTING
SERVICES AGENT, SUB-TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
SUB-ADMINISTRATOR AND DISTRIBUTOR
Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, Massachusetts 02109
CUSTODIAN
PNC Bank, N.A.
Broad & Chestnut Streets
Philadelphia, Pennsylvania 19101
INDEPENDENT ACCOUNTANTS
[ ]
LEGAL COUNSEL
Bell, Boyd & Lloyd
Three First National Plaza
Chicago, Illinois 60602
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PROSPECTUS BEGINS ON PAGE 1.
MAY 1, 1998
THE HARRIS INSIGHT(R) FAMILY OF FUNDS
INSTITUTIONAL SHARES
- - HARRIS INSIGHT EQUITY FUNDS
- - HARRIS INSIGHT FIXED INCOME FUNDS
- - HARRIS INSIGHT MONEY MARKET FUNDS
HARRIS INSIGHT(R) FUNDS
POWERFUL INSIGHT. SOLID INVESTMENTS.(SM)
<PAGE> 74
HARRIS INSIGHT(R) FUNDS
60 State Street, Suite 1300
Boston, Massachusetts 02109
Telephone: (800) 982-8782
Institutional Shares
Harris Insight Emerging Markets Fund
Harris Insight International Fund
Harris Insight Small-Cap Opportunity Fund
Harris Insight Small-Cap Value Fund
Harris Insight Growth Fund
Harris Insight Equity Fund
Harris Insight Equity Income Fund
Harris Insight Index Fund
Harris Insight Balanced Fund
Harris Insight Convertible Securities Fund
Harris Insight Tax-Exempt Bond Fund
Harris Insight Bond Fund
Harris Insight Intermediate Tax-Exempt Bond Fund
Harris Insight Short/Intermediate Bond Fund
Harris Insight Intermediate Government Bond Fund
Harris Insight Tax-Exempt Money Market Fund
Harris Insight Money Market Fund
Harris Insight Government Money Market Fund
<PAGE> 75
This Prospectus offers Institutional shares ("Institutional Shares") of eighteen
investment portfolios advised by Harris Trust and Savings Bank (collectively,
the "Funds"). The Equity Fund, the Short/Intermediate Bond Fund, the Tax-Exempt
Money Market Fund, the Money Market Fund and the Government Money Market Fund
are investment portfolios of HT Insight Funds, Inc., doing business as Harris
Insight Funds (the "Company"). Each other Fund is an investment portfolio of
Harris Insight Funds Trust (the "Trust"). The Company and the Trust are
registered as open-end management investment companies (mutual funds). The
Funds, together with the other investment portfolios of the Trust and the
Company, are known as the Harris Insight Funds.
Please read this Prospectus before investing and keep it on file for future
reference. The Prospectus contains the information that a prospective investor
should know before investing, including how each Fund invests and the many
services available to shareholders.
To learn more about the Funds and their investments, you may obtain a copy of
the Harris Insight Funds' most recent financial report and portfolio listing or
Statement of Additional Information dated May 1, 1998 (the "SAI") simply by
calling (800) 982-8782. The SAI has been filed with the Securities and Exchange
Commission (the "SEC") and (as supplemented from time to time) is incorporated
by reference into this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI and other information regarding the
Funds.
THE HARRIS INSIGHT FUNDS ARE A FAMILY OF OPEN-END INVESTMENT COMPANIES COMMONLY
KNOWN AS MUTUAL FUNDS. SHARES OF MUTUAL FUNDS ARE NOT INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, HARRIS TRUST AND SAVINGS BANK OR
ANY OTHER BANK OR BANK AFFILIATE.
AN INVESTMENT IN SHARES OF ANY MUTUAL FUND IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO ASSURANCE THAT THE
TAX-EXEMPT MONEY MARKET FUND, THE MONEY MARKET FUND OR THE GOVERNMENT MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
May 1, 1998
<PAGE> 76
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
<S> <C>
Fund Summary.................................................................
Expense Summary..............................................................
Financial Highlights.........................................................
Investment Objectives and Policies...........................................
Equity Funds........................................................
Fixed Income Funds..................................................
Money Market Funds..................................................
Additional Investment Information............................................
Additional Investment Policies......................................
Risk Considerations.................................................
Management...................................................................
How to Buy Shares............................................................
How to Sell Shares...........................................................
Shareholder Services and Policies............................................
How the Funds Make Distributions to Shareholders; Tax Information............
General Information..........................................................
Banking Law Matters.................................................
How Share Value Is Determined.......................................
How Performance Is Reported.........................................
More Information About the Trust and the Company....................
Appendix A: Permitted Investments............................................
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI 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 or the Company.
This Prospectus does not constitute an offer in any jurisdiction in which, or to
any person to whom, such offer may not lawfully be made.
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FUND SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
WHAT ARE THE OBJECTIVES OF THE FUNDS? HOW DO THE FUNDS ATTEMPT TO ACHIEVE THEIR
OBJECTIVES?
Each of the Funds has distinct investment objectives and policies, which are
summarized below in order of descending risk. For more complete information, see
INVESTMENT OBJECTIVES AND POLICIES and ADDITIONAL INVESTMENT INFORMATION.
Although no single Fund is intended to provide a complete or balanced investment
program, each can serve as a component of an investor's investment program.
EQUITY FUNDS
EMERGING MARKETS FUND seeks to provide capital appreciation by
investing in equity securities of companies in emerging markets that
the investment adviser believes to be undervalued.
INTERNATIONAL FUND seeks to provide international diversification and
capital appreciation by investing primarily in the equity securities of
foreign issuers that the investment adviser believes are undervalued.
Current income is a secondary objective.
SMALL-CAP OPPORTUNITY FUND seeks to provide long-term capital
appreciation by investing primarily in equity securities of smaller to
medium capitalization companies that the investment adviser believes
have above-average growth potential.
SMALL-CAP VALUE FUND seeks to provide capital appreciation by investing
primarily in equity securities of smaller to medium capitalization
companies that the investment adviser believes have above-average
growth potential and appear to be undervalued.
GROWTH FUND seeks to provide capital appreciation by investing
primarily in common stocks and convertible securities of companies that
the investment adviser believes have above-average growth potential.
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.
INDEX FUND seeks to provide the return and risk characteristics of the
Standard & Poor's 500 Index, by investing primarily in securities of
companies that comprise that index.
BALANCED FUND seeks to provide current income and capital appreciation
by investing in a balanced portfolio of fixed income and equity
securities.
FIXED INCOME FUNDS
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.
TAX-EXEMPT BOND FUND seeks to provide a high level of current income
that is exempt
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from federal income tax by investing, under normal market conditions,
at least 80% of its assets in municipal obligations of varying
maturities.
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.
INTERMEDIATE TAX-EXEMPT BOND 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.
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.
INTERMEDIATE GOVERNMENT BOND FUND seeks to provide a high level of
current income, consistent with preservation of capital, by investing
primarily in U.S. Government securities having an intermediate-term
average maturity.
MONEY MARKET FUNDS
TAX-EXEMPT MONEY MARKET FUND seeks to provide investors with as high a
level of current income that is exempt from federal income tax as is
consistent with its investment policies, and with preservation of
capital and liquidity, by investing primarily in high-quality,
short-term municipal obligations.
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.
GOVERNMENT 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
exclusively in short-term U.S. Government securities and repurchase
agreements backed by those securities.
WHO MANAGES EACH FUND'S INVESTMENTS?
Harris Trust and Savings Bank ("Harris Trust" or the "Adviser") serves as the
investment adviser for each Fund. Harris Trust and its predecessors have
provided investment management services to clients for over 100 years. In
addition to the services it performs for the Funds, Harris Trust provides
investment management services for pension, profit-sharing and personal
portfolios. As of December 31, 1997, total discretionary trust assets under
management totaled approximately $___ billion.
Harris Investment Management, Inc. ("HIM" or the "Portfolio Management Agent")
provides daily portfolio management services for each of the Funds except for
the Tax-Exempt Money Market Fund. As of December 31, 1997, HIM had a staff of
__, including __ professionals, providing investment expertise to the management
of the Harris Insight Funds and for pension, profit-sharing and institutional
portfolios. As of that date, assets under management were approximately $10.7
billion.
Subject to the general oversight of Harris Trust and HIM, Hansberger Global
Investors, Inc.
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<PAGE> 79
("Hansberger" or the "Investment Sub-Adviser") serves as investment sub-adviser
to the Emerging Markets Fund and the International Fund. Each of Harris Trust,
HIM and Hansberger is sometimes referred to as an "investment adviser."
Harris Trust and HIM are subsidiaries of Harris Bankcorp, Inc. See MANAGEMENT.
WHO SHOULD INVEST IN THE FUNDS?
The EQUITY FUNDS -- the Emerging Markets Fund, the International Fund, the
Small-Cap Opportunity Fund, the Small-Cap Value Fund, the Growth Fund, the
Equity Fund, the Equity Income Fund, the Index Fund and the Balanced Fund -- are
designed for long-term investors who can tolerate changes in the value of their
investments in return for the possibility of higher returns. The FIXED INCOME
FUNDS -- the Convertible Securities Fund, the Tax-Exempt Bond Fund, the Bond
Fund, the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund
and the Intermediate Government Bond Fund -- are designed for investors seeking
some degree of current income. The MONEY MARKET FUNDS -- the Tax-Exempt Money
Market Fund, the Money Market Fund and the Government Money Market Fund -- are
designed for conservative investors seeking stability of principal, current
income at money market rates, and liquidity. The Tax-Exempt Bond Fund, the
Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Money Market Fund are
specifically designed for those investors who seek income that is exempt from
federal income tax.
In making your investment decisions, consider your investment goals, your time
horizon to achieve them, and your tolerance for risk. For more information about
each Fund and its investments, see INVESTMENT OBJECTIVES AND POLICIES.
WHAT ADVANTAGES DO THE FUNDS OFFER?
An investment gives the investor benefits customarily available only to large
investors, such as diversification, greater liquidity, professional management,
and relief from bookkeeping, safekeeping of securities and other administrative
details.
WHEN ARE DIVIDENDS PAID?
Dividends from the Emerging Markets Fund, the International Fund, the Small-Cap
Opportunity Fund and the Small-Cap Value Fund are declared and paid
semi-annually. Dividends from the Growth Fund, the Equity Income Fund, the
Equity Fund, the Index Fund, the Balanced Fund and the Convertible Securities
Fund are declared and paid quarterly. Dividends from the Tax-Exempt Bond Fund,
the Bond Fund, the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate
Bond Fund and the Intermediate Government Bond Fund are declared daily and paid
monthly. Dividends from each of the Money Market Funds are declared daily and
paid monthly. Any net capital gains will be declared and paid at least annually.
See HOW THE FUNDS MAKE DISTRIBUTIONS TO SHAREHOLDERS; TAX INFORMATION.
5
<PAGE> 80
HOW ARE SHARES BOUGHT AND SOLD?
Institutional Shares are offered primarily to institutional investors without a
sales charge. Shares may be bought or sold by mail, by bank wire or through your
broker-dealer or other financial institution. There is no minimum initial or
subsequent investment. See HOW TO BUY SHARES AND HOW TO SELL SHARES.
WHAT RISKS ARE ASSOCIATED WITH THE FUNDS?
There can be no assurance that any Fund will achieve its investment objective or
that the Money Market Funds will be able to maintain a stable net asset value.
The net asset value of each of the Equity Funds and the Fixed Income Funds will
fluctuate based upon changes in the value of the Fund's portfolio securities
and, when shares are sold, an investment may be worth more or less than the
investment's original value. As with any mutual fund, the fundamental risk is
that the value of securities that a Fund holds may decrease. Each Fund's
performance and price per share changes daily based on many factors, including
the perceived quality of the Fund's investments, U.S. and international economic
conditions and general market conditions.
The market value of equity securities is based upon the market's perception of
the issuing company's value. Normally, the values of fixed income securities
vary inversely with changes in prevailing interest rates. However, the potential
for appreciation in mortgage-backed fixed income securities in the event of a
decline in interest rates may be limited or negated by increased principal
prepayments on these securities. Fixed income securities also are subject to
"credit risk" relating to the financial condition of the issuer of the
securities.
Certain investments and investment techniques entail additional risks, such as
investments in foreign issuers, issuers with limited market capitalization,
mortgage- or asset-backed securities, zero coupon securities and options,
futures contracts and forward contracts. The use of leverage by certain Funds
through borrowings, reverse repurchase agreements and other investment
techniques involves additional risks.
The policy of investing in smaller companies employed by the Small-Cap Value
Fund, the Small-Cap Opportunity Fund and the other Funds that invest in small
company securities entails certain risks in addition to those normally
associated with equity securities. Similarly, the International Fund's policy of
investing in foreign securities entails certain risks in addition to those
normally associated with equity securities. The Emerging Markets Fund's policy
of investing in securities of foreign issuers, particularly in countries with
smaller, emerging capital markets, involves certain risks not associated with
domestic investing, including fluctuations in foreign exchange rates, uncertain
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions.
For information about particular risks, see ADDITIONAL INVESTMENT INFORMATION -
RISK CONSIDERATIONS.
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<PAGE> 81
EXPENSE SUMMARY
The following table illustrates information concerning annual fund operating
expenses for Institutional Shares of the Funds. There are no transaction charges
in connection with purchases, redemptions or exchanges of Fund Shares. None of
the Funds has adopted a Rule 12b-1 Plan with respect to the Institutional Shares
and accordingly, no Fund incurs distribution expenses with respect to the
Institutional Shares.
ANNUAL OPERATING EXPENSES (as a percentage of average net assets after
applicable fee waivers and expense reimbursements)*
<TABLE>
<CAPTION>
Investment Total
Advisory Rule 12b-1 Other Operating
Fees Fees Expenses Expenses
---------- ---------- -------- ---------
EQUITY FUNDS
<S> <C> <C> <C> <C>
Emerging Markets Fund ___% None ___% ___%
International Fund ___ None ___ ___
Small-Cap Opportunity Fund ___ None ___ ___
Small-Cap Value Fund ___ None ___ ___
Growth Fund ___ None ___ ___
Equity Fund ___ None ___ ___
Equity Income Fund ___ None ___ ___
Index Fund ___ None ___ ___
Balanced Fund ___ None ___ ___
FIXED-INCOME FUNDS
Convertible Securities Fund ___ None ___ ___
Tax-Exempt Bond Fund ___ None ___ ___
Bond Fund ___ None ___ ___
Intermediate Tax-Exempt Bond Fund ___ None ___ ___
Short/Intermediate Bond Fund ___ None ___ ___
Intermediate Government Bond Fund ___ None ___ ___
MONEY MARKET FUNDS
Tax-Exempt Money Market Fund ___ None ___ ___
Money Market Fund ___ None ___ ___
Government Money Market Fund ___ None ___ ___
</TABLE>
* The amounts for expenses are based on amounts incurred during the Funds' most
recent fiscal periods.
Without fee waivers or expense reimbursements, investment advisory fees and
total operating expenses would be ____% and ____% for the Emerging Markets Fund,
____% and ____% for the International Fund, ____% and ____% for the Small-Cap
Opportunity Fund, ____% and ____% for the Growth Fund, ____% and ____% for the
Equity Income Fund, ____% and ____% for the Index Fund, ____% and ____% for the
Tax-Exempt Bond Fund, ____% and ____% for the Bond Fund, ____% and ____% for the
Intermediate Tax-Exempt Bond Fund, and ____% and ____% for the
Short/Intermediate Bond Fund; and other expenses and total operating expenses
would be ____% and ____% for the Money Market Fund, and ____% and ____% for the
Government Money Market Fund.
Customers of a financial institution, such as Harris Trust, also may be charged
certain fees and expenses by the institution. These fees may vary depending on
the capacity in which the institution provides fiduciary and investment services
to the particular client (such as trust, estate settlement, advisory or
custodian services).
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<PAGE> 82
EXAMPLE
The table below shows what you would pay if you invested $1,000 over the time
frames indicated. The example assumes you reinvested all dividends and that the
average annual return was 5%.
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
Equity Funds
<S> <C> <C> <C> <C>
Emerging Markets Fund $__ $__ $__ $___
International Fund
Small-Cap Opportunity Fund __ __ __ ___
Small-Cap Value Fund __ __ __ ___
Growth Fund __ __ __ ___
Equity Fund __ __ __ ___
Equity Income Fund __ __ __ ___
Index Fund __ __ __ ___
Balanced Fund __ __ __ ___
FIXED-INCOME FUNDS
Convertible Securities Fund __ __ __ ___
Tax-Exempt Bond Fund __ __ __ ___
Bond Fund __ __ __ ___
Intermediate Tax-Exempt Bond Fund __ __ __ ___
Short/Intermediate Bond Fund __ __ __ ___
Intermediate Government Bond Fund __ __ __ ___
MONEY MARKET FUNDS
Tax-Exempt Money Market Fund __ __ __ ___
Money Market Fund __ __ __ ___
Government Money Market Fund __ __ __ ___
</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 tables is to help you understand the various costs
and expenses that an investor in a Fund will bear directly or indirectly. For
more information concerning these costs and expenses, see MANAGEMENT.
8
<PAGE> 83
FINANCIAL HIGHLIGHTS
The financial highlights on the following pages represent selected data for a
single Institutional Share of each Fund for the periods shown. This information
has been derived from the financial statements audited by [ ] independent
accountants. The Funds' financial statements for the year ended December 31,
1997 and independent accountants' report thereon are included in the Funds'
Annual Report and are incorporated by reference into (are legally a part of) the
Funds' SAI. These financial highlights should be read in conjunction with the
financial statements. Further information about each Fund's performance is
contained in the Annual Report, which may be obtained from the Harris Insight
Funds without charge. Institutional Shares of the Money Market Funds were
formerly known as Class C Shares.
[FINANCIAL HIGHLIGHTS]
9
<PAGE> 84
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds has distinct investment objectives and policies, which are set
forth below. Investments that may be made by all of the Funds are listed under
ADDITIONAL INVESTMENT INFORMATION - ADDITIONAL INVESTMENT POLICIES. For a
further description of each Fund's investments and investment techniques, see
ADDITIONAL INVESTMENT INFORMATION, APPENDIX A: PERMITTED INVESTMENTS ("Appendix
A") and the SAI. There is no assurance that any Fund will achieve its investment
objective or that the Money Market Funds will be able to maintain a stable net
asset value. As used throughout this Prospectus, the term "U.S. Government
Securities" means obligations issued or guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises.
EQUITY FUNDS
EMERGING MARKETS FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing primarily in a diversified portfolio of publicly traded
equity securities of companies located in emerging markets that the
investment adviser believes are undervalued. To a lesser degree, the
Fund also may invest in emerging market equity securities offered in
"private placements." Dividend and interest income from portfolio
securities is largely an incidental consideration.
The Fund's investment approach relies heavily on a fundamental analysis
of securities with a long-term investment perspective. The Fund seeks
to maximize this approach by extending the search for value into many
countries around the world. This global search provides the Fund with
more diverse opportunities and flexibility to shift portfolio
investments not only from company to company and industry to industry,
but also from country to country, in search of undervalued securities.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in securities of issuers located in emerging market
countries. As used in this Prospectus, the terms "emerging market
country," "emerging country," or "developing country" apply to any
country that, in the investment adviser's opinion, is generally
considered to be an emerging or developing country by the international
financial community, which includes the International Bank for
Reconstruction and Development (the "World Bank") and the International
Finance Corporation. There are currently over 130 countries that are
emerging or developing countries under this standard; approximately 40
of these countries currently have stock markets. These countries
generally include every nation in the world except the U.S., Canada,
Japan, Australia, New Zealand and most nations located in Western
Europe. Securities of issuers located in emerging market countries or
traded in emerging markets present greater liquidity risks and other
risks than securities of issuers located in developed
10
<PAGE> 85
countries or traded in more established markets.
By engaging in its own research and by reviewing research obtained
through outside sources, the investment adviser seeks to identify
appropriate investments for the Fund. The investment adviser may
consider a number of factors in evaluating potential investments,
including political risks, classic macro-economic variables and equity
market valuations. The investment adviser also focuses on the quality
of a company's management, growth prospects, and financial well being.
The Fund's investments generally will reflect a broad cross-section of
countries, industries, and companies in order to minimize risk. In
situations where the market for a particular security is determined by
the investment adviser to be sufficiently liquid, the Fund may engage
in short sales.
The Fund may invest in certain debt securities of any grade, rated or
unrated, such as convertible bonds and bonds selling at discount, when
the investment adviser believes the potential for appreciation will
equal or exceed that available from investments in common stock. The
Fund also may engage in securities of companies or investment trusts
that invest in, or securities backed by, mortgages, real estate or
interests in real estate, including real estate investment trusts
("REITs").
INTERNATIONAL FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide international
diversification and capital appreciation. Current income is a secondary
objective.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing in equity securities of issuers outside the U.S. that the
investment adviser believes are undervalued.
The Fund's investment approach relies heavily on a fundamental analysis
of securities with a long-term investment perspective. The Fund seeks
to maximize this approach by extending the search for value into many
countries around the world. This global search provides the Fund with
more diverse opportunities and flexibility to shift portfolio
investments not only from company to company and industry to industry,
but also from country to country, in search of undervalued securities.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in securities of foreign issuers (i.e., issuers
organized outside the U.S. or whose principal trading market is outside
the U.S.). The Fund invests in the securities of issuers located in at
least three foreign countries. The Fund seeks to manage risk through
the diversification of its investments.
The 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.
11
<PAGE> 86
SMALL-CAP OPPORTUNITY FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide long-term capital
appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing primarily in the securities of companies with smaller to
medium capitalizations that the investment adviser believes are
attractively valued in the market. Market capitalization refers to the
total market value of a company's outstanding shares of common stock.
Smaller to medium capitalization companies are those with market
capitalizations, at the time of the Fund's investment, between $3.0
million and $1.5 billion.
In investing the Fund's assets, the investment adviser follows a
discipline that seeks to identify companies offering above-average
earnings, sales and asset value growth. These securities will tend to
be represented in the Russell 2000 Index.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in securities of smaller to medium capitalization
companies.
SMALL-CAP VALUE FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing primarily in the securities of companies with smaller to
medium capitalizations that the investment adviser believes are
conservatively valued in the marketplace. Market capitalization refers
to the total market value of a company's outstanding shares of common
stock. Smaller to medium capitalization companies are those with market
capitalizations, at the time of the Fund's investment, between $3.0
million and $1.5 billion.
In managing the Fund's assets, the investment adviser seeks to invest
in securities that are undervalued relative to the securities of
comparable companies, as determined by price/earnings ratios, earnings
expectations or other fundamental measures.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in securities of smaller to medium capitalization
companies.
GROWTH FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing in equity securities that the investment adviser believes
are undervalued
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<PAGE> 87
but represent growth opportunities. The Fund also may invest in
securities issued by medium to larger capitalization companies that
provide returns more closely aligned with the Lipper Growth Fund Index.
The Fund's investment management discipline emphasizes growth in sales,
earnings and asset values.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in equity securities.
EQUITY FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with capital
appreciation and current income.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing primarily in the securities of larger capitalization
companies (i.e., companies with market capitalization in excess of $500
million at the time of the Fund's investment) and is managed to provide
equity-based returns characteristic of these securities. Market
capitalization refers to the total market value of a company's
outstanding shares of common stock. The selected issuers will be
representative of those sectors found within the Standard & Poor's 500
Index (the "S&P 500 Index"). Using both "quantitative" and
"fundamental" analysis, the investment adviser selects investments that
it believes will provide returns greater than the securities comprising
the S&P 500 Index over the long-term with a risk level approximating
that of the index, with risk measured by volatility.
The Fund's investments are expected to be diversified among all major
sectors of the market. The Fund's investment adviser 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. The Fund's portfolio is generally comprised
of approximately 50 different issues. Risk is managed by
diversification of investments.
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in common stocks of larger capitalization
companies.
EQUITY INCOME FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide current income and,
secondarily, capital appreciation.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing in equities that are found within the Standard & Poor's
500 Index (the "S&P 500 Index"), or other attractive issues.
Convertible securities may also be utilized. The investment adviser
believes that the combination of these securities should produce
returns that are similar to the performance of the S&P 500 Index and
its corresponding sectors, yet with a higher income yield.
13
<PAGE> 88
Under normal circumstances, the Fund invests at least 65% of the value
of its total assets in common stocks and securities convertible into
common stock. The Fund is managed with a disciplined investment process
designed 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 that the investment adviser believes provides attractive
long-term growth potential, while offering an attractive current yield.
INDEX FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide the return and risk
characteristics of the Standard & Poor's 500 Index.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing, under normal market conditions, primarily in securities
of companies that comprise the Standard & Poor's 500 Index (the "S&P
500 Index"), an unmanaged index that emphasizes large capitalization
companies. As of December 31, 1997, the index represented approximately
___% of the market capitalization of publicly owned stocks in the U.S.
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 S&P 500 Index through statistical
procedures. As a result, the investment adviser 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 one percentage-point of the
performance of the index (i.e., the percentage return of the
index plus or minus 1%). On at least a monthly basis, the investment
adviser compares the Fund's performance to that of the index. In the
event the Fund's performance for the preceding three-month period does
not adequately track the performance of the index, the investment
adviser may adjust the Fund's holdings accordingly.
The Fund seeks to closely match the weight of each security in the
portfolio to its approximate weight in the S&P 500 Index. Although the
Fund may not hold all 500 securities included in the index, it will
generally hold at least 90% of these securities. The Fund also may
maintain positions in S&P 500 Index futures contracts. Generally, index
futures contracts are bilateral agreements whereby two parties agree to
take or make delivery of an amount of cash equal to a specified dollar
amount times the difference between the index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. As no physical delivery of securities comprising the
index is made, purchasers of index futures contracts may participate in
the performance of the securities contained in the index without the
required capital commitment. The Fund may use S&P 500 Index futures
14
<PAGE> 89
contracts for several reasons: to simulate full investment in the index
while retaining a cash balance for Fund management purposes, to
facilitate trading or to reduce transaction costs.
Standard & Poor's ("S&P") makes no representation or warranty,
expressed or implied, to the purchasers of the 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 the S&P
500 Index or any data included therein.
Furthermore, S&P makes no warranty, express or implied, as to the
results to be obtained by the Fund, owners of the Fund, any person or
any entity from the use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties and expressly
disclaims all such warranties of merchantability or fitness for a
particular purpose for use with respect to the S&P 500 Index or any
data included therein.
BALANCED FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide current income and
capital appreciation by investing in a balanced portfolio of fixed
income and equity securities.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by actively allocating investments between equity and fixed income
securities. Through utilizing this approach, the Fund seeks to provide
capital appreciation similar to larger-capitalization equities, with a
portion of the Fund's total return resulting from investment in fixed
income securities. The Fund seeks to provide an overall return
comprising between 40% and 65% of the return of the Standard & Poor's
500 Index (a broad U.S. stock market index) and between 35% and 60% of
the return of the Lehman Brothers Aggregate Index (a broad U.S. bond
market index).
The Fund's investment process considers, on a continuing basis, the
attractiveness of equities versus fixed income securities. 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.
FIXED INCOME FUNDS
CONVERTIBLE SECURITIES FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide capital appreciation
and current income.
15
<PAGE> 90
INVESTMENT POLICIES. Convertible securities have unique return
characteristics. Convertible securities tend to rise in price when
overall equity markets rise and, conversely, tend to decline relatively
less when interest rates rise. The Fund strives to reflect these unique
performance characteristics while seeking to provide income that is
more characteristic of short/intermediate maturity corporate bonds.
The Fund seeks to achieve its investment objective by investing
primarily in convertible securities, which are bonds, debentures, notes
or preferred stock that are convertible into common stock, or warrants,
which are options to purchase common stock at a specified price.
The Fund also may 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 circumstances, the Fund
invests at least 65% of the value of its total assets in convertible
securities.
Under normal market conditions, the 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 Standard & Poor's ("S&P") or "B" ("b" in the
case of preferred stocks) or better by Moody's Investors Service
("Moody's") at the time of purchase, or, if not rated, considered by
the investment adviser 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 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 Fund may invest up to 35% of its total assets in "synthetic
convertibles" created by combining separate securities that together
possess the two principal components of a convertible security: fixed
income and the right to acquire equity securities. In addition, the
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 Fund also may write (sell) covered put and call
options, buy covered put and call options, buy and sell interest rate
futures contracts and buy and write covered options on those futures
contracts.
In periods of unusual market conditions, when the investment adviser
believes that convertible securities would not best serve the Fund's
objectives, the Fund may for defensive purposes invest part or all of
its total assets in (a) U.S. 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
16
<PAGE> 91
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 397 days or less. During such periods, the Fund
will continue to seek current income but will put less emphasis on
capital appreciation.
RISK FACTORS AND OTHER CONSIDERATIONS RELATING TO LOW-RATED 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 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 S&P and Moody's 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 Fund's
investment adviser uses these ratings as a criterion for the selection
of securities for the Fund, it also relies on its own independent
analysis to evaluate potential investments for the Fund. The Fund's
achievement of its investment objective may be more dependent on the
investment adviser's credit analysis of low-rated and unrated
securities than would be the case for a portfolio of high-rated
securities.
TAX-EXEMPT BOND FUND
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INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current
income that is exempt from federal income tax.
INVESTMENT POLICIES. The Fund seeks to achieve its objective by
investing in municipal securities with varying maturities. As a result,
the Fund seeks to generate a higher level of income than that of short
or intermediate average maturity municipal bond funds, although it will
experience corresponding higher volatility of principal during periods
of changing interest rates.
The Fund attempts to anticipate 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 invests 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.
In addition, the Fund may invest in U.S. Government Obligations (as
defined in Appendix A) and securities secured by letters of credit. The
Fund also may write (sell) covered put and call options, buy covered
put and call options, buy and sell interest rate futures contracts and
buy and write covered options on those futures contracts.
BOND FUND
INVESTMENT OBJECTIVE. The 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.
INVESTMENT POLICIES. The Fund seeks to provide the higher income
generally associated with a broad range of longer-term bonds typically
having 5 to 10 years remaining to maturity. As a result, principal
value of these longer-term bonds is likely to fluctuate more than that
of bonds with shorter maturities.
The Fund seeks to achieve its objective by utilizing a
highly-disciplined, quantitative process designed to identify fixed
income securities that 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 circumstances, the Fund invests 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, U.S. Government Securities, debt obligations of domestic
and foreign corporations, debt obligations of foreign governments and
their political subdivisions, asset-backed securities, various
mortgage-backed securities (including those issued or collateralized by
U.S. Government agencies and inverse floating rate mortgage-backed
securities), other
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floating/variable rate obligations, municipal obligations and zero
coupon debt securities.
INTERMEDIATE TAX-EXEMPT BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current
income that is exempt from federal income tax.
INVESTMENT POLICIES. The Fund seeks to achieve its objective by
investing in municipal securities with a dollar-weighted average
portfolio maturity, under normal market conditions, of between 3 and 10
years. The investment adviser believes that this income will generally
be higher than that provided by shorter term municipal funds, although
the Fund will reflect greater share price volatility during periods of
changing interest rates than comparable shorter-term funds. Individual
portfolio securities will have varying maturities.
As a matter of fundamental policy, the Fund invests 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 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
investment adviser.
In addition, the Fund may invest in U.S. Government Obligations (as
defined in Appendix A) and securities secured by letters of credit. The
Fund also may write (sell) covered put and call options, buy covered
put and call options, buy and sell interest rate futures contracts and
buy and write covered options on those futures contracts.
SHORT/INTERMEDIATE BOND FUND
INVESTMENT OBJECTIVE. The 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.
INVESTMENT POLICIES. The Fund seeks to provide income and share price
volatility of a 2- to 5-year average maturity taxable bond portfolio.
Thus, it is anticipated that when interest rates rise, share price of
the Fund will tend to fall less than longer-term bond funds and
appreciate less when interest rates fall.
The Fund seeks to achieve its objective by utilizing a combination of
investment disciplines, including the assessment of yield advantages
among different classes of bonds and among different maturities,
independent review by the investment
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adviser of the credit quality of individual issues, and the analysis by
the investment adviser of economic and market conditions affecting the
fixed income markets.
The Fund may invest in a broad range of fixed income obligations,
including fixed and variable rate bonds, debentures, U.S. Government
Securities, and Government Stripped Mortgage-Backed Securities. The
Fund also may invest in U.S. Government Securities placed into
irrevocable trusts and evidenced by a trust receipt. Under normal
circumstances, the Fund invests 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, U.S.
Government Securities, debt obligations of domestic and foreign
corporations, debt obligations of foreign governments and their
political subdivisions, asset-backed securities, various
mortgage-backed 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 debt securities.
The Fund also may hold short-term U.S. Government Obligations (as
defined in Appendix A), "high-quality" money market instruments (i.e.,
those within the two highest rating categories or, if unrated,
determined by the investment adviser 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 investment adviser's
opinion, existing circumstances warrant.
The Fund's dollar-weighted average portfolio maturity (or average life
with respect to mortgage-backed and asset-backed securities), under
normal market conditions, will be between 2 and 5 years.
INTERMEDIATE GOVERNMENT BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide a high level of current
income, consistent with preservation of capital.
INVESTMENT POLICIES. The Fund seeks to achieve its investment objective
by investing primarily in U.S. Government Securities, including
mortgage-backed securities, having an intermediate-term average
maturity. Under normal circumstances, at least 65% of the Fund's total
assets will be invested in U.S. Government Securities and in repurchase
agreements collateralized by U.S. Government Securities. The average
portfolio maturity (or average life with respect to mortgage-backed
securities) generally will be between 3 and 10 years.
The Fund's investments may include asset-backed securities, zero coupon
securities and debt securities of U.S. corporations (with respect to
20% of the Fund's total assets at the time of purchase). In addition,
the Fund may invest in foreign debt securities guaranteed by the U.S.
Government, its agencies or instrumentalities (with
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respect to 10% of the Fund's total assets at the time of purchase). The
Fund also may write (sell) covered put and call options, buy covered
put and call options, buy and sell interest rate futures contracts and
buy and write covered options on those futures contracts.
MONEY MARKET FUNDS
TAX-EXEMPT MONEY MARKET FUND
INVESTMENT OBJECTIVE. The Fund seeks to provide investors with as high
a level of current income that is exempt from federal income taxes as
is consistent with its investment policies and with preservation of
capital and liquidity.
INVESTMENT POLICIES. The Fund invests only in high quality, short-term
money market instruments that are determined by the investment adviser,
pursuant to procedures established by the Company's Board of Directors,
to be eligible for purchase and to present minimal credit risks. The
Fund invests primarily in high-quality municipal obligations. 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 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.
The Fund will not purchase a security (other than a U.S. Government
Security) unless the security is rated by at least two nationally
recognized rating agencies (such as Standard & Poor's or Moody's
Investors Service) within the two highest rating categories 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.
The Fund invests only in U.S. dollar-denominated securities that have a
remaining maturity of 397 days or less (as calculated pursuant to Rule
2a-7 under the Investment Company Act of 1940, as amended) and
maintains a dollar-weighted average maturity of 90 days or less.
Current income provided by the securities in which the Fund invests 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.
Under ordinary market conditions, the 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 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,
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elect to hold temporarily up to 20% of the current value of its total
assets in cash reserves or invest in securities whose interest income
is subject to taxation.
From time to time, the 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.
MONEY MARKET FUND
INVESTMENT OBJECTIVE. The 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.
INVESTMENT POLICIES. The Fund invests only in high quality, short-term
money market instruments that are determined by the investment adviser,
pursuant to procedures established by the Company's Board of Directors,
to be eligible for purchase and to present minimal credit risks. The
Fund invests in a broad range of short-term money market instruments,
including U.S. Government Securities and bank and commercial
obligations. The commercial paper purchased by the Fund will consist of
U.S. dollar-denominated direct obligations of domestic and foreign
corporate issuers, including bank holding companies.
The Fund invests only in U.S. dollar-denominated securities that have a
remaining maturity of 397 days or less (as calculated pursuant to Rule
2a-7 under the Investment Company Act of 1940, as amended) and
maintains a dollar-weighted average maturity of 90 days or less.
Current income provided by the securities in which the Fund invests 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.
The Fund will not purchase a security (other than U.S. Government
Securities) unless the security is rated by at least two nationally
recognized rating agencies (such as Standard & Poor's or Moody's
Investors Service) within the two highest rating categories 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
in the second highest rating category. Determinations of comparable
quality shall be made in accordance with procedures established by the
Company's Board of Directors.
The Fund also may 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 Fund may invest
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in tax-exempt municipal obligations when the yields on such obligations
are higher than the yields on taxable investments. See INVESTMENT
OBJECTIVES AND POLICIES - TAX-EXEMPT MONEY MARKET FUND.
GOVERNMENT MONEY MARKET FUND
INVESTMENT OBJECTIVE. The 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.
INVESTMENT POLICIES. The Fund invests only in high quality, short-term
money market instruments that are determined by the investment adviser,
pursuant to procedures established by the Company's Board of Directors,
to be eligible for purchase and to present minimal credit risks. The
Fund invests exclusively in U.S. Government Securities and repurchase
agreements backed by those securities.
The Fund invests only in securities that have a remaining maturity of
397 days or less (as calculated pursuant to Rule 2a-7 under the
Investment Company Act of 1940, as amended) and maintains a
dollar-weighted average maturity of 90 days or less. Current income
provided by the securities in which the Fund invests 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.
The Fund invests in obligations of U.S. Government agencies and
instrumentalities only when the investment adviser is satisfied that
the credit risk with respect to the issuer is minimal.
ADDITIONAL INVESTMENT INFORMATION
Unless otherwise noted, each Fund's investment objective and policies are not
fundamental and may be changed by the Board of Trustees of the Trust (or Board
of Directors of the Company) without approval by the Fund's shareholders.
Investment policies that are designated as fundamental may be changed only with
approval of the holders of a majority of the Fund's outstanding voting
securities. A majority of outstanding voting securities means the lesser of 67%
of the shares present or represented at a shareholders meeting at which the
holders of more than 50% of the outstanding shares are present or represented,
or more than 50% of the outstanding shares.
For a further description of the Funds' investment policies, including
additional fundamental policies, see Appendix A and the SAI.
ADDITIONAL INVESTMENT POLICIES
Each Fund may invest in the securities of other investment companies, zero
coupon
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securities, 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. Each Fund may enter into repurchase
agreements. Each Fund also may lend its portfolio securities in an amount not
exceeding one-third of its net assets and may enter into reverse repurchase
agreements.
In addition, each of the Equity Funds may invest in securities purchased in
initial public offerings. Each of the Equity Funds also may invest in foreign
securities, including American Depository Receipts, European Depository Receipts
and, with respect to 10% (100% for the Emerging Markets Fund and the
International Fund) of each Fund's total assets, debt and equity securities of
foreign issuers. Further, each of the Equity Funds may purchase and sell covered
put and call options on securities, index and interest rate futures contracts
and options on futures contracts. The Equity Funds and the Convertible
Securities Fund may invest in warrants.
DIVERSIFICATION. Each Fund is diversified as that term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). As a matter of
fundamental policy, no Fund may invest more than 5% of the current value of its
total assets in the securities of any one issuer (other than U.S. Government
Securities), except that up to 25% of the value of the total assets of a Fund
(other than the Money Market Fund and the Government Money Market Fund) may be
invested without regard to this limitation. Notwithstanding this policy, each of
the Money Market Fund and the Government Money Market 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. As a matter of fundamental
policy, no Fund may 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.
CONCENTRATION. Each Fund is prohibited from concentrating its assets in the
securities of issuers in a single industry. As a matter of fundamental policy,
the Funds may not purchase the securities of issuers conducting their principal
business activity in the same industry if, as an immediate result of the
purchase, the value of its investments in that industry would exceed 25% of the
current value of its total assets. This limitation does not apply to investments
in (i) 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); (ii) U.S. Government Securities; and (iii) in the case
of the Money Market Fund, bank obligations that are otherwise permitted as
investments.
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
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same industry.
ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% with respect to the
Equity Fund, the Short/Intermediate Bond Fund and the Money Market Funds) of its
net assets in securities that are considered illiquid. Illiquid securities are
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which the Fund has valued the
securities and include, among other things, repurchase agreements not entitling
the holder to payment within seven days and restricted securities (other than
those determined to be liquid pursuant to guidelines established by the Trust's
Board of Trustees (and the Company's Board of Directors)). See Appendix A.
BORROWING. As a matter of fundamental policy, no Fund may borrow from banks,
except that a Fund may borrow up to 10% of the current value of its net 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 any aggregate borrowings in
excess of 5% exist).
RATING MATTERS. Each of the Equity Funds and the Fixed Income Funds may invest
in securities convertible into or exchangeable for common stocks or preferred
stocks, as well as U.S. Government Securities and debt obligations of domestic
corporations rated "BBB" or better by Standard & Poor's ("S&P") or "Baa" or
better by Moody's Investors Service ("Moody's"), or that have an equivalent
rating by another nationally recognized statistical rating organization
("NRSRO") at the time of purchase or, if not rated, are considered by the
investment adviser to be of comparable quality. Debt obligations rated in the
lowest categories of investment grade (that is, BBB by S&P or Baa by Moody's)
and equivalent securities 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. The Emerging Markets Fund may invest in securities of any
grade and the Convertible Securities Fund may invest in securities that are less
than investment grade. See INVESTMENT OBJECTIVES AND POLICIES - EMERGING MARKETS
FUND and INVESTMENT OBJECTIVES AND POLICIES - CONVERTIBLE SECURITIES FUND.
Each Fund may purchase debt obligations that are not rated if, in the opinion of
the investment adviser, 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 the security unless the amount of the
security exceeds permissible limits. However, the investment adviser 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 NRSRO
for securities may change as a result of changes in the rating systems or due to
the corporate reorganization of an NRSRO, 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 SAI. A Money Market Fund may be
required to sell a security downgraded below the minimum required for
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purchase, absent a specific finding by the Company's Board of Directors that a
sale is not in the best interests of the Fund.
TEMPORARY DEFENSIVE POSITION. When business or financial conditions warrant,
each of the Emerging Markets Fund and the International Fund may assume a
temporary defensive position by investing in money market investments. These
money market investments include obligations of the U.S. Government and its
agencies and instrumentalities, obligations of foreign sovereignties, other debt
securities, commercial paper including bank obligations, certificates of deposit
(including Eurodollar certificates of deposit) and repurchase agreements.
For temporary defensive purposes, during periods in which the investment adviser
believes changes in economic, financial or political conditions make it
advisable, these Funds may reduce their holdings in equity and other securities
and may invest up to 100% of their assets in certain short-term (less than
twelve months to maturity) and medium-term (not greater than five years to
maturity) debt securities and in cash (U.S. dollars, foreign currencies, or
multicurrency units). These short-term and medium-term debt securities consist
of (a) obligations of governments, agencies or instrumentalities of any member
state of the Organization for Economic Cooperation and Development ("OECD");
(b) bank deposits and bank obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks organized under the laws of any
member state of the OECD, denominated in any currency; (c) floating rate
securities and other instruments denominated in any currency issued by
international development agencies; (d) finance company and corporate commercial
paper and other short-term corporate debt obligations of corporations organized
under the laws of any member state of the OECD meeting the Fund's credit quality
standards; and (e) repurchase agreements with banks and broker-dealers covering
any of the foregoing securities. The short-term and medium-term debt securities
in which the Fund may invest for temporary defensive purposes will be those that
the investment adviser believes to be of high quality, i.e., subject to
relatively low risk of loss of interest or principal (there is currently no
rating system for debt securities in most emerging countries). If rated, these
securities will be rated in one of the three highest rating categories by rating
services such as Moody's or S&P (i.e., rated at least A).
PORTFOLIO TRANSACTIONS. Portfolio securities of each Fund are kept under
continuing supervision and changes may be made whenever, in the judgment of the
investment adviser, 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 the cash
necessary for redemptions, distributions to shareholders or other Fund
management purposes. Portfolio changes may be made without regard to the length
of time a particular security has been held or the frequency of portfolio
transactions of a Fund (the portfolio turnover rate).
The realization of taxable capital gains and, with respect to equity securities,
the amount of brokerage commissions will tend to increase as the level of
portfolio activity increases. Portfolio turnover rates for the Funds are
included in the Financial Highlights for that Fund. An annual portfolio turnover
rate of 100% would occur if all of the securities held by the
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Fund were replaced once in a period of one year.
The investment advisers seek "best execution" for all portfolio transactions,
but a Fund may pay higher than the lowest available commission rates when its
investment adviser believes it is reasonable to do so in light of the value of
the brokerage, research and other services provided by the broker effecting the
transaction. Purchase and sale orders for securities on behalf any Fund may be
combined with those of other accounts that the investment advisers manage, and
for which it has brokerage placement authority, in the interest of seeking the
most favorable overall net results. When an investment adviser determines that a
particular security should be bought or sold for any of the Funds and other
accounts it manages, the investment adviser undertakes to allocate the
transactions among the participants equitably. To the extent permitted by the
SEC, the Funds may pay brokerage commissions to certain affiliated persons.
[During the last fiscal year, no Fund paid commissions to these persons.]
The Trust, the Company, the investment advisers and other service providers to
the Funds have adopted codes of ethics which contain policies on personal
securities transactions by "access persons," including portfolio managers and
investment analysts.
RISK CONSIDERATIONS
THE RISKS OF INVESTING IN EACH FUND VARY DEPENDING UPON THE NATURE OF THE
SECURITIES HELD, AND THE INVESTMENT PRACTICES EMPLOYED, ON ITS BEHALF. THE
FUNDAMENTAL RISK ASSOCIATED WITH THE FUNDS, LIKE OTHER MUTUAL FUNDS THAT INVEST
IN FIXED INCOME AND EQUITY SECURITIES, IS "MARKET RISK." Market risk is the risk
that the market value of a security that a Fund holds will decrease. The market
value of a security may move up and down, sometimes rapidly and unpredictably.
These fluctuations may cause a security to be worth less than it was worth at
the time of purchase. Market risk may apply to a single issuer, industry, sector
of the economy or the market as a whole.
Certain specific risks are described in this section. If you would like to know
more about risks associated with certain types of securities, see Appendix A.
RISKS OF EQUITY SECURITIES. Stock values may fluctuate in response to the
activities of an individual company or in response to general market and/or
economic conditions. Historically, common stocks have provided greater long-term
returns and have entailed greater short-term risks than other types of
securities. Smaller or newer issuers are more likely to realize more substantial
growth or suffer more significant losses than larger or more established
issuers. Investments in these companies can be both more volatile and more
speculative. THE SMALL-CAP OPPORTUNITY FUND AND THE SMALL-CAP VALUE FUND HAVE
HEIGHTENED EXPOSURE TO THESE RISKS DUE TO THEIR POLICY OF INVESTING IN SMALLER
COMPANIES.
RISKS OF FIXED INCOME SECURITIES. The value of fixed income (debt) securities
generally varies inversely with prevailing levels of interest rates: the values
of these securities tend to decrease when interest rates are rising, and
increase when interest rates are declining. Changes in interest rates will
generally cause larger changes in the prices of longer-term securities than in
the prices of shorter-term securities. The risk of market losses attributable
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to changes in interest rates is known as "interest rate risk."
Debt securities are subject to "credit risk" relating to the financial condition
of the issuers of the securities. Prices of debt securities may fluctuate based
on changes in the actual and perceived creditworthiness of issuers. The prices
of lower-rated securities often fluctuate more than those of higher-rated
securities.
It is possible that some issuers will not make payments on debt securities held
by a Fund. Investors should be aware that securities offering above-average
yields may involve above-average risks. Securities rated in the lowest
categories of investment grade (that is, BBB by S&P or Baa by Moody's) and
equivalent securities may have speculative characteristics. In adverse economic
or other circumstances, issuers of these securities are more likely to have
difficulty making principal and interest payments than issuers of higher-grade
obligations.
Low-Rated Fixed Income Securities. The debt securities of issuers in emerging
market countries in which the Emerging Markets Fund may invest are subject to
significant risk and will not be required to meet any minimum rating standard or
equivalent. 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 Emerging Markets 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 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.
An economic recession in a country would likely disrupt the market in that
country 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.
Certain fixed income securities, such as municipal and mortgage-backed
securities, are subject to additional risks. See Appendix A.
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RISKS OF INVESTING IN FOREIGN AND EMERGING MARKETS. Investments in the
securities of foreign (non-U.S.) issuers may involve risks in addition to those
normally associated with investments in the securities of U.S. issuers. All
foreign investments are subject to risks of foreign political and economic
instability, adverse movements in foreign exchange rates, the imposition or
tightening of exchange controls or other limitations on repatriation of foreign
capital, and changes in foreign governmental attitudes towards private
investment, possibly leading to nationalization, increased taxation or
confiscation of foreign investors' assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to a
Fund's shareholders; commission rates payable on foreign transactions are
generally higher than in the U.S.; foreign accounting, auditing and financial
reporting standards differ from those in the U.S. and, accordingly, less
information may be available about foreign companies than is available about
issuers of comparable securities in the U.S.; and foreign securities may trade
less frequently and with lower volume and may exhibit greater price volatility
than U.S. securities. THE EMERGING MARKETS FUND AND THE INTERNATIONAL FUND HAVE
HEIGHTENED EXPOSURE TO THESE RISKS DUE TO THEIR POLICY OF INVESTING PRIMARILY IN
THE SECURITIES OF FOREIGN ISSUERS.
With respect to the Emerging Markets Fund, investments in the securities of
issuers located in countries with smaller, emerging capital markets may involve
risks in addition to those normally associated with investments in the
securities of U.S. issuers.
Political and Economic Risks. In any emerging market country, there is the
possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could affect investments in
that country. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as economic growth rate, rate
of inflation, capital reinvestment, resources, self-sufficiency and balance of
payments positions. Certain foreign investments may also be subject to foreign
withholding or other governmental taxes that could reduce the return on these
investments.
Certain emerging market countries may restrict investment by foreign entities.
For example, a country may limit the level of foreign investment in certain
issuers, require prior approval of foreign investment by the government, impose
additional tax on foreign investors or limit holdings by foreign investors to
specific classes of securities of an issuer that have less advantageous rights
(with regard to convertibility, for example) than classes available to
domiciliaries of the country.
Substantial limitations may also exist in certain countries with respect to a
foreign investor's ability to repatriate investment income, capital or the
proceeds of sales of securities. The Emerging Markets Fund could be adversely
affected by delays in, or refusals to grant, any required governmental approvals
for repatriation of capital. Securities that are subject to material legal
restrictions on repatriation may be considered illiquid securities and,
therefore, may be subject to the Emerging Markets Fund's 15% limitation on such
investments.
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<PAGE> 104
Financial Information and Standards. Often the regulation of, and available
information about, issuers and their securities is less extensive in emerging
market countries than in the U.S. Foreign companies may not be subject to
uniform accounting, auditing and financial reporting standards or to
requirements or practices comparable to those applicable to U.S. companies.
Regulation and Liquidity of Markets. Government supervision and regulation of
exchanges and brokers in emerging market countries is frequently less extensive
than in the U.S. These markets may have different clearance and settlement
procedures. In certain cases, settlements have not kept pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could adversely affect or interrupt the Emerging Markets
Fund's intended investment program or result in investment losses due to
intervening declines in security values.
Securities markets in emerging market countries are substantially smaller than
U.S. securities markets and have substantially less trading volume, resulting in
diminished liquidity and greater price volatility. Reduced secondary market
liquidity may make it more difficult for the Emerging Markets Fund to determine
the value of its portfolio securities or to dispose of particular instruments
when necessary. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher as well.
Inflation. Several emerging market countries have experienced substantial, and
in some periods extremely high, rates of inflation in recent years. Inflation
and rapid fluctuations in inflation rates may have very negative effects on the
economies and securities markets of certain emerging market countries. Further,
inflation accounting rules in some emerging market countries require, for
companies that keep accounting records in the local currency, that certain
assets and liabilities be restated on the company's balance sheet in order to
express items in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits for certain emerging market
companies.
RISKS OF FOREIGN CURRENCY. Changes in exchange rates between the U.S. dollar and
a foreign currency also will affect the value in U.S. dollars of the securities
denominated in that currency that are held by the Funds. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the U.S., many of which may be difficult, if not impossible, to predict.
Income from foreign securities will be received and realized in foreign
currencies, while each Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar occurring after a Fund's income has been earned and
computed in U.S. dollars may require the Fund to liquidate portfolio securities
to acquire sufficient U.S. dollars to make a distribution. Similarly, if the
exchange rate declines between the time that a Fund incurs expenses in U.S.
dollars and the time such expenses are paid, the Fund may be required to
liquidate additional foreign securities to purchase the U.S. dollars required to
meet such expenses. THE
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<PAGE> 105
EMERGING MARKETS FUND AND THE INTERNATIONAL FUND HAVE HEIGHTENED EXPOSURE TO
THESE RISKS DUE TO THEIR POLICY OF INVESTING PRIMARILY IN THE SECURITIES OF
FOREIGN ISSUERS.
RISKS OF DERIVATIVE SECURITIES. To the extent permitted by its investment
objectives and policies, each of the Funds may invest in securities that are
commonly referred to as "derivatives." Generally, a derivative is a financial
instrument whose value is based on, or "derived" from, a traditional security,
asset, or market index. Certain derivative securities are more accurately
described as "index/structured" securities. Index/structured securities are
derivative securities whose value or performance is linked to other equity
securities (such as depository receipts), currencies, interest rates, indices or
other financial indicators.
Some derivatives, such as mortgage-backed and other asset-backed securities, are
in many respects like other fixed income securities, although they may be more
volatile or less liquid than their more traditional counterparts.
There are many different types of derivatives and many different ways to use
them. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a Fund from exposure to changing interest rates, securities
prices, or currency exchange rates and for cash management purposes as a
low-cost method of gaining exposure to a particular securities market without
investing directly in those securities.
There are several risks that are associated with derivatives, including
counterparty risk and liquidity risk, which are discussed below. For more
information about the risks associated with certain types of derivatives, see
Appendix A.
BORROWING RISK. Borrowing also involves special risk considerations. Interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on the borrowed funds (or on the
assets that were retained rather than sold to meet the needs for which funds
were borrowed). Under adverse market conditions, the Fund might have to sell
portfolio securities to meet interest or principal payments at a time when
fundamental investment considerations would not favor such sales. To the extent
a Fund enters into reverse repurchase agreements, the Fund is subject to risks
that are similar to those associated with borrowing.
COUNTERPARTY RISK. A number of transactions in which a Fund may engage are
subject to the risks of default by the other party to the transaction. When a
Fund engages in repurchase, reverse repurchase, derivative, when-issued, forward
commitment, delayed settlement and securities lending transactions, it relies on
the other party to consummate the transaction. Failure of the other party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price believed to be advantageous.
LIQUIDITY RISK. Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like. The seller may have to lower the
price, sell other securities instead, or forego an investment opportunity, any
of which could have a negative effect on Fund management or performance.
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<PAGE> 106
INFORMATION RISK. Certain key information about a security or market may be
inaccurate or unavailable, which may limit the investment adviser's ability to
make an appropriate investment decision with regard to the security or market.
OBJECTIVE RISK. Returns from the particular type of security that a Fund
emphasizes in its investments may trail returns from the overall stock or bond
market. For example, the growth stocks in which the Growth Fund invests and the
emerging market equity securities in which the Emerging Markets Fund invests
tend to go through periods of relative underperformance and outperformance in
comparison to other types of equity securities. These periods may last for as
long as several years.
MANAGEMENT RISK. A strategy used by an investment adviser may fail to produce
the intended result, which could have a negative effect on fund performance.
MANAGEMENT
TRUSTEES AND DIRECTORS
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.
<TABLE>
<S> <C>
C. Gary Gerst Chairman of the Board of Directors and Board of
Trustees; and Chairman Emeritus, LaSalle Partners,
Ltd. (real estate investment management and
consulting).
Edgar R. Fiedler Senior Fellow and Economic Counsellor, The Conference
Board; Director, The Stanley Works, Scudder
Institutional Funds, AARP Income Trust, Brazil Fund,
Emerging Mexico Fund, and Scudder Pathway Series.
John W. McCarter, Jr. President and Chief Executive Officer, The Field
Museum Natural History (Chicago); Director and
Trustee, LaSalle Partners Funds, Inc.; Former Senior
Vice President and Director, Booz-Allen & Hamilton,
Inc. (consulting firm); Director, W.W. Grainger, Inc.
and A.M. Castle, Inc.
Ernest M. Roth Consultant; Director, La Rabida Children's Hospital;
Chairman, La Rabida Children's Foundation; Retired
Senior Vice President and Chief Financial Officer,
</TABLE>
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<PAGE> 107
Commonwealth Edison Company.
Paula Wolff President, Governors State University.
INVESTMENT ADVISER
Harris Trust is the investment adviser for each of the Funds pursuant to
Advisory Contracts with the Trust and 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,
1996, Harris Trust had total discretionary trust assets under management of more
than $13.3 billion and was the largest of 25 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, 1997, Harris Trust managed more than $___ billion in
discretionary personal trust assets, and managed more than $___ billion in
non-discretionary trust assets.
With respect to the Tax-Exempt Money Market 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 and the Investment Sub-Adviser's performance
(as discussed below).
The investment advisory fees payable to Harris Trust with respect to each Fund
are based on the average daily net assets of the respective Fund at the
following annual rates:
<TABLE>
<S> <C>
Emerging Markets Fund 1.25%
International Fund 1.05%
Small-Cap Opportunity Fund 1.00%
Small-Cap Value Fund 0.80%
Growth Fund 0.90%
Equity Fund 0.70%
Equity Income Fund 0.70%
Index Fund 0.25%
Balanced Fund 0.60%
Convertible Securities Fund 0.70%
Tax-Exempt Bond Fund 0.60%
Bond Fund 0.65%
Intermediate Tax-Exempt Bond Fund 0.60%
Short/Intermediate Bond Fund 0.70%
Intermediate Government Bond Fund 0.65%
Tax-Exempt Money Market Fund 0.14% of each Fund's first 100
Money Market Fund million of assets plus
</TABLE>
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<PAGE> 108
<TABLE>
<S> <C>
Government Money Market Fund 0.10% of the Fund's
remaining assets
</TABLE>
PORTFOLIO MANAGEMENT AGENT
Harris Trust has entered into Portfolio Management Contracts with Harris
Investment Management, under which HIM undertakes to furnish investment guidance
and policy direction in connection with the daily portfolio management of all of
the Funds except for the Tax-Exempt Money Market Fund. For the services provided
by HIM, Harris Trust pays HIM the advisory fees it receives from the Funds. As
of December 31, 1997, HIM managed an estimated $10.7 billion in assets.
INVESTMENT SUB-ADVISER
To assist HIM in carrying out its obligations under the Portfolio Management
Contract, HIM has entered into Investment Sub-advisory Contracts with Hansberger
on behalf of the Emerging Markets Fund and the International Fund. Hansberger is
an investment adviser registered under the Investment Advisers Act of 1940, as
amended, and provides a broad range of portfolio management services to clients
in the U.S. and abroad. Hansberger, 515 East Las Olas Blvd., Suite 1300, Fort
Lauderdale, Florida 33301, is controlled by Mr. Thomas L. Hansberger, who
founded the firm in 1994. As of December 31, 1997, Hansberger managed assets
with a value of approximately $___ billion.
Pursuant to the Investment Sub-advisory Contracts (the "Sub-advisory
Contracts"), Hansberger makes investment decisions for the Emerging Markets Fund
and the International Fund and continuously reviews, supervises and administers
the Funds' investment program. HIM supervises the performance of Hansberger,
including Hansberger's adherence to the Funds' investment objectives and
policies. Pursuant to the Sub-advisory Contracts, HIM pays Hansberger fees for
its investment sub-advisory services from the advisory fees HIM receives from
Harris Trust and indirectly from the advisory fees paid by the Funds to Harris
Trust pursuant to the Advisory Contract.
PORTFOLIO MANAGEMENT
Many persons on the staffs of the Adviser and the Portfolio Management Agent
contribute to the investment management services provided to the Funds. The
following persons, however, are primarily responsible for the day-to-day
investment management of the Funds:
EMERGING MARKETS FUND -- Thomas L. Hansberger, Francisco Alzuru, Ajit Dayal,
Aureole L.W. Foong, Robert Mazuelos and Vladimir Tyurenkov. Mr. Hansberger is
the Chairman and Chief Executive Officer of Hansberger. Before forming
Hansberger in 1994, Mr. Hansberger had served as Chairman, President and Chief
Executive Officer of Templeton Worldwide, Inc., the parent holding company of
the Templeton group of companies. While at Templeton, Mr. Hansberger served as
director of research and was an officer, director or primary portfolio manager
for several Templeton mutual funds. Mr. Alzuru joined Hansberger in 1994 as a
Managing Director, portfolio manager and research
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<PAGE> 109
analyst, specializing in Latin America. Prior to joining Hansberger, he worked
at Vestcorp Partners as their Latin American analyst. Mr. Dayal is Managing
Director of India Research. Prior to joining Hansberger, he was employed by
Ashok Biria and S.G. Warburg. He also was the director on all Jardine Fleming
companies in India. Mr. Dayal was responsible for setting up the research and
fund management operations with a focus on identifying key Indian personnel for
brokering and investment banking. Mr. Dayal has 13 years of investment
management experience. He received his Bachelor of Arts in Economics from Bombay
University and his MBA from the University of North Carolina at Chapel Hill. Mr.
Foong is Director of Asian Research. He is responsible for overseeing the Asian
research effort as well as covering the global cellular and European telecom
industries. Prior to joining Hansberger, Mr. Foong was a Director of Peregine
Asset Management where he was a portfolio manager responsible for several mutual
funds and private accounts investing in regional Asian markets. He was part of
the original team that helped build a US$700 million business in three years for
the Peregrine group. Prior to Peregrine, Mr. Foong was with Unifund, a private
investment firm headquartered in Geneva with over US$2.5 billion in global
assets. Mr. Foong was based in Bangkok and Hong Kong where he was a portfolio
manager responsible for the Asian markets. Prior to that, Mr. Foong was with
Morgan Stanley Inc. in New York, Los Angeles and Hong Kong where he worked in
the Private Client Services department responsible for high net worth individual
accounts. Mr. Foong holds an MBA and a Bachelors of Science in Computer Science
from the University of Southern California in Los Angeles. Mr. Mazuelos joined
Hansberger in 1995 as a research analyst. Prior to joining Hansberger, he was a
performance analyst at Templeton Investment Counsel, Inc., where he was
responsible for return analysis on separate accounts and mutual funds. Mr.
Tyurenkov joined Hansberger in 1995 as Managing Director of Eastern Europe and
Russia, portfolio manager and research analyst. Prior to joining Hansberger, he
spent several years working for the Russian government and worked extensively on
the Pepperdine University Russian Conversion and Privatization Program.
INTERNATIONAL FUND -- James Chaney, Victoria Gretsky and John Hock. Mr. Chaney,
who joined Hansberger in 1996 as Chief Investment Officer, will be the Fund's
leader. Prior to joining Hansberger, he was Executive Vice President for
Templeton Worldwide and a senior member of its Portfolio Management/Strategy
Committee. While at Templeton, Mr. Chaney managed numerous accounts, including
the $2.5 billion Foreign Equity Series of Templeton Institutional Funds Inc. Ms.
Gretzky joined Hansberger in 1995 as a research analyst. Prior to joining
Hansberger, she was a research analyst for Optimum Consulting, a Russian-based
firm which specialized in restructuring Russian companies during privatization.
Mr. Hock joined Hansberger in 1996 as a research analyst. Prior to joining
Hansberger, he was a senior analyst in the global securities research and
economics group at Merrill Lynch.
SMALL-CAP OPPORTUNITY FUND -- Douglas G. Madigan, CFA. Mr. Madigan joined Harris
Trust in 1994 and serves as Principal and Portfolio Manager. He has served as
portfolio manager of the Fund since the Fund commenced operations in February
1996 and has over 25 years of academic and applied experience analyzing
equities, fixed income and convertible securities with a number of financial
institutions. Prior to joining HIM, he served as senior portfolio manager for
the trust operation of a large banking institution.
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<PAGE> 110
SMALL-CAP VALUE FUND -- Thomas M. Corkill, CFA. Mr. Corkill joined Harris Trust
in 1982 and serves as Partner and Portfolio Manager. He has served as portfolio
manager of the Fund since the Fund commenced operations in March 1997 and has 28
years of experience in portfolio management and research.
GROWTH FUND -- James E. Depies, CFA. Mr. Depies joined Harris Trust in 1981 and
serves as Senior Partner and Portfolio Manager. He has served as portfolio
manager of the Fund since the Fund commenced operations in February 1996 and has
37 years of investment experience.
EQUITY FUND -- Donald G. M. Coxe. Mr. Coxe joined HIM in 1993 and serves as
Chairman and Chief Strategist. He has served as portfolio manager of the Fund
since February 1996 and has nearly 30 years of institutional investment
management experience. Prior to joining HIM, he served on Wall Street as a
sell-side portfolio strategist advising institutional investors and as chief
executive officer for a Canadian investment counseling firm.
EQUITY INCOME FUND -- Daniel L. Sido Mr. Sido joined HIM in 1994 and serves as
Senior Partner and Portfolio Manager. He has served as portfolio manager of the
Fund since the Fund commenced operations in February 1996 and has over 14 years
of investment management experience. Prior to joining HIM, he served as
portfolio manager for a trust company, managing equity and fixed income
portfolios.
INDEX FUND -- Thomas M. Corkill, CFA. Mr. Corkill has served as portfolio
manager of the Fund since the Fund commenced operations in February 1996. For a
description of Mr. Corkill, see Small-Cap Value Fund above.
BALANCED FUND -- C. Thomas Johnson, CFA. Mr. Johnson joined Harris Trust in 1969
and serves as Senior Partner and Portfolio Manager. He has served as portfolio
manager of the Fund since the Fund commenced operations in March 1997 and has 28
years of experience in portfolio management.
CONVERTIBLE SECURITIES FUND -- Douglas G. Madigan, CFA. Mr. Madigan has served
as portfolio manager of the Fund since the Fund commenced operations in March
1997. For a description of Mr. Madigan, see Small-Cap Opportunity Fund above.
TAX-EXEMPT BOND FUND -- Kathleen A. Bramlage. Ms. Bramlage joined Harris Trust
in 1993 and serves as Principal and Portfolio Manager. She has served as
portfolio manager of the Fund since the Fund commenced operations in February
1996 and has 15 years of experience managing fixed-income funds, specializing in
tax-exempt and money market securities. Prior to joining Harris Trust, she
served as portfolio manager for a bank proprietary mutual fund complex.
BOND FUND -- Laura Alter and Maureen Svagera. Ms. Alter joined HIM in 1994 and
serves as Senior Partner and Portfolio Manager. She has served as portfolio
manager of the Fund since the Fund commenced operations in April 1996 and has 13
years of experience in the
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<PAGE> 111
fixed-income investment area. Prior to joining HIM, she served as portfolio
manager for a major mutual fund investment management firm. Ms. Svagera joined
HIM in 1994 and serves as Senior Partner and Portfolio Manager. She has served
as portfolio manager of the Fund since the Fund commenced operations and has 15
years of experience in the fixed-income markets. Prior to joining HIM, she spent
five years at an investment management firm as principal/vice president focusing
on the mortgage and asset-backed markets.
INTERMEDIATE TAX-EXEMPT BOND FUND -- Kathleen A. Bramlage. She has served as
portfolio manager of the Fund since the Fund commenced operations in February
1996. For a description of Ms. Bramlage, see Tax-Exempt Bond Fund above.
SHORT/INTERMEDIATE BOND FUND -- Laura Alter and Maureen Svagera. Ms. Alter has
served as portfolio manager of the Fund since September 1994. Ms. Svagera has
served as portfolio manager of the Fund since January 1996. For a description of
Ms. Alter and Ms. Svagera, see Bond Fund above.
INTERMEDIATE GOVERNMENT BOND FUND -- Maureen Svagera. Ms. Svagera has served as
portfolio manager of the Fund since the Fund commenced operations in March 1997.
For a description of Ms. Svagera, see Bond Fund above.
HARRIS INSIGHT TAX-EXEMPT MONEY MARKET FUND -- Kathleen A. Bramlage. Ms.
Bramlage has served as portfolio manager of the Fund since August 1993. For a
description of Ms. Bramlage, see Tax-Exempt Bond Fund above.
HARRIS INSIGHT MONEY MARKET FUND -- Randall T. Royther. Mr. Royther joined
Harris Trust in 1990 and serves as partner and portfolio manager. Mr. Royther
has served as portfolio manager of the Fund since June 1995 and has nine years
of investment experience.
HARRIS INSIGHT GOVERNMENT MONEY MARKET FUND -- Randall T. Royther. Mr. Royther
has served as portfolio manager of the Fund since June 1995. For a description
of Mr. Royther, see Money Market Fund above.
ADMINISTRATORS, CUSTODIAN AND TRANSFER AGENT
Harris Trust (in this capacity, the "Administrator") is the administrator of the
Funds and, as such, generally assists the Funds in all aspects of their
administration and operation.
The Administrator has a Sub-Administration Agreement with Funds Distributor,
Inc. ("FDI"), whereby FDI performs certain administrative services for the
Funds. The Administrator has Sub-Administration and Accounting Services
Agreements with PFPC Inc. ("PFPC"), whereby PFPC performs certain administrative
and accounting services for the Funds. Under these agreements, the Administrator
compensates FDI and PFPC for providing their services. The Administrator, FDI
and PFPC are referred to collectively as the "Administrators."
Harris Trust is also the transfer and dividend disbursing agent of the Funds (in
this capacity,
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<PAGE> 112
the "Transfer Agent"). The Transfer Agent has entered into Sub-Transfer Agency
Services Agreements with PFPC (the "Sub-Transfer Agent") whereby the
Sub-Transfer Agent performs certain transfer agency and dividend disbursing
agency services.
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 Administrator, the Transfer Agent and
the Custodian are entitled to receive a combined fee based on the aggregate
average daily net assets of the portfolios of the Company and the Trust, payable
monthly at an annual rate of 0.17% of the first $300 million of average daily
net assets; 0.15% of the next $300 million; and 0.13% of average daily net
assets in excess of $600 million. In addition, the Funds pay a separate fee to
the Sub-Transfer Agent for certain retail sub-transfer agent services and
reimburse the Custodian for various custody transactional expenses.
DISTRIBUTOR
Funds Distributor, Inc. (the "Distributor") has entered into Distribution
Agreements with the Trust and the Company pursuant to which it has the
responsibility for distributing shares of the Funds. Fees for services rendered
by the Distributor are paid by the Administrator. 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.
EXPENSES
Except for certain expenses borne by the Distributor, Harris Trust, or HIM, the
Trust and the Company bear all costs of their operations, including the
compensation of their 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
Class A Shares only); interest charges; taxes; fees and expenses of 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 with respect to Class A Shares), 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; 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; fees of
pricing services; organizational expenses; and any extraordinary expenses.
Expenses attributable to each Fund are borne by that Fund. Other general
expenses of the Trust or the Company are allocated among the Funds in an
equitable manner as determined by the Boards of Trustees and Directors.
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<PAGE> 113
HOW TO BUY 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 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.
No sales charge is assessed on purchases of Institutional Shares of the Funds.
Neither the Company nor the Trust imposes any minimum on initial or subsequent
investments.
OPENING AN ACCOUNT. To open an account, complete and sign an application for
Institutional Shares and mail it along with your check. You also may open your
account by wire, as described below. Please be sure to furnish your taxpayer
identification number. (You must also certify whether you are subject to
withholding for failing to report income to the Internal Revenue Service
("IRS")). Investments received without a certified taxpayer identification
number may be returned.
If you are opening an account through a financial institution or other
intermediary, this organization may have different minimum initial and
subsequent investment requirements. Please contact this organization if you have
questions. See BUYING SHARES - THROUGH FINANCIAL INSTITUTIONS below.
BUYING SHARES. Shares may be purchased by any of the following three methods:
1. BY MAIL. Make your check payable to the Fund of your choice. If you are
adding to your existing account, indicate your Fund account number directly on
the check and send to:
Harris Insight Funds
c/o PFPC Inc.
P.O. Box 8952
Wilmington, Delaware 19899-8952
2. BY BANK WIRE. Call the Funds at (800) 625-7073 to initiate your purchase.
Then wire your investment to:
PNC Bank, N.A.
Philadelphia, Pennsylvania
ABA #0310-0005-3
For Credit to: Harris Insight Funds
85-5093-2950
Re: [Name of Fund] -- Institutional Shares
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<PAGE> 114
Account No.:
Account Name:
If you are opening an account, please promptly complete and mail the account
application form to the Funds at the address above under BY MAIL. Funds
currently do not charge investors for the receipt of wire transfers, although
your bank may charge you for their wiring services.
3. THROUGH FINANCIAL INSTITUTIONS. Shares of any of the Funds may be purchased
through authorized broker-dealers, financial institutions and service agents
with whom the Distributor has a selling agreement, including Harris Trust and
HIM and their affiliates ("Institutions") on any day the Funds are open for
business. See GENERAL PURCHASE INFORMATION. Institutions are responsible for the
prompt transmission of buy, exchange or sell orders.
Each Institution may establish its own terms with respect to the requirement of
a minimum initial investment and minimum subsequent investments. Depending upon
the terms of your account, Institutions may charge account fees for automatic
investment and other services they provide, including account maintenance fees,
compensating balance requirements, or fees based upon account transactions,
assets, or income, which would reduce the your yield or return. Please read this
Prospectus in connection with any information received from your Institution.
GENERAL PURCHASE INFORMATION
The Funds are open for business each day that both of the New York Stock
Exchange (the "Exchange") and the Federal Reserve Bank of Philadelphia are open
for business (i.e., each weekday other than New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day) ("Fund
Business Day"). Except for the Money Market Funds, each Fund normally calculates
its net asset value ("NAV") and offering price at the close of business of the
Exchange, which is normally 4:00 p.m., Eastern time. Each of the Tax-Exempt
Money Market Fund and the Government Money Market Fund normally calculates its
NAV on or before 12:00 Noon, Eastern time. The Money Market Fund normally
calculates its NAV on or before 2:30 p.m., Eastern time. Shares are purchased at
the next share price calculated after your investment is received and accepted.
Orders placed directly with the Funds must be paid for by check or bank wire on
the same 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. The Company and Trust, as applicable, reserve the right to reject
any purchase order.
HOW TO SELL SHARES
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Shares may be sold (redeemed) at their next determined net asset value after
receipt of a proper request by the Funds directly or through any Institution.
1. BY MAIL. Shareholders may sell shares by writing the Funds at the following
address:
Harris Insight Funds
c/o PFPC Inc.
P.O. Box 8952
Wilmington, Delaware 19899-8952
Certain requests for redemption must be signed by the shareholder with signature
guaranteed. See SHAREHOLDER SERVICES AND POLICIES - SIGNATURE GUARANTEES.
2. BY TELEPHONE. If you have chosen the telephone redemption privilege, you may
make a telephone redemption request by calling the Funds at (800) 625-7073 and
providing the your account number, the exact name of your account and your
social security or taxpayer identification number. The Fund then will mail a
check to your account address or, if you have elected the wire redemption
privilege, wire the proceeds on the following business day.
3. BY BANK WIRE. If you have chosen the wire redemption privilege, you may
request the Funds to transmit your proceeds by federal funds wire to a bank
account previously designated by you in writing. See GENERAL REDEMPTION
INFORMATION - WIRE REDEMPTION PRIVILEGE below.
4. THROUGH FINANCIAL INSTITUTIONS. If you bought your shares through an
Institution, you may redeem your shares through the Institution. Please contact
the Institution for this service.
GENERAL REDEMPTION INFORMATION
There is no charge for redemptions, but if you bought your shares through an
Institution, the Institution may charge an account-based service fee. A
redemption order received in good order by your Institution or the Funds before
the close of the Exchange and before the close of the Fund Business Day will be
executed at the Fund's net asset value per share next determined on that day. A
redemption order received after the close of the Exchange, or not received by
the Funds prior to the close of the Fund Business Day, will be executed at the
Fund's net asset value next determined on the next Fund Business Day.
Proceeds of redemption orders received in good order will normally be remitted
within five but not more than seven business days, except that if a redemption
request is made shortly after a recent purchase by check, proceeds will be
distributed once the check used to purchase the Fund's shares clears, which may
take up to 15 days or more after the investment. The proceeds may be more or
less than the amount originally invested and, therefore, a redemption may result
in a gain or loss for federal income tax purposes.
The Funds intend to pay redemption proceeds in cash, but reserve the right to
pay in kind by
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delivery of investment securities equal in value to the redemption price to the
extent permitted by applicable laws and regulations. In these cases, you might
incur brokerage costs in converting the securities to cash. The right of any
shareholder to receive payment of redemption proceeds may be suspended, or
payment may be postponed, in certain circumstances. These circumstances include
any period when the Exchange is closed (other than weekends or holidays) or
trading on the Exchange is restricted, any period when an emergency exists and
any time the SEC permits mutual funds to postpone payments for the protection of
investors.
WIRE REDEMPTION PRIVILEGE. If the wire redemption privilege has been elected on
the shareholder application, redemption of shares may be requested by telephone,
on any day the Funds and the Transfer Agent are open for business, by calling
the Funds at (800) 625-7073. The minimum amount that may be wired is $1,000.
Otherwise, a check is mailed to the shareholder's address of record. The Funds
reserve the right to change this minimum or to terminate the privilege.
Redemption proceeds normally are transmitted by wire on the business day after a
redemption request is made. For each of the Tax-Exempt Money Market Fund and the
Government Money Market Fund, if a request is received by the Transfer Agent by
12:00 Noon, Eastern time on a day the Funds and the Transfer Agent are open for
business, the redemption proceeds will be transmitted to the shareholder's bank
that same day. For the Money Market Fund, if a request is received by the
Transfer Agent by 2:30 p.m., Eastern time on a day the Fund and the Transfer
Agent are open for business, the redemption proceeds will be transmitted to the
shareholder's bank that same day.
SHAREHOLDER SERVICES AND POLICIES
EXCHANGING SHARES. YOU CAN EXCHANGE INSTITUTIONAL SHARES OF A FUND FOR
INSTITUTIONAL SHARES OF THE OTHER HARRIS INSIGHT FUNDS OFFERING THOSE SHARES.
Institutional Shares of any of the Funds that you have held for seven days or
more may be exchanged for shares of any other Harris Insight Fund in an
identically registered account, provided that Institutional Shares of the Fund
to be acquired are registered for sale in the your state of residence.
If you would like the ability to exchange shares by telephone, please choose
this option when you complete your application. The Funds reserve the right to
limit the number of exchanges between 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.
SIGNATURE GUARANTEES. A signature guarantee assures that a signature is genuine
and protects shareholders from unauthorized account transfers. In addition to
certain signature requirements, a signature guarantee is required in any of the
following circumstances:
- A redemption check is to be made payable to anyone other than
the shareholder(s) of record.
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- A redemption check is to be mailed to an address other than
the address of record.
- A redemption amount is to be wired to a bank other than one
previously authorized.
At the Funds' discretion, signature guarantees also may be required for other
redemptions. Banks, savings and loan associations, trust companies, credit
unions, broker-dealers and member firms of a national securities exchange may
guarantee signatures. Call your financial institution to see if it has this
capability.
TELEPHONE TRANSACTIONS. Investors may buy (by bank wire), sell and exchange
shares by telephone. Shareholders engaging in telephone transactions should be
aware that they may be foregoing some of the security associated with written
requests. A shareholder may bear the risk of any resulting losses from a
telephone transaction. The Funds will employ reasonable procedures to confirm
that telephonic instructions are genuine. If the Funds or their service
providers fail to employ these measures, they may be liable for any losses
arising from unauthorized or fraudulent instructions. In addition, the Funds
reserve the right to record all telephone conversations. Please verify the
accuracy of telephone instructions immediately upon receipt of confirmation
statements.
During times of drastic economic or market changes, telephone redemption and
exchange privileges may be difficult to implement. In the event that you are
unable to reach the Funds by telephone, requests may be mailed or hand-delivered
to the Funds at the address listed in HOW TO SELL SHARES.
REDEMPTION OF SHARES IN SMALLER ACCOUNTS. Because of the high cost of
maintaining small accounts, each Fund reserves the right to redeem all shares in
an account whose value falls below $500 unless this is a result of a decline in
the market value of the shares. 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.
SHARE CERTIFICATES. Share certificates are not issued.
ELIGIBILITY BY STATE. You may only invest in, or exchange into, Institutional
Shares legally available in your jurisdiction of residence.
REPORTS TO SHAREHOLDERS. You will receive an account statement after every
transaction that affects your share balance, except for reinvestments of
dividend and capital gain distributions, or at least annually, as well as a
quarterly consolidated statement. In addition, each year you will receive an
annual and semi-annual report to shareholders of each Fund in which you invest.
If you would like copies of these reports, please call (800) 982-8782.
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HOW THE FUNDS MAKE DISTRIBUTIONS TO
SHAREHOLDERS; TAX INFORMATION
Dividends of net investment income currently are declared and paid at least
annually by each Fund in accordance with the Fund's dividend policy. Dividends
from the Emerging Markets Fund, the International Fund, the Small-Cap
Opportunity Fund and the Small-Cap Value Fund are declared and paid
semi-annually. Dividends from each of the Growth Fund, the Equity Income Fund,
the Equity Fund, the Index Fund, the Balanced Fund and the Convertible
Securities Fund are declared and paid quarterly. Dividends from the Tax-Exempt
Bond Fund, the Bond Fund, the Intermediate Tax-Exempt Bond Fund, the
Short/Intermediate Bond Fund and the Intermediate Government Bond Fund are
declared daily and paid monthly. Dividends from each of the Money Market Funds
are declared daily and paid monthly. Any net capital gains will be declared and
paid at least annually. Dividend and capital gain distributions may be invested
in additional shares of the same Fund at net asset value and credited to your
account on the payment date or paid in cash. Distribution checks and account
statements will be mailed approximately two business days after the payment
date.
Each Fund is treated as a separate entity for tax purposes and thus the
provisions of the Internal Revenue Code (the "Code") generally are 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 are
determined separately for each Fund. The Trust and the Company intend to qualify
each Fund as a regulated investment company under the Code and to distribute to
the shareholders of each Fund sufficient net investment income and net realized
capital gains of that Fund so that the Fund will not be subject to federal
income taxes.
Dividends (including net short-term capital gains), except "exempt-interest
dividends" (described below), will be taxable to shareholders 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 also may be realized by a shareholder 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 other shares of that Fund are
acquired within the 61-day period beginning 30 days before and ending 30 days
after disposition of the shares.
Dividends paid by each of the Tax-Exempt Bond Fund, the Intermediate Tax-Exempt
Bond Fund and the Tax-Exempt Money Market Fund (the "Tax-Exempt Funds") out of
tax-exempt interest income earned by the Fund ("exempt-interest dividends")
generally will not be subject to Federal income tax in the hands of the Fund's
shareholders. However, persons who are substantial users or related persons
thereof of facilities financed by private activity
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bonds held by a Fund may be subject to Federal income tax on their pro rata
share of the interest income from such bonds and should consult their tax
advisers before purchasing shares of such Fund.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
a Fund generally is not deductible for Federal income tax purposes. Under rules
of the IRS for determining when borrowed funds are used for purchasing or
carrying particular assets, shares of a Fund may be considered to have been
purchased or carried with borrowed funds even though those funds are not
directly linked to the shares. Substantially all of the dividends paid by each
Tax-Exempt Fund are anticipated to be exempt from Federal income taxes.
Shareholders of the Tax-Exempt Funds may be exempt from state and local taxes on
distributions of tax-exempt interest income derived from obligations of the
state and/or municipalities of the state in which they reside but may be subject
to tax on income derived from the municipal securities of other jurisdictions.
Shareholders are advised to consult with their tax advisers concerning the
application of state and local taxes to investments in the Fund which may differ
from the Federal income tax consequences described above.
The Trust and the Company, as applicable, 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) or Transfer Agent.
GENERAL INFORMATION
BANKING LAW MATTERS
Federal banking laws and regulations generally prohibit federally chartered or
supervised banks from engaging directly 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.
Harris Trust and HIM believe that they may perform the services contemplated by
this Prospectus and their respective agreements with the Company and Trust
without violating 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, these services. If this were to happen, the Funds would seek alternative
sources for these services.
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HOW SHARE VALUE IS DETERMINED
Net asset value per share is the value of one share of a Fund, which is
determined on each Fund Business Day. Net asset value per share of each class is
determined by dividing the value of a Fund's net assets (i.e., the value of its
securities and other assets less its liabilities) allocable to that class by the
number of shares of that class outstanding.
The net asset value per share of each of the non-Money Market Funds is
determined at the close of regular trading on the Exchange (currently 4:00 p.m.,
Eastern time) on each Fund Business Day. The value of securities held by 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 time of valuation. 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 that are primarily
traded on foreign securities exchanges are generally valued at their closing
values on the exchange. Bonds are valued at the mean of the last bid and asked
prices. In the absence of readily available market quotations (or when, in the
view of the investment adviser, available market quotations do not accurately
reflect a security's fair value), securities are valued at their fair value as
determined by the Trust's Board of Trustees or Company's Board of Directors.
Prices used for valuations of securities are provided by independent pricing
services. Debt obligations with remaining maturities of 60 days or less
generally are valued at amortized cost. 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.
The net asset value per share of the Tax-Exempt Money Market Fund and the
Government Money Market Fund is determined at 12:00 Noon, Eastern time. The net
asset value per share of the Money Market Fund is determined at 2:30 p.m.,
Eastern time. In order to maintain a stable net asset value of $1.00 per share,
each of the Money Market Funds uses the amortized cost method to value its
portfolio securities.
HOW PERFORMANCE IS REPORTED
From time to time, each of the Funds may advertise its performance. Performance
may be quoted in terms of total return, yield, effective yield and
tax-equivalent yield. All performance information is based on historical results
and is not intended to indicate future performance.
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 Institutional 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 that the maximum
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sales load was paid 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 also may be computed without reflecting the
sales load so long as the sales load is stated separately in connection with the
comparison.
A Fund's yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. To calculate standardized
yield, a Fund divides the interest income it earned from its investments for a
30-day period (net of expenses) by the average number of shares entitled to
receive dividends. The result is then expressed as an annualized percentage rate
based on the Fund's share price at the end of the 30-day period (which period
will be stated in the advertisement). The yield of any investment is generally a
function of portfolio quality and maturity, type of instrument and operating
expenses.
The effective yield is calculated similarly but, when annualized, the income
earned by an investment in 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 Tax-Exempt Funds, refers to the yield on a
taxable investment necessary to produce an after-tax yield equal to a Fund's
tax-exempt 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).
The Funds' advertisements may reference ratings and rankings among similar
mutual funds by independent evaluators such as Morningstar, Inc. and Lipper
Analytical Services, Inc. The comparative material found in the Funds'
advertisements, sales literature or reports to shareholders may contain
performance ratings. That material is not to be considered an indication of
future performance. All performance information for a Fund is calculated on a
class basis. In addition, a Fund may use a benchmark securities index as a
measure of the Fund's performance. The Balanced Fund may measure performance
using a composite of securities indices to reflect that Fund's policy of
investing in both equity and fixed income securities. The Funds may from time to
time advertise a comparison of their performance against relevant indices.
MORE INFORMATION ABOUT THE TRUST AND THE COMPANY
The Trust is an 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 13 portfolios in operation. The
Board has authorized each Fund of the Trust to issue two classes of shares,
Class A Shares and Institutional Shares.
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The Company, which was incorporated in Maryland on September 16, 1987, is an
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 five portfolios in operation. The Company's Board has
authorized the Funds of the Company to issue two classes of shares, Class A and
Institutional Shares.
Class A Shares of the Funds, which are offered primarily to retail investors,
are sold with front-end sales charge (except with respect to the Money Market
Funds) and bear additional 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 (including distribution fees) which
may affect their relative performance. Information regarding other classes of
shares may be obtained by calling the Funds at (800) 982-8782 or from any
institution that 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 SAI. All shares of the
Trust and all shares of the Company, when issued, will be fully paid and
non-assessable.
As of April 1, 1998, Harris Trust owned of record _______________ of the
Institutional Shares of the Funds and, for purposes of the 1940 Act, may be have
been deemed to control the Funds. Harris Trust has indicated that it holds its
shares on behalf of various client accounts and not as beneficial owner. From
time to time, certain shareholders may own a large percentage of the shares of a
Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote.
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. It is anticipated generally that shareholder meetings will be held
only when specifically required by federal or state law. Shareholders have
available certain procedures for the removal of Trustees and Directors.
There is a possibility that the Trust might become liable for any misstatement,
inaccuracy or incomplete disclosure in this Prospectus concerning the Company.
Likewise, there is a possibility that the Company might become liable for any
misstatement, inaccuracy or incomplete disclosure in this Prospectus concerning
the Trust.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable for the trust's obligations. However,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which both the trust itself was unable
to meet its obligations and inadequate insurance existed. To guard against this
risk, the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides for
indemnification out of Trust property of any shareholder held personally liable
for
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obligations of the Trust.
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APPENDIX A: PERMITTED INVESTMENTS
AMERICAN DEPOSITARY RECEIPTS, EUROPEAN DEPOSITARY RECEIPTS AND GLOBAL DEPOSITARY
RECEIPTS. The Emerging Markets Fund and the International Fund may purchase
sponsored and unsponsored American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and similar
securities ("Depositary Receipts"). Each of the Equity Funds also may invest in
ADRs and EDRs. Depositary Receipts are typically issued by a financial
institution ("depository") and evidence ownership interests in a security or a
pool of securities ("underlying securities") that have been deposited with the
depository. For ADRs, the depository is typically a U.S. financial institution
and the underlying securities are issued by a foreign issuer. For other
Depositary Receipts, the depository may be a foreign or a U.S. entity, and the
underlying securities may have a foreign or a U.S. issuer. Depositary Receipts
will not necessarily be denominated in the same currency as their underlying
securities. Depositary Receipts may be issued pursuant to sponsored or
unsponsored programs. In sponsored programs, an issuer has made arrangements to
have its securities traded in the form of Depositary Receipts. In unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the Depositary Receipts. For purposes of a Fund's investment policies,
investments in Depositary Receipts will be deemed to be investments in the
underlying securities. Thus, a Depositary Receipt representing ownership of
common stock will be treated as common stock.
ASSET-BACKED SECURITIES. The Equity Funds, the Short/Intermediate Bond Fund, the
Bond Fund, the Intermediate Government Bond Fund, the Intermediate Tax-Exempt
Bond Fund, the Tax-Exempt Bond Fund and the Money Market Fund may purchase
asset-backed securities, which represent direct or indirect participations in,
or are secured by and payable from, assets other than mortgage-backed assets
such as motor vehicle installment sales contracts, installment loan contracts,
leases of various types of real and personal property and receivables from
revolving credit (credit card) agreements. 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, the Short/Intermediate Bond Fund and the
Money Market Funds) limitation on such investments. Asset-backed securities,
including adjustable rate asset-backed securities, have yield characteristics
similar to those of mortgage-backed securities and, accordingly, are subject to
many of the same risks, including prepayment risk.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that 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.
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Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-backed
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-backed securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
BANK OBLIGATIONS. A Fund may invest in obligations of bank obligations,
including negotiable certificates of deposit, bankers' acceptances and time
deposits of U.S. banks (including savings banks and savings associations),
foreign branches of U.S. banks, foreign banks and their non-U.S. branches
(Eurodollars), U.S. branches and agencies of foreign banks (Yankee dollars), and
wholly-owned banking-related subsidiaries of foreign banks.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand but may be subject
to early withdrawal penalties which could reduce the Fund's yield. Deposits
subject to early withdrawal penalties or that mature in more than seven days are
treated as illiquid securities if there is no readily available market for the
securities. A Fund's investments in the obligations of foreign banks and their
branches, agencies or subsidiaries may be obligations of the parent, of the
issuing branch, agency or subsidiary, or both.
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 associated
with obligations of U.S. banks. See "Foreign Securities."
BRADY BONDS. The Emerging Markets Fund may invest a portion of its assets in
certain sovereign debt obligations known as "Brady Bonds." Brady Bonds are
issued under the framework of the Brady Plan, an initiative announced by former
U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor
nations to restructure their outstanding external indebtedness. The Brady Plan
contemplates, among other things, the debtor nation's adoption of certain
economic reforms and the exchange of commercial bank debt for newly issued
bonds. In restructuring its external debt under the Brady Plan framework, a
debtor nation negotiates with its existing bank lenders as well as the World
Bank or the International Monetary Fund (the "IMF"). The World Bank or IMF
supports the restructuring by providing funds pursuant to loan agreements or
other arrangements that enable the debtor nation to collateralize the new Brady
Bonds or to replenish reserves used to reduce outstanding bank debt. Under these
loan agreements or other arrangements with
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the World Bank or IMF, debtor nations have been required to agree to implement
certain domestic monetary and fiscal reforms. The Brady Plan sets forth only
general guiding principles for economic reform and debt reduction, emphasizing
that solutions must be negotiated on a case-by-case basis between debtor nations
and their creditors.
Brady Bonds are recent issues and do not have a long payment history. Agreements
implemented under the Brady Plan are designed to achieve debt and debt-service
reduction through specific options negotiated by a debtor nation with its
creditors. As a result, each country offers different financial packages.
Options have included the exchange of outstanding commercial bank debt for bonds
issued at 100% of face value of such debt, bonds issued at a discount of face
value of such debt, and bonds bearing an interest rate that increases over time
and the advancement of the new money for bonds. The principal of certain Brady
Bonds has been collateralized by U.S. Treasury zero coupon bonds with a maturity
equal to the final maturity of the Brady Bonds. Collateral purchases are
financed by the IMF, World Bank and the debtor nations' reserves. Interest
payments may also be collateralized in part in various ways.
Brady Bonds are often viewed as having three or four valuation components: (i)
the collateralized repayment of principal at final maturity; (ii) the
collateralized interest payments; (iii) the uncollateralized interest payments;
and (iv) any uncollateralized and of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds can be viewed as
speculative.
COMMON AND PREFERRED STOCK. The Equity Funds and the Convertible Securities Fund
may invest in common and preferred stock. Common stockholders are the owners of
the company issuing the stock and, accordingly, usually have the right to vote
on various corporate governance matters such as mergers. They are not creditors
of the company, but rather, upon liquidation of the company, are entitled to
their pro rata share of the company's assets after creditors (including fixed
income security holders) and, if applicable, preferred stockholders are paid.
Preferred stock is a class of stock having a preference over common stock as to
dividends or upon liquidation. A preferred stockholder is a shareholder in the
company and not a creditor of the company as is a holder of the company's fixed
income securities. Dividends paid to common and preferred stockholders are
distributions of the earnings or other surplus of the company and not interest
payments, which are expenses of the company. Equity securities owned by a Fund
may be traded in the over-the-counter market or on a securities exchange and may
not be traded every day or in the volume typical of securities traded on a major
U.S. national securities exchange. As a result, disposition by a Fund of a
portfolio security to meet redemptions by shareholders or otherwise may require
the Fund to sell the security at less than the reported value of the security,
to sell during periods when disposition is not desirable, or to make many small
sales over a lengthy period of time. The market value of all securities,
including equity securities, is based upon the market's perception of value and
not necessarily the book value of an issuer or other objective measure of a
company's worth.
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CONVERTIBLE SECURITIES. The Equity Funds, the Convertible Securities Fund and
the Bond Fund may invest in convertible preferred stock and bonds, which are
fixed income securities that are convertible into common stock at a specified
price or conversion ratio. Because these securities have the characteristics of
both fixed income and equity securities, they sometimes are called "hybrid"
securities. In general, the value of a convertible security is the higher of its
investment value (its value as a fixed income security) and its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the value of a convertible security
generally increases when interest rates decline and generally decreases when
interest rates rise. The value of convertible securities, however, is also
influenced by the value of the underlying common stock. Thus, convertible
securities ordinarily will provide opportunities for producing both current
income and longer-term capital appreciation. Convertible securities rank senior
to common stock in a corporation's capital structure but are usually subordinate
to any nonconvertible fixed income securities.
EXCHANGE RATE-RELATED SECURITIES. The Emerging Markets Fund and 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
generally 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.
FLOATING AND VARIABLE RATE SECURITIES. Each Fund may purchase securities having
a floating or variable rate of interest. These securities pay interest at rates
that are adjusted periodically according to a specified formula, usually with
reference to a some interest rate index or market interest rate. These
adjustments tend to decrease the security's price sensitivity to changes in
interest rates. 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.
Similar to fixed rate debt instruments, variable and floating rate instruments
are subject to changes in value based on changes in market interest rates or
changes in the issuer's creditworthiness.
Certain variable rate securities pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as inverse
floaters). For example, upon reset the interest rate payable on a security may
go down when the underlying index has risen. During periods when short-term
interest rates are relatively low as compared to long-term interest rates, a
Fund may attempt to enhance its yield by purchasing inverse floaters. Certain
inverse floaters may have an interest rate reset mechanism that multiplies the
effects
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of changes in the underlying index. While this form of leverage may increase the
security's yield, it may also increase the volatility of the security's market
value.
A floating or variable rate instrument may be subject to the Fund's percentage
limitation on illiquid securities 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 EXCHANGE CONTRACTS AND RELATED FUTURES AND OPTIONS. When investing in
foreign securities a Fund usually effects currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
market. The Fund incurs foreign exchange expenses in converting assets from one
currency to another.
Each of the Equity Funds may enter into forward foreign currency exchange
contracts for the purchase or 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 -- either to "lock in" the U.S. dollar price of the
securities denominated in a foreign currency or the U.S. dollar value of
interest and dividends to be paid on such securities, or to hedge against the
possibility that the currency of a foreign country in which a Fund has
investments may suffer a decline against the U.S. dollar -- or for non-hedging
purposes. By entering into Forward Contracts, 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 also may 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 investment adviser, a reasonable degree of
correlation can be expected between movements in the values of the two
currencies. Forward Contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves certain
risks beyond those associated with transactions in futures contracts or options
traded on exchanges.
For the Emerging Markets Fund, only a limited market, if any, currently exists
for hedging transactions relating to currencies in many emerging market
countries. This may limit the Emerging Market Fund's ability to effectively
hedge its investments in those emerging markets.
The Emerging Markets Fund may purchase put and call options and write covered
put and call options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of foreign currency denominated portfolio
securities and against increases in the U.S. dollar cost of such securities to
be acquired. As in the case of other kinds of options, however, the writing of
an option on a foreign currency constitutes only a partial hedge (up to the
amount of the premium received) and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to the Fund's position, it may forfeit the entire amount
of the premium plus related transaction
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costs. Options on foreign currencies to be written or purchased by the Fund are
traded on U.S. and foreign exchanges or over-the-counter.
FOREIGN SECURITIES. The Emerging Markets Fund and the International Fund may
invest in dollar-denominated and non-dollar-denominated foreign equity and debt
securities. Each of the other Equity Funds may invest up to 10% of its total
assets in dollar-denominated foreign equity and debt securities. The
Short/Intermediate Bond Fund and the Bond Fund (each with respect to 20% of its
total assets) as well as the Money Market Fund may invest in non-convertible
(and convertible in the case of the Bond Fund) debt 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 that are described in the Prospectus.
GUARANTEED INVESTMENT CONTRACTS. The Short/Intermediate Bond Fund, the Bond Fund
and the Money Market 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.
ILLIQUID SECURITIES AND RESTRICTED SECURITIES. Each Fund may invest up to 15%
(10% with respect to the Equity Fund, the Short/Intermediate Bond Fund and the
Money Market Funds) of its net assets in securities that are considered
illiquid. Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 ("restricted securities"),
securities which are otherwise not readily marketable, such as over-the-counter
options, and repurchase agreements not entitling the holder to payment of
principal in seven days. Under the supervision of the Trust's Board of Trustees
(or the Company's Board of Directors), the investment adviser determines and
monitors the liquidity of portfolio securities.
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 investment adviser has determined that an adequate trading market
exists for such securities or that market quotations are readily available.
Historically, illiquid securities have included securities subject to
contractual or legal
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restrictions on resale because they have not been registered under the
Securities Act of 1933 ("restricted securities"), securities which are otherwise
not readily marketable, such as over-the-counter options, and repurchase
agreements not entitling the holder to payment of principal in seven days.
The Funds may 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, for which an institutional market has developed. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on the issuer's ability to honor a demand for repayment
of the unregistered security. A security's contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative of
the liquidity of the security. These securities may be determined to be liquid
in accordance with guidelines established by the Trust's Board of Trustees (or
the Company's Board of Directors). These guidelines take into account trading
activity in the securities and the availability of reliable pricing information,
among other factors. The Board of Trustees or Directors monitors implementation
of these guidelines on a periodic basis.
INDEX FUTURES CONTRACTS; OPTIONS ON INDICES; OPTIONS ON SECURITIES. The Equity
Funds, the Convertible Securities Fund, the Tax-Exempt Bond Fund, the Bond Fund,
the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund and the
Intermediate Government Bond Fund may attempt to reduce the risk of investment
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
exchanges. These Funds 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. Except for the Index Fund, 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. The Index
Fund also may use S&P 500 Index futures contracts to simulate full investment in
the underlying index while retaining a cash balance for liquidity purposes.
Each Fund may invest in covered put and covered call options and may write
covered put and covered call options on securities in which it 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 manager
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
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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 or other appropriate assets 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 SAI.
INVESTMENT COMPANY SECURITIES AND INVESTMENT FUNDS. 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 non-Money Market
Fund, other than the Equity Fund and the Short/Intermediate Bond Fund, also may
invest in securities issued by investment companies that invest in securities in
which the Fund could invest directly.
Securities of investment companies may be acquired by any of the Funds within
the limits prescribed by 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.
With respect to the Emerging Markets Fund, some emerging countries have laws and
regulations that preclude direct foreign investment in the securities of
companies located there. However, indirect foreign investment in the securities
of companies listed and traded on the stock exchanges in these countries is
permitted by certain emerging countries through specifically authorized
investment funds. The Fund may invest in these investment funds.
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 investment adviser, 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
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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 investment 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 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
advisers or the Distributor.
MORTGAGE-BACKED SECURITIES. The Equity Funds, the Bond Fund, the
Short/Intermediate Bond Fund and the Intermediate Government Bond Fund may
invest in mortgage-backed securities, including collateralized mortgage
obligations ("CMOs") and Government Stripped Mortgage-Backed Securities.
Mortgage-backed securities represent an interest in a pool of mortgages
originated by lenders such as commercial banks, savings associations and
mortgage bankers and brokers. Mortgage-backed securities may be issued by
government-related entities or by non-governmental entities such as special
purpose trusts created by banks, savings associations, private mortgage
insurance companies or mortgage bankers. U.S. Government-related mortgage-backed
securities may be issued or guaranteed by the U.S. Government or one of its
agencies and backed by the full faith and credit of the U.S. Government, or
supported primarily or solely by the creditworthiness of the issuing U.S.
Government agency or other entity.
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. 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.
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Even if the U.S. Government or one of its agencies guarantees principal and
interest payments of a mortgage-backed security, the market price of a mortgage-
backed security is not insured and may be subject to market volatility. When
interest rates decline, mortgage-backed securities experience higher rates of
prepayment because the underlying mortgages are refinanced to take advantage of
the lower rates. The prices of mortgage-backed securities may not increase as
much as prices of other debt obligations when interest rates decline, and
mortgage-backed securities may not be an effective means of locking in a
particular interest rate. In addition, any premium paid for a mortgage-backed
security may be lost if the security is prepaid. When interest rates rise,
mortgage-backed securities experience lower rates of prepayment. This has the
effect of lengthening the expected maturity of a mortgage-backed security. As a
result, prices of mortgage-backed securities may decrease more than prices of
other debt obligations when interest rates rise.
MUNICIPAL OBLIGATIONS. The Balanced Fund, the Tax-Exempt Bond Fund, the Bond
Fund, the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond Fund
and the Tax-Exempt Money Market Fund may invest in municipal obligations.
Municipal obligations include municipal bonds, municipal notes and municipal
commercial paper. These securities may be 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.
Municipal bonds generally have a maturity at the time of issuance of up to 30
years. Municipal notes are intended to fulfill the short-term capital needs of
the issuer and generally have maturities at the time of issuance of three years
or less. 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 Tax-Exempt Bond Fund and the
Intermediate Tax-Exempt Bond 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.
Municipal 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. The municipal notes in
which the Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond Fund may
invest include tax anticipation notes, bond anticipation notes, and revenue
anticipation notes (which generally are issued in anticipation of various
seasonal revenues).
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The Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond Fund may invest in
municipal leases. Municipal leases, which may take the form of a lease or an
installment purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications equipment
and other capital assets. 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.
REAL ESTATE INVESTMENT TRUSTS. The Emerging Markets Fund may invest in REITs.
REITs are pooled investment vehicles that invest primarily in income producing
real estate or real estate related loans or interests. Investing in REITs
involves certain unique risks in addition to those risks associated with
investing in the real estate industry in general. REITs may be affected by
changes in the value of the underlying property owned by the REITs or the
quality of loans held by the REIT. REITs are dependent upon management skills,
are not diversified, and are subject to the risks of financing projects.
REITs are also subject to interest rate risks. When interest rates decline, the
value of a REIT's investment in fixed rate obligations can be expected to rise.
Conversely, when interest rates rise, the value of a REIT's investment in fixed
rate obligations can be expected to decline.
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities.
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
collateralized only by obligations that could otherwise be purchased by the Fund
(except with respect to maturity). The seller will be required to maintain in a
segregated account for the Fund cash or cash equivalent collateral equal to at
least 102% 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.
The Equity Funds and the Fixed Income Funds may borrow funds for temporary
purposes by selling portfolio securities to financial institutions such as banks
and broker-dealers and
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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 Short/Intermediate Bond Fund and the Money Market Funds) 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, the Equity Funds, the
Tax-Exempt Bond Fund, the Bond Fund, the Intermediate Tax-Exempt Bond Fund, the
Short/Intermediate Bond Fund, the Intermediate Government Bond Fund, and the
Money Market Funds may enter into puts with respect to portfolio securities with
banks or broker-dealers that, in the opinion of the investment 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.
SHORT SALES. The Emerging Markets Fund may from time to time sell securities
short without limitation, although initially it has no intention to sell
securities short. In a short sale, the Fund sells securities it does not own
(but has borrowed) in anticipation of a decline in the securities' market price.
All short sales by the Fund will be fully collateralized. Short sales involve
certain risks and special considerations; possible losses from short sales may
be unlimited, whereas losses from purchases of securities are limited to the
total amount invested. The Fund may also sell short "against the box," that is,
sell a security that the Fund owns or has the right to acquire, for delivery at
a specified date in the future.
SOVEREIGN DEBT. The Emerging Markets Fund may invest in "sovereign debt," which
is issued or guaranteed by emerging market governments (including countries,
provinces and municipalities) or their agencies and instrumentalities. Sovereign
debt may trade at a substantial discount from face value. The Fund may hold and
trade sovereign debt of emerging market countries in appropriate circumstances
and to participate in debt conversion programs. Emerging country sovereign debt
involves a high degree of risk, is generally lower-quality debt, and is
considered speculative in nature. The issuer or governmental authorities that
control sovereign debt repayment ("sovereign debtors") may be unable or
unwilling to repay principal or interest when due in accordance with the terms
of the debt. A sovereign debtor's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment
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is due, the relative size of the debt service burden to the economy as a whole,
the sovereign debtor's policy towards the IMF and the political constraints to
which the sovereign debtor may be subject. Sovereign debtors may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearage on their
debt. The commitment of these third parties to make such disbursements may be
conditioned on the sovereign debtor's implementation of economic reforms or
economic performance and the timely service of the debtor's obligations. The
sovereign debtor's failure to meet these conditions may cause these third
parties to cancel their commitments to provide funds to the sovereign debtor,
which may further impair the debtor's ability or willingness to timely service
its debts. In certain instances, the Fund may invest in sovereign debt that is
in default as to payments of principal or interest. In the event that the Fund
holds non-performing sovereign debt, the Fund may incur additional expenses in
connection with any restructuring of the issuer's obligations or in otherwise
enforcing its rights thereunder.
STAND-BY COMMITMENTS. The Balanced Fund, the Tax-Exempt Bond Fund and the
Intermediate Tax-Exempt Bond Fund may purchase municipal securities together
with the right to resell them to the seller or a third party at an agreed-upon
price or yield within specified periods prior to their maturity dates. Such a
right to resell is commonly known as a stand-by commitment, and the aggregate
price which a Fund pays for securities with a stand-by commitment may increase
the cost, and thereby reduce the yield, of the security. The primary purpose of
this practice is to permit a Fund to be as fully invested as practicable in
municipal securities while preserving the necessary flexibility and liquidity to
meet unanticipated redemptions. 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. Stand-by commitments involve certain expenses and risks, including the
inability of the issuer of the commitment to pay for the securities at the time
the commitment is exercised, non-marketability of the commitment, and
differences between the maturity of the underlying security and the maturity of
the commitment.
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 SECURITIES. Each of the Funds may invest in U.S. Government
Securities: obligations issued or guaranteed by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises. U.S. Government Securities
may include U.S. Treasury securities and obligations issued or guaranteed by
U.S. Government agencies and instrumentalities and backed by the full faith and
credit of the U.S. Government, such as those guaranteed by the Small Business
Administration or issued by the Government National Mortgage Association. In
addition, U.S. Government Securities may include securities supported primarily
or solely by the creditworthiness of the issuer, such as securities of the
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation and the Tennessee Valley Authority. There is no guarantee that the
U.S.
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Government will support securities not backed by its full faith and credit.
Accordingly, although these securities have historically involved little risk of
loss of principal if held to maturity, they may involve more risk than
securities backed by the U.S. Government's full faith and credit.
WARRANTS. The Equity Funds and the Convertible Securities Fund may invest in
warrants, which are options to purchase an equity security at a specified price
(usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. Unlike convertible securities and preferred
stocks, warrants do not pay a fixed dividend. Investments in warrants involve
certain risks, including the possible lack of a liquid market for the resale of
the warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised (in which case the warrant may
expire without being exercised, resulting in the loss of the Fund's entire
investment therein).
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES. Each Fund may
purchase securities (including securities issued pursuant to an initial public
offering) on a "when-issued," "delayed delivery" or "forward commitment" 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 Funds do not earn income on such securities until settlement and
bear the risk of market value fluctuations in between the purchase and
settlement dates. New issues of stocks and bonds, private placements and
Government Securities may be sold in this manner.
ZERO COUPON SECURITIES. Each of the Funds may invest in zero coupon securities.
Zero coupon securities are debt securities that are issued and traded at a
discount and do not entitle the holder to any periodic payments of interest
prior to maturity. Zero coupon securities include separately traded principal
and interest components of securities issued or guaranteed by the U.S. Treasury.
These components are traded independently under the U.S. Treasury's Separate
Trading of Registered Interest and Principal of Securities ("STRIPS") program or
as Coupons Under Book Entry Safekeeping ("CUBES").
The International Fund, the Intermediate Government Bond Fund, and the Money
Market Funds may invest in other types of related zero coupon securities
commonly known as "stripped" securities. For instance, a number of banks and
brokerage firms separate the principal and interest portions of U.S. Treasury
securities and sell them separately in the form of receipts or certificates
representing undivided interests in these instruments. These instruments are
generally held by a bank in a custodial or trust account on behalf of the owners
of the securities and are known by various names, including Treasury Receipts
("TRs"), Treasury Investment Growth Receipts ("TIGRs") and Certificates of
Accrual on Treasury Securities ("CATS"). Stripped securities also may be issued
by corporations and municipalities. Stripped securities will normally be
considered illiquid investments and will be acquired subject to the limitations
on illiquid investments.
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Zero coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero coupon securities may be subject to greater fluctuation of
market value than the other debt securities in which the Funds may invest. The
Funds distribute all of their net investment income, and may have to sell
portfolio securities to distribute imputed income, which may occur at a time
when the investment adviser would not have chosen to sell such securities and
which may result in a taxable gain or loss.
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INVESTMENT ADVISER, ADMINISTRATOR,
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
PORTFOLIO MANAGEMENT AGENT
Harris Investment Management, Inc.
190 South LaSalle Street
Chicago, Illinois 60603
INVESTMENT SUB-ADVISER
Hansberger Global Investors, Inc.
515 East Las Olas Boulevard, Suite 1300
Fort Lauderdale, Florida 33301
SUB-ADMINISTRATOR AND ACCOUNTING
SERVICES AGENT, SUB-TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
SUB-ADMINISTRATOR AND DISTRIBUTOR
Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, Massachusetts 02109
CUSTODIAN
PNC Bank, N.A.
Broad & Chestnut Streets
Philadelphia, Pennsylvania 19101
INDEPENDENT ACCOUNTANTS
[ ]
LEGAL COUNSEL
Bell, Boyd & Lloyd
Three First National Plaza
Chicago, Illinois 60602
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HARRIS INSIGHT(R) FUNDS
60 State Street, Suite 1300, Boston, Massachusetts 02109
Telephone: (800) 982-8782
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
The Harris Insight Funds Trust (the "Trust") is an open-end,
diversified management investment company that currently offers a selection of
thirteen investment portfolios. HT Insight Funds, Inc. d/b/a Harris Insight
Funds (the "Company") is an open-end, diversified management investment company
that currently offers a selection of five investment portfolios. The thirteen
portfolios of the Trust and the five 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 Prospectuses. See
"Investment Objectives and Policies." The Funds are as follows:
- Harris Insight Emerging Markets Fund
- Harris Insight International Fund
- Harris Insight Small-Cap Opportunity Fund
- Harris Insight Small-Cap Value Fund
- Harris Insight Growth Fund
- Harris Insight Equity Fund
- Harris Insight Equity Income Fund
- Harris Insight Index Fund
- Harris Insight Balanced Fund
- Harris Insight Convertible Securities Fund
- Harris Insight Tax-Exempt Bond Fund
- Harris Insight Bond Fund
- Harris Insight Intermediate Tax-Exempt Bond Fund
- Harris Insight Short/Intermediate Bond Fund
- Harris Insight Intermediate Government Bond Fund
- Harris Insight Tax-Exempt Money Market Fund
- Harris Insight Money Market Fund
- Harris Insight Government Money Market Fund
The Funds have two classes of shares, Class A Shares 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 May 1, 1998 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.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Strategies ............................ 3
Ratings .......................................... 22
Investment Restrictions .......................... 22
Management ....................................... 24
Service Plans .................................... 31
Calculation of Yield and Total Return ............ 33
Determination of Net Asset Value ................. 38
Portfolio Transactions ........................... 39
Federal Income Taxes ............................. 41
Capital Stock and Beneficial Interest ............ 43
Other ............................................ 44
Custodian ........................................ 45
Independent Accountants .......................... 45
Experts .......................................... 45
Financial Statements ............................. 45
Appendix A ....................................... 46
</TABLE>
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INVESTMENT STRATEGIES
ASSET-BACKED SECURITIES. A Fund may purchase asset-backed securities,
which represent direct or indirect participations in, or are secured by and
payable from, assets other than mortgage-backed assets such as motor vehicle
installment sales contracts, installment loan contracts, leases of various types
of real and personal property and receivables from revolving credit (credit
card) agreements. In accordance with guidelines established by the Board of
Trustees or Board of Directors, as the case may be, asset-backed securities may
be considered illiquid securities and, therefore, may be subject to a Fund's
limitation on such investments. Asset-backed securities, including adjustable
rate asset-backed securities, have yield characteristics similar to those of
mortgage-backed securities and, accordingly, are subject to many of the same
risks, including prepayment risk.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that 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.
Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-backed
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-backed securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
BANK OBLIGATIONS. Bank obligations include negotiable certificates of
deposit, bankers' acceptances and fixed time deposits. The Money Market 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 Comptroller of the Currency or whose deposits
are insured by the Federal Deposit Insurance Corporation ("U.S. banks"). Th
Money Market 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
Harris Investment Management, Inc. ("HIM" or the "Portfolio Management Agent")
are of an investment quality comparable to obligations of U.S. banks that may be
purchased by the Money Market Fund. Each of the Short/Intermediate Bond Fund and
the Money Market 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.
CONVERTIBLE SECURITIES. Because they have the characteristics of both
fixed-income securities and common stock, convertible securities sometimes are
called "hybrid" securities.
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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 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
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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,
Harris Trust and Savings Bank ("Harris Trust" or the "Investment Adviser") with
respect to the Tax-Exempt Money Market Fund, or Hansberger Global Investors,
Inc. ("Hansberger" or the "Investment Sub-Adviser") 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 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 INVESTMENT COMPANIES. Some of the countries in which the
Emerging Markets Fund or International Fund may invest may not permit, or may
place economic restrictions on, direct investment by outside investors.
Investments in such countries may only be permitted through foreign
government-approved or authorized investment vehicles, which may include other
investment companies. The Fund may also invest in other investment companies
that invest in foreign securities. Investing through such vehicles may involve
frequent or layered fees or expenses and may also be subject to limitation under
the Investment Company Act of 1940, as amended (the "1940 Act"). Under the 1940
Act, a Fund may invest up to 10% of its assets in shares of investment
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companies and up to 5% of its assets in any one investment company as long as
the investment does not represent more than 3% of the voting stock of the
acquired investment company.
FOREIGN SECURITIES. As discussed in the Prospectuses, 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 Emerging Markets Fund and 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.
FOREIGN CURRENCY FORWARD CONTRACTS. The Emerging Markets Fund and the
International Fund may enter into forward foreign currency exchange contracts
for the purchase or sale of a fixed quantity of a foreign currency at a future
date ("forward contracts"). Forward contracts may be entered into by the Fund
for hedging purposes as well as for non-hedging purposes. Forward contracts may
also be entered into for "cross hedging" as noted in the Prospectuses.
Transactions in forward contracts entered into for hedging purposes will include
forward purchases or sales of foreign currencies for the purpose of protecting
the dollar value of securities denominated in a foreign currency or protecting
the dollar equivalent of interest or dividends to be paid on such securities. By
entering into such transactions, however, the Fund may be required to forego the
benefits of advantageous changes in exchange rates. The Fund may also enter into
transactions in forward contracts for other than hedging purposes which presents
greater profit potential but also involves increased risk. For example, if the
Investment Adviser or Investment Sub-Adviser believes that the value of a
particular foreign currency will increase or decrease relative to the value of
the U.S. dollar, the Fund may purchase or sell such currency, respectively,
through a forward contract. If the expected changes in the value of the currency
occur, the Fund will realize profits which will increase its gross income. Where
exchange rates do not move in the direction or to the extent anticipated,
however, the Fund may sustain losses which will reduce its gross income. Such
transactions, therefore, could be considered speculative.
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The Fund has established procedures consistent with statements by the
Commission and its staff regarding the use of forward contracts by registered
investment companies, which require the use of segregated assets or "cover" in
connection with the purchase and sale of such contracts. In those instances in
which the Fund satisfies this requirement through segregation of assets, it will
segregate appropriate liquid securities, which will be marked to market on a
daily basis, in an amount equal to the value of its commitments under forward
contracts.
Currently, only a limited market, if any, exists for hedging
transactions relating to currencies in many emerging market countries or to
securities of issuers domiciled or principally engaged in business in emerging
market countries. This may limit the Fund's ability to effectively hedge its
investments in those emerging markets.
FOREIGN CURRENCY FUTURES. Generally, foreign currency futures provide
for the delivery of a specified amount of a given currency, on the exercise
date, for a set exercise price denominated in U.S. dollars or other currency.
Foreign currency futures contracts would be entered into for the same reason and
under the same circumstances as forward contracts. Hansberger will assess such
factors as cost spreads, liquidity and transaction costs in determining whether
to utilize futures contracts or forward contracts in its foreign currency
transactions and hedging strategy.
Purchasers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described below. Further, settlement of a foreign
currency futures contract must occur within the country issuing the underlying
currency. Thus, the Fund must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulations
regarding the maintenance of foreign banking arrangements by U.S. residents and
may be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
FOREIGN CURRENCY OPTIONS. The Emerging Markets Fund and the
International Fund may purchase and write options on foreign currencies for
purposes similar to those involved with investing in forward contracts. For
example, in order to protect against declines in the dollar value of portfolio
securities which are denominated in a foreign currency, the Fund may purchase
put options on an amount of such foreign currency equivalent to the current
value of the portfolio securities involved. As a result, the Fund would be able
to sell the foreign currency for a fixed amount of U.S. dollars, thereby
securing the dollar value of the portfolio securities (less the amount of the
premiums paid for the options). Conversely, the Fund may purchase call options
on foreign currencies in which securities it anticipates purchasing are
denominated to secure a set U.S. dollar price for such securities and protect
against a decline in the value of the U.S. dollar against such foreign currency.
The Fund may also purchase call and put options to close out written option
positions.
The Fund may also write covered call options on foreign currency to
protect against potential declines in its portfolio securities which are
denominated in foreign currencies. If the U.S. dollar value of the portfolio
securities falls as a result of a decline in the exchange rate between the
foreign currency in which it is denominated and the U.S. dollar, then a loss to
the Fund occasioned
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by such value decline would be ameliorated by receipt of the premium on the
option sold. At the same time, however, the Fund gives up the benefit of any
rise in value of the relevant portfolio securities above the exercise price of
the option and, in fact, only receives a benefit from the writing of the option
to the extent that the value of the portfolio securities falls below the price
of the premium received. The Fund may also write options to close out long call
option positions. A covered put option on a foreign currency would be written by
the Fund for the same reason it would purchase a call option, namely, to hedge
against an increase in the U.S. dollar value of a foreign security which the
Fund anticipates purchasing. Here, the receipt of the premium would offset, to
the extent of the size of the premium, any increased cost to the Fund resulting
from an increase in the U.S. dollar value of the foreign security. However, the
Fund could not benefit from any decline in the cost of the foreign security
which is greater than the price of the premium received. The Fund may also write
options to close out long put option positions. The markets in foreign currency
options are relatively new and the Fund's ability to establish and close out
positions on such options is subject to the maintenance of a liquid secondary
market.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
FORWARD CONTRACTS. Forward Contracts may be entered into by the Equity
Fund, the Equity Income Fund, the Growth Fund, the Small-Cap Opportunity Fund,
the Small-Cap Value Fund, the Index Fund, the Emerging Markets 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 Prospectuses. 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
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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 segregate appropriate liquid 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 ("Government Securities"). 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.
INDEX FUTURES CONTRACTS AND OPTIONS ON INDEX FUTURES CONTRACTS. All
Equity Funds, the Short/Intermediate Bond Fund, the Convertible Securities Fund,
the Bond Fund, the Intermediate Government Bond Fund, the Intermediate
Tax-Exempt Bond Fund and the Tax-Exempt Bond 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 or the
Sub-Adviser 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 be purchased in a more advantageous manner. The Index
Fund may maintain Standard & Poor's 500 Index futures contracts to simulate full
investment in that index while retaining a cash position for fund management
purposes, to facilitate trading or to reduce transaction costs. A Fund will sell
options on indices only to close out existing hedge positions.
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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.
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 Standard & Poor's ("S&P") or A or higher
by Moody's Investors Service ("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.
Except for the Index Fund, 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
segregate appropriate liquid securities equal to the market value of the futures
contracts.
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
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futures markets may become distorted if changing margin requirements do not
reflect changes in value of the securities. The margin requirements in the
futures market are substantially lower than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary basis distortion.
In the futures market, it may not always be possible to execute a buy
or sell order at the desired price, or to close out an open position due to
market conditions limits on open positions, and/or daily price fluctuation
limits. Each market establishes a limit on the amount by which the daily market
price of a futures contract may fluctuate. Once the market price of a futures
contract reaches its daily price fluctuation limit, positions in the commodity
can be neither taken nor liquidated unless traders are willing to effect trades
at or within the limit. The holder of a futures contract (including 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's successful use of index futures contracts and options on
indices depends upon the Portfolio Management Agent's or Sub-Adviser'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.
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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 below under "Interest Rate Futures
Contracts and Related Options".
INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS. All Equity Funds,
the Convertible Securities Fund, the Bond Fund, the Intermediate Government Bond
Fund, the Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Bond 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 or appropriate liquid securities equal to the notional market
value of the underlying contract will be segregated to cover 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
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maximum amount the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading session. Once the
daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not limit potential
losses because the limit may prevent the liquidation of unfavorable positions.
It is possible that futures contract prices could move to the daily limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting some futures traders to
substantial losses. In such event, it will not be possible to close a futures
position and, in the event of adverse price movements, 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 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
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of a Fund.
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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 or Sub-Adviser'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 or
Sub-Adviser anticipates an extreme change in interest rates or market
conditions.
See additional risk disclosure above 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 Sub-Adviser, or the Investment Adviser with respect to the
Tax-Exempt Money Market 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 or the
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 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 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
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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 Sub-Adviser or the Distributor.
MORTGAGE-RELATED SECURITIES. All Equity Funds, the Short/Intermediate
Bond Fund, the Bond Fund and the Intermediate Government Bond Fund may invest in
mortgage-backed securities, including collateralized mortgage obligations
("CMOs") and Government Stripped Mortgage-Backed Securities. The Intermediate
Government Bond 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 Prospectuses.
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.
Even if the U.S. Government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market volatility.
When interest rates decline, mortgage-backed securities experience higher rates
of prepayment because the underlying mortgages are refinanced to take advantage
of the lower rates. The prices of mortgage-backed securities may not increase as
much as prices of other debt obligations when interest rates decline, and
mortgage-backed securities may not be an effective means of locking in a
particular interest rate. In addition, any premium paid for a mortgage-backed
security may be lost if the security is prepaid. When interest rates rise,
mortgage-backed securities experience lower rates of prepayment. This has the
effect of
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lengthening the expected maturity of a mortgage-backed security. As a result,
prices of mortgage-backed securities may decrease more than prices of other debt
obligations when interest rates rise.
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 or the Sub-Adviser 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-onl 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 Bond Fund and the
Tax-Exempt Bond Fund may acquire participations in lease obligations or
installment purchase contract obligations (hereinafter collectively called
"lease obligations") of municipal authorities or entities. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate, and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds. In the case of a "non-appropriation" lease, a Fund's
ability to recover under the lease in the event of non-appropriation or default
will be limited solely to the repossession of the leased property in the event
foreclosure might prove difficult.
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In evaluating the credit quality of a municipal lease obligation and
determining whether such lease obligation will be considered "liquid," the
Portfolio Management Agent will consider: (1) whether the lease can be canceled;
(2) what assurance there is that the assets represented by the lease can be
sold; (3) the strength of the lessee's general credit (e.g., its debt,
administrative, economic, and financial characteristics); (4) the likelihood
that the municipality will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operations of
the municipality (e.g., the potential for an "event of non-appropriation"); and,
(5) the legal recourse in the event of failure to appropriate.
MUNICIPAL OBLIGATIONS. As discussed in the applicable Prospectus, the
Balanced Fund, the Short/Intermediate Bond Fund, the Bond Fund, the Intermediate
Tax-Exempt Bond Fund, the Tax-Exempt Bond Fund and the Tax-Exempt Money Market
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 Bond Fund, the Balanced Fund, the Bond Fund, the
Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Bond 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 or "BBB"
or better by 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.
PUT AND CALL OPTIONS. All Equity Funds, the Convertible Securities
Fund, the Bond Fund, the Intermediate Government Bond Fund, the Intermediate
Tax-
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Exempt Bond Fund and the Tax-Exempt Bond 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 such cash is segregated) 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 appropriate liquid
assets representing the difference are segregated by the Fund. A put option is
"covered" if a Fund maintains appropriate liquid securities with a value equal
to the exercise price, 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.
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.
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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 collateralized only by obligations
that could otherwise be purchased by the Fund (except with respect to maturity).
The seller will be required to maintain in a segregated account for the Fund
cash or cash equivalents equal to at least 102% 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 Bond 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 Board of Trustees, as the
case may be.
Certain of the Funds may enter into reverse repurchase agreements,
which are detailed in the Prospectuses.
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 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 Bond Fund, the Bond Fund, the
Intermediate Government Bond Fund, the Intermediate Tax-Exempt Bond Fund, the
Tax-Exempt Bond Fund, the Government Money Market Fund, the Money Market Fund
and the Tax-Exempt Money Market 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
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<PAGE> 159
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.
SHORT SALES. With respect to Emerging Markets Fund, when the Fund sells
short, it borrows the securities that it needs to deliver to the buyer. The Fund
must arrange through a broker to borrow these securities and will become
obligated to replace the borrowed securities at whatever their market price may
be at the time of replacement. The Fund may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
The Fund's obligation to replace the securities borrowed in connection
with a short sale will be secured. The proceeds the Fund receives from the short
sale will be held on behalf of the broker until the Fund replaces the borrowed
securities, and the Fund will deposit collateral with the broker; this
collateral will consist of cash or liquid, high grade debt obligations. In
addition, the Fund will deposit collateral in a segregated account with the
Fund's custodian; this collateral will consist of cash or liquid, high grade
debt obligations equal to any difference between the market value of (1) the
securities sold at the time they were sold short and (2) any collateral
deposited with the broker in connection with the short sale (not including the
proceeds of the short sale).
The Emerging Markets Fund may sell securities short against the box to
hedge unrealized gains on portfolio securities. If the Fund sells securities
short against the box, it may protect unrealized gains, but will lose the
opportunity to profit on such securities if the price rises.
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.
When a Fund agrees to purchase securities on a when-issued or forward
commitment basis, PNC Bank, N.A. (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
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<PAGE> 160
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, 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 may
not be issued or guaranteed by the United States Government. Typically, an
investment brokerage firm or other financial intermediary holding the security
has separated ("stripped") the unmatured interest coupons from the underlying
principal. The holder may then resell the stripped securities. The stripped
coupons are sold separately from the underlying principal, usually at a deep
discount because the buyer receives only the right to receive a fixed payment on
the security upon maturity and does not receive any rights to reinvestment of
periodic interest (cash) payments. Because the rate to be earned on these
reinvestments may be higher or lower than the rate quoted on the interest-paying
obligations at the time of the original purchase, the investor's return on
investments is uncertain even if the securities are held to maturity. This
uncertainty is commonly referred to as reinvestment risk. With zero coupon
securities, however, there are no cash distributions to reinvest, so investors
bear no reinvestment risk if they hold the zero coupon securities to maturity;
holders of zero coupon securities, however, forego the possibility of
reinvesting at a higher yield than the rate paid on the originally issued
security. With both zero coupon securities and interest-paying securities there
is no reinvestment risk on the principal amount of the investment. When held to
maturity, the entire return from such instruments is determined by the
difference between such instrument's purchase price and its value at maturity.
Because interest on zero coupon securities is not paid on a current basis, the
values of securities of this type are subject to greater fluctuations than are
the values of securities that distribute income regularly. In addition, 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.
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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 or the Sub-Adviser 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 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 Bond 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 Bond Fund
or a Money Market Fund, invest an amount in excess of 10% (and 15% for the
Emerging Markets Fund) 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
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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 Bond 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 Bond 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 (except with respect
to Emerging Markets Fund) 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 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 Bond 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 Bond 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.)
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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 and Beneficial Interest."
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.
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 60 State Street, Suite 1300, Boston, Massachusetts 02109.
C. GARY GERST, Trustee and Director; Chairman of the Board of Directors and
Chairman of the Board of Trustees - 200 East Randolph Drive, Floor 43, Chicago,
Illinois 60601. Age 58. Chairman Emeritus since 1993 and formerly Co-Chairman,
LaSalle Partners Ltd. (real estate investment management and consulting).
Director, Trustee or Partner, LaSalle Street Fund Inc., LaSalle Street Fund Inc.
of Delaware, DEL-LPL Limited Partnership and DEL-LPAML Limited Partnership.
EDGAR R. FIEDLER, Trustee and Director - 845 Third Avenue, New York, New York
10022. Age 68. Senior Fellow and Economic Counsellor, The Conference Board;
Director or Trustee, The Stanley Works, Emerging Mexico Fund, AARP Income Trust,
Scudder Institutional Funds, Scudder Pathway Series and Brazil Fund. Formerly
Assistant Secretary of the Treasury for Economic Policy (1971-1975).
JOHN W. McCARTER, JR., Trustee and Director - Roosevelt Road at Lakeshore Drive,
Chicago, Illinois 60605. Age 59. President and Chief Executive Officer, The
Field Museum of Natural
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<PAGE> 164
History since October 1, 1996. Former Senior Vice President and Director of
Booz-Allen & Hamilton, Inc. (consulting firm) from April 1987 to April 1997;
Director of W.W. Grainger, Inc. and A.M. Castle, Inc.
ERNEST M. ROTH, Trustee and Director - 205 Abingdon Avenue, Kenilworth, Illinois
60043. Age 70. 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.
PAULA WOLF, Trustee and Director - UPDATE BIOGRAPHY.
RICHARD W. INGRAM, President, Treasurer and Chief Financial Officer. Age 41.
Executive Vice President and Director of Client Services and Treasury
Administration of Funds Distributor, Inc. Senior Vice President of Premier
Mutual Fund Services, Inc., an affiliate of Funds Distributor ("Premier
Mutual"), and an officer of certain investment companies distributed by Funds
Distributor. From March 1994 to November 1995, Mr. Ingram was Vice President and
Division Manager of First Data Investor Services Group, Inc. From 1989 to 1994,
Mr. Ingram was Vice President, Assistant Treasurer and Tax Director - Mutual
Funds of The Boston Company, Inc.
CHRISTOPHER J. KELLEY, Vice President and Secretary. Vice President and Senior
Associate General Counsel of Funds Distributor and Premier Mutual, and an
officer of certain investment companies distributed by Funds Distributor. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. From October 1992 to March 1994, Mr. Kelley was employed by Putnam
Investments in legal and compliance capacities. He is 33 years old.
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.
The following table summarizes the compensation paid by the Company to
the Directors of the Company and paid by the Trust to the Trustees of the Trust
for the fiscal year ended December 31, 1997:
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<TABLE>
<CAPTION>
Aggregate Pension or Estimated Total
Aggregate Compensation Retirement Benefit Annual Compensation
Compensation from the Accrued as Part of Benefits upon from the Fund
Name of Person, Position from the Trust Company Fund Expenses Retirement Complex*
- ----------------------------- ---------------- -------------- -------------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
C. Gary Gerst, $ $ None None $
Chairman, Director and
Trustee
Edgar R. Fiedler, $ $ None None $
Director and Trustee
John W. McCarter, Jr. $ $ None None $
Director and Trustee
Ernest M. Roth, $ $ None None $
Director and Trustee
</TABLE>
* "Fund Complex" includes the Company and the Trust.
(1) For the period June 1988 through December 31, 1997, the total amount of
compensation (including interest) payable or accrued for Mr. Fiedler
was $[ ] pursuant to the Company's Deferred Compensation Plan for its
independent Directors.
As of April 1, 1998, the principal holders of the Institutional and
Class A Shares of each Fund of the Company and the Trust were as follows:
TO BE UPDATED
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 April 1, 1998, 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 April 1, 1998, 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, Portfolio Management Agent and Investment
Sub-Adviser. Each of the Funds is advised by Harris Trust. With respect to the
Tax-Exempt Money Market 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
respect to Funds other than the Tax-Exempt Money Market Fund, Harris Trust has
entered into Portfolio Management Contracts with 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
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the Portfolio Management Contracts, Harris Trust remains responsible for the
supervision and oversight of HIM's performance.
HIM has entered into Investment Sub-Advisory Agreements (the
"Sub-Advisory Contracts") with Hansberger. Under the Sub-Advisory Contracts,
Hansberger manages the investment of assets of the Emerging Markets Fund and the
International Fund. In carrying out its obligations under the Sub-Advisory
Contracts, Hansberger (i) obtains and evaluates pertinent economic, statistical,
financial and other information affecting the economic regions and individual
national economies generally, together with information specific to individual
companies or industries, the securities of which are included in the Funds'
investment portfolio or may be under consideration for inclusion therein; and
(ii) formulates, recommends, and executes an ongoing program of investment for
the Funds consistent with the Funds' investment objectives, policies, strategy,
and restrictions. Under the Sub-Advisory Contracts, HIM remains responsible for
the supervision and oversight of Hansberger's performance.
Harris Trust, HIM or Hansberger 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 and
Hansberger analyze 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 Contracts with respect to the Funds other than the
Emerging Markets Fund and the International Fund will continue in effect from
year to year, provided that such continuance is specifically approved annually
(i) by the holders of a majority of the outstanding voting securities of the
Funds or by the Board of Directors or the Board of Trustees, as the case may be,
and (ii) by a majority of the Directors of the Company or the Trustees of the
Trust, as the case may be, who are not parties to the Advisory Contracts or
"interested persons" (as defined in the 1940 Act) of any such party.
The Portfolio Management Contracts with respect to the remaining Funds
other than the Emerging Markets Fund, the International Fund and the Tax-Exempt
Money Market Fund will continue in effect from year to year, provided that such
continuance is specifically approved as described in the immediately preceding
paragraph.
The Advisory Contracts, the Portfolio Management Contracts and the
Sub-Advisory Contracts with respect to the Emerging Markets Fund and the
International Fund will continue in effect until February 23, 1999, and
thereafter from year to year provided the continuance is approved annually (i)
by the holders of a majority of the outstanding voting securities of the
Emerging Markets Fund and the International Fund or by the Board of Trustees and
(ii) by a majority of the Trustees of the Trust who are not parties to the
Sub-Advisory Contracts or "interested persons" (as defined in the 1940 Act) of
any such party. Such Sub-Advisory Contracts may be terminated on 60 days'
written notice by either party and will terminate automatically if assigned.
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<PAGE> 167
Harris Trust may from time to time offer programs under which it may
make contributions to certain organizations based on shares of the Funds held by
members of the organizations and in an amount up to 0.10% of the value of those
shares. These contributions are expenses of Harris Trust and are not Fund
expenses, and thus will not affect Fund performance.
Portfolio Management. The skilled teams behind the Harris Insight Funds
believe that consistent investment performance requires discipline, focus,
knowledge, and excellent informational resources.
The money management philosophy that HIM employs focuses on two key
points:
- - Active management is a key component of superior performance.
- - A systematic investment process may increase both consistency and
levels of relative performance.
Experience and creativity, combined with technological support, are
most likely to result in successful investment decisions. HIM offers investors
that powerful combination for managing their money. More importantly, instead of
relying on individual stars to manage its mutual funds, HIM has established a
strong professional team of seasoned portfolio managers and analysts. Together,
they take a quantitatively-driven approach to investing, focusing on their
investors' needs, concerns and investment goals.
HIM is a leader in the application of analytic techniques used in the
selection of portfolios. HIM's equity investment process focuses on maintaining
a well-diversified portfolio of stocks whose prices are determined to be
attractively ranked based upon their future potential.
After identifying the appropriate type of universe for each Fund -
whether the stocks are issued by large, established companies, or by smaller
firms - HIM gathers fundamental, quality and liquidity data. A multi-factor
model then ranks and/or scores the stocks. Stocks which fail to meet HIM's
hurdles are removed from further consideration.
Attractive stocks are periodically identified and added to the
portfolio, while those that have become unattractive are systematically
replaced. Fund portfolio managers, in conjunction with HIM's experienced
research analysts, play a role throughout the process.
HIM actively manages taxable and tax-exempt fixed income securities
using a highly disciplined, quantitatively-based investment process. This
enables HIM to create portfolios of fixed income securities that it believes are
undervalued based upon their future potential. HIM seeks securities in specific
industries or areas of the country that, it believes, offer the best value and
stand to benefit from anticipated changes in interest rates.
Using quantitative models that attempt to ensure competitive results in
both rising and falling markets, bond portfolio managers select securities
within different industries while managing interest rate risk. These
quantitative models have the ability to measure changes in the economy,
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<PAGE> 168
changes in the prices of various goods and services, and changes in interest
rates. Potential purchases are finally reviewed with regard to their
suitability, credit assessment and the impact to the overall portfolio.
The following table shows the dollar amount of fees payable to the
Investment Adviser for its services with respect to each Fund, the amount of fee
that was waived by the Investment Adviser, if any, and the actual fee received
by the Investment Adviser. This data is for the past three fiscal years or
shorter period if the Fund has been in operation for a shorter period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Advisory Fee Advisory Fee Voluntarily Waived ($) Net Advisory Fee
($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government Money Market Fund 335,725 292,088 -- -- 335,725 292,088
Money Market Fund 675,821 825,619 -- -- 675,821 825,619
Tax-Exempt Money Market Fund 454,684 667,922 -- -- 454,684 667,922
Intermediate Government Bond
Fund -- -- -- -- -- --
Short/Intermediate Bond Fund 327,473 1,594,951 166,376 684,243 161,097 910,708
Intermediate Tax-Exempt Bond
Fund -- 1,120,322 -- 32,722 -- 1,087,600
Bond Fund -- 148,028 -- 88,847 -- 59,181
Tax-Exempt Bond Fund -- 829,656 -- 26,205 -- 803,451
Convertible Securities Fund -- -- -- -- -- --
Balanced Fund -- -- -- -- -- --
Index Fund -- 280,516 -- 41,424 -- 239,092
Equity Income Fund -- 182,866 -- 9,997 -- 172,869
Equity Fund 365,839 3,549,319 -- -- 365,839 3,549,319
Growth Fund -- 529,786 -- 20,952 -- 508,834
Small-Cap Value Fund -- -- -- -- -- --
Small-Cap Opportunity Fund -- 1,137,914 -- 23,743 -- 1,114,171
International Fund -- 934,699 -- 17,146 -- 917,553
Emerging Markets Fund -- -- -- -- -- --
</TABLE>
Administrator. Harris Trust serves as the Funds' administrator
("Administrator") pursuant to Administration Agreements with the Company and the
Trust and in that capacity generally assists the Funds in all aspects of their
administration and operation. The Administrator has entered into a
Sub-Administration Agreement with Funds Distributor, Inc. ("Funds Distributor")
and Sub-Administration and Accounting Services Agreements with PFPC Inc.
("PFPC") (the "Sub-Administrators") on behalf of the Company and the Trust.
Funds Distributor has agreed to furnish
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officers for the Company and the Trust; provide corporate secretarial services;
prepare and file various reports with the appropriate regulatory agencies; and
prepare various materials required by the Commission. PFPC has agreed to furnish
officers for the Company and the Trust; 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; and prepare various
materials required by any state securities commission having jurisdiction over
the Company or the Trust.
The following table shows the dollar amount of fees payable to the
Administrator for its services with respect to each Fund, the amount of fee that
was waived by the Administrator, if any, and the actual fee received by the
Administrator. The data is for the past three fiscal years or shorter period if
the Fund has been in operation for a shorter period.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Administration Fee ($) Reduction by Administrator ($) Net Administration Fee ($)
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government Money Market Fund 387,112 289,773 23,691 23,295 363,421 266,478
Money Market Fund 830,325 878,336 51,396 73,647 778,929 804,689
Tax-Exempt Money Market Fund 542,065 717,310 34,194 -- 507,871 717,310
Intermediate Government Bond
Fund -- -- -- -- -- --
Short/Intermediate Bond Fund 56,091 260,768 3,707 -- 52,384 260,768
Intermediate Tax-Exempt Bond
Fund -- 201,598 -- -- -- 201,598
Bond Fund -- 24,268 -- -- -- 24,268
Tax-Exempt Bond Fund -- 155,225 -- -- -- 155,225
Convertible Securities Fund -- -- -- -- -- --
Balanced Fund -- -- -- -- -- --
Index Fund -- 125,126 -- -- -- 125,126
Equity Income Fund -- 28,389 -- -- -- 28,389
Equity Fund 63,669 573,867 3,826 -- 59,843 573,867
Growth Fund -- 64,717 -- -- -- 64,717
Small-Cap Value Fund -- -- -- -- -- --
Small-Cap Opportunity Fund -- 126,884 -- -- -- 126,884
International Fund -- 109,741 -- -- -- 109,741
Emerging Markets Fund -- -- -- -- -- --
</TABLE>
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. For the period ended December 31, 1997, fees for services rendered by
the Distributor were paid by the Co-Administrators and the Administrator.
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The following table shows the dollar amount of sales charges payable to
the Distributor with respect to sales of Class A Shares of each Fund and the
amount of sales charges retained by the Distributor and not reallowed to other
persons. The data is for the past three fiscal years or shorter period if the
Fund has been in operation for a shorter period. There were no sales charges
payable to the Distributor with respect to the Funds not mentioned below.
<TABLE>
<CAPTION>
Aggregate Underwriting Amount Retained by
Commissions ($) Funds Distributor, Inc. ($) Amount Reallowed ($)
--------------------------- --------------------------- ----------------------------
1995 1996 1997 1995 1996 1997 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short/Intermediate Bond Fund 272 4,365 17 280 255 4,085
Equity Fund 3,489 12,647 188 728 3,301 11,919
Equity Income Fund -- -- -- -- -- --
Growth Fund -- 452 -- 27 -- 425
Small-Cap Opportunity Fund -- 1,402 -- 84 -- 1,318
Index Fund -- 247 -- 13 -- 234
International Fund -- 225 -- 13 -- 212
</TABLE>
Other Information Pertaining to Distribution, Administration,
Sub-Administration, Custodian, Transfer Agency and Sub-Transfer Agency
Agreements. Harris Trust serves as the transfer agent and dividend disbursing
agent ("Transfer Agent") of the Funds pursuant to Transfer Agency Services
Agreements with the Company and the Trust. The Transfer Agent has entered into
Sub-Transfer Agency Services Agreements with PFPC (the "Sub-Transfer Agent") on
behalf of the Company and the Trust. PFPC is an affiliate of PNC Bank, N.A., the
Custodian for the Company and the Trust. PFPC and PNC Bank, N.A. are not
affiliates of Funds Distributor, Harris Trust, HIM or Hansberger.
SERVICE PLANS
The Funds have adopted a complex-wide Service Plan for Class A Shares
of the Funds that provides for the payment of service fees of up to 0.25% (on an
annualized basis) of the average daily net assets attributable to Class A
Shares. This Service Plan does not authorize payments under the Plan to be made
for distribution purposes and was not adopted under Section 12(b) of the 1940
Act and Rule 12b-1 promulgated thereunder ("Rule 12b-1"). Additionally, the
Money Market Funds have adopted a Service Plan relating to Class A Shares
pursuant to Rule 12b-1. This Service Plan provides for the payment of
distribution fees of up to 0.10% (on an annualized basis) of the average daily
net assets attributable to the Money Market Funds' Class A Shares. Each Service
Plan has been adopted by the Board of Trustees or Board of 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
31
<PAGE> 171
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 - All Funds. Each Fund has entered into an agreement with
each institution ("Service Organization") which purchases Class A 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 0.25% (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 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, a Service Organization, at its option, may also provide to
its holders of Class A (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.
Service Plan - Money Market Funds. Under the Service Plan that relates
only to the Money Market Funds, each Money Market Fund may make additional
payments to Service Organizations for shareholder services described above and
also may (i) bear the costs and expenses in connection with advertising and
marketing the Fund's Class A Shares and (ii) make payments to Service
Organizations for assistance in connection with the distribution of shares to
Customers, including the forwarding to Customers of prospectuses, sales
literature and advertising materials
32
<PAGE> 172
provided by the Distributor of shares, at a rate of up to 0.10% per annum of the
value of the Fund's average daily net assets with respect to its Class A Shares.
There is no Service Plan in existence with respect to the Institutional
Shares of the Funds.
The following table shows Service Organization fees paid to Harris
Trust with respect to each Fund for the period ended December 31, 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Shareholder Servicing Plan
Fees Paid Shareholder Servicing Plan Fees
(after fee waivers)($) Waived ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Government Money Market Fund
Money Market Fund
Tax-Exempt Money Market Fund
Short/Intermediate Bond Fund
Bond Fund
Intermediate Government Bond Fund
Intermediate Tax-Exempt Bond Fund
Tax-Exempt Bond Fund
Convertible Securities Fund
Equity Fund
Equity Income Fund
Growth Fund
Small-Cap Opportunity Fund
Small-Cap Value Fund
Index Fund
International Fund
Balanced Fund
Emerging Markets Fund
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
33
<PAGE> 173
period ended December 31, 1997, 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 the Institutional and Class A Shares of each of the
following Money Market Funds for the 7-day period ended December 31, 1997:
<TABLE>
<CAPTION>
Current Yield Effective Yield
------------- ---------------
Institutional Class A Institutional Class A
------------- ------- ------------- -------
<S> <C> <C> <C> <C>
Government Money Market Fund % % % %
Money Market Fund % % % %
Tax-Exempt Money Market Fund % % % %
</TABLE>
Class A 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
of the Money Market Funds.
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).
The yields of Class A Shares and Institutional Shares of each of the
following Money Market Funds for the 30-day period ended December 31, 1997:
<TABLE>
<CAPTION>
30-day Yield
------------
Institutional Class A
------------- -------
<S> <C> <C>
Government Money Market Fund % %
Money Market Fund % %
Tax-Exempt Money Market Fund % %
</TABLE>
A standardized "tax-equivalent yield" may be quoted for the Tax-Exempt
Money Market Fund, the Tax-Exempt Bond Fund and the Intermediate Tax-Exempt Bond
Fund, which is
34
<PAGE> 174
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, 1997, the effective tax equivalent yield of the Class
A Shares and Institutional Shares of the Tax-Exempt Money Market Fund was [ ]%
and [ ]%, respectively. For the 30-day period ended December 31, 1997, the
30-day tax equivalent yield for the Class A Shares and Institutional Shares of
the Tax-Exempt Bond Fund and the Class A and Institutional Shares of the
Intermediate Tax-Exempt Bond Fund were [ ]% and [ ]%, and [ ]% and [ ]%,
respectively, based on a stated tax rate of 28%.
The Trust or the Company, as the case may be, makes available 30-day
yield quotations with respect to Class A Shares and Institutional 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 following table shows 30-day yields for the period ended December
31, 1997, for Class A Shares and Institutional Shares of the Non-Money Market
Funds:
<TABLE>
<CAPTION>
30-day Yield
------------
Institutional Class A
------------- -------
<S> <C> <C>
Intermediate Government Bond Fund % %
Short/Intermediate Bond Fund % %
Intermediate Tax-Exempt Bond Fund % %
Bond Fund % %
Tax-Exempt Bond Fund % %
Convertible Securities Fund % %
Balanced Fund % %
Index Fund % %
Equity Income Fund % %
Equity Fund % %
Growth Fund % %
Small-Cap Value Fund % %
Small-Cap Opportunity Fund % %
International Fund % %
Emerging Markets Fund % %
</TABLE>
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.
The following table shows average annual total return for the one year,
five year, ten year and since inception periods (or shorter period if the Fund
has been in operation for a shorter period) ended December 31, 1997 for Class A
Shares and Institutional Shares of the Non-Money Market Funds. The actual date
of the commencement of each Fund's operations, or the commencement of the
offering of each Class' Shares, is listed in the Funds' financial statements.
35
<PAGE> 175
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1 Year 5 Year 10 Year Inception to 12/31/97
---------------------- ---------------------- ----------------------- -------------------------
Institutional Class A Institutional Class A Institutional Class A Institutional Class A
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(%) (%) (%) (%) (%) (%) (%) (%)
Intermediate Government Bond
Fund
Short/Intermediate Bond Fund
Intermediate Tax-Exempt Bond
Fund
Bond Fund
Tax-Exempt Bond Fund
Convertible Securities Fund
Balanced Fund
Index Fund
Equity Income Fund
Equity Fund
Growth Fund
Small-Cap Value Fund
Small-Cap Opportunity Fund
International Fund
Emerging Markets Fund
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Aggregate total returns are given for those classes of shares that have not
been operational for a full year.
Each of these amounts is computed by assuming a hypothetical initial
investment of $10,000. 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
following table shows aggregate total return for the one year, five year, ten
year and since inception (if less than ten years) periods ended December 31,
1997 for Class A Shares and Institutional Shares of the Non-Money Market Funds:
36
<PAGE> 176
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1 Year 5 Year 10 Year Inception to 12/31/97
---------------------- ---------------------- ----------------------- -------------------------
Institutional Class A Institutional Class A Institutional Class A Institutional Class A
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(%) (%) (%) (%) (%) (%) (%) (%)
Intermediate Government Bond
Fund
Short/Intermediate Bond Fund
Intermediate Tax-Exempt Bond
Fund
Bond Fund
Tax-Exempt Bond Fund
Convertible Securities Fund
Balanced Fund
Index Fund
Equity Income Fund
Equity Fund
Growth Fund
Small-Cap Value Fund
Small-Cap Opportunity Fund
International Fund
Emerging Markets Fund
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Aggregate total returns are given for those classes of shares that have not
been operational for a full year.
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.
37
<PAGE> 177
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 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.
Performance of Common and Collective Trust Funds. The Convertible
Securities Fund, Intermediate Government Bond Fund, Small-Cap Value Fund
Tax-Exempt Bond Fund, Intermediate Tax-Exempt Bond Fund, Index Fund, Small-Cap
Opportunity Fund, Equity Income Fund, Growth Fund and International Fund
commenced operations upon the investment of a substantial amount of assets
invested from collective and common trust funds operated by Harris Trust. If a
Fund's predecessor fund was operated with investment policies substantially
similar to those of the Fund, the Fund may include in quotations of its
performance the performance history of the predecessor fund in accordance with
interpretations of the Commission and as appropriate. Because collective and
common trust funds usually have an effective expense ratio of zero, in order not
to overstate performance, a predecessor fund's performance included in any
quotation of the Fund's performance will be calculated as if the predecessor
fund had operated with an expense ratio equal to the Fund's estimated expense
ratio for its first year of operations.
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. Day, Presidents' Day , Good Friday, Memorial Day , Independence Day,
Labor Day, 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.
38
<PAGE> 178
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 397 days 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 Market Fund, and HIM or Hansberger, 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 Trust or the Company, as the case may be, 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, HIM or Hansberger
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 Tax-Exempt Bond Fund, the
Bond Fund, the Intermediate Tax-Exempt Bond Fund, the Short/Intermediate Bond
Fund, the Intermediate Government Bond Fund and the Convertible Securities Fund
(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 primarily of dealer spreads, and
underwriting commissions. Under the 1940 Act, persons affiliated with the
Company or the Trust
39
<PAGE> 179
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 , HIM or Hansberger 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, HIM
and/or Hansberger 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, Portfolio Management and Sub-Advisory 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, HIM or Hansberger
effect securities transactions for a Fund may be used by Harris Trust, HIM or
Hansberger in servicing its other accounts, and not all of these services may be
used by Harris Trust, HIM or Hansberger in connection with advising the Funds.
The following table shows total brokerage commissions and the total
dollar amount of transactions on which commissions were paid. This information
is for the past three fiscal years (or shorter if the Fund has been in operation
for a shorter period).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total Brokerage Commissions ($) Total Dollar Amount of Transactions ($)
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Fund 118,896 990,841 80,699,744 810,758,972
Equity Income Fund -- 38,375 -- 31,623,167
Growth Fund -- 66,607 -- 48,648,376
Small-Cap Opportunity Fund -- 271,499 -- 124,656,326
Index Fund -- 16,300 -- 20,433,355
International Fund -- -- 13,237,746
Emerging Markets Fund -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
With respect to transactions directed to brokers because of research
services provided, the following table shows total brokerage commissions and the
total dollar amount of transactions on which commissions were paid. This
information is for the past three fiscal years.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Total Brokerage Commissions Total Dollar Amount of Transactions on which
(Research-related) ($) Commissions were paid (Research-related) ($)
-------------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Fund 55,932 12,210 21,429,156 8,635,049
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
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,
40
<PAGE> 180
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.
In placing orders for portfolio securities of the Funds, HIM or
Hansberger is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that HIM or Hansberger 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 or Hansberger 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
of Additional Information includes additional information concerning federal
taxes.
Each Fund is treated as a separate entity for federal income tax
purposes and thus the provisions of the Code generally are applied to each Fund
separately, rather than to the Trust or the Company as a whole.
Qualification as a regulated investment company under 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
41
<PAGE> 181
including, but not limited to, gains from futures contracts and (b) the Fund
diversifies its holdings so that, at the end of each quarter of the taxable
year, (i) at least 50% of the market value of the Fund's assets is represented
by cash, government securities and other securities, with such other securities
limited in respect of any one issuer to an amount not greater than 5% of each
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities). As a regulated
investment company, each Fund will not be subject to federal income tax on its
net investment income and net capital gains distributed to its shareholders,
provided that it distributes to its shareholders at least 90% of its net
investment income (including net short-term capital gains) earned in each year
and, in the case of the Tax-Exempt Money Market Fund, the Intermediate
Tax-Exempt Bond Fund and the Tax-Exempt Bond 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 Market Fund, the Intermediate
Tax-Exempt Bond Fund and the Tax-Exempt Bond 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 Market Fund, the Intermediate
Tax-Exempt Bond Fund and the Tax-Exempt Bond 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 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,
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<PAGE> 182
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
Opportunity Fund, the Small-Cap Value Fund, the Equity Income Fund, the Index
Fund, the Emerging Markets Fund, the International Fund, the Balanced Fund, the
Convertible Securities Fund, the Bond Fund, the Intermediate Government Bond
Fund, the Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Bond 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
Opportunity Fund, the Small-Cap Value Fund, the Equity Income Fund, the Index
Fund, the Emerging Markets Fund, the International Fund, the Balanced Fund, the
Convertible Securities Fund, the Bond Fund, the Intermediate Government Bond
Fund, the Intermediate Tax-Exempt Bond Fund and the Tax-Exempt Bond 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.
CAPITAL STOCK AND BENEFICIAL INTEREST
The authorized capital stock of the Company consists of an aggregate of
10,000,000,000 shares ("Shares"), par value of $.001 per share currently
classified as follows: "Government Money
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Market Fund - Class A," consisting of 1,000,000,000 Shares, "Government Money
Market Fund - Institutional Shares," consisting of 500,000,000 Shares, "Money
Market Fund - Class A," consisting of 1,300,000,000 Shares, "Money Market Fund -
Institutional Shares," consisting of 2,250,000,000 Shares, "Tax-Exempt Money
Market Fund - Class A," consisting of 500,000,000 Shares, "Tax-Exempt Money
Market Fund - Institutional Shares," consisting of 1,000,000,000 Shares, "Class
D," referred to as the Harris Insight Convertible Fund, consisting of
100,000,000 Shares, "Equity Fund - Class A," consisting of 100,000,000 Shares,
"Equity Fund - Institutional Shares" consisting of 100,000,000 Shares,
"Short/Intermediate Bond Fund - Class A," consisting of 100,000,000 Shares,
"Short/Intermediate Bond Fund - Institutional Shares," consisting of 100,000,000
Shares, "Class G," referred to as the Harris Insight Intermediate Municipal
Income Fund, consisting of 50,000,000 Shares, "Prime Reserve Fund - Class A,"
consisting of 200,000,000 Shares, "Prime Reserve Fund - Class B," consisting of
700,000,000 Shares, "Prime Reserve Fund - Institutional Shares," consisting of
300,000,000 Shares, "Hemisphere Free Trade Fund - Class A," consisting of
50,000,000 Shares and "Hemisphere Free Trade Fund - Institutional Shares,
consisting of 50,000,000 Shares.
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 thirteen Funds of the Trust.
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 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
44
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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
[ ] has been selected as the independent accountants for both the Trust
and the Company. [ ]'s address is [ ].
EXPERTS
The financial statements incorporated by reference into the
Prospectuses and Statement of Additional Information have been incorporated by
reference in reliance on the report of [ ], independent accountants, given on
the authority of that firm as experts in auditing and accounting.
FINANCIAL STATEMENTS
The Financial Statements for the year ended December 31, 1997 including
the notes thereto, have been audited by [ ] and are incorporated by reference in
the Statement of Additional Information from the Annual Report of the Company
dated December 31, 1997.
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APPENDIX A
Description of Bond Ratings (Including Convertible Bonds)
The following summarizes the highest four ratings used by Standard &
Poor's ("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 ("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.
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<PAGE> 186
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.
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
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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
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.
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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.
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
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<PAGE> 189
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.
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.
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PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
Included in Part A of this Registration Statement: Not
applicable to this filing.
Included in Part B of this Registration Statement: Not
applicable to this filing.
Financial statements are to be filed by subsequent
post-effective amendment prior to the effective date of this
Post-Effective Amendment No. 7.
(b) Exhibits
Note: As used herein the term "Registration Statement" refers to the
Registration Statement of Registrant under the Securities Act
of 1933 on Form N-1A, No. 33-64915. All references to a
Post-Effective Amendment ("PEA") or Pre-Effective Amendment
("PreEA") are to Post-Effective Amendments and Pre-Effective
Amendments to the Registration Statement.
(1) (a) Declaration of Trust dated December 6, 1995 (incorporated by
reference to Exhibit No. 1 to the Registration Statement filed
on December 12, 1995).
(b) Amendment to Declaration of Trust dated November 4, 1996
(incorporated by reference to Exhibit No. 1(b) to the PEA No.
3 filed on February 28, 1997).
(c) Amendment to Declaration of Trust dated June 6, 1997
(incorporated by reference to Exhibit No. 1(c) to the PEA No.
5 filed on June 13, 1997).
(2) (a) By-Laws (incorporated by reference to Exhibit No. 2 to the
Registration Statement filed on December 12, 1995).
(b) Amendment to By-Laws dated October 31, 1995 (incorporated by
reference to Exhibit No. 2(b) to the PEA No. 3 filed on
February 28, 1997).
(c) Amendment to By-Laws dated January 23, 1996 (incorporated by
reference to Exhibit No. 2(c) to the PEA No. 3 filed on
February 28, 1997).
(d) Amendment to By-Laws dated November 4, 1996 (incorporated by
reference to Exhibit No. 2(d) to the PEA No. 3 filed on
February 28, 1997).
(3) Not applicable.
(4) Not applicable.
(5) (a)(i) Advisory Contract dated February 23, 1996 between
Registrant and Harris Trust and Savings Bank ("Harris Trust"
or the "Adviser") (incorporated by reference to Exhibit No.
5(a)(i) to the PEA No. 3 filed on February 28, 1997).
(a)(ii) Notice to the Adviser dated January 21, 1997 on behalf of
Harris Insight Small-Cap Value
<PAGE> 191
Fund (incorporated by reference to Exhibit No. 5(a)(ii) to the
PEA No. 5 filed on June 13, 1997).
(a)(iii) Notice to the Adviser dated June 6, 1997 on behalf of Harris
Insight Emerging Markets Fund (incorporated by reference to
Exhibit 5(a)(iii) to PEA No. 6 filed on September 15, 1997).
(b)(i) Portfolio Management Contract dated February 23, 1996 between
Harris Trust and Harris Investment Management, Inc. ("HIM" or
the "Portfolio Management Agent") (incorporated by reference
to Exhibit No. 5(b)(i) to the PEA No. 3 filed on February 28,
1997).
(b)(ii) Notice to the Portfolio Management Agent dated January 21,
1997 on behalf of Harris Insight Small-Cap Value Fund
(incorporated by reference to Exhibit No. 5(b)(ii) to the PEA
No. 5 filed on June 13, 1997).
(b)(iii) Notice to the Portfolio Management Agent dated June 6, 1997 on
behalf of Harris Insight Emerging Markets Fund (incorporated
by reference to Exhibit 5(b)(iii) to PEA No. 6 filed on
September 15, 1997).
(c)(i) Investment Sub-Advisory Contract dated August 6, 1997 between
HIM and Hansberger Global Investors, Inc. on behalf of Harris
Insight International Fund (incorporated by reference to
Exhibit 5(c)(i) to PEA No. 6 filed on September 15, 1997).
(c)(ii) Investment Sub-Advisory Contract between HIM and Hansberger
Global Investors, Inc. on behalf of Harris Insight Emerging
Markets Fund (filed herewith).
(6) (a) Distribution Agreement dated February 23, 1996 between the
Registrant and Funds Distributor, Inc. ("FDI") (incorporated
by reference to Exhibit No. 6(a) to the PEA No. 3 filed on
February 28, 1997).
(b) Notice to the Distributor dated January 21, 1997 on behalf of
Harris Insight Small-Cap Value Fund (incorporated by reference
to Exhibit No. 6(b) to the PEA No. 3 filed on February 28,
1997).
(c) Notice to the Distributor dated June 6, 1997 on behalf of
Harris Insight Emerging Markets Fund (incorporated by
reference to Exhibit 6(c) to PEA No. 6 filed on September 15,
1997).
(7) Not applicable.
(8) (a) Custodian Agreement dated February 23, 1996 between Registrant
and PNC Bank, N.A. (incorporated by reference to Exhibit No.
8(a) to the PEA No. 3 filed on February 28, 1997).
(b) Notice to the Custodian dated January 21, 1997 on behalf of
Harris Insight Small-Cap Value Fund (incorporated by reference
to Exhibit No. 8(b) to the PEA No. 3 filed on February 28,
1997).
(c) Notice to the Custodian dated June 6, 1997 on behalf of Harris
Insight Emerging Markets Fund (incorporated by reference to
Exhibit 8(c) to PEA No. 6 filed on September 15, 1997).
<PAGE> 192
(9) (a)(i) Transfer Agency Services Agreement dated July 1, 1996 between
Registrant and Harris Trust (incorporated by reference to
Exhibit No. 9(a)(i) to the PEA No. 3 filed on February 28,
1997).
(a)(ii) Notice to the Transfer Agent dated January 21, 1997 on behalf
of Harris Insight Small-Cap Value Fund (incorporated by
reference to Exhibit No. 9(a)(ii) to the PEA No. 5 filed on
June 13, 1997).
(a)(iii) Notice to the Transfer Agent dated June 6, 1997 on behalf of
Harris Insight Emerging Markets Fund (filed herewith).
(b)(i) Sub-Transfer Agency Services Agreement dated July 1, 1996
between Harris Trust and PFPC Inc. (incorporated by reference
to Exhibit No. 9(b)(i) to the PEA No. 3 filed on February 28,
1997).
(b)(ii) Notice to the Sub-Transfer Agent dated January 21, 1997 on
behalf of Harris Insight Small-Cap Value Fund (incorporated by
reference to Exhibit No. 9(b)(ii) to the PEA No. 3 filed on
February 28, 1997).
(b)(iii) Notice to the Sub-Transfer Agent dated June 6, 1997 on behalf
of Harris Insight Emerging Markets Fund (incorporated by
reference to Exhibit 9(b)(iii) to PEA No. 6 filed on September
15, 1997).
(c)(i) Administration Agreement dated July 1, 1996 between Registrant
and Harris Trust (incorporated by reference to Exhibit No.
9(c)(i) to the PEA No. 3 filed on February 28, 1997).
(c)(ii) Notice to the Administrator dated January 21, 1997 on behalf
of Harris Insight Small-Cap Value Fund (incorporated by
reference to Exhibit No. 9(c)(ii) to the PEA No. 5 filed on
June 13, 1997).
(c)(iii) Notice to the Administrator dated June 6, 1997 on behalf of
Harris Insight Emerging Markets Fund (incorporated by
reference to Exhibit 9(c)(iii) to PEA No. 6 filed on September
15, 1997).
(d)(i) Sub-Administration and Accounting Services Agreement dated
July 1, 1996 between Harris Trust and PFPC Inc. (incorporated
by reference to Exhibit No. 9(d)(i) to the PEA No. 3 filed on
February 28, 1997).
(d)(ii) Notice to the Sub-Administrator and Accounting Services Agent
dated January 21, 1997 on behalf of Harris Insight Small-Cap
Value Fund (incorporated by reference to Exhibit No.
9(d)(ii) to the PEA No. 3 filed on February 28, 1997).
(d)(iii) Notice to the Sub-Administrator and Accounting Services Agent
dated June 6, 1997 on behalf of Harris Insight Emerging
Markets Fund (incorporated by reference to Exhibit 9(d)(iii)
to PEA No. 6 filed on September 15, 1997).
(e)(i) Sub-Administration Agreement dated July 1, 1996 between Harris
Trust and FDI (incorporated by reference to Exhibit No.
9(e)(i) to the PEA No. 3 filed on February 28, 1997).
(e)(ii) Notice to the Sub-Administrator dated January 21, 1997 on
behalf of Harris Insight Small-Cap Value Fund (incorporated by
reference to Exhibit No. 9(e)(ii) to the PEA No. 3 filed
<PAGE> 193
on February 28, 1997).
(e)(iii) Notice to the Sub-Administrator dated June 6, 1997 on behalf
of Harris Insight Emerging Markets Fund (incorporated by
reference to Exhibit 9(e)(iii) to PEA No. 6 filed on September
15, 1997).
(f) Form of Shareholder Servicing Agreement (filed herewith).
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Form of Purchase Agreement relating to Initial Capital
(incorporated by reference to Exhibit No. 13 to the PEA No. 3
filed on February 28, 1997).
(14) Not applicable.
(15) (a) Service Plan dated November 18, 1997 relating to Class A
Shares (filed herewith).
(b) Form of Selling Agreement relating to Class A Shares
(incorporated by reference to Exhibit No. 15(b) to the PEA No.
3 filed on February 28, 1997).
(16) Certain schedules for computation of performance quotations
with respect to Class A Shares and Institutional Shares
(incorporated by reference to Exhibit No. 16 to the PEA No. 4
filed on May 1, 1997).
(17) Not applicable.
(18) Multi-Class Plan (incorporated by reference to Exhibit No. 18
to the PEA No. 3 filed on February 28, 1997).
(27) Not applicable.
Other Exhibits: Powers of Attorney for C. Gary Gerst, Edgar R. Fielder, John
W. McCarter, Jr. and Ernest M. Roth dated November 4, 1996
(incorporated by reference to the PEA No. 3 filed on February
28, 1997).
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
As of February 20, 1998, the number of record holders of each class of
securities of the Registrant was as follows:
<TABLE>
<CAPTION>
Title of Series Number of Record Holders
- --------------- ------------------------
Class A Shares Institutional Shares
-------------- --------------------
<S> <C> <C>
Bond Fund 12 12
Intermediate Tax-Exempt Bond Fund 21 11
Tax-Exempt Bond Fund 33 9
Equity Income Fund 104 9
</TABLE>
<PAGE> 194
<TABLE>
<S> <C> <C>
Growth Fund 204 13
Small-Cap Opportunity Fund 211 26
Index Fund 162 10
International Fund 160 13
Convertible Securities Fund 22 9
Balanced Fund 44 6
Intermediate Government Bond Fund 30 12
Small-Cap Value Fund 43 15
Emerging Markets Fund 13 8
</TABLE>
Item 27. Indemnification.
Under Section 4.3 of the Registrant's Declaration of Trust, any past or
present Trustee or officer of the Registrant (including persons who serve at the
Registrant's request as directors, officers or trustees of another organization
in which the 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 the 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 the
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 the 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 the 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 the Registrant against losses from such advances or the
disinterested Trustees or independent legal counsel determines, in the manner
specified in the Declaration of Trust, that there is reason to believe the
Covered Person will be found to be entitled to indemnification. This description
is modified in its entirety by the provision of Section 4.3 of the Registrant's
Declaration of Trust contained in the Registration Statement filed on December
12, 1995 as Exhibit No. 1 and incorporated herein by reference.
The Distribution Agreement, the Custodian Agreement, the Transfer
Agency Services Agreement and the Administration Agreement (the "Agreements")
(Exhibit 6(a), Exhibit 8(a), Exhibit 9(a)(i) and Exhibit 9(c)(i), respectively,
to Post-Effective Amendment No. 3 to the Registration Statement and incorporated
herein by reference) provide for indemnification. The general effect of these
provisions is to indemnify entities contracting with the Trust against liability
and expenses in certain circumstances. This description is modified in its
entirety by the provisions of the Agreements as contained in this Registration
Statement and incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to Trustees,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a Trustee, officer
or controlling person of the Registrant in connection with the successful
defense of any claim, action, suit or proceeding) is asserted against the
Registrant by such Trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<PAGE> 195
Registrant and its Trustees, officers and employees are insured, under
a policy of insurance maintained by the 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 Trustees or officers.
The policy expressly excludes coverage for any Trustee or officer for any claim
arising out of any fraudulent act or omission, any dishonest act or omission or
any criminal act or omission of the Trustee or officer.
Item 28. Business and Other Connections of Investment Adviser.
(a) Harris Trust and Savings Bank ("Harris Bank"), 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,
Tax-Exempt Bond Fund, Small-Cap Value Fund and Emerging Markets Fund. Harris
Bank'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 the Registrant, none of the directors or executive
officers of Harris Bank 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 Bank
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 Bank also serve as directors of Harris
Bankcorp, Inc., the immediate parent of Harris Bank.
<TABLE>
<CAPTION>
Position(s) with Harris Trust and Principal Business(es) During the
Name Savings Bank Last Two Fiscal Years
- ------------------------------------ ----------------------------------- -------------------------------------
<S> <C> <C>
Alan G. McNally Chairman and Chief Executive Chairman of the Board and Chief
Officer Executive Officer of Harris Trust
and Savings Bank and Harris
Bankcorp, Inc.; formerly, Vice
Chairman of Personal and Commercial
Financial Services of 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
Wilbur H. Gantz Director Chairman of the Board, President and
Chief Executive Officer, PathoGenesis
Corporation.
James J. Glasser Director Retired Chairman, Chairman
Emeritus, President and Chief
Executive Officer of GATX
Corporation.
Dr. Leo M. Henikoff Director President and Chief Executive
Officer of Rush-Presbyterian - St.
Luke's Medical Center.
Edward W. Lyman, Jr. Director Vice Chairman and Senior
</TABLE>
<PAGE> 196
<TABLE>
<S> <C> <C>
Executive
Vice President - Corporate and
Institutional Financial Services,
Harris Trust and Savings Bank;
formerly, Department Executive,
Corporate Banking, Harris Trust and
Savings Bank.
Pastora San Juan Cafferty Director Professor, University of Chicago
School of Social Service
Administration
Charles H. Shaw Director Chairman of the Shaw Company.
Richard E. Terry Director Chairman and Chief Executive
Officer of Peoples Energy
Corporation.
James O. Webb Director President, James O. Webb and
Associates Inc.
</TABLE>
(b) Harris Investment Management, Inc. ("HIM"), an indirect subsidiary
of the 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, Tax-Exempt
Bond Fund, Small-Cap Value Fund and Emerging Markets Fund pursuant to a
Portfolio Management Agreement with Harris Bank. HIM's business is that of a
Delaware corporation registered as an investment adviser under the Investment
Advisers Act of 1940.
To the knowledge of the Registrant, none of the directors or executive
officers of HIM, except those set forth below, is or has been at anytime during
the past two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature with respect to publicly traded companies for
their own account or in the capacity of director, officer, employees, partner or
trustee.
<TABLE>
<CAPTION>
Principal Business(es) During the Last Two
Name Position(s) with HIM Fiscal Years
- -------------------------- ------------------------------------- ---------------------------------------------
<S> <C> <C>
Donald G.M. Coxe Director, Chairman of the Board and Chairman of the Board and Chief Strategist;
Chief Strategist Formerly, President and
Chief Investment Officer of
Harris Investment Management, Inc.; formerly,
Chief Strategist of Nesbitt Thomson, Inc.
Peter P. Capaccio Director Senior Vice President/Director, Mutual
Funds and the Investment Product Group,
Harris Trust and Savings Bank; formerly,
Vice President/Director of Mutual Funds,
U.S. Trust
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,
</TABLE>
<PAGE> 197
<TABLE>
<S> <C> <C>
Executive Vice President, Retail and Institutional
Sales, Bank of Montreal.
William O. Leszinske Director, President, Chief Manager of Equities, Harris Investment
Investment Officer Management, Inc.
Edward W. Lyman, Jr. Director Senior Executive Vice President, Corporate
and Institutional Financial Services,
Harris Trust and Savings Bank. Formerly,
Department Executive of Corporate Banking,
Harris Trust and Savings Bank.
Brian J. Steck Director Director and formerly Chairman of the Board
of Harris Investment Management, Inc.;
Vice- Chairman of Investment Banking of
Bank of Montreal, President of the Bank of
Montreal Investment Management Limited.
Wayne Thomas Director Senior Vice President - Personal Investment
Management, Harris Trust and Savings Bank.
Randall J. Johnson Chief Financial Officer and Senior Partner, Harris Investment
Treasurer Management, Inc.; formerly, Consultant and
Director of Operations, Chicago Partnership
Board, Inc.
Blanche Hurt Secretary Managing Attorney, Harris Trust and Savings
Bank Trust; formerly, Corporate Fiduciary
Officer of Harris Trust and Savings Bank.
</TABLE>
(c) Hansberger Global Investors, Inc. ("Hansberger"), owned and
controlled by Mr. Thomas A. Hansberger, serves as the Investment Sub-Adviser of
the Harris Insight International Fund and the Harris Insight Emerging Markets
Fund. Hansberger's business is that of a Delaware corporation registered as an
investment adviser under the Investments Advisers Act of 1940. As of August 15,
1997, Hansberger managed assets with a value of approximately $1.1 billion.
<TABLE>
<CAPTION>
Principal Business(es) During the Last Two
Name Position(s) with Hansberger Fiscal Years
- ---------------------------- ------------------------------------ --------------------------------------------
<S> <C> <C>
Thomas L. Hansberger Chairman, President and Chief Chairman, President and Chief Executive
Executive Officer of Hansberger Officer of Hansberger
Salah Al-Maousherji Director of Hansberger Gulf Paper Kuwait and Mashora Consulting
Services (financial consulting firm)
Alberto Cribiore Director of Hansberger Principal of Brera Capital Partners, LLC
(investment banking firm)
Max C. Chapman, Jr. Director of Hansberger Chairman of Nomura Holding America, Inc.
and Director and Managing Director
</TABLE>
<PAGE> 198
of Nomura Securities Limited (financial
services companies)
Item 29. Principal Underwriter.
(a) In addition to the Harris Insight Funds Trust, Funds Distributor,
Inc. currently acts as principal underwriter for American Century California
Tax-Free and Municipal Funds, American Century Capital Portfolios, Inc.,
American Century Government Income Trust, American Century International Bond
Funds, American Century Investment Trust, American Century Municipal Trust,
American Century Mutual Funds, Inc., American Century Premium Reserves, Inc.,
American Century Quantitative Equity Funds, American Century Strategic Asset
Allocations, Inc., American Century Target Maturities Trust, American Century
Variable Portfolios, Inc., American Century World Mutual Funds, Inc., BJB
Investment Funds, The Brinson Funds, Dresdner RCM Capital Funds, Inc., Dresdner
RCM Equity Funds, Inc., HT Insight Funds, Inc. d/b/a Harris Insight Funds, J.P.
Morgan Institutional Funds, J.P. Morgan Funds, The JPM Series Trust, The JPM
Series Trust II, LaSalle Partners Funds, Inc., Monetta Fund, Inc., Monetta
Trust, The Montgomery Funds, The Montgomery Funds II, The Munder Framlington
Funds Trust, The Munder Funds Trust, The Munder Funds, Inc., Orbitex Group of
Funds, The PanAgora Institutional Funds, St. Clair Funds, Inc., The Skyline
Funds, Waterhouse Investors Family of Funds, Inc. and WEBS Index Fund, Inc.
Funds Distributor, Inc. 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, Inc. is located at 60 State Street, Suite
1300, Boston, Massachusetts 02109. Funds Distributor, Inc. 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 following is a list of the executive officers, directors and
partners of Funds Distributor, Inc.
Director, President and Chief Executive Officer
- Marie E. Connolly
Executive Vice President - Richard W. Ingram
Executive Vice President - Donald R. Roberson
Executive Vice President - William S. Nichols
Senior Vice President - Michael S. Petrucelli
Director, Senior Vice President, Treasurer and
Chief Financial Officer - Joseph F. Tower, III
Senior Vice President - Paula R. David
Senior Vice President - Allen B. Closser
Senior Vice President - Bernard A. Whalen
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules promulgated thereunder are
maintained at one or more of the following offices: Harris Insight Funds Trust,
60 State Street, Suite 1300, Boston, Massachusetts 02109; PNC Bank, N.A., 200
Stevens Dr., Suite 440, Lester, PA 19113; PFPC Inc., 103 Bellevue Parkway,
Wilmington, Delaware 19809; or Harris Trust and Savings Bank, 111 West Monroe
Street, Chicago, Illinois 60603.
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, the Registrant is not a party to any management-related
service contracts.
<PAGE> 199
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) 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.
<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 7 to the Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Boston and Commonwealth of Massachusetts on the 27th day of February, 1998.
Harris Insight Funds Trust
By: /s/ Richard W. Ingram
Richard W. Ingram, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 7 to the Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Richard W. Ingram President, Treasurer and February 27, 1998
Richard W. Ingram Chief Financial Officer
C. Gary Gerst* Chairman of the February 27, 1998
Board of Trustees;
Trustee
Edgar R. Fiedler* Trustee February 27, 1998
John W. McCarter, Jr.* Trustee February 27, 1998
Ernest M. Roth* Trustee February 27, 1998
Trustee
Paula Wolff
* By: /s/ Christopher J. Kelley
Christopher J. Kelley
Attorney-in-Fact pursuant to powers of attorney dated November 4, 1996.
</TABLE>
<PAGE> 201
EXHIBIT INDEX
Exhibit Number
Description
5(c)(ii) Investment Sub-Advisory Contract on behalf of Harris Insight
Emerging Markets Fund
9(f) Form of Shareholder Servicing Agreement
15(a) Service Plan dated November 18, 1997 relating to Class A Shares
<PAGE> 1
EXHIBIT 5(c)(ii)
INVESTMENT SUB-ADVISORY CONTRACT ON BEHALF OF
HARRIS INSIGHT EMERGING MARKETS FUND
INVESTMENT SUB-ADVISORY CONTRACT
FOR
HARRIS INSIGHT EMERGING MARKETS FUND
WITH
HANSBERGER GLOBAL INVESTORS, INC.
Harris Investment Management, Inc. (the "Portfolio Management Agent"),
a Delaware corporation registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and Hansberger Global
Investors, Inc. (the "Subadviser"), a Delaware corporation registered as an
investment adviser under the Advisers Act, agree as follows:
<PAGE> 2
1. APPOINTMENT OF SUBADVISER. Subject to and in accordance with the
Portfolio Management Agreement between Harris Trust and Savings Bank, an
Illinois bank and the investment adviser to the portfolios of Harris Insight
Funds Trust (the "Trust") (the "Adviser"), and the Portfolio Management Agent,
the Portfolio Management Agent appoints the Subadviser to act as manager of the
assets of the Harris Insight Emerging Markets Fund (the "Fund"), a portfolio of
the Trust, said assets, including interest and dividends earned thereon and
capital accretions or other additions thereto (collectively, the "Assets"), to
be invested in accordance with the current Prospectus and Statement of
Additional Information of the Fund, as amended or supplemented from time to
time, and the Subadviser accepts that appointment for the period and on the
terms set forth below.
2. SERVICES OF SUBADVISER.
(a) INVESTMENT MANAGEMENT. Subject to the overall control of the Board
of Trustees of the Trust (the "Board of Trustees"), the Adviser and the
Portfolio Management Agent, the Subadviser shall have supervisory responsibility
for the general management and investment of the Assets of the Fund giving due
consideration to the investment policies and restrictions, portfolio transaction
policies and the other statements concerning the Fund in the Trust's Declaration
of Trust, by-laws and registration statements under the Investment Company Act
of 1940, as amended (the "1940 Act"), and the Securities Act of 1933, as amended
(the "1933 Act"), to the provisions of the 1933 Act and the 1940 Act and rules
and regulations thereunder, and to the provisions of the Internal Revenue Code
applicable to regulated investment companies and other applicable law (the
"Investment Policies and Restrictions"). The Subadviser shall not lend or pledge
any of the Assets without the prior written consent of the Portfolio Management
Agent.
Subject to the overall control of the Board of Trustees, the Adviser
and the Portfolio Management Agent, and unless otherwise instructed, the
Subadviser shall vote proxies solicited by issuers of securities held by the
Fund.
(b) MANAGEMENT SERVICES. In carrying out its obligations to manage and
invest the Assets, the Subadviser shall: (i) obtain and evaluate pertinent
economic, statistical, financial and other information affecting the economic
regions and individual national economies generally, together with information
specific to individual companies or industries, the securities of which are
included in the Fund's investment portfolio or may be under consideration for
inclusion therein; and (ii) formulate, recommend, and execute an ongoing program
of investment for the Fund consistent with the Fund's investment objective,
policies, strategy, and restrictions as set forth in the Fund's registration
statement.
(c) MONITORING SUBADVISER. The Portfolio Management Agent shall monitor
and evaluate the investment performance of the Subadviser; and shall monitor the
investment activities of the Subadviser to ensure compliance with the Investment
Policies and Restrictions.
(d) REPORTS AND INFORMATION. The Subadviser shall furnish to the
Portfolio Management Agent periodic reports on the investment strategy and
performance of the Fund
<PAGE> 3
and such additional reports and information as the Portfolio Management Agent or
the Board of Trustees or the officers of the Trust may reasonably request.
(e) UNDERTAKINGS OF SUBADVISER. The Subadviser further agrees that
it will:
(i) At all times be duly registered as an investment adviser
under the Advisers Act and be duly registered and qualified under other
securities legislation in each jurisdiction where such registration or
qualification is required, whether as portfolio manager, investment counsel or
such other category as may be required;
(ii) Comply with the 1940 Act and with all applicable rules
and regulations of the Securities and Exchange Commission, the provisions of the
Internal Revenue Code relating to regulated investment companies, applicable
banking laws and regulations and policy decisions and procedures adopted by the
Board of Trustees from time to time;
(iii) In the name of the Fund, place or direct the placement
of orders for the execution of portfolio transactions in accordance with the
policies with respect thereto, as set forth in the Fund's then current
Prospectus and Statement of Additional Information, as amended from time to
time, and under the 1933 Act and the 1940 Act. In placing orders or directing
the placement of orders for the execution of portfolio transactions, the
Subadviser shall select brokers and dealers for the execution of the Fund's
transactions. In selecting brokers or dealers to execute such orders, the
Subadviser is expressly authorized to consider the fact that a broker or dealer
has furnished statistical, research or other information or services which
enhance the Subadviser's investment research and portfolio management capability
generally. It is further understood in accordance with Section 28(e) of the
Securities Exchange Act of 1934, as amended, that the Subadviser may negotiate
with and assign to a broker a commission which may exceed the commission which
another broker would have charged for effecting the transaction if the
Subadviser determines in good faith that the amount of commission charged was
reasonable in relation to the value of brokerage and/or research services (as
defined in Section 28(e)) provided by such broker, viewed in terms either of the
Fund's or the Subadviser's overall responsibilities to the Subadviser's
discretionary accounts;
(iv) Maintain books and records with respect to the securities
transactions of the Fund;
(v) Notify the Portfolio Management Agent within five business
days of any change in the Subadviser's directors and senior officers, and of any
anticipated action that would constitute an "assignment" of this Agreement under
the 1940 Act; and
(vi) Treat confidentially and as proprietary information of
the Trust all records and other information relative to the Trust or to prior,
present or potential shareholders, and not use such records or information for
any purpose other than in the performance of its responsibilities and duties
hereunder, except (A) after prior notification to and approval in writing by the
Trust, which approval shall not be unreasonably withheld, (B) when so requested
by the Trust, (C) as required by tax authorities or (D) pursuant to
<PAGE> 4
applicable law, a judicial request, requirement or order, provided that the
Subadviser takes reasonable steps to provide the Trust with prior notice in
order to allow the Trust to contest such request, requirement or order.
(f) BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Subadviser agrees that all records that it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
The Subadviser further agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under the 1940 Act.
(g) INDEPENDENT CONTRACTOR. The Subadviser shall for all purposes
herein be deemed to be an independent contractor and not an agent of the Trust
or the Portfolio Management Agent and shall, unless otherwise expressly provided
or authorized, have no authority to act for or represent the Trust or the
Portfolio Management Agent in any way.
3. UNDERTAKINGS OF PORTFOLIO MANAGEMENT AGENT. The Portfolio Management
Agent will:
(a) Furnish to the Subadviser promptly a copy of the Trust's
Declaration of Trust and By-Laws, each amendment to the registration statement
of the Trust under the 1940 Act and the 1933 Act, of each Prospectus and
Statement of Additional Information relating to the Fund and any supplement
thereto, all governing documents of the Fund and all Board-adopted procedures of
the Fund;
(b) Inform the principal custodian of the Fund (the "Custodian")
(currently PNC Bank, N.A.) of the appointment of the Subadviser as investment
subadviser in the provision of custodial services to the Fund;
(c) Instruct the Custodian to cooperate with the Subadviser in the
provision of custodial services to the Fund; and
(d) Provide the Subadviser with all information that the Subadviser may
reasonably require insofar as it relates to the custodial arrangements in
connection with this Agreement.
4. EXPENSES BORNE BY SUBADVISER. The Subadviser at its own expense
shall furnish personnel, office space and office facilities and equipment
reasonably required to render its services pursuant to this Agreement.
5. COMPENSATION OF SUBADVISER. For the services to be rendered and the
expenses to be assumed and to be paid by the Portfolio Management Agent under
this Agreement, the Portfolio Management Agent shall pay to the Subadviser a
monthly fee, computed and accrued on each day on which the Fund's net asset
value is determined, and payable in arrears on the first business day of each
month, at the annual rate of 0.75% of the first $100 million of the average net
asset value of the Assets, and 0.50% of such net asset
<PAGE> 5
value in excess of $100 million. The fee payable under this Agreement shall be
reduced proportionately during any month in which this Agreement is not in
effect for the entire month.
6. NON-EXCLUSIVITY. The Portfolio Management Agent understands that the
Subadviser now acts, will continue to act, or may act in the future, as
investment adviser or investment subadviser to fiduciary and other managed
accounts, including other investment companies and the Portfolio Management
Agent has no objection to the Subadviser so acting, provided that the Subadviser
duly performs all obligations under this Agreement. If the availability of any
particular investment security is limited and that security meets the investment
objective, policies and current strategy of the Fund and also those of one or
more of the Subadviser's other managed accounts, such security will be allocated
among such accounts on an equitable basis, having regard to whether the security
is currently held in any of the relevant investment portfolios, the relevant
size and rate of growth of each of the Fund and the other managed accounts, and
other reasonable factors. The Portfolio Management Agent also understands that
the Subadviser may give advice and take action with respect to any of its other
clients or for its own account which may differ from the timing or nature of
action taken by the Subadviser, with respect to the Fund. Nothing in this
Agreement shall impose upon the Subadviser any obligation to purchase or sell or
to recommend for purchase or sale, with respect to the Fund, any security which
the Subadviser or its shareholder, directors, officers, employees or affiliates
may purchase or sell for its or their own account(s) or for the account of any
other client, provided however, that the Subadviser and its personnel will
comply with the code of ethics applicable to them as approved by the Board of
Trustees of the Trust.
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the right of the Subadviser,
or the right of any of its officers, directors or employees who may also be an
officer, director or employee of the Fund, or person otherwise affiliated with
the Fund (within the meaning of the 1940 Act) to engage in any other business or
to devote time and attention to the management or other aspects of any other
business, whether of a similar or dissimilar nature, or to render services of
any kind to any other trust, corporation, firm, individual or association.
7. STANDARD OF CARE. Neither the Subadviser, nor any of its directors,
officers, agents or employees shall be liable or responsible to the Trust or its
shareholders for any error of judgment, or any loss arising out of any
investment, or for any other act or omission in the performance by the
Subadviser of its duties under this Agreement, except for liability resulting
from willful misfeasance, bad faith or gross negligence on its part or from
reckless disregard of its obligations and duties under this Agreement.
8. INSPECTION. The Portfolio Management Agent (or any authorized agent
of the Portfolio Management Agent as advised in writing to the Subadviser) shall
have a right to audit, inspect and photocopy documents (and remove such
photocopies) relating to investment subadvisory and portfolio management
services performed under this Agreement, during normal business hours of the
Subadviser.
<PAGE> 6
9. REPRESENTATIONS OF THE PORTFOLIO MANAGEMENT AGENT AND SUBADVISER.
The Portfolio Management Agent represents that (i) it is authorized to perform
the services herein; (ii) the appointment of the Subadviser has been duly
authorized; and (iii) it will act in conformity with the 1940 Act, and other
applicable laws.
The Subadviser represents that (i) a copy of its Articles of
Incorporation, together with all amendments thereto, is on file in the office of
the Secretary of the State of Delaware; (ii) it will act in conformity with the
1940 Act and other applicable laws; and (iii) is authorized to perform the
services described herein.
10. AUTHORIZED PERSONS.
(a) The Subadviser is authorized to accept instructions and directions
with respect to this Agreement signed by any Director or Senior Director of the
Portfolio Management Agent. The Portfolio Management Agent will notify the
Subadviser of any changes in its officers empowered to act under this Agreement.
Until actual written notice of any such changes is received by the Subadviser,
Subadviser may continue to accept instructions and directions from those
officers previously designated by the Portfolio Management Agent.
(b) The Portfolio Management Agent is authorized to accept instructions
and directions with respect to this Agreement signed by any authorized persons
of the Subadviser as listed in Schedule A of this Agreement. The Subadviser will
notify the Portfolio Management Agent of any changes in its officers empowered
to act under this Agreement.
(c) The Subadviser will advise the Custodian of the names of persons
from whom the Custodian is authorized to accept instructions regarding
investment transactions.
11. USE OF SUBADVISER'S NAME AND MARKS. The Subadviser grants to the
Portfolio Management Agent and the Trust the limited and non-exclusive right to
use, in marketing, promotional and advertising materials of the Portfolio
Management Agent or the Trust, any registered trademarks, logos or other marks
that the Subadviser uses in advertising and publicizing itself and its services
as a portfolio manager or investment counsel. Any such material shall be subject
to the prior written approval by the Subadviser as to form and content prior to
its use by the Portfolio Management Agent or the Trust, which approval shall not
unreasonably be withheld. The Subadviser consents to the disclosure, in
documents relating to the Fund, of its name as the investment subadviser and
portfolio manager of the Assets of the Fund.
12. AMENDMENT. This Agreement may not be amended without the
affirmative votes (a) of a majority of the Trustees of the Trust, including a
majority of those Trustees who are not "interested persons" of the Trust, the
Investment Adviser, the Portfolio Management Agent or the Subadviser and (b) of
a "majority of the outstanding shares" of such Fund. The terms "interested
person" and "vote of a majority of the outstanding shares" shall be construed in
accordance with their respective definitions in Sections 2(a)(19) and
<PAGE> 7
2(a)(42) of the 1940 Act and, with respect to the latter term, in accordance
with Rule 18f-2 under the 1940 Act.
13. TERMINATION. This Agreement may be terminated, at any time, without
payment of any penalty, by the Board of Trustees, or by a vote of a majority of
the outstanding shares of the Fund, upon at least 60 days' written notice to the
Portfolio Management Agent and the Subadviser. This Agreement may be terminated
by the Portfolio Management Agent and the Subadviser at any time upon at least
60 days' written notice to the Trust. This Agreement shall terminate
automatically in the event of its "assignment" (as defined in Section 2(a)(4) of
the 1940 Act). Unless terminated as hereinbefore provided, this Agreement shall
continue in effect with respect to the Fund from the date hereof until February
23, 1999 and thereafter from year to year only so long as such continuance is
specifically approved at least annually (a) by a majority of those Trustees who
are not interested persons of the Trust, the Investment Adviser, the Portfolio
Management Agent or the Subadviser, voting in person at a meeting called for the
purpose of voting on such approval, and (b) by either the Board of Trustees or
by a vote of a majority of the outstanding shares of the Fund.
14. NOTICE. Any notice, demand, change of address or other
communication to be given in connection with this Agreement shall be given in
writing and shall be given by personal delivery, by registered or certified mail
or by transmittal by facsimile or other electronic medium addressed to the
recipient as follows:
To the Subadviser: Hansberger Global Investors, Inc.
515 East Las Olas Blvd., Suite 1300
Fort Lauderdale, Florida 33301
Attention: General Counsel
Telephone: (954) 522-5150
Fax: (954) 522-3557
To the Portfolio
Management Agent: Harris Investment Management, Inc.
190 South LaSalle Street
Chicago, IL 60606
Telephone: (312) 461-7699
Fax: (312) 461-6268
To the Trust: Harris Insight Funds Trust
60 State Street, Suite 1300
Boston, MA 02109
<PAGE> 8
Telephone: (800) 221-7930
Fax: (617) 557-0701
All notices shall be conclusively deemed to have been given on the day
of actual delivery thereof and, if given by registered or certified mail, on the
fifth business day following the deposit thereof in the mail and, if given by
facsimile or other electronic medium, on the day of transmittal thereof.
15. THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the Trust, which shall have all rights against the Subadviser as
would pertain to it if this Agreement were directly between the Trust and the
Subadviser.
16. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Illinois and the laws of the United
States of America applicable to contracts executed and to be performed therein.
17. REFERENCES AND HEADINGS. In this Agreement and in any such
amendment, references to this Agreement and all expressions such as "herein,"
"hereof," and "under this Agreement" shall be deemed to refer to this Agreement
or this Agreement as amended or affected by any such amendments. Headings are
placed herein for convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or effect of this
Agreement. This Agreement constitutes the entire agreement between the parties
hereto. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
Dated: October 1, 1997
HARRIS INVESTMENT MANAGEMENT, INC.
By: /s/ William O. Leszinske
------------------------
Name: William O. Leszinske
Title:
ATTEST:
______________________, Secretary
HANSBERGER GLOBAL INVESTORS, INC.
By: /s/ Thomas L. Hansberger
------------------------
Name: Thomas L. Hansberger
Title: Chairman
ATTEST:
<PAGE> 9
______________________, Secretary
AGREED AND ACCEPTED:
HARRIS INSIGHT FUNDS TRUST
By: /s/ Richard W. Ingram
---------------------
Name: Richard W. Ingram
Title: President
ATTEST:
______________________, Secretary
HARRIS TRUST AND SAVINGS BANK
By: /s/ Peter P. Capaccio
---------------------
Name: Peter P. Capaccio
Title: Senior Vice President
ATTEST:
______________________, Secretary
SCHEDULE A
SUBADVISER'S AUTHORIZED PERSONS
<PAGE> 1
EXHIBIT 9(f)
FORM OF SHAREHOLDER SERVICING AGREEMENT
SHAREHOLDER SERVICING AGREEMENT
AGREEMENT, dated as of _____________, by and between
_____________________ and _____________________, as a shareholder servicing
agent hereunder (the "Agent"), relating to transactions in shares of capital
stock or beneficial interest (the "Shares"), of any of the investment portfolios
(the "Funds") offered by HT Insight Funds, Inc. and Harris Insight Funds Trust
(collectively referred to as the "Company").
_____________________ and the Agent hereby agree as follows:
<PAGE> 2
1. Appointment. The Agent hereby agrees to perform certain services for
its customers (the "Customers") as hereinafter set forth. The Agent's
appointment hereunder is non-exclusive, and the parties recognize and agree
that, from time to time, _____________________ may enter into other shareholder
servicing agreements, in writing, with other institutions.
2. Services to be Performed. The Agent, as agent for its Customers,
shall be responsible for performing shareholder administrative support services,
which will include one or more of the following: (i) establishing and
maintaining shareholder accounts and records; (ii) processing purchase and
redemption transactions; (iii) 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
Agent; (iv) arranging for bank wires; (v) responding to Customer inquiries
relating to the Fund; (vi) performing subaccounting with respect to Fund shares
beneficially owned by the customer; (vii) investing customer cash account
balances automatically in Fund shares; (viii) assisting Customers in changing
dividend options, account designations and addresses; and (ix) such other
services if requested by the _____________________ to the extent the Agent is
permitted by applicable statute, rule or regulation.
The Agent shall provide all personnel and facilities necessary in order
for it to perform the functions described in this Section 2 with respect to its
Customers.
3. Fees
3.1 Fees from [_____________________]. In consideration for the
services described in Section 2 hereof and the incurring of expenses in
connection therewith, the Agent shall receive a fee from _____________________,
computed daily and payable monthly, at an annual rate of .25% of 1% of the
average daily net asset value of Shares of each Fund held of record by the Agent
from time to time on behalf of Customers. For purposes of determining the fees
payable to the Agent hereunder, the value of the Fund's net assets shall be
computed in the manner specified in the Company's then-current prospectus and
statement of additional information (the "Prospectus") for computation of the
net asset value of _____________________ Shares.
3.2 Fees from Customers. It is agreed that the Agent may impose certain
conditions on Customers, in addition to or different from those imposed by the
Company, such as requiring a minimum initial investment or imposing limitations
on the amounts of transactions. It is also understood that the Agent may
directly credit or charge fees to Customers in connection with an investment in
the Funds. The Agent shall credit or bill Customers directly for such credits or
fees. In the event the Agent charges Customers such fees, it shall make
appropriate prior written disclosure (such disclosure to be in accordance with
all applicable laws) to Customers both of any direct fees charged to the
Customer and of the fees received or to be received by it from the Company
pursuant to Section 3.1 of this Agreement. It is understood, however, that in no
event shall the Agent have recourse or access as Agent or otherwise to the
account of any shareholder of the Company except to the extent expressly
authorized by law or by such shareholder, or to any assets of the Company,
<PAGE> 3
for payment of any direct fees referred to in this Section 3.2.
4. Approval of Materials to be Circulated. Advance copies or proofs of
all materials that are to be generally circulated or disseminated by the Agent
to Customers or prospective Customers that identify or describe the Company
shall be provided to the Company at least 10 days prior to such circulation or
dissemination (unless the Company consents in writing to a shorter period), and
such materials shall not be circulated or disseminated or further circulated or
disseminated at any time after the Company shall have given written notice to
the Agent of any objection thereto.
The Agent is not authorized to make any representations concerning
_____________________ or the Company except those contained in the current
Prospectus for the Funds, or in such supplemental literature or advertising as
may be authorized by _____________________ in writing.
Nothing in this Section 4 shall be construed to make
_____________________ or the Company liable for the use of any information about
the Company which is disseminated by the Agent.
5. Compliance with Laws. The Agent shall comply with all applicable
federal and state laws and regulations in the performance of its duties under
this Agreement, including securities laws.
6. Limitations of Shareholder, Officer and Board Member Liability. The
Agent hereby agrees that obligations assumed by _____________________ pursuant
to this Agreement shall be limited in all cases to _____________________ and its
assets and that the Agent shall not seek satisfaction of any such obligation
from the shareholders or any shareholder of the Company. It is further agreed
that the Agent shall not seek satisfaction of any such obligations from the
Board Members, any individual Board Member or any officer of the Company.
7. Notices. All notices or other communications hereunder to either
party shall be in writing or by confirming telegram, cable, telex or facsimile
sending device. Notices shall be addressed: (a) if to
[name and address],
Attention: [ ];
and (b) if to the Agent,
[name and address],
Attention: [ ].
8. Further Assurance. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
<PAGE> 4
9. Termination. This Agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Qualified Board Members or
by vote of a majority of the outstanding voting securities of the Company, on
not more than 60 days' written notice to any other party to this Agreement. This
Agreement shall terminate automatically in the event of its assignment, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"). As
used in this Agreement, "Qualified Board Members" means the Board Members of the
Company who are not "interested persons," as that term is defined in the 1940
Act, of the Company and have no direct or indirect financial interest in the
operation of the Service Plans, or in any agreements related to the Service
Plan.
10. Changes; Amendments. This Agreement may be changed or amended only
by written instrument signed by both parties.
11. Reports. The Agent will provide _____________________ or its
designees such information as _____________________ or its designees may
reasonably request (including, without limitation, periodic certifications
confirming the provision to Customers of the services described herein), and
will otherwise cooperate with the Company and its designees (including, without
limitation, any auditors designated by the Company), in connection with the
preparation of reports to the Company's Board Members concerning this Agreement
and the monies paid or payable under this Agreement, as well as any other
reports or filings that may be required by law.
12. Independent Contractor/Liabilities. For purposes of this Agreement,
the Agent will be deemed to be an independent contractor, and will have no
authority to act as agent for _____________________ or the Company in any matter
or in any respect. By the Agent's written acceptance of this Agreement, the
Agent agrees to and does release, indemnify and hold harmless
_____________________ and the Company from and against any and all direct or
indirect liabilities or losses resulting from requests, directions, actions or
inactions of or by the Agent or its officers, employees or agents regarding its
responsibilities hereunder or the purchase, redemption, transfer or registration
of Shares by or on behalf of Customers.
13. Governing Law. This Agreement with respect to shares of a Fund of
HT Insight Funds, Inc. shall be governed by the laws of the State of Maryland
and with respect to shares of a Fund of Harris Insight Funds Trust shall be
governed by the laws of the Commonwealth of Massachusetts.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
<PAGE> 5
By:
Title:
By:
Title:
<PAGE> 1
EXHIBIT 15(a)
SERVICE PLAN DATED NOVEMBER 18, 1997 RELATING TO CLASS A SHARES
HT INSIGHT FUNDS, INC.
HARRIS INSIGHT FUNDS TRUST
SERVICE PLAN
This Service Plan (the "Service Plan") is adopted by HT Insight Funds,
Inc. d/b/a/ Harris Insight Funds, a Maryland corporation, and Harris Insight
Funds Trust, a Massachusetts business trust (collectively referred to as the
"Company"), on behalf of the Harris Insight Money Market Fund, Harris Insight
Government Money Market Fund, Harris Insight Tax-Exempt Money Market Fund,
Harris Insight Equity Fund, Harris Insight Short/Intermediate Bond Fund, Harris
Insight Convertible Fund, Harris Insight Equity Income Fund, Harris Insight
Growth Fund, Harris Insight Small-Cap Opportunity Fund, Harris Insight Index
Fund, Harris Insight International Fund, Harris Insight Balanced Fund, Harris
Insight Convertible Securities Fund, Harris Insight Bond Fund, Harris Insight
Intermediate Government Bond Fund, Harris Insight Tax-Exempt Intermediate Bond
Fund, Harris Insight Tax-Exempt Bond Fund, Harris Insight Small-Cap Value Fund
and Harris Insight Emerging Markets Fund (each, a "Fund" and collectively, the
"Funds"), each of which is a portfolio of the Company subject to the following
terms and conditions:
SECTION 1. COMPENSATION.
Any officer of the Company is authorized to execute and deliver, in the
name and on behalf of the Company, written agreements in substantially the form
attached hereto or in any other form duly approved by the Board Members of the
Company ("Servicing Agreements") with financial institutions such as banks,
securities dealers or other industry professionals, such as investment advisers,
accountants, and estate planning firms ("Service Organizations") of each Fund's
Class A Shares. Such Servicing Agreements shall require the Service
Organizations to provide services on behalf of the applicable Fund as set forth
therein to their customers who beneficially own Class A Shares in consideration
of fees, computed daily and paid monthly in the manner set forth in the
Servicing Agreements, at an annual rate of 0.25% of the average daily net asset
value of Class A Shares held by a Service Organization on behalf of its
customers. Such Servicing Agreements shall also require a
<PAGE> 2
Service Organization to agree that it would waive such portion of any payments
made to it pursuant to the relevant Servicing Agreement to the extent necessary
to assure that payments, if any, required to be accrued by any class of Fund
shares on any day do not exceed the income to be accrued to such class on that
day. All expenses incurred by the Company in connection with a Servicing
Agreement and the implementation of this Service Plan with respect to a
particular class of shares of a Fund shall be borne entirely by the holders of
that class of shares of that Fund.
SECTION 2. PAYMENTS BY THE FUNDS' DISTRIBUTOR, INVESTMENT
ADVISER AND/OR PORTFOLIO MANAGEMENT AGENT.
Pursuant to the Service Plan, the Funds' distributor, investment
adviser and/or portfolio management agent may provide payments to Service
Organizations for providing the various services described in Servicing
Agreements. Payments made by the Funds' distributor, investment adviser and/or
portfolio management agent, respectively, shall be made from their own
resources.
SECTION 3. APPROVAL BY SHAREHOLDERS.
The Service Plan will not take effect with respect to a Fund, and no
fee will be payable in accordance with Section 1 of the Service Plan, until the
Service Plan has been approved by a vote of at least a majority of the
outstanding voting securities of the Fund.
SECTION 4. APPROVAL BY BOARD MEMBERS.
Neither the Service Plan nor any related agreements will take effect
with respect to a Fund until approved by a majority vote of both (a) the full
Board Members of the Company and (b) those Board Members who are not interested
persons of the Company and who have no direct or indirect financial interest in
the operation of the Service Plan or in any agreements related to it (the
"Independent Board Members"), cast in person at a meeting called for the purpose
of voting on the Service Plan and the related agreements.
SECTION 5. CONTINUANCE OF THE SERVICE PLAN.
The Service Plan will continue in effect from year to year with respect
to a Fund, so long as its continuance is specifically approved annually by vote
of the Company's Board Members in the manner described in Section 4 above.
SECTION 6. TERMINATION.
The Service Plan may be terminated with respect to a Fund at any time,
without penalty, by vote of a majority of the Independent Board Members or by a
vote of a majority of the outstanding voting securities of the Fund.
<PAGE> 3
SECTION 7. AMENDMENTS.
The Service Plan may not be amended with respect to a Fund to increase
materially the amount of the fees described in Section 1 above, unless the
amendment is approved by a vote of a majority of the outstanding voting
securities of the Fund, and all material amendments to the Service Plan must
also be approved by the Company's Board Members in the manner described in
Section 4 above.
SECTION 8. SELECTION OF CERTAIN BOARD MEMBERS.
While the Service Plan is in effect, the selection and nomination of
the Company's Board Members who are not interested persons of the Company will
be committed to the discretion of the Board Members then in office who are not
interested persons of the Company.
SECTION 9. WRITTEN REPORTS.
In each year during which the Service Plan remains in effect with
respect to a Fund, the Company's administrator or co-administrator will prepare
and furnish to the Company's Board Members, and the Board will review, at least
quarterly, written reports that set out the amounts expended under the Service
Plan relating to the Fund and the purposes for which those expenditures were
made.
SECTION 10. PRESERVATION OF MATERIALS.
The Company will preserve copies of the Service Plan, any agreement
relating to the Service Plan and any report made pursuant to Section 9 above,
for a period of not less than six years (the first two years in an easily
accessible place) from the date of the Service Plan, agreement or report.
SECTION 11. MEANINGS OF CERTAIN TERMS.
As used in the Service Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules and regulations under the 1940 Act,
subject to any exemption that may be granted to the Company under the 1940 Act
by the Securities and Exchange Commission.
<PAGE> 4
Dated: November 18, 1997
